Summary of Tax Deal

Senate leaders have released a summary of the Obama-GOP tax deal that is now pending on the Senate floor.  A first test vote has been scheduled on it for Monday afternoon.
The following details were provided by the office of Senate Majority Leader Harry Reid. 

The actual legislative text of the amendment is 74 pages.
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 Tax Cuts Compromise Package Summary

December 9, 2010

I. Temporary Extension of Tax Relief

Two major bills enacting tax
cuts for individuals expire at the end of 2010: 
the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA); and the Jobs and Growth Tax Relief Reconciliation Act of 2003
(JGTRRA).  The following package extends
these provisions from EGTRRA and JGTRRA for an additional two years, through
2012, and will provide important tax relief to American taxpayers.  The following package also extends a number
of provisions enacted as part of EGTRRA that were modified in the American
Recovery and Reinvestment Act.

Reductions in Individual
Income Tax Rates

Temporarily extend the
10% bracket.  Under current law, the 10% individual income
tax bracket expires at the end of 2010. 
Upon expiration, the lowest tax rate will be 15%.  This proposal extends the 10% individual
income tax bracket for an additional two years, through 2012.  

Temporarily extend the
25%, 28%, 33%, and 35% brackets.  Under current law, the 25%, 28%, 33%, and 35%
individual income tax brackets expire at the end of 2010.  Upon expiration, the rates become 28%, 31%,
36%, and 39.6% respectively.  This
proposal extends the 25%, 28%, 33%, and 35% individual income tax brackets for
an additional two years, through 2012.   

Temporarily repeal the
Personal Exemption Phase-out.  Personal
exemptions allow a certain amount per person to be exempt from tax.  Due to the Personal Exemption Phase-out
(”PEP”), the exemptions are phased out for taxpayers with AGI above a certain
level.  The EGTRRA repealed PEP for 2010.  The proposal extends the repeal of PEP for an
additional two years, through 2012.     

Temporarily repeal the
itemized deduction limitation. Generally,
taxpayers itemize deductions if the total deductions are more than the standard
deduction amount.  Since 1991, the amount
of itemized deductions that a taxpayer may claim has been reduced, to the
extent the taxpayer’s AGI is above a certain amount.  This limitation is generally known as the
“Pease limitation.” The EGTRRA repealed the Pease limitation on itemized
deductions for 2010.  The proposal
extends the repeal of the Pease limitation for an additional two years, though
2012.  

Capital Gains and Dividends

Temporarily extend the
capital gains and dividend rates.  Under current law, the capital gains and
dividend rates for taxpayers below the 25% bracket is equal to zero
percent.  For those in the 25% bracket
and above, the capital gains and dividend rates are currently 15%.  These rates expire at the end of 2010.  Upon expiration, the rates for capital gains
become 10% and 20%, respectively, and dividends are subject to the ordinary
income rates.  This proposal extends the
current capital gains and dividends rates for all taxpayers for an additional
two years, through 2012.   

Child Tax Credit

Temporarily extend the
modified child tax credit.  Generally,
taxpayers with income below certain threshold amounts may claim the child tax
credit to reduce federal income tax for each qualifying child under the age of
17.  The EGTRRA increased the credit from
$500 to $1,000.  The EGTRRA also expanded
refundability.  The amount that may be
claimed as a refund was 15% of earnings above $10,000.  The American Recovery and Reinvestment Act
of 2009 provided that earnings above $3,000 would count towards
refundability for 2009 and 2010.  This
proposal extends the current child tax credit for an additional two years,
through 2012.  

Marriage Penalty Relief

Temporarily extend
marriage penalty relief.  The proposal
extends the marriage penalty relief for the standard deduction, the 15 percent
bracket, and the EITC for an additional two years, through 2012.  

