Bundle of Goodies in the Bailout Bill

$110 Billion in Pork
When Treasury Secretary Paulson first submitted the socalled economic bailout bill to Congress, it was just three pages. But what President Bush signed into law last month turned out to be 451 pages.

It even took on a fancy name: Emergency Economic Stabilization of Act of 2008, though much of it had nothing to do with any emergency. True to form, Congress loaded it with self-serving “pork.” Samples:

• Re-establishes and extends for two years a lucrative tax credit for doing research and experimentation in the U.S. Companies that have benefited include Microsoft, Boeing, United Technologies, Electronic Data Systems and Harley-Davidson. Cost: $19 billion.

• Provides tax breaks for movie-makers if they film in the U.S. Cost: $478 million.

• Provides special assistance to rum makers in Puerto Rico and the Virgin Islands. Cost: $192 million.

• Extends enhanced charitable deductions for donations of “apparently wholesome food.” Cost: $149 million.

• Provides tax relief to U.S. worsted wool fabric producers that use imported fibers and yarns as inputs. Cost: $148 million.

• Allows stock car race tracks accelerated write-offs of their costs. Cost: $100 million.

• Allows Exxon Valdez plaintiffs to average out their punitive damages awards over three years to avoid being pushed into a higher tax bracket. Cost: $49 million.

• Extends economic development credit for American Samoa. Cost: $33 million.

• Provides fringe benefits for bicycle commuters, including purchase and repair of a bicycle and bicycle storage. Cost: $10 million.

• Transfers interest earned on money in the abandoned mine reclamation fund to the United Mine Workers of America Combined Benefit Fund. Cost: $9 million.

• Provides tax breaks for manufacturers of wooden arrows used by children. Provision is worth $200,000 to one archery establishment in Oregon. Cost: $6 million.


Affecting Your Clients
A bundle of non-emergency goodies from “extenders” to new tax credits is tucked away in the Emergency Economic Stabilization Act of 2008, a.k.a. the bailout bill.

It adds “about $150 billion of new tax breaks, but only about $42 billion in revenue raisers,” according to Mark Luscombe, a principal analyst with CCH, Inc. a tax publisher.

Among those that could affect your clients: • Extension of “mortgage forgiveness,” which excludes from tax up to $2 million of a bank or lending institution’s mortgage discharge.

• Another AMT “patch:” Raises the exemption amounts for the alternative minimum tax to $46,200 (individuals) and $69,950 (joint) for 2008.

• Extension through 2009 of the law allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes.

• Extension through 2009 the above-the-line deduction for qualified higher education expenses with a maximum deduction of $4,000 – subject to a phase out provision.

• Extends through 2009 the standard deduction for real property taxes.

• Extends through 2009 the law allowing taxpayers to make tax-free contributions from their IRA plans to qualified charitable organizations.

• Requires securities brokers to report to the IRS investors’ cost basis on stock transactions. (While many taxpayers report their cost basis to the IRS each year, Senate staffers estimate that an additional $6.67 billion over 10 years can be collected with this extra check on the process.)

FA

And, Incidentally, The Bailout Provisions
The bill created an office within the Treasury department to purchase mortgage-related and potentially other “troubled” assets. It provided for oversight, insurance protection, taxpayer and homeowner protections.

Comprehensive Analysis Coming
Next month’s FA will have a comprehensive analysis of recent federal tax legislation by Robert Goldfarb, CPA, CFP of Schoenfeld, Mendelsohn & Goldfarb, Woodbury, NY.

Besides the above tax measures in the “bailout bill,” Goldfarb will update FA readers on the Small Business & Work Opportunity Tax Act of 2007, the Housing Assistance Act of 2008, the Mortgage Forgiveness Debt Relief Act of 2007 along with modified and re-modified preparer penalties. This is to help financial planners and tax preparers tool up for the coming tax season.