As you may remember, at the beginning of the year Congress finally passed the beyond-last-minute American Taxpayer Relief Act that addressed expired and expiring business tax credits and other provisions for 2012 and beyond. The Act contained an assortment of retroactive and future benefits, both of the one-time and permanent variety. 

If you’re a business owner planning for the 2013 tax year, you’ll need to know the effects of these provisions, outlined in an article from Journal of Accountancy. In today’s post, we’ll look at the retroactive provisions that apply to 2012 through the end of 2013, and in the next post we’ll look at the future provisions which won’t have an immediate effect.

Permanent Retroactive Provisions

  1. The Research and Development Tax Credit – The act extends the Sec. 41 credit for increasing R&D activities to cover January 2012 through December 2013. It also modifies the rules for calculating the credit when a major portion of a trade or business changes hands and allocating the credit among members of a controlled group. 
  2. The Exempt Insurance Income and Active Financing Income Exceptions – The act extends the exemptions of insurance income of a qualifying insurance company under Sec. 953(e) and active financing income under Sec. 954(h) of a controlled foreign corporation (CFC) engaged predominantly in banking, financing, or a similar business activity. These exemptions cover January 2012 through the tax years of foreign corporations beginning before January 2014, and through tax years of U.S. shareholders with or within which the tax years of those foreign corporations end.
  3. The CFC Lookthrough Treatment – The act extends the lookthrough treatment of payments between related CFCs under the foreign personal holding company rules of Sec. 954(c)(6). The extension also covers January 2012 through the tax years of foreign corporations beginning before January 2014, and through tax years of U.S. shareholders with or within which the tax years of those foreign corporations end.

Temporary Retroactive Provisions

  1. The Sec. 170 Expensing Limitation – The act extends the limitation amounts under Sec. 179 for expensing of certain depreciable property, covering January 2012 through tax years beginning before January 2014. The act also extends the rules for the the maximum expensing amount and phaseout threshold under Sec. 179 that were in effect for tax years beginning in 2010 and 2011 to apply also for tax years beginning in 2012 and 2013. For tax years beginning in 2012 and 2013, the maximum amount a taxpayer can expense is now $500,000 and the phaseout threshold amount is now $2 million. Within those thresholds, the act allows a taxpayer to expense up to $250,000 of the cost of qualified real property under Sec. 179(f). Also, the act allows off-the-shelf computer software to be counted as qualifying property under 179(d)(1)(A)(ii) for one year for tax years beginning before January 2014.
  2. The Qualified Leasehold Improvements Depreciation – The act extends the Sec. 168(e)(3)(E) rules treating qualified leasehold improvement and certain other property as 15-year property, covering January 2012 through December 2013. This property is also eligible for a bonus 50% first-year depreciation deduction, which the act also extended to property placed in service before January 2014 (or January 2015, for certain long-production-period property and aircraft).

Note that, as required in FASB ASC Paragraph 740-10-45-15, income tax returns filed for 2012 will reflect the retroactive effects of the act. For financial reporting purposes, however, income taxes relating to periods ending on or before January 2013 are calculated as if the act had not been enacted. This means that taxpayers’ income taxes on 2012 financial statements do not reflect the retroactive provisions included in the act, but 2013 financial statements will reflect both the retroactive tax effects for 2012 and the tax effects for 2013.

Also note that corporations should not consider the tax law changes when evaluating the realizability of deferred tax assets (DTAs) prior to the period that includes the enactment date (January 2, 2013). If your company’s current or projected financial position is significantly affected by the act, you should consider disclosing this impact in your annual report.

If you’re a fiscal year taxpayer who previously filed a tax return, you may amend your return to claim the full amount of the research credit you’re entitled to, any applicable foreign income exemptions, and the tax savings associated with the accelerated depreciation of leasehold improvements after December 2011. If you overpaid your fiscal year 2013 estimated taxes, you can adjust subsequent estimated tax payments or apply for an immediate cash refund of the overpayment by filing Form 4466,Corporation Application for Quick Refund of Overpayment of Estimated Tax, after the year end but before the due date of the original return. 

If you’re a calendar year corporate taxpayer, you’ll need to request your refund with your filed tax return. 

If you have any questions about how the retroactive provisions of the ATRA will affect you, give me a call and we’ll talk through your situation.