April 11, 2014 by admin ·
Yesterday, Congressmen Dave Reichert (R-WA) and Ron Kind (D-WI) introduced HR 4454 and HR 4453 to make permanent two tax provisions that are important to the S corporation community.
The first bill provides a permanent BIG tax fix by locking in the recognition period for the built-in gains tax at five years. The provision was included in Chairman Camp’s tax reform draft and was discussed earlier this week in a Ways & Means Committee hearing that included S-Corp ally Jim Redpath as one of the witnesses. The latter bill, H.R. 4453, makes permanent the basis adjustment for charitable giving by S corporations, and is another provision that was included in the Chairman’s draft.
In a joint press release, Rep. Reichert had this to say:
These are common sense reforms of our current tax code that would help proven job creators – S Corporations – to access the capital they need to grow, compete nationally and globally, and get Americans back to work. I am proud to introduce these bipartisan bills with my colleague Congressman Kind, and I look forward to continuing work towards comprehensive tax reform.
Rep. Kind made the following comment:
With nearly 60,000 S Corporations in Wisconsin, supporting these job creators is a key priority of mine as I work to strengthen the economy in Wisconsin and across the country. These bills bring stability, simplicity and fairness to the tax code so S Corporations can continue to provide good jobs and help sustain local communities.
These bills are part of a broader effort by Chairman Camp to move pieces of his tax reform draft through the committee and the House, in preparation for negotiations with the Senate over the fate of tax extenders. Camp has made clear he intends to mark up the first of these two bills, those addressing Section 179 and the R&E tax credit, shortly after the House returns from the Easter recess. We hope and expect the Committee to take up the two Reichert/Kind bills shortly after that.
April 10, 2014 by admin ·
Long-time S Corporation Association advisor Jim Redpath testified Tuesday before the Ways and Means Committee in support, among other items, of making permanent the 5-year recognition period for built in gains.
The hearing focused on making permanent a handful of so-called “extenders” that were part of Chairman Camp’s Discussion Draft released earlier this year, including the shorter built-in gains recognition period plus increased deductions for S corporations making charitable contributions.
Jim’s testimony, along with that of the four other witnesses, is available here. You can watch Jim’s testimony by clicking below:
The hearing adds to the building momentum in Congress to act on extenders this year. Just last week, the Senate Finance Committee reported out legislation that would extend nearly all the 50-plus tax provisions that expired at the end of 2013. As with the Camp Draft, this package includes our BIG tax fix and the basis adjustment for charitable giving by S corporations.
S corporation provisions aside, however, the two packages are significantly different. The Finance Committee package includes nearly all the expired provisions and extends them through the end of 2015. The Camp package includes only seven provisions and makes them all permanent.
Their respective plans for moving forward are different as well. Majority Leader Harry Reid (D-NV) has indicated he would like to consider extenders first thing when the Senate returns after Easter. Meanwhile, Camp has made clear he intends to move individual provisions through his Committee and to the House floor, starting with legislation to make the higher limits on Section 179 expensing permanent, then the R&E tax credit, and then others. His goal is to have a package of permanent House-passed provisions to compete with the broader, but temporary, Wyden package.
Given our druthers, we’d take permanent over temporary. As Mr. Redpath testified Tuesday:
Although much better than the 10 year recognition period, the temporary extension results in tax motivated transactions as the expiration date approaches that may not be in the best interest of the company or its stakeholders. Making the 5-year recognition period permanent would preserve the original intent of the 1986 Tax Act and provide S corporations stability and certainty, so they can make business decisions that are best for the company, its owners and stakeholders.
Either way, just having Congress take action on these expired provisions is a positive sign. We’re hoping to see further progress soon.
The Finance Committee markup is scheduled to begin this morning and the amendment list just released shows there’s lots of pent-up demand for tax policy within the Committee. Over 90 amendments have been filed, which begs the question, “When was the last time the Finance Committee held a markup on tax policy?” Answer – August of 2012. As the old Wolf Brand Chili commercial used to say, “Well, that’s too long!”
There are lots of extenders that benefit S corporations along with other businesses, but two items in particular apply to S corporations only:
- A two-year extension of the shorter, five-year holding period for built in gains; and
- A two-year extension of the provision allowing the full deduction of appreciated property from an S corporation to a charity.
These provisions have long been part of S Corporation Modernization legislation championed by Senators Cardin (D-MD), Hatch (R-UT), and Roberts (R-KS) and S-CORP appreciates their hard work to see them included in the Senate package. As we noted in the previous Wire, nearly the entire S Corporation Modernization bill [sponsored by S-Corp champions Reichert (R-WA) and Kind (D-WI)] was included in Ways and Means Chairman Camp’s discussion draft.
In a statement accompanying the hearing announcement, Chairman Wyden made clear his goal was to adopt a pared-back list of extenders through the end of next year and then use that time to develop and pass a more permanent reform of the tax code:
This bipartisan extenders package is the product of a Finance Committee that came together to provide needed certainty to the economy, protect jobs and maintain important priorities for working families,” Wyden said. “With that said, I am determined this will be the last extenders bill on my watch. It’s high time we focus on creating a new, 21st-century tax code, because the status quo is unacceptable.
Meanwhile, on the House side, the Ways and Means Committee just sent out a notice for a hearing next Tuesday, April 8th, to consider the “Benefits of Permanent Tax Policy for America’s Job Creators.” According to the hearing advisory:
The hearing will explore the value in having stable, permanent tax policy for employers, as well as the problems caused by tax policies that frequently expire and are extended for short periods of time (and often retroactively). To that end, the hearing specifically will consider those expired business tax provisions that are either made permanent or are provided long-term extensions under the discussion draft of the Tax Reform Act of 2014.
Our expectation is that this hearing will be followed by a Committee markup making permanent those “extender” provisions included in the Chairman’s discussion draft.
So the business community is confronted with two significantly different approaches to tax extenders. The Senate approach would extend most of the package through 2015 with a commitment to reform the tax c ode before they need to be extended again, while the House eliminates most extenders and, consistent with the discussion draft, make the rest permanent.
Should be one interesting conference committee, which begs the question: “When was the last time Congress conferenced a tax bill?”