LEGISLATIVE BULLETIN | July 30, 2008
S. 3335, the Jobs, Energy, Families and Disaster Relief Act of 2008
Summary and Background
Senate Democrats are committed to promoting American jobs, energy, and families with targeted tax relief and incentives. Similar to legislation previously introduced by Senator Baucus (S. 3125), theJobs, Energy, Families and Disaster Relief Act of 2008 (S. 3335), would protect millions of American taxpayers from getting hit by the alternative minimum tax and provide brand-new incentives for alternative energy, business tax relief to help companies innovate and create jobs, and critical tax relief for families and college students. Specifically, S. 3335 would:
Create renewable energy incentivesby providing almost $20 billion of tax incentives for investment in renewable energy related to energy production, transportation and domestic fuel security, and energy conservation and efficiency;
Protect millions from the Alternative Minimum Tax;
Extend expiring temporary tax provisionsfor individuals and businesses, including the research and development credit, special rules for active financing income, the state and local sales tax deduction, the deduction for out-of-pocket expenses for teachers, and the deduction for qualified tuition expenses; and
Provide additional tax relief for individuals and businesses,; extend theSecure Rural Schools program; provide immediate relief to victims of floods and other natural disasters; and replenish the Highway Trust Fund to enable vital infrastructure repairs and more job creation.
- The bill would be primarily offset by closing a tax loophole that allows individuals who work for certain offshore corporations, such as hedge fund managers, to defer tax on their compensation, would delay the effective date of a tax benefit that has not yet taken effect for multinational corporations operating overseas, and basis reporting by brokers on stock sales.
The Senate is expected to consider this legislation the week of July 28, 2008.
Energy Tax Incentives
S. 3335 would provide renewable energy incentives, including:
•Long-term extension and modification of renewable energy production tax credit. To provide additional incentives for the production of electricity from renewable resources, which will help limit the environmental consequences of continued reliance on power generated by using fossil fuels, S. 3335 would extend the placed-in-service date for wind facilities for one year. The legislation would also extend the placed-in-service date for three years for certain other qualifying facilities; add facilities that generate electricity from marine renewables (e.g., waves and tides) as a new category of qualifying facilities that will benefit from the longer placed-in-service date; and cap the aggregate amount of tax credits that can be earned for these qualifying facilities.
•Long-term extension and modification of solar energy and fuel cell investment tax credit. To ensure the continued development of alternative energy resources, S. 3335 would extend the 30 percent investment tax credit for solar energy property and qualified fuel cellproperty and the 10 percent investment tax credit for microturbines for eight years. The legislation would also increase the $500 per half kilowatt of capacity cap for qualified fuel cells to$1,500 per half kilowatt of capacity; remove an existing limitation that prevents publicutilities from claiming the investment tax credit; and provide a new 10 percentinvestment tax credit for combined heat and power systems.
•Long-term extension and modification of residential energy-efficient property credit. To provide an additional incentive to invest in solar electric and fuel cell property, S. 3335 would raise the cap on the amount of the available credit for such property. The legislation would extend the credit for residential solar property for eight years; increase the annual credit cap from $2,000 to $4,000; and include residential small wind equipment and geothermal heat pumps as propertyqualifying for this credit.
•Extension of deferral on sales of electric transmission property. To facilitate the "unbundling" of electric transmission assets held by vertically integrated utilities, S. 3335 would extend the present-law deferral of gain on sales of transmission property by vertically integrated electric utilities to approved independent transmission companies.
•Creation of New Clean Renewable Energy Bonds. To encourage the development of facilities that produce electricity from renewable resources will help limit the environmental consequences of continued reliance on power generated using fossil fuels, S. 3335 would authorize $2 billion of new clean renewable energy bonds to finance facilities that generate electricity from certain resources.
S. 3335 also provides for carbon mitigation measures, including:
Creation of carbon capture and sequestration (CCS)demonstration projects. If electricity continues to be produced from coal, then it must be done in as clean and efficient a manner as possible. To provide additional investment incentives to encourage the construction of advanced coal facilities that both capture and sequester carbon dioxide and reduce the emissions of other pollutants, S. 3335 would provide $1.5 billion in tax credits for the creation of advanced coal electricity projects and certain coal gasification projects that demonstrate the greatest potential for CCS technology.
