Corporate Finance Law Blog

New Favorable Visa Rules for Foreign Execs and Professionals in Pudong; Also for Expo Projects

joewallin@dwt.com (Joseph M. Wallin) — Fri, 10 Jul 2009 12:51:33 -0800

By Ron Cai, Erica Li and Kevin Moore

As China’s larger cities compete in the global economic recession to attract fresh foreign investment, Shanghai launched a pilot program on July 1 that could ease visa requirements for some foreign nationals. Under the program, qualified foreign executives and professionals whose employers are invested or registered in the city’s Pudong District will be able to receive residence and work permits with validity of up to five years, along with their dependants.

Residence applicability and duration depend upon the status of a foreign executive or professional’s employer and his or her long-term need to reside in Shanghai. The Shanghai residence permit is valid like a visa for entry and exit purposes and travel in China. In addition, an “F” visa (business visitor visa) of extended length is available for those who do not need to reside in Shanghai long-term.

“Highly qualified foreign talents, special talents and renowned individuals” may apply for residence permits with validity of between three and five years. The Shanghai Municipal Government's Foreign Affairs Office is drafting detailed guidelines on who qualifies. Similarly, favorable measures are available for renowned foreign nationals, foreign academic leaders, high-tech foreign professionals, and foreign professionals at multinational regional headquarters, research and development (R&D) centers, and investment companies. Foreign executives and professionals of enterprises with registered capital exceeding $3 million are also qualified.

Separately, authorities have also announced a special policy to facilitate the entry of expatriates seeking employment related to World Expo 2010.

Renowned foreign nationals

Foreign nationals who have been recognized as “Honorary Citizens” of Shanghai may apply for five-year residence permits. Likewise, foreigners who have been conferred a “Magnolia Award” from the city government may apply for five-year residence permits. Those who are “highly qualified foreign special talents and renowned individuals” are similarly qualified. This policy exclusively targets foreign nationals who have contributed significantly to Shanghai’s economic and social development.

Shanghai Municipal Government’s Foreign Affairs Office is drafting detailed guidelines on who is qualified.

Foreign academic leaders

Foreign academic leaders employed by national, ministerial or Shanghai city-level research institutes or universities may apply for residence permits with validity of between three and five years. In the past, permits for such individuals were only available with four years’ validity.

High-tech foreign professionals

Foreign legal representatives, general managers, deputy general managers and finance directors in high-tech companies, foreign-invested companies that utilize advanced technology or those that sell export products may apply for residence permits with validity of between three and five years. Previously, such professionals could only apply for permits with one to two years’ validity.

Foreign professionals at multinational regional headquarters, R&D centers and investment companies

Foreign legal representatives, senior managers and scientific research personnel at multinational companies’ local headquarters, R&D centers or investment companies may apply for residence permits with validity of between three and five years. In the past, such professionals could only apply for permits with one to three years’ validity.

Foreign professionals of enterprises with registered capital exceeding $3 million

Foreign legal representatives, general managers, deputy general managers, finance directors, senior managers and individual investors in enterprises (foreign or domestic) with registered capital of more than $3 million may apply for residence permits with validity of between three and five years. Previously, permits were only available to such foreign professionals of enterprises with registered capital requirement of more than $30 million.

Frequent business travelers

If a foreign national is qualified under any of the above categories but does not need to work or reside in Shanghai long-term, and he/she is also qualified for an F visa, he/she may apply for the multiple-entry F visa with validity of two to five years. Normally, if a foreign national is qualified for an F visa, he/she may only apply for a one-year, multiple-entry F visa.

Online application for residence permit extension

It is now possible to apply online for extension of a residence permit. After online filing is accepted, the applicant can check his/her approval status. Once notice of approval is posted online, the applicant may, by himself/herself or through the agency of another, visit the Shanghai Exit-Entry Administration, on the date stated on the notice, to have the new residence permit affixed to his/her passport.

Possible adoption throughout Shanghai

There is a possibility that the above measures can be extended beyond Pudong to the entire city of Shanghai by 2010.

Policy on expatriates seeking World Expo-related employment in Shanghai

Separately, as World Expo 2010 approaches, Shanghai’s authorities have announced a special policy to assist expatriates seeking Expo-related employment. A new Employment Registration Form for Foreign Employees in China (for Expo 2010) will be used.

The form and a regular work visa/permit application will need to be endorsed and stamped by the Bureau of the Shanghai World Expo Coordination (BSWEC). As such, work visa applications can be simplified into two applications: a work permit application and a residence permit application. (Regular work visas involve four applications.) That means expatriates who are endorsed and receive a stamp from BSWEC can enter China on a business or tourist visa; they will not need to exit the country to obtain a work visa. While in China, they can then directly apply for a work permit/residence permit in Shanghai without exiting China to convert the visa status.

Detailed rules and regulations are expected in the near future.

Disclaimer

This advisory is a publication of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

SEC Issues New Proposed Rules Regarding Proxy Disclosures

joewallin@dwt.com (Joseph M. Wallin) — Fri, 10 Jul 2009 10:34:41 -0800

From the SEC's proposed rule release issued today.

