To amend the Internal Revenue Code of 1986 to allow loans from certain retirement plans for the payment of certain small business expenses.

Summary: Small Business Tax Relief and Retirement Restoration Act of 2010 - Amends the Internal Revenue Code to permit until December 31, 2010, penalty-free distributions from an individual retirement account (IRA) or a qualified employer plan for the purpose of making loans to a small business to purchase depreciable property to be used by such business or for employee salaries or wages (other than for bonuses). Requires such loans to be repaid to the IRA within five years.

SECTION 1. SHORT TITLE.

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

SEC. 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.

SEC. 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.

SEC. 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.