H.R. 5982: Small Business Tax Relief Act

H.R. 5982

Small Business Tax Relief Act

Sponsor
Rep. Tim Murphy

Date
July 31, 2010 (111th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

The House is scheduled to consider H.R. 5982 on Thursday, July 29, 2010, under suspension of the rules, requiring a two-thirds majority vote for passage.  This legislation was introduced by Rep. Tim Murphy (D-NY).

Bill Summary

H.R. 5982 would repeal the business (1099) filing requirements under ObamaCare.  Offsets to this bill include $149 million in tax increases.

Note:  This bill is in response to the Republican MTR for H.R. 5893, Investing in American Jobs and Closing Tax Loopholes Act that was pulled from the floor as a result of the MTR. 

Title I:  Repeal of Certain Information Reporting Requirements

The bill repeals section 9006 of the Patient Protection and Affordable Care Act (ObamaCare).  As a result of ObamaCare, businesses, starting in 2012, will be required to file information returns (1099 tax form) with respect to any person (including corporations) that receive $600 or more from the business in exchange for property or merchandise.  Corporations would also have to file information returns when they receive $600 or more in exchange for services or other determinable gains.  According to JCT, this provision will cost $19.206 billion over ten years.

Title II: Revenue Provisions

Rules to Prevent Splitting Foreign Tax Credits from the Income to Which They Relate:

This provision would implement a matching rule that suspends the recognition of foreign tax credits until the related foreign income is taken into account for taxing purposes in the U.S.  This provision would apply to all split foreign taxes claimed by taxpayers after the date of introduction.  According to JCT, this provision would increase revenues by $4.250 billion over ten years.

Denial of Foreign Tax Credit with Respect to Foreign Income Not Subject to U.S. Taxation by Reason of Covered Asset Acquisition:

This provision would prohibit taxpayers from claiming the foreign tax credit with regard to foreign income that is never subject to U.S. taxation because of a covered asset acquisition.  The legislation would apply to related party transactions occurring after the date of introduction.  According to JCT, this provision would increase revenues by $3.645 billion over ten years

Separate Application of Foreign Tax Credit Limitation to Items Resourced Under Treaties: 

The legislation abides by the treaty commitment to treating income as a foreign source, but segregates the income so that it is not the basis for claiming foreign tax credits that have nothing to do with double taxation.  The bill would conform the foreign tax credit treatment of taxpayers operating abroad through foreign branches and disregarded entities to the treatment already afforded to taxpayers operating through foreign corporations.  According to JCT, this provision would increase revenues by $250 million over ten years.

Limitation on the Amount of Foreign Taxes Deemed Paid with Respect to Section 956 Inclusions: 

The bill would limit the amount of foreign tax credits that may be claimed on a deemed dividend under section 956 to the amount that would have been allowed with respect to an actual dividend.  According to JCT, this provision would increase revenues by $704 million over ten years

Special Rule with Respect to Certain Redemptions by Foreign Subsidiaries: 

The bill would eliminate a tax planning technique that allows foreign-based multinationals (e.g. a foreign-based company that owns a U.S. company, and that U.S. company owns a foreign subsidiary) earnings to bypass the U.S. tax system.   According to JCT, this provision would increase revenues by $203 million over ten years.

Modification of Affiliation Rule for Purposes of Rules Allocating Interest Expense: 

The bill would prevent taxpayers from using certain techniques to minimize the amount of foreign source interest expense, which has the effect of boosting foreign source income – thus allowing taxpayer to utilize more foreign tax credits.  According to JCT, this provision would increase revenues by $390 million over ten years.

Termination of Special Rules for Interest and Dividend Received from Persons Meeting the 80-percent Foreign Business Requirement: 

The bill terminates the “80/20” rule that allowed a corporation with gross income of at least 80 percent from a foreign source income and attributable to foreign trade or business during a three-year period.  Some corporations that meet specific requirements and are not abusing the “80/20” rule company rules may receive relief.  According to JCT, this provision would increase revenues by $153 million over ten years.

Source Rule for Income on Guarantees: 

The bill would stipulate that guarantees on indebtedness issues 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 billion over ten years.

Limitation on Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers:

The bill would make a technical correction to the Hiring Incentives to Restore Employment (HIRE).  This provision would clarify the circumstances in which the statute of limitations period for corporations that fail to provide certain information on cross-border transactions or foreign assets.   According to JCT, this provision would have no revenue impact over ten years

Require minimum 10-year term, etc. for Grantor Retained Annuity Trusts:

The bill would require a minimum 10-year term for grantors to retain annuity trusts [GRATS].  This provision would prevent individuals from using short-term GRATs to transfer the remaining portion of the grantors interest in the trust tax free; thus this would require that GRATs have a minimum of 10 years, and the amount of the annuity does not decrease during the decrease during the term.  According to JCT, this provision is estimated to raise revenues by $5.272 billion over 10 years.

  • Possible Member Concerns:  Some members may be concerned about using estate and gift taxes as offsets to a bill.

Crude Tall Oil Ineligible for Cellulosic Biofuel Producer Credit:

The bill would exclude crude tall oil (CTO) from receiving the current $1.01/gallon, non-refundable cellulosic biofuel producer credit for the production of certain cellulosic-based alternative fuels.  The provision would exclude CTO from eligibility for this credit.  According to JCT, this provision would increase revenue by $1.849 billion over 10 years.

 

Increase Penalties for failure to file information returns:

Increase the information return penalties:

Any person required to file information returns are subject to penalties for failure to file.  This provision would increase the penalties, based on the following table:

 Time of Filing

Current Law

Proposed Change

Not more than 30 days late

$15 per return / $75,000 cap

$30 per return / $250,000 cap

31 days late - August 1st

$30 per return / $150,000 cap

$60 per return / $500,000 cap

After August 1st

$50 per return / $250,000 cap

$100 per return / $1,500,000 cap

Intentional disregard

$100 per return / no cap

$250 per return / no cap

Under both current law and the provision, reduced caps apply to small filers with gross receipts under $5 million.  These caps are also increased:

 Time of Filing

(Small Filers)

Current Law

Proposed Change

Not more than 30 days late

$15 per return / $25,000 cap

$30 per return / $75,000 cap

31 days late - August 1st

$30 per return / $50,000 cap

$60 per return / $200,000 cap

After August 1st

$50 per return / $100,000 cap

$100 per return / $500,000 cap

Intentional disregard

$100 per return / no cap

$250 per return / no cap

According to JCT, this provision would increase revenue by $421 million over 10 years.

Treatment of Securities of a Controlled Corporation Exchanged for Assets in Certain Reorganizations:

The bill would change the rules for treatment of securities transferred from a controlled-corporation for assets during reorganization.  Under current law, shareholders and corporations are generally allowed to defer tax on gains relating to some corporate reorganizations such as certain mergers and spin-offs, provided the reorganization meets numerous requirements in the Code and regulations.  Under the bill, no loss would be recognized if a corporation transfers assets for stock during reorganization.  However, the sum of gains transferred and not distributed in the reorganization would be immediately recognized for tax purposes.  According to JCT, this provision would increase taxes by $218 million over ten years.

Cost

According to JCT, this bill would increase revenue by $149 million over 10 years.