CCH Tax News Headlines - August 4, 2010

What are the details of this bill?

I believe there is no bill per se. I believe the press secretary was referring to the 2011 budget proposal (Green Book) that let's certain "Bush" tax breaks expire for higher end taxpayers. The various S Corp. lobby groups have been yelling that they will take a big hit if personal income tax rates are allowed to rise. The administration argues that 98% of small businesses will not be affected by the budget proposal.

White House Opposes S Corporation Tax Break

White House Press Secretary Robert Gibbs said on August 3 that Congress should not support a tax break for S corporations that would not benefit the vast majority of small businesses. As the debate heats up over extending all

2001 and 2003 tax cuts, President Obama remains committed to his campaign pledge to spare the middle class from paying higher taxes but allow all other tax cuts to expire at the end of 2010, Gibbs maintained at a press briefing on August 3.

Gibbs said he believes that supporters of the S corporation tax break are using "the moniker of small business when it fits their political lens." He noted that a higher tax on S corporations would not affect 98 percent of small businesses.

"It's not going to hit a majority of families in this country," Gibbs stressed. "The president believes we ought to protect those in the middle class," he added. Senate Finance Committee Chairman Max Baucus, D-Mont., in a floor statement on July 16, opposed the S corporation tax break, stating that "the choice of entity should not affect an individual's tax liability for his or her services."

By Paula Cruickshank, CCH News Staff

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ok, what is this tax break they are speaking of?

Not sure, but I thought it was the effort to stop the proposal to have all S-corp payments to shareholder/employees (less than 3 shareholders) of treated as wages subject to SE.

In other words:

• first, proposal to raise S-corp taxes by subjecting everything to SE tax

• then, the "break" is to drop/repeal this proposal

• so those wanting to stick with the original plan are opposing the "break", claiming that the S-corp pay-for provision is not really a significant tax hike for small business overall.

Here are some references from NAEA newsletter back in June, in case it helps. I don't know what the current status of the legislation is.

"You'll recall that the House passed its version of the extenders/jobs bill (HR 4213, the American Jobs and Closing Tax Loopholes Act of 2010) on May 28th. [...]

"Finance Committee Chairman Max Baucus (D-MT) late on Wednesday [Jun 16] unveiled yet another trimmed down amendment, which included, among other things:

[...] * Modifications to S-corp provisions focused on personal service businesses. In the House-passed bill, all earnings from personal service businesses of three or fewer shareholders must be considered salary. The amendment would apply an employment tax on S-corp partners only if 80 percent or more of the professional service income of the corporation is attributable to the services of three or fewer corporation owners.

"The Baucus amendment failed [...]"

"[...] Snowe, who is the ranking member of the Senate Small Business Committee, is insisting the S-corp pay-for be removed completely. According to the Capitol Hill newspaper Politico, she went so far as to say that the provision--supposedly intended to address S-corp abuses--is "ill-conceived" and a "terrifying template" for small business owners already facing more taxes as a result of health care reform. Collins went further by stating, "Given our nation's astronomical federal deficit and the continued troubled economy, the last thing Congress should be doing is passing bills that increase taxes on small businesses and further stifle the economy." [...] "So where does this leave us? Senate Majority leader Harry Reid (D-NV) has pulled the bill. Congress has fewer than 30 work days before a lengthy August recess and will probably debate energy policy between Independence Day and August recess. We probably won't see any movement on extenders until Labor Day."

-Mark Bole

Not sure, but I thought it was the effort to stop the proposal to have all S-corp payments to shareholder/employees (less than 3 shareholders) of treated as wages subject to SE.

In other words:

• first, proposal to raise S-corp taxes by subjecting everything to SE tax

• then, the "break" is to drop/repeal this proposal

• so those wanting to stick with the original plan are opposing the "break", claiming that the S-corp pay-for provision is not really a significant tax hike for small business overall.

Here are some references from NAEA newsletter back in June, in case it helps. I don't know what the current status of the legislation is.

