Funds News

FACTBOX-Major U.S. tax issues for rest of 2009

Dec 2 (Reuters) - The U.S. Congress is likely to tackle some tax issues before the end of the year, including the estate tax and breaks for businesses or programs set to expire. Below is a summary of the issues and their significance:


The rules for taxes on estates passed on to heirs must be renewed by the end of 2009, or they disappear for a year due to a quirk in the law. Current policy exempts the first $3.5 million of an individual’s property and taxes amounts above that at a rate of 45 percent. Under current law the exemption level reverts to $1 million, with a rate of 55 percent in 2011.

The U.S. House of Representatives will consider legislation this week that would permanently extend current policy, but its prospects in the Senate are murky.

Some say it is possible the estate tax could disappear altogether for a year. For more liberal Democrats who want a more progressive tax, it could be worth a year without a tax with the promise of a lower exemption and higher rate in 2011. Many Republicans want to eliminate the estate tax altogether and might favor its disappearance in 2010.


The biggest business tax that will expire without congressional action is the 20 percent research and experimentation credit. A group of 300 companies including CA Inc CA.O and Dow Chemical Co DOW.N have written lawmakers asking for a permanent extension, a policy also backed by President Barack Obama. This would cost $7 billion over 10 years.

If that credit expired, it could be enacted retroactively next year, as has been done in the past.

Another large business tax break that will expire at the end of the year is one that gives companies accelerated depreciation for qualified leasehold, restaurant and retail improvements. This would cost $5.4 billion over 10 years.


While the business tax breaks are generally popular, the difficulty lies in finding ways to pay for them, known as “pay- fors.” Here are some of the possible pay-fors for the above tax breaks:


Democratic Representative Sander Levin has proposed taxing “carried interest” earned by hedge fund and private equity fund managers at the ordinary income tax rate, rather than the 15 percent rate they pay now. Obama backs this policy, which could raise $23 billion over a decade.

Such a proposal has passed the House twice, though it has not garnered broad support in the Senate.


A more likely pay-for is a bill backed by House and Senate tax-writing committee leaders that would impose penalties on individuals and foreign banks that fail to report U.S. income. It would raise $8.5 billion over a decade.


A loophole in a federal tax credit program intended to spur biofuel development has been used by paper companies, which have claimed the credit by blending a paper by-product known as black liquor with small amounts of diesel to qualify.

Senate Finance Committee Chairman Max Baucus has criticized the industry for claiming the credit and has said he wants to plug the loophole. (Reporting by Kim Dixon, editing by Gerald E. McCormick) ((; +1 202 354-5864; Reuters Messaging: