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New Tax Incentives   November 5, 2009
New Tax Incentives   November 5, 2009
New Tax Incentives   November 5, 2009
New Tax Incentives   November 5, 2009
New Tax Incentives   November 5, 2009
New Tax Incentives   November 5, 2009
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New Tax Incentives November 5, 2009

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  • 1. CCH Tax Briefing: Worker, HomeoWnersHip, and Business assistance act of 2009 November 5, 2009 Special Report New Law Statistics: congress extends/ expands ✔ Extended NOL Homebuyer credit and noL carryback for all businesses carryback; adds offsets T ✔ Homebuyer credit wo popular but temporary tax bridge the gap between slow win- through April 30 incentives have been given a new ter sales and what is hoped will ✔ Modified long-time lease on life as part of legislation be a more robust spring market. homeowners credit extending unemployment compensation benefits. The Worker, Homeownership, To pay for all this, the new law ✔ Mandatory e-filing and Business Assistance Act of 2009 requires electronic filing of individual ✔ Military base (H.R. 3548) has been approved by returns by all but the smallest return closure exclusion Congress and is on its way to the White preparers, delays implementation of House for President Obama’s expected worldwide interest allocation, increases ✔ Delay in worldwide signature. The Senate approved H.R. the penalties for failing to file partner- interest allocation 3548 by a 98 to 0 vote on November 4, ship and S corporation returns, and ✔ $21 billion in tax cuts followed by House passage, 403 to 12, accelerates estimated tax payments for on November 5. certain large corporations. ✔ $21 billion in revenue The first-time homebuyer credit raisers and expanded five-year net operating The new law also ex- loss (NOL) carryback, both originally tends unemployment scheduled to expire this year, have benefits by up to 14 weeks (with been extended and enhanced into six additional weeks for individu- 2010. Many homebuyers who are not als in states with high unemploy- Inside first-timers will now be eligible for a ment). However, it does not extend First-Time tax credit up to $6,500, with first-time the existing temporary exclusion homebuyers qualifying for a maximum from gross income of the first Homebuyer Credit ............... 1 $8,000 credit through at least April 30, $2,400 of unemployment benefits NOL Carryback .................... 3 2010. Similarly, nearly all businesses received in 2009. The extended will be able to take advantage of ex- unemployment benefits are paid Military Exclusion ................ 4 panded NOL carryback treatment for for by keeping the FUTA surtax. either 2008 or 2009 NOLs. The new Electronic Filing ................... 5 law also excludes from income qualified military base closure payments. FIrsT-TIme Penalties ............................. 5 HomeBuyer CredIT Corporate Estimated Tax .... 5 The availability of quick refunds from 2008 and When originally enacted, the first-time FUTA Surtax......................... 5 2009 NOL five-year carrybacks homebuyer credit reached 10 percent Worldwide Interest .............. 5 will mean a huge boost to busi- of the purchase price of a qualified resi- nesses trying to survive the short dence (for a maximum credit of $7,500) term. The housing industry also and was repayable in equal installments hopes that the homebuyer credit over 15 years. Congress subsequently will continue home sale traffic and raised the credit to a maximum to
  • 2. 2 Legislation update $8,000, set a November 30, 2009 cut- 31 of the calendar year preceding the principal residence” may be eligible off date, and generally eliminated the purchase. The first-time homebuyer for a modified credit even though they repayment requirement. credit is claimed on Form 5405. are not technically first-time homebuy- The new law not only extends the ers. The new law treats as a first-time credit, it also extends the credit to higher Amy purchases a princi- homebuyer an individual who has income taxpayers and allows a reduced pal residence on January owned and used the same residence as credit to some non-first-time homebuy- 31, 2010. If Amy elects to treat the his or her principal residence for any ers. The new law also expressly excludes five-consecutive year period during the high-end homes from the credit. previous eight-year period ending with the date on which the new residence The availability of the “The first-time is purchased. credit for higher-income homebuyer credit taxpayers and some existing hom- and expanded net This provision is aimed eowners will not be applied retro- operating loss (NOL) not only at individuals actively. These tax breaks are effec- carryback…have who are stepping-up from their first tive only for purchases made after home to a larger and more expen- the date of enactment (after the been extended and sive residence, but also at retirees president signs the bill into law). enhanced into 2010.” who are moving to more manage- able quarters. Extension. The first-time home- buyer credit was scheduled to expire Non-first-time homebuy- after November 30, 2009. The new law purchase as made on December 31, ers will benefit from the provides a new expiration date of April 30, 2009, Amy can accelerate the tax credit but at a reduced amount. 