Following late Friday night and early Saturday morning votes in the House on the Pension Protection Act of 2006 and the Estate Tax and Extension of Tax Relief Act of 2006, attention now turns to the Senate and whether the Senate will be able to pass these measures. Senate Majority Leader Bill Frist (R-TN) intends to bring up the package including the estate tax, extension of expiring tax provisions like the Research and Experiment tax credit, and the minimum wage increase first, with the pension bill to follow. He’ll need 60 votes for either package to clear the Senate. As Congress Daily has reported, Minority Leader Harry Reid (D-NV) is actively lobbying Democratic Senators to oppose this legislation. The votes promise to be very close. We’ll continue to keep you informed!
S Corp Provision Included In House-Passed Bill!
S-CORP members will be interested to know that The Pension Protection Act of 2006 includes a provision allowing S Corp owners to write-off the appreciated value of their S Corp shares when they donate them to charity. For the lawyers out there, that means the amount of a shareholder’s basis reduction in the stock of an S corporation, by reason of a charitable contribution made by the corporation, will be equal to the shareholder’s pro rata share of the adjusted basis of the contributed property. For the non-lawyers, that means you get to deduct the full value of your shares. This provision would be effective for two years through 2007. This provision was part of our S Corp Reform Act introduced by Congressman Clay Shaw.
Many of our S-CORP members will also certainly be interested in the estate tax relief approved by the House. The estate tax provisions would increase the unified exemption to $5 million per spouse while reducing the top tax rate to 30 percent. While the particulars track closely with the previous House-passed estate tax bill, there are two significant differences. This time the top tax rate (30 percent) is not tied to the capital gains tax rate, so it is not scheduled to increase after 2010. The new bill also phases in the full estate tax relief to keep costs down, with the $5 million exemption amount and 30 percent rate fully phased in by 2015. A stepped-up basis for property acquired by a decedent would be retained.