Overview
Title
To amend the Internal Revenue Code of 1986 to provide a tax credit for investors in start-up businesses, to provide a credit for wages paid by start-up businesses to their first employees, and for other purposes.
ELI5 AI
The PROGRESS Act is like a helping hand for new businesses and the people who invest in them. It gives money back to both businesses paying their first workers and people investing in new businesses to make it easier and cheaper for them to get started.
Summary AI
The bill S. 5144, titled the “Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act,” seeks to amend the Internal Revenue Code of 1986. It introduces a tax credit for investors in small start-up businesses and provides a credit to start-up businesses for wages paid to their first employees. The bill outlines specific requirements for a business to qualify and the limits on the amount of tax credits available. These credits aim to encourage investment in start-ups and support them in their early stages by easing some financial burdens.
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AnalysisAI
General Summary of the Bill
The proposed legislation, titled the "Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act," aims to amend the Internal Revenue Code of 1986 by introducing two new tax credits designed to support start-up businesses. The first credit is the Small Business Investor Tax Credit, which incentivizes investments in small businesses by offering a tax credit based on the amount invested. The second credit is the First Employee Business Wage Credit, which provides a tax benefit to businesses for wages paid to their initial full-time employees. These credits are part of a broader strategy to stimulate economic growth through supporting entrepreneurial ventures.
Summary of Significant Issues
The bill contains complex provisions that could pose challenges to small businesses and individual investors. Key issues include:
Complexity and Accessibility: The language used in sections related to investor tax credits and wage credits is technical and may be difficult for those unfamiliar with tax law to comprehend. This could hinder those most in need of the credits from accessing them without professional assistance.
Potential for Favoritism: Certain stipulations, such as reductions in credit amounts if loan interest rates exceed the prime rates, might unfairly benefit businesses that can secure lower interest rates, thereby disadvantaging smaller or less established entities.
Ambiguity and Manipulation Risks: Ambiguous definitions regarding investors and business qualifications create potential for abuse or manipulation. This complexity might allow for loopholes that undermine the bill's goals.
Cost-of-Living Adjustments: Delayed implementation of cost-of-living adjustments until after 2025 limits the immediate effectiveness of the bill's financial incentives.
Administrative Burdens: Stringent certification and reporting requirements, particularly described in section 45CC, add potential burdens, potentially deterring participation from small businesses due to privacy and operational challenges.
Potential Impact on the Public
The bill could have broad implications for individuals and businesses. On a positive note, it seeks to bolster investment in start-up companies, potentially leading to job creation and economic revitalization. However, the complexity of the provisions might limit these credits' accessibility to those lacking resources to navigate intricate tax filings, thereby potentially reducing the overall effectiveness of the policy in promoting entrepreneurship across diverse socioeconomic backgrounds.
Impact on Specific Stakeholders
Small Business Owners: These stakeholders stand to benefit from potential tax savings through credits. Yet, the administrative complexity might deter small operators from participating unless they can afford professional tax guidance.
Investors: Those investing in qualifying businesses could enjoy tax incentives but only if they understand the nuances of the program. The complexity might see only well-informed or already established investors taking advantage of the credit.
Tax Professionals: For these stakeholders, the introduction of new tax credits provides opportunities for advising clients, but it also necessitates staying current with potentially burdensome regulatory requirements.
Financially Disadvantaged Entrepreneurs and Smaller Start-ups: Potential beneficiaries might struggle to meet complex criteria or obtain necessary loans under favorable conditions, accentuating concerns of equity and fairness in accessing the act's intended support.
In conclusion, while the PROGRESS Act is ambitious in its goal to support entrepreneurship, careful consideration will be needed in execution to ensure equitable access and to prevent exploitation of its provisions. Addressing the bill's complexity could enhance its efficacy and fairness, making progress a reality for a broader range of entrepreneurs.