Solvency for the Black Lung Disability Trust Fund. To bring the Black Lung Disability Trust Fund out of debt, S. 3335 would enactthe President's budget proposal that the current excise tax rate should continue to apply beyond 2013 until all amounts borrowed from the general fund of the Treasury have been repaid with interest.
Refund of certain coal excise taxes unconstitutionally collected from exporters. Courts have determined that the Export Clause of the U.S. Constitution prevents the imposition of the coal excise tax on exported coal and, therefore, taxes collected on such exported coal are subject to a claim for refund. S. 3335 would create a new procedure under which certain coal producers and exporters may claim a refund of these excise taxes that were imposed on coal exported from the United States.
- Carbon audit of the tax code. To aid decisionmakers in the formulation of tax policies aimed at reducing emissions and mitigating climate change, S. 3335 directs the Secretary of the Treasury to request that the National Academy of Sciences undertake a comprehensive review of the federal tax code to identify the types of specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects.
•Expansion of allowance for property to produce cellulosic alcohol. Under current law, taxpayers are allowed to immediately write off 50 percent of the cost of facilities that produce cellulosic ethanol if such facilities are placed in service before January 1, 2013. To promote technology-neutral policies, S. 3335 would allow this write-off to be available for the production of other cellulosic biofuels in addition to cellulosic ethanol.
•Extension of biodiesel production tax credit and renewable diesel tax credit. To encourage the development and use of biodiesel and renewable diesel incentives, S. 3335 wouldextend the $1 pergallon production tax credits for biodiesel and the small biodiesel producer credit of 10 cents pergallon. The bill would also extend the $1 per gallonproduction tax credit for diesel fuel created from biomass.
•Establishment of plug-in electric drive vehicle credit. Toencourage further investments in advanced technology vehicles,S. 3335would establish a new credit for each qualified plug-in electric drive vehicle placed in service during each taxable year by a taxpayer. The base amount of the credit is $3,000.
•Provision of incentives for idling reduction units and advanced insulation for heavy trucks. Becauseidling of the main drive engine of heavy trucks consumes significant amounts of fuel, S. 3335would provide an exemption from the heavy vehicle excise tax for the cost of idling reduction units. The bill would also exempt the installation of advanced insulation, which can reduce the need for energy consumption by transportation vehicles carrying refrigerated cargo.
•Provision of fringe benefit for bicycle commuters. Bicycle commuting achieves both goals of reducing fossil fuel reliance and encouraging conservation. S. 3335 would allow employers to provide employees who commute to work using a bicycle limited fringe benefits to offset the costs of such commuting.
•Extension and increase of alternative refueling stations tax credit. Widespread adoption of advanced technology and alternative-fuel vehicles is necessary to transform automotive transportation in the United States to be cleaner, more fuel efficient, and less reliant on petroleum fuels. S. 3335would increase the 30 percent alternative refueling property credit (capped at $30,000) to 50 percent (capped at $50,000). The credit provides a tax credit to businesses (e.g., gas stations) that install alternative fuel pumps, such as fuel pumps that dispense E85 fuel.
•Treatment of Publicly Traded Partnership Income Treatment of Alternative Fuels. S. 3335 would permit publicly traded partnerships to treat the income derived from the transportation, storage or marketing of certain alternative fuels as qualifying income for purposes of the publicly traded partnership rules.
S. 3335 contains measures that are intended to reduce national energy consumption, which in turn will decrease reliance on foreign suppliers of oil and reduce pollution in general, including:
•Creation of qualified energy conservation bonds. S. 3335would create a new category of tax credit bonds to finance state and local government programs and initiatives designed to reduce greenhouse gas emissions;
•Extension and modification of energy-efficiency improvements to existing homes credit. S. 3335 wouldextend the tax credits for energy-efficient existing homes and includes energy-efficient biomass fuel stoves as a new class of energy efficientproperty eligible for a consumer tax credit of $300;
•Extension of energy-efficient commercial buildings deduction. S. 3335wouldextend the energy-efficient commercial buildings deduction for five years;
•Modification and extension of credit for energy-efficient appliance credit. S. 3335 wouldmodify the existing energy-efficient appliance credit and extend this credit for three years;
•Provision of accelerated depreciation for smart meters and smart grid systems. Under current law, taxpayers are generally able to recover the cost of smart electric meters and smart electric grid systems over the course of 20 years. S. 3335 would cut the cost recovery time in half by allowing taxpayers to recover the cost of this property over a ten-year period; and
•Extension and modification of qualified green building and sustainable design project bond. S. 3335 wouldextend the authority to issue qualified green building and sustainabledesign project bonds through the end of 2012.
