On June 6th, House Majority Leader Eric Cantor, R-Va., laid out a busy legislative agenda for the remainder of June in a memo to House Republicans. In the memo, Cantor stated that as they return from their summer stretch into the swampy heat of Washington D.C., they will continue to work on an agenda that builds upon their work from the beginning of the year, including everything they accomplished in May.
Cantor noted that during the first part of the year, Chairman Dave Camp put forth a bold tax reform proposal, the Tax Reform Act of 2014, which aimed to address a broken tax code that penalized hard work and innovation, stifles American competiveness, and economic growth. As the Committee continues to receive feedback on the draft, Cantor scheduled floor consideration, for the week of June 9th, on three targeted tax extender bills. Of the three scheduled, two of the bills that were addressed were HR 4453 (permanent S Corporation Built in Gains Recognition Period Act of 2014) and HR 4454 (Permanent S Corporation Charitable Contributions Act of 2014).
As mentioned in our previous email alert, HR 4453, authored by Representative Dave Reichert, would make permanent currently expired provisions that reduces for businesses who are organized as S Corps the built-in gains tax holding period from 10 to 5 years. The Subchapter S Bank Association has long believed that this change will allow banks easier access to their capital to grow and create new jobs. HR 4454, which also is authored by Reichert, would make permanent temporary tax provisions regarding the basis adjustment rules for charitable giving by S Corps.
On June 12th, the House adopted the reforms by a count of 263 to 155. The provisions received strong bipartisan support, with all but two Republicans supporting the measure and forty-two Democrats parted with their leadership and the Administration and voted yes as well. Ways and Means Committee Chairman Dave Camp kicked off the day by offering these remarks on the House floor:
“The bill we have before us today is the right step forward to level the playing field between the small businesses on Main Street and big businesses. If a small business chooses to operate as an S corporation for tax purposes, we should ensure that they have the ability to access certain capital without tax penalties.
…This is a bipartisan, commonsense bill that will give small businesses some much needed relief from the burdens of the tax code, and allow them to make new investments and create new jobs.”
Washington State Congressman Dave Reichert had this to say:
“The BIG tax is a double tax on S corporations who want to sell their assets after converting from C corporation status.
…As we’ve heard from Jim Redpath…who testified before one of our Ways and Means hearings…the BIG tax causes S corporations to hold onto unproductive or old assets that should be replaced. He gave the example of a road contractor which is holding onto old equipment that is sitting in the junkyard…because if he sold them, they would be subject to the BIG, double tax. Instead of selling the assets and using the proceeds to hire new workers or invest in new equipment, the business owners sit on the sidelines. This is a perfect example of the tax code influencing business decisions and needs to stop.”
The measures now will be sent to the Senate side, where new Finance Committee Chair Ron Wyden (D-OR) and Majority Leader Harry Reid (D-NV) will work on how to move the extenders package forward, which includes two year extensions of these to S corporation provisions. Most likely, we will have to wait on the outcome of the November election before we see movement on these bills. However, the passage in the House is a big step and we will continue to press and move the issue forward as it is taken up on the Senate side.