McGraw-Hill Construction: Construction Stimulus Special Section

The American Recovery and Reinvestment Act of 2009 (ARRA) includes a number of policy provisions and changes to the tax code. Read more »

The Federal Acquisition Regulation (FAR) Council has issued several new interim final rules on March 31 that apply to all directly-funded recovery projects as of March 31. Read more »

In fulfilling its mission to assist the President in overseeing the preparation of the federal budget and to supervise its administration in executive agencies, the Office of Management and Budget (OMB) has guidance related to ARRA implementation. Read more »

ARRA

Highlights of ARRA affecting project contracts [ see the full text of the 2009 act here » ]:

SEC. 1554. Special Contracting Provisions. Requires, to the maximum extent possible, that contracts funded under the act be awarded as fixed-price contracts through the use of competitive procedures. A summary of any contract awarded with such funds that is not fixed-price and not awarded using competitive procedures shall be posted in a special section of the Recovery.gov website

SEC. 1602. Preference for Quick-Start Activities. Requires that funding recipients give preference to activities that can be started and completed expeditiously, including a goal of using at least 50 percent of the funds for activities that can be initiated not later than 120 days after enactment. Requires grant funds to be used in a manner that maximizes job creation and economic benefit.

SEC. 1603. Period of Availability. Authorizes funding under the act to remain available for obligation until September 30, 2010, unless stated otherwise in the act.

SEC. 1605. Use of American Iron, Steel, and Manufactured Goods. Requires the use of U.S.-made iron, steel, and manufactured goods, with certain exceptions.

SEC. 1606. Wage Rate Requirements. Requires that all laborers and mechanics employed by contractors and subcontractors on projects funded directly by or assisted in whole or in part by and through the federal government pursuant to the act be paid not less than local prevailing wages for projects of similar character (Davis-Bacon Act).

SEC 1610. FAR Applicability. Requires executive agencies to adhere to the Federal Acquisition Regulation (FAR), the Federal Property and Administrative Services Act (41 U.S.C. 253), and chapter 137 of title 10, United States Code, when using funding appropriated under the act, unless such a contract is otherwise authorized by statute to be entered into without regard to these statutes.

ARRA tax provisions affecting businesses:

Extension of Bonus Depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately writeoff fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. The bill would extend this temporary benefit for capital expenditures incurred in 2009. This proposal is estimated to cost $5.074 billion over 10 years. 

5-Year Carryback of Net Operating Losses for Small Businesses. Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less. This proposal is estimated to cost $947 million over 10 years.

Extension of Enhanced Small Business Expensing. In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009. This proposal is estimated to cost $41 million over 10 years.

Incentives to Hire Unemployed Veterans and Disconnected Youth. Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would create two new targeted groups of prospective employees: (1) unemployed veterans; and (2) disconnected youth. An individual would qualify as an unemployed veteran if they were discharged or released from active duty from the Armed Forces during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25
and have not been regularly employed or attended school in the past 6 months. This proposal is estimated to cost $231 million over 10 years.

Repeal of Treasury Section 382 Notice. Last year, the Treasury Department issued Notice 2008-83, which liberalized rules in the tax code that are intended to prevent taxpayers that acquire companies from claiming losses that were incurred by the acquired company prior to the taxpayer’s ownership of the company. The bill would repeal this Notice prospectively. This proposal is estimated to raise $6.977 billion over 10 years. 

Small Business Capital Gains. Under current law, Section 1202 provides a fifty percent (50%) exclusion for the gain from the sale of certain small business stock held for more than five years. The amount of gain eligible for the exclusion is limited to the greater of 10 times the taxpayer’s basis in the stock, or $10 million gain from stock in that small business corporation. This provision is limited to individual investments and not the investments of a corporation. The nonexcluded portion of section 1202 gain is taxed at the lesser of ordinary income rates or 28 percent, instead of the lower capital gains rates for individuals. The provision allows a seventy five percent (75%) exclusion for individuals on the gain from the sale of certain small business stock held for more than five years. This change is for stock issued after the date of enactment and before January 1, 2011. This provision is estimated to cost $829 million over 10 years. 

Delayed Recognition of Certain Cancellation of Debt Income. Under current law, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (“CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. This proposal is estimated to cost $1.622 billion over 10 years.

Temporary Reduction of S Corporation Built-In Gains Holding Period from 10 Years to 7 Years. Under current law, if a taxable corporation converts into an S corporation, the conversion is not a taxable event. However, following such a conversion, an S corporation must hold its assets for ten years in order to avoid a tax on any built-in gains that existed at the time of the conversion. The bill would temporarily reduce this holding period from ten years to seven years for sales occurring in 2009 and 2010. This proposal is estimated to cost $415 million over 10 years.

Also see IRS sites: Construction Tax Center, Small Business and Self-Employed Tax Center

 

FAR

FAR regulations released March 31, 2009, contain information related to ARRA and federal contracting. See:

Publicizing Contract Actions
Acquisition officials must issue public notices on publicizing contract action worth more than $25,000.

Reporting Requirements
Prime contractors who win work funded by the economic recovery package must file detailed public reports to the government on the nature of their work,job creation/retention data, and salary information - for themselves as well as first-tier subcontractors.

Whistleblower Protections
Prohibits nonfederal employers from firing, demoting or discriminating against whistleblowers who alert the government to questionable uses of stimulus funds. Contractors who refuse to abide by this rule will not be eligible for stimulus contracts.

GAO Access to Contract Employees
Provides the Government Accountability Office with the authority to audit both contracts and subcontracts related to the stimulus, and to interview contractor and subcontractor employees. Provides inspectors general the right to interview contractors' employees.

Buy American Requirements for Construction Materials
Requires all construction, repair or maintenance projects use only iron, steel and manufactured goods produced in the United States. The rule provides a number of narrow exceptions and waivers, such as cases when goods are not available domestically, or if the local price is not reasonable.

OMB

See OMB Guidance initial ARRA implementing guidance (February 18, 2009) and updated guidance (April 3, 2009).

Also see President Obama’s March 4 Memorandum for the Heads of Executive Departments and Agencies, which sets two further deadlines for developing governmentwide guidance: July 1, 2009, and September 30, 2009.