Incentives for Families and
Children 

Temporarily extend the
expanded dependent care credit.
The dependent care credit allows a taxpayer a credit for an applicable
percentage of child care expenses for children under 13 and disabled
dependents.  The EGTRRA increased the
amount of eligible expenses from $2,400 for one child and $4,800 for two or more
children to $3,000 and $6,000, respectively. The EGTRRA also increased the
applicable percentage from 30 percent to 35 percent.  The proposal extends the changes to the
dependent care credit made by EGTRRA for an additional two years, through
2012.   

Temporarily extend the
increased adoption tax credit and the adoption assistance programs exclusion. Taxpayers that adopt children can receive a tax
credit for qualified adoption expenses. 
A taxpayer may also exclude from income adoption expenses paid by an
employer.  The EGTRRA increased the
credit from $5,000 ($6,000 for a special needs child) to $10,000, and provided
a $10,000 income exclusion for employer-assistance programs.  The Patient Protection and Affordable Care
Act of 2010 extended these benefits to 2011 and made the credit
refundable.  The proposal extends for an
additional two years, through 2012, the increased adoption credit amount and
the exclusion for employer-assistance programs as enacted in EGTRRA.  

Temporarily extend the
credit for employer expenses for child care assistance. The EGTRRA provided employers with a credit of up to
$150,000 for acquiring, constructing, rehabilitating or expanding property
which is used for a child care facility. 
The proposal extends this provision for an additional two years, through
2012.  

Earned Income Tax Credit
(EITC).

Temporarily extend
third-child EITC.  Under current law, working families with two
or more children currently qualify for an earned income tax credit equal to 40%
of the family’s first $12,570 of earned income. The American Recovery and
Reinvestment Act increased the earned

income
tax credit to 45% of the family’s first $12,570 of earned income for families
with three or more children and increased the beginning point of the phase-out
range for all married couples filing a joint return (regardless of the number
of children).  This proposal extends for
an additional two years, through 2012, the American Recovery and
Reinvestment Act provisions that increased the credit for families with
three or more children and increased the phase-out range for all married
couples filing a joint return.  

Education Incentives 

Temporarily extend
expanded Coverdell Accounts.  Coverdell Education Savings Accounts are tax-exempt
savings accounts used to pay the higher education expenses of a designated
beneficiary.  The EGTRRA increased the
annual contribution amount from $500 to $2,000 and expanded the definition of
education expenses to include elementary and secondary school expenses.  The proposal extends the changes to Coverdell
accounts for an additional two years, through 2012.  

Temporarily extend the
expanded exclusion for employer-provided educational assistance. An
employee may exclude from gross income up to $5,250 for income and employment
tax purposes per year of employer-provided education assistance.  Prior to 2001, this incentive was temporary
and only applied to undergraduate courses. 
The EGTRRA expanded this provision to graduate education and extended
the provision for undergraduate and graduate education to the end of 2010.  The proposal extends the changes to this
provision for an additional two years, through 2012.  

Temporarily extend the
expanded student loan interest deduction. 
Certain individuals who
have paid interest on qualified education loans may claim an above-the-line
deduction for such interest expenses up to $2,500.  Prior to 2001, this benefit was only allowed
for 60 months and phased-out for taxpayers with income between $40,000 and
$55,000 ($60,000 and $75,000 for joint filers). 
The EGTRRA eliminated the 60 month rule and increased the income
phase-out to $55,000 to $70,000 ($110,000 and $140,000 for joint filers).  The proposal extends the changes to this
provision for an additional two years, through 2012.  

Temporarily extend the
exclusion from income of amounts received under certain scholarship programs.  Scholarships
for qualified tuition and related expenses are excludible from income.  Qualified tuition reductions for certain
education provided to employees are also excluded.  Generally, this exclusion does not apply to
qualified scholarships or tuition reductions that represent payment for
teaching, research, or other services. 
The National Health Service Corps Scholarship Program and the F. Edward
Hebert Armed Forces Health Professions Scholarship and Financial Assistance
Program provide education awards to participants on the condition that the
participants perform certain services. 
The EGTRRA allowed the scholarship exclusion to apply to these programs.  The proposal extends the changes to this
provision for an additional two years, through 2012.  

