2010 Small Business Jobs Act: Good for Big Business: Law Expands General Business Credits, Section 179 Expensing, Bonus Depreciation

By Sayuk, Douglas M.; Fricke, Matthew H. et al. | Journal of Accountancy, December 2010 | Go to article overview

2010 Small Business Jobs Act: Good for Big Business: Law Expands General Business Credits, Section 179 Expensing, Bonus Depreciation


Sayuk, Douglas M., Fricke, Matthew H., Dugger, Shamen R., Journal of Accountancy


EXECUTIVE SUMMARY

* The general business credit provisions of the Small Business Jobs Act of 2010 (PL 111-240) are designated for =eligible small businesses" (ESBs), but with an outsized eligibility ceiling: $50 million in average annual gross receipts in the preceding three tax years.

* ESBs may carry back general business credits ("ESB credits") five years rather than one and may use them to offset their alternative minimum tax (AMT) liability. The limitation on the general business credit of 25% of the regular tax liability above $25,000 is also modified.

* Other provisions of the Small Business Jobs Act may also be attractive to a wider range of businesses than before, especially when combined with the ESB credits. These include expanded expensing of capital property placed in service in 2010 and 2011 under IRC [section] 179 and an extension for 2010 of bonus depreciation.

* For financial accounting, loss companies with a full valuation allowance will record an increase to their deferred tax asset (DTA) account when they claim the act's greater depreciation provisions. Profitable companies without a valuation allowance will record a timing difference in which current tax expense and taxes payable are reduced and deferred tax expense increased, with a corresponding DTA reduction.

* Profitable companies with a full or partial valuation allowance may need to reduce any valuation allowance established on general business credits and claim a deferred tax benefit. * Accounting for uncertainty in tax positions under ASC 740-10 (FIN 48) requires determining whether the rules for general business credits have been accurately interpreted and applied.

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Larger companies should be aware there's something for them, too, in the Small Business Jobs Act of 2010 (PL 111-240). Perhaps because of the name of the law enacted Sept. 27, larger businesses might not be aware of a potentially valuable provision that could apply to them: for tax years beginning in 2010, an extended carryback period for general business credits and the ability to use those credits to offset both regular tax and alternative minimum tax (AMT) liability In fact, even though this provision is termed one for "eligible small businesses," its eligibility ceiling is sufficiently high that most businesses meet it: $50 million in average annual gross receipts for the previous three tax years (IRC [section] 38(c)(5)(C), as amended by the act).

Also for tax years beginning in 2010, the section 179 expensing limit is expanded in a way that could benefit more and larger businesses than before. The limit is doubled from $250,000 to $500,000 in cost of property placed in service in 2010 or 2011 tax years and its phaseout threshold increased from $800,000 to $2 million in property cost. The type of property qualifying for expensing, moreover, is widened to include certain real property In addition, the act extended 50% bonus depreciation for 2010 tax years (and through 2011, for certain long-lived property). For a more complete description of the act's provisions, see "Highlights of the Small Business Stimulus Act" on page 26.

In this article we analyze the potential effects and interactions of these provisions, evaluate their primary tax benefits and pro vide guidance on claiming and maximizing them. Finally, we address the impacts from claiming these benefits per the requirements of FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes, including those of ASC 740-10 (formerly FIN 48) in accounting for income tax uncertainty

ELIGIBLE SMALL BUSINESS

The act defines an "eligible small business" (ESB) as a partnership, sole proprietorship or privately held corporation where average annual U.S. gross receipts of the three preceding tax years does not exceed $50 million. It appears that 99.9% of U.S. businesses would have qualified as a small business, as defined by the act, in 2003, the most recent year for which the IRS Statistics of Income's "Integrated Business Data" studies are available (tinyurl. …

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