The American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)
Chapter 1: Individuals
¶126. Taxable Income and Rates.
After the sub paragraph entitled Additional Standard Deduction Amount for Casualty Losses Attributable to Federally Declared Disasters, insert the following new sub paragraph:
Additional Standard Deduction Amount for State Sales and Excise Taxes on Motor Vehicles for 2009. For taxpayers that do not itemize their deductions and purchase a new automobile between February 17 and December 31, 2009, the amount of sales and excise tax attributed to the first $49,500 of the purchase price may be added to the standard deduction amount for the taxpayer's filing status (Code Secs. 63(c) and 164, as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The amount of the additional standard deduction is phased out for high-income individuals with modified adjusted gross income (MAGI) exceeding $125,000 ($250,000 for joint filers). The amount of the deduction is reduced in the same ratio as the excess of the taxpayer's MAGI in excess of threshold amount bears to $10,000. MAGI is a taxpayer's adjusted gross increased by any amount excluded as foreign earned income, as income from a U.S. possession, or as an expense for foreign housing. This addition to the standard deduction is also coordinated with the deduction for state and local sales tax to prevent double tax benefits. See ¶1022A for a complete discussion.
Chapter 2: Corporations
¶227. Time and Amount of Installment Payments.
The estimated tax payment required to be made in July, August, or September of 2013 by a corporation with at least $1 billion in assets is increased by 0.5 percentage points to 120.25 percent of the amount otherwise due. The next required installment due in October, November, or December of 2013 is reduced to 79.75 percent of the amount otherwise due (Act Sec. 704 of the Children’s Health Insurance Program Reauthorization Act of 2009 (P.L. 111-3)).
Chapter 3: S Corporations
¶337. Tax on Built-In Gains.
For an S corporation's tax years beginning in 2009 and 2010, the recognition period for built-in gains has been shortened. Specifically, no tax will be imposed on the net built-in gain of an S corporation recognized in either of those years if the seventh tax year in the 10-year recognition period preceded that tax year (Code Sec. 1374(d)(7)(B), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The reduction in the recognition period applies separately with respect to any asset acquired in a carryover basis transaction described in Code Sec. 1374(d)(8).
Chapter 5: Trusts–Estates
¶518. Estimated Tax.
For determining the special reduced estimated tax payments for the 2009 tax year (see ¶2682), eligible trusts and estates calculate their adjusted gross income as they do for miscellaneous itemized deductions (¶528).
Chapter 7: Income
¶716. Social Security and Equivalent Railroad Retirement Benefits.
Economic Recovery Payments. Recipients of certain federal benefits, including Social Security payments, will receive a one-time economic recovery payment of $250 (Act Sec. 2201 of the Unemployed Workers and Struggling Families Act (P.L. 111-5)). To be eligible, an individual must be an adult, and during the months of November 2008, December 2008 or January 2009, the person must have been eligible to receive benefits under a "qualifying program." Such programs include Social Security benefits, Railroad Retirement Act benefits, veterans compensation or pension benefits, and supplemental Social Security benefits. The individual recipient must be a resident of the United States or certain U.S. territories. These payments are not considered gross income for income tax purposes, they are generally protected from assignment and garnishment, and they are not taken into account in computing an individual's eligibility for aid under any federal program (or any state program funded with federal funds).
¶722. Unemployment Compensation.
For tax years beginning in 2009, an individual can exclude up to $2,400 of unemployment compensation received during the year from gross income (Code Sec. 85(c), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).
¶724. Interest.
Up to $10 billion in recovery zone economic development bonds can be issued by large municipalities or counties prior to January 1, 2011 (Code Secs. 1400U-1 and 1400U-2, as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)). A recovery zone economic development bond is treated as a type of qualified bond, which entitles the entity issuing the bond to elect to receive a 45-percent tax credit for the interest paid on the bond. The provision enabling these bonds is applicable to bonds issued after February 17, 2009.
¶791. Debt Canceled.
Deferral of Discharge of Indebtedness Income Resulting From Reacquisition of Business Indebtedness. If a taxpayer elects, income arising from the discharge through reacquisition of certain indebtedness is includible in gross income ratably over a five-tax-year period Code Sec. 108(i), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)). This applies to indebtedness discharged in connection with the reacquisition in 2009 or 2010 of a corporate or business debt instrument. The discharge of indebtedness income is included in the taxpayer's income ratably over a five-year period beginning with the fifth tax year after the year of reacquisition if the reacquisition occurs in 2009, or the fourth tax year after reacquisition if the reacquisition occurs in 2010.
Chapter 8: Exclusions from Income
¶896B. COBRA Premium Assistance.
Certain employers who provide health care benefits for their employees are required to offer certain employees who leave their position with the employer the opportunity to purchase continuing coverage, known as COBRA coverage. Individuals who become eligible to elect such coverage as a result of an involuntary termination of their employment during the period beginning September 1, 2008, and ending December 31, 2009, will be required to pay only 35 percent of the premiums for the coverage. The federal government will pay the other 65 percent through employment tax credits or direct payments to the employer. This COBRA premium assistance is excluded from the former employee's income (Code Sec. 139C, as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).
Recapture of Assistance. COBRA premium assistance provided to high income taxpayers is recaptured by an increase in income tax (Act Sec. 3001(b) of the 2009 Recovery Act (P.L. 111-5)). The recapture begins for taxpayers with modified adjusted gross income exceeding $125,000 ($250,000 for married couples filing jointly) and is complete when the taxpayer's modified gross income exceeds $145,000 ($290,000 for married couples filing jointly). Although the recapture is generally treated as an increase in the income tax, it does not count as tax for purposes of the nonrefundable tax credits. Taxpayers may elect to waive the right to premium assistance and so avoid the recapture requirement.
Chapter 9: Business Expenses
¶906. Compensation for Personal Service.
Deduction limit for TARP recipients. Under the Troubled Asset Relief Program (TARP) established pursuant to the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), the federal government is authorized to purchase troubled assets from financial institutions, either through a public auction or directly from the institution. During the period in which financial assistance under the Troubled Asset Relief Program (TARP) remains outstanding, each TARP recipient will be subject to the $500,000 compensation deduction limit (Code Sec. 162(m)(5)), as well as nontax compensation standards (American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5), amending the Emergency Economic Stabilization Act of 2008 (P.L. 110-343)). Financial assistance under TARP is not treated as outstanding for a period in which the government only holds warrants to purchase common stock of the TARP recipient (2009 American Recovery and Reinvestment Act of 2009 (P.L. 111-5), amending the Emergency Economic Stabilization Act of 2008, P.L. 110.343). Under the 2009 Recovery Act, the deduction limitation under Code Sec. 162(m)(5) applies to TARP recipients. TARP recipients include any entity (not just financial institutions) that has received or will receive financial assistance under TARP (American Recovery and Reinvestment Act of 2009 (P.L. 111-5) amending the Emergency Economic Stabilization Act of 2008, P.L. 110-343). The deduction limit will apply during the period that the TARP obligation remains outstanding. There is no threshold amount of assistance an entity must receive to qualify for TARP recipient treatment for these purposes.
