Small Business Protection Act of 2005 - Amends the Internal Revenue Code to allow certain small business owners a tax deduction for cash contributions to a Small Business Protection Account. Limits the amount of such deduction to 50 percent of a taxpayer's net profits.
Directs the Small Business Administration, through the Small Business Development Center Program, to assist small businesses in establishing and operating Small Business Protection Accounts.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3586 Introduced in House (IH)]
109th CONGRESS
1st Session
H. R. 3586
To amend the Internal Revenue Code of 1986 to provide for Small
Business Protection Accounts, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 28, 2005
Mr. Porter introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committee on Small
Business, for a period to be subsequently determined by the Speaker, in
each case for consideration of such provisions as fall within the
jurisdiction of the committee concerned
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for Small
Business Protection Accounts, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Protection Act of
2005''.
SEC. 2. FINDINGS.
Congress hereby finds that--
(1) small businesses represent more than 99 percent of all
employers,
(2) the majority of private sector employees work for small
businesses,
(3) more than half of all high-tech workers work for small
businesses,
(4) small businesses are responsible for the majority of
net job creation in the United States,
(5) more than 12 million small businesses are owned by
women or minorities,
(6) small businesses face unique challenges in accessing
capital markets,
(7) small businesses are exposed to more market volatility
than larger employers,
(8) small businesses are hurt disproportionately by costs
imposed by government regulations, and
(9) small businesses are in need of reforms to the tax code
that reflect these unique challenges.
SEC. 3. PURPOSES.
The purposes of this Act are--
(1) to provide employees salaries and benefits, and to help
ensure solvency of small businesses during times of recession,
(2) to encourage the formation, growth, and survival of
small businesses,
(3) to encourage opportunities for charitable giving by
small businesses, and
(4) to enable small businesses to stimulate the national
economy through increased employment and capital generation.
SEC. 4. SMALL BUSINESS PROTECTION ACCOUNTS.
(a) In General.--Subpart C of part II of subchapter E of chapter 1
of the Internal Revenue Code of 1986 (relating to taxable year for
which deductions taken) is amended by inserting after section 468B the
following:
``SEC. 468C. SMALL BUSINESS PROTECTION ACCOUNTS.
``(a) Deduction Allowed.--In the case of an individual engaged in
an eligible small business, there shall be allowed as a deduction for
any taxable year the amount paid in cash by the taxpayer during the
taxable year to a Small Business Protection Account.
``(b) Limitation.--
``(1) In general.--The amount which a taxpayer may pay into
a Small Business Protection Account for any taxable year shall
not exceed 50 percent of so much of the net profit of the
taxpayer (determined without regard to this section) which is
attributable (determined in the manner applicable under section
1301) to any trade or business.
``(2) Carryover of excess limitation.--If the limitation
under paragraph (1) for any taxable year exceeds the amount
paid by the taxpayer to the taxpayer's Small Business
Protection Account for such year, the limitation under
paragraph (1) for the following taxable year (determined
without regard to this paragraph) shall be increased by such
excess.
``(c) Eligible Small Business.--For purposes of this section, the
term `eligible small business' means any trade or business if--
``(1) such trade or business (or any predecessor thereof)
meets the gross receipts test of section 448(c) for all prior
taxable years,
``(2) such trade or business is not a passive activity
(within the meaning of section 469(c)) of the taxpayer,
``(3) such trade or business is not a farming business (as
defined in section 263A(e)(4)), and
``(4) such trade or business has never been determined by
the United States Equal Employment Opportunity Commission to
have engaged in job discrimination.
``(d) Small Business Protection Account.--For purposes of this
section--
``(1) In general.--The term `Small Business Protection
Account' means a trust created or organized in the United
States for the exclusive benefit of the taxpayer, but only if
the written governing instrument creating the trust meets the
following requirements:
``(A) No contribution will be accepted for any
taxable year in excess of the amount allowed as a
deduction under subsection (a) for such year.
``(B) The trustee is a bank (as defined in section
408(n)) or another person who demonstrates to the
satisfaction of the Secretary that the manner in which
such person will administer the trust will be
consistent with the requirements of this section.
