Chairman Submits Comments to Tax Writers

S-CORP Chairman Tom McMahon today submitted comments (click here for full text) to the House Ways and Means and Senate Finance Committees opposing a proposed tax increase on small and closely-held exporters. Chairman McMahon observes in his comments:

“I would like to raise serious concerns regarding Section 7 of the Act which, if enacted, would significantly increase taxes on small and closely-held U.S. manufacturing exporters.”

As you’ll recall, the Senate Finance and House Ways and Means Committees introduced companion “tax technical corrections” bills (H.R. 6264 & S. 4026) just before breaking for the elections, requesting that interested parties submit comments regarding the proposed changes prior to October 31st. The plan is to create a technical and non-controversial tax title that would eventually be sent to the President during the final weeks of this Congress.

As we’ve previously pointed out, Section 7 of the bill is neither technical nor non-controversial. It would increase from 15 percent to 35 percent the tax rate on qualified export income for small and closely-held business exporters! As our Chairman observes, “Given the current size of the U.S. trade deficit, it makes little sense for Congress to act unilaterally to harm small and closely-held manufacturers and other exporters.”

As always, the S Corporation Association is working with other affected groups such as the National Association of Manufacturers and the Small Business Exporters Association to ensure that this substantive and controversial amendment does not pass. If you or your clients benefit from IC-DISC, you can send comments directly to the Finance and Ways and Means Committees at the following email addresses:


On another front, the Wall Street Journal yesterday reported on the recently published “tax gap” report from Congress’ Joint Committee on Taxation and its potential impact on taxpayers. As S-CORP readers know, this report includes a proposal to apply payroll taxes to all the income of certain S corporations. This proposal is significantly reduced from previous versions –  it applies only to personal services bus inesses like law firms and consultants, not manufacturers - that S-CORP opposed. The WSJ summarizes the current proposal like this:

“The report proposes a significant tax -law change for law firms and family-owned personal-service firms, which may face new self -employment tax obligations. Typically, an executive in a “subchapter S corporation,” used by many family businesses, takes a salary and distributes the remaining profit in a dividend that isn’t subject to self-employment taxes, Mr. Smith says. The report suggests a new uniform rule to have these entities covered by the same self-employment tax regime as partnerships or sole proprietors. Not having a uniform rule is a sizable problem: $39 billion of the tax gap was attributable to the self -employment tax and an estimated $15 billion of the tax gap attributable to unemployment taxes. Yet Mr. Smith says in his experience, most people using an S corporation don’t pay themselves “ridiculously low” salaries and take the rest in a tax -advantaged dividend distribution.”

S-CORP is currently polling its members to determine how we should respond to the most recent payroll tax proposal. If you have a view, please let us know.