Raymond James
Michael West, CFP®, WMS®
Vice President Investments
101 West Camperdown Way
Suite 600
Greenville, SC 29601
864-370-2050 x 4544
864-884-3455
[email protected]
www.westwealthmanagement.com
The Emergency
Economic
Stabilization Act of
2008
April 05, 2012
The Emergency Economic Stabilization Act of 2008
Introduction
On October 3, 2008, the President signed into law H.R. 1424, The Emergency Economic Stabilization Act of 2008.
The Act, often referred to in the media as the "bailout" or "rescue" bill, is a legislative package that is primarily made
up of three major component pieces of legislation: Emergency economic stabilization provisions, the Energy
Improvement and Extension Act of 2008, and the Tax Extenders and Alternative Minimum Tax Relief Act.
Emergency economic stabilization provisions
Troubles Assets Relief Program (TARP)
The Act provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets in an effort to
stabilize the economy. Specifically, the Act:
• Authorizes the establishment of a Troubled Asset Relief Program ("TARP") to purchase troubled assets
from financial institutions, an Office of Financial Stability within the Treasury Department to implement the
program, and a Financial Stability Oversight Board to review and make recommendations regarding the
exercise of authority under the Act.
• Requires the Secretary, upon establishing the TARP program, to establish a program to guarantee
troubled assets of financial institutions; to establish risk-based premiums for such guarantees sufficient to
cover anticipated claims; and to report to Congress on the establishment of the guarantee program.
• Provides the Secretary with the right to exercise authorities under the Act at any time, and provides the
Secretary with the authority to manage troubled assets, including the ability to determine the terms and
conditions associated with the disposition of troubled assets.
• Requires that any profits from the sale of troubled assets be used to pay down the national debt.
• Establishes that, for mortgages and mortgage-backed securities acquired through TARP, the Secretary
must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans
through programs such as the Hope for Homeowners program; the Act allows the Secretary to use loan
guarantees and credit enhancement to avoid foreclosures, and requires the Secretary to coordinate with
other federal entities that hold troubled assets in order to identify opportunities to modify loans,
considering net present value to the taxpayer.
• Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal
Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures;
requires federal entities to work with servicers to encourage loan modifications, considering net present
value to the taxpayer.
• Directs the Treasury to promulgate executive compensation rules governing financial institutions that sell
it troubled assets. Where Treasury buys assets directly, the institution must observe standards limiting
incentives, allowing clawback and prohibiting golden parachutes. When Treasury buys assets at auction,
an institution that has sold more than $300 million in assets is prohibited from entering into an
employment contract with a senior executive officer that provides for certain golden parachutes.
• Authorizes the full $700 billion as requested by the Treasury Secretary for implementation of TARP. The
Act allows the Secretary to immediately use up to $250 billion in authority under this Act. Upon a
Presidential certification of need, the Secretary may access an additional $100 billion. The final $350
billion may be accessed if the President transmits a written report to Congress requesting such authority.
The Secretary may use this additional authority unless within 15 days Congress passes a joint resolution
of disapproval which may be considered on an expedited basis.
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• Restates the Securities and Exchange Commission’s authority to suspend the application of Statement
Number 157 of the Financial Accounting Standards Board ("mark-to-market" accounting rules) if the SEC
determines that it is in the public interest and protects investors.
Bank deposit (FDIC) and credit union share (NCUSIF) insurance
The Act raises the FDIC and the National Credit Union Share Insurance Fund deposit insurance limits from
$100,000 per account to $250,000 until December 31, 2009.
Treatment of gain or loss from sale or exchange of preferred stock in Fannie Mae and Freddie Mac
Gain or loss recognized by an applicable financial institution (e.g., banks, mutual savings banks, cooperative banks,
domestic building and loan associations, and other savings institutions chartered and supervised as savings and
loan or similar associations under Federal or State law) from the sale or exchange of “applicable preferred stock” is
treated as ordinary income or loss.
Applicable preferred stock is preferred stock of Fannie Mae or Freddie Mac that was (i) held by the financial
institution on September 6, 2008, or (ii) was sold or exchanged by the financial institution on or after January 1,
2008, and before September 7, 2008.
Special rules for tax treatment of executive compensation of employers participating in the troubled
assets relief program
The IRC Section 162(m) limit, which generally limits deductible compensation for a covered employee of a publicly
held corporation to $1 million, is reduced to $500,000 in the case of a covered executive for an applicable employer
(any employer with assets of over $300,000,000 acquired under the troubled assets relief program), for tax years
ending on or after October 3, 2008. Employers from which troubled assets are acquired by the Treasury Department
solely through direct purchase (instead of through the auction process) are not included.
Tip: The term covered executive means any individual who is the chief executive officer or the chief
financial officer of an applicable employer, or an individual acting in that capacity, at any time during a
portion of the taxable year. It also includes any employee who is one of the three highest compensated
officers of the applicable employer (other than the chief executive officer or the chief financial officer).
The Act also modifies IRC Section 280G by expanding the definition of a parachute payment in the case of a
covered executive of an applicable employer. Under the modification, a parachute payment means any payments in
the nature of compensation to a covered executive made on account of severance from employment (by reason of
an involuntary termination of the executive by the employer or in connection with a bankruptcy, liquidation, or
receivership of the employer) if the aggregate present value of such payments equals or exceeds an amount equal
to three times the covered executive’s base amount. A parachute payment is nondeductible on the part of the
employer (and the covered executive is subject to an excise tax) to the extent of the amount of the payment that is
equal to the excess over the employee’s base amount that is allocable to such payment.
