Economic Stimulus Bill
Enacted
The Job Creation and Worker
Assistance Act of 2002 made a number of
changes to the tax law to offer
short-term help to the unemployed and
long-term stimulus to create jobs. Among
its other provisions, the $40 billion
measure
Allows additional 30%
depreciation of certain capital assets
for three years, starting Sept. 11, 2001
(perhaps requiring amended 2001
returns).
Extends various expiring
tax provisions (for example, the work
opportunity and electric-vehicle tax
credits).
Permits a 13-week extension
of unemployment benefits for employees
whose regular benefits have terminated
and who live in a state with a minimum
4% unemployment rate.
Enlarges the net operating
loss carryback period from two years to
five and waives alternative minimum tax
depreciation.
Offers tax benefits for New
York City reconstruction.
Congress introduced these changes in
the expectation they would promote
economic growth.
Another change.
Among other issues, the
act dealt with S corporation
shareholders. Cancellation of debt (COD)
income is excluded from an insolvent S
corporation’s gross income. Hotly
debated was whether a shareholder in an
insolvent S corporation could
nevertheless increase his stock basis by
the amount of the excluded COD income.
Last year, the U.S. Supreme Court
held, in Gitlitz , 531 US 206
(2001), that an S corporation
shareholder could increase his stock
basis in this manner. The act reversed
the Court’s decision, providing that S
corporation COD income does not increase
shareholder basis. This rule applies to
debt cancellations occurring after
October 11, 2001.
IRS Errs on Small Business
Returns
According to a recent
General Accounting Office report, T
ax Abatements: Better IRS Data
Could Benefit Small Businesses and IRS
(GAO-02-336), the IRS made 1.7
million tax return errors on small
business returns in the 2 1/2 -year
period ending July 2001, costing
taxpayers $18 billion, and leading to
abatements (reductions of assessments
for taxpayers’ accounts). Disturbingly,
the IRS does not have sufficient data on
who made the errors and why they
occurred. In 1999 the IRS
established a “master file” of its tax
abatements, but it is unable to pinpoint
small businesses. Also missing are data
explaining the effect of the errors on
taxpayers and the IRS. The abatement
data file was never distributed to
officials in the IRS’s small
business/self-employed division.
The GAO prepared the report at the
request of Christopher S. Bond (R-Mo.),
ranking member of the Senate Committee
on Small Business and Entrepreneurship.
It recommends the IRS conduct a
cost-benefit analysis of improving
existing data or collecting more on the
volume, nature and burden of small
business tax abatements. Further, the
service should use any improved or
additional data to reduce and eliminate
the errors that trigger such abatements.
Thinking of Adopting?
Tax information is now
available on the IRS Web site for
adoptive parents. The IRS posted
publication 968, Tax Benefits for
Adoption, to www.irs.gov
, in the “Forms & Pubs” section.
The document explains two tax benefits
available to offset adoption expenses.
For taxpayers who recently have adopted,
are in the process of adopting or are
considering adopting, a tax credit may
be available. Additionally, an exclusion
from gross income may be available for
benefits or payments a taxpayer receives
from an employer’s adoption assistance
program. The free document also
can be obtained by calling 800-TAX-FORM. |