Promotion and Expansion of Private Employee Ownership Act of 2015

Expressing the sense of the Committee on Small Business and Entrepreneurship of the Senate relating to easing the burden of Federal tax compliance on small businesses. Whereas American small businesses face major obstacles complying with their Federal tax obligations; Whereas the complexity of the Federal tax code unfairly penalizes small businesses; Whereas such complexity requires small business owners to spend significant amounts of time, money, and resources complying with their tax obligations and less time operating their business; Whereas Congress has exacerbated these challenges for Americas small businesses by failing to update the tax code in a manner that properly reflects current circumstances; Whereas tax policy should also promote increased savings by American citizens to be able to afford the costs of living deeper into old age; Whereas employee stock ownership plans help small businesses offer economic incentives to employees and help employees save more for their retirements via investments in their employing companies; Whereas tax policy should support small businesses in providing benefit packages to their employees to be competitive with larger employers for the best talent; Whereas the successful research and development tax credit has been used to incentivize private firms to invest in research and development, and private investment leads to spillover effects that can have a broad public good through the creation of new products, the development of new processes, and the launching of new industries; Whereas while the research and development tax credit is essential for our innovators, it is not accessible to many small businesses and startupsper the Government Accountability Office, over half of the credit goes to firms with $1,000,000,000 or more in receipts; Whereas, according to the Congressional Research Service, numerous commercially successful innovations originated in small, fledgling firms that could not access the research and development credit; Whereas, if Congress made the research and development tax credit more available to small businesses and startups, thousands of innovative small firms could claim the credit, boosting their capacity to invest in innovation and job creation; and Whereas prudent changes to the structure of the Federal tax code would ease the burden of tax compliance, allowing small businesses to put more money back into their business, community, and the economy: Now, therefore, be it That it is the sense of the Committee on Small Business and Entrepreneurship that the Senate should enact the following: I Small business tax reform 101. Expansion of cash accounting threshold (a) In general (1) In general Paragraph (3) of section 448(b) $5,000,000 $25,000,000 (2) Conforming amendments Section 448(c) of such Code is amended (A) by striking $5,000,000 $25,000,000 (B) by adding at the end the following new paragraph: (4) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2015, the dollar amount contained in subsection (b)(3) and paragraph (1) of this subsection shall be increased by an amount equal to (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2014 calendar year 1992 If any amount as adjusted under this subparagraph is not a multiple of $100,000, such amount shall be rounded to the nearest multiple of $100,000. . (b) Exemption from inventory requirement Section 471 (c) Section not to apply to certain cash method taxpayers If a taxpayer (1) would otherwise be required to use inventories under this section for any taxable year, but (2) the taxpayer meets the gross receipts test of section 448(b) for the taxable year and is eligible and elects to use the cash receipts and disbursements method of accounting for the taxable year, then the requirement to use inventories shall not apply to the taxpayer for the taxable year. . (c) Effective date and special rule (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2014. (2) Change in method of accounting In the case of any taxpayer changing the taxpayers method of accounting for any taxable year under the amendments made by this section (A) such change shall be treated as initiated by the taxpayer; and (B) such change shall be treated as made with the consent of the Secretary of the Treasury. 102. Modification of Safe Harbor for Expensing of Acquisition or Production Costs of Tangible Property (a) Requirement to Modify Safe Harbor The Secretary of the Treasury or his delegate shall, within 180 days after the date of enactment of this Act, modify Treasury Regulations section 1.263(a)1(f) by (1) increasing the amount of the de minimis safe harbor for taxpayers without applicable financial statements from $500 to $2,500, (2) requiring adequate records showing the dollar amount being expensed in lieu of accounting procedures in place at the beginning of the taxable year, and (3) modifying the definition of applicable financial statement to include reviewed financial statements. (b) Effective date The modifications required by subsection (a) shall apply to taxable years beginning after December 31, 2014. 103. Removal of computer equipment from listed property (a) In general Section 280F(d)(4)(A) and (b) Conforming amendment Section 280F(d)(4) (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 104. Deduction for health insurance costs in computing self-employment taxes (a) In general Paragraph (4) of section 162(l) for taxable years beginning before January 1, 2010, or after December 31, 2010 for taxable years beginning before January 1, 2015. (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2014. 