``(C) The assets of the trust consist entirely of
cash or of obligations which have adequate stated
interest (as defined in section 1274(c)(2)) and which
pay such interest not less often than annually.
``(D) All income of the trust is distributed
currently to the grantor.
``(E) The assets of the trust will not be
commingled with other property except in a common trust
fund or common investment fund.
``(2) Account taxed as grantor trust.--The grantor of a
Small Business Protection Account shall be treated for purposes
of this title as the owner of such Account and shall be subject
to tax thereon in accordance with subpart E of part I of
subchapter J of this chapter (relating to grantors and others
treated as substantial owners).
``(e) Inclusion of Amounts Distributed.--
``(1) In general.--Except as provided in paragraph (2),
there shall be includible in the gross income of the taxpayer
for any taxable year--
``(A) any amount distributed from a Small Business
Protection Account of the taxpayer during such taxable
year, and
``(B) any deemed distribution under--
``(i) subsection (f)(1) (relating to
deposits not distributed within 5 years),
``(ii) subsection (f)(2) (relating to
cessation in eligible small business), and
``(iii) subparagraph (A) or (B) of
subsection (f)(3) (relating to prohibited
transactions and pledging account as security).
``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
``(A) any distribution to the extent attributable
to income of the Account, and
``(B) the distribution of any contribution paid
during a taxable year to a Small Business Protection
Account to the extent that such contribution exceeds
the limitation applicable under subsection (b) if
requirements similar to the requirements of section
408(d)(4) are met.
For purposes of subparagraph (A), distributions shall be
treated as first attributable to income and then to other
amounts.
``(f) Special Rules.--
``(1) Tax on deposits in account which are not distributed
within 5 years.--
``(A) In general.--If, at the close of any taxable
year, there is a nonqualified balance in any Small
Business Protection Account--
``(i) there shall be deemed distributed
from such Account during such taxable year an
amount equal to such balance, and
``(ii) the taxpayer's tax imposed by this
chapter for such taxable year shall be
increased by 10 percent of such deemed
distribution.
The preceding sentence shall not apply if an amount
equal to such nonqualified balance is distributed from
such Account to the taxpayer before the due date
(including extensions) for filing the return of tax
imposed by this chapter for such year (or, if earlier,
the date the taxpayer files such return for such year).
``(B) Nonqualified balance.--For purposes of
subparagraph (A), the term `nonqualified balance' means
any balance in the Account on the last day of the
taxable year which is attributable to amounts deposited
in such Account before the 4th preceding taxable year.
``(C) Ordering rule.--For purposes of this
paragraph, distributions from a Small Business
Protection Account (other than distributions of current
income) shall be treated as made from deposits in the
order in which such deposits were made, beginning with
the earliest deposits.
``(2) Cessation in eligible business.--At the close of the
first disqualification period after a period for which the
taxpayer was engaged in an eligible small business, there shall
be deemed distributed from the Small Business Protection
Account of the taxpayer an amount equal to the balance in such
Account (if any) at the close of such disqualification period.
For purposes of the preceding sentence, the term
`disqualification period' means any period of 2 consecutive
taxable years for which the taxpayer is not engaged in an
eligible small business.
``(3) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this section:
``(A) Section 220(f)(8) (relating to treatment on
death).
``(B) Section 408(e)(2) (relating to loss of
exemption of account where individual engages in
prohibited transaction).
``(C) Section 408(e)(4) (relating to effect of
pledging account as security).
``(D) Section 408(g) (relating to community
property laws).
``(E) Section 408(h) (relating to custodial
accounts).
``(4) Time when payments deemed made.--For purposes of this
section, a taxpayer shall be deemed to have made a payment to a
Small Business Protection Account on the last day of a taxable
year if such payment is made on account of such taxable year
and is made on or before the due date (without regard to
extensions) for filing the return of tax for such taxable year.
``(5) Individual.--For purposes of this section, the term
`individual' shall not include an estate or trust.
``(6) Deduction not allowed for self-employment tax.--The
deduction allowable by reason of subsection (a) shall not be
taken into account in determining an individual's net earnings
from self-employment (within the meaning of section 1402(a))
for purposes of chapter 2.
