President’s Tax Proposals for FY2011 Outlined in Treasury Green Book

Details of the tax proposal in the President’s 2011 budget proposal are described in the Treasury Department’s “Green Book,” more formally known as the General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals.  The 153 page document is available from the Treasury Department’s website as a PDF file.

The  “Temporary Recovery Measures” that are found at the beginning of the document mainly consist of continuing various expiring provisions, including the Making Work Pay Credit and related Economic Recovery Payment, continuing the COBRA subsidy program for another ten months, and extending both the additional §179 and bonus depreciation provisions for another year.

The proposal contains a provision that would require employers who have been in business more than 2 years, employ more than 10 employees and who do not offer a retirement plan to provide for automatic contributions to IRA accounts on behalf of its employees to be withheld from their paychecks.  Unless the employee opted out or filed an election indicating the amount to be withdrawn, 3% of the employee’s pay would be directed to an IRA.

The proposal would also repeal the LIFO and lower-of-cost-or market methods of accounting for inventories, tax carried interests as ordinary income, restrict the use of discounts for estate and gift tax purposes, impose a mandatory term of at least 10 years on GRATs and mandate a consistent valuation for both estate and income tax purposes.  And it does actually include a proposal for the long overdue removal of cellular telephones from the items treated as “listed property” under the IRC.

The budget also proposes to allow some of the 2001 tax cut provisions to expire as scheduled from the law, triggering the reinstatement of the 39.6% and 36% rates, and the phase out of itemized deductions and personal exemptions.  While the budget proposal would allow the 20% capital gain rate to come back into the law, the proposal does suggest continuing to link the rate on qualified dividends to the long term capital gain rate as under current law.

This is a just a set of “highlights” of the 153 pages of proposals—there is a lot more in the book to digest that might impact your clients.  It is also important to note it’s a long road from a President’s proposal to the actual law that Congress passes, and major changes to these proposals are to be expected when and if they are actually passed into law. For that reason, taking irreversible actions based on this proposal would not be warranted at this time.  But the budget does provide a starting point for this year’s major tax legislation, and certainly suggests issues you may wish to discuss with your clients.

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