•Creation of accelerated depreciation for investments in recycling. An additional provision allows companies to claim accelerated depreciation for the purchase of equipment used to collect, distribute or recycle a variety of commodities.
- 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. At the end of last year, H.R. 3996 increased the exemptions to $44,350 and $66,250, respectively, and allowed the personal credits against the AMT to hold the number of taxpayers subject to the AMT at bay. The provision expired December 31, 2007. The proposal increases the exemption amounts to $46,200 (individuals) and $69,950 (married filing jointly) for 2008. The proposal will also allow the personal credits against the AMT.
- AMT credit allowance against incentive stock options. Exercise of incentive stock options is a preference in the individual alternative minimum tax. In the past,many individuals exercised these options and there were dramatic reductions in the value of thestock after exercise, resulting in a minimum tax liability far exceeding anygain from the exercise of the option. S. 3335 would waive past underpayments and wouldguarantee that minimum tax actually paid on the exercise of these options would be returned tothe taxpayer.
Extension of Temporary Tax Provisions
State and local taxes deduction. Millions of taxpayers live in Alaska, Florida, Nevada, Washington, South Dakota, Tennessee, Texas and Wyoming - states that have deductible sales taxes but no state income tax. To continue to provide similar federal tax treatment to residents of states that rely on sales taxes rather than income taxes to fund state and local governmental functions, S. 3335 would extend the option of deducting state and local sales taxes in lieu of deducting state and local income taxes.
Qualified tuition deduction.The average cost of a public, four-year college education has soared by 61 percent during the Bush Administration. (The College Board, Trends in College Pricing 2007,available here)To mitigate the impact of rising tuition costs on students and their families and to provide an incentive for individuals to pursue higher education, S. 3335would extend the above-the-line tax deduction for qualified education expenses. The deduction is reduced to $2,000 for couples filing jointly with incomes between $130,000 and $160,000.
Regulated investment company dividends.S. 3335 would extend the tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated investment companies. This legislation would also extend the estate tax look-through for certain RIC stock; and extend the treatment of RICs as "qualified investment entities" under section 897 of the Internal Revenue Code.
IRA rollover. To increase giving to charitable organizations, S. 3335 would extend the provision that permits tax-free charitable contributions from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per taxable year.
- Elementary and secondary schoolteachers' out-of-pocket expense deduction. Since 2002, teachers have been able to deduct up to $250 a year for money that they spend out of their own pockets to buy supplies for their classrooms. More than three million teachers nationwide have taken advantage of this deduction each year. S. 3335 would extend this tax deduction for one year for teachers and other school professionals for expenses paid or incurred for books, certain supplies and supplementary materials used by the educator in the classroom.
•Group legal services plans. S. 3335 would allow individuals to exclude certain amounts received under qualified group legal services plans from income for one year.
•Research and development tax credit. Research can be the basis for new products, industries, and jobs for the domestic economy. To encourage firms to increase their spending on research and experimentation, S. 3335 extends the research tax credit equal to 20 percent o f the amount by which a taxpayer's qualified research expense for a taxable year exceed its base amount for that year. S. 3335 wouldalso increase the alternative simplified credit from 12 percent to 14 percent, and repeal the alternative incremental research credit.
Indian employment credit. To encourage economic development in and employment on Indian reservations, S. 3335 would extend the business tax credit for employers of qualified employees that work and live on or near an Indian reservation. The credit is for wages and health insurance costs paid to qualified employees (up to $20,000) in the current year over the amount paid in 1993.
•New markets tax credit. To encourage investment in economically underdeveloped areas throughout the country, S. 3335 would extend the provision for one year and allow additional counties the new markets tax credit, which permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated Community Development Entities.
Railroad track maintenance. To enable small and mid-sized railroads to update and upgrade their track capacities in order to promote railroads as an alternative to shipping freight on roadways, S. 3335 would extend a 50 percent general business credit for qualified railroad track maintenance expenditures, and allow the credit against the AMT.