"We are proposing amendments to our rules to enhance the compensation and corporate governance disclosures registrants are required to make about: their overall compensation policies and their impact on risk taking; stock and option awards of executives and directors; director and nominee qualifications and legal proceedings; company leadership structure; the board's role in the risk management process; and potential conflicts of interest of compensation consultants that advise companies. The proposed amendments to our disclosure rules would be applicable to proxy and information statements, annual reports and registration statements under the Securities Exchange Act of 1934, and registration statements under the Securities Act of 1933 as well as the Investment Company Act of 1940. We are also proposing amendments to transfer from Forms 10-Q and 10-K to Form 8-K the requirement to disclose shareholder voting results. In addition, we are proposing amendments to our proxy rules to clarify the manner in which they operate and address issues that have arisen in the proxy solicitation process."

Treasury Department Releases Guidance on New Energy Grant Program

joewallin@dwt.com (Joseph M. Wallin) — Thu, 09 Jul 2009 20:41:49 -0800

By Pamela M. Charles

This morning, the U.S. Treasury Department issued Program Guidance for Payments for Specified Energy Property in Lieu of Tax Credits (Section 1603 payments) under the American Recovery and Reinvestment Act of 2009. Section 1603 payments will be made to eligible persons placing qualified renewable energy facilities in service, in lieu of both the Energy Credit (Investment Tax Credit) and the Production Tax Credit. The guidance was released together with the Application and additional Terms and Conditions. Key features of the guidance are highlighted in this alert. A more detailed analysis of the guidance will be contained in a future alert.

Continue reading . . .

Online Social Media and SEC Regulations

joewallin@dwt.com (Joseph M. Wallin) — Tue, 26 May 2009 15:13:01 -0800

By Garry J. Schnell
05.21.09

The use of online social media, such as blogs, Twitter, Facebook and electronic shareholder forums, as a means to interact with the public is becoming more accepted and prevalent in the business community. While online social media provides many benefits, there are potential pitfalls to its use, including federal securities law violations, disclosure of confidential information, and various tort claims, such as invasion of privacy or defamation.

Just like Web sites, online social media can benefit public companies in several areas including advertising, marketing and investor relations. In addition to company-sponsored blogs, employees may also have an interest in, or are already using, online social media to discuss a variety of information from product development to financial or personnel issues. Besides other legal issues and pitfalls, public companies developing a social media policy should consider compliance with Securities and Exchange Commission (SEC) regulations. In particular, Regulation FD (Fair Disclosure) prohibits the selective disclosure of material information.

In August 2008, the SEC issued guidance that primarily addresses (1) when information posted on a company Web site is “public” for purposes of Regulation FD and (2) company liability for information on Web sites. For the first time, the SEC recognized that companies may post information, and have that information be considered “disseminated,” without having to place the same information on a newswire, or file (or furnish) it on a Form 8-K. The SEC guidance also discussed the use of “interactive web-site features,” such as the online social media discussed in this advisory, as a means to disseminate information to the public.

Is the information “public”?

Generally, Regulation FD prohibits selective disclosure of material nonpublic information. The two overarching principles of Regulation FD are: selective disclosure of material information that is already public will not violate Regulation FD, and companies are required to publicly disclose any material information that they disclose selectively.

Rule 101(e) under Regulation FD provides that information can be publicly disclosed by either filing or furnishing a Form 8-K or by disseminating the information through “another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.” When the SEC first adopted Regulation FD in 2000, it acknowledged that companies may be able to rely solely on the Web to disseminate disclosure at some point in the future. However, it emphasized that Web disclosure alone was not likely to be considered sufficient yet.

The SEC’s guidance set forth three considerations to help determine whether information posted on corporate Web sites is considered “public.” These considerations are:

Whether a company’s Web site is a recognized channel of distribution;
Whether information is posted and accessible, and therefore disseminated in a manner calculated to reach investors; and
Whether information is posted for a reasonable period so that it has been absorbed by investors.

Antifraud issues?

The SEC’s guidance refers to the use of “Interactive Web Site Features,” which include blogs, electronic shareholder forums and other social media. The interpretive release provided that “Since all communications made by, or on behalf of, a company are subject to the antifraud provisions of the federal securities laws, companies should consider taking steps to put into place controls and procedures to monitor statements made by or on behalf of the company on these types of electronic forums.”

The guidance provides clarity with respect to the following issues arising under the antifraud provisions of the federal securities laws as they apply to content, including hyperlinks, posted on company Web sites:

Previously posted materials maintained on a company’s Web site generally will not be considered reissued or republished for purposes of the antifraud provisions;
Companies should explain on their Web sites why they include a particular hyperlink, in order to avoid endorsing or approving third-party information and prevent liability for third-party information accessible via the hyperlink;
Companies should consider using explanatory language to identify summary information in order to avoid violating the antifraud provisions; and
Statements made on blogs or other interactive Web sites are subject to the antifraud provisions of the federal securities laws, and companies cannot require investors to waive protections under the federal securities laws as a condition of using such interactive Web sites.

Conclusion

The SEC guidance indicates that determining whether information posted on a company Web site is public is a “facts and circumstances” determination. Davis Wright Tremaine attorneys are available to help companies determine whether their Web sites comply with the elements of the test and, if not, what additional steps should be taken to make information posted on their Web sites public.