Arbitrage rebate
exception for school construction bonds.  Under current law, issuers of
tax-exempt bonds must rebate to the U.S. Treasury arbitrage (excess interest
income) earned from the investment of tax-exempt bond proceeds in
higher-yielding taxable securities.  The
calculation of excess interest income can be complex, and as a result, many
governments incur large costs to comply with the requirements.  To ease the burden on small issuers, the
federal tax

code
exempts governments that issue a relatively small number of tax-exempt bonds in
a given year from the requirement.  In
general, the small issuer rebate exception can only be used by state and local
governments that issue less than $5 million in governmental and 501(c)(3) bonds
annually.  This exception is $10 million
for bonds issued for qualified educational facilities.  The EGTRRA increased the small-issuer
arbitrage rebate exception for school construction from $10 million to $15
million.  This proposal extends the $15
million arbitrage rebate exception for school construction for an additional
two years, through 2012.  

Tax-exempt private
activity bonds for qualified education facilities.  Under current
law, proceeds from private activity bonds issued by a state or local government
qualify as tax-exempt if 95% or more of the net bond proceeds are used for a
qualified purpose as defined by the Internal Revenue Code.  The EGTRRA expanded the definition of a
private activity for which tax-exempt bonds may be issued to include bonds for
qualified public educational facilities. 
Bonds issued for qualified educational facilities are not counted
against a state’s private-activity volume cap. 
Instead, these bonds have their own volume capacity limit equal to the
lesser of $10 per resident or $5 million. 
This proposal extends the allowance to issue tax-exempt private activity
bonds for public school facilities for an additional two years, through
2012.  

Temporarily extend the
American Opportunity Tax Credit.
Created under the American Recovery and Reinvestment Act, the American
Opportunity Tax Credit is available for up to $2,500 of the cost of tuition and
related expenses paid during the taxable year. Under this tax credit, taxpayers
receive a tax credit based on 100% of the first $2,000 of tuition and related
expenses (including course materials) paid during the taxable year and 25% of
the next $2,000 of tuition and related expenses paid during the taxable year.
Forty percent of the credit is refundable. 
This tax credit is subject to a phase-out for taxpayers with adjusted
gross income in excess of $80,000 ($160,000 for married couples filing
jointly).  This proposal extends the
American Opportunity Tax Credit for an additional two years, through 2012.  

Other EGTRRA Provisions

Temporarily extend tax
relief for Alaska settlement funds.  The EGTRRA allowed an election in which
Alaska Native settlement trusts can elect to pay tax at the same rate as the
lowest individual marginal rate, rather than the higher rates that generally
apply to trusts.  Beneficiaries of the
trust do not pay tax on the distributions of an electing trust’s taxable
income.  Finally, contributions by an
Alaska Native corporation to an electing trust will not be deemed distributions
to the corporation’s shareholders.  This
proposal makes extends the elective tax treatment for Alaska Native settlement
trusts for an additional two years, through 2012.   

II. Temporary Individual Alternative Minimum Tax (AMT)
Relief

Two-year AMT patch. Currently,
a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married
filing jointly) under the AMT.  Current
law also does not allow nonrefundable personal credits against the AMT.  The proposal increases the exemption amounts
for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for
2011 to $48,450 (individuals)

and
$74,450 (married filing jointly).  The
proposal also allows the nonrefundable personal credits against the AMT.  The proposal is effective for taxable years
beginning after December 31, 2009.    

III. Temporary Estate Tax Relief

Temporary estate, gift
and generation skipping transfer tax relief.  The EGTRRA phased-out the estate and
generation-skipping transfer taxes so that they were fully repealed in 2010,
and lowered the gift tax rate to 35 percent and increased the gift tax
exemption to $1 million for 2010.  The
proposal sets the exemption at $5 million per person and $10 million per couple
and a top tax rate of 35 percent for the estate, gift, and generation skipping
transfer taxes for two years, through 2012. 
The exemption amount is indexed beginning in 2011.  The proposal is effective January 1, 2010,
but allows an election to choose no estate tax and modified carryover basis for
estates arising on or after January 1, 2010 and before January 1, 2011.  The proposal sets a $5 million generation-skipping
transfer tax exemption and zero percent rate for the 2010 year.   

