What's in the Senate Small-Business Jobs Bill for You?

The small-business jobs bill now under consideration in the Senate is a hearty mélange of tax relief-provisions, loan-program enhancements and inducements, and changes to other government programs. Some are temporary modifications but others are permanent and far-reaching, reported The New York Times.

Below are the highlights. A more detailed summary of the bill and the legislative text are posted at the Senate Finance Committee website.

Tax Provisions

Capital gains exclusion: The bill temporarily increases to 100 percent the capital gains exclusion for stock issued by some small businesses from the time the bill is enacted through the end of the year. The gain is limited to 10 times the original investment or $10 million, whichever is greater.

Temporary general business credit changes: In 2010, businesses with less than $50 million in gross receipts would be able to carry back general business credits to offset tax liabilities for five years, instead of the year allowed in current law, and could apply those credits against the alternative minimum tax.

Built-in gains tax: Normally, when a company converts from a C corporation to an S corporation, it must retain its assets for at least 10 years or pay a 35 percent tax on the built-in gains that occurred before the company made the conversion. The 2009 Recovery Act reduced the holding period to seven years for assets sold in 2009 and 2010; this bill would reduce the period to five years for an asset sold in the 2011 tax year.

Section 179 expensing: The bill would temporarily increase the first-year write-off for business equipment under Section 179 from $250,000 to $500,000 and raise the cap on eligible expenditures that triggers a phase-out of the incentive from $800,000 to $2 million. It would expand Section 179 to cover improvements to some real property. These provisions expire after 2011.

Bonus depreciation: The bill would restore through 2010 the generous 50 percent first-year depreciation for some kinds of property. Bonus depreciation was originally enacted in the first stimulus bill and in place for 2008 and 2009.

Start-up deduction: The bill would increase, for 2010, the deduction for start-up expenditures to $10,000, from $5,000, and raises the cap on expenditures that triggers a phase-out of the deduction to $60,000, from $50,000.

“Listed” tax shelter disclosure penalty: The bill would limit the penalty for failing to report on a tax return a transaction that the Internal Revenue Service has formally identified as an abusive tax shelter. The penalty would be set at 75 percent of the tax benefit and capped at $200,000 for corporations and $100,000 for individuals.

Deduction for health insurance costs: The bill would permit self-employed business owners to deduct their family’s health insurance expenses from their self-employment tax income in 2010.

Small Business Administration Loans

General business 7(a) loans: The bill would extend through 2010 the 90 percent guarantee level and waived borrower fees first enacted in the 2009 stimulus. (These provisions largely expired in May.) It would also permanently raise the maximum loan size to $5 million, from $2 million.

7(a) Express loans: The bill would temporarily — for one year from the date it is enacted — raise the maximum loan size to $1 million, from $350,000.

Certified development company (504) loans: The bill would extend the Recovery Act provision that eliminated borrower fees through 2010. It would permanently raise maximum loan sizes from a range of $1.5 million to $4 million to a range of $5 million to $5.5 million. It would temporarily — for two years after the date of enactment — allow 504 loans to be used to refinance some existing commercial mortgages.

Alternative size standards: The bill would direct the S.B.A. to set alternative size standards for 7(a) and 504 borrowers based on tangible net worth and average net income (as opposed to the present standards based on employees or average annual receipts). In the interim, the bill would set those standards at net worth of up to $15 million and net income of up to $5 million — a potentially dramatic increase in the eligible business size.

Microloans: The legislation would permanently increase the maximum size of a microloan to $50,000, from $35,000, and increase the amount a microlender can borrow from the S.B.A. to $5 million, from $3.5 million.

Intermediary lending pilot program: Creates a new S.B.A. program for businesses between microloans and general business loans. As in the microloan program, the S.B.A. would make direct loans to nonprofit intermediaries, which would in turn make loans of up to $200,000 to businesses and provide technical assistance. The pilot would last three years; 20 intermediaries could each receive $1 million to make loans.

Other Provisions

Small business lending fund and aid to state lending funds: Creates a $30 billion fund to encourage small-business lending by banks with under $10 billion in assets. Banks that make more small-business loans pay a lower dividend on the money they borrow than banks that don’t. Creates a $900 million fund to assist state and local government programs to help businesses receive capital.

Federal contracting: The bill attempts to make it easier for small businesses to win federal contracts by, among other things, restricting the government’s ability to bundle contracts and a pilot program to help small businesses band together to bid jointly on contracts. At the same time, the legislation would make it harder for large firms to win small business contracts by, among other provisions, requiring contractors to certify that they are small annually rather than every five years as presently required. However, it would also require the S.B.A. to review the size standards that define a small business at least every five years, potentially increasing the pool of eligible small businesses. The bill would give all of the small business contracting preference programs for disadvantaged businesses equal priority.

Export and international trade: The bill would elevate and enlarge the S.B.A.’s Office of International Trade, which was greatly diminished in the last decade, and adds export finance specialists across the country. The bill would permanently increase the maximum size of international trade finance loans to $4.5 million and the guarantee to 90 percent as well as broaden opportunities for financing under export loan programs. It would establish a grant program to states to promote small business exports and authorize $5 million to finance United States trade representative activities to open markets and enforce trade agreements.