TAX NEWS - 2010

US Tax: Senate small-business bill on hold until after recess

The U.S. Senate adjourned for the week-long Independence Day recess June 30 without making significant headway on legislation that would provide an additional year of bonus depreciation, as well as enhanced section 179 expensing rules and other incentives targeted to small businesses. The Creating Small Business Jobs Act of 2010 (H.R. 5297) was introduced on June 29, but the Senate's pre-recess floor schedule was truncated by memorial services for the late Sen. Robert Byrd, who died on June 28.

The bill's major revenue raisers include information reporting and other provisions intended to close the so-called "tax gap," as well as a provision making "crude tall oil" ineligible for the cellulosic biofuel producer credit. According to preliminary estimates from the Joint Committee on Taxation (JCT) staff, these offsets – along with "Roth" retirement account provisions and an adjustment to corporate estimated tax payment requirements in 2015 – would cover the 10-year, $11.7 billion cost of the incentives package. (For additional details, see Tax News & Views, Vol. 11, No. 40, June 29, 2010.)

Lawmakers were lining up to offer amendments to the bill before the recess, but Majority Leader Harry Reid, D-Nev., is expected to maintain tight control of the amendment process and it is unclear which provisions, if any, will be brought up for a vote once the Senate gets back to work on July 12.

Among the tax amendments filed so far are proposals to remove cell phones and similar equipment from the definition of "listed property" under section 280F, liberalize the Work Opportunity Tax Credit rules as they apply to recently discharged veterans and disadvantaged veterans, extend incentives for biodiesel and renewable diesel fuel, allow a five-year carryback for net operating losses related to the Gulf oil spill, and impose a tax on income of controlled foreign corporations attributable to certain imported property.

The House of Representatives approved its own small-business incentives package on June 15, but that bill does not include bonus depreciation and is financed largely through proposed restrictions on the use of grantor retained annuity trusts. (For additional details, see Tax News & Views, Vol. 11, No. 35, June 15, 2010.)


Modified first-time homebuyer credit heads to White House

Also on June 30, the Senate approved legislation (H.R. 5623) that would allow more taxpayers to take advantage of the recently expired first-time homebuyer credit. Current law limits eligibility for the popular $8,000 tax credit to certain homebuyers who had a valid contract on a new primary residence by April 30, 2010, and closed on the property by June 30, 2010. H.R. 5623 would make the credit available to taxpayers who had a contract by April 30, 2010, and close on the property by September 30, 2010.

The Joint Committee on Taxation (JCT) staff estimates that the modified credit would cost $140 million over 10 years, and would be paid for by provisions to extend the application of the bad check penalty to electronic payments made to the IRS, permit the disclosure of prisoner tax return information to state prisons, and modify the funding mechanism for the Travel Promotion Act of 2009.

The bill cleared the House on June 29 and now heads to the White House for President Obama's signature.