Congress To Extend US Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

24 May 2010

Senator Max Baucus (D - Montana) and Representative Sander Levin (D - Michigan) have released the legislative text of the America Jobs and Closing Tax Loopholes Act, which will extend several tax cuts which expired at the end of last year.

The legislation, which was published on May 20, is the result of a merger between the Tax Extenders Act of 2009, passed by House of Representatives in December 2009, and the American Workers, State and Business Relief Act, passed by the Senate as an amendment to the House Tax Extenders bill in March 2010.

The merged legislation would extend the following business tax breaks for one year until the end of 2010:

• The research and development tax credit, which expired at the end of 2009 (Congress has so far failed to extend it or put in place a permanent credit);
• The special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements;
• The acting finance exception from Subpart F of the tax code, which permits multinationals to avoid tax on their full worldwide income when they establish captive foreign financing subsidiaries.
• The current law look-through treatment of payments between related controlled foreign corporations;
• The employer wage credit for activated military reservists; and
• The five-year recovery period for certain machinery and equipment which is used in a farming business.

In addition, the new legislation would extend several individual tax cuts for one year through to the end of 2010, including:

• The election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes;
• The additional standard deduction for state and local real property taxes;
• The above-the-line tax deduction for qualified education expenses; and
• The USD250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books and other supplies, including computer equipment.

Numerous incentives designed to encourage investment in economically depressed and tribal areas would also be extend until the end of 2010 under the bill.

The bill is paid for by several revenue raisers, a number of which would close foreign tax credit 'loopholes' for multinational companies. The bill also proposes to treat investment fund managers' 'carried interest' as ordinary income rather than capital gains, thereby forcing them to pay higher rates of tax than they do currently.

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