Small Business Tax Credit - Case Study Example

Small Business Tax Credit Introduction The Americans with Disabilities Act of 1990 (ADA) has requirements for the modification of various business ventures with the aim of accommodating people with disabilities (Henry Schein Medical par 1). To enable businesses comply with these requirements, the Internal Revenues Code offers incentive measures to enable businesses accommodate the disabled. The requirements are embodied in the Internal Revenue Code section 44. The section offers tax credits of up to $ 5,000 for money expended in a bid to comply with the Americans with Disabilities Act (Henry Schein Medical par 3). Each tax year, a business that expends between $ 250 and USD 10,250 on compliance is qualified for a 50% credit. The expenditures though must be reasonable and within the regulations set by the Internal Revenues Service (IRS). Some expenses, though, are not qualified to access the incentives under the Internal Revenue Code section 44. Thoseexpenses may also include new construction expenses and renovation expenses incurred in the normal renovation processes. Section 44 allows tax credits as opposed to tax deductions; the former is the reduction of the total tax accrued while the latter reduces the taxable income. The purpose of the section is relatable to the purpose of the Internal Revenue Service Section 179 as well as the Job Creation and Worker Assistance Act of 2002; the two are forms of affirmative action aimed emancipating disadvantaged groups in the American Society (Henry Schein Medical par. 5). This essaylooks at how the disabled access tax credit assists businesses comply with the Americans with Disabilities Act. It also looks at how the disabled are empowered in their day-to-day lives as they strive to live normal lives just like all other Americans. What Constitutes Guaranteeing Access for Persons with Disabilities Managing to get our way around the various places we visit may be something most people take for granted (Community Tool Box par. 1).  Pavements, stairways, sidewalks and other kinds of passages are things many people may take for granted. There may be barriers that many people may not notice until they find themselves ill, disabled in some way or just taking care of a sick or disabled person. Signs, public-address systems, road signals and such facilities may be deemed distractive (Community Tool Box par. 2). However, these are objects that make life bearable for some groups of people, especially the disabled. The disabled people require directions and assistance from time to time, more frequently as compared to normal people. The deficiency of concern to people with disabilities is observed when they seek work, learning and other social amenities like healthcare services (American Bar Association 451).  Many countries have recognized the need to address the needs of the physically and mentally challenged. Various laws have been enacted to protect disabled persons from discrimination. The disabled have rights which afford them access to education, public amenities, and employment opportunities among all other public services. The ADA defines the term ‘disability’ to mean an individual with a bodily or mental impairment which considerably confines any of their regular activities. An individual with a record of such a disability is viewed as a disabled person.  Disability may be triggered by injury, illness or a medical disorder. About 12% of the American population suffers from nervous, chemical, or growth disabilities (Community Tool Box 6). This population needs to be cushioned against the vagaries of the society which they cannot handle effectively owing to their disability. Eligible Access Expenditures The expenditures that are allowed for purposes of credit with regard to section 44 are provision of services that accommodate disabled people (Adaptive Environments Center, Inc 2). This may include the availing of sign language interpreters. Provision of readers to help the visually impaired is another qualification. The provision of braille or other accessible layouts of written material is also accepted. Other expenditures include the purchasing of equipment that enables better enjoyment of premises by disabled people. Infrastructural adaptation or rather architectural alterations for the benefit of disabled persons may also be viable expenditures for purposes of tax credit. This may include the removing of architectural barriers either in a building or a vehicle. Consultancy fees paid as part of the said expenditures may also be included in the calculation of tax credit figures (Adaptive Environments Center Inc 2). The tax credits under the ADA were only designed for the benefit of small businesses. A business that makes revenues less than a million dollars in a year or one that has less than 30 employees is eligible for tax credits under the section. Tax deductions for the same purposes are also provided for1. However, the tax