Tuesday, October 12, 2010

Most Small Business Act Provisions Apply Immediately Or Retroactively; Some Apply Prospectively

On September 27, the President signed into law H.R. 5297, the Small Business Lending Funding Act (P.L. 111-240). The tax title of this bill, the "Small Business Jobs Act of 2010," includes a number of important tax provisions for businesses large and small, and changes for individuals as well. While a handful of these tax provisions are effective either on the day after the date that the bill was signed or in 2011, the vast majority of these provisions are effective retroactively and have an immediate impact on the 2010 tax year.

Immediate and retroactive changes. Several of the Act's provisions are triggered by the enactment date (the date it was signed into law by the President, Sept. 27, 2010). The 100% gain exclusion for qualified small business stock (QSBS) for regular tax and alternative minimum tax (AMT) purposes applies for QSBS acquired after Sept. 27, 2010 and before Jan. 1, 2011. The provision allowing retirement plan distributions to be rolled over to a designated Roth account applies for distributions made after Sept. 27, 2010. The new sourcing rule for guarantees applies for guarantees issued after Sept. 27, 2010. The elimination of the requirement for a pre-levy collection due process (CDP) hearing for certain Federal contractors applies for levies issued after Sept. 27, 2010.

Many of the Act's provisions are retroactively effective (i.e., not just effective from the date the President signed the Act into law) and so have more of an impact on the 2010 tax year:

... The increased Code Sec. 179 expensing ($500,000 limit, with $2 million phaseout threshold) and the qualified real property expensing ($250,000 limit) apply for tax years beginning in 2010 and 2011.

... Revived 50% bonus depreciation (and a new long-term contract accounting rule for bonus depreciation) and an additional $8,000 luxury auto depreciation limit applies for qualified property placed in service in 2010 (as well as 2011 for certain aircraft and long production period property).

... Cell phones are no longer "listed property" (subject to strict substantiation rules) for tax years beginning after 2009.

... An increased startup expense deduction ($10,000 limit, with $60,000 phaseout threshold) applies for tax years beginning after 2009 and before 2011.

... Eligible small business credits that are determined in a taxpayer's first tax year beginning in 2010 but are unused are eligible for 5-year carryback.

... Eligible small business credits determined in tax years beginning in 2010 can offset AMT liability and, to an increased extent, regular tax liability for credits determined in tax years beginning after 2009.

... Health insurance costs for a taxpayer and his family are deductible in computing 2010 self-employment tax.

... The controversial Code Sec. 6707A penalty for a failure to report a tax shelter transaction is completely restructured for penalties assessed after 2006.

Prospective changes. A number of the Act's provisions apply after 2010: the temporary reduction in the S corporation's built-in gain period (from 7 to 5 years); the partial annuitization of nonqualified annuities; permitting Code Sec. 457 governmental plan to include a qualified Roth contribution program; the information reporting requirement for rental income from realty, and the increased information return penalty and failure to furnish payee statement penalty. And, the accelerated estimated tax for large corporation (assets of at least $1 billion) applies to estimated tax otherwise due in July, Aug., or Sept. 2015.

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