Case Study: Shaping Policy that Shapes Business

The S Corporation Association

Challenge: In 2012, the special low-interest rate on federal student loans was set to expire. To keep rates from doubling, a number of lawmakers backed a proposal to offset the cost of subsidizing these loans by raising taxes on small, closely-held, and family-owned S Corporations, America’s most popular corporate structure.

Approach: Under the guise of “loophole closing,” Senate Majority Leader Harry Reid sought to expand the types of income earned by S Corporations that are subject to the payroll tax. The result would have been $9 billion in tax hikes on these businesses, all in the name of paying for unrelated programs.

In an effort to pass legislation to lock in student loan rates before a July 1 deadline, the Senate chose to rush forward a bill without any hearings, debate, or chance to propose amendments. The S Corporation Association quickly rallied the business community, analyzed the proposal, and educated lawmakers on how the bill would hurt American companies.

Result: Armed with our arguments, Senate allies took to the floor to convince their colleagues of the dangerous tax policy precedent that this bill would set. Their words did not fall on deaf ears, and when it came time to vote the bill fell well short of the necessary votes required for passage.

Today, the S Corporation Association remains the only organization in Washington, D.C. exclusively devoted to promoting and protecting the interests of America’s 4.5 million S Corporations. The association protects its members against efforts to unfairly raise taxes on closely-held and family-owned businesses and has catalyzed legislation focused on modernizing the rules for S Corporations to ensure they remain competitive for the long term.

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Further results garnered through the S Corporation Association include:

  • Secured an extension of the five-year Built-In Gains holding period as part of the Fiscal Cliff Deal (2013)
  • Defeated efforts in the House and Senate to apply payroll taxes to all the S corporation income of professional service firms (2010)
  • Led the successful reduction in the holding period for the punitive Built-In Gains tax, allowing S corporations increased access to their own capital (2012, 2010, 2009)
  • Won expanded deductions for charitable contributions of S corporation shares, ending this long-standing discrimination against S Corporations (2007)
  • Blocked efforts to dramatically raise taxes on closely-held exporters through the elimination of the IC-DISC (2007)
  • Engineered enactment of an entire S Corporation Tax Title, including relief from the punitive "Sting Tax" (2007)
  • Blocked efforts by Congress to apply payroll taxes to all S Corporation income (2005)
  • Supported S Corporation reform and tax relief in the American Job Creation Act (2004)
  • Championed lower marginal tax rates and other small business-friendly provisions included in the Jobs and Growth Act (2003)
  • Provided key support for the 2001 bill that reduced S Corporation shareholder tax rates and phased out estate taxes (2001)
  • Engineered the elimination of UBIT taxes from S Corporation ESOPs (1997)
  • Spearheaded the passage of the S Corporation Reform Act to allow S Corporations to form ESOPs, form banks, increase ownership from 35 to 75 shareholders, and simplify tax preparation (1996)

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