Stimulus Bill Provisions May Help Some ESOP Companies

Many of the tax provisions in the economic stimulus bill may provide some benefits to ESOP companies. The key provisions include:

• Enhanced depreciation: A 2008 law allowing 50% of qualifying property to be expensed in the first year of use is extended through 2009.
• Extension of enhanced small business expensing: Last year, Congress temporarily increased the amount that small businesses could write off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The new law extends these temporary increases for capital expenditures incurred in 2009.
• Expanded loss carryback of net operating losses for small businesses:
  Net operating losses incurred in 2008 or, for some companies, 2009 can be carried back for five years instead of two for businesses with
  gross receipts of $15 million or less. For a calendar-year taxpayer, only net operating losses for 2008 qualify. For fiscal year
  taxpayers, it means the net operating loss for the tax year ending in 2008 (i.e., the tax year beginning in 2007). A company can elect to
  use the tax year beginning in 2008, making the loss applicable for the tax year ending in 2009. Thus, fiscal year taxpayers could
  conceivably apply these new rules for plans as early as February 1, 2007, or ending as late as November 30, 2009.
• Cancellation off debt income recognition: Companies buying their own debt at a discount can recognize that income over 10 years for specified debt occurred between 2009 and 2010. This could be helpful to companies who are restructuring ESOP acquisition debt.
• S corporation holding period: The new law shortens the holding period of assets subject to the built-in gains tax from 10 years to 7 years for transactions in 2009 and 2010. ESOP companies that converted from C status to S status, but have a sale that occurs in these years, may be helped by this provision.