The Small Business Jobs Tax Relief Act of 2010, introduced and sponsored by Representative Sander Levin of Michigan, was passed on June 15, 2010, by the House of Representatives primarily along party lines by a recorded vote of 247 to 170. The bill is now on its way to the Senate where its fate is anyone’s guess, since an earlier bill passed in March by the House containing many of the same tax provisions as contained in this bill was subsequently defeated there.
Of particular note are two tax provisions encouraging the investment in small businesses and enhancing their cash flows in their critical formative years. First of all, the Small Business Jobs Tax Relief Act of 2010 would increase the exclusion from gross income from 50% to 100% of the gain from the sale or exchange of “qualified small business” stock acquired after March 15, 2010, and before January 1, 2012. In general, qualified small businesses are certain C corporations with aggregate gross assets not in excess of $50 million.
Secondly, the tax deduction for trade or business start-up expenditures would increase from $5,000 to $20,000 in the years 2010 and 2011.
The other provisions currently contained in the Bill going before the Senate include the following:
- The penalty for failure to disclose a reportable transaction would be limited to 75% of the decrease in tax resulting from such transaction, thereby offering penalty relief to small businesses.
- The bill would create a Small Business Borrower Assistance Program that would provide assistance to small businesses that are struggling to meet their obligations to creditors. The bill would exclude from gross income any amounts that are received under this program.
- The bill would provide an exception to the “at-risk” rules for non-recourse loans that are guaranteed by the Small Business Administration (SBA).
- Rules for valuing assets in grantor retained annuity trusts would be expanded to require that the right to receive fixed amounts from an annuity last for a term of not less than 10 years, that such fixed amounts would not decrease during the first 10 years of the annuity term, and that the remainder interest must have a value greater than zero when transferred.
- Any processed fuel with significant acid numbers would be excluded from eligibility for any tax credit of alcohol used as fuel.
- Estimated tax installments for certain large corporations in the third quarter of 2015 would increase by 7.75%.
The total estimated revenue effects to small businesses over the next ten years will be tax incentives totaling $3.6 billion, with nearly $2 billion resulting from the temporary exclusion of the 100% of gain from the sale of certain small business stock, $940 million resulting from treatment of certain nonrecourse small business investment company loans from the Small Business Administration as amounts at risk, and $500 million resulting from the increase in the amount allowed as a deduction for start-up expenditures.
This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.
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