[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
S CORPORATIONS-THEIR HISTORY AND CHALLENGES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, JUNE 27, 2006
__________
Serial No. 109-57
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
_____
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
SAM GRAVES, Missouri DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire ED CASE, Hawaii
STEVE KING, Iowa MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan RAUL GRIJALVA, Arizona
RIC KELLER, Florida MICHAEL MICHAUD, Maine
TED POE, Texas LINDA SANCHEZ, California
MICHAEL SODREL, Indiana JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Deputy Chief of Staff/Policy Director
Michael Day, Minority Staff Director
SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT
W. TODD AKIN, Missouri Chairman MADELEINE BORDALLO, Guam
MICHAEL SODREL, Indiana ENI F. H. FALEOMAVAEGA, American
LYNN WESTMORELAND, Georgia Samoa
LOUIE GOHMERT, Texas DONNA CHRISTENSEN, Virgin Islands
SUE KELLY, New York ED CASE, Hawaii
STEVE KING, Iowa LINDA SANCHEZ, California
TED POE, Texas GWEN MOORE, Wisconsin
Christopher Szymanski, Professional Staff
(ii)
?
C O N T E N T S
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Witnesses
Page
Sullivan, The Honorable Thomas M., Chief Counsel for Advocacy,
U.S. Small Business Administration............................. 3
Alexander, The Honorable Donald C., Partner, Akin, Gump, Strauss,
Howard & Feld.................................................. 5
Redpath, Mr. James, CPA, Partner, HLB Tautges Redpath, LTD....... 6
Porcaro, Mr. Gregory, CPA, American Institute of Certified Public
Accountants.................................................... 8
Appendix
Opening statements:
Akin, Hon. W. Todd........................................... 21
Bordallo, Hon. Madeleine..................................... 22
Prepared statements:
Sullivan, The Honorable Thomas M., Chief Counsel for
Advocacy, U.S. Small Business Administration............... 23
Alexander, The Honorable Donald C., Partner, Akin, Gump,
Strauss, Howard & Feld..................................... 30
Redpath, Mr. James, CPA, Partner, HLB Tautges Redpath, LTD... 36
Porcaro, Mr. Gregory, CPA, American Institute of Certified
Public Accountants......................................... 40
Additional material:
Roderick, Mr. Richard M., Senior VP and CFO, Dead River
Company.................................................... 53
Employee-Owned S Corporations of America (ESCA).............. 57
(iii)
S CORPORATIONS-THEIR HISTORY AND CHALLENGES
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TUESDAY, JUNE 27, 2006
House of Representatives
Subcommittee on Regulatory Reform and Oversight
Committee on Small Business
Washington, DC
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360 Rayburn House Office Building, Hon. W. Todd Akin
[Chairman of the Subcommittee] presiding.
Present: Representatives Akin, Kelly, Bordallo.
Chairman Akin. The Committee will come to order.
I'd like to open by saying good morning to everyone and
welcome to the hearing entitled ``S Corporations--Their History
and Challenges.'' And, obviously, providence is smiling on
those of you who could make it through the rain clouds. I think
we have one out of five witnesses that can't join us today
because of the weather.
This is about the history and challenges of these S
Corporations, which was a bit of a new subject to me. So I
think it may be of interest to others here as well.
And I want to just thank you. I know that we have some
really, really competent people that are going to be
testifying. I want to thank you all for coming.
We are here to take a look at this, the important business
structure that has helped to foster an entrepreneurial
environment since the late 1950's. Prior to the development of
this corporate structure, entrepreneurs had two options in
creating a business entity. They could form a partnership,
which would allow for a single layer of tax on profits, but
expose the entrepreneur to higher levels of risk. Or, they
could form a C corporation, which would shield the entrepreneur
from risk, but create a double layer of tax on profits.
Neither business structure adequately addressed the needs
of entrepreneurs and so in 1958 Congress and President
Eisenhower acted to create the S corporation. The S corporation
allows for limited liability and a single layer of taxation for
small closely held businesses. The adoption of subchapter S was
a huge step forward in encouraging small and family-owned
businesses in America.
Today, S corporations are the most popular corporate
entity. The IRS estimates that there were 3.2 million S
corporation owners in the United States in 2003, compared to
approximately 2.1 million C corporations and 2.3 million LLCs
and other partnerships.
But while the S corporation community has grown and
matured, the rules governing S corporations have remained
largely the same. The number of shareholders is still limited,
an S Corporation may have only a single class of stock, and the
rules will still limit who or what may own shares in an S
corporation. Today we will hear testimony expounding on:
First, the history of S corporations and the role they have
played in encouraging the rise of small and closely-held
businesses and in the U.S. economy;
Second, the unique challenges S corporations face with the
rules governing subchapter S;
Third, legislative proposals to modernize the S corporation
structure; and
Lastly, the IRS National Research Program study of S
corporations.
I look forward to learning more about how S corporations
benefit the American entrepreneur and what more can be done to
aid this important component of the U.S. economy.
I now yield to the gentlelady from Guam, Madame Bordallo
and for her comments.
[Chairman Akin's opening statement may be found in the
appendix.]
Ms. Bordallo. Thank you very much, Mr. Chairman. And I join
you, too, in getting to know a little bit more about the S
corporations.
I would like to welcome our witnesses this morning. In
spite of the bad weather you are able to get here. We
appreciate that.
Small businesses drive our economy. And it is critical that
our country's small businesses remain strong and vibrant. It is
this Committee's responsibility to facilitate achieving that
goal in any way that we can. Reviewing the benefits of and
potential modifications to the S Corporation business model is
important to our nation's small businesses, as many of them are
indeed S corporations. Legal and regulatory structures must
reflect the pressures of the modern business. And they must be
written in a way that does not put small business at a
disadvantage. Our country's small businesses must be allowed to
remain competitive in today's fast-paced marketplace.
The number of small businesses that have been organized as
S corporations has tripled from around 1 million to 3.25
million over the last 20 years.
Among other things, the S corporation offers a number of
appealing tax benefits and protections against personal
liability. And I am sure we are going to learn a great deal
more about that today.
For instance, the S corporation classification allows
entrepreneurs to avoid a ``double tax'' on their corporate and
shareholder dividend earnings.