We can also help companies establish disclosure controls and procedures to monitor statements made by or on behalf of the company on interactive portions of Web sites. Establishing such controls is important since the guidance clarifies that statements made on blogs or other online social media are subject to the antifraud provisions of the federal securities laws.

In addition to the federal securities law obligations discussed in this advisory relating to disclosure controls and procedures, there are many reasons a company should develop a social media policy if it is using this tool to disseminate information. Part of any policy should include requirements for company blogs, electronic forums and other interactive tools that are to be linked to the company’s Web site.

The policy should also deal with what should not be discussed or addressed on employee blogs, “tweets” or Facebook pages, and should incorporate applicable federal securities law obligations governing the dissemination of information for public companies, and where necessary, require the use of standard disclaimers.

If you need assistance developing a social media policy or have any questions about this legal issue, please don’t hesitate to contact a Davis Wright Tremaine attorney. We’d be happy to assist you.

Washington Supreme Court Adopts Delaware Standard For Shareholder Derivative Actions

joewallin@dwt.com (Joseph M. Wallin) — Tue, 26 May 2009 11:25:48 -0800

How does Washington corporate law determine whether a shareholder's derivative complaint should be dismissed for failure to make a demand on the corporation? The Washington Supreme Court had this say:

"In a well reasoned opinion, Judge Thomas Zilly of the federal trial bench concluded that Washington would likely follow Delaware’s demand futility standard. In re Cray, Inc., 431 F. Supp. 2d 1114, 1121 (W.D. Wash. 2006) (citing Rales, 634 A.2d at 932 & n.4 and Aronson, 473 A.2d at 814). We agree. Delaware’s courts are well versed in this area. Until our legislature declares otherwise, Washington is a demand futility state and follows Delaware."

You can read the opinion here.

Copy of Schumer's "Shareholder Bill of Rights Act of 2009"

joewallin@dwt.com (Joseph M. Wallin) — Wed, 13 May 2009 09:42:38 -0800

You can read a copy of Senator Schumer's proposed Shareholder Bill of Rights Act of 2009 here.

Wall Street Journal commentary.

See also coverage at the Harvard Corporate Governance Blog.

Senator Schumer's Corporate Governance Bill

joewallin@dwt.com (Joseph M. Wallin) — Mon, 04 May 2009 18:09:17 -0800

We are looking forward to reading Senator Schumer's new corporate governance bill. We don't have a copy of the bill yet, but we do have a copy of a letter that the Senator sent to his colleagues. Apparently the bill will require shareholder approval of golden parachute payments. We will post you once we see a copy of the bill.

Federal Budget Does Not Include Cap On Itemized Deductions

joewallin@dwt.com (Joseph M. Wallin) — Thu, 30 Apr 2009 09:23:31 -0800

We have previously blogged about the Obama administration's proposal to cap personal deductions for high income taxpayers at 28%. According to the New York Times, this proposal did not make it into the budget. Good news for high income taxpayers and charities.

Department of Labor Issues New Model COBRA Notices

joewallin@dwt.com (Joseph M. Wallin) — Tue, 24 Mar 2009 15:21:33 -0800

By Elizabeth J. Deckman, Jeff Belfiglio, Stuart Harris and Holly Wylam Klein

On March 19, 2009, the Department of Labor issued four new model COBRA notices designed to help employers satisfy their new COBRA notice obligations under the American Recovery and Reinvestment Act. Under the Act, certain persons who lost health care coverage as a result of an involuntary termination of employment are entitled to a subsidy of 65 percent of the employee's cost of COBRA coverage.

(For more information regarding the Act and the COBRA subsidy, please refer to our Feb. 24, 2009, advisory bulletin, “New COBRA Rules Require Prompt Action.” In addition, for your convenience, we've included a sound file of a Davis Wright Tremaine teleseminar, “How Will New COBRA Rules Affect You?” held on March 12, 2009.) Continue reading...

IRS Issues Ponzi Scheme Tax Loss Guidelines

joewallin@dwt.com (Joseph M. Wallin) — Tue, 17 Mar 2009 10:38:34 -0800

Commissioner Shulman's Senate Finance Testimony on Ponzi Schemes and Offshore Tax Evasion Legislation

"PONZI SCHEME PUBLISHED GUIDANCE

Summary

The IRS is issuing two guidance items to assist taxpayers who are victims of losses from Ponzi-type investment schemes. While I recognize that the Committee is today focused on one specific case, the IRS guidance is not specific to this case. The first item is arevenue ruling that clarifies the income tax law governing the treatment of losses in such schemes. The second is a revenue procedure that provides a safe-harbor method of computing and reporting the losses."