¶907. Golden Parachutes.
Limitation on payment. Under the Troubled Asset Relief Program (TARP) established pursuant to the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), the federal government is authorized to purchase troubled assets from financial institutions, either through a public auction or directly from the institution. If a firm sells troubled assets directly to the Treasury under the Troubled Asset Relief Program, and the government takes a "meaningful" equity or debt position in the firm as a result, the firm is required to follow certain standards that limit executive compensation, including prohibiting any golden parachute payment to senior executive officers during the period that the Secretary holds an equity or debt position in the firm. A "senior executive officer" is an individual who is one of the top five highly paid executives of a public company whose compensation is required to be disclosed pursuant to the Securities Exchange Act of 1934, and non-public company counterparts (American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).
¶970. Expenses of Earning Tax-Exempt Income.
Generally, banks, thrift institutions, and all other financial institutions may not deduct any portion of their interest expenses allocable to tax-exempt interest on obligations acquired after August 7, 1986. This includes amounts paid in respect of deposits, investment certificates, or withdrawable or repurchasable shares. However, there is a de minimis safe harbor exception to the 100-percent disallowance rule. Under this safe harbor, the portion of interest expense is allocable to investments in tax-exempt municipal bonds does not include investments in tax-exempt municipal bonds issued during 2009 and 2010 to the extent that these investments constitute less than two percent of the average adjusted bases of all the assets of the financial institution (Code Sec. 265(b)(7)(A), (B), as added by the American Recovery and Reinvestment Act of 2009). The portion of any obligation not taken into account under this rule is treated as having been acquired on August 7, 1986 (Code Sec. 291(e)(1)(B)(iv, as amended by the American Recovery and Reinvestment Act of 2009). Accordingly, the 20-percent deduction disallowance for interest on debt used by a bank to carry tax-exempt obligations applies.
"Qualified tax-exempt obligations" that are issued by a "qualified small issuer" are not taken into account as investments in tax-exempt bonds and, therefore, not subject to the 100-percent disallowance rule (Code Sec. 265(b)(3)). Instead, only 20 percent of the interest expense allocable to qualified tax-exempt obligations is disallowed (Code Sec. 265(b)(3)(A); Code Sec. 291(a)(3); Code Sec. 291(e)(1)). A "qualified small issuer" is any issuer that reasonably anticipates that the amount of its tax-exempt obligations (other than certain private activity bonds) will not exceed $30 million in 2009 and 2010 (Code Sec. 265(b)(3)(C); Code Sec. 265(b)(3)(G)(i)). A "qualified tax-exempt obligation" is a tax-exempt obligation that (1) is issued after August 7, 1986, by a qualified small issuer, (2) is not a private activity bond, and (3) is designated by the issuer as qualifying for the exception from the general rule (Code Sec. 265(b)(3)(B)).
¶999B. Empowerment Zones.
Increased Section 179 Expense Allowance. In the case of a qualifying business (Code Sec. 1397C), the basic expense allowance ( $250,000 for both 2008 and 2009 (Code Sec. 179(b)(7)>) for qualified zone property (Code Sec. 1397D) used in an empowerment zone is increased by the lesser of (1) $35,000 or (2) the cost of section 179 property which is qualified zone property placed in service during the tax year. A number of special rules apply (Code Sec. 1397A) and the increased deduction is claimed on Form 4562, Depreciation and Amortization.
¶999E. New York Liberty Zone.
Increased Code Sec. 179 Expense Allowance. The Code Sec. 179 expense allowance ($250,000 for both 2008 and 2009 (Code Sec. 179(b)(7)); is increased by the lesser of (1) $35,000 or (2) the cost of section 179 property that is qualified NYLZ property placed in service during the tax year. Only 50 percent of the cost of NYLZ property is taken into account in applying the Code Sec. 179(b)(2 investment limitation ($800,000 for both 2008 and 2009 (Code Sec. 179(b)(7)); (Code Sec. 1400L(f)).
¶999F. Temporary Bonus Depreciation.
To be eligible to claim bonus depreciation, property must be (1) eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less; (2) water utility property; (3) computer software (off-the-shelf); or (4) qualified leasehold property (Code Sec. 168(k)(2)(A)). The property generally must be purchased and placed in service during 2008 (Code Sec. 168(k)(2)(A)(ii)). Thus, the original use of the property must begin with the taxpayer and must occur after December 31, 2007, and before January 1, 2010.
¶999G. Recovery Zone Bonds.[new section]
Recovery Zone economic bond. Counties and large municipalities in States in which employment declined during 2008 are authorized to issue $10 billion in recovery zone economic development bonds prior to January 1, 2011. A recovery zone economic development bond is treated as a qualified bond for purposes of new Code Sec. 54AA(g) and Code Sec. 6431 and the applicable credit amount payable to the issuer with respect to the interest paid is 45 percent (Code Sec. 1400U-2, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
Recovery Zone facility bonds. Up to $15 billion in recovery zone facility bonds can be issued by counties or large municipalities before January 1, 2011. Recovery zone facility bonds are treated as exempt facility bonds for purposes of the tax-exemption requirements for state and local bonds (Code Sec. 1400U-3, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A recovery zone facility bond is any bond issued as part of an issue if:
- 95 percent or more of the net proceeds (as defined in Code Sec.150(a)(3)) of the issue are to be used for recovery zone property;
- the bond is issued before January 1, 2011; and
- the issuer designates the bond as a recovery zone facility bond (Code Sec.1400U-3(b)(1), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).
Chapter 10: Nonbusiness Expenses
¶1002. Standard Deduction.
For the 2009 tax year, nonitemizers may claim an additional standard deduction for sales or excise taxes on certain new vehicle purchases in 2009. See ¶126 and ¶1022A.
¶1021. Deductible Taxes.
For the 2009 tax year, taxes which may be deducted as an itemized deduction on Schedule A of Form 1040 also include state or local sales or excise taxes on certain new motor vehicles purchased in 2009 (¶1022A). However, nonitemizers may claim an additional standard deduction for sales or excise taxes on certain new vehicle purchases in 2009. See ¶126.
¶1022A. Deduction of Qualified Motor Vehicle Taxes. [new section]
Taxpayers can claim an itemized deduction for state or local sales or excise taxes paid on purchases of new (not used) automobiles, light trucks and motorcycles with a gross vehicle weight of no more than 8,500 pounds, and motor homes, but only for purchases made on or after February 17, 2009, and before January 1, 2010 (Code Sec. 164(a)(6) and (b)(6), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The deduction is not available to taxpayers who elect to deduct state and local sales taxes in lieu of state and local income taxes (¶1021) For taxpayers who do not itemize, the motor vehicle sales tax deduction can be claimed as an increase in the standard deduction. See ¶126.