Tip: The individual’s base amount is the average annual compensation payable by the corporation and
includible in the individual’s gross income over the five-taxable years of such individual preceding the
individual’s taxable year in which the severance from employment occurs.
Exclusion of income from discharge of qualified principal residence indebtedness
The Mortgage Forgiveness and Debt relief Act of 2007 created a temporary exclusion from gross income for any
discharge of indebtedness income by reason of a discharge (in whole or in part) of qualified principal residence
indebtedness. This temporary exclusion applied to discharges of indebtedness before January 1, 2010. The Act
extends the exclusion for three years--the exclusion now applies to discharges of qualified principal residence
indebtedness before January 1, 2013.
Tip: Qualified principal residence indebtedness means acquisition indebtedness (within the meaning of
IRC Section 163(h)(3)(B), except that the dollar limitation is $2,000,000) with respect to the taxpayer’s
principal residence. Acquisition indebtedness with respect to a principal residence generally means
indebtedness which is incurred in the acquisition, construction, or substantial improvement of the
principal residence of the individual and is secured by the residence. It also includes refinancing of
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such indebtedness to the extent the amount of the indebtedness resulting from such refinancing does
not exceed the amount of the refinanced indebtedness.
The Energy Improvement and Extension Act of 2008
Electricity production credit
The Act:
• Modifies the electricity production credit and extends for two years (through December 31, 2010) the
period during which qualified facilities producing electricity from closed-loop biomass, open-loop biomass,
geothermal energy, small irrigation power, municipal solid waste, and qualified hydropower may be
placed in service for purposes of the credit.
• Extends for one year (through 2009) the placed-in-service period for qualified wind facilities;
• Adds marine and hydrokinetic renewable energy as a qualified energy resource and marine and
hydrokinetic renewable energy facilities as qualified facilities.
Business energy credit
The Act:
• Extends the otherwise expiring credits and credit rates relating to solar and geothermal equipment and
qualified fuel cell power plants for eight years, through December 31, 2016.
• Modifies the credit as it relates to qualified fuel cells and the eligibility of public utility property.
• Makes the energy credit allowable against the alternative minimum tax effective for tax years beginning
after October 3, 2008.
• Creates a new category of property--combined heat and power property--and makes it eligible for the 10percent energy credit through December 31, 2016.
Credits for residential energy efficient property and improvements
The Act:
• Extends the credit applicable to the purchase of qualified solar electric property and qualified solar water
heating property (that is used exclusively for purposes other than heating swimming pools and hot tubs)
for eight years, through December 31, 2016, and allows the credit to be claimed against the alternative
minimum tax; the credit cap (currently $2,000) for solar electric property is eliminated after 2008.
• Provides a new 30 percent credit for qualified small wind energy property expenses made by the taxpayer
during the taxable year. The credit is limited to $500 with respect to each half kilowatt of capacity, not to
exceed $4,000. The credit for qualified small wind energy property is allowed for property placed in
service prior to January 1, 2017. Qualified small wind energy property expenditures are expenditures for
property that uses a wind turbine to generate electricity for use in a dwelling unit located in the U.S. and
used as a residence by the taxpayer.
• Provides a 30 percent credit for qualified geothermal heat pump property expenditures for installations on
or in connection with a dwelling unit used as a residence by the taxpayer, not to exceed $2,000. The
credit for qualified geothermal heat pump property is allowed for property placed in service prior to
January 1, 2017.
In addition, the credit under IRC Section 25C for up to 10 percent (maximum $500) of the purchase price of qualified
energy efficiency improvements to existing homes had expired on December 31, 2007. The Act reestablishes the
credit for one year--for property placed in service after December 31, 2008 and before January 1, 2010-- and adds
biomass fuel property to the list of qualified property eligible for a credit of up to $300.
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Caution: Under IRC Section 25C, the maximum credit for a taxpayer with respect to the same
dwelling for all taxable years is $500, and no more than $200 of such credit may be attributable to
expenditures on windows. The allowable credit for the purchase of certain property is (1) $50 for each
advanced main air circulating fan, (2) $150 for each qualified natural gas, propane, or oil furnace or hot
water boiler, and (3) $300 for each item of qualified energy efficient property.
Credit for new qualified plug-in electric drive motor vehicles
The Act allows a tax credit for tax years beginning after 2008 for qualified plug-in electric drive motor vehicles
purchased through December 31, 2014.
A qualified plug-in electric drive motor vehicle is a motor vehicle that meets certain emissions standards and draws
propulsion from a battery that has a capacity of at least 4 kilowatt-hours and is capable of being recharged from an
external source of electricity. Qualified vehicles must have a gross weight of less than 14,000 pounds.
Caution: Qualified vehicles weighing less than 8,500 pounds must be passenger automobiles or light
trucks.
The base amount of the plug-in electric drive motor vehicle credit is $2,500. The credit amount is increased by $417
for each kilowatt-hour of battery capacity in excess of 4 kilowatt-hours. The total credit amount cannot exceed
$7,500 for vehicles weighing 10,000 pounds or less; $10,000 for vehicles weighing more than 10,000 pounds but not
more than 14,000 pounds; $12,500 for vehicles weighing more than 14,000 pounds but not more than 26,000
pounds; $15,000 for vehicles weighing more than 26,000 pounds.
