The U.S. Senate failed to clear a critical procedural hurdle on a new compromise version of HR 4213, the American Jobs and Closing Tax Loopholes Act of 2010 (Tax Extenders Legislation) on June 24. It is unclear when the measure will be taken up again. The current version of the measure includes a number of key tax credit provisions including:
Sec. 101. Extension of Build America Bonds.
This provision extends the Build America Bond Program through January 1, 2013. The Build America Bonds program, created in last year’s economic stimulus law, provides a federal government subsidy for interest on certain municipal bonds, which are taxable and carry a higher interest rate than typical tax-exempt bonds. It is currently slated to expire at the end of 2010. This section also would reduce the amount of interest subsidy over time. In the case of a qualified bond issued during calendar year:
- 2009 or 2010: 35 percent
- 2011: 32 percent
- 2012: 30 percent
Sec. 105. Allowance of new markets tax credit against alternative minimum tax.
This section would permit the New Markets Tax Credit to offset against the alternative minimum tax for QEI’s made after March 15, 2010. Similar exemptions are currently available for the low-income housing tax credit and historic rehabilitation tax credit.
Sec. 231. Election for direct payment of low-income housing credit for 2010.
Extends the Section 1602/Exchange program for low-income housing tax credits through 2010.
NEW: Sec. 232. Low-income housing grant election.
This new provision would allow GO Zone, Midwest and Hurricane Ike disaster LIHTCs to be eligible to be exchanged through the Section 1602/Exchange program.
Sec. 243. New markets tax credit.
Extends the New Markets Tax Credit at a level of $5 billion through 2010.
Sec. 295. Increase in rehabilitation credit.
Extends the increase in the historic rehabilitation tax credit for projects in the GO Zone through December 31, 2010.
Sec. 297. Extension of low-income housing credit rules for buildings in GO zones.
Extends by two years the placed-in-service date for Gulf Opportunity (GO) Zone LIHTCs
Sec. 606. Housing Trust Fund.
Funds the National Housing Trust Fund at $1 billion in capital funds and $65 million for project-based vouchers.
Taxation of Carried Interest
The bill would prevent investment fund managers (and many real developers) from paying taxes entirely at capital gains rates on income received as carried interest in an investment fund. To the extent that carried interest reflects a return on invested capital, the bill would continue to tax carried interest at capital gain tax rates. However, to the extent that carried interest does not reflect a return on invested capital, this amendment would require investment fund managers to treat seventy-five percent (75%) of the remaining carried interest as ordinary income beginning on January 1, 2011. The amount that will be treated as ordinary income is reduced to fifty percent (50%) for carried interest that does not reflect a return on invested capital but which is attributable to the sale of assets which are held for 5 or more years. This amendment provides that the lower recharacterization percentage also applies to the gain or loss attributable to the underlying assets held for 5 or more years when a partnership interest is sold as well as to gain attributable to section 197 intangibles of a partnership whose principal activity is providing specific investment management services with respect to the assets of the partnership when the partnership interest has been held for 5 or more years. This amendment also provides that, on selling an interest in any publicly traded partnership, a person who is not an investment service provider will be exempt from the rule that recharacterizes as ordinary income under Internal Revenue Code section 751(a) that portion of the gain or loss attributable to an investment services partnership interest.
Small Business Bill
The U.S. House of Representatives passed a revised version of small
business jobs legislation (H.R. 5486, Small Business Jobs Tax Relief
Act of 2010) on June 15. Unlike the previous small business bill
(HR 4849), this most recent legislation not include provisions to
extend the Section 1602/Exchange program to the 4 percent LIHTC. HR
5486 is expected to be taken up by the Senate after it completes work
on the tax extenders legislation (HR 4213). Efforts are underway to in
the Senate to add the 4 percent Exchange provision and 5 year
carryback proposal to HR 5486 in the Senate.
