Tax Relief

Is tax relief on the way?

As tax legislation heats up, the log jam holding up 2008 tax legislation appears to be breaking in Washington as Congress pushes to dispose of business before looking toward the presidential elections. Just this past month, President Bush signed the Military Tax Relief Bill, Congress successfully overrode a second veto of the Farm Bill; AMT relief in the form of a one-year "patch" reached the "serious consideration" stage, and the now-annual "tax extenders" package is poised waiting for the right moment to jump onto the legislative bandwagon.

Military tax relief

On June 17, President Bush signed the Heroes Earnings Assistance and Relief Tax Act (HEART), providing more than $1.2 billion in tax benefits to members of the military who are receiving combat pay, saving for retirement or purchasing homes. The bill eases certain rules in order to allow military families to qualify for the earned income tax credit (EITC), make penalty-free withdrawals from pension plans and access amounts in health flexible spending arrangements.

The bill will also enable thousands of active-duty military families to qualify for the economic stimulus payments, even when a spouse does not have a Social Security number. Under prior law, some families were denied stimulus payments because one spouse was an immigrant and did not have a Social Security number. The military tax relief bill also contains several provisions that are retroactive to January 1, 2008, or earlier. These provisions became effective on June 17, and include the new employer's differential wage payments credit, flexible spending account distributions and death benefit rollovers to Roth IRAs and educational Savings Accounts.

The signing date of HEART, June 17, also determines the effective date of the foreign contractor employment tax-avoidance measure, effective for services performed in calendar months beginning more than 30 days after the date of enactment.

Congress overrides farm bill veto, again

On June 18, both the House and the Senate successfully voted to override a second presidential veto of the Food, Conservation and Energy Act of 2008, which includes a $1.7 billion package of tax incentives for agriculture, conservation and renewable energy projects. The House voted 317-109, and the Senate followed with an 80-14 vote, to override President Bush's veto. Congress initially overrode the president's veto of the bill but due to an error made by the enrolling clerk the trade title of the bill was omitted.

AMT relief and offset proposed

Meanwhile, on June 18, the House Ways and Means Committee voted 26-16 to approve legislation that would fully offset the cost of a one-year patch to the alternative minimum tax (AMT). The legislation, the Alternative Minimum Tax Relief Bill of 2008, was proposed by House Ways and Means Committee Chairman Charles B. Rangel, D-NY.

The bill would pay for AMT relief by raising $61.5 billion in taxes on hedge fund managers, integrated U.S. oil companies, credit card transactions, and foreign firms subject to U.S. tax treaties. The sticking point in getting this passed is not the AMT patch, as everyone agrees on this relief. It is how, or whether, to pay for AMT relief, with a revenue raising provision that will not be labeled a "tax hike."

Tax extenders package rejected

On June 17, the Senate rejected another attempt to consider a $120 billion package of tax extenders and an AMT patch, intended by Democrats as a substitute amendment to a House energy package, the Renewable Energy and Jobs Creation Bill. Democratic leaders have vowed to continue efforts to move the bill.

Despite the political posturing associated with this bill, its chances of passage remain strong. Tax benefits such as the sales tax itemized deduction, the research and development credit, the teacher's classroom deduction, the higher education tuition deduction, and a handful of energy credits hang in the balance.

This office will continue to monitor developments in Washington with an eye towards maximizing our clients' tax benefits for the remainder of 2008 and into 2009.

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