Overview of the Job Creation and Worker Assistance Act of 2002

•  Extends the availability of the Qualified Clean-Fuel Vehicle Refueling Property deduction to property placed in service before January 1, 2007.

•  Extends, through taxable years beginning in 2003, the period during which the 100%-of-net-income limit for percentage depletion is suspended for oil and gas produced from marginal properties.

•  Extends, with modifications, the exceptions under Subpart F (concerning controlled foreign corporations, or "CFCs") for active financing income through December 31, 2006.

•  Prohibits certain discharge-of-indebtedness income from increasing an S corporation shareholder's basis in the S corporation's stock. (This provision prospectively overturns a Supreme Court decision.)

•  Restricts the use of the non-accrual experience method of accounting to specified services and services provided by certain small businesses (generally, businesses with average annual gross receipts of $5 million or less).

•  Temporarily increases the interest rate assumptions for determining required additional contributions and PBGC premiums for single-employer defined benefit pension plans.

Several provisions specifically target the "New York Liberty Zone," i.e., the area of Manhattan damaged by the September 11, 2001, attack.

One provision extends eligibility for the Work Opportunity Tax Credit to small Liberty Zone businesses—generally, businesses with 200 or fewer employees during the relevant tax year—for wages paid to employees for services in the Liberty Zone during calendar years 2002 and 2003. The general credit limit of $2,400 per employee per tax year applies, but unlike the general rule, the credit is available for wages paid to existing employees as well as new hires. This provision also applies, with some modifications, to businesses that moved from the Liberty Zone to another New York City location because their workplaces were physically destroyed or substantially damaged.

Other Liberty Zone benefits, generally effective for tax years beginning after December 31, 2001, include:

•  30% additional first-year depreciation for property acquired and placed in service within certain time frames, generally after September 11, 2001, and before January 1, 2007 (before January 1, 2010, for certain depreciable real estate).

•  Increased "section 179 expensing deduction of up to $35,000 above the general limitation ($24,000 in 2002), with more relaxed phase-out rules.

•  Five-year tax-free replacement period for involuntarily converted property (rather than the generally applicable two- or three-year periods).

•  Provisions authorizing more tax-exempt financing for rebuilding efforts.

The new law also contains several provisions affecting individuals personally or in their capacity as employees. Perhaps the most welcome of these is the extension of individual alternative minimum tax ("AMT") relief. This rule allows individuals to use their nonrefundable personal credits in full against their potential AMT liability in tax years 2002 and 2003.