The S corporation also provides a form of insulation for
small businesses to be more confident in moving forward with
their innovative ideas and their ventures.
S corporation classification is a proven way for small
businesses to achieve the benefits of corporate ownership. But
there are still a number of barriers preventing S corporations
from reaching their full potential for growth. And I look
forward to hearing today's discussion on how we can work to
ensure that the S corporations remain a strong and viable
option and to learn about some of their concerns. I thank you
very, Mr. Chairman.
[Ranking Member Bordallo's opening statement may be found
in the appendix.]
Chairman Akin. Thank you.
And I know that a few of you here, at least, Tom, you know
the rules and what we try to do. I think this makes it easiest
for our hearing to proceed in an orderly fashion if we take a
statement from each of you. If you would like to submit a
written testimony, that would be fine as well.
And what we would like to do is to hold you to five minutes
each. We will go straight across. And then that will allow us
to get to asking some questions.
I think we can wrap things up usually in close to an hour
or so. So that would be a reasonable thing in terms of time
expectations.
So our first witness is no stranger, the Honorable Tom
Sullivan, Chief Counsel for Advocacy United States Small
Business Administration, Washington, D.C. And a friend of the
Committee and a friend of small business.
Tom, please lead off
STATEMENT OF THE HONORABLE THOMAS M. SULLIVAN, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Sullivan. Thank you, Mr. Chairman, Congresswoman
Bordello.
It is truly an honor to appear, not only before this
Committee, but also as part of this distinguished panel.
My name is Tom Sullivan, and I am the Chief Counsel for
Advocacy at the U.S. Small Business Administration.
I would like to submit my complete written statement. And
as the Chair referenced, just briefly summarize in five
minutes.
Chairman Akin. Without objection.
Mr. Sullivan. The Office of Advocacy, is an independent
office with the Small Business Administration. Therefore, the
comments expressed here don't necessarily reflect the position
of the Administration or the SBA.
Small businesses are a driving force in the United States
economy. They compromise 99.7 percent of all employer firms,
employ half of all the private sector workers and have
generated 60 to 80 percent of the net new jobs annually over
the last decade.
Small firms pay 45 percent of the total U.S. private
payroll, and create about half of the non-farm private gross
domestic product.
Small businesses also tend to innovate at a higher rate
than medium or large businesses, producing up to 14 times the
patents per employee than their larger business counterparts.
And finally, during economic downturns small businesses
fair better than their larger counterparts. Increases in small
business employment and self-employment often help steer the
economy out of recessions.
Just as small businesses are the cornerstone of the U.S.
economy, S-corporations are the cornerstone of the small
business economy. According to IRS Statistics of Income for tax
year 2002 there were approximately 3.1 million S-corporation
returns filed, making up 59.6 percent of all corporate returns.
Those same S-corporations generated $3.9 trillion in annual
revenue.
The written testimony discusses the history of S-corps, the
complexity by which S corps can be started and operate and the
need to update laws for S corps to continue to grow as a viable
business structure.
My office is supportive of legislative efforts that will
enhance the growth of S corps. We are concerned, however, as
the small business community is concerned, with what some view
as unfair scrutiny of S corps by the IRS.
The National Research Program has been described by IRS as
a program that will fill data gaps needed to ensure efficient
tax enforcement and prioritization. That is far different from
what small businesses say is an audit initiative focused on S
corps. I'm all for IRS proceeding with better information, but
I share the concerns of small businesses with how IRS appears
to be focusing its in depth, and I might add painful, audits on
S corps.
Research sponsored by my office continues to show that the
cost of tax compliance costs $1304 per employee per year for
firms with under 20 employees. That's 67 percent higher than
large firms.
Facing an audit, obviously, increases the costs of tax
compliance by requiring business owners to incur the expense of
representation and it takes time away from their business to
answer IRS inquiries.
Small businesses take their responsibility to pay their
fair share of taxes seriously. No one wants to defend those
that deliberately cheat the system. However, IRS's approach may
punish those that voluntarily comply with the law based on the
failures of those who do not.
In summary, small businesses have a long history of
contributing greatly to the American economy. S-corporations
play a critical role in keeping the economy strong. To ensure
their continued success, government has to be wary of taking
steps that may stifle the entrepreneurial growth of S-
corporations. Legislation introduced to reform S-corporation
provisions should be based on tax policy that enhances
entrepreneurial competitiveness H.R. 4421 accomplishes this. As
the IRS strengthens tax compliance efforts, attention should be
given to why taxpayers become noncompliant so that
recommendations are tailored to meet those challenges.
Thank you for allowing me to present these views. And I am
happy to answer questions.
[The Honorable Thomas Sullivan's testimony may be found in
the appendix.]
Chairman Akin. Tom, you are starting off pretty well. You
redeemed 30 seconds there. Good job, and what you said raises a
lot of interesting questions. I appreciate your coming out and
chatting with us on the subject.
Our next witness is the Honorable Don Alexander. And Don is
a partner at Akin, Gump, Strauss, Howard & Feld and former IRS
Commissioner from Washington, D.C. And as he has told me
earlier this morning, he's probably forgotten a lot of what he
once knew but I suspect still knows a lot more than a lot of
other people.
Don, we are just delighted to have you here. Please share
what your thoughts are on the subject.
STATEMENT OF THE HONORABLE DONALD C. ALEXANDER, AKIN, GUMP,
STRAUSS, HOWARD & FELD
Mr. Alexander. Delighted to be here.
I have a long statement to make, it's historical. And I
request that it be inserted in the record. I don't intend to
read any of it.
Chairman Akin. No objection.
Mr. Alexander. 1958 was the year which sub S appeared as
legislation adopted by the House and Senate and signed by the
President.
1958 happened to be one of my better years.
Chairman Akin. If you could slide that mike just a little
closer.
Mr. Alexander. I will.
Chairman Akin. Thank you very much.
Mr. Alexander. Two mikes. Wow. Well, that takes me back to
1958. I didn't have two mikes in 1958. But we had sub S in 1958
because the Eisenhower Administration thought that there ought
to be a way for small business to have a vehicle, a way of
conducting their business that would give them the corporate
limited liability, which you really have to have these days.
