Signup To Receive CCH Tax News Headlines Via Email

December 9, 2009

Federal Headlines

President Proposes Job Creation Tax Credits

 

Noting that there are 7 million more unemployed Americans now than at the start of the recession, President Obama on December 8 announced several measures to spur hiring through the extension of certain tax credits that primarily benefit small businesses and increased investment in infrastructure and clean energy projects. The president also announced a new short-term employment tax cut, details of which will be worked out with Congress, and a rebate plan for consumers who retrofit their home to be more energy-efficient, similar to the popular "Cash for Clunkers" program.

 

Building on the tax cuts in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5), the president proposed a one-year elimination of the tax on capital gains from new investments in small business stock, compared to the 75-percent exclusion from capital gains taxes on small business investments under the 2009 Recovery Act. He called for an extension of enhanced expensing provisions for small businesses through 2010, allowing an immediate expensing up to $250,000 of qualified investments, and the extension of the bonus depreciation tax, accelerating the rate that a business can deduct the cost of capital expenditures.

 

Much of the cost of the small business tax cuts will be "recouped over time," according to a White House release. The unanticipated return of $200 billion from the Troubled Assets Relief Program (TARP) will provide additional "fiscal room" for offsetting the cost of the new initiatives, according to senior administration officials at a background briefing.

Congressional Reaction

 

Senate Democratic leaders praised the president's speech for its focus on small businesses and pledged to help develop targeted job initiatives to bolster the economy. "I am encouraged by the president's jobs strategy and pleased to see the majority of the plan would expand on Finance Committee ideas, including enhanced expensing for small businesses, extension of bonus depreciation and tax incentives for domestic clean energy production," said Senate Finance Committee Chairman Max Baucus, D-Mont. "I was encouraged by the president's specific plans for targeted investment," Senate Majority Leader Harry Reid, D-Nev., added. "I look forward to working with the president, his administration and the House to put these promising initiatives into action."

 

However, Obama's job creation speech ran afoul of a group of Republican House freshman lawmakers who formerly ran their own small businesses before coming to Congress. In a letter addressed to Obama on December 8, the lawmakers offered what they called, "fresh ideas designed to provide broad, permanent incentives for job creation" that put power in the hands of people, rather than Washington bureaucrats. The lawmakers called on the Obama administration to cut the corporate income tax rate to 25 percent, make the capital gains tax rate permanent at 15 percent, and institute an across-the-board 5-percent income tax rate cut in all tax brackets.

 

Instead of giving specific measures to offset the cost of the lower tax revenues, the freshman lawmakers said all of the tax cuts should be paid for through federal government spending restraint. The letter was signed by Reps. Steve Austria, R-Ohio, Mike Coffman, R-Colo., and five other GOP lawmakers. When asked why Republicans rarely cut spending or paid for their tax cuts when they were in power, House Minority Whip Eric Cantor, R-Va., said Americans are not interested in assessing blame or looking backwards. Cantor said GOP lawmakers are now calling for an immediate discretionary spending freeze that would save $53 billion.

Tax Extenders

 

Separately, the Office of Management and Budget issued a policy statement strongly supporting the Tax Extenders Bill of 2009 (HR 4213), introduced by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., on December 7 (TAXDAY, 2009/12/07, C. 1). The bill "will provide much-needed relief to families and businesses that are struggling in the current economic downturn and encourage companies to invest in new technologies and hire more workers," according to the written policy statement.

 

By Jeff Carlson, Stephen K. Cooper and Paula Cruickshank, CCH News Staff

President Obama Announces Proposals to Accelerate Job Growth and Lay the Foundation for Robust Economic Growth

Remarks of President Obama on Job Creation and Economic Growth

Ways and Means Press Release: Congress is Focused on Job Creation, Economic Growth

Statement of Administration Policy on HR 4213, the Tax Extenders Act of 2009

JCT Technical Explanation of HR 4213, the Tax Extenders Act of 2009, JCX-60-09

 

Schumer Bill Proposes Tax Relief for Madoff Victims

 

Senate Finance Committee member Charles E. Schumer, D-N.Y., on December 7 introduced legislation that would provide expanded tax and retirement relief to small investors who knowingly or unwittingly invested their savings with convicted financier Bernie Madoff. The Madoff Investors Bill of Rights would increase the amount a victimized smaller investor can carry back on income taxes, allow for accelerated and increased contributions to tax-free retirement accounts to make up for losses and allow for penalty-free early withdrawals from retirement accounts.

 

"The fact that Bernie Madoff swindled so many investors is outrageous, but the fact that so many of the smaller investors, who may not have even known they were investing with Madoff, are not receiving the same assistance as direct investors is simply unfair," Schumer said. "This proposal would finally give those smaller investors, many of whom lost everything, the tax relief they need and deserve."

