Emergency Economic Stabilization Act of 2008

On October 3, 2008, President Bush signed into law P.L. 110-343, the Emergency Economic Stabilization Act of 2008, the principal parts of which are: (1) a $700 billion financial markets stabilization plan; and (2) $150 billion in tax benefits, which are partially offset by $40 billion in revenue-raisers. The tax benefits include individual AMT relief, a package of energy- and conservation-related incentives, numerous extensions of expired or expiring provisions, disaster relief, plus an amendment to the §6694 penalty imposed on tax preparers for understating a taxpayer's liability.
Revenue raisers include: freezing the §199 deduction for oil and gas production activities at 6%, reducing the foreign tax credit for oil and gas activities, extending the FUTA surtax, requiring brokers to report a customer's basis in securities, and currently taxing deferred compensation held offshore.

INDIVIDUAL TAX RELIEF
Section 24 Child Tax Credit
The Act adds new §24(d)(4) to lower the §24(d)(1)(B)(i) earned income threshold to calculate the refundable portion of the child tax credit to $8,500 for tax years beginning after December 31, 2007.

Section 62(a)(2)(D) Deduction for Expenses of Elementary and Secondary School Teachers Expired for tax years beginning after 2007, now extended to tax years beginning during 2008 and 2009.

Section 63(c)(1)(C) Additional Standard Deduction for Real Property Taxes
Set to expire for tax years beginning after 2008, now extended to tax years beginning in 2009.

Section 108 Exclusion of Income from Discharge of Qualified Mortgage Debt
The Act extends for three years, through the end of 2012, the current-law exclusion from taxable income of debt forgiven before the end of 2009 in a foreclosure proceeding or write-down of principal on a mortgage. It would not extend the relief to home equity loans.
Effective for discharges of indebtedness in years 2010 through 2012.

Section 164(b) Election to Deduct State and Local Sales Taxes in Lieu of State and Local Income Taxes
Expired for tax years beginning on January 1, 2008, now extended to tax years beginning before January 1, 2010. The extension applies to tax years beginning in 2008.

Section 222 Deduction for Qualified Tuition and Related Expenses
Expired for tax years beginning after December 31, 2007, now extended to tax years beginning in 2008 and 2009.

ALTERNATIVE MINIMUM TAX RELIEF
Section 26(a)(2) AMT Relief for Nonrefundable Personal Credits
Expired in tax year 2007, now extended to tax year 2008.

Section 53 Credit for ISO Holders Who Paid Taxes Under the AMT

The current AMT credit allowance under §53(e) is modified and extended. Long-term unused minimum tax credits are refundable over two years instead of five years, and the income phase-out for high-earning taxpayers is eliminated. Also, the Act abates any underpayment of tax under the AMT related to ISOs, including interest and penalties outstanding on October 3, 2008.

Section 55(d) Increased Alternative Minimum Tax Exemption Amount
Increased from $66,250 in 2007 to $69,950 for tax years beginning in 2008 for joint returns and surviving spouses, and from $44,350 in 2007 to $46,200 for tax years beginning in 2008 for single taxpayers. For married taxpayers filing separate returns the exemption amount is 1/2 the amount for married filing jointly.

CHARITABLE GIVING TAX PROVISIONS
IRA Owners Making Charitable Distributions Under §408
In 2006 and 2007, distributions of up to $100,000 that were made directly to a qualified charitable organization were not included in the IRA owner's income, provided the distribution was made on or after the date the IRA owner attained age 701/2. The Act extends this rule for distributions made on or before December 31, 2009.

Section 170(e)(3)(C) Enhanced Deduction for Contributions of Food Inventory
The Act extends the termination date for the special §170(e)(3)(C) deduction for contributions of food inventory. The former termination date, which applied to contributions made after December 31, 2007, is extended to contributions made after December 31, 2009. The Act also removes the percentage limitations on qualified food contributions by a farmer or rancher that occur during the period beginning on October 3, 2008 and ending on December 31, 2008.

Section 170(e)(3)(D) Enhanced Deduction for Contributions of Book Inventory
The Act extends the termination date for the special §170(e)(3)(D) deduction for contributions of book inventory to public schools at the K-12 level. The former termination date, which applied to contributions made after December 31, 2007, is extended to contributions made after December 31, 2009.

Section 170(e)(6) Enhanced Deduction for Qualified Computer Contributions
The Act extends the termination date for the special §170(e)(6) deduction for contributions of computer equipment to educational institutions and public libraries. The former termination date, which applied to taxable years beginning after December 31, 2007, is extended to taxable years beginning after December 31, 2009.

BUSINESS TAX RELIEF
Section 41 Research Credit
Expired on December 31, 2007, now extended, with modifications, to amounts paid or incurred in 2008 and 2009.

Alternative incremental credit election of §41(c)(4) is terminated for tax years beginning in 2009.
For tax years ending before January 1, 2009, the §41(c)(5) alternative simplified credit continues to be 12% of the qualified research expenses in excess of 50% of the average qualified research expenses for the preceding 3 tax years, and is increased to 14% of that amount for all other years.

Section 45A Indian Employment Credit
Expired for tax years beginning after December 31, 2007, extended to tax years beginning in 2008 and 2009.