Financial Assessment
The PROGRESS Act introduces new tax credits within the framework of the Internal Revenue Code of 1986, designed to encourage investment in small start-up businesses and support these businesses in paying wages to their initial employees. Below is an analysis focusing on how financial aspects are referenced and their implications:
Small Business Investor Tax Credit
The bill presents a Small Business Investor Tax Credit under Section 2, aimed at providing financial incentives for individuals investing in start-up businesses. The amount of the credit is determined as the lesser of 10% of the qualified investment or an amount equivalent to 50% of such investment, reduced by any prior credits taken.
Financial Limits and Adjustments
The credit amount cannot exceed $10,000, adjusted annually for cost-of-living, or the difference between five times the allowable credit for that year and the total credits received in prior years. While the provision for cost-of-living adjustments reflects an effort to keep the financial incentives robust over time, the complexity involved in calculations and adjustments (such as rounding rules if the increase is not a multiple of $100 or $1,000) adds a layer of financial complexity. This can make it challenging for small investors to fully comprehend their potential benefits without professional assistance, as noted in the identified issues.
Interest Rate and Fairness Concerns
The reduction of the credit when a loan's interest rate exceeds the bank prime rate raises fairness issues. Small or less-established businesses might struggle to secure loans at competitive rates, potentially placing them at a disadvantage compared to entities with better access to attractive loan terms. This aspect could limit the intended reach of financial support to businesses that might need it most.
First Employee Business Wage Credit
Similarly, Section 3 introduces the First Employee Business Wage Credit, granting credits for wages paid to start-ups' first employees. The credit is 25% of the qualified wages, with a maximum limit of $10,000 annually, also subject to a cost-of-living adjustment. This attempt to ease the financial strain on emerging businesses by subsidizing early wage costs is commendable, however, the administrative burden related to the certification process can be daunting, especially for small businesses with limited resources.
Administrative Burden and Risk of Non-compliance
The requirement for detailed certifications could impose substantial administrative demands on businesses. This concern is exacerbated by the possibility of legal and financial repercussions should a business inadvertently fail to comply with the certification process, putting additional financial pressure on small entities. This risk might diminish their motivation to take advantage of the provisions.
Broad Financial and Administrative Complexity
The overall complexity of both credits, like the mention of interrelated sections of the Internal Revenue Code, might make these financial instruments seem opaque to the average small business owner or investor. Additionally, without clear anti-abuse measures, there is a concern that more sophisticated entities might exploit ambiguities for undue advantage, potentially sidelining those the bill seeks to aid.
In summary, while the PROGRESS Act aims to bolster small businesses through targeted tax credits and makes efforts to periodically adjust those credits for inflation, the financial intricacies and accompanying administrative requirements may limit accessibility and effectiveness. Simplified procedures and clearer guidance could enhance their impact by making them more approachable to the average entrepreneur or investor.
Issues
The complexity and ambiguity of the language throughout sections 45BB and 45CC make it potentially difficult for small businesses and individual investors to fully understand and comply with the provisions without professional assistance. This complexity may include the calculations of credit amounts, interest rates adjustments, and eligibility requirements. Such opacity could limit access to intended benefits and potentially create legal challenges due to misinterpretation. (Sections 2 and 3)
The provisions in section 45BB relating to the reduction in the credit amount based on loan interest surpassing bank prime rates could disproportionately favor entities capable of securing lower interest rates, thus disadvantaging smaller or less established businesses. This raises ethical and financial fairness concerns. (Section 45BB)
The potential for abuse or manipulation within sections 45BB and 45CC is significant, given the ambiguity and complexity in defining 'qualified active investor,' 'related persons,' and the criteria for 'qualifying business entities.' This complexity might allow for loopholes that can be exploited, undermining the bill's intent. (Sections 2 and 3)
The section 45CC introduces an administratively burdensome certification process, requiring detailed disclosures from qualifying entities, which may pose privacy and operational concerns, particularly for small businesses. This could also pose legal risks if businesses fail to comply accurately or timely. (Section 45CC)
The cost-of-living adjustments in both sections 45BB and 45CC add financial complexity, particularly due to rounding rules and delayed implementation until after 2025. This delay may limit the immediate effectiveness and attractiveness of the credits, affecting potential beneficiaries' financial planning. (Sections 2 and 3)
The lack of clearly defined anti-abuse measures in both sections 45BB and 45CC might lead to exploitation or manipulation of the eligibility criteria, potentially resulting in favoritism or other unethical outcomes. This raises public concern over equitable access to the credits. (Sections 2 and 3)
The use of terms and specific references to various Internal Revenue Code sections without detailed explanations assumes a level of familiarity that many lay readers, especially those most in need of these credits (such as small business owners), might not possess. This raises concerns of accessibility and transparency. (Sections 2 and 3)
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title Read Opens in new tab
Summary AI
The first section of this bill states its short title, which is the “Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act.”
