STIMULUS PACKAGE HAS GOOD NEWS FOR PUBLISHERS Changes in tax provisions favor capital spending; some deductions are extended.
"We're seeing some encouraging signs in the economy, but we can't stand by and simply hope for continued recovery," Bush said during the Rose Garden ceremony that included a live broadcast of his weekly radio address. "Today, we are acting to help workers, we're acting to create jobs and we're acting to strengthen our economy."
The stimulus measure extends the 26-week limit on unemployment benefits to 39 weeks -- longer in states with high unemployment rates. The extension comes just as the 26 weeks of unemployment benefits were about to expire for workers who had lost their jobs after the terrorist attacks.
More importantly for many newspaper publishers, the law also provides tax incentives for companies to expand and invest in plants and equipment, which Bush said "will mean more job opportunities for workers in every part of our country, especially in manufacturing and in high-tech, and for those who work for small businesses."
Of particular interest to many in newspapers, however, may be a three-year, 30 percent depreciation boost for businesses. An increase in the two-year carryback for net operating losses to five years will provide infusions of previously paid taxes for many troubled publishers, especially since it includes a waiver of the 90 percent limitation against the alternate minimum tax.
The cost of hiring new workers from groups targeted by lawmakers will continue to qualify for the Work Opportunity Tax Credit or the Welfare-To-Work Tax Credit; both wage subsidy programs have been extended under the new law. Those within the industry involved with the use of electric or clean-fuel vehicles will benefit from the extension of expiring tax credits and deductions.
In today's economy, few within the newspaper business are building new plants or facilities. Sales of presses and pre-press equipment are also in a state of decline. Fortunately, publishers are now entitled to an additional first-year depreciation deduction equal to 30 percent of the adjusted basis of qualified property, such as some computer software costs and qualified leasehold improvements. However, in order for any property to qualify for this additional 30 percent first-year depreciation deduction, it must be property with a recovery period of 20 years or less.
The depreciation rules (Section 167) clearly state that capitalized computer software costs, other than computer software to which Section 197 applies, are recovered ratably over 36 months. Now, there is an additional first-year depreciation deduction equal to 30 percent of the expenditure.
A similar deduction applies to leasehold improvements. Qualified leasehold improvement property is any improvement to an interior portion of a newspaper's building (provided certain requirements are met). The improvement must be made under or pursuant to a lease by the lessee (or sublessee) of the portion of the building that is to be occupied exclusively by the lessee (or any sublessee). The improvement must be placed in service more than three years after the date the building was first placed in service.
Qualified leasehold improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, any structural component benefiting a common area or the internal structural framework of the building.
Whether software, leasehold improvements or any other type of property that qualifies for this unique additional first year write-off, the term "original use" means the first use to which property is put, whether or not it corresponds to the use of that property by the newspaper publisher. Getting technical, it is apparently intended that additional capital expenditures incurred to recondition or rebuild acquired property (or owned property) would satisfy the "original use" requirement.
Obviously, the cost of reconditioned or rebuilt property acquired by the publisher would not satisfy the "original use" requirement.
In order to qualify for this additional 30 percent, first-year depreciation deduction, the property must be acquired between Sept. 10, 2001, and before Sept. 11, 2004, and placed in service before Jan. 1, 2005. But, look at all it encompasses:
* Sale-leasebacks. A special rule applies to those increasingly popular sale-leaseback transactions where the publisher or investors buy equipment from the publishing company and lease it back to the publishing business. Under the new law, any property that is originally placed in service by a publishing company and that is sold to the investor and leased back to that publishing company by the investor within three months after the date that the property was placed in service would qualify. This property would, under the 30 percent depreciation rules, be treated as originally placed in service by the publisher not earlier than the date on which the property is first used.
Keep in mind, however, that buildings usually have a recovery period of 39.5 years -- disqualifying them, on the surface at least, for the bonus depreciation that applies only to property with a recovery period of 20 years or less.
* Luxury cars. The current tax rules limit the annual depreciation deduction that can be taken for passenger automobiles to specified dollar amounts, indexed for inflation. Because of the 30 percent depreciation, luxury cars and other vehicles subject to the cap on depreciation will be able to claim an extra $4600 (for a total of $7660 in 2001 and 2002) in the year the vehicle is placed in service. The vehicle must be purchased between Sept. 11, 2001, and Sept, 10, 2004.
* Alternative Minimum Tax (AMT). The AMT is a flat tax to ensure that corporate and high-income noncorporate taxpayers pay at least some tax, regardless of their deductions. However, as Congress created more and more "preference items" for inclusion in the AMT computation, more and more taxpayers -- corporate and noncorporate -- found themselves enmeshed. Fortunately, this additional first-year depreciation deduction is allowed for both regular tax and AMT purposes for the year in which the property is placed in service.
