American Recovery and Investment Act of 2009
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On February 17, 2009,  President Obama signed the American Recovery and Reinvestment Act of 2009 (The Act) into law.

The Act provides approximately $275 billion of temporary tax breaks and incentives impacting individual and business taxpayers.

Most of the items in The Act are effective after 2008.  However, small businesses may elect to carry back net operating losses (NOLs) for up to five years if the loss occurred in 2008.  The election generally must be made by the due date of the return, including extensions.

Additionally, an increased home buyer credit of up to $8,000 for qualified home purchases during 2009 may be claimed by a qualifying individual on his/her 2008 return rather than waiting to claim the credit on the 2009 return.

There are many other changes to the tax law, but we will discuss just these two in the paragraphs below.  They should be of greatest interest to the greatest number of taxpayers.

PROVISION IMPACTING PRIMARILY INDIVIDUALS 

Home buyer credit expanded and enhanced.   For 2008, first-time home buyers were eligible for a refundable credit of up to $7,500 for the purchase of a personal residence after April 8, 2008 and before July 1, 2009.  The credit had to be paid back to the government in equal installments over 15 years, or earlier if the house was sold or if the purchaser failed to use the home as a personal residence.

However, for qualifying home purchases after 2008 and before December 1, 2009,  The Act modifies the credit by:

1.  increasing the maximum credit from $7,500 to $8,000 (not to exceed 10% of the home's purchase price),

2.  eliminating the 15-year payback requirement,

3.  requiring recapture of the credit upon the sale of the residence or failure to use the residence as a principal residence only where such sale or change of use occurs within 36 months of the date of purchase,

4.  extending the deadline for qualifying 2009 purchases from June 30, 2009 to November 30, 2009, and

5.  allowing the credit even where the residence is bought with proceeds from a tax-exempt mortgage revenue bond.

Tax Tip:  If the residence is being constructed, the purchase date is the date the individual moves in, even though construction began earlier.

Credit for a qualifying home purchased in 2009 may be taken on the 2008 return.  If the qualifying purchase is made after 2008, and before December 1, 2009, the individual may elect to treat the purchase as made on December 31, 2008.  The election allows the acceleration of the benefit of the 2009 purchase by one year.  Presumably, the election will be subject to phase-out based on 2008 Adjusted Gross Income (AGI).  However, taking the credit on a 2008 return (rather than waiting to take it on a 2009 return) does not subject the credit to the 15-year recapture provision.  Instead, it will be subject to the 2009 26-month recapture rule.  And, the credit is limited to the 2009 $8,000 maximum rather than the 2008 $7,500 maximum, even though the credit is taken on the 2008 return.


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Employee Misclassification in the Spotlight

Employee misclassification is int the spotlight as a way to reduce the tax gap.

Employee misclassification of workers as independent contractors is in the spotlight as the Government Accountability Office (GAO) and Congressional Research  Service (CRS) have released reports and recommendations on the issue.  IRS reportedly is embarking on an employment tax audit of selected employers nationwide, and a recently introduced bill would revammp so-called "Section 530" relief.

 The CRS recently summarized the employee-vs-independent contractor issue and reported that the last IRS estimate ws that 15% of employers misclassified 3.4 million workers as independent contractors rather than as employees causing an estimated total loss of $1.6 billion in taxes.  

Representative James McDermott (D-WA) has introduced legislation that would make it more difficult for employers to receive protection from a potentially large employment tax assessment after incorrectly classifying a worker as an independent contractor.  The legislation, if passed, would also increase information reporting penalties.