(March 17, 2009) - On February 17, 2009, in Denver, Colorado, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 ("the Act"), a $787 billion stimulus package consisting of federal spending, aid to state and local governments, and $326 billion in tax cuts that seek to address the current economic challenges of the United States. Specifically, the new law contains several provisions for temporary tax reductions for both small and large businesses.

Extension of 50% bonus depreciation - The Act extends the 50 percent bonus depreciation enacted as part of the Economic Stimulus Act of 2008 for "qualified property" (new personal property with a class life of 20 years or less, computer software, and qualified leasehold improvements) placed in service before January 1, 2010. Under the bonus depreciation rules, 50 percent of the basis of qualified property may be deducted in the year the property is placed in service and the remaining 50 percent recovered under otherwise applicable depreciation rules. For example, assume a company has purchased an asset with a class life for tax purposes of 5 years at a cost of $10,000. The company would receive a first year depreciation deduction of $6,000 ($5,000 bonus depreciation and $1,000 regular MACRS depreciation calculated on the remaining basis of the asset) for this asset, effectively providing for a 60% cost recovery in the first year.

The bonus depreciation applies to new property placed in service for the first time before January 1, 2010. Furthermore, "qualified property" for which bonus depreciation is claimed is exempt from the alternative minimum tax ("AMT") depreciation adjustment.

Extension of election to accelerate AMT/research credits in lieu of bonus depreciation - The Act extends special provisions enacted as part of the Housing and Economic Recovery Act of 2008, by allowing corporations to forego bonus depreciation for "eligible qualified property" placed in service by December 31, 2009 in exchange for an acceleration of a portion of their AMT and research credit carryforwards (research credits from tax years beginning before 2006 and credits for AMT paid that is attributable to tax years beginning before 2006), as refundable tax credits in lieu of claiming 50 percent bonus depreciation. This election provides the most benefit to businesses in a current loss position that would not benefit from the bonus depreciation provisions extended by the Act.

Extension of enhanced small business expensing (I.R.C Section 179) - The Act extends through 2009 the increased section 179 expensing limit of $250,000 and investment phase-out of $800,000 enacted in the Economic Stimulus Act of 2008.

Temporary extension of NOL carryback for small business - With respect to small business taxpayers with gross receipts of $15 million or less, the Act allows an election to extend the NOL carryback period for losses arising in 2008 from the current-law two years to three, four, or five years.

Temporary reduction of S corporation built-in gains holding period - This provision temporarily reduces the recognition period for S corporation built-in gains to seven years (from the current 10 years) for taxable years that begin in 2009 and 2010. This provision applies only to sales occurring during 2009 and 2010. It will be particularly helpful to S corporations that sell or dispose of assets with built-in gains during that timeframe and may aid business owners to decide whether to sell their company, a portion thereof, or certain assets that they otherwise would have preferred not to do so in order to avoid paying additional tax related to the built-in gains.

A number of other business and individual provisions were included within the Act and consideration should be made as these items could have an impact on potential or planned business decisions throughout 2009. For further information, please contact the Tax Partner or Manager most familiar with your company from one of our four offices listed below. Otherwise, you can contact John Farris or Lori Mettille in the Dallas office at 972-458-2296.

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