April 25, 2017 by admin ·
So what do we know about the Administration’s tax announcement scheduled for tomorrow? First, we expect the announcement will be limited to principles and a couple key proposals – not a full blown tax reform plan.
Second, the emphasis appears to be on cutting tax rates. We expect something similar to the Trump campaign’s proposal setting the top rates at 33 percent for families and 15 percent for businesses.
Finally, there is likely to be a call for territorial tax treatment coupled with some commentary on the need for leveling the international tax playing field. We could see the term “reciprocal taxes” used again but, as in the past, it’s unlikely to be fully spelled-out what that means – some sort of tariff or the border adjustment provision the House is pushing.
For S corporations and the pass through business community, the good news, as reported in the Wall Street Journal, is that S corporations should be eligible for the lower 15 percent rate:
President Donald Trump on Wednesday is planning to unveil a proposal to slash the top tax rate on so-called pass-through businesses, including many owner-operated companies, to 15% from 39.6%, said White House officials familiar with the planning.
We’ve been advocating “rate parity” for pass through businesses for seven years now, so assuming the Wall Street Journal is correct, it is gratifying to see the White House embrace our message.
Exactly how to enforce the new lower rate will be a hot topic. As the Wall Street Journal notes:
Lawmakers will struggle to fit the 15% tax rate inside budgetary and procedural constraints and it will be hard for Congress to write rules that prevent people from converting higher-taxed wages into lower-taxed business profits.
Both are good points that will have to be addressed, but for now we will focus on the positive, as it appears all three of the players in tax reform – the House, Senate and White House – support the general concept of taxing all business income at the same top rate. That’s a vast improvement compared to where we were just a couple years ago, and should be cause for optimism in the Main Street business community.
So what does it all mean for the prospects of tax reform? It should increase the likelihood that any tax plan passed this year would be more narrowly crafted and focus on cutting tax rates as opposed to a full-blown reform. It has been obvious since the election that President Trump prefers a straightforward rate cut approach over comprehensive reform, and we expect tomorrow’s announcement to reflect that preference.
And it signals that reform efforts may take longer than we thought earlier this year. The case for quick action on tax policy was predicated on the White House, the House, and the Senate coming together on the broad outlines of a plan and then working that plan through the legislative process. With the White House reverting to something resembling their campaign proposal, we are moving away from a general agreement, not towards it.
That said, both the Congress and the White House continue to work hard on tax reform, meeting on a regular basis and raising these issues consistently. President Trump has talked about taxes more in the last few months than his predecessor did in eight years, so it’s obviously a priority. With everything else going on, that may be tomorrow’s most important takeaway. Where there’s a will….
As we reported last week, a bipartisan group of tax writers in the House and Senate have introduced this year’s version of the S Corporation Modernization Act. The bills (H.R. 1696 & S. 711) are sponsored by Senators John Thune (R-SD) and Ben Cardin (D-MD) and Representatives Dave Reichert (R-WA) and Ron Kind (D-WI).
This week, a group of eighteen Main Street business groups wrote to Congress in support of the legislation, including the National Federation of Independent Business, the Associated Builders and Contractors, the Independent Community Bankers, and the American Council of Engineering Companies. As the letter states:
Main Street businesses are the growth engine of America’s economy and S corporations are the cornerstone of the business community. There are more than 4.7 million S corporations nationwide. They are in every community and every industry and they employ one out of every four private sector workers.
Yet many of the rules that govern the day-to-day management of S corporations date back more than half a century. These outdated rules hurt the ability of S corporations to grow and create jobs. Many family-owned businesses would like to become S corporations, but the rules prevent them from doing so. Other S corporations are starved for capital, but find the rules limit their ability to attract investors.
This year’s legislation is the ninth Congress in a row that the S Corporation Modernization Act has been introduced. Over the years, we have had great success getting many of the bill’s provisions enacted into law. Just last Congress, we saw the shorter built-in gains recognition period and the charitable basis provisions made permanent.
This year’s bill includes provisions that increase access to capital by reducing S corporation ownership restrictions, ease punitive restrictions that apply to converted S corporations and punish the unwary, and level the rules between S corporations and partnerships when their assets are passed on from one generation to the next.
With tax reform on the table, we are hopeful that these provisions can be included in the broader effort. The S Corporation Modernization Act has a strong history of seeing its provisions enacted into law and we’d like to keep that momentum going!
March 24, 2017 by admin ·
Good news! The 2017 version of the “S Corporation Modernization Act” has been introduced the House and the Senate. Led by Senators Thune (R-SD) and Cardin (D-MD) and Representatives Reichert (R-WA) and Kind (D-WI), the bill calls for needed updates to the rules governing S corporations, some of which date back over 50 years!
- You can see the entire bill here
- You can see the section-by-section analysis here
- You can see the S-Corp press release here
- You can see the Thune/Cardin release here
Today’s introduction comes at a critical juncture in the legislative calendar. The House of Representatives is pulling all the stops to vote on their health care reform package this week, with a showdown vote planned for this afternoon. Whether it passes or not, we expect the House to shift its attention to taxes and the House Blueprint tax reform package.
Which is where our S Corporation Modernization bill comes in. As S-Corp readers know, key provisions from past S Corporation Modernization Acts have moved through Congress and been signed into law, most recently the shorter 5-year recognition period for built-in gains, which was made permanent just over a year ago. Our hope is that large tax bill like that contemplated in the House would have enough room to accommodate all the provisions of this year’s S Corp Mod bill. Key changes in this version relative to past efforts include:
- Moving the Nonresident Alien provision up to the top slot – it is time for direct foreign investment to be available to S corporations; and
- Including the new internal basis adjustment provision to ensure that S corporation assets receive similar treatment as partnerships.
As in the past, Senators Thune and Cardin and Representatives Reichert and Kind are championing the cause. All four members do a great job representing Main Street on the Finance and Ways and Means committees, so America’s 4.7 million S corporations couldn’t have a stronger team of advocates. We really appreciate the hard work the members and their staffs put in to get the provisions just right.
The legislative outlook remains hopeful and we’ll be working closely with our legislative champions to ensure that if a big tax bill moves this year, these provisions will be part of it.