In general, the credit is available to the vehicle owner, including the lessor of a vehicle subject to lease.
Tip: If the qualified vehicle is used by certain tax-exempt organizations, governments, or foreign
persons and is not subject to a lease, the seller of the vehicle may claim the credit so long as the seller
clearly discloses to the user in a document the amount that is allowable as a credit.
Caution: A vehicle must be used predominantly in the United States to qualify for the credit.
There is a limitation on the number of qualified plug-in electric drive motor vehicles sold by each manufacturer of
such vehicles that are eligible for the credit. Taxpayers may claim the full amount of the allowable credit up to the
end of the first calendar quarter after the quarter in which the manufacturer records 250,000 post-2007 plug-in
electric drive motor vehicle sales. Taxpayers may claim one half of the otherwise allowable credit during the two
calendar quarters subsequent to the first quarter after the manufacturer has recorded its 250,000th sale. In the third
and fourth calendar quarters subsequent to the first quarter after the manufacturer has recorded its 250,000th sale,
the taxpayer may claim one quarter of the otherwise allowable credit.
The basis of any qualified vehicle is reduced by the amount of the credit. To the extent a vehicle is eligible for credit
as a qualified plug-in electric drive motor vehicle, it is not eligible for credit as a qualified hybrid vehicle. The portion
of the credit attributable to vehicles of a character subject to an allowance for depreciation is treated as part of the
general business credit; the nonbusiness portion of the credit is allowable against both regular tax and alternative
minimum tax (reduced by certain other credits) for the taxable year.
Extension of transportation fringe benefit to bicycle commuters
Effective for taxable years beginning after December 31, 2008, the Act adds a qualified bicycle commuting
reimbursement fringe benefit as a qualified transportation fringe benefit.
A qualified bicycle commuting reimbursement fringe benefit means, with respect to a calendar year, any employer
reimbursement during the 15-month period beginning with the first day of such calendar year of an employee for
reasonable expenses incurred by the employee during the calendar year for the purchase and repair of a bicycle,
bicycle improvements, and bicycle storage, provided that the bicycle is regularly used for travel between the
employee’s residence and place of employment.
The maximum amount that can be excluded from an employee’s gross income for a calendar year on account of a
bicycle commuting reimbursement fringe benefit is an amount equal to the product of $20 multiplied by the number
of the employee’s qualified bicycle commuting months for the year. The $20 amount is not indexed for inflation. A
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qualified bicycle commuting month means with respect to an employee any month for which the employee does not
receive any other qualified transportation fringe benefit and during which the employee regularly uses a bicycle for a
substantial portion of travel between the employee’s residence and place of employment. Thus, no amount is
credited towards an employee’s applicable annual limitation for any month in which an employee’s usage of a
bicycle is infrequent or constitutes an insubstantial portion of the employee’s commute.
Caution: A bicycle commuting reimbursement fringe benefit cannot be funded by an elective salary
contribution on the part of an employee.
Broker reporting of customer's basis in securities transactions
The Act establishes that, effective January 1, 2011, every broker that is required to file a return under IRC Section
6045(a), reporting the gross proceeds from the sale of a covered security, must include in the return (1) the
customer’s adjusted basis in the security and (2) whether any gain or loss with respect to the security is long-term or
short-term.
Technical Note: A covered security is any specified security acquired on or after an applicable date if
the security was (1) acquired through a transaction in the account in which the security is held or (2)
was transferred to that account from an account in which the security was a covered security, but only
if the transferee broker received a required statement with respect to the transfer. Under this rule,
certain securities acquired by gift or inheritance are not covered securities. A specified security is any
share of stock in a corporation (including stock of a regulated investment company); any note, bond,
debenture, or other evidence of indebtedness; any commodity or a contract or a derivative with respect
to the commodity if the Secretary determines that adjusted basis reporting is appropriate; and any
other financial instrument with respect to which the Secretary determines that adjusted basis reporting
is appropriate.
For stock in a corporation (other than stock for which an average basis method is permissible under IRC Section
1012), the applicable date is January 1, 2011. For any stock for which an average basis method is permissible under
section 1012, the applicable date is January 1, 2012. Consequently, the applicable date for certain stock acquired
through a periodic stock investment plan (for which stock additional rules are described below) and for stock in a
regulated investment company is January 1, 2012. For any specified security other than stock in a corporation or
stock for which an average basis method is permitted, the applicable date is January 1, 2013, or a later date
determined by the Secretary.
The adjusted basis of any security other than stock for which an average basis method is permissible under section
1012 is determined under the first-in, first-out method unless the customer notifies the broker by means of making
an adequate identification of the stock sold or transferred. The adjusted basis of stock for which an average basis
method is permissible under section 1012 is determined in accordance with the broker’s default method under
section 1012 (that is, the first-in, first-out method, the average cost method, or the specific identification method)
unless the customer notifies the broker that the customer elects another permitted method. This notification is made
separately for each account in which stock for which the average cost method is permissible is held and, once
made, applies to all stock held in that account. As a result of this rule, a broker’s basis computation method used for
stock held in one account with that broker may differ from the basis computation method used for stock held in
another account with that broker.
