American Jobs Creation Act of 2004 (HR4520) Individual Provisions

ISOs and ESPPs. FICA (including Medicare tax), Railroad Retirement taxes and FUTA taxes will not be imposed on compensation resulting from the exercise of incentive stock options (ISOs) and employee stock purchase plan options (ESPPs). In addition, federal income tax withholding is not required on a disqualifying disposition of stock acquired in the exercise of a statutory stock option. This provision is effective for options exercised after the date of enactment.

State and Local Sales Tax Deduction. Taxpayers may elect to take an itemized deduction for State and local general sales taxes instead of deducting State and local income taxes. If taxpayers elect to deduct sales taxes, they may accumulate receipts and deduct their actual sales taxes paid or may use tables created by the IRS. If they choose to use the tables they will also get to deduct actual sales taxes paid on certain items such as cars and boats because sales taxes for those items will not be reflected in the IRS tables. The deduction is effective for 2004 and 2005.

Attorneys' Fees and Costs Incurred With Respect to Civil Rights Litigation. Taxpayers who incur legal fees and costs in connection with actions involving discrimination and other civil rights violations may take an above-the-line deduction for such fees and costs. The deduction cannot exceed the amount of the judgment or settlement includible in the taxpayer's income for the year. The deduction is effective for fees and costs paid after the date of enactment with respect to any judgment or settlement occurring after the date of enactment.

Rural Mail Carriers. Rural mail carriers that use their personal vehicles for mail delivery may now deduct vehicle expenses in full. (Under prior law, the deduction is limited to the amount of the reimbursement received.) Effective for taxable years beginning after December 31, 2003.

Business Energy Credits and AMT. The following credits are allowed against AMT:

• The alcohol fuels credit (effective beginning in 2005).
• The credit for electricity produced from renewable resources (applies to facilities placed in service after the date of enactment and only for the first four years of production).

Exclusion on Sale of Principal Residence. The $250,000 ($500,000 MFJ) exclusion does not apply if the principal residence was acquired in a like-kind exchange in which any gain was not recognized within five years prior to the sale. Effective for sales or exchanges after the date of enactment.

Exclusion for Payments Under National Health Services Corps Loan Repayment Program. Payments made to program participants to repay their outstanding student loans are no longer included in the participant's taxable income. In addition, the payments are no longer subject to employment tax. Effective for amounts received in taxable years beginning after December 31, 2003.

Suspension of Interest on Potential Underpayments. Taxpayers may deposit cash with the IRS in order to avoid the accrual of underpayment interest while the taxpayer and the IRS resolve a dispute as to liability. It appears this provision is codifying Revenue Procedure 84-58 regarding cash bonds. Effective for deposits made after the date of enactment.

Installment Agreements. Specifically provides that the IRS may enter into installment agreements that provide for partial payment of the total amount owed over the period of the agreement. The IRS must review these agreements every two years to determine whether the financial condition of the taxpayer has significantly changed so as to warrant an increase in the amount of the payments being made. Effective for installment agreements entered into on or after the date of enactment.

Charitable Contribution Provisions:

• Patents and Other Intellectual Property. The charitable deduction in the year of contribution is limited to the lesser of the taxpayer's basis in the contributed property or its fair market value. In addition, the taxpayer may take an additional charitable deduction, for up to 12 years, based on a percentage of the income received by the charity with respect to the property. The additional deduction is 100% of income for the first two years and then decreases by 10% per year until it reaches 10% for years eleven and twelve. The taxpayer must obtain written substantiation from the charity of the amount of income and the charity must file an annual information return reporting the income. Effective for contributions made after June 3, 2004.
• Noncash Charitable Contributions. All donors, including corporations, must obtain a qualified appraisal of contributed property (other than inventory, publicly traded securities, or certain vehicles) if the amount of the claimed deduction is greater than $5,000. In addition, all donors are required to attach a qualified appraisal to their tax return if the amount of the claimed deduction is greater than $500,000. Effective for contributions made after June 3, 2004.
• Motor Vehicles, Boats and Airplanes. The reporting requirements for donations of cars, boats, and planes are increased if the deduction is greater than $500. In addition, if the charity sells the vehicle, within 30 days of the sale the charity must give the donor a written acknowledgment that states how much it received from the sale. The allowed deduction is limited to the proceeds from the sale. If the vehicle is not sold, the charity must give the donor an acknowledgment within 30 days of the contribution and indicate in the acknowledgment its intended use of the vehicle. The taxpayer must attach the acknowledgment to his or her tax return. Effective for contributions made after December 31, 2004.

IRS User Fees. IRS user fees are extended for ruling requests, etc. made through September 30, 2014.

Return to Energy Tax Incentives Act of 2005