This past Monday, September 27, 2010, President Obama signed the Small Business Jobs Act (HR 5297).
(Worth the read if you are a Small Business Owner, CEO, CFO, or CPA.)
Here is a breakdown on what this legislation does for Small Business:
Introduced and sponsored by Congressman Barney Frank (D-MA)-May 13, 2010
Passed by the Senate-September 16, 2010
Passed by the House of Representatives-September 23, 2010
Signed by the President-September 27, 2010
• Extension of Successful SBA Recovery Loan Provisions —Immediately Supporting Loans to Over 1,400 Small Businesses: With funds provided in the bill, SBA will begin funding new Recovery loans within a few days of the President’s signature, starting with the more than 1,400 businesses – with loans totaling more than $730 million – that are waiting in the Recovery Loan Queue. In total, the extension of these provisions provides the capacity to support $14 billion in loans to small businesses. The SBA Recovery loan provisions have already supported $30 billion in lending to over 70,000 small businesses.
• A More Than Doubling of the Maximum Loan Size for The Largest SBA Programs: The bill also increases the maximum loan size for SBA loan programs, which in the coming weeks will allow more small businesses to access more credit to allow them to expand and create new jobs. The bill will permanently raise the maximum size for SBA’s two largest loan programs, increasing the maximum 7(a) and 504 loans from $2 million to $5 million, and the maximum 504 manufacturing related loan from $4 million to $5.5 million. In addition, it will temporarily increase the maximum loan size for SBA Express loans from $350,000 to $1 million, providing greater access to working capital loans that small businesses use to purchase new inventory and take on their next order – allowing them to create new jobs.
• A New $30 Billion Small Business Lending Fund: The bill would establish a new $30 billion Small Business Lending Fund which – by providing capital to small banks with incentives to increase small business lending – could support several multiples of that amount in new credit.
• An Initiative to Strengthen Innovative State Small Business Programs – Supporting Over $15 Billion in Lending: The bill will support at least $15 billion in small business lending through a new State Small Business Credit Initiative, strengthening state small business programs that leverage private-sector lenders to extend additional credit – many of which have been forced to cut back due to budget cuts.
• Eight New Small Business Tax Cuts – Effective Today, Providing Immediate Incentives to Invest: The President had already signed into law eight small business tax cuts, and on Monday, he is signing into law another eight new tax cuts that go into effect immediately.
• Zero Taxes on Capital Gains from Key Small Business Investments: Under the Recovery Act, 75 percent of capital gains on key small business investments this year were excluded from taxes. The Small Business Jobs Act temporarily puts in place for the rest of 2010 a provision called for by the President – elimination of all capital gains taxes on these investments if held for five years. Over one million small businesses are eligible to receive investments this year that, if held for five years or longer, could be completely excluded from any capital gains taxation.
• Extension and Expansion of Small Businesses’ Ability to Immediately Expense Capital Investments: The bill increases for 2010 and 2011 the amount of investments that businesses would be eligible to immediately write off to $500,000, while raising the level of investments at which the write-off phases out to $2 million. Prior to the passage of the bill, the expensing limit would have been $250,000 this year, and only $25,000 next year. This provision means that 4.5 million small businesses and individuals will be able to make new business investments today and know that they will earn a larger break on their taxes for this year.
• Extension of 50% Bonus Depreciation: The bill extends – as the President proposed in his budget – a Recovery Act provision for 50 percent “bonus depreciation” through 2010, providing 2 million businesses, large and small, with the ability to make new investments today and know they can receive a tax cut for this year by accelerating the rate at which they deduct capital expenditures.
• A New Deduction of Health Insurance Costs for Self-Employed: The bill allows 2 million self-employed to know that on their taxes for this year, they can get a deduction for the cost of health insurance for themselves and their family members in calculating their self-employment taxes. This provision is estimated to provide over $1.9 billion in tax cuts for these entrepreneurs.
• Tax Relief and Simplification for Cell Phone Deductions: The bill changes rules so that the use of cell phones can be deducted without burdensome extra documentation – making it easier for virtually every small business in America to receive deductions that they are entitled to, beginning on their taxes for this year.
• An Increase in the Deduction for Entrepreneurs’ Start-Up Expenses: The bill temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for this year from $5,000 to $10,000 (with a phase-out threshold of $60,000 in expenditures), offering an immediate incentive for someone with a new business idea to invest in starting up a new small business today.
• A Five-Year Carry back Of General Business Credits: The bill would allow certain small businesses to “carry back” their general business credits to offset five years of taxes – providing them with a break on their taxes for this year – while also allowing these credits to offset the Alternative Minimum Tax, reducing taxes for these small businesses.