Section 45D New Markets Credit
Set to expire in calendar year 2008, extended to calendar year 2009. Credit limitation for 2009 is the same as for 2008.

Section 45G Railroad Track Maintenance Credit
Expired for expenditures paid or incurred during tax years beginning after January 1, 2008, extended for expenditures paid or incurred during tax years beginning before January 1, 2010. The extension applies to expenditures paid or incurred during tax years beginning in 2008.

Section 45N Mine Rescue Team Training Credit
Set to expire for tax years beginning after December 31, 2008, extended to tax years beginning in 2009.

Certain Farming Business Machinery and Equipment Treated As Five-Year Property Under §168
The Act treats as five-year property any machinery or equipment (other than a grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which begins with the taxpayer after 2008 and which is placed in service before 2010. Effective for property placed in service in 2009.

Section 168 Seven-year Cost Recovery Period for Motorsports Racing Track Facility
Formerly not applicable to property placed in service after December 31, 2007, applicable to property placed in service in 2008 and 2009.

Section 168(e)(3)(E) 15-year Straight-line Cost Recovery
Formerly not available for qualified leasehold improvements and qualified restaurant improvements placed in service after January 1, 2008, extended to improvements placed in service before January 1, 2010.

As added by the Act, §168(e)(3)(E)(ix) includes qualified retail improvement property placed in service after December 31, 2008 and before January 1, 2010 in the list of 15-year property. Qualified retail improvement property is defined in §168(e)(8), added by the Act.

Section 168(j) Accelerated Depreciation for Business Property on Indian Reservations
Formerly not applicable to property placed in service after December 31, 2007, applicable to property placed in service in 2008 and 2009.

Section 179E Election to Expense Advanced Mine Safety Equipment
Formerly not applicable to property placed in service after December 31, 2008, extended to include property placed in service in 2009.

Special Expensing Rules Under §§181 and 182, and Modification of §199, for Certain Film and Television Productions

The Act extends for one year, to the end of 2009, the provision allowing a producer to elect to take a single-year deduction of up to $15 million in production costs incurred in the United States.

The Act also allows expensing of the first $15 million ($20 million if the costs are significantly incurred in economically depressed areas) regardless of the ultimate cost of the film. These modifications would apply to qualified film and television productions beginning after 2007.
In addition, for purposes of the §199 domestic production activities deduction, the Act provides that in the case of qualified films, W-2 wages include compensation for services performed in the United States by actors, production personnel, directors, and producers. The Act modifies the definition of a qualified film to include any copyrights, trademarks, or other intangibles with respect to the film, and to provide that the methods and means of distributing a qualified film will not affect the availability of the §199 deduction.
The portion of the Act provision pertaining to the §199 deduction applies to taxable years beginning after 2007.

Section 198 Expensing of Environmental Remediation Costs
Formerly not applicable to expenditures paid or incurred after December 31, 2007, applicable to expenditures paid or incurred in 2008 and 2009.

Section 199 Deduction for Puerto Rico Domestic Production Activity Income
Formerly applied to the first 2 tax years of the taxpayer beginning after December 31, 2005, and before January 1, 2008, extended to the taxpayer's first four tax years beginning after December 31, 2005 and before January 1, 2010. Extension applies to tax years beginning in 2008.

Section 871(k) Treatment of Certain Dividends of Regulated Investment Companies
Under current law, a regulated investment company (RIC) can designate, under some circumstances, all or a portion of a dividend as an “interest-related dividend” (which, if received by a foreign person, may be exempt from U.S. income tax) and can designate “short-term capital gain dividends.” Dividends with respect to any taxable year of the RIC beginning after 2007 cannot be interest-related dividends or short-term capital gain dividends under current law. The Act extends the treatment of interest-related dividends and short-term capital gain dividends to dividends with respect to any taxable year of the RIC beginning before 2010. Effective for dividends with respect to taxable years of RICs beginning after 2007.

Section 1301 Income Averaging for Amounts Received in Connection with Exxon Valdez Litigation
For purposes of §1301, the Act allows commercial fishermen and other individuals whose livelihoods were negatively impacted by the 1989 Exxon Valdez oil spill to average any settlement or judgment-related income that they receive in connection with pending litigation in the federal courts over three years for federal tax purposes. The Act also allows these individuals to use these funds to make contributions to retirement accounts within the rules of §§72 and 408.

Section 1367 Basis Adjustment to Stock of S Corporations Making Charitable Contributions of Property
Under law expiring on December 31, 2007, when an S corporation makes a contribution to a charity, a shareholder reduces the basis in the shareholder's stock by the shareholder's pro rata share of the adjusted basis of the contributed property. The Act extends this rule to the end of 2009.
Effective for contributions in taxable years beginning after 2007.
Section 1400 DC Zone Designation

Designation of the applicable DC area as the District of Columbia Enterprise Zone, and its treatment as an empowerment zone designated under subchapter U, expired on December 31, 2007, extended to December 31, 2009. Extension applies to periods beginning in 2008.

