DESCRIPTION OF THE CHAIRMAN’S AMENDMENT IN THE NATURE 

OF A SUBSTITUTE TO TITLES I AND III OF H.R. 598 

The Chairman’s amendment in the nature of a substitute makes the following 

modifications to Title I of H.R. 598, the “American Recovery and Reinvestment Tax Act of 

2009,” and Title III of H.R. 598, the “Health Insurance Assistance for the Unemployed Act 

of 2009,” as introduced: 

1. Modification to proposal providing five-year carryback of operating losses 

The Chairman’s amendment in the nature of a substitute provides an election to increase 

the present-law carryback period for an applicable 2008 or 2009 net operating loss (“NOL”) 

from two to any whole number of years elected by the taxpayer which is more than two and less 

than six. An applicable NOL is the taxpayer’s NOL for any taxable year ending in 2008 or 2009, 

or, if elected by the taxpayer, the NOL for any taxable year beginning in 2008 or 2009. If an 

election is made to increase the carryback period, the applicable NOL is permanently reduced by 

10 percent. 

The 90-percent limitation on the use of any alternative tax NOL deduction is suspended 

for carrybacks of losses from taxable years ending in 2008 or 2009 and carryovers of losses to 

such taxable years (this rule applies to taxable years beginning in 2008 or 2009 if an election is 

in place to use such years as applicable NOLs). 

The amendment also modifies the election of life insurance companies for the carryback 

of a loss from operations for up to two taxable years, at the election of the taxpayer, either 

beginning in or ending in 2008 or 2009. If an election is made to increase the carryback period, 

the applicable loss from operations is permanently reduced by 10 percent. 

2. Modification to clarification of regulations related to limitations on certain built-in losses 

following an ownership change 

The Chairman’s amendment in the nature of a substitute clarifies that Internal Revenue 

Service Notice 2008-83 shall have the force and effect of law with respect to an ownership 

change occurring after January 16, 2009, that was described on or before such date in a public 

announcement, or in a filing with the Securities and Exchange Commission required by reason of 

such change, if the ownership change is pursuant to a written agreement entered into on or before 

JOINT COMMITTEE ON TAXATION 

January 22, 2009 

JCX-8-09 
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January 16, 2009 and such written agreement was described in such public announcement or 

filing. Thus, for example, Notice 2008-83 has no force or effect for ownership changes after 

January 16, 2009, with respect to which there was no written agreement before January 16, 2009, 

even if such ownership change was described in a public announcement (or in a filing with the 

Securities and Exchange Commission). 

3. Modification to small-issuer exception to tax-exempt interest expense allocation rules for 

financial institutions 

The Chairman’s amendment in the nature of a substitute clarifies that for purposes of 

determining whether an issuer meets the requirements of the small issuer exception, qualified 

501(c)(3) bonds issued in 2009 or 2010 are treated as if they were issued by the 501(c)(3) 

organization for whose benefit they were issued (and not by the actual issuer of such bonds). In 

addition, in the case of an organization described in section 501(c)(3) and exempt from taxation 

under section 501(a), requirements for “qualified financing issues” shall be applied as if the 

section 501(c)(3) organization were the issuer. Thus, in any event, an organization described in 

section 501(c)(3) and exempt from taxation under section 501(a) shall be limited to the $30 

million per issuer cap for qualified tax exempt obligations described in section 265(b)(3). A 

“qualified financing issue” is any composite or pooled issue the proceeds of which are used 

directly or indirectly to make or finance loans to two or more ultimate borrowers all of whom are 

qualified borrowers. 

4. Expand qualified school construction bonds 

The Chairman’s amendment in the nature of a substitute increases the national volume 

limitation for qualified school construction bonds in 2009 and 2010, respectively from $10 

billion to $11 billion. 

5. Expand definition of qualified conservation purposes under qualified energy 

conservation tax credit bonds 

The Chairman’s amendment in the nature of a substitute expands eligibility for these tax 

credit bonds to include loans and grants for green community programs. For example, this 

expansion will enable States to issue these tax credit bonds to finance loans and/or grants to 

individual homeowners to retrofit existing housing. The use of bond proceeds for such loans and 

grants will not cause such bond to be treated as a private activity bond for purposes of the private 

activity bond restrictions contained in the qualified energy conservation bond provisions. 

6. Expand definition of recovery zone for purposes of recovery zone economic development 

bonds and recovery zone facility bonds 

The Chairman’s amendment in the nature of a substitute expands the definition of 

recovery zones to include any area of general distress (see section 1392(a)(2)). In addition, the 

applicable percentage for recovery zone economic development bonds is increased from 40 

percent to 55 percent. 
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7. Clerical and other amendments 

The Chairman’s amendment in the nature of a substitute makes clerical amendments to 

Titles I and III of H.R. 598. In addition, for purpose of the subsidy for COBRA continuation 

coverage in section 3002 of H.R. 598, the Chairman’s amendment in the nature of a substitute 

clarifies that: (1) the payroll tax offset mechanism for reimbursement of the subsidy includes 

both an offset against an employer’s obligation to periodically deposit payroll taxes and an offset 

against payments that an employer makes in connection with filing a payroll tax return; and (2) 

the Secretary of the Treasury is to issue regulations or guidance addressing the reimbursement of 

the continuation coverage subsidy in the case of a multiemployer group health plan.