Basics and Beyond Income Tax Seminars

On November 6, 2009 President Obama signed H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009'' (the Act).

Overview of the New Law

For individuals, the act extends and liberalizes the first time homebuyer tax credit (FTHTC). Changes for businesses include modifications to return filing and penalties, an unemployment benefit extension, plus liberalized rules for net operating losses and toughened penalties for partnerships and S corporations.

The more than $21 billion cost of the tax credits would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. The cost of the unemployment benefit extension, about $2.4 billion, is offset by extending a federal unemployment tax that employers must pay.

Homebuyers Credit. The credit would be extended through April 30, 2010 (or June 30, 2010 for taxpayers with written contracts by April 30th). The credit would not begin to phase-out until a taxpayer's income reached $125,000 or $225,000 for joint filers (currently, the phase-out begins at $75,000 and $150,000). Taxpayers could continue to treat a purchase as made in the prior year (e.g., take a credit on your 2009 return for purchases made in 2010). A reduced credit of $6,500 would also be available to taxpayers who have owned and used the same residence as a principal residence for any 5-consecutive-year period during the 8-year period ending on the date of purchase of a new residence. Under the new provisions, the homebuyer credit would only be available on homes costing $800,000 or less.

Congress Passes Mandatory E-Filing Provisions. As part of emergency legislation to extend unemployment compensation benefits, Congress has passed measures that would require return preparers to e-file income tax returns for individuals, estates, and trusts; would increase the penalty for failure to file partnership and S corp returns; would change the rules for the 5-year NOL carryback; and would extend and broaden the homebuyers credit.

New E-filing Requirements. The Act would require e-filing of income tax returns for individuals, estates, and trusts for returns filed after December 31, 2010. A preparer who reasonably expects to file 10 or fewer of these returns during the calendar year would not be required to e-file. Some states already mandate e-filing of individual returns, and practitioners there have made the shift for Federal returns as well. Until now, the IRS has provided incentives, rather than mandating e-filing for individual returns, an approach supported by the AICPA.

Unemployment Benefit Extension. Unemployed will receive as much as an additional 20 weeks of benefits under the Act. The 6.2% FUTA tax rate due to expire at the end of 2009 is now extended through June, 2011.

Partnership and S Corp Failure to File Penalty. The bill would increase the penalty for failure to file a partnership or S corporation return from $89 to $195 for taxable years beginning after December 31, 2009.

NOL Carryback Rules Changed . Last year, Congress allowed eligible small businesses (those with average gross receipts of $15 million or less) to carry back NOLs for up to five years instead of two. The proposed changes that would be effective for taxable years ending after December 1, 2007 include:

Beginning in 2008, the amount of a Net Operating Loss (NOL) that may be carried back five years is limited to 50 Percent of taxable income.
The limitation does not apply to the NOL of a small business made under the rules currently in effect.
The provision suspends the 90 percent limitation on the alternative tax NOL deduction.