Tax Watch Archive

3/14/08 -- Senate and House pass separate budget resolutions.
On Mar. 14, both the Senate and House passed FY 2009 budget resolutions.

The Senate budget resolution (S. Con. Res. 70) was passed by a vote of 55 to 44 after much acrimonious debate about taxes, including the alternative minimum tax (AMT) and the estate tax. The Senate approved an amendment to the resolution, authored by Senate Finance Chair Max Baucus (D-MT), that would make permanent a number of "temporary" tax breaks, such as the 10% income tax bracket, the nonrefundable child tax credit, and marriage penalty relief. These provisions would be paid for with surpluses projected to materialize years down the road. The Baucus package also OKs a property tax deduction for nonitemizers, and includes provisions from the military tax relief bill considered but not passed by Congress in 2007.

The House budget resolution (H. Con. Res. 312), which passed by a vote of 212 to 207, provides for an AMT fix and "middle class tax relief" consistent with the "pay as you go" rules, and includes reconciliation instructions to the Ways and Means Committee.

3/13/08 -- House passes pension technical corrections bill; measure includes provision requiring plans to permit rollovers by nonspouse beneficiaries.
Late in the evening of Mar. 12, the House of Representatives passed H.R. 3361, the "Pension Protection Technical Corrections Act of 2007." The bill consists of 59 pages of technical and clarifying changes to the Pension Protection Act of 2006 (PPA, PL 109-280 ), including changes for underfunded plans, interest rate provisions, notice and disclosure rules, plan diversification requirements, and spousal protection provisions.

The Senate passed its version of the Pension Technical Corrections Act (S. 1974) on Dec. 19, 2007, but its version isn't identical to the House's version.

At this point, it's unclear whether the Senate will OK H.R. 3361 as passed by the House, or make changes.

The House-passed technical corrections bill would make an important clarification relating to a PPA change for nonspouse beneficiaries of qualified plan participants. Under the PPA, effective for distributions after 2006, nonspouse beneficiaries of an inherited qualified plan account may make a trustee-to-trustee transfer of part (or all) of the deceased employee's account balance in a qualified plan to an IRA (or individual retirement annuity). The transfer is treated as an eligible rollover distribution, and the receiving IRA is treated as an inherited IRA.

IRS's interpretation of this PPA change was that a qualified plan may, but is not required to, offer a direct rollover of a distribution to a nonspouse beneficiary. RIA commented that IRS's interpretation did not appear to follow through on the PPA conferees' intent to make the qualified plan rollover rules less restrictive. (See Weekly Alert - 01/18/2007 for details.) The House-passed pension technical corrections bill (§ 9(f)) would modify the statutory language on which IRS's interpretation was based to make clear that qualified plans must permit rollovers by nonspouse beneficiaries. This change would be effective for plan years beginning after 2008. Note that S. 1974 would make a similar change, also effective for plan years beginning after 2008.

The following are available on Checkpoint in PDF format:

• the text of H.R. 3361, the " Pension Protection Technical Corrections Act of 2007"as passed by the House; and
• the text of a House Ways & Means description of H.R. 3361, the " Pension Protection Technical Corrections Act of 2007."

3/7/08 -- Senate Budget Committee's FY '09 budget includes one-year AMT relief.
On Mar. 6, the Senate Budget Committee by a vote of 12-10 approved its FY 2009 budget resolution. The resolution includes a one-year patch for the AMT without offsets. The resolution is scheduled for Senate floor consideration the week of Mar. 10.

When the bill reaches the Senate floor next week, Senate Finance Committee Chair Max Baucus (D-MT) is expected to offer an amendment that would include extension of middle-class tax relief, such as the marriage penalty relief, the refundable child tax credit, the adoption credit, the 10% tax bracket and tax relief for military families. Housing-related tax relief also could be part of the package.

3/7/08 -- Conferees may be close to agreement on a farm bill.
Conferees have been meeting on H.R. 2419, the farm bill, and may be close to reaching a conference agreement. The current farm bill is due to expire on Mar. 15, but is expected to be extended for one month to give conferees time to reach agreement on the final details of the bill. Senate Finance Committee ranking member Chuck Grassley (R-MT), a conferee on the bill, wants included in the final conference agreement the energy and conservation tax credits that were part of the Senate-passed bill, but which were not included in the House passed bill.

2/27/08 -- House passes energy bill.
On Feb. 27, the House by a vote of 236-182 approved H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008." The energy bill's prospects in the Senate are uncertain, and the Administration has threatened a veto should the measure be approved by Congress.