Only taxes on the first $49,500 of the vehicle’s purchase price can be deducted. The deduction begins to phase-out for a taxpayer with modified adjusted gross income (MAGI) over $125,000 ($250,000 for a married couple filing jointly), and is reduced to zero when MAGI reaches $135,000 ($260,000 for joint filers). MAGI for this purpose is the taxpayer's AGI plus any excluded income of a United States citizen or resident living abroad (¶2402), and any excluded income from sources within Guam, American Samoa, the Northern Mariana Islands (¶2414) or Puerto Rico (¶2415).
Chapter 11: Losses
¶1173. Application of Net Business Loss.
In light of the special extended carryback period allowed for certain 2008 small business NOLs (see ¶1179), an application for a tentative carryback adjustment regarding an NOL for a tax year ending before February 17, 2009, is timely if filed before 60 days after that date (Act Sec. 1211(d)(2) of the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1179. Carryover and Carryback.
2008 Small Business Losses. An eligible small business can elect a three-, four- or five-year carryback period for its NOL for any tax year that ends or begins in 2008 (Code Sec. 172(b)(1)(H), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). An “eligible small business” is a one that meets a $15 million (or less) gross receipts test for the tax year in which the loss arose; the test is based on the gross receipts test in Code Sec. 448(c). The election is irrevocable, and can only be made only with respect to one tax year. The election must be made by the due date (including extensions) for filing the taxpayer's return for the tax year of the NOL. For an NOL for a tax year ending before February 17, 2009, an election is timely if made before 60 days after that date (Act Sec. 1211(d)(2) of the 2009 Recovery Act).
If an eligible taxpayer has elected to use the special extended carryback period allowed for 2008 NOLs, the special three-year carryback provision under Code Sec. 172(b)(1)(F) will not apply.
If a taxpayer has elected to waive the entire carryback period under Code Sec. 172(b)(3) for an NOL for a tax year ending before February 17, 2009, the election can be revoked before 60 days after that date (Act Sec. 1211(d)(2) of the 2009 Recovery Act);
Special rules apply for corporate equity reduction transactions (CERTs) (Code Sec. 172(b)(1)(H)(i)(II), as amended by the 2009 Recovery Act).
Chapter 13: Tax Credits.
¶1302. Child Tax Credit.
After the subhead paragraph entitled Tax Liability Limitation, insert the following new paragraph:
Modifications for 2009. The claiming of the nonrefundable portion of the child tax credit against the total of a taxpayer's regular and alternative minimum tax liability has been extended through 2009 (Code Sec. 26(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The nonrefundable credits that are not taken before determining the amount of the nonrefundable child tax credit now includes the new American opportunity tax credit (Code Sec. 25A(i)) and the new certain plug-in electric vehicle credit (Code Sec. 30) (Code Sec. 24(b)(3)(B), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
Refundable Amount of Child Tax Credit for 2009 and 2010. Effective for tax years beginning after December 31, 2008, but before January 1, 2011, the child tax credit is refundable to the extent of 15 percent of the taxpayer's earned income in excess of $3,000, up to the per child credit amount, if the taxpayer has a total tax liability (regular and alternative minimum) of less than his or her allowable child tax credit minus nonrefundable credits previously taken (Code Sec. 24(d)(4), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). In 2009 and 2010, the threshold requirements for the 15 percent of earned income refundable component of the child tax credit are: (1) a total tax liability (regular plus alternative minimum), minus nonrefundable credits previously taken, of less than the taxpayer's allowable child tax credit ($1,000 per qualifying child); and (2) earned income in excess of $3,000.
¶1303. Credits for Higher Education Tuition.
American Opportunity Tax Credit. The Hope scholarship credit has been modified effective for tax years beginning after December 31, 2008, but before January 1, 2011. The modified Hope scholarship credit is referred to as the American Opportunity Tax Credit (Code Sec. 25(i), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)). The credit amount is increased to the sum of 100 percent of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000 of qualified tuition and related expenses, for a total maximum credit of $2,500 per eligible student per year. The credit is expanded to apply to the first four years of a student's post-secondary education. The adjusted gross income (AGI) phase-out limits for taxpayers claiming the credit are also increased. The credit amount is ratably reduced by the amount bearing the same ratio to the credit as the excess of the taxpayer's modified AGI over $80,000 bears to $10,000 ($160,000 and $20,000 for joint filers). The American opportunity tax credit retains most qualification requirements and definitions for claiming the Hope credit prior to 2009. Finally, up to 40 percent of the American opportunity tax credit will be refundable with certain limitations.
¶1306. Adoption Credit.
Extension for 2009. The claiming of the adoption credit against the total of a taxpayer's regular and alternative minimum tax liabilities has been extended through 2009 (Code Sec. 26(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1307. Credit for Elective Deferrals and IRS Contributions (Retirement Savings Contributions Credit).
Extension for 2009. The claiming of the retirement saving contribution credit against the total of a taxpayer's regular and alternative minimum tax liabilities has been extended through 2009 (Code Sec. 26(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1308. Mortgage Interest Credit.
Extension for 2009. The claiming of the mortgage interest credit against the total of a taxpayer's regular and alternative minimum tax liabilities has been extended through 2009 (Code Sec. 26(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1310. Credit for First-Time Homebuyer in the District of Columbia.
Modifications for 2009.The claiming of the District of Columbia first-time homebuyer credit against the total of a taxpayer's regular and alternative minimum tax liabilities has been extended through 2009 (Code Sec. 26(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). In addition, for a home purchased between January 1 and November 30, 2009, where the taxpayer qualifies to claim the first-time homebuyer credit under Code Sec. 36, must claim the Code Sec. 36 credit (Code Sec. 36, as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1310B. First-Time Homebuyer Credit.
First-Time Homebuyer Credit for 2009. Effective for residential property purchased after December 31, 2008, the first-time homebuyer credit increases to $8,000 ($4,000 of married filing separately), the purchase date is extend through November 30, 2009, and recapture is waived unless the property is sold within 36 months of the purchase date. Additionally, the credit will be allowed to home buyers that used tax-exempt financing options and, for qualified home buyers in the District of Columbia, they must claim the credit under Code Sec. 36 rather than Code Sec. 1400C. Taxpayers may still elect to treat a purchase made in 2009 as having been completed on December 31, 2008, but the restriction for purchases completed prior to January 1, 2009, will apply except for the repayment provision.
¶1310C. Making Work Pay Credit. [new section]
The American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5) created a new refundable credit; the Making Work Pay Credit. The credit is effective for tax years beginning after December 31, 2008, and before January 1, 2010, and is applied against the income tax liability imposed by Subtitle A of the 1986 Internal Revenue Code (Code Sec. 36A, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The credit amount is equal to the lesser of (1) 6.2 percent of the taxpayer's earned income, or (2) $400 ($800 for joint filers). The credit will be phased out for single taxpayers with a modified adjusted gross income (MAGI) that exceeds $75,000 ($150,000 for joint filers) at the rate of two percent of the excess MAGI over the threshold amount. Modified adjusted gross income is adjusted gross income increased by excluded foreign earned income, U.S. possessions income and housing allowance. All taxpayers are eligible for the credit except for: nonresident aliens, taxpayer's who can be claimed as a dependent on another taxpayer's return, an estate or trust, or on a return where the taxpayer fails to include their Social Security number. The making work pay credit amount is to be coordinated with to other governmental benefits to avoid any negative impact on those benefits and with the income tax codes of the U.S. possessions to prevent any double benefits.
