Deferred payment of tax by certain small businesses

(a)

In General

Subchapter B of chapter 62 of the Internal Revenue Code of 1986 (relating to extensions of time for payment of tax) is amended by adding at the end the following new section:

6168.

Extension of time for payment of tax for certain small businesses

(a)

In General

An eligible small business may elect to pay the tax imposed by chapter 1 in 4 equal installments. (b)

Limitation

The maximum amount of tax which may be paid in installments under this section for any taxable year shall not exceed whichever of the following is the least: (1)The tax imposed by chapter 1 for the taxable year. (2)The amount contributed by the taxpayer into a GROW Account during such year. (3)The excess of $275,000 over the aggregate amount of tax for which an election under this section was made by the taxpayer (or any predecessor) for all prior taxable years. (c)

Eligible small business

For purposes of this section— (1)

In general

The term eligible small business means, with respect to any taxable year, any person if— (A)such person meets the active business requirements of section 1202(e) throughout such taxable year, (B)the taxpayer has gross receipts of $12,000,000 or less for the taxable year, (C)the gross receipts of the taxpayer for such taxable year are at least 10 percent greater than the average annual gross receipts of the taxpayer (or any predecessor) for the 2 prior taxable years, and (D)the taxpayer uses an accrual method of accounting. (2)

Certain rules to apply

Rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply for purposes of this subsection. (d)

Date for Payment of Installments; Interest

(1)

Date for payment of installments

(A)

In general

If an election is made under this section for any taxable year, the first installment shall be paid on or before the due date for such installment and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment. (B)

Due date for first installment

The due date for the first installment for a taxable year shall be whichever of the following is the earliest: (i)The date selected by the taxpayer. (ii)The date which is 2 years after the date prescribed by section 6151(a) for payment of the tax for such taxable year. (C)

Additional deferral where employment increases

(i)

In general

Subparagraph (B)(ii) shall be applied by substituting 3 years for 2 years in the case of an eligible small business which meets the employment increase requirement of clause (ii) for the second taxable year following the taxable year for which the election is made. (ii)

Employment increase requirement

The employment increase requirement of this clause is met for such second taxable year if the average daily number of full-time employees of such business for the last calendar quarter ending in such taxable year is at least 10 percent greater than such average number for the last calendar quarter ending before the date that the GROW Account of such business is established. For purposes of this clause, an employee shall be considered full-time if such employee is employed at least 35 hours per week. (iii)

Salary maintenance of called-up reservist treated as employment increase

For purposes of clause (ii), an eligible small business shall be treated as having an additional full-time employee for any period for each employee who is a Ready Reserve/National Guard employee of such business serving on qualified active duty for such period if the compensation paid or incurred by such business to such employee for such period is not less than the active duty wage differential of such employee for such period. For the definition of terms used in this clause, see subsection (g). (2)

Interest

For purposes of determining interest under section 6601, if the time for payment of an amount of tax has been extended under this section, the due date prescribed for payment of such tax which is to be paid in an installment under this section shall be the due date for such installment. (e)

Special Rules

(1)

Application of limitation to partners and s corporation shareholders

(A)

In general

In applying this section to a partnership which is an eligible small business— (i)the election under subsection (a) shall be made by the partnership, (ii)the amount referred to in subsection (b)(1) shall be the sum of each partner’s tax which is attributable to items of the partnership and assuming the highest marginal rate under section 1, and (iii)the partnership shall be treated as the taxpayer referred to in paragraphs (2) and (3) of subsection (b). (B)

Overall limitation also applied at partner level

In the case of a partner in a partnership, the limitation under subsection (b)(3) shall be applied at the partnership and partner levels. (C)

Similar rules for s corporations

Rules similar to the rules of subparagraphs (A) and (B) shall apply to shareholders in an S corporation. (2)

Acceleration of payment in certain cases

(A)

In general

If— (i)the taxpayer ceases to meet the requirement of subsection (c)(1)(A), or (ii)there is an ownership change with respect to the taxpayer,

then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and the unpaid portion of the tax payable in installments shall be paid on or before the due date for filing the return of tax imposed by chapter 1 for the first taxable year following such cessation.

