A new corporate tax relief bill: highlights from the American Jobs Creation Act of 2004.

• Position: FEDERAL TAXATION

The following contains excerpted high-lights from the American Jobs Creation Act of 2004. For a more complete listing, visit www.calcpa.org/californiacpa/articles/2004/11.01.htm.

Sec. 179 Extension

The increased Sec. 179 amount of $100,000 is extended for property placed in service before 2008, and would include off-the-shelf computer software as qualifying property. Also, taxpayers may revoke expensing elections on amended returns without the consent of the Commissioner for tax years beginning before 2008.

Deducting State Income Taxes

For 2004 and 2005, instead of deducting state and local income taxes, taxpayers would be able to choose to deduct state and local sales taxes by either (1) accumulating receipts or (2) using IRS sales tax tables and adding actual sales taxes paid for major items, such as vehicles.

S Corporation Simplifications

S corp simplifications include: (1) All members of a family (up to six generations) are treated as one shareholder; (2) the number of shareholders permitted increases from 75 to 100; (3) IRAs may be shareholders of bank S corps; (4) unexercised powers of appointment will be disregarded for determining the potential current beneficiaries of ESBTs; and the IRS may waive inadvertent invalid qualified subchapter S subsidiary elections and terminations.

Also, suspended losses or deductions with respect to stock transferred incident to divorce are treated as incurred by the corporation with respect to the transferee in the subsequent tax year. A beneficiary of a qualified subchapter S trust may deduct suspended losses under the at-risk rules and the passive loss rules when the trust disposes of the S corp stock.

S Corps and ESOPs

ESOPs maintained by S corps would not be treated as violating qualification requirements or as engaging in prohibited transaction merely because, under plan provisions, a distribution of qualifying employer securities held by the ESOP is used to make payments on a loan used to acquire the securities, whether or not allocated to participants, with some limitations. Effective for distributions made after Dec. 31, 1997.

Exclusion of Incentive Stock Options and Employee Stock Purchase Plan Options from Wages

FICA and FUTA taxes would not apply on exercising a statutory stock option. Federal income tax withholding would not be required on disqualifying dispositions or when compensation is recognized in connection with an employee stock purchase plan discount. Also, remuneration for stock...