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Fiscal cliff legislation offers many changes to private companies and owners.

President Barack Obama on Jan. 2 signed into law the American Taxpayer Relief Act of 2012. Much of the new law will affect privately held companies and their owners for 2012 and beyond.

The act includes retroactive extensions through 2013 of certain expired individual, business and energy tax provisions. The provisions outlined below are highlights and there are many other provisions that should be considered.

* Individual Tax Provisions. The act includes permanent extensions of certain 2001 and 2003 tax provisions for individuals with incomes below $400,000 and joint filers with incomes below $450,000. For individuals whose taxable income exceeds these thresholds, their top tax bracket will increase to 39.6 percent and their dividends and long-term capital gains will be taxed at 20 percent. The legislation also permanently extends the $5 million estate and gift tax exemption (indexed for inflation).

* Business Tax Provisions. The act includes retroactive extensions through 2013 of certain business tax provisions that had expired at the end of 2011. The renewed provisions include the research credit (with modifications), controlled foreign corporation (CFC) look-through rules and the exception for active financing income.

The extension of the research credit from Jan. 1, 2012 through Dec. 31, 2013 includes provisions that modify rules for taxpayers under common control and rules for computing the credit when a portion of a trade or business changes hands.

In addition, the act extends a 50 percent bonus depreciation provision for qualified property through the end of 2013 and decouples bonus depreciation from the Internal Revenue Code Section 460 percentage of completion method of accounting for assets with a depreciable life of seven years or less that are placed in service in 2013.

It also allows taxpayers to elect to accelerate some alternative minimum tax credits in lieu of bonus depreciation.

The act extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before Jan. 1, 2014 and held for more than five years. The act also clarifies that, in the case of stock acquired after Feb. 17, 2009 and before Jan. 1, 2014, the date of acquisition for purposes of determining the percentage exclusion is the date the holding period for the stock begins.

Many other business tax provisions are extended by the act through 2013; these include:

* Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements;

* Increase in the maximum amount and phase-out threshold under Section 179;

* New markets tax credit;

* Work opportunity tax credit;

* Empowerment zone tax incentives;

* Basis adjustment to stock of S corporations making charitable contributions of property; and

* Reduction in S corporation recognition period for built-in gains to five years.

In addition, the act does not extend several tax provisions that were included in previous tax extender bills. For example, it does not include extension provisions related to the 100 percent-of-net-income limitation on percentage depletion for oil and gas from marginal wells or brownfields environmental remediation expensing.

* Energy Tax Provisions. The act extends and modifies renewable electricity wind production tax credit and modifies other renewable energy credits. An investment tax credit is provided in lieu of the production tax credit for certain renewable energy facilities that began construction by the end of 2013. Some energy provisions in the act include:

* Certain nonbusiness energy property credit;

* Alternative fuel vehicle refueling property credit;

* Biodiesel and renewable diesel incentives;

* Construction of new energy-efficient homes credit;

* Energy-efficient appliances credit; and

* Alternative fuels and alternative fuel mixtures incentives.

Accounting Considerations

Though Congress approved a retroactive extension of certain business and energy tax provisions that expired at the end of 2011 and 2012, this extension would be taken into account for financial reporting purposes in the quarter in which the legislation is signed into law by the president. Therefore, President Obama's signing of the act on Jan. 2 would be a financial statement event for the first quarter of calendar year 2013.

Regardless of the timing or retroactive nature of the legislation, calendar-year businesses would not be expected to reflect the financial statement benefits of these extensions in their 2012 calendar year-end financial statements. Nonetheless, financial statement disclosure in 2012 may be appropriate depending upon the act's potential impact.

Gregg Muresan ( is a tax partner with PwC in Cleveland.
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Title Annotation:PRIVATE COMPANIES; Barack Obama tax policy; American Taxpayer Relief Act of 2012
Author:Muresan, Gregg
Publication:Financial Executive
Geographic Code:1USA
Date:Apr 1, 2013
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