Background

On September 23, 2010, the US House of Representatives passed, without change, the Senate version of H.R. 5297, the “Small Business Jobs Act of 2010.” The bill is expected to become law early next week as President Obama has stated that he intends to sign the bill on Monday, September 27.

H.R. 5297 includes a variety of measures, most of which are intended to benefit small businesses. In particular, the bill authorizes the Treasury Department to create a $30 billion fund to encourage lending to small businesses by community banks. Under the program, eligible institutions with $1 billion or less in assets may borrow from the government up to 5% of their risk-weighted assets. Institutions with assets between $1 billion and $10 billion may borrow 3%. Institutions seeking to access the program must provide a small business lending plan for consideration.

Overview of Tax Package

Title II of the bill, entitled the “Creating Small Business Jobs Act of 2010,” is a revenue-neutral package of tax incentives and revenue-raising changes to the Internal Revenue Code.

  • The tax incentives are generally targeted at small businesses. There are two significant provisions, however, that affect larger businesses as well: a one-year extension of “bonus depreciation” (along with a new coordination rule for taxpayers subject to long-term contract accounting) and repeal of the detailed recordkeeping rules that apply to employer-provided cell phones. With two exceptions (the cell phone provision and a change to the section 6707A penalty), the revenue-losing provisions are all temporary.
  • The revenue-raising provisions are all permanent and have little if any relationship with small businesses.
  • The effective dates of the bill’s tax provisions vary significantly: some provisions are retroactive; others are effective immediately upon enactment; and some provisions do not become effective until the beginning of 2011.

Due to the temporary nature of the bill’s tax incentives and the multitude of effective dates of the bill’s tax provisions, it is critical that individuals and companies identify

  • which provisions may apply to their business,
  • when the relevant provisions begin to apply, and
  • how long the relevant provisions will apply (i.e., the window in which a business can take advantage of a particular incentive).

Because some of the tax incentives are retroactive, a taxpayer may in some cases take credit for activities or purchases made earlier this year. A taxpayer may also find that it has only a small window of time in which to act before a particular tax incentive expires. In still other cases, such as when a taxpayer is affected by one of the bill’s revenue offsets, the taxpayer may have little time to act before the new provision becomes effective.

Specific Tax Provisions in Bill

To assist you with understanding the varying time-sensitivity of the bill’s provisions, the chart below highlights the specific tax provisions in H.R. 5297, who they are expected to affect, when they will become effective, and for how long they will apply. We would be happy to discuss any of these provisions with you in greater detail.  

To see table please click here.