Daily Tax Update - June 5, 2008

HOUSE PASSES BUDGET RESOLUTION:  Today, the House passed the fiscal year 2009 budget agreement. The Senate passed the resolution yesterday. The $3.07 trillion budget resolution provides for a permanent extension of Bush's middle-income tax cuts, another year of relief from the alternative minimum tax, and provides for other tax measures including incentives for alternative energy and an extension of the extenders.

FINANCE COMMITTEE HOLDS HEARING ON SMALL BUSINESS TAX ISSUES:  Today, the Senate Finance Committee held a hearing entitled, “C, K, or S:  Exploring the Alphabet Soup of Small Business Choices in Advance of Tax Reform.” In his opening remarks, Committee Chairman Max Baucus (D-MT) said, “The way that a business chooses to organize has a significant effect on its taxes. The principals of a business can choose to have their income taxed as part of their individual income tax. Or they can choose to have their income taxed separately at the level of the business in corporate form. The income of sole proprietorships, partnerships, and S corporations is all taxed as individual income, after it is allocated to the business owners. People call these types of businesses 'pass-through entities.' Each of these pass-through entities has its own unique features. Some of these features can create barriers to growth and innovation. Others can provide financial advantages and incentives for the business to grow and create jobs. When we think about tax reform, we have to consider whether the tax code needs all of these different models. We also have to keep in mind that the needs of different small businesses are different.” 

  • Baucus continued, “One-size-fits-all” does not work when choosing a business model. The needs of a sole proprietorship may differ from those of an S corporation. We need to keep these differences in mind, so that all businesses have a fair shake and can benefit from reform. Today, we will explore these differences. We will look at the way that the Federal government taxes the income of domestic non-corporate businesses. We will seek to identify the benefits to the American economy provided by partnerships and other pass-through entities.  And we will examine entity classifications. We’ll hear about the background of current entity classifications, the purpose behind each classification, and the issues and problems that arise from them. The witnesses we have here today have a breadth of knowledge and experience dealing with business entity choices. They know the effect that taxes have on small businesses. And they know the way that small businesses choose to do business. So let us examine the laws governing the taxation of small businesses. Let us try to bring some order to the confusion. And let us work toward the goals of giving businesses possibility, scope, and even dignity.”
  • Testimony can be accessed via: http://www.senate.gov/~finance/sitepages/hearing060508.htm

H.R.6181: To amend the Internal Revenue Code of 1986 to allow certain current and former service members to receive a refundable credit for the purchase of a principal residence.
Sponsor: Rep Bilirakis, Gus M. [FL-9] (introduced 6/4/2008) Cosponsors (1)

S.3079: A bill to amend the Internal Revenue Code of 1986 to provide income tax relief for families, and for other purposes.
Sponsor: Sen Smith, Gordon H. [OR] (introduced 6/4/2008) Cosponsors (1)

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving. Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.