Loans from simplified employee pension accounts of small business owners for use in the small business

(a)

Exemption from prohibited transaction rules

Section 4975 of the Internal Revenue Code of 1986 (relating to tax on prohibited transactions) is amended by redesignating subsections (h) and (i) as subsections (i) and (j), respectively, and by inserting after subsection (g) the following new subsection:

(h)

Small business improvement loans from simplified employee pension accounts of small business owners

(1)

In general

The prohibitions provided in subsection (c) shall not apply to any qualified small business improvement loan to a small business owner from a simplified employee pension of such owner. (2)

Qualified small business improvement loan

For purposes of this subsection, the term qualified small business improvement loan means a loan from a simplified employee pension the proceeds of which are used in the conduct of the trade or business of the employer with respect to which such simplified employee pension is established, including— (A)in the case of a corporation, the acquisition by the small business owner of stock in such corporation at its original issue, and (B)in the case of a partnership, the acquisition by the small business owner of a capital or profits interest in such partnership from such partnership. (3)

Small business owner

For purposes of this subsection, the term small business owner means, with respect to the employer with respect to which the simplified employee pension is established, any individual who— (A)in the case of an employer which is an unincorporated trade or business, owns the entire interest in such employer, (B)in the case of an employer which is a partnership, owns more than 10 percent of either the capital or the profits interest in such employer (determined before any acquisition described in paragraph (2)), and (C)in the case of an employer which is a corporation, owns more than 10 percent of the stock of such employer (determined before any acquisition described in paragraph (2)). (4)

Requirement that loan be repayable within 2 years

Paragraph (1) shall not apply to any loan unless such loan, by its terms, is required to be repaid within 2 years. (5)

Requirement of level amortization

Rules similar to the rules of section 72(p)(2)(C) shall apply for purposes of this subsection. (6)

Termination

A loan shall not be treated as a qualified small business improvement loan if such loan is made after December 31, 2011.

(b)

Conforming amendment

Subsection (e) of section 408 of such Code (relating to tax treatment of accounts and annuities) is amended by adding at the end the following new paragraph:

(6)

Exception for small business improvement loans from simplified employee pension accounts of small business owners

In the case of a qualified small business improvement loan (within the meaning of section 4975(h)) from a simplified employee pension— (A)such plan shall not fail to be treated as an individual retirement plan under paragraph (2) or (3) solely because of such loan, and (B)such loan shall not be treated as a distribution from such plan.

(c)

Effective date

The amendments made by this section shall apply to loans made on or after September 1, 2008. For purposes of the preceding sentence, any distribution made before the date of the enactment of this Act which is recharacterized (before the end of the 90-day period beginning with such date of enactment) as a loan shall be treated as a loan made on the date of such distribution (and any payments required to be made under such loan before such date of enactment shall be treated as timely made if made before the end of such 90-day period).