Year-End Legislation Extends Key Provisions for Businesses, Provides 100 Percent Expensing for Certain Assets and Enacts New Foreign Procurement Excise Tax

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As part of legislation enacted at the end of 2010, the U.S. Congress extended several beneficial tax provisions for businesses, including the research credit, active financing exception under Subpart F and look-through rule for payments between controlled foreign corporations. In addition, the new legislation provides 100 percent expensing for certain assets purchased during the latter part of 2010 and during 2011 that are placed in service prior to January 1, 2012. Finally, as part of legislation providing benefits to 9/11 relief workers, a new excise tax will be imposed on certain procurement payments received by non-U.S. persons under contracts with the U.S. government.

Overview

On December 17, 2010, President Obama signed H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Act), into law. The 2010 Tax Act extends for two years all current individual income and capital gains tax rates, many of which had been set to expire (and thus to increase to prior-law levels) December 31, 2010. In addition, the 2010 Tax Act extends certain expired business tax provisions, including the research credit, the active financing exception under Subpart F and the look-through rule for payments between controlled foreign corporations (CFCs). Previous attempts to extend these expiring provisions languished in Congress. The 2010 Tax Act generally extends the provisions retroactively to the beginning of 2010 and through 2011.

Finally, the 2010 Tax Act extends 50 percent bonus depreciation under section 168(k) of the Internal Revenue Code (the Code) for certain business assets purchased prior to January 1, 2013, that are placed into service prior to that date (or by January 1, 2014, with respect to certain property). Temporary bonus depreciation has been enacted as a stimulus measure several times in recent years. However, the 2010 Tax Act creates an additional incentive by allowing for 100 percent expensing of certain business assets purchased after September 8, 2010, and before January 1, 2012, that are placed into service prior to January 1, 2012 (or by January 1, 2013, with respect to certain property).

On December 23, 2010, President Obama signed H.R. 847, the James Zadroga 9/11 Health and Compensation Act of 2010 (the 9/11 Act), into law. In order to partially offset the costs associated with providing benefits to 9/11 relief workers, the 9/11 Act imposes an excise tax on certain procurement payments received by non-U.S. persons under contracts with the U.S. government.

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