FINANCIAL PRODUCTS
Treat Gain or Loss From Sale or Exchange of Certain Preferred Stock as Ordinary Income or Loss
The Act treats gains or losses on sales of Fannie Mae and Freddie Mac preferred stock by financial institutions or financial institution holding companies (collectively, “applicable financial institutions”) as ordinary income or loss.
This applies to any Fannie Mae and Freddie Mac preferred stock that was held by the financial institution on September 6, 2008, or was sold by the financial institution from January 1 through September 6, 2008. Generally, the provision does not apply to any Fannie Mae or Freddie Mac preferred stock held by a taxpayer that was not an applicable financial institution on September 6, 2008. In addition, the Secretary, through regulations, could extend the provision to cases in which the applicable financial institution is a partner in a partnership that (i) held preferred stock of Fannie Mae or Freddie Mac on September 6, 2008, and later sold or exchanged such stock, or (ii) sold or exchanged such preferred stock from January 1 through September 6, 2008.
Effective for sales or exchanges after 2007 in taxable years ending after 2007.

COMPENSATION PLANNING

The Act allows employers to provide employees who commute to work by bicycle limited fringe benefits to offset the costs of purchasing and storing a bicycle, and making repairs and improvements. The exclusion from tax is limited to $20 per month spent commuting by bicycle.

Limitations for Companies Participating in Bailout

Any financial institutions that sell troubled assets to the Treasury Department in the federal government's Troubled Assets Relief Program (TARP) will be subject to restrictions on executive compensation. The restrictions vary depending on whether the Secretary acquires the assets in a direct purchase or by auction.

Direct Purchases. If the Treasury Department buys troubled assets directly and receives a meaningful equity or debt position in the financial institution resulting from the transaction, the institution must: (1) exclude incentives for senior executive officers to take “unnecessary and excessive risks that threaten the value of the financial institution” while the Secretary holds an equity or debt position in the financial institution (the “authorities period”); (2) include a clawback provision for the financial institution to recover any bonus or incentive compensation paid to a senior executive officer based on earnings, gains, or other criteria that are proven later to be materially inaccurate; and (3) prohibit golden parachute payments to senior executive officers during the authorities period. A “senior executive” is defined in the bill as the top five executives of a public company whose compensation is subject to the disclosure rules of the Securities Exchange Act of 1934 and non-public company counterparts. The Secretary is directed to issue guidance no later than two months after October 3, 2008, to be effective when issued. The provision will sunset when the authorities period expires, as determined under Act §120.

Auction Purchases. When the Treasury buys troubled assets under the program through an auction, the prohibition on golden parachutes applies only to an institution that sells $300 million of assets to the Treasury (including direct purchases) and only to any new employment contracts with covered executives that provide a golden parachute in the event of an involuntary termination, bankruptcy filing, insolvency or receivership. For institutions that only sell troubled assets through direct purchases, those assets are not included in the $300 million threshold for the deduction limit to apply (see Act §113(c) on use of direct purchases).

Institutions that auction troubled assets may deduct only $500,000 for executive pay (half the usual amount). The $500,000 deduction limit is reduced by any parachute payments paid during the authorities period. Also, executives receiving golden parachutes under existing contracts may be subject to a 20% tax on the payments.
Covered executives are the chief executive officer, the chief financial officer, or any individual acting in either capacity, or the three highest compensated officers. The executive remuneration to which the deduction limits apply includes performance-based compensation, which employers ordinarily deduct because compensation based on performance goals is exempt from the §162(m) $1 million limit on executive pay. Thus, institutions that auction troubled assets cannot use the performance-based pay exemption.
These amendments are effective generally for taxable years ending on or after October 11, 2008. The golden parachute rules apply to payments with respect to severances occurring during the authorities period (determined under Act §120).

Section 457A Foreign Nonqualified Deferred Compensation — Taxation Upon Vesting
Under this new Code section, individuals will be taxed on a current basis on deferred compensation received from a “tax indifferent party,” even if the promise to pay is unfunded and unsecured. Generally, executives and other employees may defer paying tax on compensation until the compensation is paid. The employer's deduction is matched with the payment of the compensation, so that the deduction is deferred until the compensation is paid. In some cases, the employer may be inclined to limit the deferral period in order to take the deduction sooner. However, foreign corporations and partnerships comprised of foreign persons -- for example, certain hedge funds or private equity funds -- have no offsetting deduction to be deferred. As a result, employees receiving deferred compensation from these tax indifferent parties benefit from the deferral, while these corporations and partnerships are indifferent to the timing of the payments.

Under the provision, any compensation that is deferred under a nonqualified deferred compensation plan is includible in gross income when there is no substantial risk of forfeiture. The provision applies to two classes of entities: (1) any foreign corporation, unless substantially all of its income is “effectively connected” with a trade or business in the U.S., or (2) any partnership comprised of (a) foreign persons that are not subject to U.S. income tax or a comprehensive foreign income tax, or (b) tax-exempt entities. The exception for partnerships subject to a comprehensive foreign income tax might apply if a comprehensive tax is imposed by an income tax treaty.

“Nonqualified deferred compensation plan,” under the provision, has the same meaning under §409A(d), except that it includes any plan that provides a right to compensation based on the appreciation in value of a specified number of equity units. The provision does not apply to compensation that would have been deductible by a foreign corporation taxed under §882, had it been paid in cash on the date it was no longer subject to a substantial risk of forfeiture.

This provision applies in addition to §409A and any other Code provisions or tax law principles that apply to nonqualified deferred compensation, such as §83, which requires that substantial services must be performed before compensation is vested. The earnings rules under §409A(d)(5) and the aggregation rules of §409A(d)(6) apply.

