Monday, November 28, 2011

Senate Legislation Would Provide Small Companies with Exemption from Sarbanes-Oxley Section 404(b)

Bi-partisan Senate legislation would provide relief from Section 404(b) of Sarbanes-Oxley as part of an effort to forge agreement between the President’s American Jobs Act, recommendations from the President’s Council on Jobs and Competitiveness, and proposals put forward by members of both parties in Congress. The American Growth, Recovery, Empowerment and Entrepreneurship (AGREE) Act (S 1866), introduced by Senators Chris Coons (D-DEL) and Marco Rubio (R-FLA), is a mixture of tax relief for small businesses and regulatory relief for small companies. A companion bill, HR 3476, has been introduced in the House.

According to Senator Coons, the auditor attestation requirements of Section 404(b) have placed a high cost of compliance on small public companies. President Obama’s Council on Jobs and Competitiveness recommends amending Sarbanes-Oxley to allow shareholders of public companies with market valuations below $1 billion to opt out of Section 404 compliance.

The Coons-Rubio legislation goes further by providing a five-year exemption from Section 404(b) of Sarbanes-Oxley for the first five years after a company goes public, or for those below $250 million in total gross revenue (whichever comes first). The legislation also directs the SEC to submit a report to Congress within nine months to determine how the SEC could reduce the burden of Section 404(b) for companies with a market capitalization of between $250 million and $1 billion. The Commission must also assess the annual compliance costs posed by Section 404(b) for all companies with a market capitalization of below $1 billion.

The legislation would extend through 2014 the IRC Section 179 expensing levels allowing businesses to immediately expense or deduct investments in capital, reducing the cost of investment and expansion. Unless Congress acts, Sec. 179 expensing will fall sharply to $125,000 on January 1, 2012. The AGREE Act would extend Section 179 expensing levels through 2014, thereby allowing expensing of investments up to $500,000.

The legislation would eliminate taxes on small business stock. The Tax Relief, Unemployment Insurance Reauthorization Act of 2010 extended the 100% exclusion for qualified small business stock acquired before January 1, 2012.The Coons-Rubio bill would extend the 100% exclusion to stock acquired before January 1, 2015 and held for more than five years, boosting investment and encouraging job creation in small businesses. Without an extension, the capital gains exclusion will lapse to 50% on January 1, 2012.

The legislation would also extend a business allowance to depreciate the cost of investments in equipment and property through 2014. Currently, businesses are allowed to depreciate the full cost of qualified investments such as equipment and property, but this provision will lapse to 50% on January 1, 2012 absent Congressional action. The AGREE Act would extend 100% bonus depreciation through 2012 and maintain the $2 million threshold in current law. President Obama’ American Jobs Act proposed extending this provision through 2012, and House Republicans have identified this as an issue of potential common agreement with the President.

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