American Recovery and Reinvestment Act of 2009/Division B/Title I/Subtitle C

by United States Congress

Subtitle C—Tax Incentives for Business

PART I—TEMPORARY INVESTMENT INCENTIVES

SEC. 1201. SPECIAL ALLOWANCE FOR CERTAIN PROPERTY ACQUIRED DURING 2009.

(a) Extension of Special Allowance.—

(1) In general.—

Paragraph (2) of section 168(k) is amended—

(A) by striking "January 1, 2010" and inserting "January 1, 2011", and

(B) by striking "January 1, 2009" each place it appears and inserting "January 1, 2010".

(2) Conforming amendments.—

(A) The heading for subsection (k) of section 168 is amended by striking "January 1, 2009" and inserting "January 1, 2010".

(B) The heading for clause (ii) of section 168(k)(2)(B) is amended by striking "pre-january 1, 2009" and inserting "pre-january 1, 2010".

(C) Subparagraph (B) of section 168(l)(5) is amended by striking "January 1, 2009" and inserting "January 1, 2010".

(D) Subparagraph (C) of section 168(n)(2) is amended by striking "January 1, 2009" and inserting "January 1, 2010".

(E) Subparagraph (B) of section 1400N(d)(3) is amended by striking "January 1, 2009" and inserting "January 1, 2010".

(3) Technical amendments.—

(A) Subparagraph (D) of section 168(k)(4) is amended—

(i) by striking "and" at the end of clause (i),

(ii) by redesignating clause (ii) as clause (iii), and

(iii) by inserting after clause (i) the following new clause:

"(ii) `April 1, 2008' shall be substituted for `January 1, 2008' in subparagraph (A)(iii)(I) thereof, and".

(B) Subparagraph (A) of section 6211(b)(4) is amended by inserting "168(k)(4)," after "53(e),".

(b) Extension of Election to Accelerate the Amt and Research Credits in Lieu of Bonus Depreciation.—

(1) In general.—

Section 168(k)(4) (relating to election to accelerate the AMT and research credits in lieu of bonus depreciation) is amended—

(A) by striking "2009" and inserting "2010"in subparagraph (D)(iii) (as redesignated by subsection (a)(3)), and

(B) by adding at the end the following new subparagraph:

"(H) Special rules for extension property.—

"(i) Taxpayers previously electing acceleration.—In the case of a taxpayer who made the election under subparagraph (A) for its first taxable year ending after March 31, 2008—

"(I) the taxpayer may elect not to have this paragraph apply to extension property, but

"(II) if the taxpayer does not make the election under subclause (I), in applying this paragraph to the taxpayer a separate bonus depreciation amount, maximum amount, and maximum increase amount shall be computed and applied to eligible qualified property which is extension property and to eligible qualified property which is not extension property.

"(ii) Taxpayers not previously electing acceleration.—In the case of a taxpayer who did not make the election under subparagraph (A) for its first taxable year ending after March 31, 2008—

"(I) the taxpayer may elect to have this paragraph apply to its first taxable year ending after December 31, 2008, and each subsequent taxable year, and

"(II) if the taxpayer makes the election under subclause (I), this paragraph shall only apply to eligible qualified property which is extension property.

"(iii) Extension property.—For purposes of this subparagraph, the term `extension property' means property which is eligible qualified property solely by reason of the extension of the application of the special allowance under paragraph (1) pursuant to the amendments made by section 1201(a) of the American Recovery and Reinvestment Tax Act of 2009 (and the application of such extension to this paragraph pursuant to the amendment made by section 1201(b)(1) of such Act).".

(2) Technical amendment.—

Section 6211(b)(4)(A) is amended by inserting "168(k)(4)," after "53(e),".

(c) Effective Dates.—

(1) In general.—

Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 2008, in taxable years ending after such date.

(2) Technical amendments.—

The amendments made by subsections (a)(3) and (b)(2) shall apply to taxable years ending after March 31, 2008.

SEC. 1202. TEMPORARY INCREASE IN LIMITATIONS ON EXPENSING OF CERTAIN DEPRECIABLE BUSINESS ASSETS.