Rev. Rul. 2009-9 (http://www.irs.gov/pub/irs-drop/rr-09-09.pdf)

Rev. Pro. 2009-20 (http://www.irs.gov/pub/irs-drop/rp-09-20.pdf)

Tax-Free Like Kind Exchanges of Trademarks

joewallin@dwt.com (Joseph M. Wallin) — Tue, 17 Mar 2009 10:34:58 -0800

"Upon further consideration, the Office of Associate Chief counsel (Income Tax & Accounting) has concluded that the analysis of Newark Morning Ledger Co. applies in determining whether intangibles constitute goodwill or going concern value within the meaning of § 1.1031(a)‑2(c)(2). Accordingly, intangibles such as trademarks, trade names, mastheads, and customer‑based intangibles that can be separately described and valued apart from goodwill qualify as like‑kind property under § 1031. In our opinion, except in rare and unusual situations, intangibles such as trademarks, trade names, mastheads, and customer‑based intangibles can be separately described and valued apart from goodwill. Of course, to qualify as like‑kind property under § 1031, the property must satisfy all other requirements of § 1031 including the nature and character rules of § 1.1031(a)‑2(c)(1). Accordingly, the Service should not follow the position in TAM 200602034 and IRS NSAR 20074401F on this issue. We are available to assist should you have questions on whether intangibles are of like kind under § 1.1031(a)-2(c)(1)."

See www.corpfinblog.com/uploads/file/0911006.pdf

Summary of Selected Business and Energy Tax Provisions of American Recovery and Reinvestment Act of 2009

joewallin@dwt.com (Joseph M. Wallin) — Mon, 16 Mar 2009 10:28:44 -0800

By Pamela Charles

H.R. 1, the American Recovery and Reinvestment Act of 2009 was signed into law by President Obama on February 17, 2009

I. Selected Business Provisions

A. Bonus Depreciation Extended Through 2009

Prior law provided an additional depreciation deduction equal to 50% of the adjusted tax basis of qualified property placed in service in 2008 (or in 2009 for certain longer-lived and transportation property) in addition to the generally applicable depreciation deductions. Qualified property is generally any property (1) to which the MACRS rules apply that has a recovery period of 20 years or less, certain computer software, water utility property and qualified leasehold improvements, (2) the original use of which begins with the taxpayer after December 31, 2007, and (3) that is acquired during 2008. Corporate taxpayers were provided with an election to increase their general business credit (including R&D credit) or AMT credit limitation by the bonus depreciation amount in lieu of claiming the additional bonus depreciation deduction. The bonus depreciation amount is 20% of the amount by which the depreciation deduction calculated with bonus depreciation exceeds the depreciation deduction otherwise allowed.

The Act extended the placed-in-service date for property eligible for 50% bonus depreciation to 2009 (2010 for certain longer-lived and transportation property). In addition, the Act extended the election to increase the general business credit or AMT credit limitation in lieu of claiming bonus depreciation to apply to property placed in service in 2009 (or 2010 for certain longer-lived and transportation property).

B. Extension of Increased Limitations on Section 179 Expensing of Certain Depreciable Business Property

Prior law allowed a deduction for up to $250,000 of qualifying property placed in service in 2008, which deduction was reduced as the cost of qualifying property placed in service during the year exceeded $800,000. Qualifying property is property that is: (1) tangible property to which the general MACRS rules apply or certain computer software, (2) Section 1245 property, and (3) acquired by purchase for use in the active conduct of a trade or business. The Act extends this deduction for qualifying property placed in service in 2009, subject to the same reduction for costs of qualifying property exceeding $800,000. The $250,000 and $800,000 limits are reduced significantly in 2010 and 2011.

C. Five-Year Net Operating Loss Carryback Election for Small Businesses

In general, net operating losses can be carried back two years and carried forward 20 years. The Act allows a business with gross receipts of $15 million or less to elect to carryback for up to 5 years the net operating loss for any taxable year ending in 2008 (or, if elected, any taxable year beginning in 2008). This provision applies to net operating losses arising in taxable years ending after December 31, 2007.

D. Two New Groups for Work Opportunity Tax Credit

The work opportunity tax credit is available to employers hiring individuals from one of several targeted groups. It is equal to a percentage of qualified wages paid to such individuals. The Act adds two targeted groups, unemployed veterans and disconnected youth, who if hired during 2009 or 2010, will entitle the employer to a credit.

E. Built-In Losses of Banks Subject to Limitation

In 2008, the Internal Revenue Service released a notice (IRS Notice 2008-83) exempting certain bank losses with respect to loans or bad debts from limitations that would otherwise apply to the losses upon a change of ownership of a bank and which continued to apply to corporations in other industries. The Act prospectively (as of January 17, 2009) rescinds IRS Notice 2008-83.

F. Losses of Certain Taxpayers Undergoing Restructuring Not Subject to Limitation

The Act provides an exception from the limitations that would otherwise apply to preexisting losses of corporations that undergo ownership changes if the ownership change occurs pursuant to a restructuring plan that is required under a loan agreement or commitment for a line of credit entered into with the Department of the Treasury under the Emergency Economic Stabilization Act of 2008.

G. Deferral Of Income From Discharge Of Indebtedness

Gross income generally includes income from the discharge of indebtedness. A taxable discharge can occur as a result of the taxpayer issuing new debt instruments in satisfaction of outstanding debt instruments, a related person acquiring the debt instruments, the exchange of the taxpayer’s stock for outstanding debt instruments, or a modification of outstanding debt instruments. Discharges that occur in bankruptcy or other specified circumstances do not generate taxable income, but result in the reduction of other tax attributes, such as net operating losses, tax credits and tax basis.