credits cannot be carried forward, they have to be claimed in the same year they fall due. It is imperative that a business cannot claim tax credits for appliances that are part of the equipment it needs for normal day to day operations. This was declared in a case where a variable height field analyzer and a handheld topographer were deemed to be implements required for the normal operations of an optometrists office2. Such appliances were not eligible access expenditures as required by Code Section 44 Credit. In S.T. Fan, 117TC – No.3, Dec. 54, 419, a dentist who had already complied with ADA purchased an intraoral camera system (martininnovations par. 8). In his normal practice, he would use short hand notes to communicate with his patients3. This practice made him compliant with the ADA; he never discriminated against the deaf; or rather those with hearing disabilities. It was held that the intraoral camera was not eligible access expenditure. The handwritten notes he normally used were enough for ADA compliance thus eliminating the need for the purchase he made. The final conclusion of this case was that it would be reasonable to hold that the intraoral camera system was eligible access expenditure. The dentist in S.T. Fan, 117TC – No.3, Dec. 54, 419could not receive the claimed tax credit under the circumstances. It was reiterated that tax credits would only be accessed by businesses incurring costs on activities that removed barriers for the disabled. Secondly, expenditure that enhanced enjoyment of business premises by the hearing-impaired. Third, the provision of readers or other objects to assist the visually-impaired were held to be eligible access expenditure. Last but not least, expenses in adjusting or obtaining paraphernalia and materials to enhance the accommodation of any kind of disabled persons are eligible access expenditure. Application for tax credit is done by way of form 8826 which only entertains applications for expenditure incurred in the removal of structural, physical and transportation barriers for the disabled (martininnovations par. 8). The incentive provides a very viable way of complying with the ADA. One of the most common areas that may take advantage of eligible access expenditure tax credits is medical practice. The accessibility of healthcare providers’ offices is key in enhancing the better treatment of disabled persons. For instance, a doctor with accessible premises will be in a better position to serve disabled people on a more routine basis. This enhances service delivery to this group of marginalized Americans. The need for accessibility is not only for legal compliance. It is also important for the delivery of better services to the disabled. The enhancement of routine checkups ensures that the disabled people in the society are taken care of in a better way. Various medical conditions can be detected early so as to avoid more serious complications and medical fatalities. The ADA acts as a federal human rights agent in its bid to ensure that the disabled are catered for. This helps in putting America high on the echelons of human rights responsiveness. The ADA is an important policy tool enabling improved service delivery and caretaking for the underprivileged in the society. The federal policy is intended to eliminate discrimination of the disabled people by offering federal financial support in form of tax credits. This leaves all institutions without any room for excuse making for failing to comply with the federal policy. After the enactment of the ADA, it became a requirement that all existing establishments should comply with the Act’s policy. Moving forward, all new establishments should ensure that they have put in place all the required facilities so as to enhance service delivery to the disabled. Construction of the Internal Revenue Code section 44 Some business enterprises have been seen to be construing the disabled tax credit provisions with excess generality.Taxcredits can only be accessed by companies incurring costs on activities that removed barriers for the disabled. The expenditure is to enhance enjoyment of the premises by the disabled. Further, the expenses should be incurred in adjusting equipment so as to enhance the accommodation of disabled persons in the business premises.Therefore businesses should only construe the tax credit terms only in the prescribed form. In Edward R. Arevalo versus Commissioner of Internal Revenue, the petitioner, Arevalo, was in a telephone venture supported by Alpha Telecom, Inc. Alpha Telecom lobbied many persons to capitalize in payphones (OpenJurist par. 3). The phones were improved with aspects that included longer cords as well as volume controllers. They were designed to enhance their useby disabled people. In the Arevalo case, it was stated that the adaptations made the phones accommodating and enhanced their compliance with the Americans with Disabilities Act ("ADA"). Alpha Telecom also argued investors