¶1310D. $250 Credit for Government Retirees. [new section]
Certain government retirees can claim a refundable $250 tax credit for their first tax year beginning in 2009. The credit increases to $500 on a joint return if both spouses are eligible (Act Sec. 2202(a) of the Assistance for Unemployed Workers and Struggling Families Act (P.L. 111-5). To be eligible to claim the credit, a person must: (1) during his or her first tax year beginning in 2009, have received some amount as a pension or annuity for service performed in the employ of the United States, any state, or any instrumentality thereof, which is not considered employment for purposes of the Federal Insurance Contributions Act (FICA), (2) have not received an economic recovery payment during the tax year, and (3) include his or her social security number (a joint return must include the social security number of at least one of the spouses).
¶1313. Nonbusiness Energy Property Credit.
Modification To and Extension Of Nonbusiness Energy Credit. The nonbusiness energy property credit is extended to include qualifying property placed in service in 2010 (Code Sec. 25C(g)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The credit amount is also increased to 30 percent of the sum of the amount paid or incurred by an individual for qualified energy efficiency improvements and residential energy property expenditures in both 2009 and 2010 (Code Sec. 25C(a), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
In addition, the nonbusiness energy property credit limitation is increased to $1,500 over both tax years (Code Sec. 25C(b), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)) and the specific property sub-limits have been eliminated. Finally, new energy efficient standards are imposed on property placed in service after February 17, 2009. A new election has been added which allows a taxpayer to claim the energy credit portion of the investment tax credit in lieu of the nonbusiness energy credit. See ¶1351 for a more detailed discussion.
¶1314. Residential Energy Efficient Property Credit.
Maximum Credit Amount Limitation Eliminated Beginning in 2009. The residential alternative energy annual credit maximums of $2,000 for solar hot water heaters, $500 for each half kilowatt of electric capacity generated by a wind turbine (not to exceed $4,000 annually), and $2,000 for geothermal heat pumps are eliminated for tax years beginning after December 31, 2008, and before January 1, 2017 (Code Sec. 25D(b)(1) and (e)(4), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). However, the maximum annual credit for each half kilowatt of electricity from fuel cell plants remains at $500. The rule that any expenditures made with funds obtained from subsidized energy financing are ineligible for the residential alternative energy credit has also been eliminated (Code Sec. 25D(e), as amended by the
American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A new election has been added which allows a taxpayer to claim the energy credit portion of the investment tax credit in lieu of the residential energy efficient property credit. See ¶1351 for a more detailed discussion.
¶1315. Alternative Motor Vehicle Credit.
New Component Beginning in 2009. A new credit is available for the conversion of existing motor vehicles to qualified plug-in electric vehicles after February 17, 2009 (Code Sec. 30B(a)(5), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). See ¶1315E for a complete discussion.
Maximum Credit Limitation Modification Beginning in 2009. Effective for tax years beginning after December 31, 2008, and before January 1, 2011, the alternative motor vehicle tax credit will be treated as a nonrefundable personal tax credit. This means that it can be used to offset both the regular tax and alternative minimum tax (AMT) liabilities to the same extent as other nonrefundable personal credits (Code Sec. 30B(g)(2)(A), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1315E. Plug-In Electric Drive Motor Vehicle Conversion Credit. [new section]
A credit is available to taxpayers for the cost of converting an existing motor vehicle into a "qualified plug-in electric drive motor vehicle" for property placed in service after February 17, 2009 (Code Sec. 30B(a)(5) and (i), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The plug-in conversion credit is equal to 10 percent of the cost of converting the vehicle, up to $40,000, for a maximum credit of $4,000, but will not apply to conversions made after December 31, 2011. The plug-in conversion credit is treated as part of the alternative motor vehicle credit and may be claimed even if another alternative motor vehicle credit under Code Sec. 30B was claimed for the same motor vehicle in any preceding tax year.
¶1316. Alternative Fuel Vehicle Refueling Property Credit.
At the end of ¶1316, add the following new paragraph:
Percentage and Limitation Increases Beginning in 2009.The credit percentage of the alternative fuel vehicle refueling property tax credit for installation of non-hydrogen related property is increased to 50 percent for property placed in service in tax years beginning after December 31, 2008, and before January 1, 2011 (Code Sec. 30C(e)(6), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). For non-hydrogen related property subject to an allowance for depreciation, the maximum dollar limitation of the credit increases to $50,000 for all qualified alternative fuel vehicle refueling property that the taxpayer places in service at a location during the designated period. For non-hydrogen related property not subject to depreciation rules, the maximum dollar amount of the credit is increased to $2,000 for property placed in service during the designated period (Code Sec. 30C(e)(6)(A)(iii), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The credit percentage remains the same at 30 percent for hydrogen-related property placed in service after December 31, 2008, and before January 1, 2011, but the maximum dollar limitation of the credit for such property, if it is subject to an allowance for depreciation, is increased to $200,000.
¶1318A. New Qualified Plug-In Electric Drive Motor Vehicles (After 2009). [new section]
The American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5) overhauls the qualified plug-in electric drive motor vehicle credit and makes the credit permanent effective for vehicle acquired after December 31, 2009 (Code Sec. 30D, as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5). Key changes are: (1) the battery capacity for claiming an additional credit amount increases from 4 kilowatt hour capacity to a 5 kilowatt hour capacity; (2) the gross vehicle weight limit is fixed at less than 14,000 pounds; (3) the maximum credit amount is reduced to $7,500; and (4) the phase out of the credit will begin after the 200,000 units are sold.
¶1321A. Plug-In Electric Vehicle Credit. [new section]
The American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5) adds a new credit against tax that is generally modeled on the plug-in electric drive motor vehicle credit in Code Sec. 30D, as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5) (Code Sec. 30, as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The new law provides a credit for 10% of the cost of acquiring certain electrically powered two-wheeled, three-wheeled and low-speed vehicles. To qualify for the credit, which is capped at $2,500, a vehicle must be a "qualified plug-in electric vehicle." The credit is available for the tax year in which the qualifying vehicle is put into service. Note, however, that a taxpayer may elect not to have the credit apply (Code Sec. 30(a), (b), and (e)(6), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1334. Low-Income Housing Credit.
Grant Election for 2009. The Secretary of the Treasury is authorized to make grants to states in an amount equal to each state's low-income housing grant election amount, in lieu of low-income housing credit allocations for 2009. The otherwise applicable low-income housing credit ceiling for any state for 2009 will be reduced by the amount taken into account in determining the amount of the grant (Act Sec. 1602(a) of the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1335. New Markets Tax Credit.
