More good news for S Corps! Congresswoman Nydia VelC!zquez, Chairwoman of the House Small Business Committee, introduced legislation last week “the Small Business Tax Modernization Act of 2008” that includes many provisions with the potential to benefit the S corporation community.

Of particular interest to S corporations, the bill would allow nonresident aliens to invest in S corporations. This restriction, developed half a century ago, prohibits S corporations from partnering with investors in other countries. Lifting this restriction would enhance an S corporation’s ability to access new sources of capital, which will in turn help generate new investment and job creation in this country.

Your S Corp team sent a letter of support thanking the Charwoman for advancing legislation that would improve the rules that affect S corporations. We hope to continue to work with the Committee to try to make small business tax preferences a priority for the small business community.

More Action on Tax Extenders

The Senate is scheduled to try on Wednesday, for the third time this summer, taking up legislation extending certain expiring and expired tax provisions. The most recent attempt took place on June 17 and fell seven votes short of the 60 needed to proceed.

This time around, Senate Majority Leader Harry Reid (D-NV) has added flood disaster relief for the as well as a provision to put mental health benefits on par with medical/surgical benefits.

The goal of these additions is to attract new votes, likely Senators Grassley (R-IA) and Domenici (R-NM), but recent comments by Senator Grassley suggest the effort may fail. Over the weekend, Senator Grassley indicated that he would continue to oppose the package because the Senate should “not use tax increases to extend existing tax policy.”

As before, the fight is over revenue increases included to help offset the cost of extending the tax relief provisions. Broadly speaking, Republicans oppose raising taxes in order to offset the cost of extending current law. Democrats, on the other hand, tend to support fully offsetting all extensions, although they have moved significantly in the other direction over the past couple of months; less than half of the revenue loss in the current package is replaced by offsetting tax increases.

If the vote Wednesday fails to get the 60 required to proceed, expect this issue to be revisited in September.

Payroll Tax Hearing in the Senate

For the past three years, policy makers in have focused on their attention on expanding the types of income subject to the payroll tax. Today in the Senate, the focus will be on better means of collecting those payroll taxes already owed.

A new report by the GAO suggests there are $58 billion in unpaid payroll taxes outstanding. The report takes a critical view of the IRS’s efforts to date and will be rolled out today at subcommittee hearing in the Senate Government Affairs Committee.

As our readers know, the S Corporation Association does not support tax evasion. Our efforts on the payroll tax issue have been limited to ensuring that businesses already fully complying with the law are not unfairly targeted and burdened in an effort to get at the bad apples.

That said, from the tone of the hearing notice “Payroll Tax Abuse: Businesses Owe Billions and What Needs To Be Done About It”. It’s obvious we’re a long way from the Congress that enacted the Taxpayer Bill of Rights.