Caution: Any stock for which an average basis method is permissible under section 1012 which is
acquired before January 1, 2012 is treated as a separate account from any such stock acquired on or
after that date. A regulated investment company, however, may elect (at the time and in the form and
manner prescribed by the Secretary), on a stockholder-by-stockholder basis, to treat as covered
securities all stock in the company held by the stockholder without regard to when the stock was
acquired. When this election applies, the average basis of a customer’s regulated investment company
stock is determined by taking into account shares of stock acquired before, on, and after January 1,
2012.
Other provisions in the Energy Improvement and Extension Act of 2008
Other provisions in the Energy Improvement and Extension Act of 2008 portion of the legislation include:
• Extension and modification of rules relating to clean renewable energy bonds (CREBs), and creation of
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"new" CREBs and qualified energy conservation bonds.
• Expansion and modification of the advanced coal project investment credit and the coal gasification
investment credit.
• Modification of the definition of qualified property for purposes of the bonus first-year depreciation
available for qualified cellulosic biomass ethanol plant property to include cellulosic biofuel.
• Extension for an additional year (through December 31, 2009) of the income tax credit, excise tax credit,
and payment provisions for biodiesel (including agri-biodiesel) and renewable diesel, providing that both
biodiesel and agri-biodiesel are entitled to a credit of $1.00 per gallon, and modifying the definition of
renewable diesel.
• Extension of the additional 0.2 percent FUTA surtax for one year, through December 31, 2009.
• Extension of the energy efficient commercial buildings deduction for five years, through December 31,
2013.
• Extension of the credit available to contractors under IRC 45L(g) for energy efficient homes for one year
(for homes acquired through 2009).
Tax Extenders and Alternative Minimum Tax Relief Act
Alternative minimum tax (AMT) provisions
The Act provides that the individual AMT exemption amount for taxable years beginning in 2008 is:
1. $69,950, in the case of married individuals filing a joint return and surviving spouses;
2. $46,200 in the case of other unmarried individuals; and
3. $34,975 in the case of married individuals filing separate returns
Tip: For an individual subject to the "kiddie tax" rules, the maximum AMT exemption amount is the
individual's earned income plus $6,400 for 2008 (up to a maximum $46,200).
In addition, for taxable years beginning in 2008, the bill allows individuals to offset their entire regular tax liability and
alternative minimum tax liability by the nonrefundable personal credits.
The Act, for tax years after 2007 and before 2013, modifies the calculation of the AMT refundable credit amount,
allowing long-term unused minimum tax credit to be claimed over a two-year period (rather than five years) and
eliminates the AGI phase-out. This means that for tax years through 2012, an individual's AMT refundable credit
amount equals the greater of:
• 50 percent of long-term unused minimum tax credit for the tax year
• The amount (if any) of the AMT refundable credit amount for the individual's preceding tax year
(determined without regard to any AGI phase-out)
Caution: The refundable credit amount cannot exceed the total long-term unused minimum tax credit
available for the year.
The Act also provides that any underpayment of tax outstanding on October 3, 2008, which is attributable to the
application of the minimum tax adjustment for incentive stock options (including any interest or penalty relating
thereto) for tax years ending before January 1, 2008, is abated. Additionally, the Act provides that the AMT
refundable credit amount and the AMT credit for each of the first two taxable years beginning after December 31,
2007, are increased by one-half of the amount of any interest and penalty paid before October 3, 2008 on account of
the application of the minimum adjustment for incentive stock options.
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Key extensions of temporary provisions
Individuals
Provision
Original expiration New expiration
Deduction of state and local general sales taxes
December 31, 2007 December 31, 2009
Above-the-line deduction for higher education expenses
December 31, 2007 December 31, 2009
Educator expense deduction
December 31, 2007 December 31, 2009
Additional standard deduction for State and local real property
taxes
December 31, 2008 December 31, 2009
Tax-free distributions from individual retirement plans for charitable
purposes
December 31, 2007 December 31, 2009
Special withholding tax rule for interest-related dividends paid by
regulated investment companies
December 31, 2007 December 31, 2009
Special rule for regulated investment company stock held in estate
of a nonresident non-citizen
December 31, 2007 December 31, 2009
Businesses
Provision
Original expiration New expiration
Research credit (IRC §41)
December 31, 2007 December 31, 2009
New markets credit (IRC §45D)
December 31, 2008 December 31, 2009
15-year straight line recovery for qualified leasehold and restaurant December 31, 2007 December 31, 2009
improvements (IRC §168)
Qualified Zone Academy Bonds (IRC §54E)
December 31, 2007 December 31, 2009
Indian employment credit (IRC §45A)
December 31, 2007 December 31, 2009
Accelerated depreciation for business property on Indian
reservations (IRC §168)
December 31, 2007 December 31, 2009
Expensing of environmental remediation costs (IRC §198)
December 31, 2007 December 31, 2009
Work Opportunity tax credit (IRC §51)
August 28, 2007
Increased rehabilitation credit for qualified structures in GO Zone
(IRC §1400N)
December 31, 2008 December 31, 2009
Enhanced charitable deduction for contributions of computer
technology and equipment (IRC §170)
December 31, 2007 December 31, 2009
DC Enterprise zone and enterprise community designations and
provisions (IRC §1400)
December 31, 2007 December 31, 2009
Enhanced charitable deduction for contributions of food inventory
(IRC §170)
December 31, 2007 December 31, 2009
Enhanced charitable deduction for contributions of book inventory
(IRC §170)
December 31, 2007 December 31, 2009
August 28, 2009
April 05, 2012
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Child tax credit
An individual may claim a tax credit for each qualifying child under the age of 17. The amount of the credit per child
is $1,000 through 2010, and $500 thereafter. The credit is phased out for individuals with income over certain
threshold amounts. The credit is allowable against the regular tax and the alternative minimum tax. Prior to the Act,
to the extent the child credit exceeded the taxpayer’s tax liability, the taxpayer was eligible for a refundable credit
(the additional child tax credit) equal to 15 percent of earned income in excess of $12,050 (2008 amount, indexed
for inflation).
