|Sponsor||Rep. Frank, Barney|
|Date||September 23, 2010 (111th Congress, 2nd Session)|
|Staff Contact||Jon Hiler|
The House is scheduled to consider the Senate amendment to H.R. 5297 under a closed rule on Thursday, September 23, 2010. The rule provides for one hour of debate on the bill with equal time allocated to relevant committees (Financial Services, Ways & Means, and Small Business). The rule provides same-day and suspension authority through October 1, 2010. H.R. 5297 was introduced on May 13, 2010, by Rep. Barney Frank (D-MA), and referred to the Committee on Financial Services. The Committee on Financial Services reported the bill on May 19, 2010. The bill was approved by the House on June 17, 2010 by recorded vote of 241-182. The amendment was approved by the Senate on September 16, 2010 by a recorded vote of 61-38.
H.R. 5297 would modify a number of Small Business Administration (SBA) statutes on loan limits and fee reductions. The bill would reform and expand small business export assistance programs under the SBA. Additionally, the bill would address small business parity in federal contracting.
The bill would provide a special exclusion of 100 percent for gains from the sale of qualifying stocks acquired before January 1, 2011 by small businesses. This provision would also allow for full exclusion of the gain from the alternative minimum tax [AMT]. According to JCT, this provision is estimated to cost $518 million over 10 years.
The bill would allow small businesses with unused general business tax credits to carry back those credits five years, instead of one. This provision would apply to sole proprietorships, partnerships, and non-publicly traded corporations with $50 million or less in annual receipts for the prior three years. According to JCT, this provision is estimated to cost $107 million over 10 years.
H.R. 5297 would allow small businesses to apply all 2010 general business credits against their Alternative Minimum Tax [AMT]. Current law allows small businesses to apply business tax credits against their regular tax liability, but most cannot be claimed against their AMT tax liability. This provision would apply to sole proprietorships, partnerships, and non-publicly traded corporations with $50 million or less in annual receipts for the prior three years. According to JCT, this provision is estimated to cost $977 million over 10 years.
The legislation would shorten the period to five years for the recognition of built-in gains tax beginning in 2011. Current law stipulates that any C corporation converting to an S corporation must hold appreciated assets for 10 years prior to its conversion or be subject to a business-level tax on the built-in gain on such assets at the highest marginal rate of 35 percent. According to JCT, this provision is estimated to cost $70 million over 10 years.
H.R. 5297 would increase the threshold for expensing and expansion of certain real property to $500,000 and $2,000,000 for taxable years beginning in 2010 and 2011. Current law allows taxpayers to deduct the costs of certain tangible personal property in the year in which it is placed into service, instead of recovering these costs through depreciation. This bill would also expand property to include up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. According to JCT, this provision would cost $2.177 billion over 10 years.
The bill would provide an extension of bonus depreciation to qualified property. Current law requires taxpayers to depreciate the cost of certain capital over a number of years (the total number of years depends on the asset). This bill would extend a provision that allows for immediate deduction of 50 percent of the cost of depreciable property acquired in 2010. According to JCT, this provision would cost $5.454 billion over 10 years.
H.R. 5297 would provide special rules for long-term contract accounting. Certain businesses use percentage of completion accounting methods to realize income and deductions relating to particular business activities. This accounting method and the provision to allow bonus depreciation could be disadvantageous to some businesses. This provision would allow taxpayers using percentage of completion accounting to treat qualified property as if bonus depreciation had not been enacted. According to JCT, this provision would cost $1.785 billion over 10 years.
The bill would increase the deduction amount for start-up expenditures. Beginning in taxable years 2010, the bill would increase the limit on the tax deduction for trade or business start-up costs from $5,000 to $20,000 and the phase-out trigger from $50,000 to $60,000. According to JCT, this provision would cost $230 million over 10 years.
The bill would authorize the appropriation of $5,230,000 to the United State Trade Representative to develop market access opportunities for small and medium-sized businesses to enforce trade agreements with foreign countries.