TEMPORARY LOSS RELIEF
Suddenly, losses have become a valuable commodity. Under our tax rules, a net operating loss (NOL) is generally defined as the amount by which a newspaper publisher's allowable deductions exceed their gross income. Carrying back a NOL generally results in a refund of federal income tax for the carryback year while a carryforward of an NOL reduces the tax bill in the carryforward year.
The present rules allow NOLs to be carried back two years and forward for up to 20 years, with a few notable exceptions for NOLs resulting from casualty or theft losses of individuals, those attributed to presidentially declared disasters and for those engaged in farming or a small business (three-year carryback). Special rules also apply to real estate investment trusts (no carryback), specified liability losses (10-year carryforward) and excess interest losses (no carryback to any year preceding a corporate equity reduction transaction).
A provision of the new law temporarily extends the general NOL carryback provision to five years (from two years) for NOLs arising in taxable years ending in 2001 or 2002. In addition, the five-year carryback period applies to NOLs from those years that now qualify for a three-year carryback period (for example, NOLs arising from casualty or theft losses of individuals or attributable to certain disaster areas).
Although any publisher can choose to forego the five-year carryback period, the election, once made, is irrevocable. If a newspaper publisher does elect to forgo the five-year carryback period, then the losses are subject to the rules that would otherwise apply.
Those dreaded alternative minimum tax rules clearly state that a taxpayer's NOL deductions cannot reduce the taxpayer's alternative minimum taxable income (AMTI) by more than 90 percent of that AMTI. Under the new rules, however, an NOL deduction attributable to NOL carryforwards arising in taxable years ending in 2001 or 2002, as well as NOL carryforwards to these taxable years, can offset 100 percent of the AMTI.
MISCELLANEOUS, TECHNICAL PROVISIONS
* S corporation debt discharge income. In general, an S corporation is not subject to the corporate income tax since it passes its items of income and loss along to its shareholders. To prevent double taxation of these items, each shareholder's basis in the stock of the S corporation is increased by the amount included in income and is decreased by the amount of any losses taken into account.
The U.S. Supreme Court recently surprised many observers when it relied on the "plain language" of the tax law to find that although discharge of indebtedness income (DOI) ceases to be included in the gross income when the shareholder is insolvent, the tax law does not require that DOI ceases to be an item of income for purposes of allowing the shareholder an increase in basis that, in turn, can allow the pass-through of otherwise suspended corporate losses.
The new law reverses the Supreme Court's decision, which had temporarily put S corporation shareholders at a decided advantage over other business entities, particularly partnerships, when hard times hit. Now, the discharged amount excluded from an S corporation's income is expressly not treated as an item of income by a shareholder. Consequently, the shareholder's basis is not increased. The new law applies to discharges of indebtedness income after Oct. 11, 2001.
* Temporary increase for required pension plan contributions. The Employee Retirement Income Security Act of 1974 (ERISA) and the tax law both impose minimum and maximum funding requirements for deferred benefit pension plans. The minimum funding requirements are designed to provide at least a certain level of benefit security by requiring the employer to make certain minimum contributions to the plan. The amount of contributions required for a plan year is generally the amount needed to fund benefits earned during the year plus that year's portion of other liabilities that are amortized over a period of years, such as benefits resulting from a grant of past service credit.
Last year the U.S. Treasury discontinued the sale of 30-year bonds. Part of the fallout was a negative effect on interest rates used to determine additional required contributions from defined benefit plans. An artificially low rate makes a plan look like it is underfunded since its funding liability is calculated with the use of an interest rate that has to fall within a permissible range. Currently, it is between 90 percent and 105 percent.
Many temporary tax credits and deductions expired Dec. 31, 2001. The new law extends until Dec. 31, 2003, a number of those credits used by many newspaper publishers. Among those receiving reprieves are:
* Tax credit for electric vehicles.
* Tax credit for electricity production from alternative energy sources.
* Work opportunity tax credit.
* Deductions for qualified clean-fuel vehicle property and qualified clean-fuel refueling property.
* Archer medical savings accounts.
* Accelerated depreciation and employment tax credit for incentives on tribal lands.
There is a "bonus" contained in the new law that will significantly increase the number of newspaper publishers who will benefit. Within that law are significant retroactive depreciation changes that may affect tax returns that have already been filed for tax year 2001. The Internal Revenue Service will have to determine quickly how the retroactive provisions of the new law will be handled.
In the meantime, the Job Creation and Worker Assistance Act of 2002 will benefit not only workers but newspaper publishers and businesses that take full advantage of its provisions.
-- Mark E. Battersby, e-mail: firstname.lastname@example.org
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|Comment:||STIMULUS PACKAGE HAS GOOD NEWS FOR PUBLISHERS Changes in tax provisions favor capital spending; some deductions are extended.|
|Article Type:||Brief Article|
|Date:||Mar 25, 2002|
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