The Small Business Jobs Act of 2010
On September 27, 2010, President Obama signed into law H.R. 5297, the Small Business Jobs Act of 2010. You can see the full text of the bill here: H.R. 5297. What does this have to do with the R&D Tax Credit? Check out Section 2013 of the bill:
SEC. 2013. GENERAL BUSINESS CREDITS OF ELIGIBLE SMALL BUSINESSES IN 2010 NOT SUBJECT TO ALTERNATIVE MINIMUM TAX.
(a) In General- Section 38(c) of the Internal Revenue Code of 1986 is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:(5) SPECIAL RULES FOR ELIGIBLE SMALL BUSINESS CREDITS IN 2010-
(A) IN GENERAL- In the case of eligible small business credits determined in taxable years beginning in 2010–
(i) this section and section 39 shall be applied separately with respect to such credits, and
(ii) in applying paragraph (1) to such credits–
(I) the tentative minimum tax shall be treated as being zero, and
(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the eligible small business credits).(B) ELIGIBLE SMALL BUSINESS CREDITS- For purposes of this subsection, the term ‘eligible small business credits’ means the sum of the credits listed in subsection (b) which are determined for the taxable year with respect to an eligible small business. Such credits shall not be taken into account under paragraph (2), (3), or (4).
(C) ELIGIBLE SMALL BUSINESS- For purposes of this subsection, the term ‘eligible small business’ means, with respect to any taxable year–
(i) a corporation the stock of which is not publicly traded,
(ii) a partnership, or
(iii) a sole proprietorship,
if the average annual gross receipts of such corporation, partnership, or sole proprietorship for the 3-taxable-year period preceding such taxable year does not exceed $50,000,000. For purposes of applying the test under the preceding sentence, rules similar to the rules of paragraphs (2) and (3) of section 448(c) shall apply.(D) TREATMENT OF PARTNERS AND S CORPORATION SHAREHOLDERS- Credits determined with respect to a partnership or S corporation shall not be treated as eligible small business credits by any partner or shareholder unless such partner or shareholder meets the gross receipts test under subparagraph (C) for the taxable year in which such credits are treated as current year business credits.
Too bad it’s only for this tax year, and as of this writing, the R&D Credit is still expired. However, if/when Congress extends the Credit (currently expected in November) retroactively for 2010, this AMT exemption will be very valuable for small and mid-sized US companies. Historically, many companies in the manufacturing and software development industries have not been able to realize the benefit of the R&D Credit because of their corporate or personal AMT limitations.
This is a great benefit to the US small business sector for 2010. To learn more about how the R&D Credit benefit is applied, take a quick look at our video series, The R&D Tax Credit – What’s it All About?
