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Jim Schneider
The Taxman86 Speaks...
27 July 2000
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The Distressed Communities Tax Legislation Finally Arrived With A Bang; Downtown L.A. APPEARS to Lend Itself to Housing...Live at the Office; Small Business Tax Cuts Do Not Make It, But Seniors' Social Security $100B Tax Cut does.

1. H.R. 4923, "Community Renewal and New Markets Act of 2000," finally makes it.

Tuesday was not a good day for news, but the House did pass overwhelmingly the Bipartisan Compromise brokered on May 23, 2000 by Speaker Hastert and President Clinton, which includes 40 Renewal Communities [32 Urban 8 Rural], and 9 new Empowerment Zones, and the various tax incentives available to each, effective next June 30, 2001, or January 01, 2002, as the case may be.

Buried in all these provisions is the real sleeper, effective when the President signs the bill [This is expected in early September], Sections 206 and 207, which provide for a capital gains roll over, similar to IRC Section 1045, and an increase in the IRC Section 1202 capital gains exclusion, the 50% will be increased to 60% for Qualified Small Business Stock of Enterprise Zone Businesses, acquired after the bill is effective, and held for five years in Empowerment Zones; H.R. 4923, and this article in the Washington Post.

Not to be out done, the Senate Democratic Leadership introduced S. 2936 on Wednesday, and it had Senator Charles Robb and 18 Co-Sponsors, including Senate Minority Leader, the Minority Whip and the whose/who of the Democratic leadership.

As one tax advisor stated, "...These provisions will completely revolutionize the business community as we know it today, since many businesses are WIRED, to wit, Internet Friendly..."; and if located within these Empowerment Zones [the ":Zones"] will be able to do business both inside and outside the Zones, so long as at least 50% of the gross income is generate from the Zone. The critical date is when the Act is enacted. Suppose you purchase real property before the enactment date, or start a new business before September --, 2000? Stay alert.

2. Downtown Los Angeles Has A Historic Core, And The City Wants Housing.

The Business Section of the Los Angeles Times tells it all in today's front page with "Downtown L.A. Appears to Lend Itself To Housing...Live at the Office," by Jesus Sanchez. The Color Aerial Photo of the 39 blocks and 15M Sq. Ft. of historic buildings is very impressive, as are the fundamentals, but missing from the story was the fact that the Los Angeles Federal Empowerment Zone, will be entitled to the Roll Over Capital Gains, and increased Capital Gains Exclusion, effective next month.

Is it possible to convert the 50 to 200 buildings into something special? Is it possible to encourage the entertainment, jewelry, garment/fashion districts to get excited about creating a business, to wit, a film, record, etc., and selling out within 12 to 18 months, without paying any capital gains tax? (Are you listening Inside; Cinema Now; Planet Hollywood; AntEye; Atom Films; HonkWorm; OtherVision. See The Standard for the latest on Napster, but the kids will win out. You heard that first here. The Online Entertainment Industry is exploding all over the place, and with some new tax incentives, they will grow even faster. Let the games begin.

3. Small Business/Home Office Industry Just does not cut it.

The House tried to pass a MODEST compromise Small Business Tax Cut with a Minimum Wage Increase; something that has been on the table since the fall of 1998, at a cost of about $90B over five years [it would include increased IRC Section 179 deductions, full deductibility of health costs, and some other minor things. But it did not make it. What did make it was a $100B tax cut to seniors who earn over $34,000 as a single or $44,000 as a married [what happened to the marriage penalty for seniors' social security?].

How Congress can avoid giving Small Businesses [sole proprietorships, partnerships, and S Corp.s] full deductibility for health costs, when they give seniors prescription coverage, reduced taxes on social security, and other things continues to amaze us, but clearly at $7,000 to $10,000 per family for health care, it may pay to incorporate and have a C Corp.

Jim Schneider, LL.M.

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