(a) In General.—

Paragraph (7) of section 179(b) is amended—

(1) by striking "2008" and inserting "2008, or 2009", and

(2) by striking "2008" in the heading thereof and inserting "2008, and 2009".

(b) Effective Date.—

The amendments made by this section shall apply to taxable years beginning after December 31, 2008.

PART II—SMALL BUSINESS PROVISIONS

SEC. 1211. 5-YEAR CARRYBACK OF OPERATING LOSSES OF SMALL BUSINESSES.

(a) In General.—Subparagraph (H) of section 172(b)(1) is amended to read as follows:

"(H) Carryback for 2008 net operating losses of small businesses.—

"(i) In general.—If an eligible small business elects the application of this subparagraph with respect to an applicable 2008 net operating loss—

"(I) subparagraph (A)(i) shall be applied by substituting any whole number elected by the taxpayer which is more than 2 and less than 6 for `2',

"(II) subparagraph (E)(ii) shall be applied by substituting the whole number which is one less than the whole number substituted under subclause (I) for `2', and

"(III) subparagraph (F) shall not apply.

"(ii) Applicable 2008 net operating loss.—For purposes of this subparagraph, the term `applicable 2008 net operating loss' means—

"(I) the taxpayer's net operating loss for any taxable year ending in 2008, or

"(II) if the taxpayer elects to have this subclause apply in lieu of subclause (I), the taxpayer's net operating loss for any taxable year beginning in 2008.

"(iii) Election.—Any election under this subparagraph shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extension of time) for filing the taxpayer's return for the taxable year of the net operating loss. Any such election, once made, shall be irrevocable. Any election under this subparagraph may be made only with respect to 1 taxable year.

"(iv) Eligible small business.—For purposes of this subparagraph, the term `eligible small business' has the meaning given such term by subparagraph (F)(iii), except that in applying such subparagraph, section 448(c) shall be applied by substituting `$15,000,000' for `$5,000,000' each place it appears.".

(b) Conforming Amendment.—

Section 172 is amended by striking subsection (k) and by redesignating subsection (l) as subsection (k).

(c) Anti-Abuse Rules.—

The Secretary of Treasury or the Secretary's designee shall prescribe such rules as are necessary to prevent the abuse of the purposes of the amendments made by this section, including anti-stuffing rules, anti-churning rules (including rules relating to sale-leasebacks), and rules similar to the rules under section 1091 of the Internal Revenue Code of 1986 relating to losses from wash sales.

(d) Effective Date.—

(1) In general.—

Except as otherwise provided in this subsection, the amendments made by this section shall apply to net operating losses arising in taxable years ending after December 31, 2007.

(2) Transitional rule.—

In the case of a net operating loss for a taxable year ending before the date of the enactment of this Act—

(A) any election made under section 172(b)(3) of the Internal Revenue Code of 1986 with respect to such loss may (notwithstanding such section) be revoked before the applicable date,

(B) any election made under section 172(b)(1)(H) of such Code with respect to such loss shall (notwithstanding such section) be treated as timely made if made before the applicable date, and

(C) any application under section 6411(a) of such Code with respect to such loss shall be treated as timely filed if filed before the applicable date.

For purposes of this paragraph, the term "applicable date" means the date which is 60 days after the date of the enactment of this Act.

SEC. 1212. DECREASED REQUIRED ESTIMATED TAX PAYMENTS IN 2009 FOR CERTAIN SMALL BUSINESSES.

Paragraph (1) of section 6654(d) is amended by adding at the end the following new subparagraph:

"(D) Special rule for 2009.—

"(i) In general.—Notwithstanding subparagraph (C), in the case of any taxable year beginning in 2009, clause (ii) of subparagraph (B) shall be applied to any qualified individual by substituting `90 percent' for `100 percent'.

"(ii) Qualified individual.—For purposes of this subparagraph, the term `qualified individual' means any individual if—

"(I) the adjusted gross income shown on the return of such individual for the preceding taxable year is less than $500,000, and

"(II) such individual certifies that more than 50 percent of the gross income shown on the return of such individual for the preceding taxable year was income from a small business.

"A certification under subclause (II) shall be in such form and manner and filed at such time as the Secretary may by regulations prescribe.