(B)

Ownership change

For purposes of subparagraph, in the case of a corporation, the term ownership change has the meaning given to such term by section 382. Rules similar to the rules applicable under the preceding sentence shall apply to a partnership. (3)

Proration of deficiency to installments

Rules similar to the rules of section 6166(e) shall apply for purposes of this section. (f)

GROW Account

For purposes of this section— (1)

In general

The term GROW Account means a trust created or organized in the United States for the exclusive benefit of an eligible small business, 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 deferral under subsection (b) 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)The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund. (E)Amounts in the trust may be used only— (i)as security for a loan to the business or for repayment of such loan, or (ii)to pay the installments under this section. (2)

Account taxed as grantor trust

The grantor of a GROW 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). (3)

Time when payments deemed made

For purposes of this section, a taxpayer shall be deemed to have made a payment to a GROW Account on the last day of a taxable year if such payment is made on account of such taxable year and is made within 31/2 months after the close of such taxable year. (g)

Definitions relating to salary maintenance of called-Up reservists

For purposes of subsection (d)(1)(C)(iii)— (1)

Ready reserve/national guard employee

(A)

In general

The term Ready Reserve/National Guard employee means any employee— (i)who is a member of the Ready Reserve or of the National Guard, and (ii)who was an employee of the taxpayer during the 1-year period ending on the day before the date that the employee begins qualified active duty. (B)

National guard

The term National Guard has the meaning given such term by section 101(c)(1) of title 10, United States Code. (C)

Ready reserve

The term Ready Reserve has the meaning given such term by section 10142 of title 10, United States Code. (2)

Qualified active duty

The term qualified active duty means— (A)active duty under an order or call for a period in excess of 90 days or for an indefinite period, other than the training duty specified in— (i)section 10147 of title 10, United States Code (relating to training requirements for the Ready Reserve), or (ii)section 502(a) of title 32, United States Code (relating to required drills and field exercises for the National Guard),

in connection with which an employee is entitled to reemployment rights and other benefits or to a leave of absence from employment under chapter 43 of title 38, United States Code, and

(B)hospitalization incident to such active duty. (3)

Active duty wage differential

(A)

In general

The active duty wage differential of a Ready Reserve/National Guard employee for any period of qualified active duty is the amount equal to the product of— (i)the daily wage differential of such employee for such period, multiplied by (ii)the number of days that such employee is on qualified active duty during such period. (B)

Daily wage differential

For purposes of subparagraph (A), the daily wage differential of a Ready Reserve/National Guard employee for any period is an amount equal to the excess of— (i)such employee's average daily employer-provided compensation for such period, over (ii)such employee's average daily military pay for such period. (C)

Average daily employer-provided compensation

(i)

In general

For purposes of subparagraph (B), an employee's average daily employer-provided compensation for any period is the average daily compensation paid by the employer to the employee for the 1-year period ending on the day before the date that the employee begins qualified active duty, adjusted for cost-of-living and other increases generally applicable to employees of the employer for such period. (ii)

Employer-provided compensation

The term compensation means any remuneration for employment, whether in cash or in kind, which is allowable as a deduction under section 162(a)(1). (D)

Average daily military pay

(i)

In general

For purposes of subparagraph (B), a Ready Reserve/National Guard employee's average daily military pay is the average daily military pay and allowances received by the employee on account of the employee's performance of qualified active duty during the period. (ii)

Military pay and allowances

For purposes of clause (i)— (I)

Military pay

The term military pay means pay (as defined in section 101(21) of title 37, United States Code). (II)

Allowances

The term allowances means the allowances payable to a member of the Armed Forces of the United States under chapter 7 of such title. (h)

Reports

The Secretary may require such reporting as the Secretary determines to be appropriate to carry out this section. (i)

Application of Section

This section shall apply to taxes imposed for taxable years beginning after the date of the enactment of this section and before January 1, 2011.

(b)

Priority of Lender

Subsection (b) of section 6323 of such Code is amended by adding at the end the following new paragraph:

(11)

Loans secured by grow accounts

With respect to a GROW account (as defined in section 6168(f)) with any bank (as defined in section 408(n)), to the extent of any loan made by such bank without actual notice or knowledge of the existence of such lien, as against such bank, if such loan is secured by such account.

(c)

Clerical Amendment

The table of sections for subchapter B of chapter 62 of such Code is amended by adding at the end the following new item:

Sec. 6168. Extension of time for payment of tax for certain small businesses.

(d)

Effective Date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (e)

Study by General Accounting Office

(1)

Study

In consultation with the Secretary of the Treasury, the Comptroller General of the United States shall undertake a study to evaluate the applicability (including administrative aspects) and impact of the GROW America’s Small Businesses Act of 2009, including how it affects the capital funding needs of businesses under the Act and number of businesses benefitting. (2)

Report

Not later than March 31, 2011, the Comptroller General shall transmit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a written report presenting the results of the study conducted pursuant to this subsection, together with such recommendations for legislative or administrative changes as the Comptroller General determines are appropriate.