Even then you had to have. And at the same time not have a
double tax. Once when the vehicle itself paid a tax and then
when it distributed some of its profits to its owners, and low
and behind there was another tax.
Well, we still have that today. We do not have the same
rates that we had then. We had a rate on individual income that
went to 91 percent. Very few people paid it, willingly anyway,
or unwillingly for that matter. Because IRS didn't do very much
about it.
Then in the Reagan Administration we got the rate down to
70 percent, 70 percent that is on unearned income and got to 50
percent finally on earned income. We treated earned income
better than unearned income then, far different than what we do
today.
Anyway, sub S was enacted to try to help small businesses
carry out their role as essential to the U.S economy as Mr.
Sullivan as just pointed out and as you pointed out in your
opening statements, in a simple form. Well, the idea was a
simple structure for simple people. The problem is that Sub S
through the years and in my statement I mentioned the changed
that have been made, almost all of them except one in the right
direction since 1958, tried to alleviate the shackles that were
put on sub S corporations back in 1958, and that still exists.
Shackles to try to make the corporate structure simple, but
shackles which now make the corporate structure rigid and
rigidity is not simplicity. They are two different things.
Originally only ten stockholders could own stock in a sub S
corporation. Now, thanks to a number of remedial actions by the
Congress, that ten has risen to a 100. It ought to be about 150
so that small banks which have to adopt the sub S form because
they can't go into the fancy things like partnerships and LLC,
can have a sufficient number of member stockholders to survive
in competition with the giant banks that we have today.
Other changes should be made. You will hear more about
these from the other witnesses. But in my litany of history I
point out while the rules governing sub S corporations have
been modified over the years and improved over the years, sub S
corporations although numerous are not the vehicle of choice
anymore. They're not the vehicle best suited from the tax
standpoint for a small business to use. Instead, we have
limited liability corporations, limited liability partnerships
and we have something called check the box where you can decide
whether you want to be a tax nothing or a tax something when
you go into business. Whether those regulations are valid or
not is another question, but they are with us and who is going
to contest them.
All this has worked to the disadvantage of sub S
corporations. While they are numerous, and as you pointed out
they are competing with LLCs and others that don't have the
strictures still limiting sub S corporation.
[The Honorable Donald Alexander's testimony may be found in
the appendix.]
Chairman Akin. Thank you very much. I appreciate your
testimony. We will look forward to getting back to you with
some questions.
Our next witness is James Redpath, CPA, partner, HLB
Tautges Redpath, LTD., is that somewhere close?
Mr. Redpath. Close enough, yes.
Chairman Akin. From White Bear Lake, Minnesota. Did you fly
in?
Mr. Redpath. Last night.
Chairman Akin. Did you? That was a treat, was it not?
Mr. Redpath. Yes, it was.
Chairman Akin. Yes. Well, we appreciate your braving the
weather and joining us here, James.
Please proceed.
STATEMENT OF JAMES REDPATH, CPA, HLB TAUTGES REDPATH, LTD.
Mr. Redpath. Chairman Akin, Ranking Member Bordallo, thank
you for the opportunity to testify. My name is Jim Redpath. I
am a certified public accountant and an officer at HLB Tautges
Redpath, Ltd., a 100 person full-service accounting firm
serving clients in the greater Minneapolis/St. Paul
metropolitan area. Our firm, like many others, work with
several hundred S corporations. I also serve as Chairman of the
Advisory Board to the S Corporate Association. My goal is to
provide you with a firsthand account of how the rules governing
S corporations are outdated, and how those rules might be
improved.
I ask that my full written testimony be placed in the
record.
Chairman Akin. Without objection.
Mr. Redpath. Thank you.
Last year, our firm was involved in creating more than 100
business entities for clients. Of those, virtually all were
LLCs and only a select few were S corporations.
When S corporations were created in 1958, their benefits
were tied to the following restrictions, as earlier stated: The
number of shareholders was limited; the types of shareholders
were restricted, and; only one class of stock was allowed.
Failure to comply with those rules result in the loss of S
corporation status and unexpected double taxation.
In contrast, the LLC was created by states beginning around
19977 and evolving through 1997. And the LLC is encumbered with
none of the rules governing and limiting S corporations.
When an entrepreneur sits down in my office to discuss
starting a business, these differences play a leading role in
our conversation. Why would someone subject themselves to the S
corp restrictions and the possibility of inadvertent double
taxation? Therefore, most new businesses choose to be an LLC.
But what about the existing 3 plus million S corporations?
Should they convert to LLCs? Generally the answer is no.
Converting from an S corporation to an LLC is a taxable event
where you pay taxes on any appreciated property owned by the
business. In my experience, no one is willing to go through the
pain to gain LLC status. Therefore, I believe each of the S
corporation rules need to be reviewed to determine their
appropriateness for the 3 plus million S corporations in
existence.
Another area of challenge for S corporations occurs during
the transition of the business from one generation to the next.
If you have a family owned business with multiple shareholders
and multiple generations, the ability to issue different
classes of stock really helps keep family members involved in
the family business. But S corporations cannot issue preferred
stock or other classes of stock. Allowing S corporations to
have multiple classes of stock would dramatically improve their
ability to make this transition.
Mr. Chairman, the tax code includes a number of provisions
designed to ensure that businesses converting from C to S
corporations do not enjoy a tax windfall when they make the
conversion, mainly LIFO recapture, passive investment tax and
built-in gains tax. I believe in certain circumstances these
provisions go too far.
For example, S corporations For example, S corporations are
subject to a corporate level tax on certain income and gains
recognized within 10 years after they convert from C to S
corporation. I find the built-in gains provision causes many S
corporations to hold onto unproductive assets and business
lines that should be sold or converted and reinvested into the
business. Ten years is a long time. Reducing the build-in gains
tax period from ten to seven years, modifying the passive
investment income limitation and eliminating the passive
investment income determination event would eliminate an
unnecessary advantage to S corporations.