The bill would provide penalty relief to small businesses that fail to disclose any reportable transaction on a tax return. This provision would make the penalty for failing to disclose reportable transactions proportionate to the underlying tax savings. According to JCT, this provision would cost is $176 million over 10 years.
H.R. 5297 would allow business owners to deduct health insurance for the purposes of calculating self-employment taxes. Self-employed business owners are currently allowed to deduct health insurance costs from their income taxes, but may not deduct those costs in regard to the self-employment tax. This provision would allow the self-employed to deduct health insurance costs in 2010 for their families, including any child under the age of 27. According to JCT, this provision would cost $1.919 billion over 10 years.
H.R. 5297 would remove cellular phones and other telecommunication equipment from listed property. Employer-provided cell phones, blackberries, or other telecommunication devices are currently treated as listed property, requiring extensive record keeping substantiating that deductions are claimed only for business purposes; the value of any non-business use of such devices is required to be reported as employee income. This provision would eliminate this requirement. According to JCT, this provision is estimated to cost $410 million over 10 years.
Revenue Offset Provisions:
The legislation would require an IRS Form 1099 for rental property expense payments. The provision would subject all recipients of rental income from real estate to the 1099 reporting requirement, with the exception for taxpayers that rent their principal residence on a temporary basis, receive minimal amount of rental income, or would experience a hardship under this provision. This provision would give the Department of Treasury the authority to determine what constitutes a “minimal amount” of rental income and what constitutes a “hardship.” According to JCT, this provision would increase revenue by $2.546 billion over 10 years.
The bill would increase penalties for the failure to file correct tax information on returns. The penalties are assessed on an individual basis, with a maximum penalty amount. According to JCT, this provision would increase revenue by $421 million over 10 years. The penalties would be increased as follows:
Time of filing
Not more than 30 days late
$15 per return / $75,000 cap
$30 per return / $250,000 cap
31 days late – August 1
$30 per return / $150,000 cap
$60 per return / $500,000 cap
After August 1
$50 per return / $250,000 cap
$100 per return / $1,500,000 cap
$100 per return / no cap
$250 per return / no c
In regard to small filers with gross receipts under $5 million, the provision would include reduced caps:
Time of filing (small filers)
Not more than 30 days late
$15 per return / $25,000 cap
$30 per return / $75,000 cap
31 days late – August 1
$30 per return / $50,000 cap
$60 per return / $200,000 cap
After August 1
$50 per return / $100,000 cap
$100 per return / $500,000 cap
$100 per return / no cap
$250 per return / no cap
The bill would allow the IRS to issue levies prior to collection due process hearings for any federal employment tax liabilities of federal contractors identified as owing taxes. Currently, the IRS is prevented from issuing a levy for an unpaid federal tax liability until the taxpayer has been provided the opportunity for a collections due process hearing. According to JCT, this provision is estimated increase revenues by $1.080 billion over 10 years.
The bill would allow participants in governmental 457 plans to establish a Roth option, similar to Roth accounts established by 401(k) and 403(b) plans. According to JCT, this provision would increase revenue by $506 million over 10 years.
H.R. 5297 would allow individuals currently eligible to take distributions from their 401(k), 403(b) or 457 plans to rollover certain amounts into qualified Roth accounts with the same tax treatment as rollovers from traditional IRAs. According to JCT, this provision is estimated to increase revenues by $5.099 billion over 10 years
The bill would allow holders of non-qualified annuities (an annuity contract held outside of a tax-qualified retirement plan or IRA) to elect to receive a portion of the contract in the form of a stream of annuity contracts, leaving the remainder of the contract to accumulate income on a tax-deferred basis. According to JCT, this provision would increase revenue by $956 million over 10 years.
The bill would require that crude tall oil (“black liquor III”) would no longer be eligible for the cellulosic biofuel producer credit. Currently, eligible recipients receive a $1.01/gallon biofuel producer credit for the production of certain cellulosic-based alternative fuels. Crude tall oil would no longer be eligible for this tax credit. According to JCT, this provision would raise revenues by $1.849 billion over 10 years.
