[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS AND PASS-THROUGH
ENTITY TAX REFORM DISCUSSION DRAFT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON SELECT REVENUE MEASURES
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MAY 15, 2013
__________
Serial 113-SRM02
__________
Printed for the use of the Committee on Ways and Means
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
94-397 WASHINGTON : 2016
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
[[Page ii]]
COMMITTEE ON WAYS AND MEANS
DAVE CAMP, Michigan, Chairman
SAM JOHNSON, Texas SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas CHARLES B. RANGEL, New York
PAUL RYAN, Wisconsin JIM McDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
DAVID G. REICHERT, Washington XAVIER BECERRA, California
CHARLES W. BOUSTANY, Jr., Louisiana LLOYD DOGGETT, Texas
PETER J. ROSKAM, Illinois MIKE THOMPSON, California
JIM GERLACH, Pennsylvania JOHN B. LARSON, Connecticut
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida RON KIND, Wisconsin
ADRIAN SMITH, Nebraska BILL PASCRELL, Jr., New Jersey
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas ALLYSON SCHWARTZ, Pennsylvania
ERIK PAULSEN, Minnesota DANNY DAVIS, Illinois
KENNY MARCHANT, Texas LINDA SANCHEZ, California
DIANE BLACK, Tennessee
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
TIM GRIFFIN, Arkansas
JIM RENACCI, Ohio
Jennifer M. Safavian, Staff Director and General Counsel
Janice Mays, Minority Chief Counsel
______
SUBCOMMITTEE ON SELECT REVENUE MEASURES
PATRICK J. TIBERI, Ohio, Chairman
ERIK PAULSEN, Minnesota RICHARD E. NEAL, Massachusetts
KENNY MARCHANT, Texas JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania ALLYSON SCHWARTZ, Pennsylvania
AARON SCHOCK, Illinois LINDA SANCHEZ, California
TOM REED, New York
TODD YOUNG, Indiana
[[Page iii]]
C O N T E N T S
__________
Page
Advisory of May 15, 2013 announcing the hearing.................. 2
WITNESSES
Mr. Roger Harris, President, Padgett Business Services, Testimony 8
Mr. Willard Taylor, Former Partner, Sullivan & Cromwell,
Testimony...................................................... 14
Mr. Blake Rubin, Partner, McDermott Will & Emery, Testimony...... 44
Mr. Thomas Nichols, Meissner Tierney Fisher & Nichols, Testimony. 55
PUBLIC SUBMISSIONS FOR THE RECORD
AdvaMed.......................................................... 78
AIA.............................................................. 85
AICPA............................................................ 87
American Council of Engineering Companies........................ 107
American Farm Bureau Federation.................................. 109
Alliantgroup..................................................... 113
BIO.............................................................. 117
CBSI............................................................. 123
FAIR Coalition................................................... 126
Florists Coalition............................................... 133
Independent Community Bankers of America......................... 137
National Association for the Self Employed....................... 140
National Pork Producers Council.................................. 145
National Retail Federation....................................... 149
Real Estate Roundtable........................................... 151
SBLC............................................................. 156
Small Business Investor Alliance................................. 159
[[Page (1)]]
SMALL BUSINESS AND PASS-THROUGH
ENTITY TAX REFORM DISCUSSION DRAFT
----------
WEDNESDAY, MAY 15, 2013
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Select Revenue Measures,
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
Room 1100, Longworth House Office Building, the Honorable Pat
Tiberi [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
[[Page 2]]
HEARING ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
Chairman Tiberi Announces Hearing on
Ways and Means Small Business
and Pass-Through Entity
Tax Reform Discussion Draft
1100 Longworth House Office Building at 10:00 AM
Washington, May 7, 2013
Congressman Pat Tiberi (R-OH), Chairman of the Subcommittee on
Select Revenue Measures, today announced that the Subcommittee will
hold a hearing on the small business and pass-through entity tax reform
discussion draft released on March 12, 2013, by the Committee on Ways
and Means (``the Committee''). The Committee released the discussion
draft to solicit feedback on the details of the draft proposals, which
the Committee intends to include as part of comprehensive tax reform
legislation that broadens the tax base, lowers tax rates, and
simplifies the Code for households, small businesses, and corporations.
The hearing will take place on Wednesday, May 15, 2013, in Room 1100 of
the Longworth House Office Building at 10:00 A.M.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.
