The House Ways and Means Committee has approved legislation to provide tax relief to small businesses and extend financing measures for creating jobs.

Sander Levin

The Small Business and Infrastructure Jobs Tax Act of 2010 includes a 100 percent exclusion of capital gains taxes for individual investments in small businesses, tax penalty relief for small businesses and an increase in the deduction for startup expenditures. It also provides an extension of the Build America Bonds program, which some of the committee members credited with funding projects and creating jobs in nearly every state as part of the economic recovery efforts. The House is expected to consider the legislation as early as next week.

“Each one of us knows the acute pain and job loss this recession has brought to our communities back home,” said Ways and Means Committee Chairman Sander M. Levin, D-Mich., in a statement. “This bill is another step to address the critical, overarching need to help our economy recover and resume positive job growth. By assisting small businesses and continuing effective financing mechanisms for state and local governments, we can spur job growth and make vital improvements to our communities.”

Under current law, Section 1202 of the Tax Code provides a 50 percent exclusion for gain from the sale of certain small business stock that is held for more than five years. The bill would temporarily increase the amount of the exclusion to 100 percent for qualifying stock acquired after March 15, 2010 and before Jan. 1, 2012.

The bill also would make the penalty for failing to disclose reportable transactions (including listed transactions) proportionate to the underlying tax savings. In addition, it would require the IRS Commissioner to report annually to the Ways and Means Committee and the Senate Finance Committee on penalties assessed, and enforcement actions taken, with respect to tax shelters.

The bill would also provide an exception to the “at-risk” rules for non-recourse loans that are guaranteed by the Small Business Administration. The passive activity loss rules would still apply to these expenses to prevent taxpayers from engaging in tax shelter transactions.

Under current law, taxpayers may deduct up to $5,000 in trade or business start-up expenditures. The amount that a business may deduct is reduced by the amount by which start-up expenditures exceed $50,000. For taxable years beginning in 2010 or 2011, the bill would increase the limit on the tax deduction for trade or business start-up expenditures from $5,000 to $20,000, and increase the threshold amount for reducing the limit to $75,000.

Separately, the full House voted unanimously Wednesday to extend federal unemployment insurance programs through May 5, 2010, and eligibility for the 65 percent subsidy for COBRA health insurance premiums through April 30.