Summary | Team | Federal Role | Current Environment | Process | Case Histories

Given the current economic climate, the Administration, the House and the Senate have made tax reform a central priority for the 111th Congress. In fact, the economic stimulus package (H.R. 1, the American Reinvestment and Recovery Act), which is still being considered by Congress, currently includes a number of major changes to the tax code that have a sweeping impact on both individual tax payers and on small and large businesses. A sample of the myriad proposed changes to the tax code includes:

• Alternative Minimum Tax (AMT) Patch:  Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow personal credits against the AMT. The proposal increases the exemption amounts to $46,700 and $70,950, respectively, and allows the personal credits against the AMT to hold the number of taxpayers subject to the AMT at bay. The estimated cost of this proposal is $70 billion over 10 years.
• American Opportunity Tax Credit: The proposal creates a $2,500 higher education tax credit that is available for the first four years of college. The credit phases out for individual taxpayers with adjusted gross income of $80,000 ($160,000 married filing jointly). Thirty percent (30%) of the available credit is refundable.  This proposal is estimated to cost $12.9 billion over ten years.
• Homeownership Tax Credit: This proposal expands the current homeownership tax credit to $15,000 and allows the credit for all home purchases (not just first-time home purchases). The amendment reduces the period required to hold the property without recapture from 36 months to 24 months, eliminates the income phase-out, and eliminates refundability. The credit can be claimed over two tax years. This provision is effective date of enactment and expires one year after date of enactment. This proposal is estimated to cost $35 billion over ten years.
• Long-Term Extension and Modification of Renewable Energy Production Tax Credit: The proposal extends the placed-in-service date for wind facilities for three years (through December 31, 2012).  The proposal also extends the placed-in-service date through December 31, 2013 for certain other qualifying facilities: closed-loop biomass; open-loop biomass; geothermal; small irrigation; hydropower; landfill gas; waste-to-energy; and marine renewable facilities. This proposal is estimated to cost $13.1 billion over 10 years.
• Energy Research Credit: The proposal provides an enhanced 20 percent R&D credit in taxable years beginning in 2009 and 2010 for research expenditures incurred in the fields of fuel cells, energy storage, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration. This proposal is estimated to cost $18 million over 10 years.  
• Extension of Bonus Depreciation: The proposal extends bonus depreciation for calendar year 2009. For 2008, a trade or business was allowed to depreciate an additional 50 percent of the cost of an asset placed into service in 2008. This proposal is estimated to cost $5.3 billion over ten years.
• Extension of Monetization of Accumulated AMT and R&D Credits in Lieu of Bonus Depreciation: This provision extends the provision contained in the Foreclosure Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20 percent 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. The amount is capped at the lesser of six percent of outstanding and unused AMT and R&D credits or $30 million. This proposal is estimated to cost $805 million over 10 years.
• Extension of Increase Small Business Expensing (Section 179): The proposal extends the increased expensing limits to 2009.  For 2008, the expensing limits were increased to $250,000 and the phase-out increased to $800,000.  This proposal is estimated to cost $41 million over ten years.
• Five-Year Carryback of Net Operating Losses: The proposal extends the carry back period for NOLs from 2 years to 5 years for NOLs arising in taxable years beginning or ending in 2008 and 2009. This provision does not apply to entities that received funding from TARP (Troubled Asset Relief Program). This proposal is estimated to cost $17.2 billion over ten years.
• Industrial Development Bonds: The proposal modernizes certain tax exempt qualified small issue bonds or industrial development bonds (IDBs) for facilities that create or manufacture intangible property.  The proposal also clarifies which physical components of any given facility are eligible for such tax exempt financing. This proposal is estimated to cost $203 million over ten years.
• Advanced Energy Investment Credit: The proposal establishes a new 30 percent investment tax credit for facilities engaged in the manufacture of advanced energy property. Advanced energy property includes, but is not limited to, the investment in facilities that produce ‘advanced energy property’, including renewable power equipment, smart grid technology, carbon capture and storage equipment, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration. In determining which advanced energy projects to certify, the Secretary of Treasury, in consultation with the Department of Energy, will consider a variety of criteria including: commercial viability; job creation; greatest net impact on greenhouse gas emissions; newness of technology; and fastest project time to completion. This credit is unavailable to taxpayers who receive the Energy Research Credit. This proposal is estimated to cost $1.4 billion over 10 years.
• Recovery Zone Bonds: The proposal would create a new category of tax credit bonds and an additional allocation of private activity bonds for investment in economic recovery zones. The proposal authorizes $5 billion in recovery zone economic development bonds and $10 billion in recovery zone facility bonds. These bonds are allocated based on a State’s unemployment and may be issued during 2009 and 2010. This proposal is estimated to cost $2.9 billion over 10 years.
• Increase in New Markets Tax Credit: The proposal would authorize an additional $1.5 billion for the 2008 allocation round and an additional $1.5 billion for the 2009 allocation round. Tax credits for the 2009 allocation round would be allowed against the alternative minimum tax. This proposal is estimated to cost $1.05 billion over 10 years.
• Broadband Tax Credit: The proposal creates a tiered investment tax credit for broadband infrastructure. The proposal provides a 10 percent credit for current generation broadband in underserved and rural areas, and a 20 percent credit for current generation broadband in underserved areas. The proposal also provides a 20 percent credit for next generation broadband investment. This provision is estimated to cost $110 million over ten years.
• Build America Bonds: The proposal provides State and local governments with a new tax credit bond option for infrastructure projects. The proposal allows the State or local government to elect to receive a direct payment from the Federal government equal to the subsidy that would have otherwise been delivered through the Federal tax credit. This proposal is estimated to cost $4.8 billion over ten years.

Other tax issues that Congress may address include whether, given the current economic climate, to extend a broad series of tax cuts (first enacted in 2001) that are scheduled to expire at the end of 2010.  These tax cuts include the expanded child credit, tax cuts for some married couples, and reforming the estate tax.