President Signs Financial Rescue Bill
President Bush signed the Emergency Economic Stabilization Act of 2008, on October 3, 2008; the same day that the House passed the legislation by a vote of 263 to 171. The House vote came just two days after the Senate passed the measure by a vote of 74 to 25, and four days after the House failed to pass a similarly title bill. The landmark legislation gives the Treasury $250 billion immediately, and requires the president to certify if an additional $100 billion is necessary. An additional $350 billion may be disbursed subject to Congressional approval. The Treasury Department is required to report on the use of the funds and progress made in addressing the crisis. An oversight board and a special inspector general will also be created to watch over the Treasury department. The measure also:
- Requires the Treasury to modify troubled loans wherever possible to help families keep their homes;
- Directs other federal agencies to modify loans that they own or control ;
- Improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes; and
- Places certain limits on executive compensation.
The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. In addition, the president must submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee to all financial institutions.
The legislation temporarily raises the FDIC insurance cap from $100,000 to $250,000. It also includes a one year AMT “patch,” would extend a number of individual and business deductions, credits and incentives, provides disaster relief to those impacted recent hurricanes and flooding, and includes a number of energy-related tax provisions. The added tax provisions are largely taken from the Renewable Energy and Job Creation Act of 2008 (HR 6049), which the Senate passed on September 23, 2008, and are only partially offset.
House and Senate Struggling to Reach an Agreement on an AMT "Patch," Disaster Relief and Extenders
With little time left on the Congressional calendar, the House and the Senate are trying to reach an agreement that would extend AMT relief and certain expired or expiring tax provisions, as well as provide assistance to victims of recent disasters. The Senate, on September 23, 2008, passed an amended version of the Renewable Energy and Job Creation Act of 2008 (HR 6049), by a vote of 93 to 2. The Senate-amended version of HR 6049 would:
- Extend AMT relief for one year;
- Provide a number of clean energy tax incentives at a cost of $18 billion;
- Extend expired or expiring individual deductions, including the deductions for local and sales taxes, qualified tuition, teacher expenses, and the additional standard deduction for real property taxes;
- Extend a number of business credits and incentives, including the research and development credit); and
- Provide disaster relief to those impacted by Hurricane Ike and the flooding in the Midwest.
The total cost of the amended Senate version of HR 6049 is only partially offset. In response to the Senate’s action, the House on September 24, 2008, passed the Alternative Minimum Tax Relief Act of 2008 (HR 7005) and the Disaster Tax Relief Act of 2008 (HR 7006), setting the stage for final passage of AMT and disaster relief provisions before Congress adjourns for the election. This could potentially postpone and agreement on a broader extenders package and energy-related tax incentives for later this year or next.
Congress Passes Six-Month Extension of Aviation Taxes
On September 23, 2008, the House passed the Federal Aviation Administration (FAA) Extension Act of 2008, Part II (HR 6984). The Senate promptly followed suit and passed the measure on September 24, 2008. HR 6984 provides a six-month extension of aviation programs and taxes through March 31, 2009. The measure now heads to the White House.
Congress Passes Social Security Legislation
On September 17, 2008, the House passed the Social Security Income (SSI) Extension for Elderly and Disabled Refugees Act (HR 2608). The Senate previously passed the measure by unanimous consent on August 1, 2008. The legislation temporarily extends the current seven-year SSI eligibility period for refugees and asylum seekers in the United States to nine years, along with a limited retroactive provision. To pay for the extension, the legislation authorizes the IRS to offset income tax refunds of individuals who have fraudulently secured state unemployment benefits. President Bush is expected to sign the bill into law.
House Passes Comprehensive Energy Legislation
The House, on September 16, 2008, passed the Comprehensive American Energy Security and Consumer Protection Act (HR 6899), by a vote of 236 to 189. Title VIII of the measure, the Energy Tax Incentives Act of 2008, provides a number of energy-related tax incentives, including:
(1) an extension and modification of the renewable energy production tax credit;
(2) an extension and modification of the solar energy and fuel cell investment tax credit;
(3) an extension and modification of the residential energy-efficient property credit;
(4) the creation of $1.75 billion of new clean renewable energy bonds; and
(5) the creation of a new credit for plug-in drive vehicles.
To pay, in part, for these and other incentives, the legislation would deny the Code Sec. 199 domestic production deduction for certain integrated oil companies. The legislation faces an uncertain future. President Bush has threatened to veto the bill. Further, it is unlikely that comprehensive energy legislation will pass in the Senate prior to adjourning before the election. The Senate, however, may take up it’s owe $18 billion package of energy tax incentives.
