District of Columbia legislation mandates the D.C. Council to implement unitary combined reporting, broadens the related-party addback statute, and decouples from federal debt discharge deferral

On December 18, 2009, Mayor Adrian Fenty signed the "Fiscal Year 2010 Budget Support Act of 2009" (the "Act"), thereby making permanent the emergency legislation enacted previously by the Council of the District of Columbia. The Act became effective on March 2, 2010, following the required 30-day period for United States Congressional review. The Act includes a provision mandating that the D.C. Council amend the D.C. Code to enact required unitary combined reporting. Thus, the Act does not itself implement combined reporting. However, assuming that the D.C. Council amends the tax code as mandated, combined reporting would apply to tax years beginning after December 31, 2010. Until the D.C. Code is actually amended, existing law provides for separate tax returns.

The Act also broadens the District's related-party addback statute to include interest expense that is not attributable to intangibles. This change applies retroactively to tax years beginning after December 31, 2008. Additionally, the new law decouples from IRC § 108(i) deferral treatment of qualified discharge of indebtedness income. Although the Act is silent regarding the effective date of this IRC § 108(i) change, the instructions that accompany 2009 D.C. Form D-20 reference decoupling from IRC § 108(i), thus suggesting that this change may apply beginning January 1, 2009.