105. Modification of rules relating to the termination of partnerships and S corporations (a) No termination of partnership on sale or exchange of assets (1) In general Section 708(b)(1) only if only if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership. (2) Conforming amendments (A) Section 168(i)(7)(B) of such Code is amended by striking the last sentence. (B) Section 743(e) of such Code is amended by striking paragraph (4). (C) Section 774 of such Code is amended by striking subsection (c). (b) No termination of S corporation status due to excessive passive investment income Paragraph (3) of section 1362(d) (D) Termination This paragraph shall not apply to taxable years ending after the date of the enactment of this subparagraph. . II Provisions related to the Internal Revenue Service 201. Inflation adjustments for certain provisions (a) In general Chapter 77 7529. Inflation adjustments (a) In general In the case of any taxable year beginning in a calendar year after 2015, each of the specified dollar amounts shall be increased by an amount equal to (1) such dollar amount, multiplied by (2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2014 calendar year 1992 (b) Specified dollar amounts For purposes of subsection (a), the specified dollar amounts are (1) the $50,000 amount in section 79(a)(1), (2) each of the $5,250 amounts in section 127(a)(2), (3) each of the $500 amounts in paragraphs (11)(A), (11)(B), and (12) of section 170(f), (4) the $5,000 amount in section 170(f)(11)(C), (5) the $10,000,000 amount in section 263A(b)(2), (6) each of the dollar amounts in section 274(b)(1), (7) each of the $400 amounts in section 274(j), (8) the $1,600 amount in section 274(j)(2)(B), (9) the $10,000,000 amount in section 1202(b)(1), (10) each of the $50,000,000 amounts in section 1202(d)(1), (11) the $50,000 amount in section 1244(b)(1), and (12) the $1,000,000 in section 1244(c)(3)(A). (c) Rounding (1) Any increase determined under paragraph (5), (9), or (10) of subsection (b) shall be rounded to the nearest multiple of $100,000. (2) Any increase determined under paragraph (1), (4), (11), or (12) of subsection (b) shall be rounded to the nearest multiple of $1,000. (3) Any increase determined under paragraph (2) of subsection (b) shall be rounded to the nearest multiple of $500. (4) Any increase determined under paragraph (3), (7), or (8) of subsection (b) shall be rounded to the nearest multiple of $100. (5) Any increase determined under paragraph (6) of subsection (b) shall be rounded to the nearest multiple of $5. . (b) Conforming amendments (1) Section 1202(b)(3) of such Code is amended by striking paragraph (1)(A) shall be applied by substituting $5,000,000 $10,000,000 the amount under paragraph (1)(A) shall be 50 percent of such dollar amount (determined without regard to this paragraph) (2) Section 1244(b)(2) of such Code is amended by striking $100,000 200 percent of the amount under paragraph (1) (c) Clerical amendment The table of sections for chapter 77 of such Code is amended by adding at the end the following new item: Sec. 7529. Inflation adjustments. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 202. Report on improvements to customer service Not later than June 30, 2016, the Commissioner of Internal Revenue shall submit to the Committee on Small Business and Entrepreneurship of the Senate, the Committee on Finance of the Senate, and the Committee on Ways and Means of the House of Representatives a report detailing specific ways to improve customer service to small businesses, including objectively measurable goals for how to reduce response times. 203. Return due date modifications (a) New due date for partnership form 1065, S corporation form 1120S, and C corporation form 1120 (1) Partnerships (A) In general Section 6072 (f) Returns of partnerships Returns of partnerships under section 6031 made on the basis of the calendar year shall be filed on or before the 15th day of March following the close of the calendar year, and such returns made on the basis of a fiscal year shall be filed on or before the 15th day of the third month following the close of the fiscal year. . (B) Conforming amendment Section 6072(a) of such Code is amended by striking 6017, or 6031 or 6017 (2) S corporations (A) In general So much of subsection (b) of 6072 of such Code as precedes the second sentence thereof is amended to read as follows: (b) Returns of certain corporations Returns of S corporations under sections 6012 and 6037 made on the basis of the calendar year shall be filed on or before the 31st day of March following the close of the calendar year, and such returns made on the basis of a fiscal year shall be filed on or before the last day of the third month following the close of the fiscal year. . (B) Conforming amendments (i) Section 1362(b) of such Code is amended (I) by striking 15th last (II) by striking 2 1/2 3 (III) by striking 2 months and 15 days 3 months (ii) Section 1362(d)(1)(C)(i) of such Code is amended by striking 15th last (iii) Section 1362(d)(1)(C)(ii) of such Code is amended by striking such 15th day the last day of the 3d month thereof (3) Conforming amendments relating to C corporations (A) Section 170(a)(2)(B) of such Code is amended by striking third month 4th month (B) Section 563 of such Code is amended by striking third month 4th month (C) Section 1354(d)(1)(B)(i) of such Code is amended by striking 3d month 4th month (D) Subsection (a) and (c) of section 6167 of such Code are each amended by striking third month 4th month (E) Section 6425(a)(1) of such Code is amended by striking third month 4th month (F) Subsections (b)(2)(A), (g)(3), and (h)(1) of section 6655 of such Code are each amended by striking 3rd month 4th month (4) Effective date The amendments made by this subsection shall apply to returns for taxable years beginning after December 31, 2015. (b) Modification of due dates by regulation In the case of returns for