The Emergency Economic Stabilization Act of 2008, referred to by some as the “bailout bill,” or, as others prefer to call it, the “rescue plan,” was recently enacted in an attempt to help stabilize the turmoil in the U.S. economy. While a great deal of the attention has been focused on the bailout provisions of the Act, there are also significant tax law changes affecting businesses and corporations. Here are some of the most noteworthy.
Extension and modification of research and development credit
Anxiously awaited by many companies, the research tax credit–generally equal to 20% of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed a base amount for that year–is extended through December 31, 2009.
In addition, the alternative simplified research credit increases from 12% to 14%, effective for tax years ending December 31, 2008. Further, the alternative incremental research credit is repealed for tax years beginning after December 31, 2008.
Extension of new markets tax credit
Current law provides a tax credit for taxpayers who make a qualified equity investment in a qualified community development entity (CDE). This provision was set to expire December 31, 2008. EESA extends it through 2009. For 2009, up to $3.5 billion in qualified equity investments are permitted.
Extension and modification of other business tax credits and deductions
- The Indian employment tax credit is extended through December 31, 2009.
- The election to expense costs related to film and television productions is extended to 2009.
- The placed-in-service and construction requirements for the IRC Section 179C election to expense 50% of the cost of eligible qualified refinery property is extended two years to property placed-in-service through 2013.
- The 15-year MACRS recovery period for qualified leasehold improvement property, restaurant improvements and buildings, and qualified retail improvement property is extended to apply to property placed in service in 2008 and 2009.
- Machinery or equipment (other than a grain bin, cotton ginning asset, fence, or land improvement) that is used in a farming business, where the original use of the machinery or equipment commences in 2009, is treated as 5-year property for purposes of claiming MACRS depreciation.
Extension and modification of incentives for charitable giving
- The enhanced deduction for charitable donations of food inventory by noncorporate taxpayers that are engaged in a trade or business is extended for contributions made on or before December 31, 2009. The 10% limitation is temporarily eliminated for food contributions by certain farmers and ranchers.
- The enhanced deduction for corporate donations of book inventory to public schools is extended for contributions made on or before December 31, 2009.
Modification of other business tax incentives
- The District of Columbia empowerment zone provisions are extended to apply in 2008 and 2009.
- Compensation from nonqualified deferred compensation plans maintained by offshore corporations will generally be taxable when it is not subject to substantial risk of forfeiture.
Changes to energy conservation incentives
- The placed-in-service date for the IRC Section 45 credit is extended through December 31, 2009 in the case of wind and refined coal, and through December 31, 2010 in the case of other sources. The Act expands the types of facilities qualifying for the credit to new biomass facilities and to those that generate electricity from marine renewables (e.g., waves and tides). The Act updates the definition of an open-loop biomass facility, the definition of a trash combustion facility, and the definition of a non-hydroelectric dam. The Act also increases emissions standards on the refined coal credit and removes its market value test.
- The 30% investment tax credit for solar energy property and qualified fuel cell property, as well as the 10% investment tax credit for microturbines, is extended through 2016. The Act increases the $500 per half kilowatt of capacity cap for qualified fuel cells to $1,500 per half kilowatt of capacity, and adds small commercial wind as a category of qualified investment. The Act also provides a new 10% investment tax credit for combined heat and power systems and geothermal heat pumps. The Act allows these credits to be used to offset the alternative minimum tax (AMT).
- The credit available to contractors for the construction or manufacture of new energy-efficient homes is extended through December 31, 2009.
- The credit allowed for the manufacture of energy-efficient dishwashers, clothes washers, and refrigerators is extended through 2010. Additionally, the standards that the manufactured appliances must meet for application of the credit have been modified.
Midwestern, Hurricane Ike, and other disaster relief
- A special five-year carryback period for net operating losses (NOLs) is created for qualified disaster losses.
- A business can expense qualified disaster expenses after 2007, instead of capitalizing these costs
- An additional 50% depreciation allowance can be claimed for real and personal business property that is purchased to rehabilitate or replace similar property that is destroyed or condemned as a result of a presidentially-declared disaster. The provision applies to property placed in service after December 31, 2007, with respect to disasters declared after that date and occurring before January 1, 2010.
- The maximum IRC Section 179 expense allowance and investment limitation amount are both increased (by $100,000 and $600,000, respectively) for qualified IRC Section 179 disaster assistance property placed in service after 2007, with respect to disasters declared after 2007 and occurring before January 1, 2010.
- Many of the tax benefits extended to the victims of Hurricanes Katrina, Wilma, and Rita are modified and available for victims of the severe storms, tornados, and flooding that hit the “Midwestern Disaster Area” between May 20, 2008 and August 1, 2008. The “Midwestern Disaster Area” includes areas in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
The Act also extends the current temporary additional 0.2% FUTA surtax through December 31, 2009.