Recently, the District of Columbia (DC) enacted the "Fiscal Year 2010 Budget Support Emergency Act of 2009," which contains multiple tax provisions. Summarized below are some of the provisions of the legislation that affect corporations, unincorporated businesses and individual taxpayers.

CORPORATIONS

Combined filing for commonly controlled corporations conducting unitary business: For tax years beginning after Dec. 31, 2010, the legislation requires unitary reporting by commonly controlled corporations engaged in a unitary business. The legislation has not defined the terms “unitary” or "commonly controlled corporations." Expectations are that those definitions will be provided by regulations.

Royalty and interest expense paid to commonly controlled entities: Currently DC does not allow a deduction (subject to specified exceptions) for royalty payments, if such payments are directly or indirectly paid to a related member. For tax years beginning after Dec. 31, 2008, DC will not allow a deduction for interest or intangible expenses if such expenses are directly or indirectly paid to one or more related members.

BUSINESS TAXPAYERS INCLUDING CORPORATIONS

Decoupling from debt discharge deferral election: IRC § 108(i) allows debt discharge income from the reacquisition of certain debt instruments in 2009 and 2010 to be deferred until 2014 and reported in 2014 through 2018 tax years. The legislation decouples DC from those federal deferral provisions

Electronic payments for entity taxpayers: Currently, corporations and unincorporated businesses may be required to make their payments for quarterly franchise tax estimates and monthly withholding tax returns electronically if their payment due for that quarter or month exceeds $25,000.

Effective, Aug. 26, 2009, the $25,000 threshold has been reduced to $10,000.

INDIVIDUAL INCOME TAX

Motor vehicle sales tax deduction: Under federal law, individuals are permitted to add to the standard deduction, sales and excise taxes paid on new motor vehicles purchased during the period starting Feb. 1, 2009 and ending Dec. 31, 2009.

The legislation decouples DC from this federal provision. For DC purposes, a deduction for motor vehicle sales tax may only be taken if: (a) the taxpayer itemizes deductions, and (b) elects to take the sales tax deduction in lieu of the state and local income tax deduction.

ALL TAXPAYERS

Amnesty: The legislation authorizes the DC Office of Tax and Revenue (OTR) to establish a tax amnesty program for taxpayers liable for certain District taxes on returns or reports for periods ending before Dec. 31, 2009. The OTR will establish the exact dates of the amnesty period and the exact taxes to be covered. The amnesty will provide relief from collection fees, fines and civil and criminal penalties for failure to file or pay tax due for taxpayers who satisfy the requirements of the amnesty.

For more information on how the "Fiscal Year 2010 Budget Support Emergency Act of 2009” may affect you, please contact the Aronson & Company Tax Services Group at 301.231.6200.