SMALL BUSINESS JOBS ACT OF 2010 Nichols Patrick CPE, Inc. E. Lynn Nichols, CPA Edward K. Zollars, CPA Mark J. Patrick, CPA

100% Exclusion of Gain on 1202 Stock IRC Sec is amended to provide for total exclusion of gain on sale of qualified small business stock acquired after date of enactment (+/- September 27, 2010) and before January 1, 2011 Gain from sale of such stock held for 5 years (late 2015 at the earliest) will be free from both regular income tax and AMT Obvious goal is to encourage investment NOW

5 Year Carryback for General Business Credits IRC Sec. 39 is amended to allow 5 year carryback (instead of 1) for credits generated in the first tax year beginning after 2009 by an “eligible small business” – Not publicly traded – Corporation, partnership, or sole proprietorship – Average annual gross receipts not over $50 million Owner of interest in pass-thru entity must also meet the gross receipts test to claim extended carryback period Credits include work opportunity, low-income housing, research, and small employer pension start-up

Small Business General Business Credits and AMT IRC Sec. 38 is amended to provide that General Business Credits determined in a qualifying small business’ first tax year beginning after 2009 will not generate AMT preferences or adjustments – Not in 2010,and – Not in any carryback year !

Built-In Gain Recognition Period IRC Sec is amended to reduce the 10 year recognition period to 5 years for taxable years beginning in 2011 if the 5 th year of operation as an S corporation was the preceding year (initially 2010, or S elections first effective in 2006) This provision replaces the 7 year period in effect for dispositions in 2009 and 2010 (S elections first effective in 2002 and 2003)

IRC Sec. 179 Liberalized Effective for property placed in service after 12/31/2009 – Expense first $500,000 – Phase-out $ for $ over $2 million – Includes 15 yr property (IRC Sec. 168(e)(6), (7), (8) Qualified leasehold improvement Qualified restaurant property Qualified retail improvement property – No carryover of unused Sec. 179 amounts from 2011 to other years

IRC Sec. 179 Provisions Extended For one taxable year beginning after 2010 (provision expires on January 1, 2012) – Taxpayer may revoke all or part of Sec. 179 election amount in original return – Taxpayer may elect to treat purchased computer software as eligible for Sec. 179 deduction

Bonus Depreciation IRC Sec. 168(k) is amended by moving the expiration date for its bonus depreciation provisions forward one year... To apply to assets placed in service before January 1, 2011 IRC Sec. 460 is amended to clarify that “cost- to-cost calculation of % complete will NOT be affected by bonus depreciation on property placed in service after 2009

Start-Up Expenditures IRC Sec. 195 is amended to increase the amount deductible from $5,000 to $10,000 – Effective for tax years beginning in 2010 – Excess over $10,000 amortized over 180 months – Phase-out begins at $60,000 Increase not extended to organization costs of corporation (IRC Sec. 248) or partnership (IRC Sec. 709)

Failure to File Form 8886 IRC Sec. 6707A is amended to modify the penalty for failing to report participation in a reportable transaction – Effective for penalties assessed after 2006 – Amount is the greater of $10,000 ($5,000 for a natural person) or 75% of decrease in tax shown on return or that would have reduced tax liability if transaction had been respected Both partnership and its partners are required to file Form 8886 disclosing transaction Disclosure required for each year of participation

Levy on Federal Tax Liabilities of Federal Contractors’ IRC Sec is amended to permit IRS to issue levies prior to a CDP hearing – With respect to federal tax liabilities of Federal contractors identified under the Federal Payment Levy Program – Collection efforts will not be suspended pending a Collection Due Process hearing – Effective for levy actions after date of enactment

Self-Employed Health Insurance IRC Sec. 162 is amended to allow the amount paid for health insurance by a self-employed person to be deducted in determining self- employment income – Applies to first tax year beginning in 2010 – Cannot exceed income from the activity – “Earned income” for purposes of IRC Sec. 401(c)(2) [for retirement plan contribution purposes] will not be reduced by health insurance premium

Cell Phones IRC Sec. 280F is amended to remove cellular phones from category of “listed property” – Effective for tax years beginning after 2009 – Special depreciation rules do not apply – Detailed recordkeeping is not required

Roth Accounts in Qualified Plans IRC Sec. 402A is amended to allow (but not require) Sec. 457 plans sponsored by state and local governments to include Roth accounts – Makes such plans comparable to 401(k) and 403(b) plans IRC Sec. 402A is amended to allow participant in a 401(k), 403(b), or 457(b) plan to elect a direct rollover to the plan’s designated Roth account – If the rollover is made in 2010, the taxpayer may elect to include half the taxable amount in her/his taxable income for each of 2011 and 2012

Partial Annuitization IRC Sec. 72 is amended to permit partial annuitization of an annuity, endowment, or life insurance contract – Any amount received for a period of 10 years or more will be treated as a separate annuity – Separate annuity starting date will be determined for each portion of the contract annuitized – Exclusion ratio for the annuitized portion will be determined based on pro-rata portion of total investment in the contract – Effective for amounts received in tax years beginning after 2010

Landlords’ 1099S Requirements IRC Sec is amended to require filing of Forms 1099S, reporting payments of $600 or more to any person providing service to a rental activity, by rental income recipients – Exceptions are provided for members of the military and others designated by the IRS as de minimis activity or hardship cases – Effective for payments made after 2010 – Penalties increased for failure to file 1099S forms

Tall Oil Not Eligible for Cellulosic Biofuel Producer Credit IRC Secs and 6722 are amended to exclude fuels with an acid # greater than 25 – That includes “tall oil,” an oily liquid produced as a byproduct in the manufacture of wood pulp, associated with the production of Kraft paper – The typical acid # (determined by a standard chemical test) for tall oil is between 100 and 175.

Source Rule for Income From Guarantee of Debt IRC Secs. 861, 862, and 864 are amended to clarify that fees for guarantees of U.S. subsidiary’s debt by foreign parent will be U.S. source income to guarantor – Legislative override of Tax Court’s decision in Container Corporation; 134 T.C. No. 5 – Fees for guarantees issued after date of enactment will now be treated as interest and sourced to the country of residence of the obligor

Corporate Estimated Tax Payments IRC Sec is amended to increase future corporate estimated tax payments – Applies only to corporations with assets of at least $1 billion – Payments due in July, August, or September of 2015 are increased from percent to percent of the “payment otherwise due” – “Payment otherwise due;” each quarter, from a large corporation, is 25 percent of the current year tax liability

Thank You ! Questions ?