BACKGROUND:
As part of its pursuit of comprehensive tax reform, the Committee
released on March 12, 2013, a discussion draft of one specific
component of broader tax reform legislation involving tax provisions
affecting small businesses and pass-through entities (including
partnerships and S corporations). The Committee released this draft
because it hopes to achieve simpler, more uniform tax treatment for
small businesses and pass-through entities, and in the interests of
transparency, seeks feedback from a broad range of stakeholders,
taxpayers, practitioners, economists, and members of the general public
on how to refine these proposals. Ways and Means Committee Chairman
Dave Camp (R-MI) asked Chairman Tiberi to schedule this hearing to
gather analysis from outside experts on the details of the discussion
draft.
The discussion draft contains several core components intended to
simplify tax compliance for small businesses and to provide certainty
with respect to the ability of small businesses to recover certain
costs immediately. The draft also includes two separate options
designed to achieve greater uniformity between S corporations and
partnerships--one that revises current rules and a second that replaces
current tax rules with a new unified pass-through regime. The Committee
and Subcommittee are soliciting comments from stakeholders on both
options.
In announcing the hearing, Chairman Tiberi said, ``Small businesses
employ half of the private sector workforce and earn about half of all
business income in the United States, so it is a major concern that
nine out of ten small businesses are forced to rely on paid tax
preparers because the Tax Code is too complicated for them to
understand. We need our entrepreneurs using their capital to invest and
create jobs, not to fill out paperwork and tax forms, and one of the
Committee's top priorities in tax reform is to help them do that.''
[[Page 3]]
FOCUS OF THE HEARING:
The hearing will focus on the Ways and Means small business
discussion draft released on March 12, 2013. For purposes of this
hearing, the Subcommittee is interested in comments and analysis
relating to the basic architecture of the draft proposals including, in
particular, the implications of the changes to the cash accounting
rules, the questions that must be answered in designing a workable
unified pass-through regime, and the real-world ramifications of the
incremental proposals to modify the rules governing S corporations and
partnerships.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit
written comments for the hearing record must follow the appropriate
link on the hearing page of the Committee website and complete the
informational forms. From the Committee homepage, http://
waysandmeans.house.gov/, select ``Hearings.'' Select the hearing for
which you would like to submit, and click on the link entitled, ``Click
here to provide a submission for the record.'' Once you have followed
the online instructions, submit all requested information. ATTACH your
submission as a Word document, in compliance with the formatting
requirements listed below, by the close of business on Wednesday, May
29, 2013. Finally, please note that due to the change in House mail
policy, the U.S. Capitol Police will refuse sealed-package deliveries
to all House Office Buildings. For questions, or if you encounter
technical problems, please call (202) 225-3625 or (202) 225-2610.
FORMATTING REQUIREMENTS:
The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any supplementary materials submitted for the
printed record, and any written comments in response to a request for
written comments must conform to the guidelines listed below. Any
submission or supplementary item not in compliance with these
guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.
1. All submissions and supplementary materials must be provided in
Word format and MUST NOT exceed a total of 10 pages, including
attachments. Witnesses and submitters are advised that the Committee
relies on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental
sheet must accompany each submission listing the name, company,
address, telephone, and fax numbers of each witness.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://www.waysandmeans.house.gov/.
Chairman TIBERI. Good morning. This hearing will come to
order. Thank you for joining us for our hearing today on the
Ways and Means small business tax reform discussion draft. In
March of 2011, the Select Revenue Measure Subcommittee held a
hearing on
[[Page 4]]
small business and tax reform. We learned that the temporary
complex nature of the Tax Code was forcing small business
owners to invest their time and resource complying with the Tax
Code instead of focusing on growing their businesses. The
message was clear: simplifying the Code means more jobs created
by small business owners. Indeed, comprehensive tax reform must
result in a simpler, more stable code with lower statutory
rates for small business owners.
Today nine out of 10 small business owners rely on a tax
preparer. There have been over 4,500 changes to the Tax Code
over the last 10 years. And with the addition of the 3.8
percent ObamaCare tax, small business pass-through entities,
which pay their taxes at individual rates, will have a top
Federal tax rate of 44.6 percent.
Comprehensive tax reform cannot be limited to an exercise
of only lowering the corporate rate, as the President has
suggested; it must also focus on lowering rates for small
business owners who employ over 50 percent of the private
sector workforce and whose tax compliance costs are 65 percent
higher than large businesses.
The small business tax reform discussion draft is a step
forward in creating a better Tax Code for small businesses, but
that is not to say it can't be improved upon, and that is why
Chairman Camp has released this as a discussion draft to ensure
that through a public, transparent process, stakeholders,
including small business owners themselves, have the
opportunity to tell us what they need from tax reform to help
them create jobs, increase wages for their employees.