Portability of unused
exemption.  Under current law, couples have to do
complicated estate planning to claim their entire exemption (currently $7
million for a couple). The proposal allows the executor of a deceased spouse’s
estate to transfer any unused exemption to the surviving spouse without such
planning.   The proposal is effective for
estates of decedents dying after December 31, 2010. 

Reunification.  Prior to the
EGTRRA, the estate and gift taxes were unified, creating a single graduated
rate schedule for both.  That single
lifetime exemption could be sued for gifts and/or bequests.  The EGTRRA decoupled these systems.  The proposal reunifies the estate and gift
taxes.  The proposal is effective for
gifts made after December 31, 2010.

IV. Temporary Extension of Investment Incentives 

Extension of bonus
depreciation.  Under current law, businesses are allowed to
recover the cost of capital expenditures over time according to a depreciation
schedule.  Congress allowed businesses,
beginning January 1, 2008 through December 31, 2009, to take an additional
depreciation deduction allowance equal to 50 percent of the cost of the
depreciable property placed in service in those years.  Under the Small Business Jobs Act of 2010,
this temporary increase in the depreciation deduction allowance was extended
through December 31, 2010.  The bill
extends and temporarily increases this bonus depreciation provision for
investments in new business equipment. 
For investments placed in service after September 8, 2010 and through
December 31, 2011, the bill provides for 100 percent bonus depreciation.  For investments placed in service after
December 31, 2011 and through December 31, 2012, the bill provides for 50
percent bonus depreciation.   The
provision also allows taxpayers to elect to accelerate some AMT credits in lieu
of bonus depreciation for taxable years 2011 and 2012.  

Temporarily extend increase in the maximum amount and phase-out
threshold under section 179.  Under current law, a taxpayer with a
sufficiently small amount of annual investment may elect to deduct the cost of
certain property placed in service for the year rather than depreciate those
costs over time.  The 2003 tax cuts
temporarily increased the maximum dollar amount that may be deducted from
$25,000 to $100,000.  The tax cuts also
increased the phase-out amount from $200,000 to $400,000.  In 2007, tax cuts temporarily increased these
thresholds to $125,000 and $500,000 respectively, indexed for inflation.  These amounts have been further increased and
extended several times on a temporary basis, including most recently as part of
the Small Business Jobs Act which increased the thresholds to $500,000 and
$2,000,000 for the taxable years beginning in 2010 and 2011.  This proposal extends the 2007 maximum amount
and phase-out thresholds for taxable years beginning in2012, at $125,000 and
$500,000 respectively, indexed for inflation. 
The proposal is effective for taxable years beginning after December 31,
2011.   

V. Temporary Extension of Unemployment Insurance

Extension of unemployment
insurance.  The unemployment insurance proposal provides
a one-year reauthorization of federal UI benefits.  The proposal continues the Emergency
Unemployment Compensation (EUC) benefits for one year. In addition,  it continues 100% Federal Financing of
Extended Benefits (EB) for one year, and makes changes to the EB look-back
enabling states to continue to trigger on EB.

VI. Temporary Payroll Tax Holiday

Temporary reduction in
employee-paid payroll taxes.
Under current law employees pay a 6.2 percent Social Security tax on all wages
earned up to $106,800 (in 2011) and self-employed individuals pay a 12.4
percent Social Security self-employment taxes of on all their self-employment
income up to the same threshold.   The
bill provides a payroll/self-employment tax holiday during 2011 of two
percentage points.  This means employees
will pay only  4.2 percent on wages and
self-employment individuals will pay only 10.4 percent on self-employment
income up to the threshold.  

