I 

111TH CONGRESS 

2D SESSION H. R. 5978 

To amend the Internal Revenue Code of 1986 to allow loans from certain 

retirement plans for the payment of certain small business expenses. 

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 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Business Tax 

5 Relief and Retirement Restoration Act of 2010’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds the following: 

8 (1) Small businesses are critical to the eco9 nomic recovery of the United States. 


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1 (2) As a consequence of the recession that 

2 began in December 2007, even fundamentally 

3 healthy small businesses have been unable to access 

4 the credit they need. 

5 (3) Data released by the Federal Deposit Insur6 ance Corporation indicate that lending to small busi7 nesses fell in 2009 by ‘‘the largest percentage de8 cline since 1942’’. 

9 (4) Limited access to credit has forced many 

10 small business owners to use their personal assets, 

11 including retirement savings, to ensure that their en12 terprises survive. 

13 (5) Such actions have helped to mitigate fur14 ther job losses. 

15 (6) While it is appropriate for Congress to re16 sist calls to allow individual retirement account hold17 ers to withdraw loans during normal economic times, 

18 the current recession represents an extraordinary 

19 situation during which extraordinary measures must 

20 be taken. 

21 (7) A targeted and temporary suspension of 

22 penalties for loans made from retirement accounts 

23 will help small businesses recover and provide a di24 rect infusion of funds into the economy. 


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1 SEC. 3. LOANS FROM INDIVIDUAL RETIREMENT PLANS FOR 

2 CERTAIN SMALL BUSINESS EXPENSES. 

3 (a) IN GENERAL.—Subsection (e) of section 408 of 

4 the Internal Revenue Code of 1986 (relating to tax treat5 ment of accounts and annuities) is amended by adding at 

6 the end the following new paragraph: 

7 ‘‘(7) TEMPORARY EXCEPTION FOR LOANS FROM

8 INDIVIDUAL RETIREMENT PLANS FOR CERTAIN

9 SMALL BUSINESS EXPENSES.— 

10 ‘‘(A) IN GENERAL.—On election of the tax11 payer, paragraphs (2) and (3) of this subsection 

12 and section 4975 shall not apply with respect to 

13 any qualified small business loan from an indi14 vidual retirement plan to the individual for 

15 whose benefit the plan is maintained. 

16 ‘‘(B) QUALIFIED SMALL BUSINESS

17 LOAN.—For purposes of this paragraph— 

18 ‘‘(i) IN GENERAL.—The term ‘quali19 fied small business loan’ means, with re20 spect to any taxable year, a loan the prin21 cipal amount of which does not exceed the 

22 amounts paid or incurred by the taxpayer, 

23 with respect to a trade or business carried 

24 on by the taxpayer— 

25 ‘‘(I) for the purchase of property 

26 which is placed in service during the 


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1 taxable year which is used in the 

2 trade or business of the taxpayer and 

3 which is subject to the allowance for 

4 depreciation provided in section 167 

5 or is real property used in such trade 

6 or business, or— 

7 ‘‘(II) for salaries or wages (other 

8 than for bonuses) of unrelated em9 ployees in such trade or business for 

10 the taxable year. 

11 ‘‘(ii) AGGREGATION OF LOANS.—All 

12 loans with respect to which the taxpayer 

13 elects the application of this paragraph for 

14 the taxable year shall be aggregated for 

15 purposes of determining whether a loan is 

16 a qualified small business loan under 

17 clause (i). 

18 ‘‘(C) REQUIREMENTS RELATED TO LOAN

19 REPAYMENTS.— 

20 ‘‘(i) REQUIREMENT THAT LOAN BE

21 REPAID WITHIN 5 YEARS.—Paragraph (1) 

22 shall not apply to any loan unless such 

23 loan is required, by its terms, to be repaid 

24 within 5 years. 


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1 ‘‘(ii) REQUIREMENT OF LEVEL AMOR2 TIZATION.—Rules similar to the rules of 

3 section 72(p)(2)(C) shall apply for pur4 poses of this subsection. 