Mr. Chairman, raising capital is always a challenge for a
closely held business, even without the additional limitation
faced by S corporations. When S corporations were created, the
idea was a simple corporate form for simple business. The
business world has changed in the past 50 years, and the
limitations imposed on those simple businesses are now
restricting the ability of established S corporations to access
the capital they need. Allowing S corporations to issue
additional classes of stock, convertible debt and allowing non-
resident aliens and IRAs as shareholders will enhance the
ability of S corporations to access necessary capital.
Mr. Chairman, the S corporation is the only business
structure where you can where you can inadvertently lose your
entity tax status. An S corporation election is terminated
whenever the S corporation has excessive passive income, too
many shareholders, an ineligible shareholder, or an arrangement
that may be considered a second class of stock. Often,
businesses are unaware that they have violated these
restrictions and it is discovered too late. This rule has
tangible impact on S corporations.
In the last year I was involved in three transactions where
the remote possibility of the entity failing to satisfy it S
corp requirements since the day of its inception stopped the
transaction or resulted in major modifications to the terms.
Allowing S corporations without IRS consent to rectify an
ineffective election or a terminating event, increases tax
status certainty to S corporations and puts them on par with
all other entities.
The S corporation has proven to be a huge success, but
times have changed, and the rules governing S corporations need
to change as well.
Legislation like Representative Shaw's bill H.R. 4421,
Representative Ramstad's bill H.R. 2239, and others would
greatly improve these rules and enable S corporations to
continue to compete with LLCs and other business structures on
a more even footing and promote economic investment and growth
for S corporations. By contrast, S corporations remain
concerned about--
Chairman Akin. James, your time is getting a little close
here.
Can you summarize things here? I mean, I think you have
been summarizing it, but just cap it off.
Mr. Redpath. Yes. In summary there was a proposal relating
to an increased tax on S corporations relating to payroll
taxes. This for small corporations would result in a 15 percent
increase in their tax. We believe the Treasury has the ability
to enforce the existing rule that prohibit abuse.
Thank you for your time.
[Mr. Redpath's testimony may be found in the appendix.]
Chairman Akin. Thank you, James.
And our next witness is Gregory Porcaro. Do you go by Greg
or Gregory?
Mr. Porcaro. Greg is fine, thank you.
Chairman Akin. Okay. And Greg is with the American
Institute of Certified Public Accountants from Warwick, Rhode
Island.
Mr. Porcaro. Sir.
Chairman Akin. A pleasure to have you here this morning,
Gregory.
STATEMENT OF GREGORY PORCARO, CPA, AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
Mr. Porcaro. Thank you. It's a pleasure to be here.
Good morning, Chairman Akin, Ranking Member Bordallo and
other distinguished members of this Subcommittee, the American
Institute of Certified Public Accountants appreciates this
opportunity to present testimony on the place of S corporations
in our society and on the need to keep them vital and
competitive by continuing to modernize the laws that govern
Subchapter S of the Internal Revenue Code. We request that a
written copy of this testimony be included in the official
record of this hearing.
Chairman Akin. Without objection
Mr. Porcaro. Thank you.
My name is Gregory Porcaro and I am the Chair of the AICPA
S Corporation Technical Resource Panel. AICPA members assist S
corporations of all sizes and in all industries nationwide, and
their shareholders, with choice-of-entity decisions;
transactional planning, return preparation; and many other
services required daily by S corporations. It is from close
involvement with our clients that we have developed insight
into the impact of S corps on our society and into needed
changes that will enable S corps to continue to be a primary
vehicle for both start-ups and existing businesses to achieve
operational growth, expanded employee ownership, and simplified
and practical family succession planning. Personally, I am a
majority shareholder and tax principal in a small CPA firm in
Rhode Island PA who serves S corporation clients ranging in
size from $50,000 in revenue to $40 million in revenue. My firm
annually prepares close to 600 S corporation tax returns,
including our own.
S corporations are active in just about every sector of our
environment and economy from professional service,
construction, manufacturing, retail and wholesale
establishments; the majority of corporate businesses that we
deal with everyday are, in fact, S corporations. Recent numbers
indicate that there are 3+ S corporations that together have
invested over $2.5 billion in assets, generated substantial
revenue and contributions to our economy and employ millions of
people. These engines of American entrepreneurship are not
slowing down even with the fast growth of LLCs that still
harbor certain advantages over S corporations today.
Today, in our brief testimony I will cover some of the
statutory changes that we believe should be made to Subchapter
S. Collectively, these changes would eliminate needless traps,
inequities, and complexities, indeed, may help many
corporations actually make an S election. Subchapter S can and
should be modernized to expand its reach, to simplify
transactions and remove unintended consequences.
Start-up business survivability is a critical concern.
Census data indicates that 20 percent of start-up companies
disappear after one year, and 70 percent disappear after ten.
Small businesses that struggle with and file for bankruptcy
over operational, financial, and tax problems may be able to
prevent these problems if they have greater access to their
CPAs. The AICPA, therefore, supports the Small Business Tax
Flexibility Act of 2005, H.R. 4006, and its 2006 companion bill
in the Senate, which would give most S corporations and
partnership start-ups the flexibility to adopt a fiscal year-
end from April through November. This flexibility would help
spread start-up businesses' regulatory, financial, and tax
burdens away from the busiest operational periods, thus
increasing productivity; it will help spread regulatory,
financial and tax workload of CPAs and other advisors
throughout the year, thus promoting a more balanced family-work
protocol for advisors;
Increase the occurrence of non-extendable financial and
regulatory deadlines, such as bank loan submissions or HUD
filings outside of the tax season;
Provide the same flexibility that C corporations, which are
typically larger businesses, have in choosing the right fiscal
year-end for the business, and;
Provide certain start-ups with increased cash flow because
both real and opportunity costs will be reduced as the result
of performing these tasks outside of their busy portion of
their business cycle.of compliance are reduced as such work is
delayed to a less productive period of the business cycle.
Another area of concern is a recent discussion to change
the way S corporation shareholders pay employment taxes. The
Joint Committee on Taxation has suggested that S corporation
shareholders switch from the current withholding tax regime to
the estimated tax payment system. Without addressing the merits
and concerns of the Joint Committee at this time, we strongly
suggest that if any changes are made, that they not be made to
the S corporation regime, but rather that the issue should be
studied carefully with extensive input from public to consider
moving the partnership model closer to the S corporation model
of payroll tax withholding. S corporation shareholders should
not be brought into the less efficient system of self-
employment and estimated tax system because the current payroll
withholding system substantially decreases the likelihood that
a taxpayer will underpay their tax liability as comprehension
and compliance with that system is much easier and less
burdensome.