President Signs Comprehensive Housing Legislation
Reacting to the continuing slumps in housing sales, rising unemployment numbers, and weakening credit markets, Congress passed the Housing and Economic Recovery Act of 2008 (H.R. 3221). The House passed the measure on July 23, 2008, by a vote of 272 to 152. After a procedural delay, the Senate followed suit and passed the legislation on July 26, 2008, by a vote of 72 to 13. The legislation includes a $15.1 billion tax title, the Housing Assistance Tax Act of 2008, which will:
(1) provide first-time home buyers (as defined in the legislation) with a refundable credit of 10% of the purchase price of a home, up to $7500 (recipients would be required to repay any credit amount received over a 15 year period and the credit is phased out for individuals with an adjusted gross income in excess of $75,000 (or $150,000 for joint filers));
(2) provide taxpayers who claim the standard deduction an additional standard deduction of up to $500 (or $1000 for joint filers) for state and local property taxes;
(3) provide an increase the state-by-state allocation of low-income housing tax credits;
(4) simplify the rules applicable to tax-exempt housing bonds; and
(5) allow taxpayers in affected GO Zone areas to amend prior returns to take into account receipt of hurricane-related recovery grants.
The legislation also includes several revenue raising provisions, one of which would require certain institutions to file information returns with respect to reimbursements made to merchants that accept various forms of "payment cards" (including credit and debit cards). The bill would also delay the phase-in of the world-wide interest allocation election enacted as part of the American Jobs Creation Act of 2004 for two years (i.e., for taxable years beginning after 2010).
President Bush originally opposed the legislation in part because it creates $3.9 billion in new community development block grants to help rebuild communities significantly impacted by foreclosures. On July 23, 2008, President Bush withdrew his veto threat on the measure in an effort to hasten passage and provide relief to the troubled housing and financial markets. President Bush signed the measure into law on Wednesday, July 30, 2008.
President Signs Tax Relief for Military Personnel and Veterans
On May 20, 2008, the House unanimously approved the Heroes Earnings Assistance and Relief Tax Act of 2008 (HR 6081). The Senate followed suit and passed the measure on May 22, 2008. President Bush signed the measure into law on June 17, 2008. The legislation will:
(1) Allow military personnel to qualify for economic stimulus payments even though a spouse does not have a Social Security number;
(2) Make permanent the ability to include combat pay as earned income under the Earned Income Tax Credit;
(3) Make permanent and modify the availability of qualified mortgage bonds used to finance veterans' residences;
(4) Allow the day prior to the date of death to be treated as the date an employee in the military returned to work for purposes of qualified plan benefit distributions;
(5) Permit an employer to make contributions to a qualified plan on behalf of an employee killed or disabled in combat;
(6) Treat differential wages paid to an employee called to the military as wages for withholding and retirement plan purposes and create a small employer tax credit for differential wages;
(7) Extend the limitations period for tax refund credit claims with respect to veterans' disability determinations;
(8) Make permanent the ability of reservists to make penalty-free withdrawals from retirement plans and permit reservists to make penalty-free withdrawals from flexible spending accounts;
(9) Make permanent the ability of the Social Security Administration to disclose information to the Veterans' Administration for purposes of determining veterans' program eligibility;
(10) Clarify that state payments to service members are treated as qualified military benefits; and
(11) Permit recipients of military death benefit gratuities to roll the sums over tax-free to a Roth IRA or Coverdell Education Savings Account.
To pay for these provisions, the legislation revises the expatriation tax rules, treat domestically controlled foreign persons performing services under contract to the United States as U.S. employers, increases the failure to file penalty, and extends the excise tax for failure to comply with mental health parity requirements.
President Vetoes Farm Legislation for a Second Time; Congressional Override Expected
The Senate, on June 5, 2008, passed HR 6124, the Food, Conservation, and Energy Act of 2008, by a vote of 77 to 15. The House previously passed HR 6124 on May 22, 2008. The measure will now go to the White House. President Bush is expected to veto the measure, setting the stage for an override vote in Congress. HR 6124 would repeal previously passed farm legislation, HR 2419, also titled the Food, Conservation, and Energy Act of 2008, then re-enact the provisions of HR 2419 plus approximately 34 pages of trade provisions inadvertently omitted from the enrolled version of HR 2419.
