American Jobs Creation Act of 2004 (HR4520)
S Corporation Provisions
Number of Shareholders. For purposes of the 75 shareholder limitation, all family members (up to six generations) may elect to be treated as one shareholder. In addition, the maximum number of eligible shareholders is increased from 75 to 100. Effective for taxable years beginning after December 31, 2004.
Transfer of Suspended Losses Incident to Divorce. Losses that are suspended because of basis and at risk limitations are transferred to the spouse who receives the stock as part of a divorce settlement. Effective for taxable years beginning after December 31, 2004.
Livestock Sold on Account of Weather-Related Conditions. Ranchers now have four years (rather than two) to replace livestock sold due to weather-related conditions in areas that are eligible for federal government assistance, and defer taxes on any gain from the sale. The IRS may extend the replacement period on a regional basis if the weather-related conditions continue for more than three years. Effective for returns due (without regard to extensions) after December 31, 2002.
Farmers and Fishermen Income Averaging and AMT. Beginning in 2004, fishermen may use the income averaging previously available only to farmers. In addition, income averaging and AMT are coordinated so the benefits of income averaging are not reduced or eliminated by AMT. For purposes of determining AMT, the taxpayer's regular tax liability (without averaging) is compared to the tentative minimum tax. Effective for taxable years beginning after December 31, 2003.
Reforestation Expenses. Taxpayers may now elect to deduct up to $10,000 ($5,000 MFS) of reforestation expenses in the year paid or incurred (instead of amortizing the expenses over 84 months).Trusts and estates must apportion the allowed deduction between the fiduciary and beneficiar(ies) based on forthcoming Treasury regulations.
Note: The reforestation tax credit is repealed for expenses paid or incurred after the date of enactment.
Tobacco Buyout. The current federal tobacco support program is repealed. Tobacco quota holders will receive $7 per pound on their basic quota allotment paid in equal installments over 10 years, beginning in 2005. Tobacco producers will receive transition payments of $3 per pound based on their effective quota, paid in equal installments over 10 years, beginning in 2005. If a farmer or producer dies prior to receiving all payments, the right to the payments transfers to the surviving spouse, if none, to the estate of the farmer or producer.
Foreign Tax Credit Baskets. Beginning in 2007, the foreign tax credit limitation categories of income are reduced from nine to two - passive income and general category income. Note: Taxes paid or accrued in a tax year beginning before 2007 and carried to 2007 or later years are treated as if the new rule applied when the taxes were paid or accrued.
Foreign Tax Credit Carryforward/Carryback. The foreign tax credit carryforward period is extended to 10 years (from five) and the carryback period is reduced to one year (rather than two). The extension of the carryforward period is effective for excess credits that are carried to a tax year ending after the date of enactment. The one year carryback period is effective for excess credits arising in tax years beginning after the date of enactment.
Foreign Tax Credit and AMT. The current 90% limitation on the use of foreign tax credits against corporate AMT is repealed beginning in 2005.
U.S. Possessions - Residence Rules. A two-part test applies for purposes of determining who is a resident of certain U.S. possessions (i.e., Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands).
This change is effective for tax years ending after the date of enactment.
- The person must be present in the U.S. possession for 183 days each taxable year,
- The person must not have a tax home outside the U.S. possession during the year and must not have a closer connection to the United States or a foreign country during the year.
Regulation of Individuals Practicing Before IRS. Censure and monetary penalties have been added to the sanctions the IRS may impose. Effective for actions taken after the date of enactment.