National Limitation Increased for 2008 and 2009. For calendar years 2008 and 2009, the maximum amount of qualified equity investments that can be made is increased by $1.5 billion (to $5 billion for each year) (Code Sec. 45D(f)(1)(E) and (F), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The additional amount for 2008 must be allocated in accordance with Code Sec. 45D(f)(2) to qualified community development entities (CDEs) that submitted an allocation application for calendar year 2008 and either (1) did not receive an allocation for that year, or (2) received an allocation for that year in an amount less than the amount requested in the application.
¶1339. Credit for Electricity Produced from Renewable Sources.
Placed in Service Dates Modified and Extended. The placed-in-service date for purposes of the renewable electricity production tax credit in the case of a qualified wind facility is extended for three years, through December 31, 2012 (Code Sec. 45(d)(1), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The placed-in-service dates for closed- and open-loop biomass, geothermal, landfill gas, trash, and qualified hydropower facilities also are extended for three years, through December 31, 2013. The placed-in-service date for marine and hydrokinetic renewable energy facilities has been extended for two years, through December 31, 2013 (Code Sec. 45(d)(2), (3), (4), (6), (7), (9), and (11)(B), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). In addition, the termination placed-in-service date for small irrigation power facilities is amended to before October 3, 2008 (Code Sec. 45(d)(5), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). This has been done to correct an overlap of placed-in-service dates now that a qualifying facility for marine and hydrokinetic renewable energy includes irrigation systems. In addition, the Act authorizes the issuance of grants for placing in service certain energy property in 2009 or 2010. For a more complete discussion, see ¶1351.
¶1342. Work Opportunity Tax Credit.
New Targeted Groups for 2009 and 2010. Unemployed veterans or disconnected youth who begin work for an employer after December 31, 2008, and before January 1, 2011, will be treated as members of a targeted group for whom the employer may claim the work opportunity tax credit (Code Sec. 51(d)(14)(A), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). An unemployed veteran includes any individual who is certified by the designated local agency as: (1) having served on active duty in the Armed Forces for more than 180 days or having been discharged or released from active duty in the Armed Forces for a service-connected disability; (2) having been discharged or released from active duty in the Armed Forces at any time during the five-year period ending on the hiring date; and (3) having received unemployment compensation under state or federal law for at least four weeks during the one-year period ending on the hiring date. Disconnected youth group includes any individual certified by the designated local agency as: (1) having attained age 16, but not age 25, on the hiring date; (2) not regularly attending school secondary, technical, or post-secondary school during the six-month period preceding the hiring date; (3) not being regularly employed during the six-month preceding the hiring date; and (4) not being readily employable due to the lack of a sufficient number of basic skills.
¶1344O. Carbon Dioxide Capture Credit.
Modification of Credit Amount and Termination. Effective for carbon dioxide captured after February 17, 2009, the credit is modified to require that carbon dioxide used as a tertiary injectant and otherwise eligible for the $10 per metric ton credit must be disposed of in secure geologic storage in order to qualify for the credit (Code Sec. 45Q(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). In addition, the Department of Energy and the Department of the Interior are added to the list of government entities responsible for establishing regulations for determining adequate security measures for geological carbon dioxide storage. Finally, the 75 million metric tons of carbon dioxide limit that causes the credit to sunset now applies to captured carbon dioxide that is claimed under the credit (Code Sec. 45Q(e), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1345. Investment Credit Components.
New Component Added. A new component of the investment credit is available for investment in advanced energy facilities (Code Sec. 48C(a), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). For a complete discussion, see ¶1355A.
¶1351. Energy Credit.
Repeal of Certain Credit Limitation. The $4,000 credit cap applicable to qualified small wind energy property has been eliminated for periods after December 31, 2008, thus allowing an uncapped 30 percent credit to be claimed for such property (Code Sec. 48(c)(4), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
Elimination of the Basis Reduction for Subsidized Financing. The rule that reduces the basis of the property for purposes of claiming the energy credit if the property is financed in whole or in part by subsidized energy financing or with proceeds from private activity bonds is also eliminated for periods after December 31, 2008 (Code Sec. 48(a)(4)(D), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The basis reduction rule continues to apply for purposes of the qualifying advanced coal project credit and the qualifying gasification project credit.
New Investment Credit Election. A taxpayer may make an irrevocable election to treat certain qualified property that is part of a qualified investment credit facility placed in service after December 31, 2008, and before January 1, 2014, as energy property eligible for a 30-percent investment credit under Code Sec. 48(a)(5) (as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). If the election is made, no production credit will be allowed under Code Sec. 45 (renewable electricity production credit) for any tax year with respect to any qualified investment credit facility. For purposes of the credit, qualified investment credit facilities are facilities otherwise eligible for the renewable electricity production credit with respect to which no credit under renewable electricity production has been allowed. Qualified facilities (within the meaning of Code Sec. 45) include those producing electricity using wind, closed-loop biomass, open-loop biomass, geothermal energy, landfill gas, municipal solid waste (trash), hydropower, or marine and hydrokinetic renewable energy. In order to qualify for the election, wind facilities must be placed in service after December 31, 2008 and before January 1, 2013. All other facilities must be placed in service after December 31, 2008 and before January 1, 2014 in order to qualify.
Coordination With Grants Authorized for 2009 and 2010. The Secretary of Treasury is authorized to provide a grant to each person who places into service specified energy property that is either: (1) an electricity production facility otherwise eligible for the renewable electricity production credit under Code Sec. 45, or (2) qualifying property otherwise eligible for the energy investment credit under Code Sec. 48 (Act Sec. 1603(a) of the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5). Applications must be received by the Secretary of the Treasury by October 1, 2011, for the grant to be made. The specified property must be placed in service either during 2009 or 2010, or after 2010 but before the credit termination date for such property if construction for the property began during 2009 or 2010. The amount of the grant will be an applicable percentage of the basis of the specified energy property placed into service. The applicable percentage is 30 percent for qualified facilities, qualified fuel cell property, solar property, and qualified small wind energy property. For any other property, the applicable percentage is 10 percent. However, in the case of qualified fuel cell property, qualified microturbine property, or combined heat and power system property, the amount of the grant cannot exceed the credit limitation established, respectively, with respect to such property under Code Sec. 48.
1355A. Advanced Energy Project Credit. [new section]
A tax credit is allowed equal to 30 percent of a taxpayer's qualified investment for the tax year with respect to any qualifying advanced energy project of the taxpayer (Code Sec. 48C, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The credit is part of the investment credit and the basis of any property that is part of a qualifying advanced energy project is included in the credit base for purposes of applying the investment credit at-risk limitation rules under Code Sec. 49. The credit is not allowed for any qualified investment for which a credit is also allowed for the energy credit, the qualifying advanced coal project credit, or the qualifying gasification project credit.