• Limitations on Penalties for Errors in Tax Reporting That Disproportionately Affect Small Business: The bill would change, beginning this year, the penalty for failing to report certain tax transactions from a fixed dollar amount – which was criticized for imposing a disproportionately large penalty on small businesses in certain circumstances – to a percentage of the tax benefits from the transaction.
• (Sec. 103) Establishes in the Treasury the Small Business Lending Fund, administered by the Secretary of the Treasury to cover purchases of preferred stock and other financial instruments from eligible institutions (Small Business Lending Fund Program). Limits the aggregate amount of purchases to $30 billion. Requires all funds received by the Secretary in connection with such purchases to be paid into the general fund of the Treasury for reduction of the public debt. Prohibits more than 1% of the value of purchases made by the Secretary in implementing the Program from being used to make purchases from community development loan funds (CDLFs). Directs the Secretary to prescribe eligibility criteria to determine the financial ability of a CDLF to participate in the Program and repay the investment. Allows eligible institutions with assets of $1 billion or less to apply for a capital investment from the Fund not exceeding 5% percent of risk-weighted assets. Allows eligible institutions with assets of between $1 billion and $10 billion to apply for a capital investment from the Fund of up to 3% percent of risk-weighted assets. Prescribes requirements for the treatment of assets of holding companies and institutions controlled by holding companies. Requires an applicant institution (including a state-chartered bank) to submit:
• (1) A small business lending plan describing how its business strategy and operating goals address the needs of small businesses in the areas it serves; and
• (2) A plan to provide linguistically and culturally appropriate outreach. Permits CDLFs to apply for a capital investment from the Fund in an amount not exceeding 10% of total assets, as reported in the call report immediately preceding the application date. Permits an applicant institution to include other nonfarm, nonresidential real estate loans of under $10 million each in the determination of the amount of its small business lending. Declares ineligible for a capital investment from the Fund any institution that is either on the FDIC problem bank list, or has been removed from such list for less than 90 days. Prescribes requirements governing financial instruments issued to the Treasury by an eligible institution receiving a capital investment (including S Corporations). Sets forth financial incentives for small business lending by such institutions. Sets a 10-year deadline for repayment of a capital investment under the Program. Sets forth requirements governing financial instruments issued by a Community Development Financial Institution loan fund (CDFILF) receiving a capital investment under the Program. Makes incentives contingent upon an increase in the number of loans made. Sets forth an alternative computation for small business lending amount made by an eligible institution. Requires the Secretary to issue regulations and other guidance to permit eligible institutions to refinance securities issued to Treasury under the Community Development Capital Initiative (CDCI) of the Troubled Asset Relief Program (TARP) established by the Emergency Economic Stabilization Act of 2008 (EESA) and the TARP Capital Purchase Program (CPP) for securities to be issued under the Program, but prohibits participation by certain nonpaying CPP participants. Instructs the Secretary to require capital investment recipients to provide linguistically and culturally appropriate outreach and advertising in the applicant pool using media outlets which target organizations, trade associations, and individuals that represent or work within or are members of minority communities, women, and veterans. Requires the appropriate federal banking agency for an eligible institution that receives funds under the Program to issue guidance regarding mandatory prudent underwriting standards for loans it makes. Requires each institution receiving a capital investment under the Program to:
• (1) Issue a quarterly report detailing new loans to small businesses; and
• (2) State on its Internet website that, as a participant in the Program, it is seeking to make small business loans to qualified borrowers and may not discriminate on the basis of any factor prohibited under the Equal Credit Opportunity Act, including race, color, religion, national origin, sex, marital status, or age.
• (Sec. 105) Instructs the Secretary, when exercising authorities granted under this title, to take into consideration, among other things, increasing the opportunity for small business development in areas with high unemployment rates that exceed the national average.
• (Sec. 107) Directs the Inspector General (IG) of the Department of the Treasury to audit and investigate purchases of financial instruments under the Program through the Office of Small Business Lending Fund Program Oversight. Establishes the Office of Small Business Lending Fund (SBLF) Program Oversight within the Office of the IG. Instructs the IG to appoint a Special Deputy Inspector General for SBLF Program Oversight to lead the Office. Directs the Comptroller General to perform and report to the appropriate congressional committees on annual audits of the Program. Prescribes compliance certification requirements for Program participants and loan recipients. Prohibits the use of funds under this Act to pay the salary of an individual officially disciplined for viewing, downloading, or exchanging pornography on a federal government computer while performing official federal duties.
• (Sec. 108) Makes appropriations to pay the costs of $30 billion of capital investments in eligible institutions, including the costs of modifying such investments, and the costs of administering the capital investments program.
• (Sec. 109) Terminates the authority to make capital investments in eligible institutions one year after enactment of this Act.
• (Sec. 111) Establishes the Small Business Lending Fund Program as separate and distinct from TARP. States that an institution shall not be considered a TARP recipient by virtue of a capital investment under this Act.
