For those of you following the progress of the 2006 tax reconciliation bill, both houses of Congress on Friday approved the Tax Increase Prevention and Reconciliation Act, or TIRPA. In spite of ELA efforts to the contrary, Congress repealed the rules grandfathering certain binding contracts under the FSC/ETI regimes in §513 of TIRPA. The repeal is in response to EU threats to impose punitive trade sanctions and the World Trade Organization decision that the ETI/FSC rules providing binding contract relief are prohibited export subsidies. (See my post on the banana wars for more details.)
This repeal will hammer the already beleaguered big-ticket by costing hundreds of millions in additional taxes. As ELA President Michael Fleming stated, “US companies that have acted as lessors in multi-year leases of US manufactured goods should continue to receive the benefits that they relied upon when they entered into these transactions.” Mr. Fleming went on to point out that Congress should respect the contractual obligations of parties who entered into leasing transactions by relying on what was then current tax law.
Changes in the estimated tax payment rules also were included in §401 of the new legislation. Clarifications of how these will work are as follows. Under TIRPA, corporations with assets of at least $1 billion face a modified schedule of estimated tax payments:
· Payments due in July, August, and September of 2006 are increased to 105% of the payment otherwise due, and the next required payment is reduced accordingly.
· Payments due in July, August, and September of 2012, are increased to 106.25% of the payment otherwise due, and the next required payment is reduced accordingly.
· Payments due in July, August, and September of 2013, are increased to 100.75% of the payment otherwise due, and the next required payment is reduced accordingly.
In another bizarre and complicating provision, corporations also are able to defer 20.5% of the amount of any required installment of tax that is otherwise due on September 15, 2010 until October 1, 2010. Likewise, 27.5% of the amount of any required installment of corporate estimated tax that is otherwise due on September 15, 2011 is not due until October 1, 2011. The effect of these rules is to shift tax revenues between the government’s fiscal years. (And these are the same people who became so incensed over the accounting practices of companies such as WorldCom who shifted accounting recognition of events between years.) The due dates for all other estimated tax payments remain unchanged.
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