Mine Rescue Team Training Credit. S. 3335 would extend for one year a credit of up to $10,000 for the training of mine rescue team members.
Leasehold improvements. In recognition of the fact that leaseholds and restaurants have shorter lives than industrial and commercial structures in general, S. 3335would extend the special 15-year cost recovery period for qualified leasehold and restaurant improvements. The proposal would also allow retail owners and new restaurants the shortened recovery period. Absent an extension of this provision, the cost recovery period for these facilities would be 39 years.
Motorsports entertainment complexes. To encourage economic development, S. 3335 would extend the special seven-year cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes. Absent an extension of this provision, the cost recovery period for these facilities would be 15 years.
Indian reservation business property. To encourage economic development within Indian reservations and expand employment opportunities on such reservations, S. 3335would extend the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property.
Advanced Mine Safety Equipment. To encourage mining companies to invest in safety equipment that goes above and beyond current safety equipment requirements, S. 3335 would provide 50 percent immediate expensing for qualified underground mine safety equipment that goes above and beyond current safety equipment requirements.
Brownfields clean-up. To promote the goal of environmental remediation and promote new investment and employment opportunities by lowering the net capital cost of a development project, S. 3335 would extend the provision that allows for the immediate expensing (rather than over time as a depreciation) of costs associated with cleaning up hazardous sites.
Domestic production activities in Puerto Rico. To encourage investment in Puerto Rico, S. 3335 would extend the provision extending special domestic production activities rules afforded to manufacturing activities in the United States to activities in Puerto Rico.
Certain payments to controlling exempt organizations. In general, interest, rent, royalties, and annuities paid to a tax-exempt organization from a controlled entity are treated as unrelated business income of tax-exempt organizations. S. 3335 extendstreatment under which a payment to a tax-exempt organization by a controlled entity is excludable from the tax-exempt organization's unrelated business income if the payment is less than fair market value.
Qualified zone academy bonds. School districts use Qualified Zone Academy bonds (QZAB) as an innovative way to fund school renovation in economically distressed areas at a much lower cost. Investors receive a federal tax credit in lieu of an interest payment, and, over the life of the bond, the district can save 50 percent. S. 3335would allow an additional $400 million of QZAB issuing authority to state and local governments, which can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy.
District of Columbiainvestment.S. 3335would extend a package of tax incentives (including a wage credit, additional Section 179 expensing, tax-exempt financing, zero-percent capital gains for certain assets, and the $5,000 first-time homebuyer credit for individuals) for businesses and individual residents within certain economically depressed census tracts within the District of Columbia that have been designated as the District of Columbia Enterprise Zone.
American Samoaeconomic development. To encourage investment in American Samoa, S. 3335 would extend the tax credit providing certain domestic corporations operating in American Samoa with a possessions tax credit to offset their U.S. tax liability on certain income related to business operations earned in American Samoa.
Food inventory contributions to charitable organizations. To encourage contributions of food to charitable organizations, S. 3335 would extend the provision allowing unincorporated businesses to claim an enhanced deduction for the contribution of certain food inventory. The proposal would also expand the rule to allow farmers to treat the basis of the contributed food as being equal to 25 percent of the food's fair market value.
Book contributions to public schools. To encourage contributions of books to public schools, S. 3335would extend the provision allowing C Corporations to claim an enhanced deduction for contributions of book inventory to public schools (kindergarten through grade 12).
Computer donations for educational purposes. To encourage contributions of computer technology and equipment to public libraries and educational organizations, S. 3335would extend an enhanced deduction that encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools.
Stock of an S Corporation making charitable contributions of property. S. 3335 would extend the provision allowing S Corporation shareholders to take into account their pro rata share of charitable deductions even if such deductions would exceed such shareholder's adjusted basis in the S Corporation. S. 3335would also make a technical correction clarifying the application of this provision.
Hurricane Katrina employees. To encourage employers to hire individuals who were affected by Hurricane Katrina, S. 3335would extend the provision that expired in August 2007 that allowed employers to claim the work opportunity tax credit for hiring employees employed within the core disaster area of Hurricane Katrina.
Active financing exception. S. 3335 would extend the active financing exception from Subpart F foreign personal holding company income, foreign base company services income, and insurance income for certain income that is derived in the active conduct of a banking, financing or similar business, or in the conduct of an insurance business.
Payments between related controlled foreign corporations. To allow U.S. taxpayers to deploy capital from one commonly-controlled foreign corporation to another, S. 3335 would extend current law look-through treatment of payments between related controlled foreign corporations under current foreign personal company income rules. Under the ''look-through rule'' dividends, interest, rents, and royalties received by one controlled foreign corporation (CFC) from a related CFC are not treated as foreign personal holding company income to the extent attributable or properly allocable to income of the payor that is neither subpart F nor treated as ECI.
- Film and television productions. To encourage domestic film production, S. 3335 would extend special expensing rules for U.S. film and television productions.
•Wool Trust Fund. Topromote the competitiveness of American wool, S. 3335 would extend a provision thatreduces import duties on a limited quantity of imported wool fabrics and places duties otherwise collected on the import of certain wool products into the Wool Trust Fund.
Extenders Related to Tax Administration
•Information related to terrorist activities.S. 3335would permanently extend disclosure provisions relating to terrorist activities to assist in the country's investigations of and response to terrorism.
Undercover IRS operations. To provide the IRS with an important enforcement tool similar to that provided to other law enforcement agencies, S. 3335 would extend the authorization for the IRS to engage in certain activities related to undercover operations.
- "Cover over" of tax on rum. Given the current fiscal needs of Puerto Rico and the U.S. Virgin Islands, S. 3335 would extend the provision providing for an increased rebate of certain taxes on distilled spirits produced in or imported into the United States from Puerto Rico and the U.S. Virgin Islands.
Additional Tax Relief
Tax Relief for Individuals
- Refundable child credit. S. 3335 would increase the eligibility for the refundable child tax credit in 2008. The changes in this legislation increase the credit for families who lose a part of the credit due to inflation.
Under current law, a taxpayer receives $1,000 tax credit for each qualifying child under the age of 17. If the amount of a taxpayer's child tax credit is greater than the amount of the taxpayer's income tax, the taxpayer may receive a refund if the income threshold is met. The threshold for 2008 is $12,050. S. 3335 lowers the refundable threshold for the child tax credit to $8,500 for the 2008 tax year.
Film and television productions. Taxpayers have not been able to take full advantage of tax incentives that are intended to encourage film and television companies to produce films here in the United States rather than overseas because of a number of technical issues. S. 3335 would fix these issues.
Wooden practice arrows used by children. S. 3335 would exempt certain shafts from an excise tax of 39 cents, adjusted for inflation, on the first sale by the manufacturer, producer, or importer of any shaft of a type used to produce certain types of arrows.
- Mental health parity requirements applicable to group health plans. Current law requires certain group health plans to provide the same coverage for mental health benefits that they provide for medical and surgical health benefits. S. 3335 wouldextend the imposition of a $100-per-day excise tax on group health plans that fail to comply with this requirement.
Modification of Penalty on Tax Return Preparer
•Penalty on understatement of taxpayer's liability by tax return preparer. To harmonize the standards of conduct for taxpayers and return preparers, S. 3335 would conform the respective penalty standards.
•Reauthorization. S. 3335 would reauthorize the Secure Rural Schools program through 2011. It also adjusts the funding distribution formula to make it more equitable, by taking into account historic payment levels to counties, average income levels in counties and acreage of federal land. Finally, the provision also provides for full funding for the Payment in Lieu of Taxes program for 2009.
•Uniform Definition of a Qualifying Child. S. 3335would restore eligibility for the earned income credit to certain lower-income siblings while eliminating a tax planning opportunity for more affluent families, and was part of the President's Fiscal Year 2009 budget. S. 3335 would provide that a taxpayer is not a qualifying child of another individual if that taxpayer is older than the individual. The exception to this rule is if the individual is a sibling and the taxpayer is permanently or totally disabled.
S. 3335 would also provide that if an individual is married and files a joint return (unless that return is solely as a claim for refund), that individual is not a qualifying child for the child-related tax incentives (e.g., child tax credit). The proposal would also provide that if a parent resides with his child for over half the year, only that parent is eligible to claim the child as a qualifying child. The parent, however, can waive the child-related tax incentives to another member of the household who has a higher AGI and is eligible for the child tax incentive.