The provision is effective for amounts deferred that are attributable to services performed beginning January 1, 2009. For amounts to which the provision does not apply solely because they are attributable to service performed before January 1, 2009, to the extent it is not includible in gross income in a tax year beginning before 2018, applicable nonqualified deferred compensation will be includible in the later of: (1) the last taxable year beginning before 2018, or (2) the taxable year in which there is no substantial risk of forfeiture (determined under §457A).

Section 3301 FUTA Surtax
The Act extends through 2009 the federal unemployment tax (FUTA) rate of 6.2% on the first $7,000 of wages, and provides a 6% rate for 2010 and thereafter.

The Act expands mental health parity requirements for private insurance plans that offer mental health benefits. Unlike current law, the Act applies mental health parity requirements to services for substance use disorders. Effective January 1, 2009, financial requirements (e.g., deductibles, copayments, coinsurance, and out-of-pocket expenses) and treatment limitations must be no more restrictive than those applicable to medical and surgical benefits. If the plan covers medical and surgical treatments by out-of-network providers, the plan must cover mental health benefits to the same extent. Some plans may qualify for an exemption if applying the mental health parity requirements results in an increase in the plan's cost.

ENERGY RELATED PROVISIONS
Section 25C Nonbusiness Energy Property Credit
• Extends credit for two years, through December 31, 2009.
• Includes stove that uses burning of biomass fuel to heat a dwelling unit used as a residence, or to heat hot water for such a dwelling unit, to list of property eligible for credit.
• Modifies definition of hot water heater eligible for credit to include water heaters with thermal efficiency of at least 90%.
• Modifies definition of qualified energy efficiency improvements.
Section 25D Residential Energy Efficient Property
• Extends credit for eight years, through December 31, 2016.
• Adds credit for residential wind property of $500 with respect to each half kilowatt of capacity (not to exceed $4,000), effective for tax years beginning after 2007.
• Adds 30% credit for geothermal heat pump system, up to $2,000, effective for tax years beginning after 2007.
• Removes cap on amount of solar electric property credit, effective for tax years beginning after 2008.
• Allows credit to offset AMT, effective for tax years beginning after 2007.
Section 30C Alternative Fuel Vehicle Refueling Property Credit
• Extends credit for one year, through December 31, 2010.
• Designates electricity as clean-burning fuel for purposes of credit, effective for property placed in service after October 3, 2008, in tax years ending after that date.
Section 30D Credit for New Qualified Plug-In Electric-Drive Motor Vehicles
• New credit ranging from $2,500 to $15,000, depending on weight and kilowatt hour of traction battery capacity, for each new qualified plug-in electric-drive motor vehicle purchased after December 31, 2008, and before January 1, 2015.
• The credit is subject to an annual phases-out limitation when the number of such vehicles sold for use in the United States exceeds 250,000.
Section 40 Alcohol Credit
• Clarifies that credit does not apply to alcohol produced outside the United States for use as a fuel outside the United States.
Section 40A Biodiesel and Renewable Credit
• Increases income tax credit to $1.00/gallon, effective for fuel produced and sold or used after December 31, 2008.
• Eliminates agri-biodiesel as separate credit.
• Eliminates requirement that renewable diesel must be produced using thermal depolymerization process.
• Clarifies that credit does not apply to biodiesel produced outside the United States for use as a fuel outside the United States.
Section 45 Renewable Electricity Credit
• Extends placed-in-service-date for refined coal production credit for one year, through December 31, 2009.
• Extends placed-in-service-date for renewable electricity production credit from wind for one year, through December 31, 2009.
• Extends placed-in-service-date for renewable electricity production credit for closed-loop biomass, open-loop biomass, geothermal energy, small irrigation power, landfill gas, trash combustion, and qualified hydropower for two years, through December 31, 2010.
• Eliminates increased market value test for refined coal production and changes emission standards.
• Allows credit for open and closed-loop biomass facilities for new units placed in service.
• Modifies definition of non-hydroelectric dam.
• Extends the refined coal production credit to “steel industry fuel” (fuel produced through a process of liquefying coal waste sludge and distributing it on coal and used as a feedstock for the manufacture of coke) produced and sold after September 30, 2008. The credit is $2.00 per barrel-of-oil equivalent, adjusted for inflation, but not subject to a phaseout.
• Expands definition of “qualified energy sources” to include marine and hydrokinetic renewable energy derived by qualified facilities from waves, tides and currents in oceans, rivers and streams after October 3, 2008, effective for electricity produced and sold after October 3, 2008, in tax years ending after that date.
Section 45L New Energy Efficient Home Credit
• Extends credit for one year, through December 31, 2009.
Section 45M Energy Efficient Appliance Credit
• Extends credit for appliances manufactured through 2010.
• Modifies credit for dishwashers to $45 and $75, depending on when manufactured and the level of efficiency.
• Modifies credit for clothes washers to $75, $125, $150, and $250, depending on when manufactured and the level of efficiency.
• Modifies credit for refrigerators to $50, $75, $100, and $200, depending on when manufactured and the level of efficiency.
Section 45Q Carbon Dioxide Sequestration Credit
• New credit of: (1) $20 per metric ton of qualified carbon dioxide captured and disposed of in secure geological storage; or (2) $10 per metric ton of qualified carbon dioxide captured and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery project, applicable to carbon dioxide captured after October 3, 2008.
Section 48 Energy Credit
• Extends credit for solar energy property, fuel cell property, and microturbine property for eight years through December 31, 2016.
• Allows energy credit to offset AMT beginning in first tax year after October 3, 2008.
• Allows credit for combined heat and power system property and geothermal heat pumps as energy property for periods after October 3, 2008.
• Increases credit cap for fuel cell property from $500 to $1,500, effective after October 3, 2008.
• Allows public utility property to be taken into account for purposes of energy credit for periods after February 13, 2008.
• Expands definition of “energy property” to include qualified small wind energy property that uses a qualifying small wind turbine, with a nameplate capacity of not more than 100 kilowatts, to generate electricity. The maximum allowable credit is $4,000, and generally applies to such property placed in service after October 3, 2008, and before January 1, 2017
• Expands definition of “energy property” to include equipment that uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure. The credit applies to such property in periods after October 3, 2008.
Section 48A Qualifying Advanced Coal Project Credit
• Provides $1.25 billion in new credits during three-year period beginning at termination of current credit, effective for credits allocated or reallocated after October 3, 2008.
• Requires highest priority for credit allocation for projects that sequester carbon dioxide emissions, effective for credits allocated or reallocated after October 3, 2008.
• Requires public disclosure of credit allocations.
Section 48B Qualifying Gasification Project Credit
