Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 09/23/11


American Jobs Act of 2011

President Obama has submitted the American Jobs Act of 2011(the “Act”) to Congress in an effort to stimulate the economy by creating jobs. The Act includes several tax incentives that could benefit business owners.

Some of the tax incentives contained in the Act are:

1. Payroll Tax Cuts

A. Employee side: For 2011, an employee’s share of the Old Age, Survivors, and Disability Insurance (“OASDI”) of the Social Security tax has been reduced from 6.2% to 4.2%.  President Obama proposes that the employee’s share of the OASDI be reduced to 3.1% for 2012.

B. Employer side:

i. The Act includes a provision which would reduce the employer’s side of the OASDI from 6.2% to 3.1% for the first $5,000,000 of wages paid during 2012.

ii. The Act also includes a provision whereby employers would be entitled to a full 6.2% payroll tax holiday for any growth in their payroll up to $50,000,000 above the prior year, whether the increases are due to hiring new employees or increased wages.

2. Hiring Incentives

The Act contains tax credits to encourage businesses to hire members from certain targeted groups: long-term unemployed individuals (those unemployed for longer than six months); and, unemployed veterans (with a higher credit for unemployed workers with disabilities).

3. Bonus Depreciation

A. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“2010 Tax Act”) extended and expanded the bonus depreciation rules under IRS § 168 (k). Specifically, for qualified property placed in service after September 8, 2010 and before January 1, 2012, the bonus depreciation deduction available is equal to 100% of the cost of the qualified property. Further, the 2010 Tax Act provided that the bonus depreciation deduction available for property placed in service after December 31, 2011 and before January 1, 2013 is equal to 50% of the cost of qualified property.

B. The Act contains a provision that would extend the 100% bonus depreciation deduction to all assets placed in service prior to January 1, 2013.  This would supersede the bonus depreciation provisions enacted in the 2010 Tax Act.

The Act contains several other provisions including a delay in the required withholding provisions on certain governmental contracts.  There are measures in the Act which would limit the value of itemized deductions for certain taxpayers.

Form 8939

The IRS released Rev. Proc. 2011-41 and IRS Notice 2011-66 recently, which governed the election available for the estates of decedents who died in 2010.  As discussed in a previous tax law alert, executors of the estates of decedents who died in 2010 faxed a decision of whether to apply the estate tax-free regime or whether to apply the $5,000,000 exemption amount.  See our previous tax law alerts for a full discussion of this election.

The recent IRS guidance suggested that the due date for filing the Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, was November 15, 2011.  This form only applies to those executors who elect to apply the estate tax free regime.  Form 8939 must be filed by the executor to elect the $1,300,000 step-up in basis[1] (plus an additional $3,000,000 for property passing to a surviving spouse). Once the election to step-up the basis of assets is made by the executor, it is irrevocable.  The IRS guidance also contained very limited extensions of time to file the Form 8939.

The IRS recently issued IRS Notice 2011-76, which extends the deadline for filing Form 8939 from November 15, 2011 to January 17, 2012.  This extension gives executors and tax professionals additional time to evaluate and determine which assets should be stepped up in basis.

As of today, the IRS has still not issued Form 8939.

[1] This amount can be increased by certain built-in losses and certain loss carryovers available on the decedent’s date of death.

Preparer Identification Numbers

The IRS plans to require a formal background check, including finger printing, of unenrolled preparers who apply for preparer identification numbers.

Tax Patents

On September 16, 2011, President Obama signed the America Invents Act (H.R. 1249) which included a provision that the United States Patent and Trademark Office can no longer approve any tax strategy patents, including those tax strategy patents that are currently pending.

Patents issued for tax strategies have long been an issue for courts and the United States Patent and Trademark Office.

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