WASHINGTON — The banking lobby pushed small business tax relief through as part of the U.S. Troop Readiness and Iraq Appropriations Act (H.R. 2206), which will provide $4.84 billion in tax relief for thousands of small businesses and community banks.
The president signed the bill into law May 25 after it passed the House by a narrow margin, 221-205, but made it through the Senate unanimously on a voice vote.

Independent Community Bankers of America Chairman James P. Ghiglieri, president of Alpha Community Bank, Toluca, Ill., stated, "Community banks are the backbone of our local economies and this new law helps free up resources to better support the communities we serve. We are absolutely delighted that Congress and the White House worked together to enact legislation that benefits community banks, and the small businesses and people in our communities."

The new law provides more than $750 million in ICBA-backed small business tax relief, including improved small business expensing and beneficial Subchapter S tax provisions. Several provisions were part of the ICBA-advanced Communities First Act (S. 1405 and H.R. 1869).

• Exclude capital gains from passive investment income for Subchapter S businesses;
• Ease the treatment of Subchapter S bank director shares;
• Improve the tax treatment of bank bad debt reserves;
• Improve the treatment of the sale of interest on a qualified Subchapter S subsidiary; and
• Ease the interest expense of an electing small business trust to acquire S corporation stock.

These tax relief measures will help existing Subchapter S community banks while facilitating election of Sub S status for more banks. Sub S corporations have a "pass-through" tax structure, where income is taxed at the shareholder level rather than at the higher corporate level. About 2,400, or one-third, of banks in the U.S. have elected Sub S status.