• Provides $250 million in new credits for equipment that separates and sequesters at least 75% of the project's total carbon dioxide emissions, effective for credits allocated or reallocated after October 3, 2008.
• Requires highest priority for credit allocation for projects that separate and sequester carbon dioxide emissions, effective for credits allocated or reallocated after October 3, 2008.
• Modifies list of eligible projects to include transportation grade liquid fuels, effective for credits allocated or reallocated after October 3, 2008.
• Includes electricity as clean-burning fuel eligible for credit, effective for property placed in service after October 3, 2008, in tax years ending after that date.
Section 54C Clean Renewable Energy Bonds
• Authorizes $800 million in new clean renewable energy bonds, which must be issued after October 3, 2008, to encourage generation of electricity by qualified renewable energy facilities from §45(c)(1) qualified energy resources. The credit amount is limited to 70% of the §54A(b) amount.
• No more than 331/3% of the bonds may be allocated to qualifying projects of each of the following: (1) state, local and tribal governments; (2) public power providers; and (3) electric cooperatives.
Section 54D Qualified Energy Conservation Bonds
• New provision authorizing $800 million in new qualified energy conservation bonds, which must be issued after October 3, 2008, to encourage “qualified conservation purposes,” as defined in the provision.
• The bonds must be allocated among the states in proportion to their populations.
Section 54E Qualified Zone Academy Bonds
• Revives provision (formerly found in §1397E) that expired on December 31, 2007, to authorize state and local governments to issue $400 million in qualified zone academy bonds (QZABs), effective for 2008 and 2009.
Extend and Modify Qualified Green Building and Sustainable Design Project Bond Under §142.
The Act extends for three years, through the end of 2012, the authority to issue qualified green building and sustainable design project bonds. The Act also clarifies the application of the reserve account rules to multiple bond issuances, by providing that the term “issuance” as used in 2004 AJCA §701(d) means “issuance of the last issue with respect to such project.”
Include Cellulosic Biofuel in §168 Bonus Depreciation for Biomass Ethanol Plant Property
The Act allows taxpayers to immediately write off 50% of the cost of facilities that produce cellulosic biofuels, redefined as any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, if such facilities are placed in service before 2013. The Act thus makes this benefit available for the production of other cellulosic biofuels in addition to cellulosic biomass ethanol.
Effective for property placed in service after October 3, 2008.
Accelerate §168 Depreciation for Smart Meters and Smart Grid Systems
The Act provides accelerated depreciation for smart electric meters and smart electric grid equipment. Under current law, taxpayers are generally allowed to recover the cost of this property over a 20-year period. The Act allows taxpayers to recover the cost of this property over a 10-year period, unless the property already qualifies under a shorter recovery schedule.
Effective for property placed in service after October 3, 2008.
Additional First-Year §168 Depreciation for Reuse and Recycling Property
The Act allows taxpayers to claim 50% bonus depreciation for the placed-in-service year for machinery and equipment used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials. Generally, for property placed in service after August 31, 2008.
Section 179C Election to Expense Refineries
Formerly available for qualified refinery property placed in service before January 1, 2012, now applicable to property placed in service before January 1, 2014.
Also, formerly available for qualified refinery property which improves an existing qualified refinery's production capacity, construction of which was subject to a binding construction contract entered into before January 1, 2008 and placed in service before January 1, 2008, or in the case of self-constructed property, the construction of which began after June 14, 2005, and before January 1, 2008. Now extended to include capacity improvement property subject to a binding construction contract entered into before January 1, 2010 or self-construction beginning before January 1, 2010.
In addition, a refinery that produces fuel from shale and tar sands is added to the §179C(d) definition of a qualified refinery. The extensions and modifications apply to property placed in service after October 3, 2008.
Section 179D Energy Efficient Commercial Buildings Deduction
The Act extends for five years, through the end of 2013, the energy efficient commercial buildings deduction, which is scheduled to terminate at the end of 2008.
Section 199 Deduction for Income Attributable to Oil and Gas Production
Section 199 provides a deduction equal to a portion of the taxpayer's qualified domestic production activities income. The §199 deduction is scheduled to increase from 6% to 9% in 2010. The Act freezes the §199 deduction at 6% for gross receipts derived from the sale, exchange, or other disposition of oil, natural gas, or any primary product thereof.
Effective for tax years beginning after 2008.
Special Rule to Implement FERC and State Electric Restructuring Policy Under §451
Current law defers gain, at the taxpayer's election, on sales of transmission property by electric utilities to FERC-approved independent transmission companies, allowing gain on such sales occurring before 2008 to be recognized ratably over eight years. The Act allows deferral of gain on sales before 2010 in the case of “qualified electric utilities,” which it defines as a person that is vertically integrated in that it is both a transmitting utility with respect to the transmission facilities subject to the election and an electric utility.
Effective for transactions after 2007.
Section 613A(c)(6) Suspension of Taxable Income Limit on Percentage Depletion for Oil and Natural Gas Produced from Marginal Properties
Formerly applicable to taxable years beginning after December 31, 1997, and before January 1, 2008. Now applicable to any taxable year beginning after December 31, 1997, and before January 1, 2008, or beginning after December 31, 2008, and before January 1, 2010.
Effective for property placed in service after August 31, 2008.
Section 6426 Alternative Fuel Credit
• Extends alternative fuel excise tax credit for one year, through December 31, 2009.
• Imposes carbon capture requirement for certain fuel, effective for fuel sold or used after October 3, 2008.
• Allows credit for biomass gas versions of LP gas and liquefied or compressed natural gas, and aviation fuels, effective for fuel sold or used after October 3, 2008.
Certain Income and Gains Relating to Industrial Source Carbon Dioxide Treated as Qualifying Income for Publicly Traded Partnerships Under §7704
“Publicly traded partnerships” are generally treated as corporations for federal tax purposes unless (subject to exceptions) 90% or more of the partnership's gross income for the taxable year is “qualifying income.” The Code identifies sources of qualifying income. The Act adds to the list of sources by permitting publicly traded partnerships to treat income derived from industrial source carbon dioxide as qualifying income for purposes of the publicly traded partnership rules.
Effective on October 3, 2008, in taxable years ending after that date.
Certain Income and Gains Relating to Alcohol Fuels and Mixtures, Biodiesel Fuels and Mixtures, and Alternative Fuels and Mixtures Treated as Qualifying Income for Publicly Traded Partnerships Under §7704
The Act permits publicly traded partnerships to treat income derived from the transportation or storage of certain alternative fuels, including certain alcohol fuel and biodiesel fuel, as qualifying income for purposes of the publicly traded partnership rules.
Effective on October 3, 2008, in taxable years ending after that date.