Looking forward to a great bipartisan discussion today. I
thank our witnesses for being here, taking time out of their
busy schedules. And now I yield to Ranking Member Neal for his
opening statement.
Mr. NEAL. Thank you, Mr. Chairman, for calling today's
hearing on Chairman Camp's small business tax reform
legislation. Small businesses are the engines of job creation
in the country, and nearly 60 million Americans work for small
business. That is about half of our private sector workforce.
When I travel around my district back in western
Massachusetts, I am amazed by the entrepreneurial spirit of the
small business owners that I meet. These businesses manufacture
medical device equipment and sophisticated plastics and paper.
They brew great lagers, or as we call it in western
Massachusetts, great beer. And they provide hospitality and
entertainment to many of our visitors.
Small business owners in Massachusetts and throughout the
country are certainly the backbone and strength of the American
economy.
As we tackle tax reform, it is critical that we implement
tax policy that helps America's small business grow and
prosper. It is through that prism that I think we should review
Chairman Camp's proposals today. I also commend Chairman Camp
for including so many proposals in his bill that are
bipartisan. His draft would make permanent increases in
expensing for small businesses, the proposal that has received
much bipartisan support over the years. He has also included
proposals based on legislation
[[Page 5]]
introduced by our colleagues Ron Kind and Jim Gerlach, Mike
Thompson and Aaron Schock.
I think this once again demonstrates that there are
opportunities for common ground in our approaches to tax
policy, and that we can and should do tax reform on a
bipartisan basis. So I thank you for calling the hearing, Mr.
Chairman.
And I am going to excuse myself for a brief period of time
only to testify in front of Chairman Chris Smith's committee on
an issue that I have long been involved in this morning. So I
will just be gone for a brief period of time and back. And with
that said, I yield back my time.
Chairman TIBERI. Thank you, Mr. Neal. And we thank you for
your leadership on this issue.
Now I would like to turn to the panel and welcome the four
individuals who are here today. I will introduce the four and
then we will begin the testimony with Mr. Harris, who I will
introduce first, Mr. Roger Harris, president of Padgett
Business Services in Athens, Georgia. Thank you for being here,
sir. Second, Mr. Willard Taylor, former partner at Sullivan &
Cromwell, and currently a professor of law at New York State--
excuse me--New York University. Thank you for being here.
Third, Mr. Blake Rubin, a partner at McDermott, Will &
Emery here in Washington, D.C. Thank you, sir. And fourth, Mr.
Tom Nichols, a shareholder at Meissner Tierney Fisher & Nichols
in Milwaukee, Wisconsin. Thank you for being here, sir.
With that, you will each have 5 minutes to present your
oral testimony. Your full written testimony has been submitted
for the record. And, Mr. Harris, you are recognized for 5
minutes.
STATEMENT OF ROGER HARRIS, PRESIDENT, PADGETT BUSINESS SERVICES
Mr. HARRIS. Thank you, Mr. Chairman. And thanks to the
members of the Committee for the opportunity to be here today.
I am Roger Harris. I am president and chief operating
officer of Padgett Business Services. And I think to help
understand my comments, it is good to understand what we as a
company do and who we define as our small business customer.
Padgett Business Services has provided accounting, income tax
preparation, tax advice, payroll services to small businesses
for almost 50 years throughout the United States through our
network of offices.
We have always defined our customer as a small business
owner with fewer than 20 employees. And a lot of people look at
those businesses individually and say they are mom-and-pop
businesses; however, if you look at them as a group, they are a
tremendously powerful force in this economy, and I think we
need to make sure that their needs and their interests are
addressed in any tax reform discussion.
And I think it would be very difficult to find anybody in
this room or this town or this country who doesn't think the
Tax Code that we currently have has seen its better days and
needs to be replaced.
I can tell you that our small business owners particularly
want to find something new that they can work with. They want
something that is simple. They want something that has some
predict
[[Page 6]]
ability to it. They would like something that encourages or
increases their cash flow. And more importantly, they want
something that mirrors their checkbook to some extent. They are
tired of having to be explained what is the difference in their
cash flow and their taxable income. So they want something that
mirrors their checkbook as close as possible.
I am happy to say that the draft proposal that the
committee put out a few weeks ago, I think works towards these
goals and is a great starting point for these people.
Particularly beginning with the 179, if you look at the
proposals for it to make permanent the $250,000 deduction limit
and the $800,000 phaseout permanent in the sense that it is
indexed, for our clients, those limits are very sufficient and
would work wonderfully well, and would eliminate a lot of
record keeping of tracking assets, because it would cover most
of their purchases.