H.R. 5351 includes these revenue losers, among others:

• Extend for 3 years the placed-in-service date for the Code Sec. 45 renewable energy production tax credit, and create a new category of qualifying facilities (marine renewables).
• Authorize $2 billion for Clean renewable Energy Bonds (CREBs).
• Extend for 8 years the business solar and fuel cell investment tax credit.
• Extend for 6 years the residential energy efficient tax credit, raise the cap on the credit for solar electric property to $4,000, and OK the credit for residential wind property capped at $4,000.
• Create a new credit for the production of cellulosic fuel and extend for 2 years the biodiesel production tax credit.
• Create a new credit for plug-in electric drive vehicles.
• Create a new category of tax credit bonds for green community programs and initiatives designed to reduce greenhouse gas emissions.
• Allow employers to provide employees that commute to work via bicycle with limited fringe benefits to offset the costs of such commuting (e.g., bicycle storage).
• Extend for 2 years the credit for energy-efficient existing homes and add biomass wood stoves to the list of qualified energy efficient building property eligible for a $300 credit if the property meets certain conditions.
• Extend for 5 years the energy-efficient commercial buildings deduction.
• Modify and extend for 3 years the energy-efficient appliance credit.

The revenue raising proposals in the "Renewable Energy and Energy Conservation Tax Act of 2008" include:

• Dramatically reducing writeoffs for heavy SUVs placed in service after the energy bill's enactment date.
• Barring major integrated oil companies from using the Code Sec. 199 domestic production activities deduction and fixing the Code Sec. 199 percentage at 6% of qualified production activities income for all oil and gas activity.
• Modifying Code Sec. 907 to eliminate the distinction between foreign oil and gas extraction income and foreign oil related income.

The following are available on Checkpoint in PDF format:

• the text of H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008."the text of H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008;"
• the text of JCX-19-08 (Feb. 27, 2008), the Joint Committee on Taxation Staff's "Explanation of the Revenue Provisions Of H.R. 5351, The Renewable Energy And Energy Conservation Tax Act;" and
• the text of JCX-20-08 (Feb. 27, 2008), the Joint Committee on Taxation Staff's "Estimated Revenue Effects of the Tax Provisions Contained in H.R. 5351, The Renewable Energy And Energy Conservation Tax Act Of 2008."

2/15/08 -- Senate stimulus package to address national housing crisis.
On Feb. 15, Senate Democrats announced that after the President's Week recess the Senate will move forward on S. 2636, the "Foreclosure Prevention Act of 2008," which was introduced by Senate Majority Leader Harry Reid (D-NV). The housing stimulus bill includes: (1) an extension of net operating loss (NOL) carrybacks from 2 to 5 years for NOLs arising in tax years 2006 and/or 2007; and (2) a $10 billion increase in the current cap for mortgage revenue bonds. The bill also includes funds for pre-foreclosure counseling, changes to the bankruptcy code allowing judges to modify debtors' mortgages, and CDBG money for purchase and rehabilitation of foreclosed properties.

The following are available on Checkpoint in PDF format:

• the text of the "Foreclosure Prevention Act of 2008;" and
• a summary of the "Foreclosure Prevention Act of 2008."

2/15/08 -- P.L. number assigned to "Economic Stimulus Act of 2008.
On Feb. 15, H.R. 5140, the "Economic Stimulus Act of 2008" was assigned a public law number--P.L. 110-185.

2/13/08 -- President signs economic stimulus bill into law.
On Feb. 13, President Bush signed H.R. 5140, the "Economic Stimulus Act of 2008," into law. The Act provides for a refundable recovery rebate credit for 2008 to eligible individuals, including retirees receiving only Social Security income and disabled veterans and their survivors. An advance rebate of this credit (based on information in taxpayers' 2007 returns) will be sent to most taxpayers during 2008 by check or direct deposit. The minimum credit for those qualifying is $300 ($600 for a joint return), and the maximum is $600 ($1,200 for a joint return). There is an additional $300 per child credit. The Stimulus Act also encourages businesses to buy more capital goods and equipment in 2008 by boosting expensing and reinstituting 50% bonus first-year depreciation. In addition, the otherwise applicable "luxury auto" cap on first year depreciation is increased by $8,000 for vehicles that qualify.

For more details on the Stimulus Act, see Weekly Alert - 02/14/2008.

2/13/08 -- Energy bill introduced in House.
On Feb. 12, House Democrats introduced H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008." The measure, which will be considered by the House after the President's Day recess, contains many elements of the energy package that the House passed in 2007 but which the Senate refused to consider.

Although the energy tax package may well make it through the House, the bill (like last year's energy package) will probably will face Republican opposition in the Senate. Additionally, the President opposes the elimination or reduction of tax breaks for the oil and gas industry.

