Big news for S corporations! S-CORP champions Senator Blanche Lincoln (D-AR) and Orrin Hatch (R-UT) have succeeded in securing BIG reform in Senator Baucus’ (D-MT) version of a stimulus package! As S-CORP readers know, BIG reform has been a top priority for S-CORP. BIG reform could potentially free up billions in locked-up capital that could be used to buy new equipment, build more plants and hire new workers - exactly what the economy needs during this economic crisis. As the Joint Committee on Taxation describes the provision:
“The proposal would reduce temporarily the S corporation built-in gains holding period from the current 10 year period to a seven-year period for taxable years that begin in 2009 and 2010.”
The Senate Finance Committee is debating the legislation today with the full Senate expected to take up the bill early next week, after which the House and Senate stimulus packages will have to be reconciled. Securing this provision in the Finance Committee mark is a great beginning, and your S-CORP team will be working with our House champions to ensure this provision survives into the final package passed by Congress.
More on Stimulus
One hurdle facing the stimulus package moving through the House is the perception that the fiscal help doesn’t occur rapidly enough. According to the Congressional Budget Office analysis, much of the bill’s $825 billion price tag would not actually get spent or returned to taxpayers until after 2011.
That’s just one more reason to include the BIG relief. As included in the Finance Committee mark, the provision would last for two years, so thousands of companies who converted to S corporation status or acquired another company would be eligible to divest themselves of underutilized assets in the next two years and put those resources to better use immediately. If the economy is suffering from a lack of capital, BIG is a small but important solution.
How many companies would benefit? Analysis from our friends at the Statistic of Income suggests that more than 350,000 firms could be freed to divest themselves of locked in assets. Also potentially benefiting would be those existing S corporations that acquired another company during those years.
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Even taking into account business failures and other subtractions, the net result is that hundreds of thousands of small and closely-held businesses will potentially benefit from BIG relief in the next two years.