The Act allows a taxpayer to elect to defer income from the discharge of indebtedness incurred as a result of the reacquisition of applicable debt instruments by the taxpayer (or by a person related to the taxpayer) after December 31, 2008 and before January 1, 2011. A reacquisition includes an acquisition of a debt instrument for cash, the exchange of a debt instrument for another debt instrument, the exchange of stock or partnership interests for a debt instrument, the contribution of a debt instrument to the capital of the issuer and the complete forgiveness of a debt instrument. Income deferred must be included in gross income ratably in the 5-year period beginning with the fifth taxable year following a reacquisition that occurs in 2009 and with the fourth taxable year for a reacquisition that occurs in 2010. If this election is made, the exception for discharges occurring in bankruptcy and other specified circumstances does not apply.

H. Disallowance of Original Issue Discount on Certain Applicable High Yield Discount Obligations Suspended

The deduction of a portion of the original issue discount on an applicable high yield discount obligation is generally disallowed. The Act suspends this disallowance for certain obligations issued in debt-for-debt exchanges (including significant modifications of outstanding debt) after August 31, 2008 and before January 1, 2010.

I. Increased Exclusion For Gain From Sale Of Qualified Small Business Stock

For noncorporate taxpayers, 50% of the gain from the sale of qualified small business stock that has been held for 5 years is excluded from gross income. Such gain would otherwise be taxed at a rate of 28%. Qualified small business stock is stock acquired at original issuance from a C corporation with gross assets of $50 million or less that is engaged in an active trade or business. The Act increases the exclusion to 75% for qualifying stock issued after February 17, 2009 and before January 1, 2011. Thus, gains from the sale of qualifying stock will be subject to an effective regular tax rate of 7% and AMT rate of 12.88%.

J. Reduction in Built-in-Gain Period for Certain S Corporations

An S corporation that converted from C corporation status, or that acquired property from a C corporation in a carryover basis transaction, is subject to tax at regular corporate rates on built-in gains existing on the date of conversion, or property acquisition, if the prior C corporation assets are sold within the 10-year built-in-gain recognition period beginning on the date of the conversion or acquisition. The Act reduces this 10-year period to 7 years for sales of property in 2009 or 2010 if the built-in-gain recognition period began no later than 2003.

II. Selected Energy Provisions

A. Extension Of Renewable Electricity Production Credit

Internal Revenue Code Section 45 provides a tax credit for electricity produced from qualified energy resources at qualified facilities that is sold to unrelated persons. In 2008, the credit was either 2.1 or 1.0 cents per kilowatt hour depending on the qualified energy resource. The credit is generally claimed during the 10-year period beginning when the facility is placed in service. The credit is phased out as market prices of electricity exceed threshold levels and is reduced by up to 50% for governmental grants, proceeds of tax-exempt financing, subsidized energy financing and other credits allowable with respect to the project. This credit is a component of the general business credit and is generally subject to the limitations and carryback (1 year) and carryforward (20 years) periods generally applicable to business credits.

The Act generally extends the placed-in-service date for qualified facilities by 3 years through the following dates: wind, December 31, 2012; closed-loop biomass, December 31, 2013; open-loop biomass, December 31, 2013; geothermal, December 31, 2013; landfill gas, December 31, 2013; trash combustion, December 31, 2013; qualified hydropower, December 31, 2013; and marine and hydrokinetic, December 31, 2013.

B. Modification of Energy Investment Credit

Internal Revenue Code Section 48 provides an energy credit equal to either 10% or 30% of the basis of qualifying energy property placed in service. Qualifying energy property includes property producing electricity, heating or cooling, or light, as relevant, from solar energy, fuel cells, small wind energy property, geothermal deposits, microturbines, heat and power systems and ground water. A proportional share of the tax credit basis of otherwise qualifying energy property was reduced if the project received subsidized energy financing or proceeds from private activity bonds. In addition, the credit was capped at $4,000 for small wind energy property placed in service during a taxable year. The energy credit is a component of the investment credit, which is a general business credit and is generally subject to the limitations and carryback (1 year) and carryforward (20 years) periods generally applicable to business credits.

The Act eliminates the $4,000 cap on the credit for small wind energy property. The Act also eliminates the tax credit basis reduction rule for subsidized energy financing and private activity bond proceeds. Both of these changes are effective for taxable years beginning after December 31, 2008.

C. Election Of Investment Credit In Lieu Of Production Credit

The Act provides an irrevocable election to claim a 30% investment credit for facilities otherwise eligible for the Code Section 45 production tax credit if they are placed in service after December 31, 2008 and before the extended dates for the production tax credit. For this purpose, eligible facilities are limited to tangible personal property and other tangible property (but not buildings or structural components) that is depreciable and used as an integral part of a qualified facility.