DISASTER RELIEF
The Disaster Relief portion of the Economic Recovery Act is broken down into three sections. The first section deals with disaster relief for the victims of certain storms and tornados which decimated the Midwest portion of the United States over the last year. The second section deals with disaster relief for future storms which are declared as Federal Disaster Areas. The third section deals with relief provisions for victims of Hurricane Ike. Additionally, the Act provides for certain extensions with respect to credits allowable in the Gulf Opportunity Zone.
In 2005, the Gulf Opportunity Zone Act provided extraordinary tax relief for the victims of Hurricanes Katrina, Wilma and Rita. The Food, Conservation, and Energy Act of 2008 (FCEA) extended many of the relief provision granted to the victims of Hurricanes Katrina, Wilma and Rita to an area known as the Kansas Disaster Area (generally, Kiowa County, Kansas and the surrounding area) due to the severe storms which hit the area in May 2007. Instead of amending the Code, the FCEA simply made certain tax relief provision provided to earlier hurricane victims available to Kansas Disaster Area victims. The Economic Recovery Act follows this approach.
The 2008 Economic Recovery Act provides tax relief for victims of the Midwestern disasters in Arkansas, Illinois, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin (hereinafter referred to as “Midwestern Disaster Tax Relief”). The Midwestern Disaster Tax Relief is applicable to floods, severe storms, and tornados that are declared by FEMA on or after May 20, 2008, and before August 1, 2008. The tax relief provisions do not apply with respect to golf courses, country clubs, massage parlors, hot tub facilities, suntan facilities, or liquor stores. Further, the provisions also do not apply with respect to any property used directly in connection with gambling, animal racing, or the on-site viewing of such racing, and with respect to buildings or portions of buildings dedicated to such activities.

