Accounting consequences of the American Taxpayer Relief Act: though many tax credits and deductions were included in the American Taxpayer Relief Act, the fact that it was signed by the president after expirations in 2012 could affect the accounting and taxes when compared to previous years for many companies.

• Author: Munter, Paul H.
• Position: Accounting

On Jan. 2, 2013, President Barack Obama signed into law the American Taxpayer Relief Act of 2012. In addition to affecting many individual taxpayers, the act extends many corporate income tax provisions that expired at the end of 2011. Because the law was signed by the president in 2013 rather than near the end of 2012, this timing could affect the comparability of companies' accounting for current and deferred taxes when compared to previous years.

Some of the Corporate Income Tax Provisions

The act covers a variety of tax credits and deductions--including a number of energy credits--any one of which could be significant for a particular company. As a consequence, companies would be well-advised to have their tax professionals and advisers consider all the various aspects of the act and the potential consequences to the company.

Some of the provisions that are likely to have more widespread applicability are: (1) bonus depreciation; (2) research and development credit; (3) subpart F exception for active financing income; and (4) look-through treatment of payments between control led foreign corporations.

BONUS DEPRECIATION

The additional 50 percent first-year depreciation deduction for investments in qualified property is extended for property placed in service in 2013. An additional year is allowed for certain long-production-period property and certain aircraft.

The limitation on the amount of property that can be expensed under section 179 is increased to $500,000 for tax years beginning 2013, with a phase-out beginning when the total amount of eligible section 179 property exceeds $2 million.

The act also extends retroactively from Jan. 1, 2012 through Dec. 31, 2013 the 15-year cost recovery period for certain leasehold improvements and other improvements placed into service before Jan. 1, 2014.

RESEARCH AND DEVELOPMENT CREDIT

The act reinstates the research and development credit retroactively from Jan. 1,2012 through Dec. 31, 2013. The act also modifies rules for companies under common control and rules for computing the credit when a portion of a business changes hands. The act also extends other credits such as the work opportunity tax credit and the new markets tax credit through 2013.

SUBPART F EXCEPTION FOR ACTIVE FINANCING INCOME The act extends retroactively from Jan. 1, 2012 through the tax year beginning before Jan. 1, 2014 the active financing exception from subpart F of the Internal Revenue Code.

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