"You'll recall that the House passed its version of the extenders/jobs bill (HR 4213, the American Jobs and Closing Tax Loopholes Act of 2010) on May 28th. [...]

"Finance Committee Chairman Max Baucus (D-MT) late on Wednesday [Jun 16] unveiled yet another trimmed down amendment, which included, among other things:

[...] * Modifications to S-corp provisions focused on personal service businesses. In the House-passed bill, all earnings from personal service businesses of three or fewer shareholders must be considered salary. The amendment would apply an employment tax on S-corp partners only if 80 percent or more of the professional service income of the corporation is attributable to the services of three or fewer corporation owners.

"The Baucus amendment failed [...]"

"[...] Snowe, who is the ranking member of the Senate Small Business Committee, is insisting the S-corp pay-for be removed completely. According to the Capitol Hill newspaper Politico, she went so far as to say that the provision--supposedly intended to address S-corp abuses--is "ill-conceived" and a "terrifying template" for small business owners already facing more taxes as a result of health care reform. Collins went further by stating, "Given our nation's astronomical federal deficit and the continued troubled economy, the last thing Congress should be doing is passing bills that increase taxes on small businesses and further stifle the economy." [...] "So where does this leave us? Senate Majority leader Harry Reid (D-NV) has pulled the bill. Congress has fewer than 30 work days before a lengthy August recess and will probably debate energy policy between Independence Day and August recess. We probably won't see any movement on extenders until Labor Day."

-Mark Bole

Not sure, but I thought it was the effort to stop the proposal to have all S-corp payments to shareholder/employees (less than 3 shareholders) of treated as wages subject to SE.

In other words:

• first, proposal to raise S-corp taxes by subjecting everything to SE tax

• then, the "break" is to drop/repeal this proposal

• so those wanting to stick with the original plan are opposing the "break", claiming that the S-corp pay-for provision is not really a significant tax hike for small business overall.

Here are some references from NAEA newsletter back in June, in case it helps. I don't know what the current status of the legislation is.

"You'll recall that the House passed its version of the extenders/jobs bill (HR 4213, the American Jobs and Closing Tax Loopholes Act of 2010) on May 28th. [...]

"Finance Committee Chairman Max Baucus (D-MT) late on Wednesday [Jun 16] unveiled yet another trimmed down amendment, which included, among other things:

[...] * Modifications to S-corp provisions focused on personal service businesses. In the House-passed bill, all earnings from personal service businesses of three or fewer shareholders must be considered salary. The amendment would apply an employment tax on S-corp partners only if 80 percent or more of the professional service income of the corporation is attributable to the services of three or fewer corporation owners.

"The Baucus amendment failed [...]"

"[...] Snowe, who is the ranking member of the Senate Small Business Committee, is insisting the S-corp pay-for be removed completely. According to the Capitol Hill newspaper Politico, she went so far as to say that the provision--supposedly intended to address S-corp abuses--is "ill-conceived" and a "terrifying template" for small business owners already facing more taxes as a result of health care reform. Collins went further by stating, "Given our nation's astronomical federal deficit and the continued troubled economy, the last thing Congress should be doing is passing bills that increase taxes on small businesses and further stifle the economy." [...] "So where does this leave us? Senate Majority leader Harry Reid (D-NV) has pulled the bill. Congress has fewer than 30 work days before a lengthy August recess and will probably debate energy policy between Independence Day and August recess. We probably won't see any movement on extenders until Labor Day."

-Mark Bole

You're not sure, but you said it three times, just to be sure? ;)

When you say "subject everything to SE tax", do you know if this includes passive and/or investment income? For example, for passive income property held in an S-corp, none of its income is currently subject to SE tax.

I sent my reply on three different occasions spread over a 24 hour period, as the normal "instant response" was not happening. Almost 26 hours after my initial reply, something broke loose and all three duplicate replies popped up at once. It wasn't on my end, I swear!

No, I don't know. Doesn't passive income retain its character when passed through an S-corp to the individual taxpayer?

The issue I'm talking about is income from ordinary business operations conducted by the shareholder/employee.

-Mark Bole