President Signs Unemployment Bill With Tax Items

On Friday, President Obama signed into law a bill that includes changes to the first-time homebuyer credit, increased NOL carrybacks for small businesses, and mandatory e-filing for most tax return preparers. The bill cleared Congress on Thursday.

The Senate had unanimously agreed to the bill, the Worker, Homeownership, and Business Assistance Act of 2009 (HR 3548), on Wednesday after adding the handful of tax provisions to the bill’s original provision on unemployment compensation. The House of Representatives passed the bill without further changes Thursday.

First-Time Homebuyer Credit

The bill extends and modifies the IRC § 36 homebuyer credit, which was first introduced by the Housing Assistance Tax Act of 2008. The credit had been scheduled to expire Dec. 1. Under the bill, it is extended to May 1, 2010, and is modified so that taxpayers do not have to close on the house by that date, but merely have to enter into a binding contract by that date. To be eligible for the credit, taxpayers who have entered into a binding contract to purchase an eligible principal residence by May 1, 2010, must close before July 1, 2010.

In another major change, the credit is also modified to apply not just to first-time homebuyers. Under the bill, taxpayers who have owned and lived in their old house for any five consecutive years within the preceding eight years will be treated for purposes of the credit as first-time homebuyers. However, instead of the full $8,000 credit, such long-term residents would be eligible for only a $6,500 credit.

The bill increases the income limitations for credit eligibility to $125,000 for individuals (and $225,000 for couples). It also introduces a purchase price limit: No first-time homebuyer credit will be allowed for the purchase of any residence if the purchase price is more than $800,000.

The bill also extends the benefits of the credit to members of the military or Foreign Service on extended duty outside the United States and waives the recapture rule for those individuals.

Apparently reacting to reports that some taxpayers had been titling residences in their children’s names to qualify for the credit, the bill sets a minimum age of 18 to qualify for the credit.

NOL Carrybacks

The American Recovery and Reinvestment Act allowed qualified small businesses (those with less than $15 million in annual gross receipts) to carry back a 2008 net operating loss (NOL) for up to five years. The bill extends that treatment to 2009 NOLs, although it limits the amount of loss than can be carried back to the fifth year. It also allows all businesses to take the five-year carryback, except those that received TARP assistance.

Mandatory E-Filing

The bill also would mandate e-filing by almost all return preparers. Section 17 of the bill requires any return preparer who filed more than 10 individual income tax returns per year to e-file those returns. This requirement will go into effect in 2011.

Other Tax Provisions

The bill increases the penalty for failure to file partnership or S corporation returns (IRC §§ 6698 and 6699) from $89 to $195.

The bill also extends the 0.2% FUTA surtax in IRC § 3301 through the first six months of 2011 (the surtax had been scheduled to expire at the end of this year).