Worker, Homeownership and Business Act

By: J. Gregory Hamm, J.D., CPA, B&R Tax Services Group

The Worker, Homeownership, and Business Act (signed by President Obama on November 6, 2009) included several tax provisions, including expansion of the net operating loss carryback provisions and extension of the first-time home buyer credits.

The Act provides a continuation of the $8,000 first-time homebuyer tax credit previously established by the American Recovery and Reinvestment Act, extending the credit’s availability through April 30, 2010. The Act establishes a new $6,500 tax credit for existing homeowners if they choose to purchase a different home as their primary residence. The Act also expands eligibility for the tax credits, raising the income limits for eligible homebuyers to $125,000 for individuals and $225,000 for couples.

The Act includes special homebuyer provisions for certain military personnel. Military personnel who serve overseas for at least 90 days in 2009 or 2010 will have an additional year to take the home buyer credits. Additionally, they could receive tax-exempt payments as compensation if forced to sell their home at a loss due to permanent reassignment and other purposes.

Typically, taxpayers are allowed to carryback an NOL to the previous two years, or may elect to forgo the carryback of an NOL and just carryforward an NOL. The American Recovery and Reinvestment Act of 2009 previously amended IRC section 172(b)(1)(H) to provide certain eligible small businesses (ESBs) with gross receipts of less than $15M an expanded NOL carryback period for NOLs incurred in 2008. The Worker, Homeownership, and Business Assistance Act of 2009 amended IRC section 172(b)(1)(H) to extend the carryback period to up to five years for taxpayers incurring losses in tax years ending after Dec. 31, 2007 and beginning before Jan. 1, 2010, with no gross receipts limitation. Thus, most businesses may elect the carryback for any number of years from three to five for an NOL incurred in a year ending in 2008 or beginning in 2009.

The Act includes a provision requiring any tax return preparer who prepares 10 or more returns to e-file the individual income tax returns they prepare. The bill stopped short, however, of requiring e-payment of taxes due on the e-filed return.

The Act originated as an extension of unemployment benefits, with the additional tax provisions added as the bill progressed through Congress. The Act provides for an extension of at least 14 more weeks of unemployment insurance in all 50 states, and as much as 20 weeks in states with a three-month average unemployment rate of 8.5 percent or higher. To fund the extension of unemployment insurance benefits, the bill extends the 0.2 percent Federal Unemployment Tax Act (FUTA) surtax through June 30, 2011.

The Act includes several provisions to offset the costs of the extensions and expansions of the home buyer credits and NOL carrybacks. Implementation of a worldwide interest allocation for multinational taxpayers has been delayed for six years, raising an estimated $20.1 billion. Additionally, increased penalties (from $106 to $195) for failure to file S corporation and partnership returns will provide an estimated $1.2B. Finally, corporate taxpayers with assets over $1B will have their estimated tax payment requirements increased by 33 percent for payments due July–Sept. 2014.

For questions, contact Gregg at ghamm@cpabr.com or 717-761-7210.

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