Late last night House and Senate conferees reached agreement on a final $787 billion stimulus bill, H.R. 1, also known as the “American Recovery and Reinvestment Act” (ARRA), and the House approved the compromise bill this afternoon by a 246-to183 vote with not a single Republican voting in favor. The Senate is expected to vote on the compromise bill later today. The final package was slightly less that the $789 billion amount that was reported as being agreed to initially. The conference report accompanying the bill was divided into Division A (accompanying explanatory statement) and Division B (accompanying explanatory statement).
Update (11:08 PM, February 13, 2009): A few minutes ago, the Senate approved HR 1 by a 60-to-38 vote, with 3 Republicans joining 55 Democrats and 2 independents in voting in favor. HR 1 will now go to President Obama for his signature.
The final version of the bill includes numerous tax provisions, of which the following are likely to be of greatest interest to financial services companies (click here for a more detailed discussion of these tax changes):
- permits taxpayers to defer the inclusion of certain income that would otherwise be recognized on the repurchase of a debt instrument;
- provides that AHYDO rules do not apply to debt issued in a debt-for-debt exchange occurring after August 31, 2008 and before January 1, 2010, thereby removing a substantial impediment to restructuring publicly traded corporate debt;
- revokes I.R.S. Notice 2008-83 (the notice which removed certain strict limits relating to the acquisition of banks that had depreciated assets that were loans) for acquisitions occurring after January 16, 2009, unless the acquisition qualifies for transition relief; and
- contains a provision that permits certain small businesses to carry back a net operating losses incurred in its taxable year (or, at the taxpayer’s election, that begins in) 2008 as many as five taxable years, rather than the two years generally permitted.
In addition, the final version of the bill includes new, very restrictive executive compensation provisions that prohibit both current and future TARP participants and recipients of aid from doing the following (click here for a more detailed discussion of these executive compensation provisions):
- paying or accruing any bonus, retention award, or incentive compensation during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, except that this prohibition does not apply to a payment of long-term restricted stock by the TARP participant provided that the award under certain circumstances;
- making any golden parachute payment to an SEO or any of the next five most highly compensated employees during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding; and
- having any compensation plan that would encourage manipulation of the reported earnings of the TARP participant to enhance the compensation of any of its employees.
These executive compensation restrictions also require TARP recipients to:
- prohibit compensation that provides incentives for SEOs to take unnecessary and excessive risks that threaten the value of the institution during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding; and
- provide for the return of any bonus, retention award, or incentive compensation paid to an SEO and any of the next 20 most highly compensated employees based on statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate.
It appears that these new executive compensation measures were included in the bill at the insistence of Senate Banking Committee Chairman Christopher Dodd (D-CT), reflecting broader Congressional displeasure over Wall Street compensation practices and Treasury's somewhat less stringent executive compensation rules announced last week.