It’s a new year but the outlook for tax policy remains remarkably unchanged. The list of possible to-do items Congress might take on this year is pretty much the same and includes:

  • Extension of the Payroll Tax Holiday;
  • Extension of the Tax Extenders package that expired at the end of last year;
  • Extension of the 2001 and 2003 tax cuts that expire at the end of 2012; and
  • Tax reform.

You might view this list chronologically. If Congress were to take up each of these separately, the Payroll Tax Holiday is sure to be first, whereas any tax reform effort, while highly unlikely, is sure to be last.

The list also correlates with the degree of difficulty. Most observers believe conferees will come together in February and extend the Payroll Tax Holiday (along with extended UI benefits and the so-called Doc Fix) through the end of the year. They might also attach the Tax Extender Package (R&E tax credit, state and local sales tax deduction, etc.) to that legislation.

But, it’s less likely that Congress will come to an agreement on extending some or all of the 2001 and 2003 tax cuts before November 6th. These items are at the center of the 2012 election debate, and any movement on them is almost certain to be reserved for a lame duck Congress, if at all.

Finally, while there is always talk about tax reform, the environment is simply too toxic for the broad-based concessions necessary to get a package through Congress.

So what do we expect? We expect Congress to focus on finishing the Payroll Tax Holiday conference next month. We also expect House Leadership to float the possibility of including the Tax Extenders package as well. Their challenge for extenders is whether to offset their revenue loss, and with what? The House would use spending cuts if it moves forward on this, while the Senate is sure to push for offsetting tax hikes.

Bridging the difference will be a challenge, but it’s not insurmountable, so your S-Corp team is focused on making certain that the five-year holding period for built-in gains is extended as part of any such extender package. This shorter holding period expired at the end of the year along with all the other tax extenders, which means tens of thousands of Main Street businesses are now looking at a ten-year window before they can access their own capital and divest any assets with built-in gains.


S-Corp Comments on International Draft

As we’ve observed, Ways and Means Chairman Dave Camp’s release of his international tax reform draft late last year was a refreshing reminder that some members of Congress are prepared to do the hard work necessary to produce good tax policy.Being thorough and taking into consideration the views of stakeholders takes discipline and time, so we appreciate the Chairman’s willingness to take this route with tax reform.

As part of that process, your S-Corp team met with the Ways and Means staff last week to relay our thoughts about the international draft. We also passed on written comments that summarize our concerns. Here’s the introduction:

The S Corporation Association commends the Committee on Ways and Means (the “Committee”) international tax reform discussion draft (the “Discussion Draft”) as part of the Committee’s broader effort on comprehensive tax reform that would lower top tax rates for both individuals and employers. We particularly appreciate the Chairman’s willingness to be transparent in this process and the opportunity to weigh in on these matters. The comments below should be viewed as a friendly effort to recommend areas where we believe the Discussion Draft could be improved.

Based on our initial review and analysis of the Discussion Draft, a number of provisions appear to unintentionally apply to Subchapter S corporations such that the income of these corporations would be subject to double taxation. Therefore, we respectfully request that the Discussion Draft be appropriately modified to prevent such unintended instances of double taxation for Subchapter S corporations. We would be pleased to work with the Committee to ensure the appropriate treatment of Subchapter S corporations.

You can read the full comments here.