Baldwin Haspel Burke & Mayer LLC

BHBM Tax Alert 5/09/2011


FEDERAL TAX LAW UPDATES

Repeal of 1099 Reporting Requirements

On April 14, 2011, President Obama signed H.R.4 “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy over payments Act of 2011.” This law retroactively repeals expanded 1099 reporting requirements previously enacted by the “Small Business Jobs Act of 2010” and the “Patient Protection and Affordable Care Act.”

Prior to the expanded Form 1099 reporting requirements mentioned above, IRC §6041 generally required payments totaling at least $600 in a single calendar year to a single recipient to be reported to the IRS. Most commonly, payments to a vendor for services in excess of $600 triggered the reporting requirements. IRC §6041 and the regulations thereunder contained exemptions for payments to corporations.

The “Patient Protection and Affordable Care Act”, which was enacted in 2010, expanded the rules to require reporting beginning in 2012 on both payments made for property, and payments made to corporations. The “Small Business Jobs Act of 2010” amended the law to provide that a person receiving rental income would be treated as engaged in a trade or business of renting property for information reporting purposes. In particular, rental income recipients making payments of $600 or more to any service provider would have to provide a Form 1099 to the service provider and to the IRS.

The “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy over payments Act of 2011”repeals all of these changes retroactively.

Bonus Depreciation Election

The Internal Revenue Service recently issued guidance on the one hundred percent (100%) bonus depreciation deduction authorized by the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010 (“Tax Relief Act”), and the fifty percent (50%) bonus depreciation deduction authorized by the Small Business Jobs Act of 2010 (“SBJ Act”). The SBJ Act originally authorized a fifty percent (50%) bonus depreciation deduction for property placed in service before 2011 (2012 in the case of certain property). The Tax Relief Act of 2010 further expanded this depreciation incentive by allowing a one hundred percent (100%) bonus depreciation deduction for property acquired and placed in service after September 8, 2010 and before January 1, 2012; the Tax Relief Act also authorized a fifty percent (50%) bonus depreciation deduction for property acquired and placed in service on or after January 1, 2012 and before January 1, 2013.

Rev. Rul. 2011-26 allows a taxpayer to elect to deduct fifty percent (50%) rather than one hundred percent (100%) for all qualified property that is in the same class of property and placed in service by the taxpayer in its tax year that includes September 9, 2010, subject to certain requirements. The election must be made by the due date of the federal tax return including extensions for the taxpayer’s tax year that includes September 9, 2010.

Discharge of Indebtedness Income

The Internal Revenue Service recently issued Proposed Regulation §1.108-9 concerning the application of insolvency and bankruptcy exclusions of IRC § 108 to disregarded entities and grantor trusts.

The regulation clarifies that the insolvency and bankruptcy exclusions apply at the owner level rather than at the grantor trust or disregarded entity level. This regulation is consistent with the application of the insolvency and bankruptcy exclusions to partnerships.

STATE TAX LAW UPDATE

2011 Louisiana Hurricane Preparedness Sales Tax Holiday

Louisiana R.S. 47:305.58 provides for an annual state sales tax holiday on sales of hurricane-preparedness items or supplies made on the last Saturday and Sunday of each May. This year, the sales tax holiday weekend is Saturday, May 28 and Sunday, May 29. During the two-day annual holiday, tax-free purchases are authorized on the first $1,500 of the sales price of certain items. For a list of these items, please click here.

If you would like to receive BHBM Email Tax Alerts to stay informed on the latest changes in tax law on the Federal and State level, please email Katie Kelly at kkelly@bhbmlaw.com.


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