Monday was the close of the comment period for Treasury Notice 2017-38, and the S Corporation Association joined several other trade groups in submitting our final comments on the pending Section 2704 rules, including our study highlighting the threat these rules pose to family businesses and their employees.
This comment period is the latest in a long saga and we hope it marks the beginning of the end. To recap:
The study we submitted in this most recent comment period was authored by former Clinton economist Dr. Robert Shapiro makes clear that the Section 2704 rules violate all three of the criteria established in the President’s EO – they are financially burdensome, they are unduly complex, and they exceed Treasury’s authority. They would also hurt the ability of these family businesses to grow and create jobs. The study finds that:
The study was sponsored by the S Corporation Association and several other groups, including the Real Estate Roundtable, the Associated Builders and Contractors, and the Independent Community Bankers of America.
So now with numerous publications and comment periods behind us, the record is clear. The proposed Section 2704 rules are harmful to family businesses and the people who work for them and need to be withdrawn. Soon! It has been just over a year since these rules were first published and it’s time to put them to rest.
S-Corp in the News
The Washington Examiner published a piece Monday on the implications the failed health care reform effort has for tax reform. First among those is the continuation of the so-call Net Investment Tax that applies to investment and pass through business income. As the Examiner notes:
And one of the taxes in particular, a tax on investments for high-income earners, hits many of the small businesses that Republicans have been trying to create new provisions to help.
That would be the net investment income tax, a 3.8 percent tax surcharge on capital gains, interest and dividends for families making more than $250,000. Repealing the tax would cut revenue by $172 billion over 10 years, according to Congress’ Joint Committee on Taxation.
Although the tax applies to individuals, it also falls on businesses that file through the individual side of the code, a category that Republicans are hoping to privilege with a new special tax rate.
“It hits a broad swath of family businesses,” said Brian Reardon, President of the
S Corporation Association.
Nonmanagement partners in S Corporation businesses get hit with the 3.8 percent tax on the companies’ earnings, Reardon noted. “It drains money from active businesses,” he said.
S-Corp has been leading the charge to repeal this harmful tax since its inception seven years ago, most recently organizing a letter supporting the tax’s repeal signed by 40 national business trade groups. The tax was initially presented during the Obamacare debate as a “Medicare” tax on high income investors, but it has nothing to do with Medicare and its burden falls on a large percentage of pass through businesses, as well as a majority of annual savings. It’s a surtax on savings, pure and simple.
Failing to eliminate this tax as part of health care reform was a huge miss for the economy, so it must be done within the tax reform debate instead. The business community is united around the idea of bringing down all business tax rates and moving towards rate parity, but that can’t happen with this tax in place. It has to go.