By: WEBCPA Staff
September 14, 2010
A bill providing $12 billion in tax breaks and a $30 billion lending fund for small businesses passed a key hurdle in the Senate on Tuesday when two Republican lawmakers voted to join Democrats to cut off debate.
The 61-37 vote on the Small Business Jobs Act came after Sen. George Voinovich, R-Ohio, and George LeMieux, R-Fla., crossed party lines to vote for the bill. Final passage in the Senate is expected either later in the day or by Wednesday. The House has already passed a similar bill.
Senate Finance Committee Chairman Max Baucus, D-Mont., and Small Business and Entrepreneurship Chair Mary Landrieu, D-La., introduced the Small Business Jobs Act in June to help create the right economic conditions for small businesses to create jobs. The Obama administration has made the bill its top legislative priority in recent months and Obama heavily criticized Republicans in recent weeks for blocking the bill before lawmakers left for their August recess.
"When we help small businesses, we help to get Americans back to work," said Baucus in a statement. "This is exactly the kind of targeted, job-creating legislation that folks in Montana and across the country are urging us to enact. This bill creates the right conditions right now to help small businesses create jobs by spurring investment and entrepreneurship with tax cuts and improved access to capital."
Lawmakers failed on Tuesday, however, to pass either a Republican or Democratic amendment to the small business bill that would have repealed or scaled back the expanded 1099 information reporting requirements that were included in the health care reform bill (see Senate Fails to Repeal 1099 Requirements).
The Small Business Jobs Act would encourage investment in small businesses by allowing investors to exclude 100 percent of the gains from the sale of certain small business stock from their income for tax purposes if the stock is held for more than five years. The legislation also would reduce the tax burden for small businesses by allowing them to carry back general business tax credits to offset their tax burdens from the previous five years. Small businesses would also be able to count the general business credits against the alternative minimum tax.
In addition, the legislation would establish a Small Business Lending Fund of $30 billion to provide capital investments to small community banks to increase small business lending. The fund is limited to only the smallest banks, those that hold less than $10 billion in assets, and the performance-based program would incentivize only those lenders that extend new credit by decreasing the dividend rate banks pay as they increase lending.
The legislation also would establish a State Small Business Credit Initiative to provide $1.5 billion in grants to existing successful state small business programs that help private lenders extend more credit to small businesses.
In addition, the legislation would raise the cap on small business loans to increase lending by $5 billion in the first year after enactment, and refinance commercial real estate debt into long-term, fixed-rate loans, provisions that are expected to be budget neutral and could create or save 200,000 jobs.
The legislation would also build on some initiatives put in place through the Recovery Act, changing the Small Business Administration's two largest lending programs and its microloan program, which have pumped more than $20 billion into more than 40,000 businesses. The legislation calls for an extension of these lending provisions through Dec. 31, 2010.
The legislation also would extend the American Recovery and Reinvestment Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75 percent to 90 percent.
The legislation also would allow taxpayers to write off more of the cost of purchases for their business, such as equipment and machinery, in the year the purchase is made. The legislation also would expand the types of purchases that would qualify for special expensing to include some types of real property, such as leasehold, retail and restaurant improvements.
In addition, the legislation would double the amount of start-up expenditures that may be deducted by someone starting a small business, making it easier for new businesses to open.
The legislation also would target resources to support the Office of the United States Trade Representative's small business export promotion and trade enforcement activities to help U.S. small business exports grow in foreign markets and ensure small businesses compete on a level playing field.
The legislation would also improve the Small Business Administration's trade and export finance programs, elevating the Office of International Trade within the SBA and adding export finance specialists to the SBA's counseling programs.
The bill would also establish the State Export Promotion Grant Program, which would increase the number of small businesses that export goods to other countries.
The legislation also would allow the SBA to waive or reduce the state-matching share of its funding requirement for up to one year to continue providing technical assistance to underserved communities to start and grow small businesses.
In addition, the legislation would promote tax fairness by preventing small businesses from incurring large tax penalties aimed at large corporations and wealthy individuals investing in tax shelters. The bill would revise Section 6707A of the Tax Code to make the penalty for failing to disclose a reportable transaction proportionate to the underlying tax savings. The penalty for failure to disclose reportable transactions to the IRS would be set at 75 percent of the tax benefit received. Reportable transactions are defined as investments in transactions that the IRS has identified as listed tax shelters or that have characteristics of tax shelters, including large losses or confidentiality agreements. The minimum penalty under the bill is $10,000 for corporations and $5,000 for individuals, and the maximum penalty is $200,000 for corporations and $100,000 for individuals. The bill also would require the IRS to provide an annual report to the Senate Finance Committee and to the House Ways and Means Committee giving an account of certain tax-shelter related penalties asserted during the year.
The legislation also would make clear that no single contracting program receives priority over another program when competing for federal contracts. It places the small business contracting programs, such as HUBZone, 8(a), Service-Disabled Veterans and Women-Owned Businesses, on a level playing field when competing for federal contracts.
The bill also would allow self-employed individuals to deduct health insurance costs for purposes of paying the self-employment tax. Under current law, business owners are not permitted to deduct the cost of health insurance for themselves and their family members for purposes of calculating self-employment tax. This provision would allow business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax.
Another provision would remove cell phones from listed property so their cost could be deducted or depreciated like other business property, without onerous record-keeping requirements.
The legislation is fully paid for, closes unintended tax loopholes and reduces the tax gap. The offsets include requiring information reporting for rental property expense payments and increasing the penalties for failure to file information returns.
The first-tier penalty would increase from $15 to $30, and the calendar year maximum would increase from $75,000 to $250,000. The second-tier penalty would increase from $30 to $60, and the calendar year maximum would increase from $150,000 to $500,000. The third-tier penalty would increase from $50 to $100, and the calendar year maximum would increase from $250,000 to $1.5 million.
For small filers, the calendar year maximum would increase from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard would increase from $100 to $250. The penalty amounts are adjusted every five years for inflation. Penalties for failure to file information returns to payees would be similarly increased