D. Grants For Specified Property In Lieu Of Tax Credits

The Act creates a new grant program to be administered by the Treasury Department that will award cash grants to qualifying facilities in lieu of the production tax credit (Code Section 45) and the energy investment credit (Code Section 48). Facilities will be eligible for grants if they are otherwise eligible for the production tax credit or energy credit if construction begins in either 2009 or 2010 and they are placed in service by January 1, 2013 (wind), January 1, 2014 (other renewable energy facilities eligible for the production tax credit), or January 1, 2017 (facilities eligible for the energy credit). Grants will be equal to 30% (10% in the case of microturbine, combined heat and power system and geothermal property) of the basis of eligible facilities. Grants will be paid within 60 days of the placed-in-service date or, if later, the date the grant application is received, and will not be includible in the recipient’s gross income. The basis of facilities receiving grants will be reduced by 50% of the amount of the grant. Grants will not be awarded to any Federal, State or local government (or any political subdivision, agency or instrumentality thereof), any entity exempt from federal income tax under Internal Revenue Code Section 501(c) or any cooperative electric company.

E. Additional New Clean Renewable Energy Bonds

Clean renewable energy bonds, a type of qualified tax credit bond, may be issued by public power providers, governmental bodies and electric cooperatives to finance facilities that qualify for the Code Section 45 production tax credit (without regard to the placed-in-service date requirement). Bond proceeds must be used within 3 years of issuance (extensions may be granted in certain circumstances). A taxpayer holding a bond on a credit allowance date is entitled to a tax credit, which accrues quarterly, at a rate set by the Treasury Department. The credit is includable in the holder’s gross income (as if it were interest) and can be claimed against regular income tax or AMT and carried forward to succeeding taxable years.

The Act authorizes an additional $1.6 billion of new clean renewable energy bonds with no more than one-third of the additional $1.6 billion being allocated to projects of public power providers, governmental bodies or electric cooperatives.

F. Expansion of Qualified Energy Conservation Bonds

Qualified energy conservation bonds, another type of qualified tax credit bond, may be issued by State or local governments to finance qualified conservation purposes. Qualified conservation purposes include capital expenditures for: reducing energy consumption in publicly owned buildings by at least 20%, implementing green community programs, rural development involving production of electricity from renewable energy resources, or any facility eligible for the Code Section 45 production tax credit. The Act clarifies that capital expenditures to implement green community programs includes grants, loans and other repayment mechanisms to implement such programs, which will enable States to issue these bonds to finance retrofits of existing private buildings through loans or grants to individual homeowners or businesses without such bonds being treated as private activity bonds. The Act also authorizes the issuance of an additional $2.4 billion of qualified energy conservation bonds.

G. Extension And Modification Of Credit For Nonbusiness Energy Property

Prior law provided a personal 10% credit for the purchase of qualified energy efficiency improvements for existing homes and a specified dollar amount credit for purchases of specific energy efficiency equipment (e.g., qualifying heat pumps, air conditioners, furnaces and water heaters). Qualifying improvements include insulation, windows, doors and roofs that meet or exceed specified criteria and are installed in or on a dwelling unit in the United States owned and used by the taxpayer as a principal residence and reasonably expected to remain in use for at least 5 years. Qualifying expenditures do not include amounts spent from subsidized energy financing. Prior law imposed a lifetime credit cap of $500 per dwelling unit with no more than $200 of that credit being attributable to windows.

The Act replaces the 10% credit and the specified dollar amount credits with a 30% credit of the amount paid for qualifying improvements and equipment and changes the energy efficiency criteria for these improvements. The Act replaces the lifetime credit cap with an aggregate cap of $1,500 in the case of property placed in service after December 31, 2008 and before January 1, 2011 and generally imposes the new efficiency standards only to property placed in service after February 17, 2009. The Act also eliminates the rule that disallows the credit for expenditures from subsidized energy financing.

H. Extension And Modification Of Credit For Residential Energy Efficient Property

Prior law provided a personal tax credit for the purchase of qualified solar electric property and qualified solar water heating property used exclusively for purposes other than heating swimming pools and hot tubs and also provided a 30% credit for the purchase of qualified geothermal heat pump property, qualified small wind energy property and qualified fuel cell property, all for use in dwelling units located in the United States. Qualifying expenditures did not include amounts spent from subsidized energy financing and the credit for each purchase was capped at a fixed dollar amount.

The Act eliminates the dollar caps for purchases of qualified property and eliminates the rule that disallows the credit for expenditures from subsidized energy financing.

I. Temporary Increase In Credit For Alternative Fuel Vehicle Refueling Property

Prior law provided a 30% credit for the cost of installing qualified clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer or installed at the principal residence of the taxpayer. The credit was capped at $30,000 per taxable year per location for a trade or business and at $1,000 per taxable year per location for property installed at a principal residence. Qualifying refueling property is property used for the storage or dispensing of a clean-burning fuel or electricity into the fuel tank or battery of a motor vehicle, but only at the point of delivery of the fuel tank or battery. No credit is allowed for property used outside the United States or for which Code Section 179 expensing is elected.

The Act increases the credit to 50% of the cost of installing qualified property and increases the credit caps for property placed in service in 2009 or 2010 at a business to $50,000 ($200,000 for qualified hydrogen refueling property) and at a residence to $2,000. These changes are effective for taxable years beginning after December 31, 2008.