2010. If a taxpayer enters into a binding benefit by claiming the credit on her Their maximum credit will be contract before May 1, 2010, to close on 2009 return filed in 2010. Other- $6,500 rather than $8,000 ($3,250 the purchase of a principal residence be- wise, Amy will have to wait to claim for married taxpayers filing sepa- fore July 1, 2010, the credit will be treated the credit on her 2010 return filed rately rather than $4,000). as not expiring until July 1, 2010. in 2011. Income thresholds. Previously, the The first-time home- In May, the U.S. Depart- first-time homebuyer credit phased out for buyer credit may be al- ment of Housing and single individuals with modified adjusted located between two or more un- Urban Development (HUD) an- gross income (MAGI) between $75,000 married taxpayers using any nounced that taxpayers could and $95,000 and for married couples reasonable method, the IRS ex- monetize the first-time homebuyer filing joint returns with MAGI between plained in Notice 2009-12. For credit. Taxpayers financing through $150,000 and $170,000. The new law example, the credit may be allo- a state housing agency or other raises the start of the phase-out for single cated between unmarried taxpayers HUD-approved advance programs individuals to $125,000 and the start of based on their respective contribu- can monetize 100 percent of the the phase-out for married couples filing tions toward the purchase price of down payment. Taxpayers using joint returns to $225,000. the residence or their respective Federal Housing Administration ownership interests. (FHA) lenders can apply the cred- Repayment. For principal residenc- it to closing costs or make a larger es purchased in 2009 and 2010, there is Qualified buyers cannot down payment above the FHA- generally no requirement to repay the claim both the District of required 3.5 percent minimum. first-time homebuyer credit. However, Columbia first-time homebuyer HUD’s authorization for monetiz- a taxpayer may have to repay the credit credit and the general first-time ing the credit has no sunset date. if the residence ceases to be his or her homebuyer credit. principal residence within 36 months Non-first-time buyers from the date of purchase. Election. To accelerate claims for Effective for purchases after the date the credit, the new law allows taxpayers of enactment, the credit is no longer The full amount of the to elect to treat the purchase of a princi- restricted to first-time homebuyers. credit the taxpayer re- pal residence in 2009 or before the new Individuals who the new law refers ceived becomes due on the return for deadline in 2010 as made on December to as “long-time residents of the same the year in which the residence C C H T A X B r I e F I N G ©2009 CCH. All rights reserved
  • 3. 3 November 5, 2009 ceases to be the taxpayer’s principal of purchase of a principal residence. ment of additional tax without residence. Exceptions, such as death, Additionally, the new law extends the using deficiency procedures. continue to apply. first-time homebuyer credit for indi- viduals on qualified official extended Earlier this year, the IRS Purchase price. For the first time, duty outside the U.S. to purchases made cautioned that additional Congress set a ceiling on eligibility for before May 1, 2011 (or July 1, 2011, for documentation requirements could the credit based on the purchase price taxpayers with binding contracts). slow processing of the credit. of the principal residence. No credit is allowed if the purchase price of the prin- Uniformed services include NoL CArryBACK cipal residence exceeds $800,000. the U.S. Armed Forces (Army, Navy, Air Force, Marines, and The American Recovery and Reinvest- The $800,000 cap ap- Coast Guard) as well as commis- ment Act of 2009 (2009 Recovery Act) plies to purchases im- sioned corps of the U.S. Public Health allowed eligible small businesses (with mediately after the president signs Service and the National Oceanic and average gross receipts of $15 million or the new law and, therefore, may Atmospheric Administration. less) to elect to carry back net operating apply to purchases prior to No- losses (NOLs) from 2008 for three, four vember 30, 2009, as well as during Oversight. To curb abuses of the first- or five years rather than the standard two the new, extended time period. time homebuyer credit, the new law gives years. The new law provides a similar the IRS math error authority to disallow election to all U.S. businesses of every The $800,000 is a cliff the credit during processing. The new law size to carry back NOLs up to five years amount, with no gradual also expressly excludes dependents and but with a 50-percent income limit on phase out of