After months of maneuvering, the Senate today adopted H.R. 5297, the Small Business Jobs and Credit Act.B This legislation includes a number of business-friendly provisions, including the built-in gains tax relief so important to the S Corporation Community.B This is a big (excuse the pun) victory for S corps everywhere!

The bill now moves back to the House, where it could take two paths.B On the first path, the House takes up the Senate version, passes it intact, and sends it to the President for his signature.B The second path would include House amendments and more floor debate.B At that point the bill would return to the Senate, taking up time Congress simply doesnbt have.

For that reason, we expect the House to take the first path, so we should have a signing ceremony–and a five year BIG holding period starting next year–by the end of the month.B Good news indeed.

Payroll Tax Dropped from Extenders

During consideration of the small business bill, Finance Chairman Max Baucus (D-MT) sought to add a new package of btax extendersb to the bill.B Republicans blocked the effort, pointing out that this was a wholly new package and that once again the minority was being blocked from offering amendments on the Senate floor.

The core of this package (the fourth or fifth version he has put together over the past year) would extend for 2010 all the provisions that expired at the end of 2009 — the R&E tax credit, state sales tax deduction, the S corporation charitable deduction, etc.; it also includes a number of unrelated spending items.

More good news for S corporations: the payroll tax hike included in earlier versions of the extender package is not included here.B With the short calendar we donbt expect this issue to return this year, but it will return.B Webll continue to work to make certain any provision drafted to address this issue is well constructed and doesnbt target law-abiding S corporations.

House Moderates Oppose Tax Hike on Private Employers

As we mentioned in the last Washington Wire, a letter in support of extending all the expiring tax provisions was circulating among moderate Democrats in the House.B If enough Democrats signed on, the letter had the potential to change the legislative prospects of blocking the pending tax hikes in the House.

Well, the letter is out, and 31 moderate Democrats signed on– more than enough to signal a tipping point on the issue.B As the letter concludes:

We urge quick passage of legislation to extend the tax cuts so that American families and businesses have the certainty required to plan and make informed decisions.B The sooner we act, the sooner our nationbs economy will benefit.

Added to the base of Republican support, this level of support from Democrats puts proponents of a full extension within spitting distance of majority support and increases the odds of a stalemate on this issue. B After all, how does the Speaker limit extending the tax relief to the middle-class only if a majority of House members support a full extension?

This difficulty was reflected in the Speakerbs comments earlier this afternoon.B As The Hill reported:

Pelosi argued at length for allowing the tax cuts on the top brackets to expire, but she could not say whether she had the votes to do so. Asked if there was any chance the top rates would be extended, even temporarily, the Speaker dodged.B bThe only thing I can tell you is tax cuts for the middle class will be extended this Congress,b Pelosi said.

Meanwhile, our friends on the Senate side are telling us nothing is likely to happen before November, at the least.B The House is unlikely to move on this issue until the Senate acts, and the Senate lacks the necessary 60 votes to move anything, so itbs off to the blame duckb we go.

After the elections, we continue to believe that of the three possible outcomes — no action, protecting the middle class only, or protecting everybody — the most likely outcome is bno actionb this year.B The next most likely outcome is a temporary extension of all the tax rates.

Legislation limited to extending the middle class provisions was always unlikely to move.B This letter makes it less so.