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BHBM Tax Alert 11/12/2009

Thursday, November 12, 2009

FEDERAL

Legislation Expands Homebuyer Credit and NOL Carryback

On November 6, 2009, President Obama signed into law legislation that extends and expands the home buyer tax credit and net operating loss carryback rules into 2010.  Under the Worker, Homeownership, and Business Act, the $8,000 first-time home buyer tax credit has been extended through April 30, 2010.  Additionally, existing homeowners may take a new $6,500 tax credit if they opt to purchase a different home as their primary residence.  Finally, in an attempt to further increase new home sales, the new law increases the income caps for credit eligibility to $125,000 for individuals and $225,000 for couples.
 
The new law also expands the previous American Recovery and Reinvestment Act provision regarding the carryback of losses for small businesses.  Under the expanded provision, all businesses (except those that received funds under the Troubled Asset Relief Program) with a loss in either 2008 or 2009 may carryback such losses to the previous five taxable years.  The legislation sets no limit on carrybacks for the first four years of the carryback period, but for year five the carryback is limited to 50% of the company's taxable income that year.

Baldwin Haspel Burke & Mayer Assists OMSA in Obtaining IRS Guidance

The Offshore Marine Services Association (OMSA) requested guidance from the IRS regarding taxation of foreign flagged vessels operating on the U. S. Outer Continental Shelf.  Baldwin Haspel Burke & Mayer assisted OMSA by using the IRS Industry Issue Resolution Program which resulted in the issuance of a memorandum (LMSB4-0909-037) providing notice and field direction about foreign taxpayers engaged in activities related to the exploration or exploitation of natural resources on the U. S. Outer Continental Shelf.  The memorandum noted that in recent years an increased number of foreign vessels applied to enter and work on the U. S. Outer Continental Shelf and that a significant number have not complied with U. S. tax filing requirements.  The IRS held that since the U.S. Outer Continental Shelf is within the United States (as is provided in I.R.C. §638(1)), foreign contractors that provide services on the Outer Continental Shelf are generally considered to perform those services in the United States and derive U.S. source income.  The IRS further held that if the foreign contractor does not pay the necessary taxes, the charterer of the vessel must submit payment to the IRS by withholding 30% of the payment for the work performed.  The IRS has also formed a special task force to pursue these cases.  The IRS action is an important development for operators of U.S. flagged vessels operating on the U.S. Outer Continental Shelf, many of whom complained of being subject to unfair pricing competition from foreign operators who were not in compliance with U.S. tax provisions."

Red Flags Rule Extension

On October 30, 2009, the Federal Trade Commission issued a press release delaying the enforcement of the Red Flags Rule until July 1, 2010.  This Rule was established by the Federal Trade Commission under the Fair and Accurate Credit Transactions Act of 2003.  This was the second time that the enforcement of the Red Flags Rule was delayed: the Red Flags Rule was originally set to go into effect on May 1, 2009 but enforcement was delayed until November 1, 2009.

For more information, please click here.

Patents on Tax Strategy

The Supreme Court heard oral arguments in the Bilske v. Kappos case on November 9, 2009.  This case addresses the merits of the patentability of business methods and processes.  The Federal Circuit denied a patent for the applicant (after the application had already been denied by the U.S. Patent and Trademark office) because the court ruled that in order to get a patent, a process must be tied to a particular machine or apparatus or transform a particular article into a different state or thing. 
 
This case is being followed by tax practitioners across the United States because of the potential effects that this decision could have on the patentability of tax strategies.  Because of this case and some of the buzz that this case has created, there has recently been a bill introduced in Congress that would exempt tax avoidance methods from patentability.

STATE

Musical and Theatrical Production Credit

The Louisiana Department of Economic Development adopted final rules for the implementation of the musical and theatrical production tax credits.  These credits are refundable and transferable that can be taken against individual and corporate income tax. 
 
The regulations found in La. Admin. Code tit. 61, §1615-1627 (2009) provide that the tax credit also applies to the costs of producing theatrical presentations, transporting touring presentations and employing resident workers and students.

STAY TUNED...

In our next Tax Alerts, we will discuss the tax provisions which are incorporated in the most current version of the Health Care bill.

If you would like to receive BHBM Email Tax Alerts to stay informed on the latest changes in tax law on the Federal and State level, please email Stacey Lala at slala@bhbmlaw.com.