It’s not late Friday afternoon, so why is Treasury releasing important new rules on the pass-through deduction?  We’re not sure, but we like it!

The rules themselves look pretty good too, and our members’ initial reaction to the rules was mostly positive.  Here’s the statement S-Corp released earlier today:

 “Treasury’s proposed rules are a good start to making the pass-through deduction workable for Main Street businesses.  There are many important details to clarify and we have specific concerns about some of the definitions and reporting requirements, but the overall approach taken by Treasury is positive and should be applauded.  Our goal is …

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The S Corporation Association participated in a Hill briefing Tuesday highlighting new work for Ernst & Young on the challenge of establishing parity for pass-through taxation.

The analysis, authored by Robert Carroll of EY, focused on all the complexities confronting pass-through businesses under the Tax Cuts and Jobs Act, and the resulting matrix of possible tax outcomes for pass-through businesses.  As the table shows. Effective tax rates on successful S corporations (and other pass-through businesses) are consistently higher than the average C corporation, even after adjusting for the double corporate tax and other variables.

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Today the S Corporation Association submitted comments to the New York Department Taxation and Finance on their proposed SALT fix for partnerships.

Following hard on the heels of the new Connecticut SALT fix, New York asked stakeholders for feedback on their draft to restore the State and local tax deduction for New York partnerships.  In its comments, S-Corp made clear its support for the proposal with the following three improvements:

• “Expand the UBT to include S corporations as well as partnerships.  There are 410,000 S corporations in New York State, employing more than two million people.  These S …
  
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Center for Budget and Policy Priorities (CBPP) got itself into a lather the other day noting that the new, 20-percent deduction for pass-through businesses will reduce revenues by twice what the federal government spends on Pell Grants.

What’s the link between the Pell Grant program and the business income deduction? None. There is no link. The CBPP could have just as easily compared the deduction to spending on our national defense or agriculture programs.

Moreover, while the CBPP makes certain to highlight the 7.7 million beneficiaries of the Pell Grant program, they ignore the 73 million employees who work for pass-through businesses. …

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The headline is eye-grabbing, but what does it mean?

A new study by Penn Wharton predicts a “mass conversion” of pass-through businesses to C corporation under the new tax law.  Specifically, the study finds that 235,780 pass-throughs representing 17.5 percent of all pass-through income will convert to C corporation in response to the new rules.

What sort of businesses are most likely to convert?  Those professional services businesses that don’t qualify for the new deduction.  Faced with a choice between paying the pass-through rate of around 40 percent and a corporate rate half that much, they are understandably attracted to the …

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