Next I will mention the few suggestions that we find are of
particular importance:
Removal of the tax on LIFP Recapture;
Electing Small Business Trust should be able to deduct
interest on debt expense incurred when it borrows funds to
purchase S corporation stock.
In conclusion, the AICPA has a number of other
recommendations that we do not have time to mention today. We
ask that a letter to Senators Hatch and Lincoln describing
these recommendations in great detail be included in the record
of this hearing.
Chairman Akin. Without objection.
Mr. Porcaro. We are pleased to be able to present this
testimony before you today and will be delighted to answer any
questions.
Thank you, Mr. Chairman and Members of this Subcommittee.
[Mr. Porcaro's testimony may be found in the appendix.]
Chairman Akin. Thank you, Gregory, for your testimony.
Maybe in asking some questions, I will start with you.
Gregory, you are one of the few people that did not mention
4421. Are you familiar with that piece of legislation. I think
it's Clay Shaw's bill?
Mr. Porcaro. I am, sir.
Chairman Akin. Does that bill help or harm the S corps in
your opinion?
Mr. Porcaro. We have been monitoring that bill at the AICPA
since it first came about several years ago. And we believe
those provisions are going to be significantly helpful in
providing a lot of the flexibility that was referenced here
today.
Chairman Akin. So even though you did not specifically
mention it in your testimony, you think it is going the right
direction then?
Mr. Porcaro. Yes, sir.
Chairman Akin. Okay.
And the better questions for Mr. Sullivan, do you dispute
that we have a tax gap?
Mr. Sullivan. No, I do not dispute that, Mr. Chairman.
Chairman Akin. So we do have a tax gap?
Mr. Sullivan. We do have a tax gap. I think there has to be
some balance in figuring out how to try to fill to the extent
practicable that tax gap. And I think from that perspective the
small business community differs from IRS' approach.
Chairman Akin. And then also, S corporations receive tax
benefits for making an S election. Why should they receive more
benefits?
Mr. Sullivan. Mr. Chairman, the answer on why there should
S corp reform to make them do better really is a broad economic
answer. And that is an examination of the success of S corps
reveals an incredible contribution to this economy. So to say
why should they get benefits, the answer is because when they
benefit, the entire economy benefits.
Chairman Akin. Let me just sort of step back for what I am
hearing and see if I am picking up, more or less, what is going
on. We created S corps because we needed something to help get
small businesses off the ground. We just didn't have the right
legal mechanism, taxing mechanism to really encourage small
business. So we created this S corp back under Eisenhower in
the '50s. And at the time it was good technology, but when we
look at it today it just created a whole lot of red tape and
hassles and a tremendous liability. It is not a liability in
the sense of some lawyer is going to sue you out of your house.
It is not a tax liability--well, it is sort of a tax liability,
but it is rather that if you make some little nitpicking
mistake, all of a sudden you can lose the whole structure that
you organized under. Not only that, you have to pay an
incredible amount of back taxes, which I assume might even
destroy the viability, the financial viability of your company.
So it has got an awful lot of gotchas in it, a lot of
complexity to the point that people are not even recommending
it anymore if you are starting business up.
So we have a certain number of people almost trapped in
this antique system. And the question is whether we are going
to get with the program and get this thing changed.
Now, first of all, am I stating the problem more or less
correctly? I see nods, more or less.
Okay. Then why has it taken us so long to get the job done?
Does anybody disagree with what I just said? I mean, what
groups of people would disagree? IRS?
Mr. Alexander. No. Mr. Chairman, I might try to answer
that.
If I were still back with IRS, I would be paranoid enough
to believe that--oh well.
Now, Mr. Chairman, you put your finger right on it. S corps
were supposed to be simple, small structures for simple small
people. The trouble with that is that it introduces not only
the possibility of being wrong in many, many unnecessary ways,
but also if you are not wrong, you know that you cannot have
over, say back in 1958, ten stockholders and now a hundred. But
you have that 101st stockholder and you suddenly are
disqualified. You are disqualified because you have too many.
Well, why too many?
You mentioned benefits of S corps. What we are talking
about detriments. The benefits go to a pass through entity, not
necessarily an S corp, a partnership, an LLC that is not
subject to any of these limitations that we are talking.
You asked who might oppose relief from the limitations. The
fact is my former Department of Treasury has opposed relieving
S corp restrictions. Why? Because let us go back to the simple
structures for simple people. They think that if you relieve S
corps of some of these limitations, that we at this witness
table have brought out, you suddenly are creating a problem for
the economy, for IRS and for S corps because S corps suddenly
get complicated. Oh, no, it does not make any sense whatever.
If you look at the regulations under Section 701 code, and I
hate to mention code numbers but I have got to here, you find
that they tell you how to get that 101st stockholder and they
tell you how to get the nonresident stockholder. What you do is
you have your S corp join in a partnership with the excess
stockholder or with the nonresident alien stockholder and
suddenly that's okay. Well, that is not the way that mainstreet
business should be conducted at all.
Chairman Akin. More complicated than the other alternative?
Mr. Alexander. It is much more complicated. And Treasury
requires this complexity. Part of it is the fact that they like
partnerships. They like LLCs; that is the wave of the future,
that is the choice of today. So why should we do anything for S
corps?
Chairman Akin. So then the primary people that are opposed
to change would be probably Treasury, would that be a fair
assessment?
Mr. Alexander. Well, there is another problem, too. Because
any time that you do something good for S corps, the Joint
Staff is going to put a big number on it and it is a revenue
loss. And you got to figure out how to get some revenue to pay
for that revenue loss under the PAYGO rules and whether under
the current rules you still have to pick up that revenue, I do
not know. But the other side of it is that the bills that you
have heard about, and particularly Mr. Shaw and Mr. Ramstad's
bill 4421 would do a lot to try to get rid of some of these
shackles. But it might be expensive to do it.