VII. Temporary Extension of Certain Expiring
Provisions 

Energy

Biodiesel and renewable
diesel. The bill extends through 2011 the $1.00 per gallon
production tax credit for biodiesel, as well as the small agri-biodiesel
producer credit of 10 cents per gallon. The bill also extends through 2011 the
$1.00 per gallon production tax credit for diesel fuel created from
biomass. 

Refined Coal.  The bill extends through 2011 the
placed-in-service deadline for qualifying refined coal facilities.

Extension of energy-efficient new homes credit. The bill
extends through 2011 the credit for manufacturers of energy-efficient
residential homes.  

Alternative fuels
credit.  The bill extends through 2011 the $0.50 per gallon
alternative fuel tax credit. The bill does not extend this credit any liquid
fuel derived from a pulp or paper manufacturing process (i.e., black
liquor).  

Extension of special rule
for sales of electric transmission property. The bill
extends through 2011 the present law deferral of gain on sales of transmission
property by vertically integrated electric utilities to FERC-approved
independent transmission companies.  

Extension of special rule
for marginal wells. The bill extends through 2011 the suspension on the
taxable income limit for purposes of depleting a marginal oil or gas well.   

Section 1603.  The bill
extends for one year the start-of-construction deadline for the cash grant in
lieu of tax credit program, established in Section 1603 of the American
Recovery and Reinvestment Act.  

Ethanol.  The
bill extends through 2011 the per-gallon tax credits and outlay payments for
ethanol.  The bill also extends through
2011 the existing 14.27 cents per liter (54 cents per gallon) tariff on
imported ethanol and the related 5.99 cents per liter (22.67 cents per gallon)
tariff on ethyl tertiary-butyl ether (ETBE). 

Energy-efficient
appliances. The bill extends through 2011 and modifies standards
for the Section 45M credit for US-based manufacture of energy-efficient clothes
washers, dishwashers and refrigerators.  

Energy-efficient existing
homes. The bill extends the credit under Section 25C of the
Code for energy-efficient improvements to existing homes, reinstating the
credit as it existed before passage of the American Recovery and
Reinvestment Act.  Standards for
property eligible under 25C are updated to reflect improvements in energy
efficiency.  

Alternative vehicle
refueling property.  The
bill extends through 2011 the 30% investment tax credit for alternative vehicle
refueling property.   

Individual Tax Relief  

Above-the-line deduction
for certain expenses of elementary and secondary school teachers. The bill
extends for two years (through 2011) the $250 above-the-line tax deduction for
teachers and other school professionals for expenses paid or incurred for
books, supplies (other than non-athletic supplies for courses of instruction in
health or physical education), computer equipment (including related software
and service), other equipment, and supplementary materials used by the educator
in the classroom. 

Deduction of State and
local general sales taxes. The bill extends for two years (through 2011) the
election to take an itemized deduction for State and local general sales taxes
in lieu of the itemized deduction permitted for State and local income
taxes. 

Extension of provision
encouraging contributions of capital gain real property for conservation
purposes. The bill extends for two years (through 2011) the
increased contribution limits and carryforward period for contributions of
appreciated real property (including partial interests in real property) for
conservation purposes.  

Above-the-line deduction
for qualified tuition and related expenses. The bill
extends for two years (through 2011) the above-the-line tax deduction for
qualified education expenses. 

Extension of tax-free
distributions from individual retirement plans for charitable purposes. The bill
extends for two years (through 2011) the provision that permits tax-free
distributions to charity from an Individual Retirement Account (IRA) of up to
$100,000 per taxpayer, per taxable year. The bill allows individuals to make
charitable transfers during January of 2011 and treat them as if made during
2010.