2. Small business investor tax credit Read Opens in new tab
Summary AI
The Small Business Investor Tax Credit aims to encourage investments in small businesses by allowing taxpayers to receive a credit for their qualified investments. The credit is determined based on certain limits and conditions, such as investment amounts, interest rates, and the type of business entity. This credit, which can also be applied against the alternative minimum tax, is part of the general business credit and kicks in for investments made after December 31, 2024.
Money References
- “(b) Credit amount.—For purposes of this section— “(1) IN GENERAL.—The term ‘credit amount’ means, with respect to any qualified investment in a qualifying business entity, the lesser of— “(A) 10 percent of the amount of the qualified investment determined under subsection (c)(3) for the taxable year, or “(B) an amount equal to— “(i) 50 percent of such qualified investment, reduced (but not below zero) by “(ii) the amount of the credit determined under this section with respect to such qualified investment of the taxpayer for all preceding taxable years. “(2) OVERALL DOLLAR LIMITATION.
- “(A) IN GENERAL.—The credit amount determined under paragraph (1) with respect to any qualified investment of a taxpayer in a qualifying business entity for any taxable year shall not exceed the lesser of— “(i) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), or “(ii) an amount equal to— “(I) an amount equal to 5 times the amount under clause (i) for the taxable year, reduced (but not below zero) by “(II) the amount of the credit determined under this section with respect to such qualified investment of the taxpayer for all preceding taxable years.
- “(C) APPLICABLE AMOUNT.—For purposes of this paragraph, the term ‘applicable amount’ means, with respect to any taxable year in which a qualified investment is made— “(i) in the case of an individual not described in clause (ii), $100,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), and “(ii) in the case of an individual who is a married individual filing a joint return or who is a head of household (as defined in section 2(b)) for the taxable year, an amount equal to 2 times the amount in effect under clause (i) for the taxable year. “(D) RULES FOR DETERMINING AVERAGE TAXABLE INCOME.—For purposes of this paragraph— “(i) a married individual filing a separate return of tax for any taxable year shall include the adjusted taxable income of their spouse in computing the individual's average adjusted taxable income for any period unless the Secretary determines that the spouse's information is not available to the individual, and “(ii) the Secretary shall prescribe rules for the determination of average adjusted taxable income in cases where the individual had different filing statuses for the 3 taxable years described in subparagraph (B).
- (e) Definitions and special rules.—For purposes of this section— “(1) RELATED PERSONS.—A person shall be treated as related to another person if the person bears a relationship to such other person described in section 267(b), except that section 267(b) shall be applied by substituting ‘5 percent’ for ‘50 percent’ each place it appears. “(2) COST-OF-LIVING ADJUSTMENTS.—In the case of any taxable year beginning after 2025, the $10,000 amount under subsection (b)(2)(A)(i) and the $100,000 amount under subsection (d)(5)(C)(i) shall each be increased by an amount equal to— “(A) such dollar amount, multiplied by “(B) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘2024’ for ‘2016’ in subparagraph (A)(ii) thereof.
- If any increase in such $10,000 amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100 and if any increase in such $100,000 amount is not a multiple of $1,000, such increase shall be rounded to the next lowest multiple of $1,000.
45BB. Small Business Investor Tax Credit Read Opens in new tab
Summary AI
The Small Business Investor Tax Credit gives taxpayers a credit for investing in qualifying small businesses. The credit is determined based on a percentage of the investment or a certain amount allowed annually, with specific rules governing eligible investments, limits, and business qualifications.
