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Senate Approves HIRE Act

Friday, March 19, 2010

The United States Senate has approved legislation providing new incentives for companies to hire unemployed workers and extending a measure allowing taxpayers to write off up to USD250,000 in certain capital expenditures.

The Hiring Incentives to Restore Employment (HIRE) Act, (H.R. 2847) offers an exemption from Social Security payroll taxes for every worker hired after February 3, 2010, and before January 1, 2011, who has been unemployed for at least 60 days. The maximum value of the credit would be equal to 6.2% of wages up to USD106,800, which is the Federal Insurance Contributions Act wage cap. There would also be an additional USD1,000 income tax credit for every new employee retained for 52 weeks, to be taken on the employer’s 2011 income tax return.

The bill also extends 2008 and 2009 Section 179 expensing thresholds so that taxpayers may elect to write‐off up to USD250,000 of certain capital expenditures - subject to a phase‐out once expenditures exceed USD800,000 – in 2010 in lieu of depreciating those costs over time.

Another provision allows issuers of tax credit bonds for school construction and energy projects to elect to convert these bonds into a Build America Bond. This means that the tax credit bond can be converted into a bond with a direct subsidy to the issuer of the bond rather than the holder of the bond. The Senate legislation also decreased the subsidy provided in the conversion to 45% and 65% for small issuers.

The cost of these tax breaks is offset by a comprehensive set of measures to reduce offshore non-compliance by giving the Internal Revenue Service (IRS) new administrative tools to "detect, deter and discourage offshore tax abuses." The proposals include: 30% withholding on US source payments to foreign financial institutions, foreign trusts, and foreign corporations that do not agree to disclose their US account holders and owners to the IRS; requiring taxpayers to disclose their foreign accounts on their US tax returns; increasing the statute of limitations to six years for failure to report certain offshore transactions and income; clarifying when a foreign trust is considered to have a US beneficiary; and treating substitute dividend and dividend equivalent payments to foreign persons as dividends for purposes of US withholding.

A second offset provision delays until 2020 the introduction of a measure providing taxpayers with an election to take advantage of a rule for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation. Originally enacted in 2004, this election was not available to taxpayers until taxable years beginning after 2008. Last year, the phase‐in of this rule was delayed for two years, for taxable years beginning after 2010. In November 2009, the phase‐in of this rule was delayed for an additional seven years, for taxable years beginning after 2017. The HIRE Act postpones this for another three years.

The Senate passed the HIRE Act as modified with a bipartisan vote of 68 to 29 on March 17, and the bill will now go to the President for his signature.

“The bill we passed today is a targeted approach designed to get Americans back to work right away by creating jobs to rebuild our country’s infrastructure and providing tax cuts for businesses to hire new workers," commented Senate Finance Committee Chairman Max Baucus following the vote.

"Passing the HIRE Act represents a critical victory in our job‐creation agenda and we will continue working to get Americans back to work this year,” Baucus concluded.