The bill features a variety of provisions to help Americans that have suffered significant loss from natural disasters, including:
Qualified Disaster Expenses. S. 3335 would allow disaster victims to write off and immediately recover demolition, clean up, repair, and environmental remediation expenses. Under current law, taxpayers may be required to capitalize these expenses and recover the costs over an extended period of time.
Treatment of net operating losses attributable to Qualified Disaster Casualty expenses.S. 3335 would extend from two to five years the time period taxpayers can claim casualty losses or qualified disaster expenses. When taxpayers carry losses back to prior years, they receive a refund of the taxes that they paid in the earlier year. This prompt refund can help them reinvest in their businesses or make ends meet in the aftermath of a disaster.
Mortgage Revenue Bonds. S. 3335 wouldpermit states to issue tax-exempt bonds to finance low-interest loans to taxpayers whose principal residence has been damaged as a result of a disaster. Disaster victims could use these low-interest loans to repair or reconstruct their homes.
Individual Loss Provision. S. 3335 wouldreform casualty loss rules to allow more disaster victims to claim individual property losses. Under current law, taxpayers can only claim a loss that exceeds $100 and 10 percent of the taxpayer's adjusted gross income. This bill would waive the restrictive 10 percent rule, raise the $100 floor to $500, and allow non-itemizers to use these losses as a standard deduction.
Qualified Disaster Recovery Assistance Distributions. S. 3335 wouldwaive the 10 percent penalty tax if a distribution from an individual retirement account or tax favored retirement plan that is considered a qualified Disaster Recovery Assistance distribution. A distribution is considered a qualified distribution if it is made on or after the Presidentially-declared disaster date and before January 1, 2010 and is made to an individual whose principal residence on the applicable declaration date is located in a Presidentially-declared disaster area and who sustained an economic loss by reason of the disaster.
Recontribution of Withdrawals for Home Purchases. S. 3335 would allow distributions for home purchases that were made from a Code section 401(k) or 403(b) plan or IRA after the date which is 6 months before the applicable declaration date and before the day after the applicable declaration date and that were not finalized because of the tornadoes and floods giving rise to the designation of the area as a disaster area to be re-contributed to the plan or IRA tax-free (i.e., the recontributions would be treated as rollovers).
Loans from Qualified Plans. S. 3335 wouldeffectively double the limitation on loans from a 401(k), 403(b), or a governmental 457(b) plan by allowing participants located in a Presidentially-declared disaster area and who sustained economic loss by reason of the tornadoes and floods giving rise to the designation of the area as a disaster area to receive loans up to the lesser of $100,000, or 100 percent of the vested accrued benefit for loans made after the date of enactment and before January 1, 2010. In addition, outstanding loan payments due on or after the applicable declaration date and before January 1, 2010 may be deferred an additional 12 months, with appropriate adjustments for interest.
Additional Personal Exemption for Housing Victims. Current law provides a personal exemption for taxpayers, their spouses, and dependents. S. 3335 would allow taxpayers who house up to four dislocated persons from the Presidentially-declared disaster for a minimum of sixty days in their principal residences an additional personal exemption of $500 per dislocated person (maximum additional personal exemption increase of $2,000). Family members (other than spouses and dependents) staying with the taxpayer may qualify, and the housing must be provided rent-free. S. 3335 would not affect any deductions or exemptions for the dislocated person on the dislocated person's tax return.
Exclusion for Certain Cancellations of Indebtedness. Under current law, gross income generally includes any amount realized from the discharge of indebtedness. S. 3335 wouldensure that individuals are not taxed on personal debt that is discharged in response to damage suffered from the Presidentially-declared disaster. For example, if a house is damaged or destroyed and the mortgage lender discharges all or part of this mortgage debt, the amount discharged is not treated as income as a result of the proposal.
Extension of Replacement Period for Property Lost. Present law allows taxpayers not to recognize gain with respect to homes that are damaged or destroyed as a result of a Presidentially-declared disaster if the taxpayer replaces the property within a four-year period. Business property that is destroyed must be replaced within a two-year period to avoid gain recognition. S. 3335 would extend the replacement period to five years for principal residences and business property that was damaged or destroyed within any Presidentially-declared disaster area.
- Employee Retention Credit. S. 3335 would provide a 40 percent tax credit for wages paid up to $6,000 if paid after the applicable disaster date, and before January 1, 2010, by employers with 200 or fewer employees located in a Presidential disaster area who continue to pay their employees while their business is inoperable.
