House Leadership has indicated that it will attach the $4.8 billion Small Business tax package to the second Iraq supplemental spending bill to be considered by the House this week. The tax package will likely remain the same, while the underlying spending bill will fund operations in Iraq for just three months. This approach will likely pass the House, but it appears to have significant challenges in the Senate and at the other end of Pennsylvania Avenue. As CongressDaily reported yesterday morning:
“McConnell labeled as a “uniquely bad idea” the House proposal backed by Appropriations Committee Chairman Obey to send Bush a compromise supplemental guaranteeing funding for combat operations only through July and then tie additional installments of money to the performance of the Iraqi government.”
White House spokesman Tony Snow has made similar comments.
Which all means that the ultimate fate of the Small Business tax package is an unknown; it could get enacted as part of a broader Iraq funding package that gets signed by the President, it could move separately as a stand-alone minimum wage/Small Business tax package bill, or it could get attached to an as-yet-unknown tax bill to come later.
A S-CORP readers know, we strongly support enactment of this package — especially the S Corporation reform title it contains — and have worked to ensure the final package includes S-CORP priorities of a uniform 2007 effective date and language (currently excluded from the package) to allow foreign investment in S corporations. As this legislative dance continues, we’ll look for opportunities to get these priorities included.
S Corporations and Foreign Investment
As the Small Business tax package is considered, one of the concerns we have heard is that allowing foreign investment in S corporations through a small business trust is somehow a limited or targeted tax benefit.
That’s not our experience. There are 3.8 million S corporations after all, and the idea that only a handful of these businesses feel the pinch of the nonresident alien limitation is simply not possible. Businesses residing on the border, those that serve ethnic communities, and mature family-owned S corporations as they approach their third and even fourth generation of ownership appear to be the most susceptible to running into this unnecessary ownership brick wall.
An indication of the true size of the problem may come from the IRS, which estimated that there were approximately 40,749 foreign partners of domestic partnerships in 1993 (the last numbers available), or about .3 percent of all partners in that year. With 3.8 million S corporations, a similar level of foreign investment in S corporations suggests the nonresident alien ESBT provision will benefit thousands of businesses across the country.
DOES THE NON-RESIDENT ALIEN LIMITATION AFFECT YOUR BUSINESS AND ESTATE PLANNING? PLEASE LET US KNOW SO THAT WE CAN RELAY YOUR CONCERNS TO POLICY MAKERS. Click here to send us an email.