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July 27, 2004
Taxes on Exports and Deferred Compensation: What's the Connection?

The U.S. Senate and House of Representatives both passed versions of a bill that seeks to change the way American exports are taxed, among other things. The Senate version (S. 1637) passed on May 11, 2004, and the House bill (H.R. 4520) passed on June 17, 2004.

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While the major components of H.R. 4520 (the American Jobs Creation Act of 2004) address taxation on exports, corporate tax rates, and job creation, the bill also makes changes to nonqualified deferred compensation programs. For example, under the legislation:

  • Elections under nonqualified deferred compensation plans must be made in the calendar year before the year in which the services are performed; and
  • Payments made under nonqualified deferred compensation programs cannot be accelerated before the time specified or the schedule chosen at the time of the deferral.

S. 1637 included provisions not mentioned by H.R. 4520. For instance, under the Senate's version, nonqualified deferred compensation programs would not be able to offer more investment options than those available under the employer's qualified defined contribution plan with the fewest investment options.

While acknowledging that H.R. 4520 includes a few provisions he dislikes, Representative Jim Kolbe (R-Arizona) says he is pleased overall. "This legislation does many ... important things necessary for keeping the economic recovery alive. It extends many expiring tax provisions, including the research and experimentation tax credit, the work opportunity tax credit, the welfare-to-work tax credit, the deduction for teacher classroom expenses, and the deduction for corporate contributions of computer equipment. It contains several provisions that benefit small businesses, manufacturers, and farmers ...."

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