• (Sec. 112) Directs the Secretary to:
• (1) Study and report to Congress on the number of women-owned, veteran-owned, and minority-owned businesses that receive assistance as a result of the Program; and
• (2) Disaggregate study results by ethnic group and gender.
• (Sec. 113) Authorizes an eligible institution to amortize losses or write-downs, on a quarterly straight-line basis over a certain temporary period, in order to increase the availability of credit for small businesses. Prescribes amortization requirements and requires regulations defining minimum underwriting standards.
• (Sec. 114) Expresses the sense of Congress that the Federal Deposit Insurance Corporation (FDIC) and other bank regulators are sending mixed messages to banks regarding regulatory capital requirements and lending standards, which is a contributing cause of decreased small business lending and increased regulatory uncertainty at community banks. Title II: State Small Business Credit Initiative - State Small Business Credit Initiative Act of 2010 -
• (Sec. 203) Establishes a seven-year State Small Business Credit Initiative (Initiative), administered by the Secretary to allocate federal funds for FY2009-FY2010 to participating states with capital access programs.
• (Sec. 205) Prescribes eligibility criteria for state capital access programs providing portfolio insurance for business loans. Requires the portfolio insurance to be based on a separate loan-loss reserve fund for each financial institution, with:
• (1) Premiums paid by the financial institution lenders and by the business borrowers to the reserve fund to have their loans enrolled in it; and
• (2) State contributions to the reserve fund in amounts equal to such premium charges. Limits portfolio insurance to loans of up to $5 million to borrowers with 500 employees or fewer at the time that the loan is enrolled in the program. Requires the Secretary to approve for federal contributions any state capital access program meeting specified minimum requirements. Requires an applicant state to report to the Secretary how it plans to use the federal contributions to the reserve fund to provide access to capital for small businesses in low- and moderate-income, minority, and other underserved communities, including women- and minority-owned small businesses.
• (Sec. 206) Authorizes a participating state that establishes a new, or has an existing, eligible credit support program to apply for the Secretary's approval of a state other credit support program [sic] for federal contributions to, or for the account of, the state program. Requires a state other credit support program, among other eligibility criteria, to demonstrate that one dollar of public investment by the state program will cause and result in one dollar of new private credit, with a reasonable expectation that, when considered with all other state programs, they together have the ability to use new federal contributions to cause and result in amounts of new small business lending at least 10 times the new federal contribution amount. Requires such a program to extend credit support to borrowers with an average size of 500 or fewer employees, but in no event to borrowers with more than 750 employees. Requires such credit support to target loans with an average principal amount of $5 million or less, but in no event more than $20 million.
• (Sec. 208) Authorizes the reduction of federal allocations to the state or termination of further allocation transfers to the state upon its termination of participation in the program, or failure to submit timely and complete reports, or its noncompliance with the terms of the allocation agreement.
• (Sec. 209) Directs the Secretary to:
• (1) Establish minimum national standards for approved state programs; and
• (2) Provide states with technical assistance for starting programs and generally disseminating best practices. Makes appropriations. Terminates the program at the end of seven years.
• (Sec. 211) Directs:
• (1) The IG to audit and investigate the use of funds made available under this Act; and
• (2) The Comptroller General to audit the program annually and report the results to the appropriate congressional committees. Requires any financial institution receiving financial assistance under this title to certify compliance with regulations requiring them to verify the identity of persons seeking to open an account, including any appearance on a list of suspected terrorists or terrorist organizations. Requires any private entity receiving financial assistance under this title to certify to the participating state that its principals have not been convicted of a sex offense against a minor. Prohibits the use of funds under this title to pay the salary of an individual officially disciplined for viewing, downloading, or exchanging pornography on a federal government computer while performing official federal duties. Title III - Small Business Early-Stage Investment Program - Small Business Early-Stage Investment Program Act of 2010 -
• (Sec. 302) Amends the Small Business Investment Act of 1958 to instruct the Administrator of the Small Business Administration (SBA) to establish an early-stage investment program to provide equity investment financing to support early-stage small businesses. Permits program participation by any existing or newly formed incorporated body, limited liability company, or limited partnership organized under federal or state law for the purpose of performing the functions and conducting the activities contemplated under such program, and any manager of a small business investment company. Requires a participating investment company to make all its investments in small business concerns, of which at least 50% are required to be early-stage small businesses. Requires a participating investment company to convey an equity financing interest to the Administrator, entitling the Administrator to a pro rata portion of any distributions by the participating investment company equal to the percentage of capital in the participating investment company that the equity financing constitutes. Limits the manager profits interest payable to the managers of a participating investment company to 20% of profits, exclusive of any that may accrue as a result of the capital contributions of any such managers. Requires a participating investment company to make all distributions to all investors in cash within a reasonable time after exiting investments, including following a public offering or market sale of underlying investments. Creates within the Treasury a separate fund for equity financings, to be available to the Administrator as a revolving fund for program purposes. Requires recipients of equity financing under this Act to certify they are in compliance with specified federal requirements governing immigration, sex offenders, and pornography.
