Download Summary of Tax Provisions in the Emergency Economic

Tax
October 7, 2008
Summary of Tax Provisions in the Emergency Economic
Stabilization Act of 2008
On October 3, 2008, President Bush signed into law the Emergency Economic
Stabilization Act (EESA) of 2008. In addition to a $700 billion financial
recovery package,1 the EESA includes the provisions from a bill known as the
Renewable Energy and Job Creation Act of 2008, which was previously passed
in the Senate on September 23, 2008. The Act contains several amendments
to the Tax Code that present potentially advantageous planning opportunities
for taxpayers.
The following is a summary of the Act’s tax provisions:
Individual Provisions Including:
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Extension of Exclusion of Income from Discharge of Qualified Principal
Residence Indebtedness. Extends the existing exclusion from January 1,
2010, to January 1, 2013.
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Increase in the Alternative Minimum Tax (AMT) Exemption. The Act
increases exemptions under the AMT to $46,200 (individuals) and $69,950
(married filing jointly) for 2008.
Corporate Extenders Including:
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Research and Development Credit. The Act extends the research tax
credit from December 31, 2007, to December 31, 2009. The credit equals
20 percent of the amount by which a taxpayer’s qualified research
expenses exceed its base amount for a taxable year.
ƒ
Active Financing Income Exception under Subpart F. The Act extends the
deferral of tax by a U.S. parent company on the earnings of a foreign
company engaged in a banking, financing, or similar business until
January 1, 2010. The subsidiary must demonstrate that the income is
active and not passive income.
ƒ
Payments Between Related Controlled Foreign Corporations (CFCs). The
Act extends the “look through” rule for certain interest, dividend, rent,
royalty and other payments between commonly controlled CFCs.
Payments subject to the look through rule do not create immediate
subpart F income for US shareholders. The provision will expire for
taxable years beginning after January 1, 2010.
For an overview of the financial recovery package, please contact one of the undersigned
attorneys or visit the Covington & Burling LLP publications website
(http://www.cov.com/publications).
ƒ
Various Mine related provisions, including Mine Rescue Team Credit and Advanced
Mine Safety Equipment Election. The Act extends various mine related provisions until
December 31, 2009.
ƒ
Domestic Production Activities in Puerto Rico. The Act extends a provision allowing a
section 199 domestic production activities deduction for activities in Puerto Rico until
December 31, 2009.
Disaster Relief
ƒ
The Act establishes and/or extends credits and deductions for individuals and
corporations affected by recent natural disasters, including provisions for tax-exempt
bonds; low income housing; additional depreciation for new real and personal property
investments in a disaster area; environmental remediation costs; and qualified
disasters expenses.
Energy Incentives
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The Act extends the production tax, energy, and residential energy-efficient property
credits. The Act also includes provisions for the extension of deferral of gain on sales
of transmission property by vertically integrated electric utilities to FERC-approved
independent transmission companies; clean renewable energy bonds; carbon capture
and sequestration (CCS) demonstration projects; cellulosic biofuels property;
alternative fuels credit; qualified energy conservation bonds; energy-efficient
improvements; and wind and refined coal.
Revenue Raisers Including:
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Current Inclusion of Certain Deferred Compensation. The Act taxes individuals on a
current basis if such individuals receive deferred compensation from tax indifferent
parties, such as offshore corporations in low or no-tax jurisdictions.
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Basis Reporting Requirements by Brokers on Sales of Stock. The Act requires brokers
to report basis to the Service for transactions involving publicly traded securities such
as stock, debt, commodities, derivatives, and other items specified by Treasury.
Special rules are provided for options and for securities purchased or sold by exercise
of an option. Amendments are made to the basis rules for securities eligible for the
average basis method.
ƒ
Section 199 Deduction. The deduction for oil related qualified production activities is
reduced by 3 percent of the least of oil related qualified production activities income,
qualified production activities income, or taxable income. Oil related qualified
production activities include production, refining, processing, transportation or
distribution or oil, gas or any primary product thereof.
ƒ
Modification of Section 907. Section 907 is amended to create a single limit to the
otherwise allowable section 901 foreign tax credit for combined foreign oil and gas
extraction income (“FOGEI”), which relates to upstream production to the point the oil
leaves the wellhead, and foreign oil related income (“FORI”), which is defined as all
downstream processes once the oil leaves the wellhead. A similar amendment applies
for loss recapture purposes.
The Act also contains several industry-specific provisions that potentially affect certain
taxpayers’ income tax computation.
* * *
Attorneys in Covington’s Tax Practice advise a wide range of clients on tax legislation. The
Tax Practice Group’s expertise derives from advising clients on the impact of such
legislation over the course of the past three decades. Please do not hesitate to contact
any member of our Tax Practice, including the undersigned, should you have any
questions.
If you have any questions concerning the material discussed in this client alert, please
contact the following members of our tax practice group:
Daniel Luchsinger
Michael Nonaka
202.662.5175
202.662.5727
[email protected]
[email protected]
This information is not intended as legal advice, which may often turn on specific facts. Readers should seek specific
legal advice before acting with regard to the subjects mentioned herein.
Covington & Burling LLP is one of the world’s preeminent law firms known for handling sensitive and important client
matters. This alert is intended to bring breaking developments to our clients and other interested colleagues in areas of
interest to them. Please send an email to [email protected] if you do not wish to receive future alerts.
© 2008 Covington & Burling LLP. All rights reserved.
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