Last week was a good one for S corporations!  On Friday, the House voted 272 to 142 to adopt long-time S corporation Association priorities – the built-in gains tax relief and the charitable contribution basis adjustment for S corporations as part of H.R. 636, the America’s Small Business Tax Relief Act of 2015.  

These provisions were originally sponsored by Representatives Dave Reichert (R-WA) and Ron Kind (D-WI) in bills making permanent the five year built-in gains holding period (H.R. 629) and a basis adjustment to ensure S corporations are able to deduct the full value of the stock they donate to charity (H.R. 630).  After being adopted by the Committee on Ways and Means, the reforms were combined with a provision to permanently increase the Section 179 expensing limitation as part of H.R. 636.

These important reforms received strong bipartisan support.  All but one Republican voted for the measure, while 33 Democrats parted with their leadership and the Administration and voted yes. Ways and Means Committee Chairman Paul Ryan offered the following remarks about the passage of H.R. 636: 

Small businesses need more certainty to grow, and this bill will help them plan for the future. We still have a long way to go, but I see this as a down payment on a simpler, flatter, fairer tax code. That’s what we need to build a healthy economy and create jobs. And so I want to thank my colleagues for supporting this commonsense idea.

Washington State Congressman and S-Corp ally Dave Reichert had this to say:

This bill, and the provisions I introduced with Congressman Kind, will significantly help small businesses access their capital and provide much-needed certainty, so that they can be successful and grow. S corporations are proven job creators and I am pleased that my House colleagues have recognized the need to make sure the tax code helps rather than hinders them as they support jobs and families all across this country.

Former small business owner and House Majority Leader Kevin McCarthy shared:

And the last thing a small business needs is uncertainty from their government, changes in the tax code, or even whether it’s going to go forward. So today is the day not to debate, but today is the day to invest in America’s small business. And as I’ve said a few times on this floor, these are things that should unite us, not divide us.

I think it’s time that people grow up, understand where jobs are created, understand what uncertainty does across America, not just in my district, but in every district that is represented here today.

It is unclear when the Senate may take up these provisions, particularly as Senate Finance Chairman Orrin Hatch (R-UT) is focused on comprehensive tax reform and the recently-announced tax reform working groups.  So we still have a way to go before we see these important reforms signed into law.  That doesn’t detract from the success of the day, however, and it certainly won’t prevent us from continuing to press these issues when we’re up on the Senate side –especially as part of any action on comprehensive tax reform!

Tax Foundation on Pass-Through Businesses

An enthusiastic group of 40-50 congressional staffers, business representatives, and tax experts braved the early morning cold last week to talk taxes – Main Street business taxes, that is.  The organizers of the breakfast, held in the Rayburn House Office Building, were our friends over at the Tax Foundation.  The briefing was designed to highlight their recent paper, “An Overview of Pass-through Businesses in the United States.” 

Ways and Means member and Main Street Business champion Pat Tiberi (R-OH) kicked off the briefing with some important words on the importance of pass-through businesses and their contribution to jobs and investment.  As the Congressman noted:

The data we are going to share today is extremely important.  The facts of the matter are that we have in every single congressional district a Main Street and on every Main Street we have businesses, pass-through entities of every single type – from a hardware store, a doctor’s office, a small manufacturer – that pay tax, work hard and have a tax code that, quite frankly, isn’t fair to them… We need to continue to rally around the fact that we need a tax code that is simpler, fairer, more transparent, and that encourages investment and growth.  As we do tax reform, they should not be left behind. 

S-CORP Advisor Tom Nichols was on hand to provide a historical perspective to the challenge.  As Tom made clear, reducing tax rates on C corporations while keeping them high on individuals and pass through businesses would be “anti-tax reform” — returning us to the pre-1986 days of sheltering and gaming.  According to Tom, the 1986 tax reform helped get private companies “out of the business of tax planning and into the business of producing goods and services for their customers.”

Restoring rate parity by lowering rates on all business types while integrating the corporate with the individual tax code is the only and best way to simplify and improve business taxation.  Anything else is reform in name only. 

You can view the entire briefing here.  For our purposes, this map showing pass-through employment levels by state is the key to our advocacy efforts moving forward.


Public policy debates on the economy always boil down to the question of jobs – where they come from and how to create more of them.  The reality is that most jobs come from Main Street employers.  Any policy that purports to be pro-growth and pro-job creation will need to recognize that most jobs from employers organized as S corporations, partnerships, and sole proprietorships.  Those employers need to be treated as equal partners in any tax reform considered by Congress, including any rate relief.  Anything else is simply not reform.