could gain twofold tax benefits. The phones were depreciable assets which would therefore allow investors to get depreciation deductions. The deductions were allowable as per the provisions of the Internal Revenue Code ("I.R.C.") § 167, 26 U.S.C. § 167. Secondly, the costs paidin compliance with the ADA would make each investor qualified for the disabled access tax credit under the Internal Revenue Code section 44. The Supreme Court held that Arevalo was not entitled to both reliefs. The ratio decidendi in this case was that Arevalo had no right of control over the phones (OpenJurist par. 13). He had never taken possession of the telephones. Also, he had no information as to where they were situated. Arevalo could also not identify the phones.Further, he had no authority to sign any site contracts. There was no risk of loss for Arevalo since there was a buy-back option. Arevalo could vend the telephones back to Alpha Telecom and recoup the phone’s full value. Alpha Telecom was moreover accountable for all maintenance costs. Resultantly, notwithstanding Arevalos lawful title over the telephones, the Court decided that the petitioner had no ownership rights over the phones. He could not claim a depreciation deduction nor could he claim tax credits. Alpha Telecom was held to be rightful claimant of any credits over the telephones. It is Alpha Telecom that was accountable for all resultsconnected to the telephones. Alpha Telecoms leased the telephones to various premises of unrestricted accommodation. This was the reason behind the entitlement of Alpha Telecoms to the disabled tax credits. This case formed reliable jurisprudence in relation to the application of the ADA and specifically the Internal Revenue Code section 44. Small business enterprises must ensure that they rightly comply with the requirements for entitlement to the disabled tax credits. The holding in Arevalo versus Commissioner of Internal Revenue has been quoted in several judicial decisions where it has been determined that the investment should be an eligible access expenditure (ustaxcourt par. 2). The case was quoted in Edward Atlee Howes versus Commissioner of Internal Revenue4. It this matter, it was held that the provisions of the Internal Revenue Code section 44 must be followed when seeking disabled tax credits. These provisions are as discussed above in this essay. Best Practices The purpose of the Americans with Disabilities Act of 1990 can be compared to Canadian laws that serve the same purpose. Canada offers best practice standards that the American system can borrow from or rather exchange notes with. The Canadian practice can also help in evaluation of the American system’s efficiency or the lack of it. The Canadian disability tax credit provision is there tomake available tax relief to persons with disabilities (Technical Advisory Committee on Tax Measures for Persons with Disabilities par. 1). These people may suffer inability due to certain functions that maycurb them in their day to day activities. The difference with the American system is that the Canadian system offers incentives to emancipate the disabled from unfair treatment by the system. The services and programs in place are accessible for people with infirmities to assist them and those who take care of them. It helps them handle extra expenditures owing to their disability and therefore assisting them embark on better or complete contribution in society. Conclusion The Canadian system is inclined towards compensating the disabled as compared to the American system which makes tax credits to organizations and small businesses(Technical Advisory Committee on Tax Measures for Persons with Disabilities par. 1). This is for facilities that enhance non-discrimination of the disabled. In conclusion, it can be noted that various jurisdictions have various ways of enhancing caretaking for the disabled. While the U.S. systems seek to enhance compliance of businesses to the disabled persons’ rights, other countries such as Canada compensate their disabled population. Works Cited Adaptive Environments Center, Inc. "Tax Incentives for Improving Accessibility." Fact Sheet 4 (1992): 1-3. American Bar Association. "Public Accommodations." Mental and Physical Disability Law Reporter 30.3 (May-June 2006): 451-458. Community Tool Box. "Section 4. Ensuring Access for People with Disabilities." 2013. Web. 1 April 2014 . Henry Schein Medical. “IRS Tax Code Section 44 – Disabled Access Credit.” 2014. 31 March 2014 . Martininnovations. "Section 44 – Disabled Access Credit." 2014. Web. 31 March 2014. . OpenJurist. "469 F. 3d 436 - Arevalo v. Commissioner of Internal Revenue." 7 November 2006. Web, 1 April 2014. . Technical Advisory Committee on Tax Measures for Persons with Disabilities. Chapter 2: Disability Tax Credit. 2014. Web. 1 April 2014. . ustaxcourt "T.C. Summary Opinion 2007-149; Edward Atlee Howes versus Commissioner of Internal Revenue." 29 August 2007. Web. 1 April 2014. . Read More