I 111th CONGRESS 2d Session H. R. 5978 IN THE HOUSE OF REPRESENTATIVES July 29, 2010 Ms. Tsongas (for herself, Ms. Clarke, Ms. Richardson, Mr. Simpson, Mr. Kagen, Mr. Connolly of Virginia, Mr. Lance, Mr. Courtney, Mr. Kildee, and Mr. Coffman of Colorado) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to allow loans from certain retirement plans for the payment of certain small business expenses.

1.

Short title

This Act may be cited as the Small Business Tax Relief and Retirement Restoration Act of 2010.

2.

Findings

Congress finds the following: (1)Small businesses are critical to the economic recovery of the United States. (2)As a consequence of the recession that began in December 2007, even fundamentally healthy small businesses have been unable to access the credit they need. (3)Data released by the Federal Deposit Insurance Corporation indicate that lending to small businesses fell in 2009 by “the largest percentage decline since 1942”. (4)Limited access to credit has forced many small business owners to use their personal assets, including retirement savings, to ensure that their enterprises survive. (5)Such actions have helped to mitigate further job losses. (6)While it is appropriate for Congress to resist calls to allow individual retirement account holders to withdraw loans during normal economic times, the current recession represents an extraordinary situation during which extraordinary measures must be taken. (7)A targeted and temporary suspension of penalties for loans made from retirement accounts will help small businesses recover and provide a direct infusion of funds into the economy.

3.

Loans from individual retirement plans for certain small business expenses

(a)

In general

Subsection (e) of section 408 of the Internal Revenue Code of 1986 (relating to tax treatment of accounts and annuities) is amended by adding at the end the following new paragraph: (7)

Temporary exception for loans from individual retirement plans for certain small business expenses

(A)

In general

On election of the taxpayer, paragraphs (2) and (3) of this subsection and section 4975 shall not apply with respect to any qualified small business loan from an individual retirement plan to the individual for whose benefit the plan is maintained. (B)

Qualified small business loan

For purposes of this paragraph— (i)

In general

The term qualified small business loan means, with respect to any taxable year, a loan the principal amount of which does not exceed the amounts paid or incurred by the taxpayer, with respect to a trade or business carried on by the taxpayer— (I)for the purchase of property which is placed in service during the taxable year which is used in the trade or business of the taxpayer and which is subject to the allowance for depreciation provided in section 167 or is real property used in such trade or business, or— (II)for salaries or wages (other than for bonuses) of unrelated employees in such trade or business for the taxable year. (ii)

Aggregation of loans

All loans with respect to which the taxpayer elects the application of this paragraph for the taxable year shall be aggregated for purposes of determining whether a loan is a qualified small business loan under clause (i). (C)

Requirements related to loan repayments

(i)

Requirement that loan be repaid within 5 years

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

Requirement of level amortization

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

Failure to repay treated as distribution

A qualified small business loan shall not be treated as a distribution from the individual retirement plan except that any repayment of a qualified small business loan which is not made on the date that such payment is due shall be treated as a distribution from the individual retirement plan on such date. (D)

Related persons

For purposes of this paragraph, a person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b). (E)

Termination

Subparagraph (A) shall not apply to any loan made after December 31, 2010. . (b)

Effective date

(1)

In general

The amendments made by this section shall apply to loans made after December 31, 2007. (2)

Distributions prior to date of enactment

In the case of any distribution made after December 31, 2007, and before the date of the enactment of this Act, if the taxpayer so elects (at such time and in such form and manner as the Secretary of the Treasury shall prescribe), such distribution shall be treated as a loan for purposes of section 408(e)(7) of the Internal Revenue Code of 1986, but only to the extent such distribution does not exceed the amount described in subparagraph (B) thereof (in the taxable year of distribution), and only if beginning on a date not later than 1 year after the date of the enactment of this Act such distribution meets the requirements of section 408(e)(7) of such Code.

4.

Qualified small business loans from qualified employer plan

(a)

In general

Subsection (p) of section 72 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: (6)

Special rule for qualified small business loans

(A)

In general

On the election of the taxpayer, paragraph (1) shall not apply to any loan to the extent that such loan is a qualified small business loan that meets the requirements of subparagraphs (B)(i) and (C) of paragraph (2). (B)

Application of limitation and coordination with pre-effective date loans

Any qualified small business loan shall be taken into account under paragraph (2) only with respect to amounts received as a loan (other than qualified small business loans) after the date of the enactment of this paragraph. (C)

Qualified small business loan

For purposes of this paragraph, the term qualified small business loan shall have the meaning given such term in section 408(e)(7)(B). (D)

Termination

This paragraph shall not apply to any amount received as a loan after December 31, 2010. . (b)

Effective date

The amendments made by this section shall apply to loans made after December 31, 2007. (c)

Distributions prior to date of enactment

In the case of any distribution made after December 31, 2007, and before the date of the enactment of this Act, if the taxpayer so elects (at such time and in such form and manner as the Secretary of the Treasury shall prescribe), such distribution shall be treated as a loan to which section 72(p)(1) of the Internal Revenue Code of 1986 does not apply, but only to the extent such distribution does not exceed the amount described in section 408(e)(7)(B) of such Code (in the taxable year of distribution), and only if beginning on a date not later than 1 year after the date of the enactment of this Act such distribution is structured as a loan which meets the requirements of subparagraphs (B)(i) and (C) of section 72(p)(2) of such Code.