The first piece of tax legislation likely to emerge from Congress in 2010 is expected to be focused on job creation. The House passed a bill at the end of 2009, and the Senate is crafting a response as we go to press. It appears unlikely at this point that the Senate will adopt the House bill.
The Senate legislation is far more than a jobs bill. In addition to provisions focused on job creation, extensions of many expiring provisions are also included in the legislation. Two key tax issues pending before Congress not included in the legislation are those addressing the estate tax and the Alternative Minimum Tax.
The Senate bill proposes two new tax provisions aimed at job creation. One is payroll tax forgiveness for hiring unemployed workers. The other is a business credit for retention of certain newly hired workers. The payroll tax forgiveness provision would run from the date of enactment to the end of 2010.
The retention credit would be $1,000 per employee. It would require that the employee be employed for not less than 52 consecutive weeks and that the wages paid for the last 26 weeks of the period are at least 80 percent of the wages paid during the first 26 weeks of the period. Some in Congress have questioned the extent to which these tax breaks will actually result in job creation; they are concerned that the provisions will just reduce federal revenues for jobs that would have been created anyway.
Less focused on job creation but focused on small businesses would be another provision to extend the higher Code Sec. 179 expensing limits for another year. Even less focused on job creation are many of the more than 300 other pages of legislative text.
The Senate proposal includes most of the regularly expiring provisions and even extensions of some of the more recent temporary provisions that had been intended to address the current recession. Among the more popular individual extenders included are the deduction for state and local sales taxes, the above-the-line deductions for teacher expenses and qualified tuition and fees, tax-free distributions from individual retirement accounts for charitable purposes, and the alternative motor vehicle credit for heavier new qualified hybrid motor vehicles.
On the business side, some of the more popular extenders included are the research credit; the new markets tax credit; the 15-year amortization of qualified leasehold and restaurant improvements; the enhanced charitable deductions for food, book and computer inventories; and the basis adjustment to stock of S corporations making charitable contributions of property. A total of 31 business extenders are included in the legislation. In addition, most of the 10 extenders related to energy also have a business or energy industry focus.
Among recent provisions enacted in response to the housing and economic crisis proposed to be extended are the additional standard deduction for state and local real property taxes, the unemployment insurance provisions, and COBRA premium assistance. More than a dozen additional extenders are health-related.
Nearly a dozen extenders included in the legislation relate to disaster relief, including national disaster relief, the New York Liberty Zone, the Go Zone from Hurricane Katrina, and Midwestern disaster areas.
None of the job creation provisions or extenders probably aroused as much controversy as some of the proposed offsets to help pay for those provisions. Included as possible offsets are disclosures with respect to beneficial owners of foreign accounts and a repeal of existing exceptions to registered bond requirements. Other provisions address disclosures with respect to foreign assets, passive foreign investment companies, and withholding on foreign transfers. Five provisions address foreign trusts.
Other offset provisions included in the legislation address the treatment of payments received by foreign persons as dividends, the taxation of "black liquor," and the codification of the economic substance doctrine.
Other principal titles included in the legislation address extensions of the surface transportation program and satellite television.
The House passed its version of a jobs bill on Dec. 16, 2009. It was a much more limited piece of legislation, with the focus on extending unemployment and COBRA benefits. The House legislation itself barely squeaked through by a vote of 217 to 212, with many Republicans objecting to the use of leftover TARP funds to finance the jobs provisions.
The Senate bill is likely to have a difficult time in the Senate, just as the House bill had a fairly close vote. Modifications may be necessary to secure Senate passage. Then, further modifications are likely in conference to come up with a bill that can pass both houses. All of this will take time - time that will not be available to address health care, the estate tax and the AMT.
Congress is interested in giving the extenders, the estate tax and the AMT patch retroactive effect to the beginning of the year. Already, planning confusion is occurring because action has not yet been taken on some of these provisions. The mid-term elections put additional pressure on Congress to act sooner, rather than later. Yet it seems the jobs legislation is also going to eat up a good chunk of the legislative calendar.
George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst at CCH Tax and Accounting, a Wolters Kluwer business.
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