I recognize, however, that for some industries,
particularly heavy equipment industries, those values or those
numbers may not be enough, but for our businesses, those values
are great. And they also, because they have the ability to
write them off currently and not have to track them, it mirrors
cash accounting, which is the second part of the proposal that
we are particularly pleased with, is that this proposal will
expand the number of businesses who qualify for cash
accounting.
Again, getting down to the basic principle of a small
business owner that when money comes in, it is income, when
money goes out, it is an expense, and what is left is their
income. Because if there is anything they hate more than paying
taxes, it is having to pay taxes with money they don't have. So
the closer that we can mirror their checkbook, this proposal
goes a long way to do that.
We would like to see it perhaps go a little bit farther,
and I am sure we can talk about it more, but I think carving
out something out like a safe harbor for the smallest
businesses in this category to have to ignore--be able to
ignore the tracking of inventory. I think at times, we think
inventory is nothing but looking on a shelf and making
calculations of how many of what sits on a shelf, and it is
much more complicated than that, and I think we should be able
to come out with a carve-out, again, for these small businesses
that allows inventory reporting to be at their option if they
are at the smallest end.
The next part of the proposal talks about startup and
organizational expenses. And it doubles the number from 5 to
$10,000, which, again, for many of our clients will be
sufficient and will have the impact of, in essence, making it
cash accounting. However, here again, I would like to see for,
again, the smallest of small businesses more leniency in that
area, in that when you start a business, in the year that you
start your business, all your expenses of startup should be
deductible.
From a personal standpoint, it is very hard to tell a small
business owner that the expenses that you paid in July are
fully deductible, but that exact same expense that you paid in
February when you were trying to get your doors open may or may
not be deductible. To them, it was the same check to the same
purveyor, and they believe it should be deductible.
[[Page 7]]
Finally, I will put on my practitioner hat and address the
filing dates for these business returns. I want to commend the
recommendation of moving the partnership date back to March the
15th to create that 30-day window to still have the individual
return prepared. I think that is long overdue. That used to be
the date for the S Corp return. This proposal moves it up to
March 31st. I would like to see it stay at March 15th and have
a unified date for pass-throughs so we all know that all pass-
throughs are due the same day, and we all have the same 30-day
window to get the individual return. I am not a sure partner or
shareholder see themselves any different.
With that, my time is about up. I want to thank the
committee again for the opportunity to be here today and I look
forward to your questions.
Chairman TIBERI. Thank you, Mr. Harris.
[The prepared statement of Mr. Harris follows:]
[[Page 8]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 9]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 10]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 11]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 12]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman TIBERI. Mr. Taylor, you are recognized for 5
minutes.
STATEMENT OF WILLARD TAYLOR, FORMER PARTNER, SULLIVAN &
CROMWELL
Mr. TAYLOR. Thank you. Good morning. My name is----
Chairman TIBERI. Mr. Taylor, can you turn on the
microphone?
Mr. TAYLOR. I am sorry.
Chairman TIBERI. That is all right. Perfect.
Mr. TAYLOR. Okay. Good. Thank you.
I am an adjunct professor at New York University Law School
and I also teach at the Yale and the University of San Diego
law schools, in each case, a course on the Federal income
taxation of business pass-throughs. So it is a pleasure to be
here to talk.
The committee discussion draft has two basic structural
reforms: one is specific changes to Subchapter S and Subchapter
K, that is option one; and the other is a more fundamental
revision resulting in a single system of tax rules for all
pass-through entities, whether incorporated or not.
I think what is proposed in option one is basically good.
Many of the proposals have been around for a long time. I think
you could add some to them, I think you could also expand them,
but they are all basically good. However, they are really just
improvements, if you will, to the system and not fundamental
tax reform. So I think the focus ought to be on option two, the
single pass-through regime.
And I think that the most compelling argument for that is
that there really is no difference, apart from tax, between a
limited liability company and a corporation. One's
incorporated, the other is not, but the choice between the two
has huge tax implications, including the treatment of foreign
and tax exempt investors, the different treatment for payroll
tax purposes, and we could go on and on about it.
Subchapter S came in in 1958 at a time when it was
necessary to give limited liability to small businesses. That
is not necessary today. You can form a limited liability
company and not incorporate and get the same advantages.
Now, option two, then, offers the opportunity to address
those differences. It also offers the opportunity for small
businesses trapped in Subchapter C to move into Subchapter S,
and it also provides a simplified regime.