J. Modification Of Credit For Carbon Dioxide Sequestration

Prior law provided a credit of $20 per metric ton of qualified carbon dioxide captured by a taxpayer at a qualified facility and disposed of by the taxpayer in secure geological storage, and a credit of $10 per metric ton for qualified carbon dioxide captured by a taxpayer at a qualified facility and used by the taxpayer as a tertiary injectant in a qualified enhanced oil or natural gas recovery project. Qualified carbon dioxide is carbon dioxide captured from an industrial source that would otherwise be released into the atmosphere and which is measured at the source of capture and verified at the point(s) of disposal or injection. A qualified facility is any industrial facility in the United States that is owned by the taxpayer and at which carbon capture equipment is placed in service and captures not less than 500,000 metric tons of carbon dioxide during the taxable year. These credits are part of the general business credit and sunset at the end of the calendar year in which the Treasury Secretary, in consultation with the Administrator of the EPA, certifies that 75 million metric tons of qualified carbon dioxide have been captured and disposed of or used as a tertiary injectant.

The Act requires carbon dioxide eligible for the $10 credit to be sequestered by the taxpayer in secure geological storage (includes oil and gas reservoirs, unminable coal seams and deep saline formations) in order to qualify for the credit. The Act also requires the Treasury Secretary to consult with the Secretaries of Energy and the Interior in addition to the EPA Administrator in promulgating regulations relating to permanent geological storage of carbon dioxide.

K. Modification Of Plug-In Electric Drive Motor Vehicle Credit And Creation Of New Credits For Plug-In Electric Vehicles And Conversions

Prior law provided a plug-in electric drive motor vehicle credit for each qualified plug-in electric drive motor vehicle placed in service. Eligible vehicles had to have at least 4 wheels, be produced for use on public roads, meet emission standards, draw propulsion using a traction battery with at least 4 kilowatt hours of capacity and be capable of being recharged from an external source of electricity. Once a total of 250,000 credit-eligible vehicles have been sold for use in the United States, the credit phases out over 4 calendar quarters and no credit is available for vehicles purchased after 2014.

The Act significantly modifies the plug-in electric drive motor vehicle credit and imposes a credit limit of $7,500 regardless of vehicle weight class. The Act also eliminates the credit for vehicles weighing 14,000 pounds or more and begins to phaseout once a total of 200,000 credit-eligible vehicles have been sold by a manufacturer. The Act also creates a new 10% credit (maximum of $2,500) for low-speed vehicles, motorcycles and 3-wheeled vehicles sold before January 1, 2012, and a new 10% credit (maximum of $4,000) for converting vehicles into plug-in electric drive motor vehicles with a plug-in traction battery module capacity of at least 4 kilowatt hours for conversions made before January 1, 2012.

L. Parity For Qualified Transportation Fringe Benefits

Qualified transportation fringe benefits provided by an employer are excluded from an employee’s gross income for income tax purposes and from wages for payroll tax purposes. Such benefits include parking, transit passes, vanpool benefits and qualified bicycle commuting reimbursements. Up to $230 (2009) per month of parking is excludable. Up to $120 (2009) per month of transit and vanpool benefits are excludable. These amounts are indexed for inflation.

The Act increases the monthly exclusion for employer-provided transit pass and vanpool benefits to the same level as the exclusion for parking, effective for months beginning on or after February 17, 2009 and before January 1, 2011.

Federal Agencies Begin Process of Implementing Broadband Stimulus Program

joewallin@dwt.com (Joseph M. Wallin) — Fri, 13 Mar 2009 10:53:14 -0800

By James M. Smith, Paul B. Hudson and K.C. Halm

Work in key Washington, D.C., agencies continues toward disbursement of the $7 billion allocated for broadband stimulus programs. As discussed in detail in this advisory, the Department of Commerce's National Telecommunications Information Administration (NTIA) and the Department of Agriculture's Rural Utilities Service (RUS) have initiated meetings and released a request for comments on the scope of these programs. However, for companies interested in seeking funding, two of the most important immediate focal points are outside of Washington, D.C.
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Critical Board Issues for Financially Distressed Companies

joewallin@dwt.com (Joseph M. Wallin) — Thu, 12 Mar 2009 16:40:32 -0800

By Sarah E. Tune and Mohsen Manesh

When a company begins experiencing financial distress that threatens its continued existence, its directors and officers must be vigilant about exercising their fiduciary duties. The company's equity holders as well as outsiders will view decisions made during this time with particular scrutiny. Additionally, there are areas of law that attach personal liability to directors and officers; and, while risk of personal liability always exists, even in healthy firms, the potential for liability is heightened when a company is in financial distress.

Compounding the risks of personal liability, a financially distressed company may lack the resources necessary to indemnify its directors and officers, notwithstanding the indemnification agreements it may have with such individuals, and may even allow its director and officer insurance policies to lapse, because it is simply unable to pay the premiums. Continue reading...

China's Food Safety Law: New Obligations and Increased Penalties

joewallin@dwt.com (Joseph M. Wallin) — Thu, 12 Mar 2009 15:07:27 -0800

By Ron Cai, Lin Zhu and Kevin Moore

On Feb. 28, 2009, following a wave of tainted food scandals that rocked public confidence, the Standing Committee of China's National People's Congress enacted a Food Safety Law (the “Food Law”). The Food Law creates nationwide standards for everything from nutritional specifications for baby food to pesticide usage. Effective June 1, the Food Law is a result of years of drafting and revision.

