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5978892v1
1900 Avenue of the Stars, 7
th
FloorLos Angeles, California 90067310.203.8080—(fax) 310.203.0567Two Embarcadero Center, 5
th
FloorSan Francisco, California 94111415.398.8080—(fax) 415.398.5584645 Town Center Drive, Suite 230Costa Mesa, California 92626714.429.8200—(fax) 714.429.8202
Copyright © Jeffer Mangels Butler & Marmaro LLP 2009. All Rights Reserved.
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009:Summary of Selected Tax Provisions
 
by Marilyn Barrett and David Graff 
 
Effective February 17, 2009, PresidentBarack Obama signed into law the AmericanRecovery and Reinvestment Act of 2009(otherwise known as the "Stimulus Bill"),$787 billion economic stimulus legislationwhich President Obama said marks a "majormilestone on our road to recovery." Taxprovisions account for over $288 billion ofthis amount. This memorandum summarizesonly selected tax provisions contained in theStimulus Bill. This memorandum is notexhaustive and you should contact your taxadvisor to discuss how the new taxprovisions will affect you. The first sectiondescribes business tax incentives, thesecond section describes energy-related taxincentives, and the third section describestax provisions affecting individual taxpayersSeveral non-tax provisions have also beenincluded.
TAX INCENTIVES FOR BUSINESS
Extension of Bonus Depreciation 
IRC § 168(k) allows additional depreciation inthe first year certain assets are placed in serviceequal to 50% of the basis of the property(referred to as "bonus depreciation"). Bonusdepreciation is allowed for both regular tax andthe AMT. Property eligible for bonusdepreciation is (i) MACRS property with anapplicable recovery period of 20 years or less;(ii) water utility property; (iii) computer software(other than purchased software); or (iv) qualifiedleasehold improvement property, the original
 
use of which commences with the taxpayer.Bonus depreciation expired at the end of 2008except for certain transportation property whichhas an expiration date of December 31, 2009.The Stimulus Bill extends the expiration date forone year to the end of 2009 and through 2010for the transportation property.Section 168(k)(4) provides an election to foregothe bonus depreciation on qualifying property inexchange for converting limited amounts ofunused pre-2006 research credits and AMTcredits into current refundable credits. Prior tothe Stimulus Bill, the qualifying property had tobe placed in service after March 31, 2008 andbefore January 1, 2009. The Stimulus Billextends this election one additional year as well.
 Estimated Cost - $5,074 million 
Increase in First Year Expensing 
 IRC § 179 permits taxpayers to elect toimmediately deduct up to $250,000 the cost ofdepreciable tangible personal property placed inservice during 2008. This amount is reduced tothe extent qualifying property placed in serviceby the taxpayer exceeds $800,000. After 2008,these limitations were scheduled to be reducedto $125,000 and $500,000 respectively. TheStimulus Bill extends the $250,000 and$800,000 amounts through taxable year 2009.
Estimated Cost - $41 million 
Six-Year Carryback of Losses 
 
Under IRC § 172, net operating losses can
 
5978892v1
1900 Avenue of the Stars, 7
th
FloorLos Angeles, California 90067310.203.8080—(fax) 310.203.0567Two Embarcadero Center, 5
th
FloorSan Francisco, California 94111415.398.8080—(fax) 415.398.5584645 Town Center Drive, Suite 230Costa Mesa, California 92626714.429.8200—(fax) 714.429.8202
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009by Marilyn Barrett and David Graff 
 
Page 2
Copyright © Jeffer Mangels Butler & Marmaro LLP 2009. All Rights Reserved.
generally be carried back two years and carriedover 20 years. Under the Stimulus Bill, smallbusinesses whose gross receipts do not exceed$15 million can elect to carryback net operatinglosses incurred after 2007 as many as 6 years.This election can only be made for one taxableyear.
Estimated Cost - $947 million 
Estimated Tax Payments 
 
The Stimulus Bill permits qualified individualswhose adjusted gross income is less than$500,000 and who can certify that at least 50%was derived from a small trade or business, tomake estimated tax payments equal to of 90%of the taxpayer's tax liability for the preceding taxyear. Prior to this change, these taxpayers wereobligated to make estimated tax payments equalto the lesser of (i) 90% of the tax shown on thereturn for the current year, or (ii) 100% (110% ifgross income exceeded $150,000) for thepreceding tax year. A small trade or business isdefined as one that employs on average nomore than 500 persons.Additionally, under the Stimulus Bill theestimated tax payment required to be made bycertain large corporations (with least $1 billion inassets) in July, August or September 2013 hasbeen increased to 120.25% of the amountotherwise due. This represents an increase of0.5 percentage point. The next requiredinstallment due in October, November orDecember of 2013 is reduced to 79.75% of theamount otherwise due.
Modification of Work Opportunity Credit 
IRC § 51 allows employers to take a workopportunity credit for employing individuals fromone or more of nine targeted groups. The creditis generally 40% of first year and second yearwages limited to caps ranging from $1,200 to$9,000, depending on the target group which theemployee qualifies under.
 