The House, on May 21, 2008, voted 318 to 108 to override President Bush's veto of the Food, Conservation, and Energy Act of 2008 (HR 2419). The Senate followed suit and, on May 22, 2008, voted to override the veto 82 to 13. The override votes in the House and Senate took place amid a procedural mix-up, calling into question the validity of both votes. The enrolled bill text received by the White House and vetoed by President Bush on May 21, 2008, was missing Title III, which contained approximately 34 pages of trade provisions. Likewise, the House and Senate votes to override the President's veto were of the legislation without Title III. In effort to immediately resolve the mix-up, the House passed HR 6124, also titled the Food, Conservation, and Energy Act of 2008, which contains the same provisions as the enrolled version of HR 2419 plus Title III. Prior to the Memorial Day recess, however, the Senate successfully voted to override the version of HR 2419 vetoed by the President, thus enacting everything except Title III, rather than passing the measure as a whole for a second time.
In an unprecedented move, the Senate subsequently passed HR 6124 on June 5, 2008, sending farm legislation to the White House for a second time. President Bush vetoed HR 6124 on June 17, 2008. Both the House and Senate are expected to override the President's veto for a second time.
The tax title of HR 6124, titled the Heartland, Habitat, Harvest, and Horticultural Act of 2008, provides $1.67 billion in tax relief and incentives. Retired farmers and farmers on disability who participate in land conservation reserve programs will be permitted to count payouts under the program as investment income, preventing reductions in Social Security or disability benefits. New deductions and credits include a deduction for endangered species recovery expenditures and a credit for agricultural chemicals security measures. Deduction and credit enhancements include an increase in the cellulosic biofuels credit and an extension of the conservation easement deduction. Another provision creates uniform three-year depreciation for horses and allows horse sales to qualify for the 15 percent capital gain rate. Also included are a couple of provisions related to timber REITs. Bond provisions include authorization of forest conservation bonds and increased loan limits on Aggie Bonds.
The measure also contains several revenue offset provisions, including a reduction in the ethanol credit, a limitation on the ability to offset farm losses against nonfarm income, and creation of an optional self-employment tax for Social Security. In addition, the legislation excludes denaturant from the alcohol fuels credit.
- CCH Tax Briefing: Congress Enacts Farm Bill Overriding Bush Veto And Passes Military Tax Relief
- CCH Law, Explanation and Analysis
- Title XV, the Heartland, Habitat, Harvest, and Horticultural Act of 2008
- White House Press Release: Statement of the President on the Farm Bill
- Senate Overwhelmingly Approves Farm Legislation with Disaster Assistance, Tax Reforms, Tax Relief
- 2008 Farm Bill Tax Package: Farm Tax Reforms, Farm Tax Relief
- Senate Finance Committee Release: 2008 Farm Bill Tax Package --Homegrown Energy Independence
- Senate Finance Committee Release: 2008 Farm Bill Tax Package --Farm Tax Reforms
- Congressional Research Service Report for Congress --Farm Bill Legislative Action in the 110th Congress (Updated May 9, 2008)
- Congressional Research Service Report for Congress --What Is the "Farm Bill"? (Updated April 1, 2008)
- ClientRelate Bulletin --2008 Farm Act: Tax Relief and Reforms
- ClientRelate Bulletin --2008 Farm Act: Tax Relief for Kansas Disaster Victims
President Signs Economic Stimulus Package Into Law
President Bush, on February 13, 2008, signed into law the Economic Stimulus Act of 2008 (HR 4140).The legislation, estimated to cost $125 billion over a ten-year period, includes a recovery rebate credit for 2008. The basic credit is calculated as the greater of:
(1) net income tax liability not to exceed $600 ($1,200 for joint filers), or
(2) $300 ($600 for joint filers) if the individual has either (a) at least $3,000 of any combination of earned income, social security benefits, and certain veterans' benefits, or (b) net income tax liability of at least one dollar and gross income greater than the sum of the applicable basic standard deduction amount and one personal exemption (two if a joint return).
Any individual qualifying for a basic amount of credit also qualifies for an additional credit of $300 per qualifying child. The 2008 recovery rebate credit would be payable in the form of advance rebate checks paid during 2008 based on 2007 tax returns or information from the Social Security Administration or Veterans Administration. The credit will require valid taxpayer identification numbers.
According to Treasury Secretary, Henry Paulson, the IRS will begin sending rebate checks to qualifying taxpayers immediately after the 2008 filing season. "The IRS will manage the current tax filing season and simultaneously prepare to issue these additional payments starting in early May."
The legislation also includes a temporary increase in the small business expensing limitations, a temporary special first-year 50 percent bonus depreciation allowance, and increases in the housing loan limits for Fannie Mae, Freddie Mac, and FHA approved mortgages.
Guidance Released by the IRS related to the Economic Stimulus Act of 2008:
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