Chairman Akin. All right. Well, I would love to ask some
more questions, but my five minutes has expired and I need to
go to the fair lady from Guam.
Ms. Bordallo. Thank you, Mr. Chairman.
I have a question for Mr. Sullivan. How much of a
competitive disadvantage are S corp operating at if they
continue to be prohibited from seeking to sell stock to
individual retirement accounts and nonresident aliens, and
would these sources of capital be significant? And if so, how
would they compare to the sources of capita that currently
exist for S corp?
Mr. Sullivan. Congresswoman, I do not know the dollars and
the equations that would lead up to an exact figure to say this
is the competitive disadvantage. What we do see is that without
the reforms allowed in Mr. Shaw's bill that would allow for a
preferred stock, for instance, for succession planning and so
forth. What we do see is a modernization of S corp structures.
And I guess the easiest way to answer the competitiveness
question is that we really do not want to get to a point where
all of a sudden we wake up and say ``Oops, we are at such a
severe disadvantage that S corps are trapped and they are not
able to elect out of the status without paying an enormous
toll.'' We do not want to reach that point.
And what we do see is that as the economy has evolved, the
rules that were originally in place that would prohibit a
nonresident alien ownership or different classes of stock
really no longer apply in this marketplace. And so the reform
is not only a competitiveness issue but also a modernization
issue.
Ms. Bordallo. Are there any other witnesses that would like
to answer that question?
Mr. Redpath. I do not know the answer to that question, but
what I do see in my practice, you know I work in the trenches
applying these laws to hundreds of S corporations. And what we
do see is that our S corps' competitors are organizing as LLCs.
And those competitors are not just domestic, they are
international. And they are not subject to these restrictions.
You know, one of the answers to the other question is my
clients ask me the same question all the time. You know, why
are we limited to certain number of shareholders? Why are we
limited to a certain class of stock? You know, why are we--
things like that. And we do not have an answer because they ask
us, the LLCs are not and those are their competitors.
So I see the competitive disadvantage. I obviously don't
have the numbers that they were asking for.
Ms. Bordallo. I would like to ask Mr. Porcaro.
Mr. Porcaro. Yes, ma'am. Well, that same question?
Ms. Bordallo. Yes.
Mr. Porcaro. Again, it is hard to quantify. The only aspect
I can see is that with regard to IRAs, in particular, the issue
of whether the IRA funds can be utilized in some form or
another to invest in S corporations has come up several times
over the years. So there is definitely a large pocket of
resources tied up in IRAs that potentially could be used as the
alternative source of capital.
With regard to the international implications, in every
situation where we had such a scenario, we have had to utilize
LLCs in order to bring in any international capital. S corps
just do not provide a mechanism for doing that. And that is, I
guess, the way that situation is and how much more we would be
able to do with S corps, I am sure there is a substantial
amount. Because even in a firm my size we see more and more
globalization of business activities even in smaller
businesses.
Ms. Bordallo. Mr. Alexander, would you like to put in your
two cents?
Mr. Alexander. Yes. Into a mike that works.
Yes, my two cents. I agree with the statements of the other
witnesses. And S corps, although the largest single number of
business entities in this country, have not yet reached zero
population growth, but they are almost there. Thanks to the
fact that LLCs has been discussed coupled with the check-the-
box rules that Treasury happily put out have created such a
competitive tax environment as to greatly disadvantage the S
corp to such an extent--did I do that?
Chairman Akin. Well, that was a nonpaid advertisement. Go
ahead.
Mr. Alexander. We are a little distance from the Hart
Building anyway. That is good.
I was saying that the S corp now almost has a zero
population growth. There are still a lot of them. Why are there
a lot of them? Because getting out of them is so expensive, as
the witnesses have pointed out.
Maybe they will tell us again.
Anyway, back to S corp. New S corps, in my experience
anyway which is limited, of course, are not being created if
the would be entrepreneur, the new business person has a
choice. The far, far superior choice is the limited liability
company or sometimes the ancient partnership where you are not
subject to any of the limitations that we have described and
where you have tax nirvana, S corps are far from that and they
need not be.
Ms. Bordallo. Thank you. Thank you very much.
I have one other question, kind of a follow-up. Since you
do not have the numbers, do you have studies or analysis that
pertain to the value of the S corporation format that you would
call to the Committee's attention? Any of you could answer
that.
Mr. Porcaro. I do not know of one.
Ms. Bordallo. None of you?
Mr. Sullivan. Congresswoman, in my testimony we do point
out the economic benefits of S corps and the volume and number
of those S corps are really tremendous. And I think what Don
Alexander was pointing out is that if you have a choice in the
future, it is likely that you will not choose S corps. But the
numbers are so large for existing S corps that to ignore the
need to modernize it will be devastating to the economy.
Ms. Bordallo. Would SBA have any of this information?
Mr. Sullivan. We do have information about the economic
value of S corps. We also have information about the
disproportionate regulatory burden on small business, but we
don't segment out the disadvantage competitively of S corps
versus other small business.
Ms. Bordallo. And, Mr. Sullivan, I think you were--or I am
sorry, Mr. Alexander?
Mr. Alexander. I believe that there are some studies that
could be helpful, although perhaps not exactly in point in your
excellent question. I think the GAO has studied S corps,
although not as recently as all of us would like. But Joint
Committee on Taxation has also studies the S corp situation
although sometimes they are not as concerned about these
limitations as we at this table would hope that it would be.
Ms. Bordallo. Thank you. Thank you very much.
Mr. Chairman.
Chairman Akin. Thank you. Let me ask a radical question.
What would happen if we just said we are going to get rid of S
corps and let everybody that has an S corp convert over to LLC
with no penalties, no review of back taxes? Just say if you
want to shift over, you can just go from one to the other.
First of all, is that a radical idea? Would that be hard to do
politically or financially, or how would that work? Would that
make sense to do? Is there anything in an S corp that an LLC
doesn't have?
Mr. Alexander. Well, there are certain things for banks
that an LLC does not have because a bank by law, as I
understand it, has to operate as a corporation. So you would
have to, I think, change the rules.
Chairman Akin. You would have to deal with something
relative to banks? It would be smaller banks then?