The Stimulus Bill creates a new target group forthe credit of unemployed veterans anddisconnected youth who begin work for theemployer in 2009 or 2010.
Estimated Cost - $231 million 
Clarification of Limitations on Built-In Losses Following an Ownership Change 
 
Generally, IRC § 382 imposes substantiallimitations on use of net operating losses("NOLs") where there is a 50% change inownership in the loss corporation. The purposeof the limitation is to preclude trafficking inNOLs.
 
Last fall, the Treasury Secretary issued Notice2008 which granted some banks (and only somebanks) which acquired distressed banks relieffrom Section 382 and allowed them to deductthe NOLs of the distressed banks in full. Theseagreements were extremely controversial, inpart because many people did not believe thatthe Treasury Secretary has the legal right towaive the congressional marked provision ofSection 382.The Stimulus Bill clarifies application of Section382. It states that Congress found the following:
 
5978892v1
1900 Avenue of the Stars, 7
th
FloorLos Angeles, California 90067310.203.8080—(fax) 310.203.0567Two Embarcadero Center, 5
th
FloorSan Francisco, California 94111415.398.8080—(fax) 415.398.5584645 Town Center Drive, Suite 230Costa Mesa, California 92626714.429.8200—(fax) 714.429.8202
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009by Marilyn Barrett and David Graff 
 
Page 3
Copyright © Jeffer Mangels Butler & Marmaro LLP 2009. All Rights Reserved.
(i) the Treasury Secretary does not haveauthority to provide exemptions or special rulesto particular industries or classes of taxpayers;(ii) the Notice granting 382 relief is inconsistentwith Congressional intent and the legal authorityof this Notice is doubtful; but (iii) taxpayersshould be allowed to rely on the Notice.The Stimulus Bill provides that the Notice will beeffective only for the agreements entered into bythe Treasury Secretary with banks beforeJanuary 16, 2009 that provided that the Section382 limitations would be waived.
Estimated Cost - gain of $6,977 million* 
Elimination of IRC § 382 Limitations On NOLCarryovers In Certain EESA Restructurings 
 
Notwithstanding the finding that Notice 2008was invalid, Congress enacted new IRC §382(n)(l), which provides that the NOL limitationwill not apply to a change in ownership resultingfrom a restructuring plan of a taxpayer that is (i)required under a loan agreement or commitmentfor a line of credit entered into with the TreasuryDepartment under the Emergency EconomicStabilization Act of 2008, and (ii) intended toresult in a rationalization of the costs,capitalization, and capacity with the respect tothe manufacturing workforce of, and suppliersto, the taxpayer and its subsidiaries. Nobodyknows what the requirement in (ii) means andwe will have to await IRS guidance.
Estimated Cost - $3,163 
Delay of Withholding Requirement on Certain Payments Made by Government Entities (i.e.,Government Contracts) 
 IRC § 3402(t) requires government entities tobegin withholding tax at the rate of 3% on allpayments to persons providing goods andservices to the governmental entity, beginningfor payments made after December 31, 2010.The Stimulus Bill delays this withholdingrequirement for one year to payments madeafter December 31, 2011.
Estimated Cost - $291 million 
Deferral of Cancellation of Indebtedness Income 
 
When a debt is settled for less than the fullamount due, the debtor generally realizescancellation of debt income and must pay tax onthat amount in the year the debt is canceled tothe extent the debtor is solvent (generally, debtcancellation does not cause taxable income tothe extent the debtor is insolvent or anotherexception applies). This can be veryburdensome to the taxpayer since debtforgiveness does not generate cash and thetaxpayer may not have other cash to pay thetax. The Stimulus Bill permits certain taxpayerswho reacquire a business debt at a discount todefer reporting the amount of debt forgiven untilthe 5th year following the reacquisition forreacquisition in 2009 and the 4th taxable forreacquisition in 2010.
Estimated Cost - $1,622 million 
*
This appears to be an example of budgetary magic and must be based on the pretense that the Notice found to be"doubtful" was law and by revoking the law, additional tax will be owed. An alternative way of looking at the Noticewould be the estimated loss of tax revenues resulting from the Notice, which should not have been issued in the first  place.
 
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