1. The American Recovery and Reinvestment Act Practical Applications of the Economic Stimulus Package April 21, 2009 Mark Bakko, Tax Partner Virchow Krause Robert Keebler, Tax Partner Virchow Krause 1

2. Today’s Agenda American Recovery & Reinvestment Act Highlights Individual and Business Income Tax Impact Energy Provisions 2

3. Overview Total Stimulus Plan cost: $787 Billion Increase to the National Debt: $330 Billion (over ten years) 3

4. Expected Outcomes Stimulate consumer spending Assist those most impacted by the recession Free up money for health care, transportation, environmental protection, and other infrastructure Prevent the dramatic cutback of State, County, Municipal, and K-12 services 4

5. Highlights 5 $787B plan includes: $14B in direct cash payments, $115B in individual tax credits, and $2.5B in sales tax deductions on new cars Creates or preserves 3 to 4 million jobs over the next two years Doubles renewable energy capacity over three years Enacts the largest investment increase in roads, bridges, and mass transit systems since the 1950s

6. Highlights 6 Computerizes every American’s health record in five years, reducing medical errors and saving billions of dollars in healthcare costs Lowers healthcare costs and ensures broader healthcare coverage Supports America’s working families through tax cuts and aid programs 6

7. Timeline 7 1.29.2009: House approves initial version of the bill 2.2.2009: Senate discussions begin 2.10.2009: Senate passed $838B stimulus bill 2.11.2009: House and Senate reach final version of the $787B stimulus plan 2.13.2009: House and Senate pass reconciled bill 2.17.2009: President Obama sign’s stimulus bill into law

8. Developments Changed significantly from the original $838B House Bill on February 2, 2009, to the current $787B plan 8 Stimulus Plan Provision House (2/2/09) Senate (2/11/09) Change Fossil energy research $4.6 ▲ $4.6 Energy efficiency projects$11.4$5.8 ▼ $5.6 Electricity grid$11.00$4.5 ▼ $6.5 Broadband$6.0$7.0 ▲ $1.0 Highways and bridges$30.0$27.0 ▼ $3.0 School construction and technology$21.0 ▼ $21.0

9. Primary Provisions 9 ProvisionSpend (B) Tax Cuts Tax cuts to individuals, businesses, and state and local governments $240.00 Aid to StatesState fiscal relief, Medicaid spending, law enforcement$126.00 Individual Aid Heath insurance, Medicaid, Job training, hunger programs, unemployment $130.00 Transportation and Infrastructure Highways and Bridges, environmental cleanup, transit, water resources, competitive grants, energy Smart Grid $111.00 New York Times, The Stimulus Plan: How to Spend $787 Billion”, Feb 17 th, 2009 9

10. Primary Provisions 10 ProvisionSpend (B) Education Educational programs, K-12 education, funding to states for public schools and universities $85.00 Energy Efficiency for federal buildings, fossil energy research, energy efficiency projects, Renewable Energy research $49.00 Science and Technology Broadband, Biomedical research (to National Institutes of Health), CDC, etc $20.00 Health Care Health Care Information Technology (primarily Electronic Health Records) $19.20 OtherAccountability, census, Other$10.00 New York Times, The Stimulus Plan: How to Spend $787 Billion”, Feb 17 th, 2009

11. Individual and Business Income Tax Impact 11

12. Totals close to $185B AMT Patch – Exemption amounts will increase to $46,700 (single) $70,950 (married) Unemployment Compensation – Up to $2,400 of unemployment benefits received in 2009 are exempt from tax One-time $250 Economic Recovery Payments – – Payments disbursed to those eligible for benefits from Veterans Administration, Railroad Retirement Board, or Social Security Administration during November 2008, December 2008, or January 2009 – No AGI limitation 12 Individual Tax Provisions 12

13. Refundable $250 Credit to Certain Government Retirees – Government retirees ineligible for Social Security receive refundable $250 credit against income tax on 2009 return ($500 for joint return where both spouses are eligible) “Making Work Pay Credit” – – Equal to the lesser of $400 (single) and $800 (joint) or 6.2% of earned income – Refundable even if no tax liability – Phases out as AGI increases from $75K to $95K (single), $150K to $190K (joint) – Reduced by Economic Recovery Payment – Dependents do not qualify – In the form of lower withholding – Applies to calendar years 2009 and 2010 13 Individual Tax Provisions 13

14. Deduction for Sales and Excise Taxes Imposed on New Vehicle Purchases – – Limited to sales tax attributable to the first $49,500 of purchase price – Standard and itemized deductions allowed – AGI phase out from $125K to $135K (single), $250K to $260K (joint) – Applies to purchases made on or after Feb. 17, 2009 and before 2010 – Not allowed for AMT – Includes some light trucks and SUVs, motorcycles, and motor homes – Original use of vehicle must begin with taxpayer (no used vehicles) 14 Individual Tax Provisions 14