• (Sec. 304) Prohibits funds appropriated for the program from being used for a congressional earmark. Title IV: Miscellaneous - States that the budgetary effects of this Act, for compliance with the Statutory Pay-As-You-Go Act of 2010, shall be determined by reference to the latest statement titled "Budgetary Effects of PAYGO Legislation" for this Act, provided that such statement has been submitted prior to the vote on passage. Title V: Tax Provisions - Small Business Jobs Tax Relief Act of 2010 - Subtitle A: Small Business Tax Incentives - Part 1: General Provisions -
• (Sec. 501) Amends the Internal Revenue Code to increase from 50% to 100% the exclusion from gross income of the gain from the sale or exchange of qualified small business stock acquired after March 15, 2010, and before January 1, 2012. Part 2: Limitations and Reporting on Certain Penalties -
• (Sec. 511) Limits the penalty for failure to disclose a reportable transaction (a transaction determined by the Internal Revenue Service [IRS] as having a potential for tax avoidance or evasion) to 75% of the decrease in tax resulting from such transaction.
• (Sec. 512) Requires the Commissioner of Internal Revenue to report by December 31, 2010, and annually thereafter, to the House Committee on Ways and Means and the Senate Committee on Finance on penalties assessed for certain tax shelters and reportable transactions. Part 3: Other Provisions -
• (Sec. 521) Increases the tax deduction for trade or business start-up expenditures from $5,000 to $20,000 in 2010 and 2011.
• (Sec. 522) Revises the definition of "qualified nonrecourse financing" to include qualified nonrecourse real property or Small Business Investment Company financing as amounts at risk for purposes of determining the deductibility of losses from certain investment activities, including farming, leasing, and energy exploration.
• (Sec. 523) Excludes from gross income any amount paid for a borrower under the Small Business Administration (SBA) borrower assistance program. Subtitle B: Revenue Provisions -
• (Sec. 531) Revises rules for valuing assets in grantor retained annuity trusts 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 not decrease during the first 10 years of the annuity term, and that the remainder interest have a value greater than zero when transferred.
• (Sec. 532) Excludes any fuel with an acid number greater than 25 from the definition of "cellulosic biofuel" for purposes of the tax credit for alcohol used as fuel.
• (Sec. 533) Increases by 7.75% the estimated tax installment for the third quarter of 2015 for corporations with assets of not less than $1 billion. Title VI: Plain Writing Act - Plain Writing Act of 2010 -
• (Sec. 604) Requires the head of each executive agency to:
• (1) Designate one or more senior officials within the agency to oversee the agency's implementation of this Act;
• (2) Communicate this Act's requirements to the agency's employees;
• (3) Train agency employees in plain writing;
• (4) Establish a process for overseeing the agency's ongoing compliance with this Act's requirements;
• (5) Create and maintain a plain writing section of the agency's website that is accessible from its homepage; and
• (6) Designate one or more agency points-of-contact to receive and respond to public input on the implementation of this Act. Requires each agency, by one year after enactment, to use plain writing in every covered document of the agency that the agency issues or substantially revises. Defines "covered document" to:
• (1) Mean any document that is relevant to obtaining any federal benefit or service or filing taxes, that provides information about any federal benefit or service, or that explains to the public how to comply with a requirement the federal government administers or enforces;
• (2) Include (whether in paper or electronic form) a letter, publication, form, notice, or instruction; and
• (3) Exclude a regulation. Allows agencies to follow the guidance of:
• (1) The writing guidelines developed by the Plain Language Action and Information Network; or
• (2) Guidance provided by the agency head. Title VII: Sense of Congress on Agriculture and Farming Small Business Loans -
• (Sec. 701) Expresses the sense of Congress that:
• (1) Agriculture operations, farms, and rural communities should receive equal consideration through lending activities for small businesses, particularly small- and midsize farms and agriculture operations; and
• (2) Attention should be given to ensuring adequate small business credit and financing availability in agriculture and farming sectors. Title VIII: Small Business Borrower Assistance Program - Small Business Assistance Fund Act of 2010 -
• (Sec. 801) Directs the SBA Administrator to implement a Small Business Borrower Assistance Program providing payments to lenders of principal and interest on qualifying guaranteed small business loans of up to $300,000. Requires automatic enrollment in the Program of each borrower receiving a qualifying small business loan, unless the borrower opts out. Requires the Administrator to commit an amount to each borrower equal to 6% of the principal disbursed amount of the borrower's qualifying loan. Authorizes appropriations.
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