2009 started off with a bang when we successfully secured temporary relief from the built-in gains (BIG) tax as part of the economic stimulus package adopted in February. With the enactment of that bill, firms that converted to S corporation status or existing S corporations that acquired other businesses between the years 2000 through 2003 are now able to dispose of their built-in gains assets without paying a punitive level of tax.
Built-in gains relief was a great win for S-CORP and we plan to build on that success by pushing for permanent BIG tax relief in 2010, as well as a broad range of other tax reforms important to the S-CORP community. Many of these items are included in the S Corporation Modernization Act (S. 996, H.R. 2910) introduced in both the House and the Senate in record time last year. This legislation forms the core of our S-CORP advocacy and would:
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Enhance the ability of S corporations to attract and raise capital;
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Make it easier for family-owned S corporations to stay in the family; and
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Encourage additional charitable giving by S corporations and the trusts that hold them.
Congress is expected to consider multiple tax bills in 2010 and we will continue to push to get these and other reforms included. Based on our success in 2009, I am confident our S-CORP team and its allies on the Hill are well poised to deliver.
As we move into 2010, however, to say there is significant “ policy risk” facing the S-CORP community is a true understatement. Never have the rules and rates that govern our community been under more pressure. For a community whose existence is defined by the tax code, we plan to step up our efforts to defend those rules and make certain policymakers in Washington understand the economic importance of closely-held businesses.
One challenge we face in 2010 is ensuring that closely-held businesses are treated fairly when subject to the estate tax. We expect the estate tax to return in 2011, if not sooner, and some influential members of Congress would like to charge family-owned businesses a premium when they are part of an estate. This idea is simply un-American and wrong, and S-CORP took the lead in 2009 and put together a coalition of 15 major trade associations to educate lawmakers on the need to protect family-owned businesses from arbitrary valuation rules. Estate valuation issues will be front and center in 2010, and S-CORP will continue to fight the good fight.
Pressure on marginal rates is another challenge in the coming year. Rates are set to increase in 2011 without congressional action. Meanwhile, all of the proposals on the table to date would raise them even further. S-CORP has spent years educating policymakers on the massive amount of economic activity currently being taxed at individual rates — closely-held businesses create more jobs and produce more income than public firms — and raising their taxes at a time of economic stress is a recipe for a double-dip recession. We are currently working on new options, and policies, to get this message heard.
Finally, for the growing ranks of exporters in the S corporation community, we plan to continue our efforts to block tax increases on closely-held exporters. S-CORP led the charge to block such an increase in 2007, and with dividend and capital gains tax rates in play in 2010, we expect another effort to single out exporters for higher tax rates.
Now more than ever, it is imperative that policymakers on Capitol Hill and at the White House are reminded of the important role the S corporation plays in our nation’s economy. Through our Washington Wires, recruitment of trade associations and other allies, shoe-leather advocacy, and media outreach, the S Corporation Association continues to do just that.
To assist in these efforts, your S-CORP team relies on a long list of Hill allies with a history of supporting closely-held businesses. Members like Senators Blanche Lincoln (D-AR), Orrin Hatch (R-UT), Chuck Grassley (R-IA), Olympia Snowe (R-ME), Mike Enzi (R-WY) and Ben Cardin (D-MD) and Representatives Ron Kind (D-WI), David Reichert (R-WA), Nydia Velazquez (D-NY), Allyson Schwartz (D-PA), Wally Herger (R-CA) and Danny Davis (D-IL) and others have supported our efforts in the past, and we plan to rely on their support and expertise in the coming year as well.
The S Corporation Association is the only organization in Washington D.C. exclusively devoted to promoting and protecting the interests of America’s 4.5 million S corporation owners. To carry on with this important work, we need your continued participation and support. Let us know of the tax issues most important to you and spread the word to other closely-held businesses. Your increased participation can make an important difference to our continued success.
Dick Roderick