[Congressional Record Volume 148, Number 4 (Monday, January 28, 2002)]
[Senate]
[Pages S181-S183]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERRY (for himself, Ms. Snowe, Mr. Lieberman, Mr. Bennett, 
        and Mr. Bingaman):
  S. 1903. A bill to amend the Internal Revenue Code of 1986 to allow 
certain small businesses to defer payment of tax; to the Committee on 
Finance.
  Mr. KERRY. Mr. President, each year, the United States economy 
generates 600,000 to 800,000 new businesses. While many of these 
businesses will succeed, some of them will fail. Whether they succeed 
or not, one fact is without question: the entrepreneurs building these 
small businesses lay the foundation for our Nation's productivity 
gains, employment growth, and economic progress. In fact, although 
specific estimates vary, economists generally agree that small, 
entrepreneurial companies generate the majority of the Nation's new 
jobs.
  The legislation I am introducing today, the Business Retained Income 
During Growth and Expansion, (BRIDGE), Act, will help ensure that 
rapidly expanding, entrepreneurial businesses have access to the 
capital they need to continue creating jobs and stimulating the 
economy.
  Most new business start small and stay small. A portion, however, 
evolve into fast-growth companies with the capacity to propel the 
economy forward. For these companies, access to financing presents a 
pivotal challenge. A typical small business may open its doors with a 
combination of personal savings, credit card borrowing, and family 
lending. Informal investors, family, friends, and work associates, 
contribute the vast majority of the $56 billion of estimated initial 
funding for new businesses. If a business is successful, it moves to 
the next stage of development. Unfortunately, emerging growth companies 
will often outstrip the capital financing available based solely on the 
personal credit or assets of the entrepreneur.
  Capital funding gaps frequently prevail when a firm seeks financing 
in the range of $250,000 to $1 million, a period when the business is 
particularly vulnerable. Funding needs below $250,000 are often 
fulfilled by family, friends, credit cards, home mortgages, and home 
equity lines of credit. Beyond $250,000, businesses typically turn to 
so-called ``angel'' financiers; high-interest borrowing; and in limited 
cases, Small Business Investment Companies. Venture capital is usually 
not an option for these companies because initial venture investments 
generally

[[Page S182]]

begin at approximately $3 million, which is far more than most early-
stage growth companies need or warrant. When sales reach $10 million, 
the company is better able to attract external financing at a 
reasonable cost based on the business's underlying assets.
  Congress should take steps to ease the credit crunch for small 
businesses climbing the economic ladder from small to medium-size 
enterprise. When the lack of available financing prevents a growing, 
successful firm from expanding into new markets, we miss an opportunity 
to create new jobs and unleash productive forces. The legislation I am 
introducing today with Senator Olympia Snowe will help bridge the gap 
in capital financing for emerging growth companies. A companion 
measures has been introduced in the House by Representatives Jim DeMint 
and Brian Baird.
  The BRIDGE Act would allow mid-sized, fast-growing businesses to 
temporarily defer a portion of their Federal income tax liability if 
the firm's sales for the year are at least 10 percent higher than the 
average sales of the prior two years. The two-year deferral would be 
limited to $250,000 of tax, which would be repayable with interest over 
a four-year period. The tax-deferred amount would be deposited in a 
separate trust account at a bank or other approved intermediary, and 
the firm could borrow against the deferred amount, as collateral, for 
business purposes. Upon sale or merger of the business, any remaining 
tax deferral would be payable at that time.

  To be eligible, a small business would have to have annual gross 
receipts of $10,000,000 or less. Partnerships and S corporations would 
also be eligible to make the election to defer taxes. To allow adequate 
review of this new and innovative concept, the proposal would expire at 
the end of 2005.
  The BRIDGE Act will free up new investment capital for fast-growing 
firms by allowing them to use a portion of their federal tax liability 
for self-financing. These firms experience heavy demands on their cash 
flow as they reinvest receipts, hire new employees, create additional 
marketing channels, and purchase new equipment. Tax liability directly 
trades off with reinvestment. The BRIDGE Act will help reduce cash flow 
pressures by allowing a limited tax deferral. As the firm prospers, it 
will repay its original tax obligation as well as additional taxes on 
its higher receipts.
  One of the most interesting aspects of the proposal is that its long-
term costs are negligible. According to the Joint Committee on 
Taxation, the legislation would generate a revenue loss of $22.9 
billion during the first four years. However, as businesses repay 
deferred amounts, the revenue loss would reverse, and then some. During 
the following six years, the proposal would raise $24.1 billion. Thus, 
over the ten year budget window, the proposal would raise $1.1 billion.
  The entrepreneurial spirit lies at the foundation of our economy's 
technological advances, creative innovations, and dynamic growth. We 
should take steps to ensure that rapidly growing companies have the 
resources needed to continue producing new jobs and opportunities. The 
BRIDGE Act will free entrepreneurial businesses from the shackles of 
unmet capital funding needs and empower them to expand into new 
markets. I urge my colleagues to support the legislation, and I ask 
unanimous consent that the text of the legislation be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1903

       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 ``Business Retained Income 
     During Growth and Expansion Act of 2002'' or the ``BRIDGE Act 
     of 2002''.

     SEC. 2. 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:

     ``SEC. 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 BRIDGE 
     Account during such year.
       ``(3) The excess of $250,000 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 $10,000,000 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; Time for Payment of 
     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.
       ``(2) Time for payment of interest.--If the time for 
     payment of any amount of tax has been extended under this 
     section--
       ``(A) Interest for period before due date of first 
     installment.--Interest payable under section 6601 on any 
     unpaid portion of such amount attributable to the period 
     before the due date for the first installment shall be paid 
     annually.
       ``(B) Interest during installment period.--Interest payable 
     under section 6601 on any unpaid portion of such amount 
     attributable to any period after such period shall be paid at 
     the same time as, and as a part of, each installment payment 
     of the tax.
       ``(C) Interest in the case of certain deficiencies.--In the 
     case of a deficiency to which subsection (e)(3) applies for a 
     taxable year which is assessed after the due date for the 
     first installment for such year, interest attributable to the 
     period before such due date, and interest assigned under 
     subparagraph (B) to any installment the date for payment of 
     which has arrived on or before the date of the assessment of 
     the deficiency, shall be paid upon notice and demand from the 
     Secretary.
       ``(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) BRIDGE Account.--For purposes of this section--
       ``(1) In general.--The term `BRIDGE Account' means a trust 
     created or organized in

[[Page S183]]

     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 
     BRIDGE 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 BRIDGE Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     within 3\1/2\ months after the close of such taxable year.
       ``(g) Reports.--The Secretary may require such reporting as 
     the Secretary determines to be appropriate to carry out this 
     section.
       ``(h) Application of Section.--This section shall apply to 
     taxes imposed for taxable years beginning after December 31, 
     2001, and before January 1, 2006.''.
       (b) Priority of Lender.--Subsection (b) of section 6323 of 
     the Internal Revenue Code of 1986 (relating to protection for 
     certain interests even though notice filed) is amended by 
     adding at the end the following new paragraph:
       ``(11) Loans secured by bridge accounts.--With respect to a 
     BRIDGE 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 the Internal Revenue Code of 
     1986 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 December 31, 
     2001.
       (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 BRIDGE Act of 2001, 
     including how it affects the capital funding needs of 
     businesses under the Act and number of businesses benefiting.
       (2) Report.--Not later than March 31, 2005, 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.

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