house bill 4213

[luke]

I dont like to "comment" on proposed legislative action (like to wait till facts are in before offering advice) - however, I just received a memo from a PAC about HR 4213 which if passed would make SCorp "earnings" subject to SE tax for certain "sized" (less than 3 employees) "service" businesses (including "tax" services?)
While the above may not be completely accurate, I believe it reflects the "gist" of the bill and how it would adversely affect many of us on TTB!
I for one am hoping this bill makes it to the trash heap!

[ChEAr$]

I dont like to "comment" on proposed legislative action (like to wait till facts are in before offering advice) - however, I just received a memo from a PAC about HR 4213 which if passed would make SCorp "earnings" subject to SE tax for certain "sized" (less than 3 employees) "service" businesses (including "tax" services?)
While the above may not be completely accurate, I believe it reflects the "gist" of the bill and how it would adversely affect many of us on TTB!
I for one am hoping this bill makes it to the trash heap!

Amen, brother.

I THINK we were promised at some time a year or two ago, "no new taxes."
And if SE tax is applied directly to net profit on the 1120S, that is a new tax for shore.

[Edsel]

I hear the train a-comin'

Yep, this one's been coming for a long time. Revenooers have been salivating at raising SS and Medicare receipts, and it was just a matter of tacking it onto the right legislation.

There has been abuse by shareholders who work for the corporation not giving themselves a salary, as well as a strategy to limit SE tax by choosing S corps as the entity of choice. However, this bill leaves the domain of a worker and enters the domain of the investor.

And try to find out which congressman is responsible for bringing this to the table. We can't even find out which idiot added the 1099 requirement to all recipients effective in 2012.
Government by the people? I don't think so.

Get ready for a mass exodus of S corps into C corps and other entities.

[JoshinNC]

Not just S-Corps

If you read the actual bill it also begins to tax as SE income the distributive share of limited partners in these types of businesses (LLC's). I already made the argument in another thread (the one on the WSJ article) that this gives credibility to my long held position that limited partners are not subject to SE tax on their distributive share if it's not a GP. The bill specifically references the exact same Code Section that I had been using to support my position, and specifically says that that Section would not apply under the new rules.

[Maribeth]

Yep, this one's been coming for a long time. Revenooers have been salivating at raising SS and Medicare receipts, and it was just a matter of tacking it onto the right legislation.

There has been abuse by shareholders who work for the corporation not giving themselves a salary, as well as a strategy to limit SE tax by choosing S corps as the entity of choice. However, this bill leaves the domain of a worker and enters the domain of the investor.

And try to find out which congressman is responsible for bringing this to the table. We can't even find out which idiot added the 1099 requirement to all recipients effective in 2012.
Government by the people? I don't think so.

Get ready for a mass exodus of S corps into C corps and other entities.

Yes, but an exodus to a C Corp will not help me and other professionals and tax practitioners that operate as an S-Corp. The only other option we have is to become a PSC. I have not reviewed the rules for a PSC for a few years now but I do not believe that it would have much difference between it and a fully-taxed for SE purposes S-corp.

Maribeth

[veritas]

The congressman?

Yep, this one's been coming for a long time. Revenooers have been salivating at raising SS and Medicare receipts, and it was just a matter of tacking it onto the right legislation.

There has been abuse by shareholders who work for the corporation not giving themselves a salary, as well as a strategy to limit SE tax by choosing S corps as the entity of choice. However, this bill leaves the domain of a worker and enters the domain of the investor.

And try to find out which congressman is responsible for bringing this to the table. We can't even find out which idiot added the 1099 requirement to all recipients effective in 2012.
Government by the people? I don't think so.

Get ready for a mass exodus of S corps into C corps and other entities.

It's the crybaby IRS who go to congress and feed the ideas into their heads. Ms. Taxgap is probably the primary culprit.

[ChEAr$]

Am I imagining things, or did Edsel call me an "abuser"? (grin

[snowshine]

A completely legal loophole is not abuse. That is why they "need" to change the law.

[ChEAr$]

A completely legal loophole is not abuse. That is why they "need" to change the law.

No they don't! (grin

here's a little bit of background. In the middle 1970's when I first encountered that strange creature, the "S" corporation and got to studying it, I marveled at the simplicity, the logic of it all. Congress created it and the explanation I finally found - I say finally found since research was so primitive in those pre internet days - was that members of congress used the S corporation for their speaking income, some of them pulling down a half a million dollars per year if he was prominent enough.

Now then, I just wonder if congressmen.. uh.. congress people still use the S corporation
for that purpose. After all, the cap on FICA taxable earnings is now way up there compared to 1970 percentages.

[Burke]

I dont like to "comment" on proposed legislative action (like to wait till facts are in before offering advice) - however, I just received a memo from a PAC about HR 4213 which if passed would make SCorp "earnings" subject to SE tax for certain "sized" (less than 3 employees) "service" businesses (including "tax" services?)
While the above may not be completely accurate, I believe it reflects the "gist" of the bill and how it would adversely affect many of us on TTB!
I for one am hoping this bill makes it to the trash heap!

So, if this goes into effect, does it mean we can simply pay the SE tax on the tax return and avoid all those pesky federal and state payroll forms?

[ChEAr$]

So, if this goes into effect, does it mean we can simply pay the SE tax on the tax return and avoid all those pesky federal and state payroll forms?

I would think that if the business is so classified, the amount will reflect on the K-1 and
flow through to the taxpayer's schedule se.

However, I'm still not clear as to whether tax preparers operating under an S corporation are to be included. The bill speaks of "personal service" providers. Doctors, lawyers, yes.
We like to consider ourselves "professionals" but are we to be included in the definition?

[Burke]

I think accountants are part of that group.

[ChEAr$]

I think accountants are part of that group.

Probably so. This HR 4213 probably uses the definition of PSC as already codified in the law. And there is a tax court case (Rainbow) which includes tax preparation services as included in "accounting".

[ChEAr$]

HR 4213 text

Okay, since this here new fangled boondoggle created
by the House Way too Mean committee has had subject
voted on and passed by the House of Reprehensibles
on May 28th, and since a certain provision of it
affects those of us using the S corporation structure
for our tax practices, here is the link to the bill
with all it's gory details:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4213eah.txt.pdf

It all starts on page 277. Read it and weep.

(Sorry if you have trouble with the link; might take
a bit of cuttin' and pastin'.

[Kurly]

Construction

Does any of this HR 4213 affect the construction industry Sub S Corporations as far as the Employment Tax Treatment?

Kurly