In early February 2010, President Obama released his budget for FY 2011. It included approximately 100 tax law changes. Among these are several changes applicable to businesses that will generate revenue for the fiscal year. There are also a few that will lower business taxes, but the net impact for business is a tax increase. However, businesses do not bear the major brunt of the deficit reduction efforts. That payment burden falls upon higher income individuals who would face almost $1 trillion of tax increases in the 2011-to-2020 time frame, about 87 percent of the total proposed to be raised. This article reviews some of the proposed tax changes that would affect businesses. The revenue estimates provided are from General Explanations of the Administration's Fiscal Year 2011 Revenue Proposals, issued by the Department of the Treasury in February 2010, commonly referred to as the "Greenbook" (PDF).

Tax Increases
In terms of dollars, most notable among the proposals that would increase revenues are those affecting international tax provisions and those that cut back preferences for the oil and gas industry. Details:

The revenue proposals also include ones for new or reinstated taxes, as follows:

There are also several accounting method, tax shelter, compliance and tax gap proposals pertinent to businesses including the following.

While not listed as a tax increase for businesses, a portion of the almost $1 trillion of revenue (FY2011 to 2020) to be generated from the higher tax rates and reduction in itemized deductions and personal exemptions for high income individuals would arise from businesses that operate as a sole proprietorship, partnership, Limited Liability Company (LLC) or S corporation.

Tax Breaks
While fewer in number relative to tax increases proposed for businesses, there are a few significant tax reductions for businesses included in the President's FY 2011 budget.

The revenue estimate for the capital gains exclusion for "qualified small business stock" (QSBS) listed above represents the effect on non-corporate investors as they are the only ones who can avail themselves of the IRC §1202 exclusion. The Administration lists the proposal as a cut for businesses though. While not accurate, this placement is likely because the tax-free possibility of investing in QSBS for over five years will benefit businesses by incentivizing non-corporate taxpayers to invest.

In addition, several provisions are proposed to be extended through 2011. The Greenbook does not list all of these items, although it notes these business provisions: the shorter recovery period for qualified leasehold improvements and qualified restaurant property, and incentives for empowerment and community renewal zones. The budget effect projected for renewal of several temporary rules through 2011 is $46,677 billion revenue reduction for 2011 through 2020. The extended provisions pertain to both individuals and business taxpayers.

The Administration also proposes to extend bonus depreciation at IRC §168(k) and the higher expensing amounts of IRC §179, which expired at the end of 2009, through 2010. In the FY2011 to 2020 budget, these changes represent tax cuts for 2010, but not for later years because the larger depreciation deduction that could be claimed in 2010 results in reduced depreciation deductions for subsequent years.

Looking Forward
Congress has many items on its plate, such as healthcare reform, whether or not to reinstate the estate tax for 2010, deciding if any items that expired at the end of 2009 should be renewed, the alternative minimum tax (AMT) "patch" for 2010 and cap-and-trade. In addition, if it wants to retain any of the tax cuts of 2001 and 2003 that expire at the end of 2010, it will have to enact legislation to keep them. Thus, Congress has a busy schedule. Certainly some of the proposals from the Administration might end up in various tax bills, particularly ones that are revenue raisers that can help Congress meet its PAYGO (pay as you go) budget requirements.

We also await the report of President Obama's Tax Reform Task Force this year. This could overshadow the "Greenbook" proposals if there is a desire by Congress and the Administration to address broader, strategic tax reform rather than piecemeal changes. It should be an interesting year.