A qualified investment for any tax year is the basis of eligible property placed in service during that tax year that is part of a qualifying advanced energy project (Code Sec. 48C(b)(1), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). For this purpose, a taxpayer can elect to increase the amount of its qualified investment for the tax year by its qualified progress expenditures made during the year (Code Sec. 48C(b)(2), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). Qualified progress expenditures are amounts paid (paid or incurred in the case of self-constructed property) during the year for the construction of eligible property which has a normal construction period of at least two years and a useful life of seven years or more. However, no qualified progress expenditures may be taken into account in the tax year the property is placed in service. In addition, the credit amount with respect to any qualifying advanced energy project for all tax years cannot exceed the amount designated by the Secretary of Treasury as eligible for the credit (Code Sec. 48C(b)(3), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
A qualifying advanced energy project is a project that re-equips, expands, or establishes a manufacturing facility for the production of: (1) property designed to be used to produce energy from the sun, wind, or geothermal deposits (within the meaning of Code Sec. 613(e)(2)) or other renewable resources; (2) fuel cells, microturbines, or an energy storage system for use with electric or hybrid-electric motor vehicles; (3) electric grids to support the transmission of intermittent sources of renewable energy, including storage of such energy; (4) property designed to capture and sequester carbon dioxide emissions; (5) property designed to refine or blend renewable fuels or to produce energy conservation technologies (including energy-conserving lighting technologies and smart grid technologies); (6) new qualified plug-in electric drive motor vehicles, qualified plug-in electric vehicles, or components which are designed specifically for use with such vehicles, including electric motors, generators, and power control units; or (7) other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary of Treasury (Code Sec. 48C(c)(1)(A)(i), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). Any portion of the qualified investment in the qualifying project must be certified by the Secretary of Treasury as eligible for the credit (Code Sec. 48C(c)(1)(A)(ii), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A qualifying project does not include any portion of a project for the production of any property used in the refining or blending of any transportation fuel (other than renewable fuels) (Code Sec. 48C(c)(1)(B), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
For purposes of the credit, eligible property is any property (1) that is necessary for the production of property described above; (2) that is tangible personal property or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified investment credit facility; and (3) with respect to which depreciation (or amortization in lieu of depreciation) is allowable (Code Sec. 48C(c)(2), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
In determining which qualifying advanced energy projects to certify, the Treasury Secretary will take into consideration only those projects where there is a reasonable expectation of commercial viability. In addition, the Treasury Secretary will consider which projects (1) will provide the greatest domestic job creation (both direct and indirect) during the credit period; (2) will provide the greatest net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases; (3) have the greatest potential for technological innovation and commercial deployment; (4) have the lowest levelized cost of generated or stored energy, or of measured reduction in energy consumption or greenhouse gas emission (based on costs of the full supply chain); and (5) have the shortest project time from certification to completion (Code Sec. 48C(d)(3), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). Upon making certification, the Secretary of Treasury will publicly disclose the identity of the applicant and the amount of the credit with respect to that applicant (Code Sec. 48C(d)(5), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1356. Investment Credit At-Risk Limitation.
New Component Added to Credit Base. Effective after February 17, 2009, the basis of a qualifying advanced energy project is included in the credit base for purposes of applying the investment credit at-risk limitation rules (Code Sec. 49(a)(1)(C)(v), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1371. Credit Limits.
Extension of the Use of Nonrefundable Personal Credits Against AMT. For tax years beginning in 2009, the nonrefundable personal tax credits are allowed to the full extent of the taxpayer's regular tax and AMT liability. For this purpose, the regular tax liability is first reduced by the amount of any applicable foreign tax credit (Code Sec. 26(a)(2), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5).
¶1375. Earned Income Credit.
Increase in the Earned Income Tax Credit for 2009 and 2010. For tax years beginning after December 31, 2009, and before January 1, 2011, the applicable credit percentage for taxpayers with three or more qualifying children is 45 percent (up from 40 percent) (Code Sec. 32(b)(3)(A), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). Also, the phaseout amount is increased by $5,000 for joint filers, regardless of the number of qualifying children. This $5,000 amount is adjusted for inflation for tax years beginning in 2010 (Code Sec. 32(b)(3)(B), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1377. Health Insurance Costs Credit.
Modification to Health Coverage Credit Beginning in 2009. A number of changes have been made to the Health Coverage Tax Credit (HCTC) in order to make the credit more favorable for eligible individuals and their qualifying family members. The following modifications are made to the credit and do not extend beyond 2010: (1) increased credit amount to 80 percent of the premium amounts in eligible coverage months after April 2009 but before January 2011; (2) retroactive payments allowed for premiums paid before advance payment of credit begins; (3) expanded eligibility for the credit and types of coverage; (4) favorable pre-certification rule for determining a 63-day lapse in coverage; (5) enhanced notice requirements; and (6) surveys, studies and reports to assess the credit (Code Secs. 35 and 7527, as amended by the TAA Health Coverage Improvement Act of 2009 (P.L. 111-5); Act Sec. 1899L of the TAA Health Coverage Act of 2009 (P.L. 11-5)). Finally, these changes are coordinated with COBRA premium assistance provision to prevent double benefits (Code Sec. 139C, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1385B. Clean Renewable Energy Bond Credit.
Increased Allocation Authorized. The new clean renewable energy bonds (CREBs ) program is expanded, increasing the national limitation on the issuance of new clean renewable energy bonds by an additional $1.6 billion, to finance qualified renewable energy facilities that generate electricity. Up to one-third of the $1.6 billion authorized will be available to qualifying public power providers; up to one-third will be available to qualified projects of governmental bodies (including state or Indian tribal governments, or any political subdivision thereof); and up to one-third will be available to qualifying projects of electric cooperative companies. The increase will be allocated among qualified projects of governmental bodies and cooperative electric companies by the Secretary in a manner deemed appropriate by the Secretary (Code Sec. 54C(c)(4), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1385C. Qualified Energy Conservation Bonds.
Increased Allocations for Green Community Bonds. The qualified energy conservation bond program is expanded, increasing the national limitation on the issuance of qualified energy conservation bonds by an additional $2.4 billion (raising the cap from $800 million to $3.2 billion) to finance state, local, and tribal government qualified energy conservation programs that are aimed at reducing greenhouse gas emissions (Code Sec. 54D(d), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The definition of "qualified conservation purpose" is broadened to include the use of loans, grants or other repayment mechanisms to implement green community programs (Code Sec. 54D(f)(1)(A)(ii), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). Another limitation on qualified energy conservation bonds, the restriction on private activity bonds, is removed for bonds issued for the purpose of providing loans, grants, or other repayment mechanisms for capital expenditures to implement green community programs. Accordingly, such bonds will not be treated as private activity bonds nor be subject to the private activity bond allocation restriction (Code Sec. 54D(e)(4), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1385D. Qualified Zone Academy Bond Credit.