5 ‘‘(iii) FAILURE TO REPAY TREATED AS

6 DISTRIBUTION.—A qualified small business 

7 loan shall not be treated as a distribution 

8 from the individual retirement plan except 

9 that any repayment of a qualified small 

10 business loan which is not made on the 

11 date that such payment is due shall be 

12 treated as a distribution from the indi13 vidual retirement plan on such date. 

14 ‘‘(D) RELATED PERSONS.—For purposes 

15 of this paragraph, a person shall be treated as 

16 related to another person if the relationship be17 tween such persons would result in the disallow18 ance of losses under section 267 or 707(b). 

19 ‘‘(E) TERMINATION.—Subparagraph (A) 

20 shall not apply to any loan made after Decem21 ber 31, 2010.’’. 

22 (b) EFFECTIVE DATE.— 

23 (1) IN GENERAL.—The amendments made by 

24 this section shall apply to loans made after Decem25 ber 31, 2007. 


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1 (2) DISTRIBUTIONS PRIOR TO DATE OF ENACT2 MENT.—In the case of any distribution made after 

3 December 31, 2007, and before the date of the en4 actment of this Act, if the taxpayer so elects (at 

5 such time and in such form and manner as the Sec6 retary of the Treasury shall prescribe), such dis7 tribution shall be treated as a loan for purposes of 

8 section 408(e)(7) of the Internal Revenue Code of 

9 1986, but only to the extent such distribution does 

10 not exceed the amount described in subparagraph 

11 (B) thereof (in the taxable year of distribution), and 

12 only if beginning on a date not later than 1 year 

13 after the date of the enactment of this Act such dis14 tribution meets the requirements of section 

15 408(e)(7) of such Code. 

16 SEC. 4. QUALIFIED SMALL BUSINESS LOANS FROM QUALI17 FIED EMPLOYER PLAN. 

18 (a) IN GENERAL.—Subsection (p) of section 72 of the 

19 Internal Revenue Code of 1986 is amended by adding at 

20 the end the following new paragraph: 

21 ‘‘(6) SPECIAL RULE FOR QUALIFIED SMALL

22 BUSINESS LOANS.— 

23 ‘‘(A) IN GENERAL.—On the election of the 

24 taxpayer, paragraph (1) shall not apply to any 

25 loan to the extent that such loan is a qualified 


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1 small business loan that meets the requirements 

2 of subparagraphs (B)(i) and (C) of paragraph 

3 (2). 

4 ‘‘(B) APPLICATION OF LIMITATION AND

5 COORDINATION WITH PRE-EFFECTIVE DATE

6 LOANS.—Any qualified small business loan shall 

7 be taken into account under paragraph (2) only 

8 with respect to amounts received as a loan 

9 (other than qualified small business loans) after 

10 the date of the enactment of this paragraph. 

11 ‘‘(C) QUALIFIED SMALL BUSINESS

12 LOAN.—For purposes of this paragraph, the 

13 term ‘qualified small business loan’ shall have 

14 the meaning given such term in section 

15 408(e)(7)(B). 

16 ‘‘(D) TERMINATION.—This paragraph 

17 shall not apply to any amount received as a 

18 loan after December 31, 2010.’’. 

19 (b) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to loans made after December 31, 

21 2007. 

22 (c) DISTRIBUTIONS PRIOR TO DATE OF ENACT23 MENT.—In the case of any distribution made after Decem24 ber 31, 2007, and before the date of the enactment of 

25 this Act, if the taxpayer so elects (at such time and in 


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1 such form and manner as the Secretary of the Treasury 

2 shall prescribe), such distribution shall be treated as a 

3 loan to which section 72(p)(1) of the Internal Revenue 

4 Code of 1986 does not apply, but only to the extent such 

5 distribution does not exceed the amount described in sec6 tion 408(e)(7)(B) of such Code (in the taxable year of dis7 tribution), and only if beginning on a date not later than 

8 1 year after the date of the enactment of this Act such 

9 distribution is structured as a loan which meets the re10 quirements of subparagraphs (B)(i) and (C) of section 

11 72(p)(2) of such Code. 

Æ 


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