The Act modifies the earned income formula for the determination of the refundable child credit to apply to 15
percent of earned income in excess of $8,500 for taxable years beginning in 2008 (i.e., the 2008 tax year only).
Families with three or more children may continue to determine the additional child tax credit using an alternative
formula, if this results in a larger credit.
Farming machinery and equipment treated as 5-year property
The Act allows a 5-year recovery period for depreciation purposes under the modified accelerated cost recovery
system (MACRS) for qualified farming property. Qualified farming property is machinery or equipment used in a
farming business. Original use of the property must begin with the taxpayer after December 31, 2008, and the
property must be placed in service on or before December 31, 2009. The property cannot be a grain bin, cotton
ginning asset, fence, or other land improvement.
Modified standard for imposition of tax return preparer penalties
Effective generally for returns prepared after May 25, 2007, the Act revises the definition of an “unreasonable
position” and changes the standards for imposition of the tax return preparer penalty. The preparer standard for
undisclosed positions is reduced to “substantial authority,” which conforms to the taxpayer standard. The preparer
standard for disclosed positions is set at “reasonable basis.” The preparer standard for reportable transactions, to
which section 6662A applies (i.e., listed transactions and reportable transactions with significant avoidance or
evasion purposes), remains unchanged. For reportable transactions the preparer must have a reasonable belief that
the position would more likely than not be sustained on its merits.
Note: Prior to the Act, any position that a return preparer did not reasonably believe was more likely than not to be
sustained on its merits was an “unreasonable position” unless the position was disclosed on the return and there
was a reasonable basis for the position.
Mental health parity
The Act makes existing mental health parity requirements under ERISA and the Public Health Services Act (PHSA)
permanent. The Act also provides that for a group health plan that provides both medical and surgical benefits and
mental health or substance use disorder benefits, the plan must:
• Ensure that the financial requirements applicable to such mental health or substance use disorder
benefits are no more restrictive than the predominant financial requirements (i.e., deductibles,
copayments, coinsurance, and out-of-pocket expenses) applied to substantially all medical and surgical
benefits covered by the plan, and there are no separate cost sharing requirements that are applicable
only with respect to mental health or substance use disorder benefits; and
• Ensure that the treatment limitations applicable to such mental health or substance use disorder benefits
are no more restrictive than the predominant treatment limitations (i.e., frequency of treatment, number of
visits, days of coverage) applied to substantially all medical and surgical benefits covered by the plan and
there are no separate treatment limitations that are applicable only with respect to mental health or
substance use disorder benefits.
In the case of a plan that provides both medical and surgical benefits and mental health or substance use disorder
benefits, if the plan provides coverage for medical or surgical benefits provided by out-of-network providers, the plan
shall provide coverage for mental health or substance use disorder benefits provided by out-of-network providers in
a consistent manner.
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Effective for plan years that begin on or after October 3, 2009, this provision does not apply to a "small employer:"
generally, an employer who employed an average of at least two (or 1 in the case of an employer residing in a State
that permits small groups to include a single individual), and not more than 50 employees, on business days during
the preceding calendar year.
With respect to a group health plan, if the application of this provision results in an increase for the plan year
involved of the actual total costs of coverage with respect to medical and surgical benefits and mental health and
substance use disorder benefits under the plan by an amount that exceeds:
• 2 percent in the case of the first plan year in which this section is applied; and
• 1 percent in the case of each subsequent plan year,
The provision will not apply during the following plan year, and such exemption shall apply to the plan for 1 plan
year. An employer may elect to continue to apply mental health and substance use disorder parity regardless of any
increase in total costs.
Disaster relief
Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados, and flooding
The Act includes extends a number of provisions that relate to the GO Zone and Katrina Emergency Tax Relief Acts
to the Midwestern disaster area.
The Midwestern disaster area is generally the area (A) with respect to which a major disaster has been declared by
the President on or after May 20, 2008, and before August 1, 2008, under section 401 of the Robert T. Stafford
Disaster Relief and Emergency Assistance Act by reason of severe storms, tornados, or flooding occurring in any of
the States of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin,
and (for most provisions) (B) determined by the President to warrant individual or individual and public assistance
from the Federal Government under such Act with respect to damages attributable to such severe storms, tornados,
or flooding.
Provisions include:
• Extension of tax-exempt bond financing rules for "qualifying Midwestern disaster area bonds," for bonds
issued after October 3, 2008 and before January 1, 2013.
• Application of the GO Zone low-income housing credit rules to the Midwestern disaster area through
2010.