This advisory highlights key points of the Food Law and emphasizes new obligations for businesses. Hallmarks include a requirement for detailed record keeping in each step of the food production and distribution process as well as an expansive joint liability structure.

China's State Council is reportedly drafting implementation rules for the Food Law in order to set out further details. We expect that the implementing rules will be promulgated and go into effect when the Food Law becomes effective.
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Congress Limits Availability of Exclusion From Gain On Sale Of Principal Residence

joewallin@dwt.com (Joseph M. Wallin) — Thu, 12 Mar 2009 09:39:09 -0800

Section 3092 of the Housing and Economic Recovery Act of 2008, which became law on July 30, 2008, modifies the exclusion of gain from the sale of principal residence rules with respect to sales of property after December 31, 2008, as follows:

The exclusion does not apply to so much of the gain from the sale of property as is allocated to periods of nonqualified use.
Gain must be allocated to periods of nonqualified use based on the ratio of (i) aggregate periods of nonqualified use during the period the property was owned by the taxpayer, to (ii) the period such property was owned by the taxpayer.
The term “period of nonqualified use” means any period (other than the portion of any period preceding January 1, 2009) during which the property was not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse.
Among other exceptions from the term “period of nonqualified use,” the term does not include any portion of the 5-year period which is AFTER the last date that the property is used by the taxpayer as the principal residence of the taxpayer or the taxpayer’s spouse.

This means that if you own property as a vacation rental for the next several years, and then move into it as your principal residence for 2 years, you will have to prorate the availability of the Section 121 exclusion. Even if you convert your rental, for example, to your primary residence and live in it as your primary residence for two years, the entirety of the exclusion won’t be available to you.

"Buy American" Requirements of Stimulus Law: Trouble Ahead?

joewallin@dwt.com (Joseph M. Wallin) — Tue, 10 Mar 2009 16:16:44 -0800

By Craig Gannett

Buried in the new stimulus law is a “Buy American” requirement that threatens to delay or even prevent the use of stimulus funds for the construction, maintenance, and repair of highways, bridges, electric transmission lines, energy efficiency projects, port infrastructure, high-speed rail facilities, schools, and hospitals, among others. Unless the Obama Administration acts quickly to remedy the situation through the use of waivers, it could also encourage protectionism among our trading partners just as the world economy is struggling to avoid a replay of the 1930s. Continue reading...

Congress Provides Relief from Minimum Required Distribution from Retirement Plans and IRAs

joewallin@dwt.com (Joseph M. Wallin) — Mon, 09 Mar 2009 17:14:49 -0800

By Greg K. Hitchcock, Jeff Belfiglio and Richard A. Klobucher

Persons who would be required to receive mandatory payments from a retirement plan or IRA in 2009 may opt not to receive the minimum required distribution for 2009. The Worker, Retiree and Employer Recovery Act of 2008, passed into law on Dec. 23, 2008, included this relief, which means that the previously required 2009 distribution does not have to be made, thereby deferring taxes on such amount. Importantly, this relief also means that no investments have to be sold in order to make the distribution.

This advisory provides an overview of the tax relief the Act provides for both employers and retirees, and includes steps they can take to ensure they make the best use of this opportunity. Continue reading...

Obama Administration Appears Flexible On Proposed Cap On Personal Deductions

joewallin@dwt.com (Joseph M. Wallin) — Thu, 05 Mar 2009 06:46:31 -0800

From the Wall Street Journal: The Obama administration has proposed, beginning in 2011, to cap personal deductions for high income taxpayers (families with more than $250,000 in income) to 28%.

Yesterday, the Wall Street Journal reported that the Obama Administration appears flexible on this point and may in fact back be willing to back down on it or modify it. We will keep you posted as we hear more.

The Fair Pay Act: Significant Implications for Employers

joewallin@dwt.com (Joseph M. Wallin) — Wed, 04 Mar 2009 22:40:25 -0800

Potential impacts and recommended responses

By Anne E. Denecke, Michael Reiss, Weldon H. Latham, John M. Bryson II and Angela Hart-Edwards

President Obama chose the Lilly Ledbetter Fair Pay Act of 2009 (“Fair Pay Act”) as the first law he signed after taking the oath of office, noting that its purpose was “to ensure fundamental fairness for American workers.” The Fair Pay Act overturns a 2007 U.S. Supreme Court decision holding that a female employee's Title VII sex discrimination complaint based on unequal pay was barred for failure to file with the Equal Employment Opportunity Commission (EEOC) within 180 days of the employer's discriminatory action that led to the pay differential.

The Fair Pay Act essentially confirmed Ms. Ledbetter's argument to the Supreme Court in Ledbetter v. Goodyear Tire, 550 U.S. 618 (2007) and the law in nine of 10 Circuit Courts of Appeal, as well as the EEOC's long-standing position, that the 180-day period for filing an EEOC charge (300 days in states with an antidiscrimination agency) begins anew each time discriminatory compensation is paid as a result of earlier discriminatory conduct.

Employers must take note of this development and ensure that their practices and policies promote a workplace free of discrimination, not only in compensation, but all other employee-related areas. This Advisory provides an overview of the Fair Pay Act's potential impact on employers and some steps employers can take to improve fairness and consistency while protecting themselves against older claims.
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