Background
On September 23, 2010, the U.S. House of Representatives passed, without change, the Senate version of H.R. 5297, the "Small Business Jobs Act of 2010." The bill is expected to become law early next week as President Obama has stated that he intends to sign the bill on Monday, September 27.
H.R. 5297 includes a variety of measures, most of which are intended to benefit small businesses. In particular, the bill authorizes the Treasury Department to create a $30 billion fund to encourage lending to small businesses by community banks. Under the program, eligible institutions with $1 billion or less in assets may borrow from the government up to 5% of their risk-weighted assets. Institutions with assets between $1 billion and $10 billion may borrow 3%. Institutions seeking to access the program must provide a small business lending plan for consideration.
Overview of Tax Package
Title II of the bill, entitled the "Creating Small Business Jobs Act of 2010," is a revenue-neutral package of tax incentives and revenue-raising changes to the Internal Revenue Code.
- The tax incentives are generally targeted at small
businesses. There are two significant provisions, however,
that affect larger businesses as well: a one-year extension
of "bonus depreciation" (along with a new coordination
rule for taxpayers subject to long-term contract accounting) and
repeal of the detailed recordkeeping rules that apply to
employer-provided cell phones. With two exceptions (the cell
phone provision and a change to the section 6707A penalty), the
revenue-losing provisions are all temporary.
- The revenue-raising provisions are all permanent and have
little if any relationship with small businesses.
- The effective dates of the bill's tax provisions vary significantly: some provisions are retroactive; others are effective immediately upon enactment; and some provisions do not become effective until the beginning of 2011.
Due to the temporary nature of the bill's tax incentives and the multitude of effective dates of the bill's tax provisions, it is critical that individuals and companies identify
- which provisions may apply to their business,
- when the relevant provisions begin to apply, and
- how long the relevant provisions will apply (i.e., the window in which a business can take advantage of a particular incentive).
Because some of the tax incentives are retroactive, a taxpayer may in some cases take credit for activities or purchases made earlier this year. A taxpayer may also find that it has only a small window of time in which to act before a particular tax incentive expires. In still other cases, such as when a taxpayer is affected by one of the bill's revenue offsets, the taxpayer may have little time to act before the new provision becomes effective.
Specific Tax Provisions in Bill
To assist you with understanding the varying time-sensitivity of the bill's provisions, the chart below highlights the specific tax provisions in H.R. 5297, who they are expected to affect, when they will become effective, and for how long they will apply. We would be happy to discuss any of these provisions with you in greater detail.
| Provision in H.R. 5297 |
Affected Taxpayers |
Effective Date |
Temporary or Permanent |
|
Provide 100% exclusion of gain on sale of certain small business stock |
Investors who acquire qualified small business stock (IRC section 1202) |
Stock acquired after date of enactment and before January 1, 2011 |
Temporary window to acquire stock but 100% exclusion for sale of stock is permanent if stock meets requirements for qualified small business stock |
|
Provide 5-year carryback for general business credits |
Eligible small businesses (IRC section 38(c)(5)(B)) |
Credits determined in 2010 tax year |
Temporary: Applies only in 2010 tax year |
|
Provide that general business credits are not subject to Alternative Minimum Tax |
Eligible small businesses (IRC section 38(c)(5)(B)) |
Credits determined in 2010 tax year |
Temporary: Applies only in 2010 tax year |
|
Reduce recognition period for built-in gain tax |
S corporations with built-in gain |
2011 tax year |
Temporary: 5-year recognition period applies only in 2011 tax year |
|
Increase expensing limitation to $500,000 and expand to certain real property |
Businesses that acquire less than $2 million of property annually (IRC section 179). |
Property placed in service on or after January 1, 2010, in tax years beginning on or after January 1, 2010 |
Temporary: Applies only in 2010 and 2011 tax years |
|
Extend bonus depreciation |
Businesses acquiring property that meets requirements of IRC section 168(k) |
Property purchased and placed in service in 2010 |
Temporary: One-year extension of bonus depreciation (i.e., generally applies only to property placed in service in 2010) |
|
Coordinate long-term contract accounting and bonus depreciation rules |
Businesses that are subject to special long-term contract accounting rules and who are also eligible for bonus depreciation |
Property purchased and placed in service in 2010 |
Temporary: One-year extension of bonus depreciation (i.e., generally applies only to property placed in service in 2010) |
|
Increase limitation on deductible start-up expenses to $10,000 |
Entrepreneurs starting up new businesses |
Amounts paid or incurred in 2010 tax year |
Temporary: Applies only in 2010 tax year |
|
Modify reporting and disclosure penalty |
Persons subject to IRC section 6707A |
Penalties assessed after December 31, 2006 |
Permanent |
|
Provide self-employment tax deduction for health insurance costs |
Self-employed individuals |
2010 tax year |
Temporary: Applies only in 2010 tax year |
|
Make cellular phones no longer listed property under IRC section 280F(d)(4) |
All businesses that provide employees with cell phones or other communication devices |
Tax years beginning after December 31, 2009 |
Permanent |
|
Require information reporting for rental property expense payments |
Persons receiving rental income from real estate |
Payments made after December 31, 2010 |
Permanent |
|
Increase information return penalties |
Persons required to file information returns |
Information returns required to be filed on or after January 1, 2011 |
Permanent |
|
Change levy rules for federal contractors with federal tax liabilities |
Federal contractors with federal tax liabilities |
Levies issued by IRS after date of enactment |
Permanent |
|
Allow participants in section 457 plans to treat elective deferrals as Roth contributions |
Participants in governmental section 457 plans |
2011 tax year |
Permanent |
|
Allow rollovers from elective deferral plans to designated Roth accounts |
Participants in section 401(k), 403(b), and 457(b) plans |
Distributions after date of enactment. |
Permanent |
|
Permit partial annuitization of a nonqualified annuity contract |
Holders of nonqualified annuities |
Amounts received in tax years beginning after December 31, 2010 |
Permanent |
|
Make crude tall oil ineligible for cellulosic biofuel producer credit |
Paper manufacturers |
Fuels sold or used after January 1, 2010 |
Permanent |
|
Change source rules for income from guarantees |
Persons who guarantee cross-border indebtedness |
Guarantees issued after date of enactment |
Permanent |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