• A 50 percent deduction for Qualified Disaster Recovery Assistance clean-up costs is allowed for
qualifying amounts paid through December 31, 2010.
• Expensing of qualified environmental remediation expenditures applies to the Midwestern disaster area
for amounts paid through December 31, 2010.
• Increased GO Zone rehabilitation credit applies to the Midwestern disaster area through December 31,
2011.
• Increased 5-year NOL carry back period applicable to qualified GO Zone property is extended to
qualifying losses in the Midwestern disaster area, for amounts paid or incurred through 2010.
• Special GO Zone rules relating to bonds issued to finance qualified residential rental projects are
extended to the Midwestern disaster area.
• Expanded HOPE and Lifetime Learning credits apply to individuals who attend an eligible educational
institution in the Midwestern disaster area in 2008 and 2009.Hope Credit maximum is 100 percent of first
$2,400 of qualified tuition and related expenses and 50 percent of the next $2,400--total maximum of
$3,600.
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• Lifetime Learning credit maximum is 40 percent of up to $10,000 of qualified tuition and related
expenses--$4,000.
• Prior GO Zone exclusion from employee income and employer housing credit (equal to 30 percent of
amount excluded from employee's gross income), for lodging provided to qualified employees, is
resurrected for the Midwestern disaster area for qualified lodging provided beginning November 1, 2008
and ending May 1, 2009.
• Prior GO Zone employee retention credit is reactivated for the Midwestern disaster area. A credit for 40
percent of up to $6,000 in qualified wages paid after the applicable disaster date and before January 1,
2009 is available to eligible employers who employed an average of no more than 200 employees during
the prior tax year.
• Limits on charitable deductions (generally, charitable contributions are limited to a percentage of an
individual's contribution base, which is the individual's adjusted gross income computed without regard to
any net operating loss carryback) are suspended for qualified contributions (cash contributions made to a
charity for relief efforts in the Midwestern disaster area from the time of the disaster through December
31, 2008).
• The $100-per-casualty floor and the 10 percent of AGI limit that apply to personal casualty loss
deductions are suspended to losses attributable to the Midwestern disaster area. (See broader changes
to losses attributable to federally declared disasters, below).
• Qualified individuals in the Midwestern disaster area can elect to look back one year and use 2007
earned income amounts rather than 2008 earned income amounts for purposes of calculating the earned
income credit and the child tax credit.
• For tax years beginning in 2008 and 2009, taxpayers that house a "Midwestern displaced individual" from
the Midwestern disaster area are entitled to an additional $500 exemption (maximum $2,000 total
exemption for both years, and the same individual cannot be taken into account in both years).
• For property in the Midwestern disaster area that is involuntarily converted (e.g., insurance proceeds paid
as a result of destruction or condemnation) on or after the date of the disaster, the replacement period in
which insurance proceeds can be reinvested in similar property, potentially deferring recognition of gain,
is extended from 2 to 5 years (if substantially all of the use of the replacement property is in the
Midwestern disaster area).
• An individual who had his or her principal place of residence in the Midwestern disaster area is generally
able to exclude from gross income any amount that would otherwise be included as a result of a
discharge of non business indebtedness by an "applicable entity" (generally, a financial institution or
agency) before January 1, 2010; individuals with a principal place of abode in parts of the Midwestern
disaster area that were not determined by the President to warrant individual or individual and public
assistance qualify for the exclusion only if they incurred an actual economic loss as a result of the
disaster.
• For charitable use of a motor vehicle in providing relief to the Midwestern disaster area, the standard
mileage rate is increased to $.36 per mile for periods before July 1, 2008, and $.41 per mile from July 1,
2008 to December 31, 2008; special rules also allow individuals who provide volunteer relief to exclude
from income reimbursement by a charitable organization for vehicle use in connection with the provision
of services (subject to limitation based on the business standard mileage rate) through 2008.
Provisions relating to retirement plans include:
• Qualifying individuals who took a retirement plan distribution (in the six months preceding the disaster) to
purchase a home in the Midwestern disaster area, but were unable to purchase the home because of the
2008 disaster may re-contribute the distribution during the period that begins on the specified "applicable
disaster date" and ends on March 3, 2009.
• Retirement plan loan rules that were enacted as part of the Gulf Opportunity Act are extended to
individuals in the Midwestern disaster area. As with GO Zone, loans are limited to the lesser of (1)
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$100,000 or (2) the greater of (a) $10,000 or (b) the present value of the accrued value under the plan not
subject to forfeit, during the period of October 3, 2008 through December 31, 2009.
• Due date for repayment on loans outstanding at time of disaster, with any due repayment occurring from
the specified "applicable disaster date" to December 31, 2009 is extended for one year.
• Special retirement plan distribution rules that applied to "qualified hurricane distributions" under the Gulf
Opportunity Act are extended to "qualified Disaster Recovery Assistance distributions" (distributions of up
to $100,000 from an eligible retirement plan, on or after the applicable disaster date and before January
1, 2010, to an individual with a principal place of abode in the Midwestern disaster area who sustained
loss attributable to the 2008 disaster(s)). Qualified Disaster Recovery Assistance distributions can be
"re-contributed" during the 3 years and one day following the date of distribution.
• Taxable income resulting from qualified Disaster Recovery Assistance distributions can be spread over a
three-year period.
