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Saturday, May 22, 2010

The American Jobs and Closing Tax Loopholes Act of 2010

The House Ways & Means Committee has returned to and modified H.R. 4213, The American Jobs and Closing Tax Loopholes Act of 2010. As described by the committee, this bill includes provisions to:
  • Promote American job creation - includes various infrastructure investments including extending the research tax credit 1 year; various energy provisions
  • Provide relief for working families - includes 1 year extensions of various provisions for individuals that expired at the end of 2009 including the deduction for qualified higher education expenses, certain expenses of K-12 teachers, and the additional standard deduction for real estate taxes
  • Prevent the outsourcing of American jobs
  • Close tax loopholes- includes provisions that "prevent utilization of foreign tax credits unless the income on which the foreign income tax was paid is repatriated to the U.S.," taxing a portion of carried interests as ordinary income and changing the self-employment tax rule for income of certain professional services S corporations
  • Ensure corporate accountability
  • Maintain access to affordable health care

This 400+ page bill will make the tax law more complicated; closes "loopholes," rather than focusing on provisions that are not loopholes but are instead overly generous (and thus inequitable) such as the deduction for interest on a second home or on home equity debt; and extends temporary provisions without any discussion on whether they are needed (such as the additional standard deduction for real estate taxes).

And a big extender for which there is plenty of data showing it is needed - the AMT "patch," is missing. But even that one requires some discussion as to how it should be extended. The growth of tax breaks in the past few years has caused more individuals to not have to pay a "perceived" minimum (I'll blog on this one more later but I'm thinking of a letter to the editor in the May 3 Tax Notes (page 592) that gave an example of a family with $100K of income tax but who owed no tax due to various tax breaks - they should have a minimum tax as they are not poor).

One new provision would require certain S corporations to pay more self-employment tax. This will be a complicated provision and one that S corporations will be able to plan around (such as by broadening ownership of the corporation). It would be better to not have the rule apply to a subset of S corporations because that adds to the complexity of defining that group. I think this all raises the need to review self-employment taxation to see how it should work today given various types of entities and businesses.

We'll see what happens in the next week or so with the bill. Congress is certainly doing its best to keep tax advisers busy!

What do you think?

Again - the Ways & Means Committee has summaries and bill language at its website - here.

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