Midwestern Disaster Relief
The Midwestern Disaster Relief includes, but is not limited to:
• New §168(n) allows for businesses that suffered damages to claim an additional first-year depreciation deduction equal to 50% of the cost of new real and personal property investments made in the Midwestern Disaster Area.
• New §179(e) increases by $100,000 (or the cost of qualified property, if less) the §179 expense available for qualifying expenditures made in the disaster area through December 31, 2011. Further, the phase-out would be increased by $600,000.
• The §1400N(a) authority for the states within the Midwestern Disaster Area to issue a special class of qualified private activity bonds, called Midwestern disaster area bonds, outside of the state volume caps is made applicable to the Midwestern Disaster Area.
• The §1400N(c) increased allocation volume for additional low-income housing credit amounts of $8 is made applicable to the Midwestern Disaster Area in the years 2008, 2009, 2010 in the Midwestern Disaster Area measured by population data issued before the earliest applicable disaster date for Midwestern Disaster Area.
• The §1400N(f) current deduction of 50% of the costs (that would otherwise be capitalized) related to site cleanup and demolition by businesses is made applicable to the Midwestern Disaster Area.
• The §1400N(g) extension of the deductibility of costs of cleaning up a qualified contamination site, if the release (or threat of release) or disposal of a hazardous substance is attributable to the disaster is made applicable to the Midwestern Disaster Area.
• The §1400N(h) increase in the rehabilitation credit from 10% to 13% for buildings damaged by the noted disasters, and an increase in the rehabilitation credit from 20% to 26% of qualified expenditures for any certified historic structure is made applicable to the Midwestern Disaster Area.
• The §1400N(k) extension of the net operating loss carryback period from 2 to 5 years for certain net operating losses is made applicable to the Midwestern Disaster Area.
• The §1400N(l) authorization for Midwestern disaster States to issue debt service tax credit bonds providing credits against Federal income tax instead of interest payments, so that these States can provide assistance to communities unable to meet their debt service requirements as a result of the flooding, tornadoes, and severe storms is made applicable to the Midwestern Disaster Area.
• The §1400O doubling of the Hope Credit dollar amounts to $3,000 for 2008, and the doubling of the Lifetime Learning Credit percentage to 40%, for a maximum Lifetime Learning Credit of $4,000 for 2008 for students attending undergraduate or graduate institutions in the Midwestern disaster area is made applicable to the Midwestern Disaster Area. The dollar amounts are adjusted each year for inflation.
• The §1400P allowance to 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 to repair or reconstruct their homes is made applicable to the Midwestern Disaster Area.
• The §1400Q(a)(1) waiver of the 10% penalty tax on qualified Disaster Recovery Assistance distribution for distributions from an IRA, 401(k), 403(b), or 457(b) plan is made applicable to the Midwestern Disaster Area. For these purposes a distribution is considered a qualified distribution if it is made on or after the Federally-declared disaster date and before January 1, 2010, and is made to an individual whose principal residence is located in a Midwestern Disaster Area and who sustained an economic loss by reason of the disaster.
• The §1400Q(b) tax-free recontribution to a retirement plan or IRA of certain distributions which were made for home purchases that were not finalized because of the tornadoes and floods giving rise to the designation of the area as a disaster is made applicable to the Midwestern Disaster Area.
• The §1400Q(c) doubling of the limitation on loans from a 401(k), 403(b), or a 457(b) plan by allowing participants to receive loans up to the lesser of $100,000, or 100% of the vested accrued benefit made before January 1, 2010, is made applicable to the Midwestern Disaster Area. Further, certain outstanding loan payments may be deferred an additional 12 months, with appropriate adjustments for interest.
• The §1400R employee retention credit of 40% for wages paid up to $6,000 if paid after the applicable disaster date, and before January 1, 2009, by employers with 200 or fewer employees located in the Midwestern Disaster Area who continue to pay their employees while their business is inoperable is made applicable to the Midwestern Disaster Area.
• With respect to charitable giving, the §1400S temporary suspension of limitations on charitable contributions, and the KTRA §302 increase in standard mileage rate for charitable use of vehicles, and exclusion from income of mileage reimbursements for charitable volunteers are made applicable to the Midwestern Disaster Area.
• The §1400S(b) elimination of the 10% and $100 floor for casualty losses resulting from the Midwestern disaster and incurred in the disaster area, including those claimed on amended returns is made applicable to the Midwestern Disaster Area.
• The §1400S(c) (reference to §7508A) authority of the Treasury to ensure taxpayers do not lose deductions, credits or filing status because of dislocations from the Midwestern disaster is made applicable to the Midwestern Disaster Area.
• The §1400S(d) election for low-income working families to use their 2007 income amount for purposes of determining their eligibility for the refundable earned income credit and the refundable child tax credit is made applicable to the Midwestern Disaster Area.
• The Katrina Tax Relief Act of 2005 (KTRA) §302 allowance of an additional personal exemption of $500 per dislocated person (maximum of $2,000) for taxpayers who house up to four dislocated persons from the Midwestern disaster for a minimum of 60 days in their principal residences is made applicable to the Midwestern Disaster Area. The deduction can be claimed in 2008 and 2009, but cannot be claimed in both years with respect to the same person.
• The KTRA §401 exclusion for certain cancellations of indebtedness which is discharged in response to damage suffered from the Midwestern disaster is made applicable to the Midwestern Disaster Area.
• The KTRA §405 extension from four to five years of the replacement period for principal residences and business property that was damaged or destroyed within any Federally-declared disaster area in the Midwestern Disaster Zone is made applicable to the Midwestern Disaster Area, so long as the replacement property is located in the same county.