15. First-Time Homebuyer Tax Credit – – Up to $8K refundable credit for first-time homebuyers purchasing a home between Jan. 1, 2009, and Dec. 1, 2009 ($4K for married filing separately) – No repayment of credit if taxpayer uses as principal residence for 36 months – May elect to treat pre-Dec. 1, 2009, home purchases as made in 2008 Qualified Higher Education Expenses Under §529 Plans – – In 2009 and 2010, 529 plan disbursements can be used to purchase computer technology or equipment – Includes educational software, Internet access, and related services 15 Individual Tax Provisions 15

16. “American Opportunity Tax Credit” – – Replaces Hope Credit for 2009 and 2010 – Increases max credit to $2,500 per eligible student per year – Course materials are included as eligible expenses – Allowed for the first four years of student’s post-secondary education – Can be claimed against AMT – Phase out for modified AGI between $80K and $90 K (single), $160K and $180 (joint) – 40% may be refundable Child Credit – Increases Eligibility – Earned income formula for refundable credit modified to apply to 15% of earned income in excess of $3K (instead of $12,550 for 2009) – Applies to 2009 and 2010 16 Individual Tax Provisions 16

17. Earned Income Credit Changes – – Phase out ranges is increased for joint filers for 2009 and 2010 – Credit percentage is increased for families with three or more qualifying children for 2009 and 2010 AMT Preference for Private Activity Bond Interest – – None for tax-exempt interest on private activity bonds issued in 2009 and 2010 Nonrefundable Personal Tax Credits – Can offset both regular and AMT tax through 2009 (instead of 2008) 17 Individual Tax Provisions 17

18. Decreased Required Estimated Tax Payments in 2009 for Certain Small Businesses – – For any tax year beginning in 2009, qualified individuals required annual payment is the lesser of (1) 90% of the tax shown on the return for the tax year or (2) 90% of the tax shown on the return of the individual for the preceding tax year – Qualified individual means an individual if (1) AGI on the return of that individual for the preceding tax year is less than $500K and (2) that individual certifies that more than 50% of the gross income shown on the return of that individual for the preceding tax year was income from a small business 18 Individual Tax Provisions 18

19. Totals close to $27B Extension of bonus depreciation – For new equipment placed in service by Dec. 31, 2009 Extension of enhanced small business expensing – – Can expense up to $250K of equipment purchases – Phased out at $800K of equipment purchases Five year carry-back on net operating losses – Can carry-back losses up to five years, but only if gross income is less than $15M 19 Business Tax Provisions 19

20. Hiring Incentives – veterans and disconnected youth Repeal of Treasury §382 Notice Refundable credits in lieu of bonus depreciation – Extended for one year Delayed recognition of certain cancellation of debt income – Deferral for five years of COD income and then income is included at the rate of 20% per year Low income grants in lieu of tax credits Qualified transportation fringe benefits – Increased from $120 to $230 per month §1202 small business stock exclusion – Increase from 50% to 75% exclusion for stock issued after the enactment date and before Jan. 1, 2011 20 Business Tax Provisions 20

21. Temporary reduction of S Corporation built-in gains holding period – Changes the recognition period from ten to seven years for 2009 and 2010 COBRA benefits for laid off workers – Former worker will pay 35% and the former employer 65%. Employer would be able to credit its share of the subsidy against payroll taxes for nine months 21 Business Tax Provisions 21

22. Energy Provisions 22

23. Major renewable energy projects – Not too many clients in this space Energy-efficient purchases made for residential property – Reduction of costs 23 Energy Incentives 23

24. Extension of production credits for three years Extension of 30% energy investment tax credit (basis reductions repealed) Monetized credit in the form of government grant 24 Major Renewable Energy Projects Variety of Financing Alternatives Allow Project Planning for Renewable Energy Producers 24

25. Wind Closed and open looped biomass Geothermal Landfill Other alternative sources 25 Types of Major Projects Provisions apply to facilities that produce energy from: 25

26. 26 New Credit for Advanced Energy Projects Facilities that manufacture components that produce alternative energy are eligible for the Advanced Energy Project Credit Credit is 30% of costs that are certified by the Secretary of Treasury, capped at $2.3B 26

27. For public power companies – $1.6B available for companies that generate and sell electricity for renewable energy sources For community conservation programs – $2.4B available to programs that: – Reduce consumption – Educate – Conduct research – Implement green community programs 27 Bond Financing 27

28. 30% credit for replacement on windows, doors, and insulation (up from 10%) 2009 and 2010 aggregate credit equals $1,500 (up from $500) No maximum credit on: – Electric and solar water property – Fuel cells – Small wind and geothermal heat pump property 28 Individual Energy Incentives 28

29. Plug-in electric vehicle credit equals $7,500 (no weight limit) Converted plug-in vehicle yields a 10% credit (up to $4K) Low speed vehicles get a 10% credit (up to $2,500) 29 Alternative Vehicle Incentives 29

30. Incentives on infrastructure to deliver clean fuels 50% credit (up from 30%) up to: – $200K for hydrogen refueling property – $50K for non-hydrogen property 30 Clean Fuels and Businesses 30