New tax bill - no conformity

Last week Congress enacted legislation primarily benefiting farmers and military members. Of course, California has not conformed to any of these provisions so there are even more differences between federal and California law.

Following is an overview of the two bills:

Food, Conservation and Energy Act of 2008 (H.R. 2419)

Congress has overridden the president's veto of H.R. 2419 --  the Food, Conservation, and Energy Act of 2008 (Farm Act) --  which contains a number of farm-related tax provisions, a change in the optional method of computing self-employment tax, an increase in corporate estimated taxes of large corporations (assets of $1 billion or more), disaster relief for the 2007 Kansas tornado, and new and modified credits related to the production of certain fuels.

Heroes Earnings Assistance and Relief Act of 2008 (H.R. 6081)

The Heroes Earnings Assistance and Relief Act of 2008 (Heroes Act) was unanimously approved by the House and Senate on May 20 and May 22, respectively, and is expected to be signed by the president.

The Heroes Act increases the minimum penalty for a failure to file an individual tax return within 60 days of the due date to the lesser of $135 (up from $100) or 100 percent of the amount of tax required to be shown on the return, effective for tax returns required to be filed after 2008.

The Act also provides tax benefits to the military. Among other things, the bill:

·                     Allows military families to receive a stimulus rebate for a joint return without a spouse's social security number,

·                     Makes permanent the ability to include combat pay as earned income for purposes of the EITC and the special home-sale exclusion rules for certain intelligence community employees,

·                     Allows the election to suspend the five-year period for determining whether the exclusion of gain on sale of a principal residence applies to sales or exchanges by certain Peace Corps employees or volunteers,

·                     Makes permanent the rule allowing active duty reservists to make penalty-free withdrawals from retirement plans and allows members of the reserves called to active duty to withdraw unused amounts held in an FSA without penalty.

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