Extension and Expansion for 2009 and 2010. The new law has extended the authority of state and local governments to issue qualified zone academy bonds (QZAB) for one additional year through 2010. The new law allows $1.4 billion of QZAB issuing authority to state and local governments in 2009 and 2010, which can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy (Code Sec. 54E(c)(1), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1385E. Qualified School Construction Tax Credit Bonds. [new section]
The American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5) authorizes the issuance of a new type of tax credit bond called "qualified school construction bonds" during 2009 and 2010 (Code Sec. 54F, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). These tax credit bonds must satisfy the requirements relating to expenditures, reporting, arbitrage, maturity and conflicts of interest under Code Sec. 54A (Code Sec. 54A(d)(1)(E), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A bond is a qualified school construction bond if: (1) 100 percent of the available project proceeds of the issue of which it is a part are to be used for the construction, rehabilitation, or repair of a public school facility or to acquire land on which a facility funded by the same issue is to be built; (2) the bond is issued by a state or local government within the jurisdiction of which the school is located; and (3) the issuer designates the bond as a qualified school construction bond (Code Sec. 54F(a), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The national volume cap for these bonds is $11 billion for 2009 and another $11 billion for 2010 (Code Sec. 54F(c), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The volume cap is to allocated using a complex formula for each calendar year between the states, U.S. possessions and school districts (Code Sec. 54F(d), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A separate and additional volume limit of $200 million each year applies for the issuance of qualified school construction bonds to finance construction, repair and rehabilitation of schools funded by the Bureau of Indian Affairs (Code Sec. 54F(d)(4), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
¶1386. Build America Bonds. [new section]
The American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5) allows state and local governments to issue taxable build America bonds, which provide the bondholder with both taxable interest and a tax credit (Code Sec. 54AA, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A build America bond is any obligation, other than a private activity bond, that meets these three requirements: (1) the bond must be issued before January 1, 2011; (2) the issuer must make an irrevocable election to have Code Sec. 54AA apply to the bond; and (3) but for that election, the interest on the bond would have been excludable under Code Sec. 103 (Code Sec. 54AA(d)(1), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
For purposes of the rules under Code Sec. 149(b) that exclude federally guaranteed bonds from the category of tax-exempt bonds, build America bonds are not treated as federally guaranteed by virtue of their cash payment or credit features. Also, for purposes of the rules under Code Sec. 148 that exclude arbitrage bonds from the category of tax-exempt bonds, the yield on build America bonds must be determined without regard to the credit. Finally, build America bonds cannot have an issue price that has more than a de minimis amount of premium over the stated principal amount of the bond (a de minimis amount is generally ¼ of one percent of the stated redemption price at maturity, multiplied by the number of years to maturity) (Code Sec. 54AA(d)(2), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
Unlike tax credit bonds, which provide a tax credit in lieu of interest payments, build America bonds pay interest to the bondholders and also provide a tax credit. The bondholder must include the interest in gross income, but is allowed a credit against federal income tax liability for a portion of the interest payments received (Code Sec. 54AA(a) and (f)(1), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The credit is itself treated as interest that is includible in gross income (Code Sec. 54AA(f)(2), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L.111-5)). The tax credit is equal to 35 percent of the interest payable on the interest payment date of the bond (Code Sec. 54AA(b), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L.111-5)). The interest payment date is any date on which the bondholder of record is entitled to a payment of interest under the bond (Code Sec. 54AA(e), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L.111-5)).
Tax Liability Limitations. The amount of the credit cannot exceed the excess of the sum of the bondholder's regular tax liability and alternative minimum tax liability over the sum of the credits allowed under Code Secs. 21 through 54E, not including Code Secs. 31 through 37 and the build America bond credit itself. Any unused credit may be carried forward to succeeding tax years (Code Sec. 54AA(c), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L.111-5)).
Rules similar to Code Sec. 54(g), (h) and (i) apply for purposes of the credit (Code Sec. 54AA(f)(2), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L.111-5)). Thus, in the case of a build America bond held by an S corporation or partnership, the allocation of the credit to the shareholders or partners is treated as a distribution. For build America bonds held by a real estate investment trust (REIT), the credit is allowed to the respective beneficiaries (and any gross income included in income with respect to the credit is treated as distributed to them) under procedures to be prescribed by the Treasury Secretary.
Qualified bonds issued before 2011. State and local governments may elect to issue certain build America bonds as "qualified bonds" before January 1, 2011. These qualified bonds are issued in exchange for a payment credit, determined in accordance with new Code Sec. 6431 (see ¶1387 for a complete discussion). This credit to the issuer is in lieu of the credit that would otherwise be allowed to the bondholder; and is generally equal to 35 percent of the interest paid on the bond (Code Sec. 54AA(g)(1), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L.111-5)).
¶1387. Mutual Fund Election to Pass-Through Tax Credit Bond Credits. [new section]
Effective for tax years ending after February 17, 2009, regulated investment company (RIC) may elect to pass through to shareholders of the RIC credits attributable to tax credit bonds held by the RIC, replacing the required pass-through of the credits (Code Sec. 853A, as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). If the election is made, the RIC is not allowed any credits attributable to the tax credit bonds and includes in gross income, as interest, the amount of income that the RIC would have included if the election did not apply, increasing the amount of the dividends paid deduction by the same amount.
In order to qualify for the election, a RIC must hold, directly or indirectly, one or more tax credit bonds on one or more applicable dates during the tax year, and must also meet the 90 percent distribution requirements of a RIC under Code Sec. 852(a)(1). The RIC must also have been taxed as a RIC under Code Sec. 852 for all tax years ending on or after November 8, 1983, or have no accumulated earnings and profits from a tax year to which the RIC provisions did not apply.
Where the election is made, shareholders of the RIC are to include in income the shareholder's proportionate share of the interest income attributable to the credits and are simultaneously allowed the proportionate share of credits (Code Sec. 853A(b)(3), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). A RIC must report to shareholders in a written notice the shareholder's proportionate share of credits and gross income in respect of the credits not later than 60 days after the close of the RIC's tax year. The shareholder's proportionate share of credits and gross income in respect of the credits cannot exceed the amounts so designated by the RIC in the notice.
Chapter 14: Minimum Tax.
¶1405. Amount Excluded from Minimum Taxation.
For the 2009 tax year, the AMT exemption amount is $70,950 for married individuals filing a joint return and surviving spouses; $46,700 for a single individual who is not a surviving spouse; and $35,475 for a married individual filing a separate return. The AMT exemption amount of an estate or trust remains $22,500 (Code Sec. 55(d)(1), as amended by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).
¶1425. TPIs Added Back to AMTI
Substitute the following for item 3 in the list:
Tax-exempt interest (less any related expenses) on specified private activity bonds, which generally are issued after August 7, 1986; however, bonds issued in 2009 and 2010 are not private activity bonds for AMT purposes, and interest on such bonds is not a tax preference item (Code Secs. 56(g)(4)(B)(iv) and 57(a)(5)(C)(vi), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5));
Chapter 22: Corporate Acquisitions-Reorganizations-Liquidations
¶2281. Limitation on Use of Carryforwards.