Mr. Alexander. Yes. I think the banks, small banks would
need to have sort of a special rule. A federal law could of
course override or a federal law could replace that
restriction. Because I think it is in federal laws, perhaps in
state law. But apart from that, and I would like to hear the
people that actually deal with this situation on the ground,
but I think as far as I am concerned if there were no toll
charge on moving from S to the faxed favored entity, LLC, I
would strongly recommend that all the S corporations that I
represent immediately move.
Mr. Redpath. A couple of comments I have. And one would be
relating to ESOPs and ESOPs owning S corporations. And there
are many S corporations that have ESOPs as shareholders. And
ESOPs, you know, currently could not be sponsored by
partnerships or LLCs. So we would have to deal with that as an
issue.
The other thing is just applying the partnership rules to
corporate structure may be difficult. There are a variety of
different rules in the partnership area relating to the
allocation of income, the allocation of debt, calculation of
basis; many things in the partnership area which LLCs are taxed
under. That would need to be addressed to determine how they be
allocated at the corporate world.
My personal opinion is these fixes that are proposed by
H.R. 4431 and 1239 go a long way to helping the S corporation.
They really do. I believe that many of my clients, given the
option to convert to an LLC or if these rules may stay as an
LLC just because of some of the things I just mentioned.
Chairman Akin. In other words, there is a conversion cost
just because you are doing some things a different way?
Mr. Redpath. There is a conversion cost and there is the
application of the tax law itself. Just simply indicating that
a corporation now would be taxed as a partnership, there are
many things that need to be addressed under the partnership tax
regime as to how that applies to a corporation.
Chairman Akin. If somebody wanted to do that, could that be
defined before such a conversion were made? If you talk about
simplification, which you know to some degree, simplification
is a good thing. The LLCs are working pretty well, is there
really a need to keep the S corps around? I am not opposed to
making the modernizations, but I guess that was my question:
Why do we really have two things doing the same job in a way?
Mr. Porcaro. I would like to make a comment relative to
what Mr. Redpath said or to emphasize it. The application to
tax law for partnerships is substantially complicated than
Subchapter S. And what I have found and people have converted
or utilized LLCs without the proper guidance, have actually got
themselves in the situation they did not anticipate.
Contribution of property to partnerships, for example, carry
with them a toll of up to seven years depending upon how that
property is dealt with, either by sale or distribution.
So there are reasons why Subchapter K works and there are
reasons why Subchapter S works. So I have never really felt
that I think there was a proposal was to do just that, make
like either a smaller no-tolled charge to convert and just
merge everything to Subchapter K. I believe the reason why we
have the different subchapters is because they all do different
things. And in certain circumstances the S corp is the way that
a business should be functioning and in certain circumstances
the LLC definitely has some aspects to it that are beneficial.
And I do not know if we could sufficiently bridge the tax
application and compliance from Subchapter K to S without more
than just a nominal cost, outside of revenue costs. I mean just
an administrative cost for taxpayers in general.
It is not as simple, I guess, is the way I see it, as all
that.
Chairman Akin. I guess my question is one of the things
that was argued when we cut capital gains and things was that
when we create all these complicated tax rules, what we are
starting to do is we are starting to force some corporate
structure into some pattern which may not be economically the
most efficient way to run the business. So that the more
transparent that we can make the tax code, it gives the people
that run the businesses the flexibility to be as productive as
possible. And when we tie up all kinds of resources because if
you touch this, you are going to get zapped with taxes on it,
we basically have all this money sitting around which could be
invested in a better way. So at least the concept that I
subscribe to and that I think a lot of people have talked about
is that when you back your tax code off and make it less
specific so that people have flexibility to properly manage
their resources, otherwise, people will not make the most
appropriate investments. It just makes us more productive and
more competitive. And clearly we are in an increasingly global
environment where competition is critical that we are
competitive. So, that was why I was asking that question.
We have been joined by a fantastic Congresswoman from the
great State of New York. And would Ms. Kelly want to make a
question or comment?
Ms. Kelly. Thank you. I appreciate your turning to me.
I will just make a comment that I have started several
Subchapter S corporations. And for the people who are just
entering a small business who need the corporate shield which a
Subchapter S, and I am talking about liability here, when you
are looking for that liability corporate shield if you are true
very small business, a Subchapter S is a very easy and
economical way to get into a corporate position. It's not an
impervious veil, but it is certainly something that does help.
And I am concerned about changing some status.
For instance, the single taxation status, I would be
interested in your view on whether or not you think that ought
to be changed.
Limited shareholders, I would be interested in what you
think about that.
And I am very concerned about the liability protection.
Liability protection is one of the most common reasons that
people who start small businesses go into any kind of a
corporate structure. You do not have to be a corporation to do
business in this country. And so I would be interested to hear
you address those couple of issues: Liability protection and
single taxation and the shareholder limitations. And I wonder
if I could just start maybe with you, Mr. Porcaro, and move
this direction down.
Mr. Porcaro. Well, with regard to single taxation, are you
referring to just the pass through structure that we have now?
Ms. Kelly. Yes.
Mr. Porcaro. Well, it has been experience that that is a
very efficient way to deal with the small business environment
where many times the complication of a corporate structure are
not always adhered to, and the manner of that would be in a
larger entity. And so there is not always a fine line in the
small business owner's mind as to the corporate pocketbook
versus their own So in many cases having this ability to have
this pass through limits their exposure to a tax liability they
may not have had. It is basically all going to be taxed at one
level. And if they erroneously classify an item, whether it
should have been personal or business related, it will flow to
them and they will pay that one tax because that is how it
should have been in the first place.
With regard to the limited number of shareholders, to be
frank with you in my particular practice the current limitation
of a 100 shareholders has been more than adequate. We do not
have any S corporations with more than 10.
And I just looked at some Internal Revenue Service
statistics, and there are not that many S corporations with
more than 50.
So I do not know--and now with the single family, the
family election which can bring in multiple generations, I do
not see that as being a real restriction as it used to be. The
steps that have been taken have been tremendous in helping
avoid that problem in my experience.
And the liability issue, I cannot really comment on not
being an attorney because I have attorneys tell me that in some
respects the LLC provides better liability protection depending
on the state in which you are organized in than a corporation
might. So I do not know if that is true.
