Believe it or not, Congress must work at least some of the time, because there are several things going on in Washington right now that will affect the equipment leasing industry.
On the federal tax front, the House-Senate conferees announced that they had reached an agreement on the tax reconciliation bill, now officially known as the Tax Increase Prevention and Reconciliation Act (who thinks up these names?). Although numerous provisions are included in the Bill, I thought you might find the following of interest:
- For 2006, the AMT exemption amount for married taxpayers would increase to $62,550 and for unmarried individuals to $42,500 (instead of dropping to $45,000 and $33,750, respectively).
- The higher section 179 deductions will be extended for another two years.
- The exception under subpart F for active financing and insurance income would be extended for two years, until the end of 2008.
- The conference agreement repeals both the FSC binding contract relief and the ETI
binding contract relief, although the general transition rule remains in effect. ELA is fighting to keep the grandfather provisions intact.
- A new temporary exception from subpart F for dividends, interest, rents and royalties received by one CFC (controlled foreign corporation) from a related CFC to the extent attributable to non-subpart F income of the payor.
Okay, maybe that last one isn’t of real great interest. Anyway, the deal these days is that any tax breaks have to be paid for from somewhere else, so the conference agreement also includes a number of revenue-raising provisions. One of these relates to the schedule of estimated taxes. The effect of this change is that pricing on end-of-year tax deals will be improved. Under the proposed legislation, corporations with assets of at least $1 billion would face a modified schedule of estimated tax payments.
For example, the estimated tax payments for the first three installments of 2006 would be increased to 105% of the payment otherwise due, with the next required payment reduced accordingly. Payments due in 2012 would be increased to 106.25% of the payment otherwise due. Finally, payments due in 2013 would be increased to 100.75% of the payment otherwise due, and the next required payment would be reduced accordingly.
Separately, the IRS has issued interim rules explaining amendments made by §415 of the American Jobs Creation Act of 2004 ( PL 108-357 , or the Jobs Act) affecting the treatment of certain income and assets related to the leasing of aircraft or vessels in foreign commerce. Under the regs, such rents won't fail to be treated as derived in the active conduct of a trade or business if the active leasing expenses are not less than 10% of the profit on the lease. In this regard, the IRS is requesting comments on clarifying how (1) the depreciation recapture rules apply to aircraft and vessels that were used both in and outside the US, and (2) the depreciation recapture rules should apply to leased aircraft and vessels. So, for those of you with nothing better to do, get those comments in.
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