 Estate tax look-through of certain Regulated Investment
Company (RIC) stock held by nonresidents.  Although stock issued by a domestic
corporation generally is treated as property within the United States, stock of
a RIC that was owned by a nonresident non-citizen is not deemed property within
the United States in the proportion that, at the end of the quarter of the
RIC’s taxable year immediately before a decedent’s date of death, the assets
held by the RIC are debt obligations, deposits, or other property that would be
treated as situated outside the United States if held directly by the estate
(the “estate tax look-through rule for RIC stock”). The proposal permits the
look-through rule for RIC stock to apply to estates of decedents dying before
January 1, 2012. 

Parity for mass transit
benefits. The bill extends through 2011 the increase in the
monthly exclusion for employer-provided transit and vanpool benefits to that of
the exclusion for employer-provided parking benefits.   

Refund and tax credit
disregard for means tested programs.  Current law ensures that the refundable
components of the EITC and the Child Tax Credit do not make households
ineligible for means-tested benefit programs and includes provisions stating
that these tax credits do not count as income in determining eligibility (and
benefit levels) in means-tested benefit programs, and also do not count as
assets for specified periods of time. Without them, the receipt of a tax credit
would put a substantial number of families over the income limits for these
programs in the month that the tax refund is received.  The proposal disregards all refundable tax
credits and refunds as income for means tested programs.  The proposal is effective for amounts
received after December 31, 2009 and does not apply to amounts received after
December 31, 2012.

Business Tax Relief 

R&D credit. The bill
reinstates for two years (through 2011) the research credit.   

Indian employment credit. The bill
extends for two years (through 2011) the business tax credit for employers of
qualified employees that work and live on or near an Indian reservation. The
amount of the credit is 20 percent of the excess of wages and health insurance
costs paid to

qualified
employees (up to $20,000 per employee) in the current year over the amount paid
in 1993.  

New Markets Tax Credit. Through
the New Markets Tax Credit (NMTC) program, the federal government is able to
leverage federal tax credits to encourage significant private investment in
businesses in low-income communities. For each dollar of qualified private
investment, the NMTC program provides investors with either five cents or six
cents of federal tax credits (depending on the amount of time that has passed
since the original investment was made). The bill extends for two years
(through 2011) the new markets tax credit, permitting a maximum annual amount
of qualified equity investments of $3.5 billion each year. This is effective
for calendar years beginning after December 31, 2009.   

Extension of railroad
track maintenance credit. The bill extends for two years (through 2011) the
railroad track maintenance credit.  

Mine rescue team training
credit. The bill extends for two years (through 2011) the
credit for training mine rescue team members. 

Employer wage credit for
activated military reservists.
The bill extends for two years
(through 2011) the provision that provides eligible small business employers
with a credit against the taxpayer’s income tax liability for a taxable year in
an amount equal to 20 percent of the sum of differential wage payments to
activated military reservists. 

Tax benefits for certain
real estate developments. The bill extends for two years (through 2011) the
special 15-year cost recovery period for certain leasehold improvements,
restaurant buildings and improvements, and retail improvements. 

Extension of seven year
straight line cost recovery period for motorsports entertainment complexes. The bill
extends for two years (through 2011) the special seven year cost recovery
period for property used for land improvement and support facilities at
motorsports entertainment complexes. 

Accelerated depreciation for
business property on an Indian reservation. The bill
extends for two years (through 2011) the placed-in-service date for the special
depreciation recovery period for qualified Indian reservation property. In
general, qualified Indian reservation property is property used predominantly
in the active conduct of a trade or business within an Indian reservation,
which is not used outside the reservation on a regular basis and was not
acquired from a related person. 

Extension of enhanced
charitable deduction for contributions of food inventory. The bill
extends for two years (through 2011) the provision allowing businesses to claim
an enhanced deduction for the contribution of food inventory.  

Extension of enhanced
charitable deduction for contributions of book inventories to public schools. The bill
extends for two years (through 2011) the provision allowing C corporations to

claim
an enhanced deduction for contributions of book inventory to public schools
(kindergarten through grade 12).   