H.R. 5351 includes these revenue losers, among others:

• Extend for 3 years the placed-in-service date for the Code Sec. 45 renewable energy production tax credit, and create a new category of qualifying facilities (marine renewables).
• Authorize $2 billion for Clean renewable Energy Bonds (CREBs).
• Extend for 8 years the business solar and fuel cell investment tax credit.
• Extend for 6 years the residential energy efficient tax credit, raise the cap on the credit for solar electric property to $4,000, and OK the credit for residential wind property capped at $4,000.
• Create a new credit for the production of cellulosic fuel and extend for 2 years the biodiesel production tax credit.
• Create a new credit for plug-in electric drive vehicles.
• Create a new category of tax credit bonds for green community programs and initiatives designed to reduce greenhouse gas emissions.
• Allow employers to provide employees that commute to work via bicycle with limited fringe benefits to offset the costs of such commuting (e.g., bicycle storage).
• Extend for 2 years the credit for energy-efficient existing homes and add biomass wood stoves to the list of qualified energy efficient building property eligible for a $300 credit if the property meets certain conditions.
• Extend for 5 years the energy-efficient commercial buildings deduction.
• Modify and extend for 3 years the energy-efficient appliance credit.

The revenue raising proposals in the "Renewable Energy and Energy Conservation Tax Act of 2008" include:

• Dramatically reducing writeoffs for heavy SUVs placed in service after the energy bill's enactment date.
• Barring major integrated oil companies from using the Code Sec. 199 domestic production activities deduction and fixing the Code Sec. 199 percentage at 6% of qualified production activities income for all oil and gas activity.
• Modifying Code Sec. 907 to eliminate the distinction between foreign oil and gas extraction income and foreign oil related income.

The following are available on Checkpoint in PDF format:

• the text of H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008;"
• a summary of H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008;" and
• a preliminary revenue estimate of H.R. 5351, the "Renewable Energy and Energy Conservation Tax Act of 2008."

2/8/08 -- Congress passes Economic Stimulus Act of 2008.
On Feb. 7, both the Senate and House of Representatives passed H.R. 5140, the "Economic Stimulus Act of 2008" (Stimulus Act). The measure is thus cleared for the President's signature. The Stimulus Act:

• Creates a new rebate equal to the greater of: (1) net income tax liability up to a maximum of $600 ($1,200 for a joint return); or (2) $300 ($600 for a joint return) if either (a) the taxpayer's qualifying income (earned income generally, veterans' disability payments, including payments to survivors of disabled veterans, and social security benefits) is at least $3,000; or (b) net income tax liability is at least $1 and gross income is greater than the sum of the applicable basic standard deduction amount and one personal exemption (two personal exemptions for a joint return). There's an additional $300 per-child rebate. The amount of the rebate (both the basic and the child's amount) phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). See Weekly Alert - 02/14/2008 for details.
• Increases the Code Sec. 179 $128,000 expensing limit to $250,000 and boosts the overall investment limit from $510,000 to $800,000, for tax years beginning in 2008. See Weekly Alert - 02/14/2008 for details.
• Permits a bonus first-year depreciation deduction of 50% of the adjusted basis of qualified property acquired and placed in service after Dec. 31, 2007, and before Jan. 1, 2009. The otherwise applicable "luxury auto" cap on first year depreciation increases by $8,000 for vehicles that qualify. See Weekly Alert - 02/14/2008 for details.

The following are available on Checkpoint in PDF format:

• the text of H.R. 4150, the "Economic Stimulus Act of 2008," as passed by Congress;
• the Joint Committee on Taxation's Technical Explanation of the Revenue Provisions of H.R. 5140, the "Economic Stimulus Act Of 2008" as Passed by the House of Representatives and the Senate on February 7, 2008; and
• a Senate Finance Committee summary of H.R. 4150, the "Economic Stimulus Act of 2008," as passed by Congress.

2/7/08 -- Congress reaches agreement on economic stimulus package.
By a vote of 81 to 16, the Senate approved H.R. 5140, the "Economic Stimulus Act of 2008" (the Stimulus Act) as passed by the House of Representatives, with an amendment that makes the rebate available to more Americans. More specifically, the agreement extends the stimulus rebate to Americans whose income consists only of Social Security or veterans' disability payments. The House of Representatives is expected to take quick action and approve the Stimulus Act as amended by the Senate, possibly as early as the evening of Feb. 7.

Following is a summary of the Stimulus Act's tax provisions:

Rebate. An eligible individual will receive a basic credit equal to the greater of: (1) his net income tax liability up to a maximum of $600 ($1,200 for a joint return); or (2) $300 ($600 for a joint return) if either (a) the taxpayer's qualifying income is at least $3,000; or (b) his net income tax liability is at least $1 and gross income is greater than the sum of the applicable basic standard deduction amount and one personal exemption (two personal exemptions for a joint return). Qualifying income is earned income generally, veterans' disability payments (including payments to survivors of disabled veterans), and social security benefits. There will be an additional $300 per-child credit amount.