There is a huge amount of work that has to be done if
option two is going to be implemented, and the draft notes a
lot of that, and I won't go over it, but I want to mention four
items that I think in particular should be focused on. One is
achieving parity among investors. There really should be no
difference in the treatment of a foreign investor in a
partnership and a foreign investor in a privately held
corporation. And if you don't straighten that out, you distort
investment decisions and capital raising. And the same is
[[Page 13]]
true with respect to tax exempt investors. You should have a
single set of rules.
Now, on tax exempt investors, inevitably you are going to
hear from ESOPs, who love S Corporations, as to why they
shouldn't get that treatment continued, both for S
Corporations, or if you have a single regime, for Subchapter K.
That is a different issue, but I don't think you ought to
neglect it.
A second issue that deserves attention is payroll tax. If
you have got a single regime for Federal income tax purposes,
no difference between a partnership and a small privately held
corporation, then why in the world would you have a difference
in payroll taxes, but you do today, because the base for SECA,
the self-employment tax, differs from the base for FICA. So you
would have to address, how do we resolve that? How do we come
to grips with it?
The third issue is determinations of tax liability and do
you do that at the entity level with a withholding tax, as has
been proposed in the draft, or do you let each owner make his
or her own determination? I personally think doing it at the
entity level makes sense, but, again, it is an issue that has
to be come to grips with.
The fourth and final issue I would mention is foreign
income. If you have a 95 percent dividends received deduction
and a lower rate on dividends from the C Corporation, you are
going to have to compare the effective tax rate for the pass-
through entities, which may be higher if you don't do something
about it.
So I will end there. I have sent in longer written
comments. I agree with Chairman Tiberi that this is a hugely
important subject, and that is the last word I will say on the
subject. Thank you.
Chairman TIBERI. Thank you, Mr. Taylor.
[The prepared statement of Mr. Taylor follows:]
[[Page 14]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 15]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 16]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 17]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 18]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 19]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 20]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 21]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 22]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 23]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 24]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 25]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 26]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 27]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 28]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 29]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 30]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 31]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 32]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 33]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 34]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 35]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 36]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 37]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 38]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 39]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 40]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 41]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman TIBERI. Mr. Rubin, you are recognized for 5
minutes.
STATEMENT OF BLAKE RUBIN, PARTNER, MCDERMOTT WILL & EMERY
Mr. RUBIN. Thank you. Chairman Tiberi, Ranking Member Neal
and distinguished Members of the Subcommittee, thank you for
the opportunity to testify today. My name is Blake Rubin, and I
am global vice chair of the U.S. and International Tax Practice
at
[[Page 42]]
McDermott, Will & Emery, a law firm of approximately 1,100
lawyers.
I support the effort to reform the Internal Revenue Code
and also applaud the committee for the robust and transparent
process that it is following. I also congratulate the committee
leadership and staff for producing a detailed and thoughtful
set of options.
I will focus my comments primarily on the proposed changes
to the taxation of partnerships. I support most of the changes
in option one. As detailed in my written statement, however, I
believe that three of the changes in option one are
unwarranted: eliminating the 7-year period for application of
the so-called partnership anti-mixing bowl rules, making upward
basis adjustments in the context of partnership interest
transfers and distributions mandatory, and eliminating the
substantial appreciation requirement in the partnership hot
asset rules.
Option two proposes much more sweeping changes, merging the
current tax regimes for partnerships and S Corporations. This
is an approach that has been proposed by some academic
commentators primarily for reasons of simplicity. There is no
denying the conceptual appeal of a single unified regime for
pass-through entities. If one were designing a tax system from
scratch rather than reforming a tax system that is now 100
years old, a single unified regime might well be the way to go.
Given where we are today, however, I believe that option two
would significantly increase complexity, upset settled
expectations of taxpayers and cause substantial economic
dislocations.
Current law provides taxpayers with a choice. Businesses
that want a relatively simple pass-through regime and can
tolerate a certain amount inflexibility can operate as S
Corporations. Other businesses need greater flexibility,
perhaps because debt is a bigger part of their capital
structure, or because they anticipate the need to distribute
property in kind, or they want a more complicated economic
sharing arrangement. For those businesses, the partnership tax
rules provide the needed flexibility to operate without
incurring an entity level tax, but at the cost of greater
complexity and compliance burdens.
Option two would eliminate this choice. Worse, it would do
so by creating a single unified regime that effectively
combines the complexity of the current partnership regime with
the inflexibility of the current S Corporation regime.