Extension of enhanced
charitable deduction for corporate contributions of computer equipment for
educational purposes. The bill extends for two years (through 2011) the
provision that encourages businesses to contribute computer equipment and
software to elementary, secondary, and post-secondary schools by allowing an
enhanced deduction for such contributions.  

Election to expense
advanced mine safety equipment.
The bill extends for two years
(through 2010) the provision that provides businesses with 50 percent bonus
depreciation for certain qualified underground mine safety equipment.  

Extension of special
expensing rules for U.S. film and television productions. The bill
extends for two years (through 2011) the provision that allows film and
television producers to expense the first $15 million of production costs
incurred in the United States ($20 million if the costs are incurred in
economically depressed areas in the United States).  

Extension of expensing of
environmental remediation costs.
The bill extends for two years (through 2011) the provision that allows for the
expensing of costs associated with cleaning up hazardous sites.  

Deduction allowable with
respect to income attributable to domestic production activities in Puerto Rico. The bill
extends for two years (through 2011) the provision extending the section 199
domestic production activities deduction to activities in Puerto Rico. 

Extension of special tax
treatment of certain payments to controlling exempt organizations. The bill
extends for two years (through 2011) the special rules for interest, rents,
royalties and annuities received by a tax exempt entity from a controlled
entity.  

Treatment of certain
dividends of Regulated Investment Companies (RICs).  The bill extends a provision allowing a RIC, under
certain circumstances, to designate all or a portion of a dividend as an
“interest-related dividend,” by written notice mailed to its shareholders not
later than 60 days after the close of its taxable year. In addition, an
interest-related dividend received by a foreign person generally is exempt from
U.S. gross-basis tax under sections 871(a), 881, 1441 and 1442 of the Code. The
proposal extends the treatment of interest-related dividends and short-term
capital gain dividends received by a RIC to taxable years of the RIC beginning
before January 1, 2012.  

Treatment of RIC
investments as “Qualified Investment Entities” under FIRPTA.  The bill extends the inclusion of a RIC within the
definition of a “qualified investment entity” under section 897 of the Tax Code
through December 31, 2011.

Active financing
exception. The bill extends for two years (through 2011) the
active financing exception from Subpart F of the tax code.  

Look-through treatment of payments between related controlled foreign
corporations. The bill extends for two years (through 2011) the
current law look-through treatment of payments between related controlled
foreign corporations. 

Extension of special rule
for S corporations making charitable contributions of property. The bill
extends for two years (through 2011) the provision allowing S corporation
shareholders to take into account their pro rata share of charitable deductions
even if such deductions would exceed such shareholder’s adjusted basis in the S
corporation. 

Empowerment Zones. The bill
extends for two years (through 2011) the designation of certain economically
depressed census tracts as Empowerment Zones. Businesses and individual residents
within Empowerment Zones are eligible for special tax incentives.

District of Columbia
Enterprise Zone. The bill extends for two years (through 2011) the
designation of certain economically depressed census tracts within the District
of Columbia as the District of Columbia Enterprise Zone. Businesses and
individual residents within this enterprise zone are eligible for special tax
incentives. The bill also extends for two years (through 2011) the $5,000
first-time homebuyer credit for the District of Columbia. 

Extension of temporary
increase in limit on cover over of rum excise tax revenues to Puerto Rico and
the Virgin Islands. The bill extends for two years (through 2011) the
provision providing for payment of $13.25 per gallon to cover over a $13.50 per
proof gallon excise tax on distilled spirits produced in or imported into the
United States.  

Extension of American
Samoa economic development credit.
The bill extends through 2011 the
American Samoa economic development credit.  

Work opportunity tax
credit (WOTC).  Under current law, businesses are allowed to
claim a work opportunity tax credit equal to 40 percent of the first $6,000 of
wages paid to new hires of one of nine targeted groups.   These groups include members of families
receiving benefits under the Temporary Assistance to Needy Families (TANF)
program, qualified veterans, designated community residents, and others.  The WOTC program is currently set to expire
August 31, 2011.  The bill extends this
provision through December 31, 2011 and would be effective for employees hired
after date of enactment.   

