H.R. 6756 intends to make it easier and less costly for an entrepreneur to start a new business by providing for more deductions of start-up and organizational costs in the business’s first year and preserving start-up losses and start-up credits by exempting them from the limitations on use that otherwise could apply after an ownership change.
Specifically, the legislation consolidates the rules for start-up expenditures (section 195) and organizational expenditures (sections 248 and 709(b)) into a single provision, allowing the taxpayer to elect to deduct up to $20,000 of the aggregate amount of start-up and organizational expenditures in the taxable year that the business begins. This deduction is phased out to the extent that the start-up and organizational expenditures exceed $120,000. Expenditures above the increased limit would continue to be deductible over a 180-month period.
In addition, the legislation amends sections 382 and 383 to permit a corporation’s net operating loss carryforwards, net operating losses, general business credit carryforwards, and general business credits that arise during the start-up period of a business to be available for use in a post-ownership change year without limitation by sections 382(a) and 383.
With regard to section 382, the proposal generally reduces a corporation’s losses that are subject to limitation by the portion of the corporation’s net operating loss carryforwards and net operating losses that are attributable to the early years of the start-up business. With regard to section 383 the bill permits unused general business credits earned by a start-up business prior to an ownership change to be used in a post-change year without limitation.