"(iii) Income from a small business.—For purposes of clause (ii), income from a small business means, with respect to any individual, income from a trade or business the average number of employees of which was less than 500 employees for the calendar year ending with or within the preceding taxable year of the individual.

"(iv) Separate returns.—In the case of a married individual (within the meaning of section 7703) who files a separate return for the taxable year for which the amount of the installment is being determined, clause (ii)(I) shall be applied by substituting `$250,000' for `$500,000'.

"(v) Estates and trusts.—In the case of an estate or trust, adjusted gross income shall be determined as provided in section 67(e).".

PART III—INCENTIVES FOR NEW JOBS

SEC. 1221. INCENTIVES TO HIRE UNEMPLOYED VETERANS AND DISCONNECTED YOUTH.

(a) In General.—

Subsection (d) of section 51 is amended by adding at the end the following new paragraph:

"(14) Credit allowed for unemployed veterans and disconnected youth hired in 2009 or 2010.—

"(A) In general.—Any unemployed veteran or disconnected youth who begins work for the employer during 2009 or 2010 shall be treated as a member of a targeted group for purposes of this subpart.

"(B) Definitions.—For purposes of this paragraph—

"(i) Unemployed veteran.—The term `unemployed veteran' means any veteran (as defined in paragraph (3)(B), determined without regard to clause (ii) thereof) who is certified by the designated local agency as—

"(I) having been discharged or released from active duty in the Armed Forces at any time during the 5-year period ending on the hiring date, and

"(II) being in receipt of unemployment compensation under State or Federal law for not less than 4 weeks during the 1-year period ending on the hiring date.

"(ii) Disconnected youth.—The term `disconnected youth' means any individual who is certified by the designated local agency—

"(I) as having attained age 16 but not age 25 on the hiring date,

"(II) as not regularly attending any secondary, technical, or post-secondary school during the 6-month period preceding the hiring date,

"(III) as not regularly employed during such 6-month period, and

"(IV) as not readily employable by reason of lacking a sufficient number of basic skills.".

(b) Effective Date.—

The amendments made by this section shall apply to individuals who begin work for the employer after December 31, 2008.

PART IV—RULES RELATING TO DEBT INSTRUMENTS

SEC. 1231. DEFERRAL AND RATABLE INCLUSION OF INCOME ARISING FROM BUSINESS INDEBTEDNESS DISCHARGED BY THE REACQUISITION OF A DEBT INSTRUMENT.

(a) In General.—

Section 108 (relating to income from discharge of indebtedness) is amended by adding at the end the following new subsection:

"(i) Deferral and Ratable Inclusion of Income Arising From Business Indebtedness Discharged by the Reacquisition of a Debt Instrument.—

"(1) In general.—At the election of the taxpayer, income from the discharge of indebtedness in connection with the reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument shall be includible in gross income ratably over the 5-taxable-year period beginning with—

"(A) in the case of a reacquisition occurring in 2009, the fifth taxable year following the taxable year in which the reacquisition occurs, and

"(B) in the case of a reacquisition occurring in 2010, the fourth taxable year following the taxable year in which the reacquisition occurs.

"(2) Deferral of deduction for original issue discount in debt for debt exchanges.—

"(A) In general.—If, as part of a reacquisition to which paragraph (1) applies, any debt instrument is issued for the applicable debt instrument being reacquired (or is treated as so issued under subsection (e)(4) and the regulations thereunder) and there is any original issue discount determined under subpart A of part V of subchapter P of this chapter with respect to the debt instrument so issued—

"(i) except as provided in clause (ii), no deduction otherwise allowable under this chapter shall be allowed to the issuer of such debt instrument with respect to the portion of such original issue discount which—

"(I) accrues before the 1st taxable year in the 5-taxable-year period in which income from the discharge of indebtedness attributable to the reacquisition of the debt instrument is includible under paragraph (1), and

"(II) does not exceed the income from the discharge of indebtedness with respect to the debt instrument being reacquired, and

"(ii) the aggregate amount of deductions disallowed under clause (i) shall be allowed as a deduction ratably over the 5-taxable-year period described in clause (i)(I).