``(g) Reports.--The trustee of a Small Business Protection Account
shall make such reports regarding such Account to the Secretary and to
the person for whose benefit the Account is maintained with respect to
contributions, distributions, and such other matters as the Secretary
may require under regulations. The reports required by this subsection
shall be filed at such time and in such manner and furnished to such
persons at such time and in such manner as may be required by such
regulations.''.
(b) Tax on Excess Contributions.--
(1) Subsection (a) of section 4973 of such Code (relating
to tax on excess contributions to certain tax-favored accounts
and annuities) is amended by redesignating paragraphs (4) and
(5) as paragraphs (5) and (6), respectively, and by inserting
after paragraph (3) the following:
``(4) a Small Business Protection Account (within the
meaning of section 468C(d)),''.
(2) Section 4973 of such Code is amended by adding at the
end the following:
``(h) Excess Contributions to Small Business Protection Account.--
For purposes of this section, in the case of a Small Business
Protection Account (within the meaning of section 468C(d)), the term
`excess contributions' means the amount by which the amount contributed
for the taxable year to the Account exceeds the amount which may be
contributed to the Account under section 468C(b) for such taxable year.
For purposes of this subsection, any contribution which is distributed
out of the Small Business Protection Account in a distribution to which
section 468C(e)(2)(B) applies shall be treated as an amount not
contributed.''.
(3) The section heading for section 4973 of such Code is
amended to read as follows:
``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, ANNUITIES,
ETC.''.
(4) The table of sections for chapter 43 of such Code is
amended by striking the item relating to section 4973 and
inserting the following:
``Sec. 4973. Excess contributions to certain accounts, annuities,
etc.''.
(c) Tax on Prohibited Transactions.--
(1) Subsection (c) of section 4975 of such Code (relating
to tax on prohibited transactions) is amended by adding at the
end the following:
``(7) Special rule for small business protection account.--
A person for whose benefit a Small Business Protection Account
(within the meaning of section 468C(d)) is established shall be
exempt from the tax imposed by this section with respect to any
transaction concerning such account (which would otherwise be
taxable under this section) if, with respect to such
transaction, the account ceases to be a Small Business
Protection Account by reason of the application of section
468C(f)(3)(A) to such account.''.
(2) Paragraph (1) of section 4975(e) of such Code is
amended by redesignating subparagraphs (F) and (G) as
subparagraphs (G) and (H), respectively, and by inserting after
subparagraph (E) the following:
``(F) a Small Business Protection Account described
in section 468C(d),''.
(d) Failure to Provide Reports on Small Business Protection
Accounts.--Paragraph (2) of section 6693(a) of such Code (relating to
failure to provide reports on certain tax-favored accounts or
annuities) is amended by redesignating subparagraphs (D) and (E) as
subparagraphs (E) and (F), respectively, and by inserting after
subparagraph (C) the following:
``(D) section 468C(g) (relating to Small Business
Protection Accounts),''.
(e) Clerical Amendment.--The table of sections for subpart C of
part II of subchapter E of chapter 1 of such Code is amended by
inserting after the item relating to section 468B the following:
``Sec. 468C. Small Business Protection Accounts.''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
(g) Report.--Not later than 1 year after the date of the enactment
of this Act, the Administrator of the Small Business Administration
shall submit a report on the implementation and effectiveness of
section 468C of the Internal Revenue Code of 1986 (as added by this
section), with emphasis on the impact of Small Business Protection
Accounts in enterprise and similar zones, to the Committee on Small
Business of the House of Representatives and the Committee on Small
Business and Entrepreneurship of the Senate.
SEC. 5. ADMINISTRATIVE AUTHORITY.
The Administrator of the Small Business Administration shall
designate the Small Business Development Center Program as the lead
agency for assisting small businesses in establishing and operating
Small Business Protection Accounts. The Internal Revenue Service shall
provide such assistance to the Small Business Administration as
necessary for the purposes of this section.
<all>
Introduced in House
Introduced in House
Referred to the Committee on Ways and Means, and in addition to the Committee on Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Ways and Means, and in addition to the Committee on Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
Referred to the Committee on Ways and Means, and in addition to the Committee on Small Business, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
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