Client Alert
October 14, 2010
Small Business Jobs and Credit Act of 2010
Signed into Law

By Michael L. Solomon, Esq.

A series of small business proposals designed to provide immediate relief are included in the Small Business Jobs and Credit Act (the Act) that was signed into law by President Obama on September 27, 2010. Significantly, the Act authorizes the creation of a $30 billion fund to encourage lending by community banks to small businesses. The Act also contains a series of tax incentives and revenue changes to the Internal Revenue Code. 
 
 
$30 Billion Small Business Lending Fund
 
The Act establishes a new $30 billion Small Business Lending Fund. The Fund will be available to community banks, which could use the money to leverage billions more in loans. 

Impact on SBA Programs

The Act increases the maximum loan size for SBA Loan Programs. Among other provisions, the Act permanently raises 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, the maximum loan size for SBA Express Loans increases from $350,000 to $1 million. The desired effect for small businesses will be to provide greater access to working capital that, in turn, could be used to purchase new inventory and to obtain new orders with the ultimate goal of creating new jobs. 
 
In addition to the lending expansion, an incentive is being offered to strengthen innovative state small business programs, supplying at least $1.5 billion in small business lending through a new State Small Business Credit Initiative. This initiative is designed to encourage private-sector lenders to extend additional credit. 
 
Significant Tax Provisions
 
The following tax cuts go into effect immediately: 
  • Extension and expansion of small businesses’ ability to immediately expense capital investments. The previous expensing limitation of $250,000 was increased to $500,000 and expanded to include certain qualified real property. This benefit is available to property placed in service after January 1, 2010, and tax years beginning on or after January 1, 2010. This provision applies only in 2010 and 2011 tax years. 
  • Extension of bonus depreciation. This tax cut benefits businesses acquiring property that meets requirements of Internal Revenue Code Section 168(k) for property purchased and placed in service in 2010. This is a temporary one year extension of bonus depreciation and generally applies only to property placed in service in 2010. 
  • A new deduction of health insurance costs for the self-employed. This benefit applies to self-employed individuals for the 2010 tax year only. 
  • Tax relief and simplification for cell phone deductions. Businesses that provide employees with cell phones or other communication devices can permanently deduct expenses associated therewith for tax years beginning after December 31, 2009. 
  • An increase in the deduction for entrepreneurs' start-up expenses. The Act temporarily increases the amount of start-up expenditures entrepreneurs can deduct from their taxes for the 2010 tax year from $5,000 to $10,000. 
  • Five-year carryback of general business credits. The Act will allow certain small business to “carry back” their general business credits to offset five years of taxes. This benefit applies only in the 2010 tax year. 
  • Limitations on penalties for errors in tax reporting. Beginning this year, the penalty for failing to report certain tax transactions changes from a fixed dollar amount to a percentage of the tax benefits from the misreported transaction. 
  • Elimination of 100% of gain on sale of certain small business stock. There is a limitation of one-year on stock acquired after the date of enactment and before January 1, 2011, but the 100% exclusion for sale of stock is permanent if the stock meets requirements for qualified small business stock. 
  • Reporting of rental property. Taxpayers who receive rental income from leasing real property will be required – beginning in 2011 – to file information returns (generally, Form 1099) with the IRS and with service providers (e.g., plumbers, painters, accountants) to report payments of $600 or more to that service provider in any tax year. There will be exemptions from these requirements, but those are to be determined under forthcoming IRS regulations.
 
Federal Contracting Implications
 
The Act is designed to make it easier for small businesses to bundle their services with other contractors in an effort to facilitate the conduct of business with the federal government. The desired effect is to create more opportunities for small businesses. One of the methods to ensure this result is to require accountability from large business prime contractors for prompt payment to small business subcontractors. Additionally, levy rules for federal contractors with federal tax liabilities have been permanently changed by the Act. 

Small business owners are encouraged to explore which provisions of the Act may apply to their business, when those provisions begin to apply and how long the relevant provisions will apply. 

The attorneys in the Business Transactions Group at Cohen Seglias are available to assist you in applying the Act’s provisions to your specific needs. Please contact Michael Solomon in our Harrisburg office at (717) 234-5530 or msolomon@cohenseglias.com, Marian Kornilowicz in our Philadelphia office at (215) 564-1700 or mak@cohenseglias.com, or the Cohen Seglias attorney with whom you normally consult.  

     
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