"If the amount of the original issue discount accruing before such 1st taxable year exceeds the income from the discharge of indebtedness with respect to the applicable debt instrument being reacquired, the deductions shall be disallowed in the order in which the original issue discount is accrued.

"(B) Deemed debt for debt exchanges.—For purposes of subparagraph (A), if any debt instrument is issued by an issuer and the proceeds of such debt instrument are used directly or indirectly by the issuer to reacquire an applicable debt instrument of the issuer, the debt instrument so issued shall be treated as issued for the debt instrument being reacquired. If only a portion of the proceeds from a debt instrument are so used, the rules of subparagraph (A) shall apply to the portion of any original issue discount on the newly issued debt instrument which is equal to the portion of the proceeds from such instrument used to reacquire the outstanding instrument.

"(3) Applicable debt instrument.—For purposes of this subsection—

"(A) Applicable debt instrument.—The term `applicable debt instrument' means any debt instrument which was issued by—

"(i) a C corporation, or

"(ii) any other person in connection with the conduct of a trade or business by such person.

"(B) Debt instrument.—The term `debt instrument' means a bond, debenture, note, certificate, or any other instrument or contractual arrangement constituting indebtedness (within the meaning of section 1275(a)(1)).

"(4) Reacquisition.—For purposes of this subsection—

"(A) In general.—The term `reacquisition' means, with respect to any applicable debt instrument, any acquisition of the debt instrument by—

"(i) the debtor which issued (or is otherwise the obligor under) the debt instrument, or

"(ii) a related person to such debtor.

"(B) Acquisition.—The term `acquisition' shall, with respect to any applicable debt instrument, include an acquisition of the debt instrument for cash, the exchange of the debt instrument for another debt instrument (including an exchange resulting from a modification of the debt instrument), the exchange of the debt instrument for corporate stock or a partnership interest, and the contribution of the debt instrument to capital. Such term shall also include the complete forgiveness of the indebtedness by the holder of the debt instrument.

"(5) Other definitions and rules.—For purposes of this subsection—

"(A) Related person.—The determination of whether a person is related to another person shall be made in the same manner as under subsection (e)(4).

"(B) Election.—

"(i) In general.—An election under this subsection with respect to any applicable debt instrument shall be made by including with the return of tax imposed by chapter 1 for the taxable year in which the reacquisition of the debt instrument occurs a statement which—

"(I) clearly identifies such instrument, and

"(II) includes the amount of income to which paragraph (1) applies and such other information as the Secretary may prescribe.

"(ii) Election irrevocable.—Such election, once made, is irrevocable.

"(iii) Pass-thru entities.—In the case of a partnership, S corporation, or other pass-thru entity, the election under this subsection shall be made by the partnership, the S corporation, or other entity involved.

"(C) Coordination with other exclusions.—If a taxpayer elects to have this subsection apply to an applicable debt instrument, subparagraphs (A), (B), (C), and (D) of subsection (a)(1) shall not apply to the income from the discharge of such indebtedness for the taxable year of the election or any subsequent taxable year.

"(D) Acceleration of deferred items.—

"(i) In general.—In the case of the death of the taxpayer, the liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), the cessation of business by the taxpayer, or similar circumstances, any item of income or deduction which is deferred under this subsection (and has not previously been taken into account) shall be taken into account in the taxable year in which such event occurs (or in the case of a title 11 or similar case, the day before the petition is filed).

"(ii) Special rule for pass-thru entities.—The rule of clause (i) shall also apply in the case of the sale or exchange or redemption of an interest in a partnership, S corporation, or other pass- thru entity by a partner, shareholder, or other person holding an ownership interest in such entity.

"(6) Special rule for partnerships.—In the case of a partnership, any income deferred under this subsection shall be allocated to the partners in the partnership immediately before the discharge in the manner such amounts would have been included in the distributive shares of such partners under section 704 if such income were recognized at such time. Any decrease in a partner's share of partnership liabilities as a result of such discharge shall not be taken into account for purposes of section 752 at the time of the discharge to the extent it would cause the partner to recognize gain under section 731. Any decrease in partnership liabilities deferred under the preceding sentence shall be taken into account by such partner at the same time, and to the extent remaining in the same amount, as income deferred under this subsection is recognized.

