Our Attorneys

Position: Member
E-Mail kwilcox@simmonsperrine.com
115 3rd Street SE, Suite 1200
Cedar Rapids, IA 52401-1266

Phone 319-366-7641
Fax 319-366-1917
vCard

Congress Offers Tax Relief to Flood-Affected Businesses
By Kyle W. Wilcox

While taxes and the floods of 2008 may well be two of your least favorite things to ponder, there is a bright spot for flood-affected businesses in the corridor this tax season as a result of the passage of the Emergency Economic Stabilization Act of 2008 (the "Act"), which was signed into law by President Bush on October 3, 2008. This law is better known as the "bailout" bill, because its primary purpose was to fund the $700 billion bailout of the nation’s financial industry. As you may recall, the bailout bill was initially voted down in the House. Unbeknownst to many, two separate disaster bills were added to the bailout bill in order to get enough votes for it to pass in both houses of Congress.

One of these disaster bills was the Heartland Disaster Tax Relief Act of 2008, which offers some tax relief to the 2008 tornado and flooding disaster victims in Eastern Iowa. Generally, the Heartland Disaster Tax Relief Act was modeled after the bill that was passed in response to Hurricane Katrina. Here is a description of two (there are several others that may benefit your business) of the more significant tax relief measures provided in the Act that may be available to your flood-affected business.

Employee Retention Tax Credit
One of the most significant tax-relief provisions provides a tax credit to employers who retained and paid its employees while the business was unable to operate from its usual place of business. The credit is equal to 40% of the first $6,000 of qualified wages paid to each eligible employee by an eligible employer during the period commencing on the date in which the business became “inoperable” until the date that significant operations were resumed at the principal place of employment. This credit equates into a potential savings of $2,400 for each employee that your business paid while your business was relocated or not operating,

In order to qualify, the your business must be an "eligible employer," which means that 1) your business employed, on average, no more than 200 employees during the tax year prior to the disaster date (2007 in this case); 2) the business was conducting business immediately prior to the disaster; and 3) that the business was "inoperable” on any day on or after the date of the disaster and before January 1, 2009. Your business only needs to be inoperable for one day to qualify for this tax credit. Wages paid to employees qualify for this credit even if the employee performed services at a different location while the business was displaced or performed services at the principal place of business before operations were fully resumed.

Bonus Depreciation of New Investment
An additional depreciation deduction equal to 50% of the adjusted basis for “qualified disaster assistance property.” The bonus depreciation must be taken in the year in which the property is placed in service (most likely 2008). In order to qualify for the bonus depreciation, the property must 1) be purchased on or after the date of the disaster (there can be no written binding contract for the acquisition in effect before the date of the disaster); 2) either have a recovery period of 20 years or less or be either nonresidential real property or residential rental property; 3) be located in a federally declared disaster area; and 4) be used in the active conduct of a trade or business.

The property must be used to fix property that was damaged in the disaster or to replace property destroyed or condemned because of the disaster. The property must be placed in service by the eligible taxpayer by the end of 2011 (2012 for nonresidential real property and residential rental property).

There is no Alternative Minimum Tax depreciation adjustment for the bonus depreciation on qualified property in disaster areas. You should be aware that there are certain types of specific property that are ineligible for the bonus depreciation (typically because of the nature of the business in which the property is to be used such as casinos, gambling, golf courses, etc.).

You should consult with your professional tax advisor to determine whether or not you are eligible to able to take advantage of the employee retention tax credit and/or the bonus depreciation available for qualified disaster assistance property.

More information about Kyle W. Wilcox