Over 20 Years of Legislative Achievements for America’s Most Popular Business Structure
Since its inception in 1996, S-CORP has compiled a long list of legislative victories that have improved the rules governing America’s small business corporations, while blocking poorly-conceived efforts to raise their taxes. Since 1996, some of S-CORP’s most notable achievements include:
Improved Pass-Through Parity in Tax Cuts and Jobs Act (2017)
As introduced, the Senate version of the Tax Cuts and Jobs Act would have forced hundreds of thousands, if not millions, of family businesses into the harmful double corporate tax. The deduction offered to pass-through businesses was too small and family businesses with trust ownership were excluded from the deduction entirely. Businesses with foreign income were also excluded and the Senate bill would have repealed the export friendly IC-DISC provision entirely.
Working with Senators Ron Johnson (WI) and Steve Daines (MT), S-Corp was able to 1) increase the size of the deduction, 2) lower the top rate on individuals and pass-through businesses, 3) restore the deduction for trusts and estates, and 4) restore the IC-DISC benefit. The result was a more Main Street friendly bill that will enable many family businesses to retain their current pass-through structure.
Permanent ESBT Reforms (2017)
As part of the Tax Cuts and Jobs Act, the S Corporation Association worked with Senator John Thune (R-SD) to include two key improvements to the rules governing S Corporations. Most significantly, for the first time since they were created by Congress in 1958, the bill gives S corporations the ability to attract foreign investment by allowing for non-resident aliens to own S corporations through an Electing Small Business Trust (ESBT). In addition, the new law ensures that shareholder who own an S corporation through an ESBT get a full deduction for the value of S corporation stock given to charity, just as they would if they owned the shares directly.
Organized Parity for Main Street Employers (2016)
Since 2011, S-CORP has been organizing the business community to support tax reform parity for Main Street businesses organized as pass throughs – S corporations, partnerships and LLC’s. Begun in reaction to an Obama Administration proposal to cut tax rates for businesses organized as C corporations only, S-CORP funded and promoted research demonstrating how pass through business pay their fair share in taxes and how raising their rates hurts job creation. We followed up this effort with additional research demonstrating that the businesses left behind by corporate-only tax reform employed the majority of workers and contributed the most to the American economy.
In 2016, we formalized these efforts by launching the Parity for Main Street Employers (PMSE) coalition, a group with more than one hundred trade associations supporting the group’s three key principles of tax reform – comprehensive, rate parity, and eliminate the double tax. Since its launch, PMSE has been the voice of the Main Street business community, advocating on the Hill and educating members and the business community alike as to the economic importance of closely-held businesses. We employ most workers, and we contribute the most to the economy.
Won Permanent Relief from the Built-In Gains Tax! (2015)
Over the years, S-CORP supported and saw enacted several reductions in the recognition period for built-in gains. Built-in gains are appreciated assets held by companies when they convert to or are acquired by an S corporation. The old recognition period was 10 years, which was simply too long to block S corporations from accessing their own capital. In 2010 and again in 2011, S-CORP and its allies successfully won reductions in this holding period, first to seven years and then to five.
This multi-year effort culminated in 2015 with the adoption of a permanent 5-year holding period as part of the Protecting Taxpayers from Tax Hikes Act. Thanks to the work of our congressional champions – Representatives Reichert (R-WA), Kind (D-WI), Tiberi (R-OH) and Paulsen (R-MN) and Senators Hatch (R-UT), Roberts (R-KS), Cardin (D-MD) and Thune (R-SD) – and all our association allies, the adoption of this provision as part of a large package of tax extenders rounds out a 15-year effort to provide permanent built-in gains relief and opens the door for other S-CORP priorities to take center stage.
Permanent Increased Deductions for Charitable Contributions (2015)
The same package that made permanent our 5-year BIG recognition period also made it easier for S corporations to deduct charitable donations. Prior to the Pension Protection Act (PPA) of 2006, if an S corporation made a contribution of appreciated property to a charity, its shareholders’ deductions were limited to their basis in the S corporation. Championed by S-CORP, the PPA temporarily removed this basis limitation to encourage more charitable giving by S corporations. As part of the Protecting Taxpayers from Tax Hikes Act, S-Corp successfully won a permanent repeal of this limitation, beginning in 2015.
Blocked $9 Billion Payroll Tax Hike on S Corporations, Again (2012)
Having failed to raise taxes on S Corporations back in 2010, the Senate tried again in 2012. As before, there were no hearings, no debate, and no opportunity for amendments. And as before, the business community and its friends in the Senate rallied to the cause and defeated this attempt to raise taxes on service sector S corporations in order to pay for unrelated programs.