• Retirement plan distribution restrictions (e.g., prohibition on distributions before reaching age 59½,
separation from service, disability, etc.) do not apply.
• No 10 percent early distribution additional penalty tax
• No mandatory withholding requirements
Losses attributable to federally declared disasters
The Act waives the 10 percent of adjusted gross income limitation applicable to individual casualty and theft loss
deductions for a “net disaster loss.”
The term “net disaster loss” means the excess of personal casualty losses attributable to a “federally declared
disaster” (and occurring in the disaster area) occurring after December 31, 2007, and before January 1, 2010, over
personal casualty gains. Federally declared disaster means any disaster subsequently determined by the President
of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief
and Emergency Assistance Act. The term “disaster area” means the area so determined to warrant assistance.
Net disaster losses are deductible without regard to whether aggregate net casualty losses exceed 10 percent of a
taxpayer’s adjusted gross income. For purposes of applying the 10-percent limitation to other personal casualty or
theft losses, losses deductible under this provision are disregarded.
The Act also increases an individual taxpayer’s standard deduction by the “disaster loss deduction” (defined as the
net disaster loss). The disaster loss deduction portion of the standard deduction is deductible for AMT purposes
when calculating AMTI (other portions of the standard deduction are added back in when calculating AMTI).
Finally, the Act increases the $100 limitation per casualty to $500 for taxable years beginning after December 31,
2008, and before January 1, 2010.
Expensing of qualified disaster expenses
A taxpayer may elect to treat any qualified disaster expense paid or incurred after December 31, 2007, as a
deduction for the taxable year in which paid or incurred. For purposes of the provision, a qualified disaster expense
is any otherwise capitalizable expenditure paid or incurred in connection with a trade or business or with
business-related property that is:
(1) For the abatement or control of hazardous substances that were released on account of a federally declared
disaster;
(2) For the removal of debris from, or the demolition of structures on, real property damaged or destroyed as a result
of a Federally declared disaster; or
(3) For the repair of business-related property damaged as a result of a federally declared disaster.
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In any case in which costs are otherwise required to be capitalized, the costs may be deducted in the taxable year
paid or incurred to the extent incurred as a result of a federally declared disaster. For purposes of this provision,
“business-related property” is property held by the taxpayer for use in a trade or business, for the production of
income, or as inventory. For purposes of recapture as ordinary income, any deduction allowed under this provision
is treated as a deduction for depreciation and Section 1245 property for purposes or depreciation recapture.
Net operating losses attributable to federally declared disasters
For taxable years beginning after December 31, 2007, the Act provides a special five-year carryback period for net
operating losses (NOLs) to the extent of a qualified disaster loss.
A qualified disaster loss is the lesser of:
(1) The sum of deductible losses for the taxable year attributable to a Federally declared disaster (and occurring in
such an area) occurring after December 31, 2007, and before January 1, 2010, and the deduction for the taxable
year for qualified disaster expenses allowable, or
(2) The NOL for the taxable year.
The amount of the NOL to which the five-year carryback period applies is limited to the amount of the corporation's
overall NOL for the taxable year. Any remaining portion of the taxpayer’s NOL is subject to the general two-year
carryback period. Any taxpayer entitled to the five-year carryback under this provision may elect to have the
carryback period determined without regard to this provision.
In addition, for AMT purposes, the general rule which limits a taxpayer’s NOL deduction to 90 percent of AMTI does
not apply to any NOL to which the five-year carryback period applies under the provision. Instead, a taxpayer may
apply such NOL carrybacks to offset up to 100 percent of AMTI.
Special bonus depreciation allowance for qualified disaster property
In the case of qualified disaster assistance property, the depreciation deduction for the taxable year in which such
property is placed in service will include an allowance equal to 50 percent of the adjusted basis of the qualified
disaster assistance property, and the adjusted basis of the qualified disaster assistance property will be reduced by
the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under
this chapter for such taxable year and any subsequent taxable year. This bonus depreciation is not subject to AMT
adjustment.
Qualified disaster assistance property means any property:
(1) Which is qualified depreciable property (most tangible personal property, most computer software, qualified
leasehold property, nonresidential real property, and residential rental property);
(2) Substantially all of the use of which is in a disaster area with respect to a federally declared disaster occurring
before January 1, 2010, and in the active conduct of a trade or business by the taxpayer in such disaster area,
(3) Which (a) rehabilitates property damaged, or replaces property destroyed or condemned, as a result of such
federally declared disaster, except that, for purposes of this clause, property shall be treated as replacing property
destroyed or condemned if, as part of an integrated plan, such property replaces property which is included in a
continuous area which includes real property destroyed or condemned, and (b) is similar in nature to, and located in
the same county as, the property being rehabilitated or replaced;
(4) The original use of which in such disaster area commences with an eligible taxpayer on or after the applicable
disaster date,
(5) Which is acquired by such eligible taxpayer by purchase on or after the applicable disaster date, but only if no
written binding contract for the acquisition was in effect before such date, and
(6) Which is placed in service by such eligible taxpayer on or before the date which is the last day of the third
calendar year following the applicable disaster date (the fourth calendar year in the case of nonresidential real
property and residential rental property).
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Qualified disaster assistance property does NOT include:
• Property eligible for 50 percent bonus depreciation under IRC Section 168(k) (temporary provision
established by Economic Stimulus Act of 2008), currently available for 2008.
