2010 Tax Relief Act and the Effect on Business Returns

2010 Tax Relief Act and the Effect on Business Returns

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853) was signed into law by President Obama. Aside from the 13-month extension of unemployment benefits through the end of 2011, this latest tax legislation contains a multitude of important provisions affecting both individual taxpayers and businesses. While mostly it extends a large number of expiring (and expired) tax benefits, it also contains a few new ones. Probably the most significant changes are the extension of the Bush-era tax cuts, an AMT patch, a temporary allowance of 100% expensing using bonus depreciation, changes to the estate tax, and a one-year employee payroll tax cut.
This article will look at the more significant provisions affecting businesses.
The Act does the following:
Extends the Section 45F credit (up to $150,000) for employer expenses for providing a child care facility for two more years, through 2012.
Extends the incentives for biodiesel and renewable diesel (Section 40A) to such fuel sold or used before 2012.
Extends the Renewable Electricity Production Credit (Section 45) for facilities producing refined coal if placed in service before January 1, 2012.
Extends the New Energy Efficient Homes Credit (Section 45L) for eligible contractors to homes acquired before 2012.
Extends the excise tax credits and outlay payments for alternative fuel and alternative fuel mixtures (Sections 6426 and 6427) to such fuels sold or used before 2012.
Extends the temporary suspension of the taxable income limit on percentage depletion for oil and gas from marginal wells (Section 613A) to such depletion determined before January 1, 2012.
Extends the grants for specified energy property in lieu of tax credits through 2011.
Extends the Energy Efficient Appliance Credit (Section 45M) for qualifying appliances produced in 2011 that meet specified energy-usage limits. The Act decreases the aggregate credit amount allowed to $25 million for those qualifying appliances manufactured in 2011. Also, the Act excludes the most efficient refrigerators and front-loading clothes washers from the aggregate credit amount. Finally, the Act increases the gross receipts limitation to 4%.
Extends the R&D (Research & Development) credit (Section 41) retroactively (since it expired at the end of 2009) for two years, through 2011. (Note that the 2008 termination date for the alternative incremental credit election remains unchanged.)
Extends the Indian Employment Credit (Section 45A) retroactively for two years, through 2011.
Provides new investment limitations for the New Markets Tax Credit (Section 45D) in 2010 and 2011, and allows unused credits to be carried over to 2016. The Act provides a $3.5 million maximum annual amount.
Extends the Railroad Track Maintenance Credit (Section 45G) for tax years beginning before 2012. This credit is for 50% of qualified railroad track maintenance expenditures.
Extends the Mine Rescue Team Training Credit (Section 45N) retroactively for tax years beginning before 2012. This credit is for 20% of the cost of training rescue team members.
Extends the Employer Wage Credit for employees who are active duty members of the uniformed services (Section 45P) retroactively for payments made before 2012. This credit is for 20% of the differential wage payments made to activated military reservists.
Extends the enhanced charitable deduction for contributions of food inventory (Section 170(e)(3)(C)) retroactively for contributions made before 2012.
Extends the enhanced charitable deduction for contributions of book inventories to public schools (Section 170(e)(3)(D)) retroactively for contributions made before 2012.
Extends the enhanced charitable deduction for corporate contributions of computer inventory for educational purposes (Section 170(e)(6)) retroactively for contributions made before 2012.
Extends the expensing of environmental remedial costs, in lieu of capitalization, (Section 198) retroactively through 2011.
Extends the allowable deduction with respect to income attributable to domestic production activities of Puerto Rico retroactively through 2011.
Extends the modification of the tax treatment of certain payments to controlling exempt organizations (Section 512(b)(13)(E)) retroactively for payments received or accrued before 2012. This provision allows certain payments made to an exempt organization by a controlled organization to be treated as unrelated business income.
Extends the exceptions for active financing income (Sections 953 and 954) retroactively for the tax years of foreign corporations beginning before 2012, and for tax years of their U.S. shareholders with or within which such tax years of foreign corporations end. The exceptions are from the current inclusion under the subpart F rules for certain income derived in the active conduct of a banking, financing, or similar business, in the conduct of an insurance business, or as a securities dealer.
Extends the look-thru treatment of payments between related controlled foreign corporations under the foreign personal holding company rules (Section 954(c)(6)) retroactively for the tax years of foreign corporations beginning before 2012, and for tax years of their U.S. shareholders with or within which any tax year of such foreign corporation ends.
Extends the basis adjustment to stock of S corporations making charitable contributions of property (Section 1367(a)(2)) retroactively for contributions made before 2012. This provision makes an S corporation shareholder's basis reduction resulting from the corporation's charitable contribution of property equal to the shareholder's pro rata share of the adjusted basis of the contributed property.
Extends the Empowerment Zone tax incentives for certain economically depressed areas retroactively for two years, through 2011.
Extends the tax incentives for investment in the District of Columbia (Section 1400) retroactively for two years, through 2011.
Extends the temporary increase in the limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands (Section 7652) retroactively for two years, through 2011.
Extends the American Samoa Economic Development Credit retroactively for two years, through 2011.
Extends the Work Opportunity Credit (Section 51) through 2011. This credit allows businesses to claim a credit equal to 40% of the first $6,000 of wages paid to new hires of one of the targeted groups. The Act does not extend the rule that allows unemployed veterans and disconnected youth to be treated as members of a targeted group.
Extends the Qualified Zone Academy Bonds (Section 54E) program by providing an additional $400 million for 2011. Qualified Zone Academy bonds (QZABs) are a form of tax credit bond which offer the holder a federal tax credit instead of interest and can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy.
Extends the tax-exempt New York Liberty Zone bond financing (Section 1400L) retroactively for two years, through 2011.
Extends tax-exempt GO Zone bond financing (Section 1400N) for one year, through 2011.