American Jobs Creation Act of 2004

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Overview

The American Jobs Creation Act of 2004, P.L. 108-357 (HR 4520) was enacted in response to a WTO order and EU trade sanctions related to a little known tax break for U.S. exporters. The old tax break was replaced with a major (and complex) tax break for businesses (regardless of organizational form) that engage in domestic manufacturing activities. It also created a host of other new business tax breaks, and balanced these business tax breaks by eliminating a host of other business tax breaks. It claims to be revenue neutral, but does so with a variety of gimmicks (like "temporary" changes that never get repealed).

Some of the notable tax breaks in the bill include:

  • Deductibility of state sales taxes paid in states with no income tax.
  • A major tax break involving interest expense allocation by multinational corporations.
  • More liberal tax credits for taxes paid to foreign governments.
  • Repeal of the foreign personal holding company and foreign investment company rules (designed to tax foreign shell companies owned by Americans).
  • Ending taxation of foreign nationals who bet on U.S. horse and dog races.
  • Tax breaks for sports team owners like George W. Bush.
  • Tax breaks for ethanol and farmers.
  • Tax breaks for renewable electricity and "brownfields" programs.
  • Favorable tax changes for various kinds of capital investments (mostly permitting businesses to take tax write offs sooner).
  • Permitting larger S corporations.
  • Tax breaks for railroads, alcohol distributors, people with stock options and employee stock benefits.

Some of the notable tax increases ("revenue provisions") in the bill come from:

  • Tightening tax treatment of taxpayers (individual and corporate) who cease to be U.S. persons (moving abroad or giving up U.S. citzenship).
  • Discourages using off shore assets for non-qualified deferred compensation plans for senior executives.
  • Increases the power of the IRS to enforce existing anti-tax shelter rules (including a repeal of attorney-client and accountant-client privileges in some cases, and increased penalties).
  • Makes it harder to transfer tax losses from one person to another.
  • Makes it harder to avoid taxes on real estate by converting investment properties to a residence and then taking advantage of the tax free nature of gain on a residence.
  • Closes a loophole related to fake sale-leasebacks of government property.
  • Tweaks the excise taxes on various fuels.
  • Tightens rules for charitable contributions in kind (especially cars and intellectual property).
  • New withholding taxes on wages in excess of $1,000,000 a year.
  • Limits on entertainment expense deductions for senior executives.
  • Limits on business deductions for SUVs bought by small business owners.

Needless to say, the bill is complex. It passed the House on October 7, 2004, and passed the Senate on October 11, 2004 and was signed by the President without ceremony on Air Force One on October 22, 2004. The Bill finally passed has the following provisions.

Links Discussing the Law

American Jobs Creation Act of 2004 Revenue Impacts

From the Joint Committee on Taxation JCX-69-04 (October 7, 2004). All figures in millions of dollars of tax revenue over the entire 2005-2014 time period. While the Joint Committee on Taxation found that the bill was revenue neutral, the Congressional Budget Office (under the supervision of a Republican controlled Congress) does not agree, finding that this bill adds billions of dollars to the deficit.

Major Revenue Increases (2005-2014) ($500 million or more)

  • Repeal of Exclusion for Extraterritorial Income $49,199
  • Sale-Leaseback to Governments Tax Shelter Closed $26,560
  • Extend Customs Users Fees $18,614
  • Alcohol Fuels Excise Tax Credits From General Fund (Net) $ 5,719
  • Aviation Fuel Excise Tax Assessed Sooner $ 4,211
  • Limits on Charitable Deductions of Intellectual Property $ 3,653
  • Intangibles Amortization Rules Tightened $ 3,085
  • Limits on Charitable Deductions of Vehicles $ 2,379
  • Limits on Executive Entertainment Expenses $ 2,292
  • Limits on Transfers of Built In Losses $ 1,851
  • Assess Interest Even Where IRS Doesn’t Contact Taxpayer $ 1,545
  • Heavy Vehicle Use Tax Modifications $ 1,305
  • Registration of Pipeline and Vessel Operators $ 1,211
  • Tax Treatment Changes For Non-Qualified Deferred Compensation $ 1,051
  • Taxation of Diesel Blends $ 1,043
  • Private Sector Tax Debt Collection (Net) $ 1,017
  • Limit Interest Deductions on Convertible Debt $ 1,004
  • Mobile Machinery Excise Tax Change $ 931
  • Tighter Expatriation Taxation Rules $ 830
  • Establish Class Lives for Utility Grading Costs $ 806
  • Other Revenue Raisers $12,792

Major Tax Cuts (2005-2014) ($500 million or more)

  • U.S. Production Activities Deduction $76,509
  • International Interest Expense Allocation Rules $14,376
  • Foreign Tax Credit Basket Changes $ 7,862
  • Foreign Tax Credit Carry Forwards $ 6,931
  • Change in Overall Domestic Loss Rules $ 5,585
  • Temporary Sales Tax in lieu of Income Tax Deduction $ 4,995
  • Foreign Tax Credit AMT limit repeal $ 3,371
  • Incentives to Reinvest Foreign Earnings in the U.S. $ 3,261
  • Renewable energy and clean coal tax credits $ 2,278
  • Leasehold and Restaurant Improvement Depreciation (to 2005) $ 2,017
  • Repeal of Excise Tax on RR and Inland Waterways Fuel $ 1,532
  • S Corporation Election Eligibility Changes $ 1,153
  • Temporarily Increased Small Business Expensing (sunset in 2007) $ 1,095
  • Change Subpart F Sale of Partnership Interest Rules $ 1,048
  • Change Treatment of Aircraft Leasing and Shipping Income $ 995
  • Repeal Foreign Personal Holding Co. and Foreign Investment Co. Rules $ 984
  • Changed Treatment For Dividends From Foreign Subsidiaries. $ 743
  • Income Forecast Accounting Method Changes $ 615
  • Tax Free Distributions From Life Insurance Policy Surplus Accounts $ 533
  • RR Track Maintenance Credit $ 501
  • Other Tax Cuts $ 4,714
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