National Disaster Relief
The Act provides tax relief for victims of all Federally-declared disasters occurring after December 31, 2007, and before January 1, 2010. The prospective National Disaster Relief includes:
• New §143(k)(12) allows for 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.
• New §165(b)(3) waiver of the restrictive 10% casualty loss rule, and new §165(h)(1) raising of the $100 floor to $500, and the allowance for non-itemizers to use these losses as a standard deduction.
• New §168(n) allows an additional first-year depreciation deduction equal to 50% of the cost of new real and personal property investments made in Federally-declared disaster areas.
• New §172(b)(1)(D) extends from 2 to 5 years the time period taxpayers can claim casualty losses or qualified disaster expenses.
• New §179(e) increases by $100,000 (or the cost of qualified property, if less) the §179 expense available for qualifying expenditures made in the disaster area through December 31, 2008. Further, the phase-out would be increased by $600,000.
• New §198A allows for disaster victims to write off and immediately recover demolition, deductible clean up and repair (regardless of whether costs are incurred due to a casualty event), and environmental remediation expenses.
Hurricane Ike Disaster Tax Relief
Tax relief for taxpayers affected by Hurricane Ike include:
• Section 1400N(a) is made applicable to Texas and Louisiana and allows those States to issue a special class of qualified private activity bonds outside of the state volume caps. Further, the current low-income housing targeting rules are relaxed so that more bond proceeds can be used to rebuild housing in the Hurricane Ike disaster area.
• Section 1400N(c) is made applicable to Texas and Louisiana and allows those States to allocate volumes of additional housing credit amounts in years 2008, 2009, 2010 of $16 per person based on the populations of Brazoria, Chambers, Galveston, Jefferson and Orange counties in Texas and Calcasieu and Cameron parishes in Louisiana.
Hurricane Katrina Extensions
• The §1400N(h) increased rehabilitation credit for structures in the Gulf Opportunity Zone is extended from December 31, 2008, until December 31, 2009.
• KTRA §201 which extended the work opportunity credit for Hurricane Katrina employees for two years is extended to four years.
FOREIGN TAX PROVISIONS
Section 30A Extension of Economic Development Credit for American Samoa
Domestic corporations with qualifying activities in American Samoa are granted extended eligibility for the §30A Puerto Rico economic activity credit. Under prior law, the credit was available for the first two taxable years of the corporation that began after December 31, 2005, and before January 1, 2008. The Act extends the credit to the first four taxable years beginning after December 31, 2005, and before January 1, 2010.
Section 897 RIC Investments in U.S. Real Property
The termination of the FIRTA exception in §897(h) for owners of 5% or less interests in publicly-traded RICs is extended from December 31, 2007, to December 31, 2008.
Section 907 Expansion of Foreign Tax Credit Limitation on Foreign Oil and Gas Income
This revenue raiser, effective for taxable years beginning after December 31, 2008, expands the scope of the §907 foreign tax credit limitation for foreign oil and gas income. The limitation, which formerly applied only to foreign oil and gas extraction income, would be extended to “foreign oil related income,” which is defined in §907(c) as income from the processing, transportation, and distribution of oil and gas products, as well as the disposition of assets used in the production of such income.
Section 953(e) Subpart F Exception for Active Financing Income
The special rules for insurance, banking, and financing income, found in §§953(e), 954(h), and 954(i), are extended to taxable years of a foreign corporation beginning before January 1, 2010. Under prior law, they applied to taxable years beginning before January 1, 2009.
Section 954 Look-Thru Rule for Related CFCs
The §954(c)(6) look-thru rule for related controlled foreign corporations is extended to taxable years of foreign corporations beginning before January 1, 2010. Under prior law, it applied to taxable years beginning before January 1, 2009.
Increase in Limit on Cover Over of Rum Excise Tax Under §7652
The temporary increase in the §7652(f) limitation on the cover over to Puerto Rico and the U.S. Virgin Islands with respect to taxes imposed on distilled spirits brought into the United States is extended to apply to spirits brought into the United States before January 1, 2010. The prior cut-off date was January 1, 2008.

TAX REPORTING
Basis Reporting by Brokers on Stock Sales Under §6045, §6045A (new) and §6045B (new)
A significant and long-expected change generally opposed by the financial services industry will require securities brokers to report the cost basis for all stock, debt, commodities, derivatives, and other items specified by Treasury, along with whether any gain or loss is long-term or short-term.
The Act provisions generally apply beginning January 1, 2011, except that the provision extending the period in which statements must be sent to customers under §6045(b) from January 31 to February 15, applies to statements that must be furnished after December 31, 2008.
Modification of Return Preparer Understatement Penalty Standard Under §6694
Previously, taxpayers and tax return preparers were subject to different standards under §§6662 and 6694 with respect to undisclosed tax return positions, a source of much controversy and discomfort within the tax preparer community as preparers were held to a higher standard. To place preparers and taxpayers on a more equal footing, at least with respect to undisclosed positions, the Act modifies the §6694 standards for preparers to require: (1) “substantial authority” for an undisclosed position (reduced from the “reasonable belief” standard under prior law); (2) a “reasonable basis” in the case of a position that is adequately disclosed in the return or in a statement attached to the return; and (3) in the case of tax shelters and reportable transactions to which §6662A applies, a “reasonable belief” that such a transaction would “more likely than not be sustained on the merits.”
The Act is effective for returns prepared after May 25, 2007, except that in the case of positions with respect to tax shelters and reportable transactions to which §6662A applies, the Act is effective for returns prepared after October 3, 2008.