I know in Rhode Island the jury is really kind of still out
because we have not had a case that has challenged the limited
liability protection of an LLC.
Ms. Kelly. Thank you.
Mr. Porcaro. You are welcome.
Ms. Kelly. Mr. Redpath?
Mr. Redpath. Yes. Thank you.
Single taxation is how we create virtually all new
entities, small closely held businesses, whether we use an LLC
or an S corporation; either one does that. It is a benefit of
both and that is something that I believe just needs to be
there for the small business to compete.
Rarely do we ever create a S Corporation subject to double
taxation.
The number of shareholders, you know, is an issue that as
Mr. Alexander pointed out people get around that. They get
around that by creating partnerships with S corps as partners.
And so there are ways to increase the number of shareholders
with S corporations.
What we are more interested in is the classes of
shareholders and the types of shareholders. And allowing S
corporations to benefit the same as LLCs with regards to who
can own the stock and what your ownership rights are.
With respect to a LLC and a corporation, I agree with you,
a corporate entity structure has been around much longer, much
simpler. If you read an LLC operating agreement or member
control agreement, it is a very complicated document. When you
read corporate bylaws, you can actually maybe understand them.
So I agree with you from that standpoint.
Ms. Kelly. Thank you.
Mr. Alexander?
Mr. Alexander. My two cents again.
First, on the issue you raised on limited liability. I
agree with Mr. Redpath, that is absolutely essential.
Absolutely essential. And you have that in an LLC form in all
the states that have adopted them. And I think all the states
have at this point. You have it also in an S corp and you have
it in a C corp. But why on earth would anyone use the C corp at
least at the beginning of a business organization's life? No
one.
Single tax? Sure.
Number of shareholders. I was interested to hear those that
actually work more than I do in this area that a 100 is
sufficient. I have heard from the community bankers that a 100
is great, but that more would be better.
We do look back six generations now to find all the members
of the family going back to a single ancestor six back treated
as one shareholder. Think about that. You can sure bring in a
lot of shareholders that way if you have a big family. So maybe
the 100 shareholder limit does not create a real problem except
in the very limited area of community banks. But it surely
creates a huge problem when you are talking about the types of
shareholders; nonresident aliens forbidden except through the
mechanism that we have discussed of a partnership and an S
corporation getting together.
And of preferred stock, no mezzanine capital. That
limitation never made much sense, but somehow Treasury thought
it was appropriate. Why? I do not know, but maybe Mr. Sullivan
can say what the Department was doing?
Mr. Sullivan. Congresswoman Kelly, first of all on your
question of limiting liability, I think actually that questions
extends even far beyond the tax code. And I commend the Small
Business Committee in the House particularly for continuing to
push small business liability relief because it is a huge issue
and transcends little different parts of the tax code into an
overall threat and drag on the small businesses economy. So I
echo the detailed tax related comments, but then also urge the
Committee not to let up in your push for small business
liability reform overall.
You asked about expanded shareholders. I would defer really
to this distinguished panel. And I think what has come out of
this hearing is that the shareholder requirements of Subchapter
S do need to be modernized, whether that be different classes
of shareholders that Mr. Redpath mentioned or an expansion as
Don Alexander talked about related specifically to community
banks.
The single tax system, and actually in the President's
Commission on Tax Reform that was one area that they encouraged
policymakers to look at and Subchapter S certainly prioritizes
the single tax system. And for that reason I join the
President's Commission and actually echo their recommendations
that you do focus in on the single tax systems and enhance ways
to make that even better through Subchapter S.
Ms. Kelly. Thank you.
That single tax system, as Mr. Redpath pointed out,
sometimes it's a very, very blurred lined. An rather than set
up an impossible rule that we cannot enforce or that is going
to put a chill factor on our ability to form Subchapter S and
appropriately pay the taxes, it is far better to have that line
clear, defined and single I think. So I appreciate your
comments on that.
And I am sure that my time must be up, so I will yield
back.
Mr. Akin. Well, we are pretty good shape on time. I
promised we would get out of here in about an hour, and I think
we are pretty close to that. So things are working out.
Anybody want to ask one more? Yes.
Ms. Bordallo. I would like to ask this of Mr. Alexander. He
seems to have such a long history on this subject.
Do you expect that there is a significant tax gap? I know
this was brought up earlier, but I do not remember really what
the answer was, for filings from S corporations? And what do
you believe the Internal Revenue Service will do in response if
there is a significant tax gap for S corporations? What should
American small business owners be expecting here?
Mr. Alexander. Commissioner Everson is enforcing the law.
The tax law was not enforced very well and very effectively,
efficiently or fairly a few years ago. The problem is that IRS
may be overdoing it a bit and Mr. Sullivan indicated his
concerns about that in the S corporation field.
Pass through entities do present a problem for the tax
collector, and I used to be a tax collector. However, the fact
that the problem is presented to the tax collector doesn't mean
that the tax collector should not be fair and reasonable. But
the tax collector needs to be thorough because we do have a
very large tax gap in this country. The IRS estimate is about
$300 billion yearly after taking into account--after netting
out what the IRS will likely collect from those who had not
made their full and proper contribution. Actually, the gap is a
lot bigger than that because that includes only the legal
sector and only part of the types of taxes that we impose in
this country. For example, the estate tax ``gap'', whatever it
may be, is not included in IRS' figure.
If the laws were fully effective, our tax laws produced
what they should produce, we would not have a deficit at this
time. But you cannot make that happen in a democracy. There is
bound to be some slippage, and there should be some because
otherwise IRS' is bearing down on some people very hard indeed
while missing others, particularly in the legal sector that,
let us say, do not rush forward to pay their taxes on money
that they obtained illegally in the first place.
There is a problem. There is a problem in small business,
regrettably. But largely in the businesses that deal in cash.
If the business finds, and perhaps this does not rise to the
level of calling something like that a business, that cash is
the way that it handles its transactions, it is very unlikely
to share with the tax collector the amount that should be paid.
Ms. Bordallo. Thank you. Thank you very much.
Thank you, Mr. Chairman. No further questions.
Chairman Akin. With no further questions, with thanks to
our witnesses, the Committee stands adjourned.
[Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
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