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Tax Changes for Businesses, Return Filing and Penalties in the ''Worker, Homeownership, and Business Assistance Act of 2009''
On Nov. 6, President Obama signed H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009'' (the Act) into law. The signing came just one day after the House passed it and two days after the Senate did. This Special Study highlights the tax changes for businesses, return filing, and penalties including liberalized rules for net operating losses and toughened penalties for partnerships and S corporations.
Five-Year Carryback of NOLs Extended to Include 2009 NOLs and to Apply to Most Businesses
New law. The Act provides an election for most taxpayers (not just small businesses) to increase the carryback period for an applicable NOL to 3, 4, or 5 years from 2 years.
An applicable NOL means the taxpayer's NOL for any tax year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010. Generally, an election may be made for only one tax year. However, an eligible small business that made or makes an election under the Code as in effect before Nov. 6, 2009 (the enactment date) may make an election for 2 tax years instead of just 1.
The amount of the NOL that can be carried back to the 5th tax year before the loss year may not be more than 50% of the taxpayer's taxable income for that 5th preceding tax year determined without taking into account any NOL for the loss year or for any tax year after the loss year. The amount of the NOL otherwise carried to tax years after the 5th preceding tax year is adjusted to take into account that the NOL could offset only 50% of the taxable income for that 5th preceding tax year.
Under pre-Act law, the Federal Unemployment Tax Act (FUTA) tax was imposed at a rate of 6.2% through 2009 (the total of the permanent 6% tax rate, and a temporary 0.2% surtax rate), and 6.0% for calendar year 2010 and later years.
New law. The Act provides that the 6.2% FUTA tax rate continues to apply through June of 2011, and the 6.0% rate applies for the remainder of calendar year 2011 and for later years. , as amended by Act Sec. 10) That is, the temporary 0.2% surtax is extended for 1˝ years through June 30 of 2011.
Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is $89 times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months for returns required to be filed after Dec. 31, 2008.
New law. Under the Act, the base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, is increased to $195 per partner or shareholder.
IRS is authorized to issue regs specifying which returns must be filed electronically. There are several limitations on this authority. First, it can only apply to persons required to file at least 250 returns during the calendar year. Second, IRS is prohibited from requiring that income tax returns of individuals, estates, and trusts be submitted in any format other than paper, although these returns may be filed electronically by choice.
New law. The Act generally maintains the current rule that regs may not require any person to file electronically unless the person files at least 250 tax returns during the calendar year. However, for returns filed after Dec. 31, 2010, it provides an exception to this rule and mandates that IRS require electronic filing by “specified tax return preparers.” This term includes all return preparers except those who neither prepare nor reasonably expect to prepare ten or more individual income tax returns in a calendar year. “Individual income tax return” is defined to include returns for estates and trusts as well as individuals.
11/09/2009