Capital-Gains Tax Installments Proposed
A big headache is about to go away for thousands of business owners who were worried about huge tax liabilities if they sold.
One of the final bills passed before Congress adjourned for the year will reinstate a rule allowing capital-gains taxes to be paid in annual installments if a business sale is structured that way. Under a law enacted in December of last year, taxes on such sales had to be paid in lump sums no matter when payment was to be made to the seller.
“We heard an outcry almost immediately after this went into effect,” said Rep. John Sweeney (R-N.Y.).
Passage of the Installment Tax Correction Act essentially restored things to where they were before Dec. 17, 1999, when President Clinton signed into law tax legislation that included the change.
The provision was added then at the administration’s insistence, partly to close a loophole officials said unduly benefited many large corporations and partly to help pay for other tax relief.
Rep. Gerald D. Kleczka (D-Wis.) said the aim was to “crack down on large corporations deferring taxes for extended periods of time. Clearly, Congress did not consider the full ramifications of this change in the law.”
The National Federation of Independent Business, an advocate of small businesses in Congress, estimated that if unchanged the law could hit 260,000 business sales transactions made each year.
Rep. Wally Herger (R-Marysville) said in some cases the rule reduced the sale price of businesses by 20% or more. For many owners, the rule jeopardized transactions they counted on to pay for retirement.
“Our tax laws should encourage the spread of prosperity, not discourage success,” Herger said. “It doesn’t just hurt small-business sales. It also threatens the retirement security of many older Americans.”
Installment sales are also important in transactions where bank financing isn’t readily available, supporters said.
When the president signs it into law, as expected, the legislation will apply retroactively to Dec. 18--ensuring that any business sale over the last year could use the installment method without getting hit with a big tax bill.
There is a relatively small estimated government revenue loss of $2.1 billion over 10 years, according to the House Ways and Means Committee.
“Restoring this important option is a real holiday present for America’s small businesses,” said Dorothy Coleman, tax policy vice president at the National Assn. of Manufacturers.