the credit provided for related parties from claiming the credit. NOL offsets in the fifth year. higher amounts. The $800,000 cap Additionally, the taxpayer (or his or her The new, expanded election is is also applied nationwide, with no spouse) must be at least 18 as of the date available for NOLs incurred in either adjustment for regional factors. of the purchase to be eligible. All taxpay- 2008 or 2009, but not for both years. ers must attach a copy of their settlement However, an eligible small business Servicemembers agreement to their return. that elected under the 2009 Recovery The new law waives the credit recapture Act to carryback 2008 NOLs may rules for members of the U.S. uni- Math error authority, make the election for an additional formed services, Foreign Service, and which is retroactive to year, enabling the qualified small busi- intelligence community who are called April 9, 2008, allows the IRS to ness to carry back NOLs from both to duty before 36 months after the date access and send a notice of assess- 2008 and 2009 for up to five years. Timelines/Effective Dates HOMEBUYER CREDIT Purchases after Purchases after date of enactment 11/30/09 $6,500 for long-time ✔ homeowners $125K/$225K AGI limit ✔ $800K purchase price limit ✔ Extension of credit ✔ NOL CARRYBACK Tax yrs ending after Tax yrs beginning/ending 12/31/07 in 2009 2008/2009 five-year carryback ✔ Small business additional 2009 ✔ carryback C C H T A X B r I e F I N G
  • 4. 4 Legislation update before January 1, 2010. Thus, a Estimated Revenue Impact fiscal year taxpayer can make the New Law election for tax years beginning or (Millions of Dollars) ending in either 2008 or 2009. PROVISION Fiscal Years Fiscal Years The new law authorizes 2010 – 2011 2010 – 2019 the IRS to implement Homebuyer Credit - $12,715 -$10,823 election procedures. The IRS will likely follow the NOL election NOL Carryback - $27,327 - $10,407 procedures it crafted under the 2009 Base Closing Payments - $160 - $243 Recovery Act. Worldwide Interest Allocation $494 $20,123 Insurance companies. Under nor- Filing Penalties 0 $1,229 mal circumstances, insurance companies generally can carry back operating losses up to three years. The new law would This is a major expan- from 2004 through 2008. For 2009, give insurance companies a similar elec- sion of the NOL rules. Acme has a net operating loss of $100 tion to carry back NOLs from 2008 or The Joint Committee on Taxation million. Acme can elect to carry back 2009 for either four years or five years. (JCT) estimates that the new car- the 2009 NOL five years, to 2004 and The same 50-percent limit would apply ryback provisions would cost the subsequent years. For 2004, Acme can to carrybacks to an insurance company’s federal government and benefit claim an NOL deduction of 50 percent fifth year preceding the loss year. businesses by nearly $34 billion of its 2004 taxable income, or $25 AMT. The new law also suspends in 2010 (but balancing out to million. The NOL balance of $75 mil- the 90-percent income limitation on $10.4 billion over 10 years). lion can be used to fully offset Acme’s the use of NOLs for determining the 2005 income of $50 million. The re- alternative minimum tax (AMT) for an A business that carries maining NOL of $25 million can then extended carryback year. back an NOL to a prior be deducted against 2006 income, TARP restrictions. The election profitable year can obtain a quick reducing the NOL to zero. to carry back NOLs up to five years refund from the IRS for that prior is not available to companies receiv- year. This will provide additional The 50-percent limitation does not ing assistance under the Trouble Asset cash that the business can use to apply to an eligible small business that Relief Program (TARP) if the federal pay expenses, maintain opera- elected to carry back its 2008 NOL under government acquired stock (or a right tions, and make new investments. the 2009 Recovery Act. However, it does to acquire stock) in the company before apply to its 2009 NOLs. the date of enactment of the new law, An NOL is the excess of or if the federal government provides the taxpayer’s business Election. The election to take ad- funds to the company (in exchange deductions over its gross income. vantage of the new law’s NOL provision for a stock interest) after the date of Absent legislation, an NOL can must be made by the due date (including enactment of the new law. The federal generally be carried back two years extensions) for the tax return filed for mortgage agencies (Fannie Mae and and carried forward 20 years to the taxpayer’s last taxable year begin- Freddie Mac) cannot make the elec- offset taxable income. ning in 2009. Once made, the election tion. Members of an affiliated group is irrevocable. If the taxpayer had previ- containing any of these taxpayers also 50-percent limitation ously elected not to carry back an NOL are denied the election. Under the new law, an NOL carried back from a tax year ending before the date of to the fifth year before the loss year is enactment of the new law, the taxpayer mILITAry eXCLusIoN limited to 50-percent of the available tax- may revoke that election before the due able income for that year. Any remaining date (including extensions) for filing the More than 40 years ago, Congress created NOL can fully offset taxable income in taxpayer’s 2009 return. the Housing Assistance Program (HAP) the remaining four carryback years. to compensate qualified military and ci- The election is available vilian employee homeowners when base Acme Company has profits for a tax year ending after closures negatively impact the real estate of $50 million each year December 31, 2007, and beginning market. In some cases, HAP makes pay- C C H T A X B r I e F I N G ©2009 CCH. All rights reserved