Many of the provisions of the current partnership tax
regime that create the greatest complexity are retained and
even expanded in option two. At the same time, option two
imports inflexibility from the S Corporation regime by
restricting the ability to effectuate complex economic sharing
arrangements and triggering gain on distributions of property
in kind, even though the taxpayer receives no cash.
I would like to briefly address two of the most significant
changes proposed by option two. The first is the three-basket
rule under which an owner is restricted to a single percentage
share of all items in each of three baskets: ordinary income
items, capital gain items and tax credit. The summary states
that the reason for this rule is to reduce the use of complex
structures to engage in tax avoidance.
[[Page 43]]
I believe that the existing regulations governing
allocations of partnership income and loss adequately police
this area. I also believe that this change would create
unwarranted restrictions on the ability of taxpayers to
effectuate non-abusive commercial arrangements. For example, as
detailed in my written statement, it is not clear that one
pass-through owner could have a common interest akin to common
stock and another, a preferred interest akin to preferred
stock, because of the requirement that items of profit and loss
in each basket be allocated in the same percentage.
The second change I would like to focus specifically on is
the recognition of gain on the distribution of appreciated
property. This is, of course, the current rule in the context
of corporations, including S Corporations, but extending that
rule to partnerships would undeniably result in the taxation of
non-economic gains in many cases. To take an example, assume a
partner has a 50 percent interest in a partnership that has
property with a $200 value and a zero tax basis. The partner's
interest is worth $100 and has a zero tax basis. The
partnership distributes property worth $50, also with a zero
tax basis, to the partner in redemption of his interest. Under
option two, the partnership recognizes $50 of gain on the
distribution and the distributee partner recognizes an
additional $25 of gain on the distribution.
So a distribution of property with a zero tax basis and $50
of value triggers not $50 of gain, but instead $75 of taxable
gain. In this and many other common transactions, option two
would create taxable gain that exceeds actual economic gain.
I thank you again for the opportunity to present my views
today and commend the committee leadership and staff for
advancing the debate in this area. I look forward to answering
your questions now and in the future.
Chairman TIBERI. Thank you, Mr. Rubin.
[The prepared statement of Mr. Rubin follows:]
[[Page 44]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 45]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 46]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 47]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 48]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 49]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 50]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 51]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 52]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman TIBERI. Mr. Nichols, you are recognized for 5
minutes.
[[Page 53]]
STATEMENT OF THOMAS NICHOLS, MEISSNER TIERNEY FISHER & NICHOLS
Mr. NICHOLS. Chairman Tiberi, Ranking Member Neal and other
members, thank you very much for the opportunity to testify
today.
I have been representing closely held businesses ever since
I began practicing tax and business law in 1979. I have been a
member since 1986, and am a past chair of the ABA Tax Sections
Committee on S Corporations and am currently chairman of the
Board of Advisors of the S Corporation Association.
The views expressed today are informed by and benefit from
all of these relationships. I will focus my comments primarily,
though, on S Corporations.
Let me begin by saying that I sincerely appreciate your
ongoing bipartisan efforts to enact genuine tax reform. Seeking
public comment on discussion drafts takes substantially more
time and effort, but this more open and transparent process is
much more likely to result in a long-lasting consensus on tax
policy that will truly benefit our economy.
Chairman Camp has identified several fundamental principles
to help shape the course of tax reform, namely leveling the
playing field for all U.S. employers, while at the same time
ensuring that low income and middle income Americans pay no
more in taxes than they do today. In this regard, the
bipartisan Tax Reform Act of 1986 stands out as an excellent
template. It expanded the tax base by eliminating numerous
preferences and privileges, thereby creating room to
dramatically decrease tax rates for C Corporations, pass-
through businesses and individuals alike.
As others have noted, the discussion draft before us today
has three principle components: a more limited option one to
address limitations of the existing S Corporation and
partnership rules, a more aggressive option two that would
replace the existing S Corporation and partnership rules with a
new uniform set of rules; and finally, a set of core provisions
that would apply to either option.
I will begin with the core provisions and work from there.
Generally speaking, the core provisions, such as establishing a
higher permanent threshold for expensing equipment, are reforms
that have been considered and vetted for years and should be
included in any tax reform effort.
One core provision that might not fit that description is
the proposed mandatory use of accrual method for businesses
with gross receipts of more than $10 million.
S Corporations and partnerships that don't have C
Corporation partners are currently entitled to use cash basis
accounting. This makes sense, because closely held businesses
do not have access to the public markets to monetize illiquid
assets on their balance sheets, so requiring them to pay tax on
income they have not yet collected could create cash flow
challenges where none exists today.
