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President Obama Signs Unemployment Compensation Legislation into Law; Expanded NOL Provisions, Homeowner Tax Credits Are Enacted
Text of the statutory language of the Act (discussed below) is available electronically:
H.R. 3548
President Obama today signed H.R. 3548, The Worker, Homeownership, and Business Assistance Act of 2009, therefore making November 6, 2009, the date of enactment.
The Senate passed the bill on Wednesday evening, November 4, and House passage of the bill followed on Thursday, November 5.
The legislation:
- Increases the carryback period for net operating losses (NOLs) arising in either 2008 or 2009 to five years (with some limitations for certain taxpayers and a special rule for life insurance companies)
- Delays implementation of worldwide interest allocation until tax years beginning after December 31, 2017
- Increases the required amounts of corporate estimated taxes for certain large taxpayers for payments due in July, August, and September 2014 by 33 percentage points
- Increases the penalty amounts for failures to file partnership and S corporation returns
- Extends and modifies the first-time homebuyer credit to purchases of a principal residence by an individual taxpayer before May 1, 2010
NOL Carryback Provision
The legislation includes an expansion of the net operating loss (NOL) provision that applied for small businesses, as enacted earlier this year in the
American Recovery and Reinvestment Act (ARRA).
Under the new legislation, all businesses—with exceptions for companies whose stock or rights to an equity interest were acquired by the federal government pursuant to the
Emergency Economic Stabilization Act of 2008 and special rules for life insurance companies*—can carry back NOLs for up to five years for losses incurred either in 2008 or 2009 (at the election of the taxpayer), but not for both years. Businesses may be able to offset 50% of the available income from the fifth year and 100% of income in the remaining four carryback years.
* For life insurance companies, the provision provides an election to increase the carryback period for an applicable loss from operations from three years to four or five years.
Small businesses that have already elected to carry back 2008 losses under ARRA may also elect to carry back losses from 2009.
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Delayed in Application of Worldwide Allocation of Interest
The new law delays the effective date of worldwide interest allocation rules for seven years, until tax years beginning after December 31, 2017.
The law also makes conforming changes to the dates for making the worldwide affiliated group election and the financial institution group election.
Increase in Corporate Estimated Tax Payments; Increased Penalty for Failure to File Partnership or S Corporation Return
The law increases the required payment of estimated tax otherwise due in July, August, or September 2014, by 33 percentage points, and increases the base amount on which the penalty for failure to file either a partnership or S corporation return is increased to $195 (from $89) times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, for a maximum of 12 months.
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Extension and Modification of First-Time Homebuyer Credit
The ARRA provided a refundable tax credit for an individual who is a first-time homebuyer in an amount equal to the lesser of $8,000 ($4,000 for a married individual filing separately) or 10% of the purchase price of a principal residence. Income limitations applied, and the credit was scheduled to expire November 30, 2009.
The new legislation extends the credit to apply to a principal residence purchased by the taxpayer before May 1, 2010. The credit applies to the purchase of a principal residence before July 1, 2010, by a taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010.
The legislation also expands the application of the credit to individuals who have maintained the same principal residence for any five-consecutive year period during the eight-year period ending on the date of the purchase of a subsequent principal residence. Such taxpayers may be treated as a first-time homebuyer, with the maximum allowable credit for these taxpayers of $6,500 ($3,250 for a married individual filing separately).
Under the new law, the income limitations to qualify for the credit are increased, so that the credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase.
No credit is allowed for the purchase of any residence if the purchase price exceeds $800,000, and no credit is allowed unless the taxpayer is 18 years of age as of the date of purchase.
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