February 18,
2009
Dear Client,
We are writing
to give you an overview of the key tax changes affecting business in the
recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009
economic stimulus act). Please call our offices for details of how the new
changes may affect your specific business.
Extension
of bonus depreciation. Last year, Congress temporarily allowed business to
recover the costs of capital expenditures made in 2008 faster than the ordinary
depreciation schedule would allow by permitting these businesses to immediately
write off 50% of the cost of depreciable property acquired in 2008 for use in
the
Extension
of enhanced small business expensing (Section 179). In order to help small
businesses quickly recover the cost of certain capital expenses, small business
taxpayers may elect to write off the cost of these expense in the year of
acquisition in lieu of recovering these costs over time through depreciation.
Last year, Congress temporarily increased the amount that small businesses
could write off for capital expenditures incurred in 2008 to $250,000 and
increased the phase-out threshold for 2008 to $800,000. The new law extends
these temporary increases for capital expenditures incurred in 2009.
Expanded
loss carryback of net operating losses for small
businesses. Under pre-Act law, net operating losses (NOLs)
may be carried back to the two years before the year that the loss arises and
carried forward to each of the succeeding twenty years after the year that the
loss arises. For 2008, the new law extends the maximum NOL carryback
period from two years to five years for small businesses with gross receipts of
$15 million or less.
Incentives
to hire unemployed veterans and disconnected youth. Businesses are allowed
to claim a work opportunity tax credit equal to 40% of the first $6,000 of
wages paid to employees of one of nine targeted groups. The new law expands the
work opportunity tax credit to include two new targeted groups: (1) unemployed
veterans; and (2) disconnected youth. Individuals qualify as unemployed
veterans if they were discharged or released from active duty from the Armed
Forces during 2008, 2009 or 2010 and received unemployment compensation for
more than four weeks during the year before being hired. Individuals qualify as
disconnected youths if they are between the ages of 16 and 25 and have not been
regularly employed or attended school in the past 6 months.
Extension
of monetization of accumulated AMT and R&D credits in lieu of bonus
depreciation. The new law extends the provision contained in the Foreclosure
Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20%
of the value of their old AMT or research and development (R&D) credits to
the extent such taxpayers invest in assets that qualify for bonus depreciation.
Delayed
recognition of certain cancellation of debt income. To benefit certain
businesses that buy their own debt at a discount, the new law lets the
businesses recognize cancellation of debt income (“CODI”) over 10 years (defer
tax on CODI for the first four or five years and recognize this income ratably
over the following five tax years) for specified types of business debt
repurchased by the business in 2009 or 2010.
Qualified
small business stock. The new law increases the exclusion for gain from the
sale of certain small business stock held for more than five years from 50% to
75% for stock issued after the enactment date and before 2011.
S corp holding period. The new law temporarily shortens the
holding period of assets subject to the built-in gains tax from 10 years to
seven years..
Repeal
of IRS's built-in loss rules. The new law provides a prospective repeal of
Notice 2008-83, the controversial IRS guidance which provided that if a bank
recognizes a loss from the disposition of a loan or takes a bad debt deduction
under the specific charge-off or reserve methods of accounting after a change
in ownership, that loss or deduction will not be treated as a built in loss
attributable to the pre-acquisition period.
We hope this
information is helpful. If you would like more details about these or any other
aspects of the new law, please do not hesitate to call.
Very truly yours,
Gosling & Company, P.C.
Certified Public Accountants
IRS
Circular 230 Disclosure: To ensure
compliance with requirements imposed by the IRS, we inform you that any U.S.
federal tax advice contained in this communication (including any attachments)
is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or
(ii) promoting, marketing or recommending to another party any transaction or
matter addressed herein or in any attachment hereto.