Extension and increase in
authorization for qualified zone academy bonds (QZABs).  QZABs
are a form of tax credit bond which offer the holder a Federal tax credit
instead of interest.  QZABs can be used
to finance renovations, equipment purchases, developing course material, and
training teachers and personnel at a qualified zone academy. In general, a
qualified zone academy is any public school (or academic program within a public
school) below college level that is located in an empowerment zone or
enterprise community and is designed to cooperate with businesses to enhance
the academic curriculum and increase graduation and employment rates. The
provision extends the QZAB program providing an additional $400 million for
2011.  It also repeals the direct subsidy
feature created as part of the American Recovery and Reinvestment Act
for 2011 and for any carryforward of unused allocation.  

Premiums for mortgage insurance deductible as interest that is
qualified residence interest.  Under current law, a taxpayer may itemize the
cost of mortgage insurance on a qualified personal residence. The deduction is
phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds
$100,000.  Thus, the deduction is
unavailable for a taxpayer with an AGI in excess of $110,000.  The bill extends this provision for an
additional year, through 2011.    

Exclusion of small
business capital gains.  Generally, non-corporate taxpayers may
exclude 50 percent of the gain from the sale of certain small business stock
acquired at original issue and held for more than five years. For stock
acquired after February 17, 2009 and on or before September 27, 2010, the
exclusion is increased to 75 percent. For stock acquired after September 27,
2010 and before January 1, 2011, the exclusion is 100 percent and the AMT
preference item attributable for the sale is eliminated. Qualifying small
business stock is from a C corporation whose gross assets do not exceed $50
million (including the proceeds received from the issuance of the stock) and
who meets a specific active business requirement. The amount of gain eligible
for the exclusion is limited to the greater of ten times the taxpayer’s basis
in the stock or $10 million of gain from stock in that corporation. The
provision extends the 100 percent exclusion of the gain from the sale of
qualifying small business stock that is acquired before January 1, 2012 and
held for more than five years.   

Disaster Relief Provisions

Extension of tax
incentives for the New York Liberty Zone. The bill
extends for two years (through 2011) the time for issuing New York Liberty Zone
bonds effective for bonds issued after December 31, 2009.   

Extension of increased
rehabilitation credit for historic structures in the Gulf Opportunity Zone. The bill extends for two years (through 2011) the
increased rehabilitation credit for qualified expenditures in the Gulf
Opportunity Zone. The Gulf Opportunity Zone Act of 2005 increased the
rehabilitation credit from 10 percent to 13 percent of qualified expenditures
for any qualified rehabilitated building other than a certified historic
structure, and from 20 percent to 26 percent of qualified expenditures for any
certified historic structure.   

One-year extension of
Gulf Opportunity Zone low-income housing placed-in-service date.  The
Gulf Opportunity Zone Act of 2005 provided an additional allocation of
low-income housing tax credits to the Gulf Opportunity Zone in an amount equal
to the product of $18.00 multiplied by the portion of the State population
which is in the Gulf Opportunity Zone. 
The additional allocations were made in calendar years 2006, 2007, and
2008, and required that the properties be placed in service before January 1,
2011.  The bill extends that
placed-in-service date for one year (through 2011).  

Extension of Tax-Exempt
Bonds for the Gulf Opportunity Zone.  Under current law, bonds were authorized to
help rebuild areas devastated by Hurricane Katrina and must be issued by
December 31, 2010.  The amendment
provides one additional year to utilize these bonds, through December 31,
2011. 

Temporary Depreciation Allowance for Gulf Opportunity Zone Property.  The bill
extends for two years, through 2011, an additional depreciation deduction
claimed by businesses equal to 50 percent of the cost of new property
investments made in the Gulf Opportunity Zone. The provision makes expenditures
in 2011 eligible provided the property is placed in service by December 31,
2011.