United States: Comparison Of Business Tax Incentives In U.S. House And U.S. Senate Stimulus Packages

It is anticipated that the U.S. Senate will take up the stimulus legislation early in the week beginning February 2, 2009, and that it will be signed into law on February 16, 2009.

On January 28, 2009, the U.S. House of Representatives passed the American Recovery and Reinvestment Act of 2009 (H.R. 1) (the House Bill) containing significant business tax incentives. A package containing similar tax incentives entitled The American Recovery and Reinvestment Tax Act of 2009 (the Senate Bill) was approved by the U.S. Senate Finance Committee on January 27, 2009. The tax incentives contained in the two bills are substantially similar, although there are some differences.

The House Bill creates significant tax incentives, including extending the first-year bonus depreciation under section 168(k) of the Internal Revenue Code for property placed in service through 2010; extending the increased limitations on expensing of certain depreciable business assets under section 179 of the Code through 2009; and increasing the general net operating loss (NOL) carryback period from two years to five years in the case of any NOL for any taxable year ending in 2008 or 2009, or if the taxpayer so elects, any taxable year beginning in 2008 or 2009. However, the House Bill would require that any taxpayer taking advantage of this provision to reduce its NOL for such year by 10 percent (even if the actual NOL being carried back beyond two years is less than the amount of the NOL for such year). Further, the increased NOL carryback period does not apply to Troubled Asset Relief Program (TARP) recipients.

The House Bill also prospectively revokes the effect of Notice 2008-83, which essentially suspended the limitation of section 382 with respect to built-in losses of banks following an ownership change. While taxpayers may not be able to rely on Notice 2008-83 for ownership changes occurring after January 16, 2009, the House Bill does clarify that taxpayers can rely on Notice 2008-83 for ownership changes occurring on or prior to that date. For a more detailed description of Notice 2008-83, see McDermott Will & Emery Hot Topic "Limitation on Use of Built-In Losses Following a Bank Ownership Change Suspended," available here.

The Senate Bill includes similar business incentives to those adopted by the House of Representatives, with some differences. The Senate Bill permits NOL deductions for 2008 and 2009 to be carried back for a five-year period, without the 10 reduction contained in the House Bill. It permits deferral of cancellation of indebtedness (COD) income recognized by the taxpayer as a result of the taxpayer's (or a related person's) purchase of certain qualifying debt in 2009 or 2010. COD income realized in 2009 is deferred and included ratably in income in each of the eight taxable years beginning two years after the year of realization. COD income realized in 2010 is deferred and included ratably in income in each of the eight taxable years beginning one year after the year of realization.

The Senate Bill also temporarily reduces the S corporation built-in gains holding period under section 1374 from 10 to seven years for taxable years that begin in 2009 or 2010.

Finally, the Senate Bill would increase the carryback period for general business credits for 2008 and 2009 from one taxable year to five years. Further, the Senate Bill would remove present law limitations to permit general business credits for the taxable years ending in 2008 or 2009 to offset 100 percent of a taxpayer's net income tax. The House Bill does not appear to contain these provisions.

It is anticipated that the U.S. Senate will take up the stimulus legislation early in the week beginning February 2, 2009, and that a conference committee of House and Senate members will convene the week of February 9, 2009, to resolve any differences in the bills prior to its anticipated signature by President Obama on February 16, 2009 (President's Day Holiday).

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