 

The bill would fix the net operating loss (NOL) carryback issue for indirect investors in the fifth year, and allow both direct and indirect investors with losses from a qualified fraudulent investment scheme to carry back their losses for up to six years (seven years, in the case of someone who turned 65 by December 31, 2008), essentially doubling the period that existed prior to April 2009. Both direct and indirect investors would receive identical treatment.

 

The measure also allows victims to carry back losses in a retirement account, waives the 10-percent penalty for early withdrawals from retirement accounts, allows affected investors to contribute 50 percent more to such accounts than they are allowed to under current law for a period of up to 10 years, and allows them to file amended estate and gift tax returns to recover taxes paid on fictitious profits tied to Madoff accounts.

 

By Jeff Carlson, CCH News Staff

GAO Recommends Steps to Improve Qualified Research Expense Tax Credit

 

The Government Accountability Office (GAO) has released its report regarding the use of the tax credit for qualified research expenses. The GAO was asked to describe the credit's use, determine whether it could be redesignated to improve the incentive to do new research and assess whether recordkeeping and other compliance costs could be reduced.

 

The GAO found that large corporations dominated the use of the research credit and identified significant disparities in the incentives provided to different taxpayers, with some taxpayers receiving no credit and others eligible for credits up to 13 percent of their incremental spending. Further, it found that a substantial portion of credit dollars was a windfall for taxpayers, earned for spending they would have done anyway, instead of being used to support new research. The GAO determined that the alternative simplified credit option provides larger windfalls to some taxpayers and lower incentives for new research.

 

The GAO recommends that Congress consider eliminating the regular credit option and adding a minimum base to the alternative simplified credit. Also, the Treasury should clarify the definition of qualified research expenses and organize a working group to develop standards for documentation. The Treasury agreed with the recommendations and plans to provide additional guidance in the next few months.

GAO Report --Tax Policy: The Research Tax Credit's Design and Administration Can Be Improved (GAO-10-136)

SFC Press Release: Baucus, Grassley, Hatch Revisit Research and Development Tax Credit

SFC Press Release: Finance Senators Propose Improvements to Research and Development Tax Credit

Grow Research Opportunities With Taxcredits Help (GROWTH) Act

Other References:

 

Code Sec. 41

 

State Headlines

New York --Multiple Taxes: Governor Signs Amnesty Measure

 

New York Gov. David Paterson signed tax amnesty legislation (Ch. 501 (A.B. 21), Laws 2009, Fourth Special Session) on December 4, 2009, that authorizes the PAID (Penalty and Interest Discount) program. The measure allows the Department of Taxation and Finance to administer an accounts receivable discount program, for certain outstanding tax, fee, or surcharge liabilities, that are or were imposed under the Tax Law and administered by the department.

 

The program will begin January 15, 2010, for eligible taxpayers, and requires such taxpayers to make all payments by the program's expiration date on March 15, 2010. Under the program, taxpayers are liable for 80% of accrued penalty and interest on unpaid bills that were issued on or before December 31, 2003, or 50% of accrued penalty and interest on unpaid bills that were issued after December 31, 2003, and on or before December 31, 2006. In January 2010, the department will mail letters to taxpayers who qualify for the PAID discounts. As of January 15, 2010, taxpayers will be able to use the department's Web site (http://www.tax.state.ny.us) to participate in the program.

Ch. 501 (A.B. 21), Laws 2009, effective December 4, 2009; Release, New York Department of Taxation and Finance, December 4, 2009; Telephone Conversation, Office of Governor David Paterson, December 8, 2009

 

West Virginia --Motor Fuel, Sales and Use Taxes: Fuel Tax Changes Enacted

 

West Virginia has enacted legislation that adjusts the flat rate portion of the motor fuel excise tax and amends the law with respect to the calculation of the average wholesale price of motor fuel, a component that affects the computation of consumers' sales and use taxes on motor fuels. The law sets the minimum average wholesale price of motor fuel at $2.34 per gallon beginning January 1, 2010. Currently, the minimum average wholesale price is 97¢ per gallon. Further, effective January 1, 2011, the average wholesale price cannot vary by more than 10% from one calendar year to the next. Lastly, the scheduled decrease of the flat rate portion of the motor fuel excise tax from 20.5¢ per gallon to 15.5¢ per gallon on August 1, 2013, has been repealed.

S.B. 4004), Laws 2009, Fourth Special Session, effective November 20, 2009, and applicable as noted

 
Copyright © 2009, CCH INCORPORATED. All rights reserved.