The bill would stipulate that guarantees issued after the date of enactment will be sourced like interest; if paid by U.S. taxpayers to foreign persons it will be subject to withholding. According to JCT, this provision would increase revenues by $2.000 billion over ten years.
Finally, the bill would implement corporate estimated tax timing shifts. The bill would increase a timing shift for the payment of corporate estimated taxes due in July, August, or September of 2015 by companies with assets of $1 billion or more. This provision is meant to artificially move $5 billion in revenue from 2016 to 2015 to comply with the PAYGO rules.
The bill would also create a Small Business Credit Initiative Program and authorize the appropriation of $1.5 billion to assist states with making capital available to small businesses by private lenders. The program would be administered by the Department of the Treasury, and the Secretary would be required to apportion the participating states allocated amounts in one-thirds.
The bill would authorize each participating state to use the funds as collateral for a qualifying loan or swap funding facility, for payment of administrative cost incurred by the state or making federal contributions to an approved state program.
The bill would authorize the Secretary to grant municipalities special permission to apply directly to the Secretary without the state’s for approval to be a participating municipality.
H.R. 5297 would create a $30 billion small business lending fund and authorize the Treasury Secretary to make capital investments in banks with less than $10 billion in assets.
The fund would be used by the Secretary for the purchase of preferred stock and other financial instruments from eligible institutions. Preferred stock would have to be redeemed within 10 years of the date of the capital investment.
Eligible institutions would be any insured depository institution, bank holding company or thrift holding company with total assets up to $10 billion. Institutions with less than $1 billion in assets would be eligible to receive capital investments up to five percent of their risk-weighted assets. Institutions with between $1 and $10 billion in assets would be eligible to receive up to three percent of risk-weighted assets.
An eligible institution may not receive any capital investment if the institution has a rating of 4 or 5 under the Uniform Financial Institutions Ratings System or such institution has been removed from the list for less than 90 days. (Composite ratings are supervisory rating of a bank's overall condition. The rating is based on financial statements of the bank and on-site examination by regulators.)
The dividend rate for a capital investment provided under the program would begin at 5 percent annually, but with reductions to as low as 1 percent if a bank demonstrates increased small business lending. The initial dividend or interest rate would be based on call report data published in the quarter immediately preceding the date of the capital investment under the program. After five years, the dividend rate would be increased to 9 percent. The bill would require capital investments to be repaid within 10 years.
Oversight of the program would be performed by the Treasury Inspector General with a requirement that the Government Accountability Office (GAO) perform a single audit of the program.
The Secretary would be authorized to issue regulations to permit institutions to refinance securities issued to Treasury under existing Capital Purchase Program (CPP) and Community Development Investment Program (CDIP), authorized by the original TARP.
The bill is being promoted as necessary to increase the availability of credit for small businesses. The bill would create a $30 billion lending program and authorizes the Treasury Secretary to make capital investment in banks with less than $10 billion in assets. However, the bill represents yet another bailout program that would deepen the nation’s debt problems and provide no long-term incentives to create jobs. Additionally, the bill unnecessarily duplicates the goal of the original $700 billion TARP program—to generate lending. Even the Congressional Oversight Panel, in reviewing the effectiveness of TARP, has cautioned against incentivizing lending through increased capitalization in an environment where strengthened underwriting and the lack of creditworthy borrowers may be the proximate causes of reduced liquidity.
According to a recent survey by the National Federation of Independent Business, 8 percent of the small businesses surveyed cited a lack of credit as an immediate problem, but more than 22 percent cited uncertainty about the economy as an immediate problem. In other words, small businesses are suffering due to the government’s intervention in the marketplace.
The Joint Committee on Taxation estimates that tax provisions amended in H.R. 5297 would provide $12.038 billion in temporary small business tax relief and permanently increases taxes by $14.457 billion. The net total tax increase for this bill would be $2.419 billion over 10 years.