Fifty years of S Corp tax policy ‘turned on its head’

BVWireIssue #62-1
November 7, 2007

Last month, Chairman Charles Rangel (D-NY) of the U.S. House Ways and Means Committee introduced legislation that “turns fifty years of tax policy on its head,” according to the S Corporation Association’s Washington Wire (see October 29, 2007).  The “Tax Reduction and Reform Act of 2007” would lower the corporate tax rate and the individual alternative minimum tax (AMT).  “However, one of the many revenue increases…is a provision that would raise $9.5 billion over ten years by expanding the application of payroll taxes on S corporation shareholders who also work at the business.”   Service businesses would be the primary focus on the new tax.  “But nonetheless, it represents a payroll tax increase on taxpayers that are already fully complying with the law,” warns the S Corp Wire, “setting the state for future efforts to apply payroll taxes to all S corporations.”

Tax policy is just one critical topic.  “The talk of tax reform certainly has some interesting implications for the whole S Corp debate,” says Nancy Fannon, author of Fannon’s Guide to the Valuation of Subchapter S Corporations, available at BVResources.  “With proposals for both increasing the rate on dividends and lowering the rate on corporations in the air, it could be an interesting year.”

Potential shifts in federal tax policy will be just one among many valuation topics that Fannon will cover in next week’s (Tuesday, November 13, 2007) telephone conference on S corporations.  Notably, she will discuss the traditional methods of valuing pass-through entities and the new “Simplified Model,” which cuts away the complexity and streamlines the calculations.  To give you an idea: A comparative summary of the currrent models—including those used by the Tax Court and the Delaware Chancery Court—is available here.  Sign up for the teleconference now, and receive a $100 discount on the purchase price of Fannon’s Guide.  To register, click here.

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