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Friday, August 2, 1996
Deloitte & Touche OnLine
The House in a bipartisan 354 to 72 vote approved the conference report on the small business tax incentive bill (HR 3448), which also includes a 90 cents-per-hour increase in the minimum wage.
The Senate will take action on the measure either later today or tomorrow after it dispenses with the conference report on the health insurance reform bill (HR 3103). President Clinton is expected to sign the small business bill within the next several weeks.
"This tax bill is a three-gold winner," House Ways and Means Committee Chairman Bill Archer, R-Texas, said on the House floor. The bill will help small businesses grow, make it easier for families to adopt children, and ensure that workers can comfortably retire, he said.
The main thrust of the bill increases the expensing limitations for small businesses. Present law allows small businesses to expense about $17,500 annually. Under the legislation the amount would be increased to:
The bill would repeal Internal Revenue Code Section 956A relating to earnings invested in certain passive assets and clarify that state pre-paid tuition plans are tax-exempt entities.
The bill also would include several modifications to the rules regarding S corporations. It would increase to 75, from 35, the number of shareholders an S corporation may have and permit S corporations to hold wholly-owned subsidiaries. Also the bill would treat financial institutions that do not use the reserve method as eligible corporations, and permit tax-exempt entities and employee stock ownership plans to be subchapter S shareholders.
Pension rules would be simplified and strengthened by establishing savings incentive match plans for small businesses, allowing Section 457 plans to establish trusts, allowing tax-exempt organization to establish 401(k) plans, establish safe-harbor non-discrimination rules for Section 401(k) plans, and provide several simplified rules for church plans.
Expiring provisions
The research and experimentation tax credit, and the orphan drug credit, would be extended July 1, 1996, through May 31, 1997.
The exclusion for employer-provided educational assistance would be extended from Dec. 31, 1994, through May 31, 1997. However, for periods after June 30, 1996 the exclusion would not apply to graduate-level education.
Revenue offsets
To offset the revenue loss from these changes, the bill phases in a repeal of the Puerto Rico and Possession tax credit. The bill would repeal Section 936 over a ten-year period for companies currently doing business in U.S. possessions. For other companies, the credit would be repealed for taxable years beginning after Dec. 31, 1995.
The bill would repeal Internal Revenue Code Section 956A relating to earnings invested in certain passive assets.
The bill also would treat certain subpart F insurance income by a controlled foreign corporation as unrelated business taxable income of a tax-exempt U.S. entity.
A new type of statutory called a financial asset securitization investment trust would be established to facilitate the securitization of debt obligations, such as credit card receivables, home equity loans, and auto loans.
The airport trust fund excise tax would be reinstated from one week after enactment until Dec. 31, 1996, and the information reporting and anti-abuse rules for foreign trusts would be strengthened.
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