"(7) Secretarial authority.—The Secretary may prescribe such regulations, rules, or other guidance as may be necessary or appropriate for purposes of applying this subsection, including—

"(A) extending the application of the rules of paragraph (5)(D) to other circumstances where appropriate,

"(B) requiring reporting of the election (and such other information as the Secretary may require) on returns of tax for subsequent taxable years, and

"(C) rules for the application of this subsection to partnerships, S corporations, and other pass-thru entities, including for the allocation of deferred deductions.".

(b) Effective Date.—

The amendments made by this section shall apply to discharges in taxable years ending after December 31, 2008.

SEC. 1232. MODIFICATIONS OF RULES FOR ORIGINAL ISSUE DISCOUNT ON CERTAIN HIGH YIELD OBLIGATIONS.

(a) Suspension of Special Rules.—

Section 163(e)(5) (relating to special rules for original issue discount on certain high yield obligations) is amended by redesignating subparagraph (F) as subparagraph (G) and by inserting after subparagraph (E) the following new subparagraph:

"(F) Suspension of application of paragraph.—

"(i) Temporary suspension.—This paragraph shall not apply to any applicable high yield discount obligation issued during the period beginning on September 1, 2008, and ending on December 31, 2009, in exchange (including an exchange resulting from a modification of the debt instrument) for an obligation which is not an applicable high yield discount obligation and the issuer (or obligor) of which is the same as the issuer (or obligor) of such applicable high yield discount obligation. The preceding sentence shall not apply to any obligation the interest on which is interest described in section 871(h)(4) (without regard to subparagraph (D) thereof) or to any obligation issued to a related person (within the meaning of section 108(e)(4)).

"(ii) Successive application.—Any obligation to which clause (i) applies shall not be treated as an applicable high yield discount obligation for purposes of applying this subparagraph to any other obligation issued in exchange for such obligation.

"(iii) Secretarial authority to suspend application.—

"The Secretary may apply this paragraph with respect to debt instruments issued in periods following the period described in clause (i) if the Secretary determines that such application is appropriate in light of distressed conditions in the debt capital markets.".

(b) Interest Rate Used in Determining High Yield Obligations.—

The last sentence of section 163(i)(1) is amended—

(1) by inserting "(i)" after "regulation", and

(2) by inserting ", or (ii) permit, on a temporary basis, a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the Secretary determines that such rate is appropriate in light of distressed conditions in the debt capital markets" before the period at the end.

(c) Effective Date.—

(1) Suspension.—

The amendments made by subsection (a) shall apply to obligations issued after August 31, 2008, in taxable years ending after such date.

(2) Interest rate authority.—

The amendments made by subsection (b) shall apply to obligations issued after December 31, 2009, in taxable years ending after such date.

PART V—QUALIFIED SMALL BUSINESS STOCK

SEC. 1241. SPECIAL RULES APPLICABLE TO QUALIFIED SMALL BUSINESS STOCK FOR 2009 AND 2010.

(a) In General.—

Section 1202(a) is amended by adding at the end the following new paragraph:

"(3) Special rules for 2009 and 2010.—In the case of qualified small business stock acquired after the date of the enactment of this paragraph and before January 1, 2011—

"(A) paragraph (1) shall be applied by substituting `75 percent' for `50 percent', and

"(B) paragraph (2) shall not apply.".

(b) Effective Date.—

The amendment made by this section shall apply to stock acquired after the date of the enactment of this Act.

PART VI—S CORPORATIONS

SEC. 1251. TEMPORARY REDUCTION IN RECOGNITION PERIOD FOR BUILT-IN GAINS TAX.

(a) In General.—

Paragraph (7) of section 1374(d) (relating to definitions and special rules) is amended to read as follows:

"(7) Recognition period.—

"(A) In general.—The term `recognition period' means the 10-year period beginning with the 1st day of the 1st taxable year for which the corporation was an S corporation.

"(B) Special rule for 2009 and 2010.—In the case of any taxable year beginning in 2009 or 2010, no tax shall be imposed on the net recognized built-in gain of an S corporation if the 7th taxable year in the recognition period preceded such taxable year. The preceding sentence shall be applied separately with respect to any asset to which paragraph (8) applies.