taxable years beginning after December 31, 2013, the Secretary of the Treasury or the Secretary's delegate shall modify appropriate regulations to provide as follows: (1) The maximum extension for the returns of partnerships filing Form 1065 shall be a 6-month period beginning on the due date for filing the return (without regard to any extensions). (2) The maximum extension for the returns of trusts and estates filing Form 1041 shall be a 5-month period beginning on the due date for filing the return (without regard to any extensions). (3) The maximum extension for the returns of employee benefit plans filing Form 5500 shall be an automatic 3-month period beginning on the due date for filing the return (without regard to any extensions). (4) The maximum extension for the Forms 990 (series) returns of organizations exempt from income tax shall be an automatic 6-month period beginning on the due date for filing the return (without regard to any extensions). (5) The maximum extension for the returns of organizations exempt from income tax that are required to file Form 4720 returns of excise taxes shall be an automatic 6-month period beginning on the due date for filing the return (without regard to any extensions). (6) The maximum extension for the returns of trusts required to file Form 5227 shall be an automatic 6-month period beginning on the due date for filing the return (without regard to any extensions). (7) The maximum extension for the returns of Black Lung Benefit Trusts required to file Form 6069 returns of excise taxes shall be an automatic 6-month period beginning on the due date for filing the return (without regard to any extensions). (8) The maximum extension for a taxpayer required to file Form 8870 shall be an automatic 6-month period beginning on the due date for filing the return (without regard to any extensions). (9) The due date of Form 3520A, Annual Information Return of a Foreign Trust with a United States Owner, shall be the 15th day of the 4th month after the close of the trust's taxable year, and the maximum extension shall be a 6-month period beginning on such day. (10) The due date of FinCEN Form 114 (relating to Report of Foreign Bank and Financial Accounts) shall be April 15 with a maximum extension for a 6-month period ending on October 15, and with provision for an extension under rules similar to the rules of 26 C.F.R. 1.60815. For any taxpayer required to file such form for the first time, the Secretary of the Treasury may waive any penalty for failure to timely request or file an extension. (11) Taxpayers filing Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, shall be allowed to extend the time for filing such form separately from the income tax return of the taxpayer, for an automatic 6-month period beginning on the due date for filing the return (without regard to any extensions). (c) Corporations permitted statutory automatic 6-month extension of income tax returns (1) In general Section 6081(b) 3 months 6 months (2) Effective date The amendment made by this section shall apply to returns for taxable years beginning after December 31, 2015. III Provisions related to start-up businesses 301. Reduction in holding period for qualified small business stock (a) In general Paragraph (1) of section 1202(a) 5 years 3 years (b) Conforming amendments (1) Paragraph (2) of section 1202(b) of such Code is amended by striking 5 years 3 years (2) Subparagraph (A) of section 1202(g)(2) of such Code is amended by striking 5 years 3 years (3) Subparagraph (C) of section 1202(h)(2) of such Code is amended by striking 5-year 3-year (4) Subparagraph (A) of section 1202(j)(1) of such Code is amended by striking 5 years 3 years (c) Effective date The amendments made by this section shall apply to stock issued after the date of the enactment of this Act. 302. Extension of rollover period for qualified small business stock (a) In general Paragraph (1) of section 1045(a) 60-day period 1-year period (b) Conforming amendment Paragraph (3) of section 1045(b) of such Code is amended by striking 60-day period 1-year period (c) Effective date The amendment made by this section shall apply to sales after the date of the enactment of this Act. IV Promotion and Expansion of Private Employee Ownership 401. Short title This title may be cited as the Promotion and Expansion of Private Employee Ownership Act of 2015 402. Findings Congress finds that (1) on January 1, 1998nearly 25 years after the Employee Retirement Income Security Act of 1974 was enacted and the employee stock ownership plan (hereafter in this section referred to as an ESOP Public Law 104188 (2) with the passage of the Taxpayer Relief Act of 1997 ( Public Law 10534 (3) since that time, several thousand companies have become ESOP-owned S corporations, creating an ownership interest for several million Americans in companies in every State in the country, in industries ranging from heavy manufacturing to technology development to services; (4) while estimates show that 40 percent of working Americans have no formal retirement account at all, every United States worker who is an employee-owner of an S corporation company through an ESOP has a valuable qualified retirement savings account; (5) recent studies have shown that employees of ESOP-owned S corporations enjoy greater job stability than employees of comparable companies; (6) studies also show that employee-owners of S corporation ESOP companies have amassed meaningful retirement savings through their S ESOP accounts that will give them the means to retire with dignity; (7) under the Small Business Act ( 15 U.S.C. 631 et seq. (8) it is the goal of Congress to both preserve and foster employee ownership of S corporations through ESOPs. 