•Temporary suspension of limitations on charitable contributions. The amount allowed as a charitable deduction in any taxable year may not exceed ten percent of the corporation's taxable income or fifty percent of an individual's adjusted gross income. S. 3335 would temporarily waive these limits regarding charitable cash contributions dedicated to Presidentially-declared disaster relief efforts.
Increase in standard mileage rate for charitable use of vehicles. The mileage rate individuals may use to compute a tax deduction for personal vehicle expenses associated with charitable work is statutory and has not been increased since 1997 and is currently at 14 cents per mile. For a taxpayer assisting in relief efforts related to the Presidentially-declared disaster, S. 3335 would set the charitable mileage rate at seventy percent of the standard business mileage rate.
- Exclusion from income of mileage reimbursements for charitable volunteers. In general, reimbursements received for operating expenses of a personal vehicle used in connection with charitable work in excess of the statutory charitable mileage rate are taxable income to the recipient. Under S. 3335, reimbursements for charitable mileage attributable to the Presidentially-declared disaster up to the amount of the standard business mileage rate would not be considered taxable income.
•Restructuring of New York Liberty Zone tax credits. S. 3335 would implement a proposal included in the President's Fiscal Year 2009 Budget to provide the City of New York and the State of New York with tax credits for expenditures made for transportation infrastructure projects connecting with the New York Liberty Zone.
Transportation and Infrastructure
- Highway Trust Fund fix. To avert a funding shortfall in the coming fiscal year, S. 3335 would add $8.017 billion to the Highway Trust Fund. This fix is needed to keep as many as 380,000 good-paying jobs available to American workers, and to sustain infrastructure projects that will make the U.S. highway and bridge system safer. This proposal passed the House of Representatives on July 23, 2008, by a vote of 387 to 37.
- Current inclusion of deferred compensation paid by certain tax indifferent parties. To close a tax loophole that allows individuals whowork for certain offshore corporations (such as hedge fund managers) to defer tax on their compensation, S. 3335 would tax individuals on a current basis if such individuals receive deferred compensation from a tax indifferent party.
Current law generally allows executives and other employees to defer paying tax on compensation until the compensation is paid. This deferral is made possible by rules that require the corporation paying the deferred compensation to defer the deduction that relates to this compensation until the compensation is paid. Matching the timing of the deduction with the income inclusion ensures that the executive is not able to achieve the tax benefits of deferred compensation at the expense of the Treasury. Instead, the corporation paying the compensation bears the expense of paying deferred compensation as a result of the deferred deduction. Where an individual is paid deferred compensation by a tax indifferent party (such as an offshore corporation in a tax haven jurisdiction), there is no offsetting deduction that can be deferred. As a result, individuals receiving deferred compensation from a tax indifferent party are able to achieve the tax benefits of deferred compensation at the expense of the Treasury.
- Delay implementation of worldwide allocation of interest. In 2004, Congress provided taxpayers with an election to take advantage of a liberalized rule for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer's foreign tax credit limitation. Although enacted in 2004, this election is not available to taxpayers until taxable years beginning after 2008. The bill would delay the phase-in of this new liberalized rule for ten years (for taxable years beginning after 2018). The proposal is effective for tax years beginning after December 31, 2007. This proposal is estimated to raise $22.335 billion over ten years.
- Basis reporting by brokers on sales of stock. This revenue raising provision creates mandatory basis reporting measures to the IRS by brokers for transactions involving publicly traded securities, such as stock, debt, commodities, derivatives and other items as specified by the Treasury. The proposal is estimated to raise $7.98 billion over ten years.
On July 24, 2008, Chairman Baucus, along with Leader Reid, introduced the Jobs, Energy, Families and Disaster Relief Act of 2008 (S. 3335). On July 25, 2008, S. 3335was placed on Senate Legislative Calendar under General Orders (Calendar No. 898).
The Senate is expected to consider S. 3335 the week of July 28, 2008.
The DPC will distribute information on amendments as it becomes available.
The Administration has not yet released a Statement of Administration Position (SAP) concerning S. 3335.
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•CRS, The Work Opportunity Tax Credit (WOTC), available here.
- Erika Moritsugu (224-3232)