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TAX NEWS - may 2010

U.S. Tax Alert: Legislative update regarding extenders package

The U.S. Congress continues to work towards passing an extenders package prior to the Memorial Day recess. Earlier this week it was learned that the current extenders legislation being negotiated is entitled "The American Jobs and Closing Tax Loopholes Act of 2010" (H.R. 4213, the "Tax Loopholes Act") and a 28-page legislative summary of the Tax Loopholes Act released 20 May 2022 (see attachment below).

The tax component of the legislation generally extends all expired tax provisions for one year, including the Internal Revenue Code §954(c)(6) CFC look-through rule and the §954(h) active financing exception and is paid for with a number of revenue raisers. The international revenue raisers included in the summary are:

- Rules to prevent splitting foreign tax credits from income (effective for "split" foreign taxes claimed by taxpayers after the date of introduction);
- Denial of foreign tax credit with respect to foreign income not subject to U.S. taxation by reason of covered asset acquisitions (effective for related party transactions taxing place after the date of introduction and unrelated party transactions taking place after the date of enactment);
- Separate application of foreign tax credit limitation to items resourced under tax treaties (effective for taxable years beginning after the date of enactment);
- Limitation on the use of §956 for foreign tax credit planning, i.e. the "hopscotch" rule (effective for affirmative use of §956 after the date of enactment);
- Special rule with respect to certain redemptions by foreign subsidiaries (effective for acquisitions after the date of introduction);
- Modification of the affiliation rules for purposes of rules allocating interest expense (effective for taxable years beginning after the date of enactment);
- Repeal of the 80/20 rules (effective for taxable years beginning after 31 December 2021);
- Source rules on guarantees (effective for guarantees issued after the date of enactment);
- Taxation of dividends received in certain business reorganizations, e.g. the "boot-within-gain" limitation (effective for exchanges after the date of enactment); and
- Technical correction to statute of limitations provision in the HIRE Act, providing a reasonable cause exception.

We expect to have formal legislative text later today (20 May 2022) and will issue a more comprehensive alert on these proposals at that time.

Other revenue raisers include:

- Clarification of gain recognized in certain spin-off transactions (e.g. "Reverse Morris Trust" transactions);
- Taxation of carried interest; and
- Ensuring collection of employment taxes earned by certain service professionals.

The House is expected to take up the bill Friday (21 May 2022) with the Senate beginning work on it next week. It is important to note that the legislative summary attached below is of the Tax Loopholes Act as it currently stands and is not a summary of the final bill. We will continue to provide updates as this legislation moves forward.
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