Ownership changes pursuant to certain restructuring plans. The Code Sec. 382(a) limitation will not apply in the case of an ownership change occurring pursuant to a restructuring plan of a taxpayer that is:
- required under a loan agreement or a commitment for a line of credit entered into with the Department of the Treasury under the Emergency Economic Stabilization Act of 2008 (P.L. 110-343), and
- intended to result in a rationalization of the costs, capitalization, and capacity with respect to the manufacturing workforce of, and suppliers to, the taxpayer and its subsidiaries (Code Sec. 382(n)(1), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)).
This exception will also not apply in the case of:
- any subsequent ownership change unless the subsequent ownership change also meets the requirements of the exception (Code Sec. 382(n)(2), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)); or
- any ownership change if, immediately after such ownership change, any person (other than a voluntary employees' beneficiary association under Code Sec. 501(c)(9) owns stock of the new loss corporation possessing 50 percent or more of the total combined voting power of all classes of stock entitled to vote, or of the total value of the stock of such corporation (Code Sec. 382(n)(3), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)).
Chapter 26: Withholding: Estimated Tax
¶2641. Government Payments.
Applicable to payments made after December 31, 2011, the federal government, every state and local government and their political subdivisions and instrumentalities (including multi-state agencies) are required to withhold tax at the rate of three percent on certain payments to persons providing any property or services (Code Sec. 3402(t), as added by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), as amended by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)). Any payment made in connection with a government voucher or certificate program that acts as a payment for services or property is subject to the withholding requirement . Withholding is required even if the government entity making the payment is not the recipient of the property or services. The withholding requirement does not apply to payments determined by a needs or income test, such as food stamps or welfare payments.
¶2663A. COBRA Premium Assistance Reimbursement.
Applicable to premiums that are reduced for a period of coverage beginning on or after February 17, 2009, employers are reimbursed by way of a credit against payroll taxes for amounts of COBRA continuation coverage premiums not paid by involuntarily terminated employees who qualify for premium reductions (Code Sec. 6432(a), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)). Under Act Sec. 3001(a) of the 2009 Recovery Act, individuals who have been involuntarily terminated may qualify for a 65-percent subsidy for COBRA continuation premiums (or premiums for similar continuation coverage under state law) for themselves and for certain family members for up to nine months. These individuals, therefore, must pay only 35 percent of the premium. To qualify for the premium reduction, the former employee must have been involuntarily separated between September 1, 2008, and December 31, 2009.
The credit is taken on Form 941. Any employer entitled to reimbursement will be treated as having paid, on the date that the eligible individual's premium payment is received, payroll taxes in an amount equal to the unpaid portion of the premium (Code Sec. 6432(c), as added by the 2009 Recovery Act). To the extent that the amount treated as paid exceeds the amount of the employer's liability for such taxes, the employer will receive a refund or credit in the same manner as if it were an overpayment of taxes. The employer may provide the subsidy, and take the credit on its employment tax return, only after it has received the 35-percent premium payment from the individual. An employer claiming the credit must maintain supporting documentation for the credit claimed (Code Sec. 6432(e), as added by the 2009 Recovery Act).
A terminated employee or family member may exclude from gross income the 65-percent premium reduction for COBRA continuation coverage (Code Sec. 139C, as added by the 2009 Recovery Act).
¶2682. Who Should Estimate for 2009.
American Recovery and Reinvestment Tax Act of 2009. Effective for tax years beginning in 2009, estimated tax payments of “qualified individuals” may be based on 90 percent of the individual's prior year's tax liability (Code Sec. 6654(d)(1)(D), as added by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). An individual is a “qualified individual” if (1) the adjusted gross income shown on the individual's return for the preceding tax year is less than $500,000 ($250,000 for a married person filing separately in the tax year that the installment is being determined), and (2) more than 50 percent of the gross income shown on the return for the preceding tax year is from a business that employed less than 500 employees on average during the calendar year that ends with or within the preceding tax year of the individual.
Chapter 28: Penalties: Interest
¶2897. Failure to Notify Health Plan.
Applicable to failures occurring after February 17, 2009, a penalty is imposed on individuals who fail to notify health plans that they cease to be eligible for COBRA premium assistance (Code Sec. 6720C(a), as added by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5)). An individual paying a reduced premium for COBRA continuation coverage (see ¶2663A) is required to provide written notice to the group health plan of eligibility for coverage under another group health plan or Medicare. If the individual fails to provide this notification at the required time and in the required manner, and, as a result, the individual pays reduced COBRA continuation coverage premiums after the termination of the individual's eligibility for the reduction, a penalty is imposed on the individual equal to 110 percent of the premium reduction after termination of eligibility. There will be no penalty imposed for any failure to notify if it is shown that the failure is due to reasonable cause and not to willful neglect (Code Sec. 6720C(b), as added by the 2009 Recovery Act).
Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)
Chapter 21: Retirement Plans
¶2135. Required Minimum Distributions (RMDs).
For 2009, the required minimum distribution (RMD) requirements generally applicable to retirement plans are suspended with respect to certain defined contribution arrangements (Code Sec. 401(a)(9)(H), as added by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)). The suspension applies to defined contribution plans qualifying for tax-favored treatment under Code Secs. 401(a), 403(a), 403(b), or 457(b) (plans maintained by governmental employers only), and to traditional and Roth IRAs. As a result, if the plan administrator or custodian makes the appropriate changes to the plan or account documents, individual participants or beneficiaries will not be required to take any required distributions for the 2009 year. A plan can operate as though it has been amended as long as the formal amendment is made on or before the last day of the first plan year beginning on or after January 1, 2011 (January 1, 2012 for governmental plans).
If distributions are being made under the five-year rule, the 2009 calendar year is ignored in counting the five-year period.
¶2167. Deferred Compensation Plans of Exempt Organizations and Public Schools.
For 2009, the required minimum distribution rules are suspended for defined contribution tax-sheltered annuities (Code Sec. 401(a)(9)(H), as added by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)). See ¶2135.
¶2177. Distribution Requirements.
For 2009, the required minimum distribution rules are suspended for traditional IRAs (Code Sec. 401(a)(9)(H), as added by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)). See ¶2135.
¶2180E. Distribution Rules.
For 2009, the required minimum distribution rules are suspended for Roth IRAs (Code Sec. 401(a)(9)(H), as added by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)). See ¶2135.
¶2180G. Roth Contributions to Qualified Plans.
For 2009, the required minimum distribution rules are suspended for accounts within a 401(k) or 403(b) plan that hold designated Roth contributions (Code Sec. 401(a)(9)(H), as added by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)). See ¶2135.
¶2197B. Deferred Compensation Plans of Exempt Employers (“Sec. 457 Plans”).
For 2009, the required minimum distribution rules are suspended for Sec. 457 plans operated by state or local governments (Code Sec. 401(a)(9)(H), as added by the Worker, Retiree, and Employer Recovery Act of 2008 (P.L. 110-458)). See ¶2135.
