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Memorandum: Fiscal Cliff Averted - New Tax Changes

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To:Clients & Friends
From:The Ruchelman Law Firm
Re:Fiscal Cliff Averted – New Tax Changes
Date:January 2, 2013

On December 31, 2012, sources stated that an agreement was reached regarding the fiscal cliff and the expiration of the Bush era tax cuts. The Senate passed the “American Taxpayer Relief Act of 2012” (the “Act”), early in the a.m. on January 1, 2013. The same evening, the House of Representatives followed suit. This memorandum addresses the principal changes made by the new legislation, both headline items and items affecting U.S. taxation of certain cross border income flows.

Background

On January 1, 2013, the Bush era tax cuts were set to sunset, meaning such tax cuts would, in general, have reverted to the rates then in effect under the Clinton presidency of the 1990s. These tax increases include (but are not limited to) the following:

  • The highest marginal income tax rate would have reverted to 39.6% from 35%.
  • The rate on qualifying dividends would have reverted to 39.6% from the preferential rate of 15%.
  • The maximum rate on capital gains would have reverted to 20% from the preferential rate of 15%.
  • The maximum rates on the gift, estate, and generation-skipping transfer taxes would have reverted to 55% from 35%.