Issues & AdvocacyFederal

From September 23, 2010 Angle

Senate Finance Committee Chairman Max Baucus (D-MT) introduced a new version of his tax extenders package last week. Notably, this most recent package omits the payroll tax increase on architecture and other professional services S corporations previously included in earlier versions of the extenders package.

The previously-proposed revenue-raising measure would subject earnings by professional services S corporations to increased payroll taxes “if 80 percent or more of the gross income of such business is attributable to service of [three] or fewer shareholders.” Although supporters of the provision argue that it would close a loophole that allows some S corporations to avoid paying payroll taxes, the AIA and other professional associations have argued that it would punish small, service-oriented businesses around the nation that follow the rules.

With its omission from Baucus’ extenders package, it appears that the S-corporation provision, in its current form, is dead for the year. However, the AIA is continuing to work with its allies to ensure future provisions targeting S-corporation tax avoidance only affect those who are purposely avoiding payroll taxes while protecting tax-compliant organizations.

Baucus attempted to attach his extenders package to the Senate’s small business bill, but his motion did not receive the unanimous support it needed to be debated.