Money References
- (2) OVERALL DOLLAR LIMITATION.
- — (A) IN GENERAL.—The credit amount determined under paragraph (1) with respect to any qualified investment of a taxpayer in a qualifying business entity for any taxable year shall not exceed the lesser of— (i) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), or (ii) an amount equal to— (I) an amount equal to 5 times the amount under clause (i) for the taxable year, reduced (but not below zero) by (II) the amount of the credit determined under this section with respect to such qualified investment of the taxpayer for all preceding taxable years.
- , the term “applicable amount” means, with respect to any taxable year in which a qualified investment is made— (i) in the case of an individual not described in clause (ii), $100,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (e)(2)), and (ii) in the case of an individual who is a married individual filing a joint return or who is a head of household (as defined in section 2(b)) for the taxable year, an amount equal to 2 times the amount in effect under clause (i) for the taxable year.
- , the $10,000 amount under subsection (b)(2)(A)(i) and the $100,000 amount under subsection (d)(5)(C)(i) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2024” for “2016” in subparagraph (A)(ii) thereof. If any increase in such $10,000 amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100 and if any increase in such $100,000 amount is not a multiple of $1,000, such increase shall be rounded to the next lowest multiple of $1,000. (3) RULES RELATING TO ENTITIES.— (A) SOLE PROPRIETORSHIPS.—If a taxpayer carries on 1 or more trades or businesses as sole proprietorships, all such trades or businesses shall be treated as a single entity for purposes of applying this section. (B) APPLICATION TO DISREGARDED ENTITIES.—In the case of any entity with a single owner which is disregarded as an entity separate from its owner for purposes of this title
3. First Employee Business Wage Credit Read Opens in new tab
Summary AI
The “First Employee Business Wage Credit” allows certain businesses to get a credit equal to 25% of wages paid to the first employee, up to $10,000, when filing taxes. This helps small businesses reduce their tax burden by incentivizing the hiring of their first full-time employee.
Money References
- “(b) Dollar limitations.
- — “(1) IN GENERAL.—The amount of the credit determined under subsection (a) with respect to any qualifying business entity for any taxable year shall not exceed the lesser of— “(A) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (f)), or “(B) the excess (if any) of— “(i) an amount equal to 4 times the amount under subparagraph (A) for the taxable year, over “(ii) the amount of the credit determined under this section with respect to such entity for all preceding taxable years.
- “(f) Cost-of-Living adjustments.—In the case of any taxable year beginning after 2025, the $10,000 amount under subsection (b)(1)(A) shall be increased by an amount equal to— “(1) such dollar amount, multiplied by “(2) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘2024’ for ‘2016’ in subparagraph (A)(ii) thereof.
- If any increase in such amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.
45CC. First Employee Business Wage Credit Read Opens in new tab
Summary AI
The section outlines the First Employee Business Wage Credit, which allows qualifying businesses to claim a credit of 25% of wages paid to their first employees, subject to certain limitations. It details eligibility criteria, the definition of qualified wages, and special rules for pass-thru entities, as well as the procedure for applying this credit against payroll taxes.
Money References
- (b) Dollar limitations.
- — (1) IN GENERAL.—The amount of the credit determined under subsection (a) with respect to any qualifying business entity for any taxable year shall not exceed the lesser of— (A) $10,000 (as increased for the taxable year by the cost-of-living adjustment under subsection (f)), or (B) the excess (if any) of— (i) an amount equal to 4 times the amount under subparagraph (A) for the taxable year, over (ii) the amount of the credit determined under this section with respect to such entity for all preceding taxable years. (2) NO CREDIT BY REASON OF COST-OF-LIVING ADJUSTMENT AFTER OVERALL LIMIT FIRST REACHED.—No
- (f) Cost-of-Living adjustments.—In the case of any taxable year beginning after 2025, the $10,000 amount under subsection (b)(1)(A) shall be increased by an amount equal to— (1) such dollar amount, multiplied by (2) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2024” for “2016” in subparagraph (A)(ii) thereof. If any increase in such amount is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.