The amount of the rebate (both the basic and the child's amount) phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). The rebate won't be available if an individual's tax return does not include valid identification numbers. A valid identification number is a Social Security Number issued by the Social Security Administration, and does not include a Taxpayer Identification Number issued by the Internal Revenue Service.

Boosted Sec. 179 expensing. Under current law, taxpayers can expense up to $128,000 for 2008 (as indexed for inflation). This annual expensing limit is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during 2008 exceeds $510,000 (as indexed for inflation). The expensing rules are eased for qualifying empowerment zone property, renewal property, and GO Zone property. The amount of the expensing deduction is limited to the amount of taxable income from any of the taxpayer's active trades or businesses. For tax years beginning in 2008, the Stimulus Act will increase the $128,000 expensing limit to $250,000 and boosts the overall investment limit from $510,000 to $800,000.

Bonus first-year depreciation. Bonus first year depreciation was first allowed following the terrorist attacks of 2001 but under current law generally isn't available for property acquired after 2004 (there are some exceptions, such as for qualified GO Zone property generally placed in service before 2008). The Stimulus Act generally permits a bonus first-year depreciation deduction of 50% of the adjusted basis of qualified property acquired and placed in service after Dec. 31, 2007, and before Jan. 1, 2009. The otherwise applicable "luxury auto" cap on first year depreciation will be increased by $8,000 for vehicles that qualify. The types of property eligible for bonus depreciation will be the same as those eligible under earlier bonus depreciation packages: (1) tangible property with a recovery period not exceeding 20 years; (2) purchased computer software; (3) water utility property; and (4) qualified leasehold improvement property. Bonus depreciation will be allowed for alternative minimum tax (AMT) as well as for regular tax purposes.

The following are available on Checkpoint in PDF format:

• a Senate Finance Summary of the economic stimulus amendment as approved by the Senate; and
• the text of H.R. 4150, the "Economic Stimulus Act of 2008" as passed by the Senate.

2/5/08 -- Senate poised to consider stimulus package; Baucus confident SFC version will get Senate OK.
The Senate is poised to take up its economic stimulus package on Feb. 6. The Senate Democratic leadership will schedule one vote on the bill that emerged from the Senate Finance Committee (SFC) on Jan. 30. Senate Finance Committee Chair Max Baucus (D-MT) has told reporters that he believed he had the 60 votes necessary for passage of his stimulus package. Should the Senate Finance bill be approved by the Senate, a conference will have to reconcile the Senate stimulus bill with the one that was passed by the House of Representatives on Jan. 29.

The Senate Finance Committee bill would:

• Provide for smaller refunds than the House-passed bill but would begin to phase out the refunds at higher AGI levels than the House bill and also, unlike the House bill, OK refunds for retireds getting Social Security income only and for disabled veterans
• Give businesses a choice between enhanced expensing, bonus depreciation, or a liberalized NOL carryback period. The House bill would OK enhanced expensing and bonus depreciation but would not liberalize the NOL rules.
• Extend a number of energy provsions (such as the credits for energy efficient appliances, business energy property, and residential energy efficient property). The House passed bill doesn't carry any of these extenders.

The Senate Finance bill also carries a number of nontax provisions that have no parallel in the House bill, such as temporary increases in unemployment compensation, and more money for low income home energy assistance. A PDF version of the Senate Finance Committee-OK'd economic stimulus bill is available on Checkpoint.

2/4/08 -- Treasury releases General Explanations of Administration's Fiscal Year 2009 Budget (Bluebook).
On Feb. 4, the Treasury Department released its General Explanations of the Administration's Fiscal Year (FY) 2009 Revenue Proposals--often referred to as the "Bluebook." The President's budget includes proposals to:

• Increase the AMT exemption levels for 2008 to $46,250 for single and head of household filers, $70,050 for married taxpayers filing joint returns, and $35,025 for married taxpayers filing separate returns. In addition, the Administration proposes to allow an individual to reduce 2008 tax liability by the full amount of nonrefundable personal credits.
• Make the 2001 and 2003 tax cuts permanent.
• Provide a new standard deduction for health insurance ($15,000 for family coverage and $7,500 for single coverage).
• Permanently extend a number of tax breaks, including the research credit, tax-free withdrawals from IRAs for charitable contributions, and the above-the-line deduction for qualified out-of-pocket classroom expenses.
• Improve tax compliance by requiring: information reporting on payments to corporations; basis reporting on securities sales; information reporting on merchant payment card reimbursements; and a certified taxpayer identification number from contractors.

The FY 2009 Bluebook may be found at http://www.treas.gov/offices/tax-policy/library/bluebk08.pdf.