February 21, 2014

Earlier this week, S-Corp Executive Director Brian Reardon took to the airwaves to talk all things S-Corp with radio host Mark Kohler.

Kohler hosts a weekly program devoted to tax issues that are important to individuals and businesses. This Tuesday, Mark spent his entire show focusing on S corporations.  Brian carried the S-Corp flag and was the featured guest.

The interview is definitely worth a listen.  You can download it by clicking below:

S Corporation News Clips

Camp Draft Imminent

The long-awaited Camp tax reform plan is expected next week and the press is bulging with details (rumors, really) on what’s in it.  Beyond the broad parameters of a comprehensive plan with lower rates for corporations, pass-through businesses, and individuals, some of the other details coming out include a change to cash basis accounting rules that could cost farmers and larger pass throughs.

There are also a number of stories pointing out that House Leadership is not fully supportive of rolling out this draft right now:

The GOP leadership source said the top Republican ranks are still skeptical that Camp has the support needed to light the tax reform fire, but the chairman had successfully argued that he can’t educate the caucus and build momentum for tax reform without showing his draft.’

It’s not just House Leadership that’s nervous.  As one Wall Street analyst wrote, “What may concern investors is that any draft will be used as a template for not only eventual comprehensive tax reform, but also that various provisions may become targets for offsets on smaller tax legislation in the future.”

President’s Budget

The pending release of the President’s budget is also getting lots of press.  According to recent stories, the Administration intends to drop its chained CPI proposal and call for higher taxes and increased spending instead.  Here’s Politico on the chained CPI:

Gone, the White House said, is Obama’s proposal for chained CPI — an offer to reduce the benefit increases for Social Security and other federal social programs.  And gone with it, senior administration officials said Thursday, is any sense of presidential urgency on long-term entitlement reform.

On the new spending, the Administration says it’ll conform to the spending caps just negotiated by Budget Chairs Ryan and Murray, but that it will also call for $56 billion in additional spending:

But the president’s budget will also call for $56 billion in new spending, paid for by closing tax loopholes and mandatory spending reform. For now, the White House isn’t providing specifics on what either of those would entail.

That new spending would go to Obama’s Opportunity, Growth, and Security Initiative which would, among other things, a new Race to the Top energy efficiency initiative, the manufacturing institutes Obama has called for in his last two State of the Union addresses and universal pre-kindergarten.

The other big item appears to be new rules governing offshore corporate earnings.  Reuters, Bloomberg, and the Wall Street Journal all have stories on that.  As the WSJ noted:

The new White House proposals would, among other things, tighten rules for digital transactions that some companies design to limit the taxes they pay on certain income. It would also address a move by some companies that load up on debt in their U.S. operation—generating large deductions—and then use that capital to shift profits overseas. The changes would also make it more difficult for companies to arbitrage different tax rules in certain countries, where one country might treat a hybrid instrument as debt while another country treats the same instrument as equity.

The Camp discussion draft is expected to address these base erosion issues as well.

Good CRS Report

In the midst of all the tax reform talk, the Congressional Research Service weighed in with a well-written paper on corporate taxes.  Entitled “The Corporate Income Tax System:  Overview and Options for Reform,” the report should be required reading for so-called reformers on the Hill.  Here’s the part on how the corporate double tax hurts the economy:

Subjecting corporate income to two levels of taxation introduces a number of economic

distortions. The current tax treatment of corporate income leads to otherwise similar corporate and non-corporate business being taxed differently; it creates incentives for corporations to retain earnings rather than distribute them; and the ability of corporations to deduct interest but not dividends leads to a preferences for debt over equity financing.

Something to think about as we wait for the Camp discussion draft release.