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Tuesday, September 28, 2010

Small Business Jobs Act of 2010

On September 27, 2010 (Monday), President Obama signed an additional economic stimulus bill - the Small Business Jobs Act of 2010 (H.R. 5297).

For details:
  • H.R. 5297 text - here.
  • White House video and summary of the bill - here.
  • Joint Committee on Tax (JCT) technical explanation (JCX-47-10) - here.
  • Joint Committee on Tax revenue estimate (JCX-48-10) - here.
  • Information from Senator Baucus, Chair of the Senate Finance Committee - here. At the bottom of his press release is a link to helpful documents about this new law.

I have a list of all of the tax provisions at the end of this post.

This legislation includes provisions to improve lending for small businesses as well as several tax changes including a few that affect more than what we might think of as "small" businesses. For example:

  1. Extending 50% bonus depreciation (IRC Section 168(k)) through 12/31/10 for all businesses. This is the most costly provision in the bill per JCT estimates, costing the government $5.5 billion over ten years. I think this is puzzling because it is not giving businesses more depreciation deductions than they would have claimed but is instead just allowing them to claim a large portion of depreciation in the first year. Caveats to using this deduction is that the eligible property (generally equipment) must not only be purchased by 12/31/10, but placed in service. Also, to benefit from the deduction, the business needs to have sufficient taxable income in the current year or if an NOL is generated, the ability to carry it back and use it.
  2. 100% exclusion on "qualified small business stock" purchased between date of enactment and 12/31/10. QSBS relates to a corporation with assets of $50 million or less (beyond what I think of when I think of "small business"). This could encourage eligible corporations to offer equity investment and eligible shareholders to purchase it before year end. (IRC Section 1202)
  3. Expanded asset expensing for 2010 and 2011 under IRC Section 179. Because this higher expensing amount ($500K) would apply to businesses that acquire up to $2 million of eligible assets, I also label this one as beyond the traditional "small business."
  4. Remove cell phones from listed property - for all businesses.


Does the Act meet principles of good tax policy and move the tax law into the 21st century? Well, partially, but it also adds complexity mostly due to multiple complex temporary provisions. At least one - bonus depreciation, is an extension and taxpayers and practitioners have mostly already figured this one out. A few more observations:

While several of the provisions are temporary to encourage small businesses to do things that might stimulate the economy, several are improvements that have long been sought, such as removing cell phone from "listed property" in order to simplify and modernize the tax law (see AICPA comments on this one). In addition, relaxing the onerous IRC Section 6707A penalty for small businesses has been on Congress' list of necessary changes for a while.

An equity measure - allowing self-employed to deduct their health insurance in computing self-employment tax is included - but just for 2010! There is a lot of inequity in the tax treatment of health insurance premiums. Employees with employer-provided health coverage (whether the employer pays the entire premium or part of it) get the best benefit because they don't have to include in their income the benefit they get from having the employer pay their health insurance premiums (so employees get both an income tax and Social Security tax break). This also comes at great cost to the government - meaning that everyone else subsidizes this. If Congress doesn't want to reduce this benefit, they should at least try to equalize it for others, such as by allowing an above the line for people who have to buy their own health care and letting self-employeds get a benefit for both income and self-employment taxes. This is an area that needs further work by Congress to both educate the public on the issue and make the law more equitable. I wrote a short article on this in 2008 - here.

One of the provisions to help offset the "costs" of the bill is to require information reporting on rental real estate. I think this is interesting in light of efforts to repeal the expanded 1099 reporting that was enacted as part of the March 2010 health care legislation and that has been complained about by both practitioners and the National Taxpayer Advocate. For more information see my 2009 article on the GAO findings that warranted 1099s for rental real estate, 6/21/10 post on current 1099 issue, and 2010 mid-year report of the IRS National Taxpayer Advocate).

The Act also increases certain information reporting penalties, such as for failure to issue a 1099 from $50 to $100. This is a good idea. Ideally, the penalties should be automatically adjusted for inflation and rounded to the next highest $10 increment.

List of all of the tax provisions:


Subtitle A--Small Business Relief

PART I--Providing Access to Capital

Sec. 2011. Temporary exclusion of 100 percent of gain on certain small business stock.

Sec. 2012. General business credits of eligible small businesses for 2010 carried back 5 years.

Sec. 2013. General business credits of eligible small businesses in 2010 not subject to alternative minimum tax.

Sec. 2014. Temporary reduction in recognition period for built-in gains tax.

PART II--Encouraging Investment

Sec. 2021. Increased expensing limitations for 2010 and 2011; certain real property treated as section 179 property.

Sec. 2022. Additional first-year depreciation for 50 percent of the basis of certain qualified property.

Sec. 2023. Special rule for long-term contract accounting.

PART III--Promoting Entrepreneurship

Sec. 2031. Increase in amount allowed as deduction for start-up expenditures in 2010.

Sec. 2032. Authorization of appropriations for the United States Trade Representative to develop market access opportunities for United States small- and medium-sized businesses and to enforce trade agreements.

PART IV--Promoting Small Business Fairness

Sec. 2041. Limitation on penalty for failure to disclose reportable transactions based on resulting tax benefits.

Sec. 2042. Deduction for health insurance costs in computing self-employment taxes in 2010.

Sec. 2043. Removal of cellular telephones and similar telecommunications equipment from listed property.

Subtitle B--Revenue Provisions

PART I--Reducing the Tax Gap

Sec. 2101. Information reporting for rental property expense payments.

Sec. 2102. Increase in information return penalties.

Sec. 2103. Report on tax shelter penalties and certain other enforcement actions.

Sec. 2104. Application of continuous levy to tax liabilities of certain Federal contractors.

PART II--Promoting Retirement Preparation

Sec. 2111. Participants in government section 457 plans allowed to treat elective deferrals as Roth contributions.

Sec. 2112. Rollovers from elective deferral plans to designated Roth accounts.

Sec. 2113. Special rules for annuities received from only a portion of a contract.

PART III--Closing Unintended Loopholes

Sec. 2121. Crude tall oil ineligible for cellulosic biofuel producer credit.

Sec. 2122. Source rules for income on guarantees.

PART IV--Time for Payment of Corporate Estimated Taxes

Sec. 2131. Time for payment of corporate estimated taxes.

1 comment:

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