• Property eligible for 50 percent bonus depreciation under IRC Section 1400N, applicable to qualifying Gulf
Opportunity Zone property
• Gambling or animal racing property or property used in connection with golf courses, country clubs,
massage parlors, hot tub facilities, suntan facilities or stores that, principally, sell alcoholic beverages for
off-premises consumption.
Increased IRC Section 179 expensing for qualified disaster assistance property
Effective for property placed in service on or after January 1, 2008, the Act provides that the maximum IRC Section
179 expense deduction is increased by the lesser of:
• $100,000, or
• The cost of qualified Section 179 disaster assistance property placed in service during the year.
The Act also increases the phaseout threshold by the lesser of:
• $600,000, or
• The cost of qualified Section 179 disaster assistance property placed in service during the year.
Qualified disaster assistance property means any property:
(1) Which is qualified depreciable property (most tangible personal property, most computer software, qualified
leasehold property, nonresidential real property, and residential rental property);
(2) Substantially all of the use of which is in a disaster area with respect to a federally declared disaster occurring
before January 1, 2010, and in the active conduct of a trade or business by the taxpayer in such disaster area,
(3) Which (a) rehabilitates property damaged, or replaces property destroyed or condemned, as a result of such
federally declared disaster, except that, for purposes of this clause, property shall be treated as replacing property
destroyed or condemned if, as part of an integrated plan, such property replaces property which is included in a
continuous area which includes real property destroyed or condemned, and (b) is similar in nature to, and located in
the same county as, the property being rehabilitated or replaced;
(4) The original use of which in such disaster area commences with an eligible taxpayer on or after the applicable
disaster date,
(5) Which is acquired by such eligible taxpayer by purchase on or after the applicable disaster date, but only if no
written binding contract for the acquisition was in effect before such date, and
(6) Which is placed in service by such eligible taxpayer on or before the date which is the last day of the third
calendar year following the applicable disaster date (the fourth calendar year in the case of nonresidential real
property and residential rental property).
Qualified disaster assistance property does not include:
• Property eligible for 50 percent bonus depreciation under IRC Section 168(k) (temporary provision
established by Economic Stimulus Act of 2008), currently available for 2008.
• Property eligible for 50 percent bonus depreciation under IRC Section 1400N, applicable to qualifying Gulf
Opportunity Zone property
• Gambling or animal racing property or property used in connection with golf courses, country clubs,
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massage parlors, hot tub facilities, suntan facilities or stores that, principally, sell alcoholic beverages for
off-premises consumption.
Nonqualified deferred compensation (NQDC)
The Act provides that any compensation of a service provider (attributable to services performed after December 31,
2008), that is deferred under a nonqualified deferred compensation plan of a nonqualified entity is includible in gross
income by the service provider when there is no substantial risk of forfeiture of the service provider’s rights to such
compensation. The provision applies in addition to the requirements of section 409A (or any other provision of the
Code or general tax law principle) with respect to nonqualified deferred compensation. The term service provider
has the same meaning as under the regulations under section 409A except that whether a person is a service
provider is determined without regard to the person’s method of accounting.
The term nonqualified entity includes certain foreign corporations and certain partnerships (either domestic or
foreign).
A foreign corporation is a nonqualified entity unless substantially all of its income is effectively connected with the
conduct of a United States trade or business or is subject to a comprehensive foreign income tax.
A partnership is a nonqualified entity unless substantially all of its income is, directly or indirectly, allocated to (1)
United States persons (other than persons exempt from U.S. income tax); (2) foreign persons with respect to whom
such income is subject to a comprehensive foreign income tax; (3) foreign persons with respect to whom such
income is effectively connected with the conduct of a United States trade or business and a withholding tax is paid
under Section 1446 with respect to such income; or (4) organizations which are exempt from US income tax if such
income is unrelated business taxable income (as defined in Section 512) with respect to such organization. It is
intended that substantially all the income of a partnership--whether allocated directly, or, in the case of tiered
partnerships, indirectly--be taxed in the hands of partners under the U.S. income tax, or be subject to a
comprehensive foreign income tax, for the partnership not to be treated as a nonqualified entity. It is not intended
that tiered partnerships, or intermediate entities, be used to achieve deferral of compensation that would otherwise
not be permitted under the provision.
The term comprehensive foreign income tax means with respect to a foreign person, the income tax of a foreign
country if (1) such person is eligible for the benefits of a comprehensive income tax treaty between such foreign
county and the United States, or (2) such person demonstrates to the satisfaction of the Secretary of the Treasury
that such foreign country has a comprehensive income tax.
April 05, 2012
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Raymond James
Michael West, CFP®, WMS®
Vice President Investments
101 West Camperdown Way
Suite 600
Greenville, SC 29601
864-370-2050 x 4544
864-884-3455
[email protected]
www.westwealthmanagement.com
This information was developed by Broadridge, an independent third party.
It is general in nature, is not a complete statement of all information
necessary for making an investment decision, and is not a
recommendation or a solicitation to buy or sell any security. Investments
and strategies mentioned may not be suitable for all investors. Past
performance may not be indicative of future results. Raymond James &
Associates, Inc. member New York Stock Exchange/SIPC does not
provide advice on tax, legal or mortgage issues. These matters should be
discussed with an appropriate professional.
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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012