For S Corporations, option one includes many provisions
contained in the bipartisan S Corporation Modernization Act,
introduced by Congressman Reichert and Kind, which are
consistent with the goals of tax reform stated above.
[[Page 54]]
The discussion draft would make permanent the shorter 5-
year built-in gains tax recognition period. The built-in gains
tax was initially intended to prevent C Corporations from
electing S status simply to avoid double tax in connection with
the sale of a business, but a 10-year period is much longer
than necessary. Five years is much more appropriate.
Other positive provisions in option one relate to the
passive investment income tax, electing small business trusts,
and charitable contributions.
From the S Corporation perspective, option two would
establish a better line of demarcation between pass-through
businesses and those subject to the corporate tax, namely
whether a business has chosen to access the capital markets and
public ownership, and would bring this demarcation in line with
the corresponding cut-off for partnerships.
Updating the current limitations on types of shareholders
eligible for S Corporation ownership as contemplated by option
two also makes real sense.
My basic concern with option two is that it would take two
significantly different business structures, the simple and
easily administered S Corporation structure, and the more
flexible but also more complicated partnership rules, in
attempts to meld them under a single unified regime.
The details of option two are well thought out, but I am
concerned that the benefit of a single unified regime may not
be worth the cost. Option two would add additional complexity
to existing partnership rules and then apply them to S
Corporations. This means imposing new rules and compliance
burdens on the more than 4.5 million S Corporations in
existence today.
As for new entities, S Corporation status is the most
popular tax entity choice today, thus eliminating this
structure could impede business formation. A better approach
might be to take the positive reforms included in option two
and combine them with the more modest ambitions of option one.
Once again, I would like to thank Chairman Tiberi and the
ranking member for inviting me to testify. I look forward to
questions.
[The prepared statement of Mr. Nichols follows:]
[[Page 55]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 56]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 57]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 58]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 59]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 60]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 61]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 62]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 63]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman TIBERI. Well, thank all of you on behalf of the
committee and the committee staff for being here today, for
your written testimony, which I said would be part of the
record. I don't know about you, but I was excited that you were
going to be here, and that we were having this hearing today.
Unfortunately, most of Washington, including the press corps, I
think is more excited about the hearing in 48 hours in this
room, but this is pretty important, and this is going to be
part of the process, the transparent process that Chairman Camp
has had, and so your testimony is very, very helpful.
Mr. Nichols, I want to start my questioning with you. As
you know, for the last 12 years, S Corps and pass-through
entities have had a statutory top rate of 35 percent. In
January that changed, and we saw the top rate rise to 39.6
percent, but with the addition of the 3.8 percent tax from
ObamaCare on investment income, the Pease Limitation, which
adds another 1.2 percent, you have a reality of a tax rate much
higher than that.
[[Page 64]]
But something that I didn't realize until recently that I
would like you to comment on is that that 3.8 percent tax on
investment income that--I didn't realize actually falls on
something much broader than investment income. So if I were
selling--my understanding, if I were making widgets and then
selling widgets, that 3.8 percent investment tax would fall on
the making and selling of those widgets as well.
So in essence, this means that the top rate on an S Corp
manufacturer in my home State of Ohio is now 44.6 percent and
not 35 percent; so a pretty large tax increase that is not just
investment income. Can you expand upon that and expand upon how
much broader this 3.8 percent tax is than many of us thought or
think?
Mr. NICHOLS. Yes. I would be happy to. Essentially what
happens is there are two things at play here. One is if you
have got any passive investors in the S Corporation itself,
then that passive investor is going to require distribution of
money to pay taxes based on the top rate, so you have got the
39.6 percent rate, you add on to that the Pease reduction
another 1.2 percent, then you add on the 3.8 percent tax, you
get up to approximately 45 percent, as you point out.
And essentially what happens for S Corporations is that if
you have got, let's say, a 10 percent shareholder, let's say a
father who is no longer involved in the business that ends up
paying that tax, most S Corporations have an obligation under
shareholder agreements to distribute out an amount to pay the
tax attributable to pass-through income. The combination of
having one shareholder subject to that tax, that 45 percent tax
rate, and the fact that the S Corporation rules require a
single class of stock means that if you are going to distribute
out 45 percent to one of the shareholders, you are going to
have to distribute out 45 percent of the income to all of the
shareholders, even though some of them may not have to pay that
additional tax. All of that will have to come out of the
corporation and won't be available obviously for future use
inside the corp.