"(C) Special rule for distributions to shareholders.—For purposes of applying this section to any amount includible in income by reason of distributions to shareholders pursuant to section 593(e)—

"(i) subparagraph (A) shall be applied without regard to the phrase `10-year', and

"(ii) subparagraph (B) shall not apply.".

(b) Effective Date.—

The amendment made by this section shall apply to taxable years beginning after December 31, 2008.

PART VII—RULES RELATING TO OWNERSHIP CHANGES

SEC. 1261. CLARIFICATION OF REGULATIONS RELATED TO LIMITATIONS ON CERTAIN BUILT-IN LOSSES FOLLOWING AN OWNERSHIP CHANGE.

(a) Findings.—

Congress finds as follows:

(1) The delegation of authority to the Secretary of the Treasury under section 382(m) of the Internal Revenue Code of 1986 does not authorize the Secretary to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers.

(2) Internal Revenue Service Notice 2008-83 is inconsistent with the congressional intent in enacting such section 382(m).

(3) The legal authority to prescribe Internal Revenue Service Notice 2008-83 is doubtful.

(4) However, as taxpayers should generally be able to rely on guidance issued by the Secretary of the Treasury legislation is necessary to clarify the force and effect of Internal Revenue Service Notice 2008-83 and restore the proper application under the Internal Revenue Code of 1986 of the limitation on built-in losses following an ownership change of a bank.

(b) Determination of Force and Effect of Internal Revenue Service Notice 2008-83 Exempting Banks From Limitation on Certain Built-in Losses Following Ownership Change.—

(1) In general.—

Internal Revenue Service Notice 2008-83—

(A) shall be deemed to have the force and effect of law with respect to any ownership change (as defined in section 382(g) of the Internal Revenue Code of 1986) occurring on or before January 16, 2009, and

(B) shall have no force or effect with respect to any ownership change after such date.

(2) Binding contracts.—

Notwithstanding paragraph (1), Internal Revenue Service Notice 2008-83 shall have the force and effect of law with respect to any ownership change (as so defined) which occurs after January 16, 2009, if such change—

(A) is pursuant to a written binding contract entered into on or before such date, or

(B) is pursuant to a written agreement entered into on or before such date and such agreement was described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required by reason of such ownership change.

SEC. 1262. TREATMENT OF CERTAIN OWNERSHIP CHANGES FOR PURPOSES OF LIMITATIONS ON NET OPERATING LOSS CARRYFORWARDS AND CERTAIN BUILT-IN LOSSES.

(a) In General.—

Section 382 is amended by adding at the end the following new subsection:

"(n) Special Rule for Certain Ownership Changes.—

"(1) In general.—The limitation contained in subsection (a) shall not apply in the case of an ownership change which is pursuant to a restructuring plan of a taxpayer which—

"(A) is required under a loan agreement or a commitment for a line of credit entered into with the Department of the Treasury under the Emergency Economic Stabilization Act of 2008, and

"(B) is intended to result in a rationalization of the costs, capitalization, and capacity with respect to the manufacturing workforce of, and suppliers to, the taxpayer and its subsidiaries.

"(2) Subsequent acquisitions.—Paragraph (1) shall not apply in the case of any subsequent ownership change unless such ownership change is described in such paragraph.

"(3) Limitation based on control in corporation.—

"(A) In general.—Paragraph (1) shall not apply in the case of any ownership change if, immediately after such ownership change, any person (other than a voluntary employees' beneficiary association under section 501(c)(9)) owns stock of the new loss corporation possessing 50 percent or more of the total combined voting power of all classes of stock entitled to vote, or of the total value of the stock of such corporation.

"(B) Treatment of related persons.—

"(i) In general.—Related persons shall be treated as a single person for purposes of this paragraph.

"(ii) Related persons.—For purposes of clause (i), a person shall be treated as related to another person if—

"(I) such person bears a relationship to such other person described in section 267(b) or 707(b), or

"(II) such persons are members of a group of persons acting in concert.".

(b) Effective Date.—

The amendment made by this section shall apply to ownership changes after the date of the enactment of this Act.