Welcome to the Harlem Empowerment Zone, Mr. President.
The Taxman86 has been very quiet recently, but still waters run deep. However, a news flash on the Financial News Network [FNN], seen by a client while we were on the phone, caught my attention: "Clinton Mulls Harlem Empowerment Zone Office Space." If that did not catch your attention you must have been in hiding since it hit MSNBC, the evening news and is in today's New York Times and Washington Post for all to see.
If that did not get your attention maybe yesterday's front page story in the Los Angeles Times Business Section: "With Aid, Antelope Valley Rebuilds Enterprise Zone Incentives Help Attract Jobs to a Region Facing Social, Economic Challenges" by the Times' leading business writer, JAMES FLANIGAN.
What does this all mean? The marketing portion of one of the best kept secrets in the Clinton ERA has just begun. H.R. 5662 "The Community Renewal Tax Relief Act of 2000" is now on line for all to see and can be best described as follows:
".Congress approves 9 new EZs, 40 Renewal Communities, and more money for Round II EZs
On December 15, 2000, Congress approved additional FY 2001 funding for Round II urban Empowerment Zones (EZs), increasing a previously-approved amount to a total of approximately $185,000,000, or $12.3 million for each EZ. In addition, Congress approved legislation to designate nine new EZs, seven in urban areas and two in rural areas. HUD will designate the seven new EZs in 2001. The legislation also provided for the extension of EZ treatment for all Round 1 and II EZs through December 31, 2009. Other highlights of the legislation include the following:
1. Extension of the EZ employment credit [$3,000 per zone employee] to all Round II Zones. This credit, formerly available only to Round I EZs, now gives all Round I and II and Round III businesses an incentive to retain or hire individuals who both live and work in an EZ. Businesses can claim a credit of as much as $3,000 per qualified EZ employee each year. This tax credit is attractive to businesses that are looking to reduce tax liability or that are considering expanding or relocating to a Zone.
2. Increased [over regular $24,000] expensing (up to $35,000 from $20,000) under Section 179 of the Internal Revenue Code. This new expensing applies after December 31, 2001 to EZs and developable sites. Section 179 of the Internal Revenue Code allows businesses to deduct costs of certain qualifying property in the year they place it in service. Businesses can do this instead of recovering the cost by taking depreciation deductions over a specified recovery period. The increase to $35,000 will be favorable to EZ businesses with relatively small equipment needs in any taxable year and to businesses moving into an EZ from another location that own the majority of their equipment but have additional new equipment needs.
3. Higher limits on tax-exempt empowerment zone facility bonds. Local governments can issue up to $230M of these non-private activity bonds [not subject to state private activity cap] (as a type of tax-exempt facility bond) to make loans at lower interest rates to Enterprise Zone Businesses to finance Qualified Zone Properties.
4. The legislation provides also for non recognition of capital gain on roll-over of EZ assets and increased [60% from 50%] exclusion of capital gain on the sale of EZ stock for all cash investments made after December 21, 2000.
[#4 is the biggest change of the all, that being IRC Section 1397B, non recognition of all capital gains after one-year holding period, if gains reinvested back into EZ assets within 60 days]. Let the games begin
Suppose Starbucks built their Southern California Distribution Center in the Los Angeles Empowerment Zone and the Los Angeles Central City Enterprise Zone then sold it, after one-year and a day after they start the project, or after completion [?], and leased it back for twenty years as is typical in many of these deals, is it possible that the $5M capital gains profit they make on the sale is tax free? We strongly believe so. What do you think, Mr. President?
Jim Schneider, LL.M.
The Taxman86 Speaks... is copyright 1998-2010 by James E. Schneider, LL.M. Inc.