Not only did we defeat this poorly thought out idea for the second time, but we gained votes in the process. In 2010, we prevailed by a single vote, with the provision gaining 59 of the 60 votes necessary to pass the Senate. This time the margin was seven, with only 53 senators supporting the tax hike.
Blocked $11 Billion Payroll Tax Hike on S Corporations (2010)
Under the banner of closing a “loophole”the House of Representatives proposed and adopted a $10 billion payroll tax hike on service sector S corporations as part of a broader tax extenders package, without the benefit of hearings, a markup, or any other public notice or scrutiny.
Given just days to educate policymakers on the critical flaws in the new proposal, the S Corporation Association rallied the business community, analyzed the proposal, and educated policymakers — particularly in the Senate — on how the House-passed provision was less enforceable than current law and would raise taxes on S corporation shareholders fully complying with the law.
Armed with our arguments, Senate allies took to the floor and singled this provision out as the reason for their opposition to the entire bill. Unable to overcome their opposition, Senate leadership dropped the provision from the tax extenders package, providing the S corporation community with an opportunity to revisit this issue in a more controlled and transparent way.
Championed S Corporation Tax Title into Law (2007)
After a decade of debate over the minimum wage, Congress acted in 2007 to raise the minimum wage while targeting substantial tax relief towards small employers to offset their higher labor costs. Part of this tax relief was a long list of S corporation reforms championed by S-CORP and its allies for almost as long as the minimum wage debate lasted.
Key reforms included relief from the dreaded “Sting Tax”, a new interest deduction for small business trusts, and relief for S corporation banks. The S Corporation Association championed the adoption of this package, making the case that an increase in the minimum wage would disproportionately hurt S corporations and organizing a coalition of business groups to support the measure.
Led Senate Support to Eliminate the “Sting Tax”(2005)
S-CORP worked with our champions in the United States Senate, including Senators Lincoln (D-AR) and Hatch (R-UT), to include the repeal of the onerous “Sting Tax”in the 2005 tax reconciliation bill.
The Sting Taximposes a punitive level of tax on converted S corporations with excess passive income. The Tax Relief Act of 2005, as approved by the Senate, included a critical provision to provide relief to S corporations from obsolete and burdensome restriction that place their firms at risk and limit their ability to grow. The Senate provision raised the threshold of the tax, eliminated the “three and out” test, and changed the definition of “passive income”to exclude the sale of stock.
Assisted by a large group of association allies, S-CORP led the charge to move this provision through the Senate, setting the stage for further improvements to the Sting Taxstructure and other S-CORP challenges.
Blocked Attempts to Increase Payroll Taxes on S Corporations (2005)
Some bad ideas never die. The idea to increase payroll taxes on S corporation income has been beaten back repeatedly since the Clinton Treasury Department first proposed it back in 1993. Yet every year, someone in the tax writing community will put this misguided idea forward as the latest plan to reduce the deficit, close the tax gap, and otherwise raise taxes to pay for additional federal spending.
Since its inception, S-CORP has led the fight in Washington to prevent this massive, unfair tax increase on the S corporation community, mostly recently blocking its inclusion in the 2005 tax reconciliation bill.
Spearheaded S Corporation Reform and Tax Relief in the American Jobs Creation Act (2004)
A giant step forward for the S-CORP community, The American Jobs Creation Act of 2004 contained numerous S-CORP priorities including:
- Increasing the S corporation shareholder limit to 100;
- Members of family treated as 1 shareholder; and
- Allowing S corporation banks to have IRA shareholders.
Moreover, the Job Creation Act included many other S-CORP-friendly provisions, such as extending the $100,000 small business expensing limit for two years, providing American manufacturers with much needed rate relief, and much more.
Supported the Small Business-Friendly Provisions of the Jobs and Growth Act of 2003
S-CORP helped ensure the passage of the Jobs and Growth Act of 2003. The bill, signed into law on May 28, 2003, reduced marginal tax rates for S corporations, reduced the tax rates on their investment income, including S corporation capital gains, and increased the small business expensing limit to $100,000.
Provided Key Support of the Tax Rate RELEIF Act of 2001
S-CORP made a concerted effort to assist Administration and Congressional promoters of the Tax Rate RELEIF Act of 2001, enacted in May of that same year, which would reduce S corporation shareholders’ tax rates and phase out estate taxes over the next several years.
- Click here to view a description of the Chairman’s mark of the RELIEF Act of 2001.
- Click here to view the Economic Growth and Tax Relief Reconciliation Act of 2001.
Backed the S Corporation Reform Act of 1996
In its very first year, S-CORP spearheaded the promotion and passage of the S Corporation Reform Act of 1996, contained in the Small Business Jobs Protection Act of 1996. The bill allowed S corporations to form ESOPs, to be financial institutions, to grow ownership from 35 to 75 shareholders, and to simplify tax preparation, among other things.