Last week, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act (HR 2847). The law includes several major tax provisions designed to promote job creation as the nation’s economy continues to recover from recession.

The Act introduces the “Hire Now Tax Cut” to qualified employers both in the form of payroll forgiveness for Social Security taxes paid for qualified new hires, as well as a tax credit for keeping those employees on payroll for 52 consecutive weeks. Click here to read CB&H’s recent Tax Bulletin on the HIRE Act for more information about these provisions.

The Act also extends enhanced Code Sec. 179 expensing threshold levels through December 31, 2010. This extension means that the previous limits of $125,000 with a $500,000 cap will remain increased to $250,000 with an $800,000 cap through the end of the calendar year. Code Sec. 179 expensing, unlike bonus depreciation, is available on both new and used property.

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As tax time approaches, businesses in the real estate and construction sectors will have to reconcile a challenging 2009. However, several pieces of legislation were signed into law over the course of the year that can provide some assistance, particularly to the residential construction industry. Before starting on your 2009 tax return, you should be aware of the following provisions.

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Move Creates Unprecedented Combination of Tax Consulting and Compliance Resources for Businesses and Organizations in Local Market

Cherry, Bekaert & Holland, L.L.P. (CB&H), one of the 30 largest CPA and consulting firms in the U.S., is proud to announce the expansion of the Firm’s specialty tax leadership in the Washington practice. The move enhances CB&H’s ability to deliver high quality tax compliance and consulting services designed to help clients achieve their growth goals and objectives.

CB&H’s National Specialty Tax Practice stands as an alternative to national accounting firms, offering the resources and specialized tax talent found at the national CPA firms without the related service complexities and restrictions that are inherent in those organizations.

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The California LLC fee previously imposed on an LLC’s total unapportioned gross receipts has been held unconstitutional. The rules were prospectively changed for tax years beginning in 2007 to allow for an apportioned gross receipts tax base. If your LLC has paid the fee for the 2004 tax year, you should act now to determine whether a protective refund claim is warranted as the statute for 2004 expires on April 15, 2009.

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On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“the Recovery Act”), which contains nearly $800 billion in economic stimulus spending and tax relief, much of which is targeted to help businesses in the current economic climate.

KEY PROVISIONS

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Many real estate investors have found themselves in the untenable position of having to liquidate real estate holdings for amounts less than the amount they owe to the banks. When faced with such unfortunate circumstances, often the last thing investors think about is how the liquidation will impact their tax liability. Unfortunately the tax consequences of such a disposition can be devastating if not properly structured.

There are numerous strategies available to defer the tax consequences, including entering into a joint venture instead of selling, considering a wrap-around mortgage, and entering into an installment sale. To explore the available alternatives, let’s assume the following for our sample case study:

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There are four types of bankruptcy proceedings:

• Chapter 7 (liquidation)
• Chapter 11 (reorganization)
• Chapter 12 (adjustment of debts of a family farmer with regular income)
• Chapter 13 (adjustment of debts of an individual with regular income)

A debtor can commence all four types of proceedings on a voluntary basis by filing a petition in a bankruptcy court. Holders of claims against the debtor can commence an involuntary case under Chapters 7 or 11. The filing of a petition creates an estate, which generally will consist of all legal or equitable interests of the debtor in property as of the case’s commencement.

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On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“the Recovery Act”), which includes an expanded net operating loss (NOL) carryback provision. Given the recent steep declines in the real estate and construction sector, developers and contractors seeking to improve cash flow could benefit greatly from this provision as 2008 losses can be applied against taxable gains over the prior three, four and five years in order to obtain refunds of taxes previously paid.

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Over the past eight years or so, state budgets around our country have been stretched thin by federally mandated, unfunded programs – most notably increased education standards and health care services for children of poor families. Rather than imposing new taxes, most states have turned to accelerating the collection of taxes, increasing fees rather than income taxes and more strictly enforcing existing laws.

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Beginning January 1, 2009, “disregarded entities” could be required to change methods for reporting and paying wage payments and federal employment taxes. This change specifically affects single member/single owner limited liability companies (LLCs) that do not elect to be treated as corporations. Treasury Regulation Section 301.7701-2 contains final regulations changing the way this specific type of company reports for tax purposes.

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