Financial Bailout Legislation Resolved Some Tax Issues, Leaves Others in Question

The Emergency Economic Stabilization Act of 2008 was hastily passed through Congress and signed into law by President Bush on October 1st. Some tax provisions were included as parts of the final bill to help it win passage in the House, but other important issues were left to the next Congress to grapple with.

The American Institute of Certified Public Accountants (AICPA) has lobbied Congress heavily for some of these provisions, which have been included in other tax bills passed by Congress but never signed into law since agreement could not be reached on how to pay for them.

One example included in this new law is a provision equalizing the penalty provisions for tax preparers and tax payers, which AICPA vice president of taxation Tom Ochsenshlager commented "We finally got across the finish line," alluding to the fact they have lobbied heavily for it this year.

Other, more popular tax policies were also included in the bailout bill, most notably the exemption of 20 million taxpayers to the Alternative Minimum Tax, or AMT, which many see as an important tax fairness issue. The budgetary headaches were left for the next Congress to deal with however since it is not expected much will done in the upcoming lame duck session after the election.

Technology companies will also see some benefit with the extension of the expired research and development tax credit.

Since it is retroactive, the immediate benefit will be additional cash flow for companies according to Tony Mondoro, national director of research credit and technology at Ernst & Young. "With the credit crunch, a number of companies feel that they should plow the money from the credit back into their research" commented Mondoro.

Congress also increased the alternative simplified credit from 12 to 14 percent. One proposal was to increase it to 16%, which may happen next year.

Besides the budgetary matters mentioned before, Congress did not approach other tax issues that will expire in 2010, namely the estate tax cut, capital gains tax rates, and income tax rates ushered early in the Bush years. If they are allowed to expire, rates will return to their pre 2001 levels.

Tax legislation next year will, of course, hinge upon the outcome of the upcoming presidential election, but the faltering economy will certainly be the elephant in the room. "For sure there will be some major tax changes no matter which candidate is elected president. Hang onto your hat next year," Ochsenchlager warned.