As discussed in our prior client alert, President Obama signed into law the Small Business Jobs Act of 2010 (H.R. 5297, the “Act”) on September 27, 2010.1 The Act includes $12 billion in tax cuts aimed at small businesses, provides incentives to help small businesses grow, and expands lending to small businesses. To offset these tax cuts, the Act includes several revenue-raising provisions, as discussed in more detail below.

Key revenue-raising provisions in the Act include the following:

SOURCE RULES FOR INCOME ON GUARANTEES

Subject to numerous exceptions, the U.S. generally imposes a 30% withholding tax on U.S.-source fixed or determinable, annual or periodical income (“FDAP”) of a nonresident alien individual or foreign corporation that is not effectively connected with the conduct of a U.S. trade or business.2 Examples of FDAP include interest, dividends, rents, royalties, salaries, and annuities. While it has detailed rules to determine the source of various types of FDAP such as dividends and interest, the Code is silent with respect to other types of FDAP, such as guarantee income.