By Albert B. Crenshaw

The change in control of the Senate means a change in direction for the chamber's Small Business Committee as well.

The new chairman, Sen. John Kerry (D-Mass.), said he intends to enlarge the scope of the panel, hopefully raising its profile within the Senate and outside it.

The committee, like its House counterpart, has long wrestled with the problem that the key issues of its small-business constituency -- taxes, regulation, health care, access to capital and the like -- are numerous and also within the purview of major committees, which tend to dominate the debate on them. That often leaves the Small Business Committee feeling stepped on and its interests overlooked.

However, Kerry hopes to turn the wide range of issues that affect small businesses to an advantage, fitting together matters that have often been dealt with piecemeal in the legislative process.

The new chairman said last week that he intends to continue the focus on easing the "restraints on small business." He said simplifying regulation is a key goal.

Kerry said he wants to make environmental matters another priority, and to hold a hearing "on the relationship of small business to environmental regulation, to defuse the mystery about it and try to figure out where big-company rules applied to small entities don't fit."

Kerry said he also would like to "minimize the inherent suspicion people have of environmental efforts" and show "the upside benefits to a lot of companies that have engaged in remediation."

Also on his agenda:

* Restoring cuts in the Small Business Administration's budget.

* Improving access to capital.

* Aiding women and minorities in business.

* Improving health-care coverage.

* Assisting "chronically underinvested areas."

Kerry will first have to convince the small-business interest groups that he shares their goals. When it became clear he would replace Sen. Christopher Bond (R-Mo.), Jack Faris, president of the National Federation of Independent Business, said, "Losing a chairman of the Small Business Committee with a 100-percent NFIB rating and replacing him with one with a 16-percent NFIB rating . . . obviously poses a new challenge."

Kerry said "the committee has a history of being bipartisan and effective in that regard, and I absolutely want to continue that consensus" approach.

Kerry also has real experience in small business. Founder of a Boston gourmet food firm in his pre-politics years, he said he "wrestled with all the permitting, health inspection, landlord-leasehold issues" that businesspeople deal with every day.

"It was a great experience," he said. "I took a lot away from it."





When a small business is sold, the seller often agrees not to start a new version of the business or otherwise compete with the buyer.

These "covenants not to compete," or "non-compete agreements," are typically demanded by the buyer to protect its investment. After all, the former owner has generally shown that he is pretty good at what he did, and would be a formidable threat in the marketplace.

The covenants typically last for a period of years, and in the past buyers could write off, or amortize, these agreements on their tax returns over the life of the covenant.

But in 1993, Congress rewrote the law governing the amortization of such acquired intangible assets. The change was beneficial in many respects, allowing write-offs where they had previously been barred. But to keep the provision from being too expensive to the Treasury, Congress set the amortization period for certain assets at 15 years.

Now the Tax Court has decided that a covenant not to compete, when it is entered into in connection with the acquisition of an interest in a business, is covered by this 15-year provision.

In the case before the court, a Billings, Mont., Chevrolet dealership bought out an investor and the investor agreed not to compete for five years. The dealership agreed to pay the investor $ 22,000 a month during the five years.

The dealership began writing the agreement off over 15 years, but after three years evidently decided that it would use five years, the term of the agreement. This, of course, produced larger write-offs -- reducing the dealership's net income -- in the previous three years. It filed for refunds, and the Internal Revenue Service said no.

The case was the Tax Court's first involving the new intangible-assets law and covenants not to compete, and it said the covenants are clearly covered by the measure.

This means that in many cases, tax write-offs for these covenants will have to be stretched out well beyond the life of the agreement, so that the taxpayer will incur expenses years before being able to deduct them in full.





One of the features of the new tax law will be to push the top personal income tax rate down to 35 percent in 2006 -- the same top rate that is paid by corporations.

The accounting firm Deloitte & Touche notes that this shift makes it ever more attractive to do business in a form that allows income to be taxed at personal rates.

Taxes, of course, are far from the only consideration in choosing the form, or entity, in which you want to do business, and a regular old corporation can be very useful. But ordinary corporations -- Subchapter C corporations, in tax talk -- are taxable themselves, and then any dividends they pay out are taxable to shareholders. This double taxation can be quite painful, especially for small businesses.

That was offset in a small way when personal rates topped out at 39.6 percent. When there were lots of profits, at least the company paid at a lower rate. In 2006, that difference disappears.

Other business forms, such as partnerships and Subchapter S corporations, do not pay taxes themselves. Instead, profits and losses "pass through" to their owners and are reported on the owners' tax returns.

"With the act's lowering of individual income tax rates, the use of pass-through entities becomes even more appealing," Deloitte said.