403. Deferral of tax for certain sales of employer stock to employee stock ownership plan sponsored by S corporation (a) In general Subparagraph (A) of section 1042(c)(1) domestic C corporation domestic corporation (b) Effective date The amendment made by subsection (a) shall apply to sales after the date of the enactment of this Act. 404. Department of Treasury Technical Assistance Office (a) Establishment required Before the end of the 90-day period beginning on the date of enactment of this Act, the Secretary of Treasury shall establish the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations. (b) Duties of the office The S Corporation Employee Ownership Assistance Office shall provide (1) education and outreach to inform companies and individuals about the possibilities and benefits of employee ownership of S corporations; and (2) technical assistance to assist S corporations in sponsoring employee stock ownership plans. 405. Small business and employee stock ownership (a) In general The Small Business Act ( 15 U.S.C. 631 et seq. (1) by redesignating section 47 as section 48; and (2) by inserting after section 46 the following: 47. Employee stock ownership plans (a) Definitions In this section (1) the term ESOP section 4975(e)(7) (2) the term ESOP business concern (b) Continued eligibility In determining whether an ESOP business concern qualifies as a small business concern for purposes of a loan, preference, or other program under this Act, each ESOP participant shall be treated as directly owning his or her proportionate share of the stock in the ESOP business concern owned by the ESOP. . (b) Effective date The amendments made by this section shall take effect on January 1 of the first calendar year beginning after the date of the enactment of this Act. September 15, 2015 Placed on the calendar

Summary: This bill amends provisions of the Internal Revenue Code relating to the taxation of small business entities. TITLE I--SMALL BUSINESS TAX REFORM (Sec. 101) Under current law a corporation or partnership may use the cash method of accounting and is exempt from the requirement to use inventories if such entity has gross receipts not exceeding $5 million. This bill increases that limitation to $25 million. This increased amount is adjusted annually for inflation in taxable years beginning in a calendar year after 2015. (Sec. 102) The Department of the Treasury must modify Treasury Regulations relating to the expensing of depreciable property to increase the safe harbor limit for expensing from $500 to $2,500 &nbsp;for taxpayers without applicable financial statements. (Sec. 103) This section eliminates restrictions on the depreciation of computers or peripheral equipment. (Sec. 104) This section allows, after 2015, a permanent deduction of the health insurance costs of self-employed individuals in computing self-employment taxes. (Sec. 105) This section eliminates: (1) the termination of partnerships after a sale or exchange of certain partnership interests, and (2) the termination of S corporation status due to excessive passive investment income. TITLE II--PROVISIONS RELATED TO THE INTERNAL REVENUE SERVICE (Sec. 201) This section requires an adjustment for inflation in taxable years beginning in a calendar year after 2015 to amounts of specified tax exclusions and deductions. (Sec. 202) The Internal Revenue Service must submit to the House Committee on Ways and Means and the Senate Committees on Finance and Small Business and Entrepreneurship by June 30, 2016, a report on specific ways to improve customer service to small businesses, including objectively measurable goals for how to reduce response times. (Sec. 203) This section changes tax return due dates for partnerships (from April 15 to March 15, with extensions until September 15), S corporations (from March 15 to March 31, with extensions until September 30), and C corporations (from March 15 to April 15, with extensions until October 15). Treasury must modify regulations for returns&nbsp;for taxable years beginning after December 31, 2011, relating to the the due dates for extensions of tax returns for partnerships, estates, employee benefit plans, and tax-exempt organizations. The due date for the annual information return of a foreign trust with a U.S. owner and for the report of foreign bank and financial accounts is April 15 (with extensions until October 15). The automatic extension for corporation income tax returns is&nbsp; increased from three months to&nbsp;six months. TITLE III--PROVISIONS RELATED TO START-UP BUSINESSES (Sec. 301) The required holding period for qualified small business stock is reduced from 5 years to 3 years for purposes of determining capital gains tax treatment of such stock. The period for rolling over gain from the sale of such stock without tax consequences is extended from 60 days to 1 year. TITLE IV--PROMOTION AND EXPANSION OF PRIVATE EMPLOYEE OWNERSHIP Promotion and Expansion of Private Employee Ownership Act of 2015 (Sec. 403) This section extends to all domestic corporations, including S corporations, provisions allowing deferral of tax on the gain from the sale of employer securities to an S corporation-sponsored employer stock ownership plan (ESOP). (Sec. 404) This section directs Treasury to establish the S Corporation Employee Ownership Assistance Office to foster increased employee ownership of S corporations. The Office shall provide: (1) education and outreach to inform companies and individuals about the possibilities and benefits of employee ownership of S corporations, and (2) technical assistance to assist S corporations in sponsoring employee stock ownership plans (Sec. 405) This section amends the Small Business Act to define &quot;ESOP business concern" and allow such a concern to continue to qualify for loans, preferences, and other programs under such Act.