A new corporate tax relief bill: highlights from the American Jobs Creation Act of 2004.

The following contains excerpted high-lights from the American Jobs Creation Act of 2004. For a more complete listing, visit www.calcpa.org/californiacpa/articles/2004/11.01.htm.

Sec. 179 Extension

The increased Sec. 179 amount of $100,000 is extended for property placed in service before 2008, and would include off-the-shelf computer software as qualifying property. Also, taxpayers may revoke expensing elections on amended returns without the consent of the Commissioner for tax years beginning before 2008.

Deducting State Income Taxes

For 2004 and 2005, instead of deducting state and local income taxes, taxpayers would be able to choose to deduct state and local sales taxes by either (1) accumulating receipts or (2) using IRS sales tax tables and adding actual sales taxes paid for major items, such as vehicles.

S Corporation Simplifications

S corp simplifications include: (1) All members of a family (up to six generations) are treated as one shareholder; (2) the number of shareholders permitted increases from 75 to 100; (3) IRAs may be shareholders of bank S corps; (4) unexercised powers of appointment will be disregarded for determining the potential current beneficiaries of ESBTs; and the IRS may waive inadvertent invalid qualified subchapter S subsidiary elections and terminations.

Also, suspended losses or deductions with respect to stock transferred incident to divorce are treated as incurred by the corporation with respect to the transferee in the subsequent tax year. A beneficiary of a qualified subchapter S trust may deduct suspended losses under the at-risk rules and the passive loss rules when the trust disposes of the S corp stock.

S Corps and ESOPs

ESOPs maintained by S corps would not be treated as violating qualification requirements or as engaging in prohibited transaction merely because, under plan provisions, a distribution of qualifying employer securities held by the ESOP is used to make payments on a loan used to acquire the securities, whether or not allocated to participants, with some limitations. Effective for distributions made after Dec. 31, 1997.

Exclusion of Incentive Stock Options and Employee Stock Purchase Plan Options from Wages

FICA and FUTA taxes would not apply on exercising a statutory stock option. Federal income tax withholding would not be required on disqualifying dispositions or when compensation is recognized in connection with an employee stock purchase plan discount. Also, remuneration for stock transferred pursuant to exercising an incentive stock option, under an employee stock purchase plan, or any disposition of such stock, will not be taken into account for determining Social Security benefits. Effective for stock acquired pursuant to options exercised after the date of enactment.

Reduced Depreciation: Luxury SUV 

The limits on depreciating certain luxury SUVs would be reduced for vehicles placed in service after the date of enactment.

Charitable Reporting Requirements

C corporations must obtain and attach a qualified appraisal for deductions exceeding $5,000. Effective for contributions made after June 3, 2004.

Tax Shelter Exception to Confidentiality

Taxpayer communications with tax practitioners regarding all tax shelters--whether entered into by corporations, individuals, partnerships, exempt organizations or any other entity--are no longer protected by the Code's confidentiality provision effective for communications made on or after the date of enactment.

'Material Adviser' Disclosure of Reportable Transactions

Each "material adviser" involved with any reportable or listed transaction must timely file an information return or incur a $50,000 or greater penalty which cannot be waived except for rare circumstances for reportable but not listed transactions. "Material adviser" includes any person who provides material aid, assistance or advice with respect to insuring any reportable transaction and who derives gross income for such assistance or advice in excess of $250,000 ($50,000 for advice to individuals). Penalties will apply to transactions for which material aid, assistance or advice is provided after the date of enactment.

Expanded Sanctions for Practitioners Before IRS

Censure and monetary penalties have been added as sanctions that may be imposed on practitioners for actions taken after the date of enactment. Monetary penalties may be imposed separately on both practitioners and their employers in addition to, or in lieu of, any suspension, disbarment or censure of an individual.

Consistent 15-Year Amortization Period for Intangibles

Conforms the amortization period for both organizational and startup expenditures to 15-year period amortization period applicable to intangibles (Sec. 197). Effective for expenditures after the date of enactment.

This information is provided courtesy of the AICPA.