  • 5. 5 November 5, 2009 ments to offset the decline in real estate Earlier this year, the duce their subsequent estimated tax values. These payments are excluded Treasury Inspector Gen- payments in 2014 by the increase. from the recipient’s gross income. The eral for Tax Administration (TIG- 2009 Recovery Act expanded HAP to TA) reported that mandatory e- fil- cover, among other things, recent base ing by preparers would increase FuTA surTAX realignment and closure actions as well e-filing by nearly 27 percent. The as members of the U.S. armed forces IRS received 156.3 million indi- The 0.20 percent FUTA (unemployment) who are relocated during the current real vidual returns in 2008. Approxi- surtax, first enacted in 1976, was most estate slowdown. The new law expands mately 58 percent were filed recently extended in the Emergency Eco- the exclusion from income to cover HAP electronically. nomic Stabilization Act of 2008 through payments under the 2009 Recovery Act. year-end 2009. The new law extends the FUTA surtax through June 30, 2011. The The provision is effec- PeNALTIes total FUTA tax on employers, therefore, tive for all HAP pay- continues to be 6.2 percent. ments made after February 17, Effective for returns for tax years begin- 2009, the effective date of the 2009 ning after December 31, 2009, the new WorLdWIde INTeresT Recovery Act. law increases the penalties for failure to file a partnership or S corporation return. Under the American Jobs Creation Act of The penalty for failure to file a partner- 2004, a worldwide affiliated group may eLeCTroNIC FILING ship return increases from $89 to $195. make a one-time election to determine Similarly, the penalty for failure to file the foreign source taxable income of the The new law significantly expands the an S corporation return increases from group by allocating and apportioning universe of e-filing by requiring indi- $89 to $195. The combined increases the domestic members’ interest expense vidual returns prepared by paid return are expected to raise approximately $1.2 on a worldwide basis, as if all members preparers to be filed electronically with billion over 10 years. of the group were a single corporation. limited exceptions. The e-file requirement However, subsequent legislation delayed applies to any return of tax imposed by the effective date of this provision until CorPorATe subtitle A on individuals, estates or trusts tax years beginning after December 31, filed after December 31, 2010. esTImATed TAX 2010. The new law delays the provision even further: until tax years beginning The new law excludes Congress passed the Corporate Estimated after December 31, 2017. This measure preparers who prepare or Tax Shift Act of 2009 (Shift Act) in July, is expected to raise approximately $20 reasonably expect to prepare fewer which revoked provisions of the Tax billion over 10 years. than 10 individual income tax re- Increase Prevention and Reconciliation turns from mandatory e-filing. Act of 2005 (TIPRA) with regard to cor- The revenue raisers in porate estimated tax payments. The Shift the new law had all been The bill maintains the Act increased estimated tax payments for expected, many having appeared current rule that re- corporations in the $1 billion-plus class in bills introduced as early as quires corporations and tax-ex- to 100.25 percent for estimated payments several years ago. The delay in empt organizations with assets of due in July, August, or September of worldwide interest allocation, $10 million or more and that file 2014. The new law increases the required however, had been used as a “pay- at least 250 returns during a cal- corporate estimated tax payments factor for” in the blended House health endar year, including income tax, for large corporations for payments due care reform bill. House Democrats information, excise tax, and em- in July, August and September 2014 by have already indicated they intend ployment tax returns, to e-file 33 percentage points. to repeal the worldwide interest their Form 1120 and 1120S in- application provision entirely as come tax returns and Form 990 The Shift Act allows well as provide for new curbs on information returns. large corporations to re- the biofuel tax credit. C C H T A X B r I e F I N G
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