WASHINGTON, D.C., July 10 - A tax reform proposal unveiled in the Senate will bring needed market-based reform to the tax code by implementing a fairer depreciation schedule for intangible assets held by small businesses, says Independent Insurance Agents & Brokers of America (IIABA) CEO Robert A. Rusbuldt.
S. 1371, introduced on a bipartisan basis by Sens. Jim Bunning (R-Ky.) and John Breaux (D-La.), proposes to amend Section 197 of the Internal Revenue Code by allowing the acquiring business owner to write off the first $5 million of intangible assets in the year of the purchase, with the remainder to be depreciated equally over 14 years. Under current law, all intangible assets must be amortized ratably over a 15-year schedule. Both Bunning and Breaux are members of the Senate Finance Committee, which oversees tax policy in that chamber and will debate this measure. Reps. Mark Foley (R-Fla.) and Max Sandlin (D-Texas), members of the tax-policy-writing Ways and Means Committee, introduced companion legislation in the House in March.
“The current 15-year depreciation schedule is problematic for business owners seeking to sell their small business because the tremendous tax burden assumed by the purchaser limits their financial ability to pay the former owner,” explains Rusbuldt. “Also, the amortization schedule contained in current law is not close to reflecting the reality of the useful life of intangible assets in the business world. Small business owners, like independent agents and brokers, have learned that the actual economic life of an intangible asset is much shorter than the 15 years currently called for in Section 197.”
Sen. Bunning says S. 1371 will provide relief for small businesses around the country. “America’s small businesses play a vital role in our economic growth. My bill will provide a boost for hundreds of thousands of small business owners by making it easier for them to pass on their companies to future generations,” he says.
Sen. Breaux says: “Small businesses are important to America's economic growth and I believe this legislation will help them prosper.”
Rusbuldt praised the bill’s sponsors, saying: “We commend Sens. Bunning and Breaux for their leadership and are eager to work with them to make this legislation the law of the land. Sens. Bunning and Breaux clearly understand that a market-based, real-world depreciation schedule is needed for small businesses.”
To ensure that the bill is specifically targeted at small business owners, S. 1371 defines an eligible small business as “a taxpayer whose average annual gross receipts do not exceed $5 million for the preceding three years.” If enacted, the proposal would apply retroactively to transactions completed on or after Jan. 1 of this year.
“S. 1371 would make it easier for independent insurance agents and brokers to sell their operations because the largest and highest-value assets they hold are their customer and prospect lists,” explains IIABA Senior Vice President of Federal Government Affairs Maria L. Berthoud. “The change in the tax code enacted in 1993 provided certainty in the tax treatment of intangible assets, but unfortunately its depreciation schedule is not reflective of business practice used by thousands of entrepreneurs nationwide. S. 1371 would make the write off of intangible assets more equitable for small business owners.”
Berthoud says the Bunning-Breaux proposal would provide a boost to not only independent agents and brokers, but literally thousands of small business owners whose operations include large amounts of intangible assets. “S. 1371 has broad appeal to thousands upon thousands of small business owners. Whether they are an independent insurance agent or broker or other business owner, once this bill is enacted it will make their business more attractive, and thus more valuable,” says Berthoud.
The types of intangible assets covered by Section 197 are lengthy. Classified as intangible assets under the Internal Revenue Code are goodwill, going-concern value, workforce in place, business records (to include customer lists), patents and other intellectual property, customer-based intangibles (market share and other values resulting from future provision of goods and services), supplier-based intangibles (any value resulting from future acquisitions of goods or services), licenses, covenants not to compete and franchise, trademark or trade name. This provision would not apply to the acquisition of a patent, trademark or customer list without a transfer of the entire related business in which the asset is used.
Founded in 1896, IIABA is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 300,000 agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty, life and health—as well as employee benefit plans and retirement products. Web address: www.independentagent.com.
NOTE: Senator Bunning has likewise issued a press release on this new legislation. It is available at his Web site (http://bunning.senate.gov).