President Signs War Funding Legislation with Small Business Tax Relief

On May 25, 2007, President Bush signed legislation providing supplemental funding for the Iraq war. The legislation includes an increase in the minimum wage and a companion package of tax relief provisions focused on small business.

The tax relief provisions include an extension and expansion of the Work Opportunity Tax Credit to include veterans and rural counties with declining populations; an increase and extension of the Code Sec. 179 expensing election; several provisions directed at the Hurrican Katrina Gulf Opportunity Zone; allowing the full tip credit in spite of the minimum wage increase; allowing the tip credit and Work Opportunity Tax Credit for AMT purposes; permitting businesses jointly owned by spouses to file as a sole proprietorship; and a package of provisions designed to help small businesses maintain S Corporation status.

To pay for the tax breaks, the legislation includes an increase in the kiddie tax age to children under age 19 and students under age 24; modifies the interest suspension rules when the IRS fails to give notice; eliminates certain requirements for collection due process hearings; permanently extends IRS user fees; and increases or creates new penalties.

Also included in the legislation were several pension-related changes to the Pension Protection Act of 2006. The total projected price tag for the tax breaks is $4.8 billion, which is fully offset by the revenue raising provisions.