Tax Provisions of the Emergency Economic Stabilization Act

Among its many tax provisions, the Emergency Economic Stabilization Act equalized with that of taxpayers the understatement penalty standard tax preparers must observe for undisclosed items. The provision was originally introduced in the House late last year at the urging of the AICPA to fix the problems created by the “more-likely-than-not” language added in 2007 into IRC § 6694. Prior to the 2007 changes, the undisclosed reporting standard for preparers had been a “realistic possibility of success.”

Now the standard, consistent with section 6662(d)(2) for taxpayers, generally requires that preparers have “substantial authority” for positions taken (and is generally retroactive to the enactment of the more-likely-than-not standard). Section 6694 does retain the increased penalty amounts introduced last year, the higher of $1,000 or 50% of the income derived or expected from the return or claim, and its broadened applicability.

Other tax provisions of the act include:

  • Brokers required to file information returns for securities sales under section 6045 must include adjusted basis of the securities if acquired through a transaction in the account in which the securities are held or from another account for which the broker has received a statement pursuant to section 6045A. The information must also include whether gain or loss is short- or long-term. The provision takes effect for most stocks acquired on or after Jan. 1, 2011, and in subsequent years for other securities.
  • Financial institutions that held preferred stock of Fannie Mae and Freddie Mac on Sept. 6, 2008, or sold or exchanged it anytime between Jan. 1 and Sept. 7, 2008, are allowed to treat losses arising from it as ordinary, rather than capital.
  • “Extender” items include a one-year “patch” of the alternative minimum tax threshold and a two-year extension of the research and development credit and would raise to 14% from 12% the allowable credit for qualified research expenses under the alternative simplified method.


Year-end tax planning and what’s new for 2016

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