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, S-CORP has:
♦ 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 voted 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.
At this rate, they’ll be voting to cut S corporation payroll taxes in a few years. Well, maybe not, but at least we have once again demonstrated that the business community will not stand aside while Congress unfairly targets S corporations for higher taxes. Now it’s on to tax reform and all the battles that will entail.
♦ Extended, Enhanced Built-In Gains Relief (2010)
In a capital-starved economy, what makes more sense than allowing firms access to their own capital? For one year beginning in 2011, hundreds of thousands of S corporations around the country will be able to do just that, thanks to the efforts of the S Corporation Association and its allies in Congress, particularly Senators Grassley, Lincoln, Hatch, and Snowe and Representatives Kind and Reichert.
On September 27th, President Obama signed into law the Small Business Lending Fund Act of 2010 (HR 5297). Among other business friendly provisions, the bill includes one of the S Corporation Association’s tax priorities, a reduction in the built-in gains holding period. The provision is for 2011 only, but it allows firms that converted as few as five years ago to sell appreciated assets without paying the punitive built-in gains tax.
This success builds on last year’s reduction in the holding period to seven years, and we hope it signals a move towards permanently reducing the holding period below the old ten-year requirement. Ten years is a long time, and in a world where capital is dear, it only makes sense for firms planning new investments to begin by accessing their own capital.
♦ 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.
♦ Spearheaded Critical Built-In Gains Relief (2009)
In 2009, S-CORP and its congressional allies successfully enacted a provision to provide built-in gains (BIG) relief to hundreds of thousands of S corporations as part of the final stimulus package adopted by Congress.
Under the provision, firms that converted to S corporation or acquired other businesses in the years 2000, 2001, 2002 and — beginning in 2010 — 2003 will be able to dispose of built-in gains assets without paying the punitive level of tax.
This provision originated in the Senate under the bipartisan leadership of Senators Blanche Lincoln (D-AR) and Orrin Hatch (R-UT) and survived the conference due in large part to House champions like Representatives Ron Kind (D-WI), who penned a letter to House Leadership urging them to accept the Senate’s BIG relief provision. Also weighing in was a broad coalition of business associations with S corporation members.
S-CORP Chairman at the time Dick Roderick noted, “Built-in gains relief has been a priority of the S Corporation Association for years. Congress’ adoption of this provision is the result of lots of hard work educating policymakers on the importance of allowing closely-held businesses access to their own capital.”
♦ 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.
♦ Increased S Corporation Deductions for Charitable Contributions (2006)
The tax code discriminates against S corporations when it comes to charitable giving. For most donations, gifts of appreciated property produce a deduction equal to the property’s fair market value. Contrary to the general rule, however, gifts of S corporation stock do not always produce a deduction equal to the stock’s fair market value.
This discrimination was fixed as part of the 2006 Pension Reform Act, and represented a big victory for the S Corporation Association in its efforts to address all the tax code’s inconsistencies when it comes to gifting S corporation shares. With this provision made a (temporary) part of the Tax Code, S-CORP shifted its focus to make certain this provision was made permanent while fixing the UBIT and capital gains tax disparities.
♦ 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 Tax” imposes 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 Tax” structure and other S-CORP challenges.
♦ Blocked Attempts to Increase Payroll Taxes on S Corporations
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 of 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.
♦ Advocated for the Elimination of UBIT Taxes From S Corporation ESOPs
♦ 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.