Chairman TIBERI. Thank you. So as you know, the 1986 Act
reduced the top rate from 50 to 28 percent, and now we see the
rate essentially going up to almost 45 percent; not quite 50,
but 45. So over the last 27 years, we now have, since 1986, the
highest rate, statutory rate for S Corps and pass-through
entities, correct?
Mr. NICHOLS. That is correct.
Chairman TIBERI. And what do you see as the--as a
practitioner, what do you see the reaction to that on the
ground?
Mr. NICHOLS. Well, realistically, very many, in fact, I
would venture to say most closely-held businesses, they
essentially earn their income; if they are pass-through
business, they reserve to pay for the tax and then the vast
majority of what is earned is essentially rolled back into the
business.
Essentially what happens if the tax rate goes up, and
essentially it has gone up now potentially by a 10 percent
increment from 35 percent to 45 percent, and that is without
taking State taxes into account, essentially that 10 percent
used to stay inside the company and used to be reserved and
used, either reserved for capital or used to actually grow the
business, hire people, do whatever the business needs, that 10
percent is effectively just an additional
[[Page 65]]
slice out of the capital that would otherwise be used in the
business, for most of them.
Chairman TIBERI. One last question, because I have taken
almost all my time, is a fascinating point you made in your
written testimony that a clearer--I am trying to get this
right--a clearer demarcation between who may be an S Corp and
who may be a C Corp is whether they are publicly traded, which
is kind of a line of demarcation that is proposed in option two
for pass-through entities.
Can you elaborate on why you think a publicly traded,
privately owned line is conceptually a correct way to
distinguish between the two?
Mr. NICHOLS. Well, it is a difference--it is a distinction
that makes a difference. Unlike the fairly arbitrary 100-person
limit that currently exists, it is a distinction that makes a
difference.
There are a number of things that are different about a
publicly held entity. They are treated differently. And
essentially, what the point I made in the written testimony is
that essentially, if I am selling a closely held company, a
privately held company, I am likely to get multiples, let's
say, you know, maybe in the neighborhood of 5, maybe 12 times
earnings if you are lucky, whereas publicly traded companies
regularly trade at 10 to 20 times earning. So that is a big
difference, and it is something, frankly, I have to explain to
some of my closely held clients that there is a difference
being closely held. And so as a consequence, that and the other
thing that is significant for a closely held clients, and that
is, they don't have the opportunity to turn around and go to
the public markets. They don't have that automatic price that
they can sell stock for and they don't--it is not easy for them
to go to the public markets to borrow money, either, for
publicly held securities, and so as a consequence, that
demarcation line is one that does have some policy
significance, and to the extent possible, the demarcation lines
in the Code should reflect, you know, significant differences
between the business entities, and that one does.
Chairman TIBERI. Thank you.
Mr. Neal is recognized for 5 minutes.
Mr. NEAL. Thank you for your indulgence earlier today, Mr.
Chairman, as well. And Mr. Nichols, if you can help to explain
some of these things to us, too, it would be helpful.
Mr. Rubin, could you describe for me the tax consequences
for both partners involved and the partnerships of a merger of
two partnerships, each of which contains appreciated property
under current law? And can you describe the tax consequences
for both partners involved and the partnerships under option
two of Chairman Camp's draft? Any potential administrative
burden of the merger under option two as relative to current
law.
Mr. RUBIN. Sure. Under current----
Mr. NEAL. And this is very helpful, incidentally, to us,
very, very helpful.
Mr. RUBIN. Great. Under current law, if two partnerships
want to merge, first under State law and Uniform Limited
Partnership Act, the General Partnership Act, the LLC Act, that
can be accomplished by filing articles of merger; so relatively
convenient way to combine two companies operating in
partnership form.
[[Page 66]]
From a tax perspective, let's say you have got the AB
partnership merging with the CD partnership. For tax purposes,
that is generally treated under current law when they file
articles of merger as if the AB partnership contributed its
assets into the CD partnership in exchange for an interest in
the CD partnership and then the AB partnership liquidated and
distributed the interest in the CD partnership out to the
partners.
What is important about that is that under current law, all
of those deemed transactions are generally tax free, the
transfer of the assets into the combined entity, if you will,
that is deemed to occur and then the transfer of the interest
in the combined entity that goes out.
Under option two, that would no longer be the case, because
when the AB partnership that is going out of existence, is
deemed to distribute the interests in the CD partnership out to
its partners, that is a distribution of appreciated property,
it would trigger gain both at the AB partnership level, and
then potentially a second gain at the AB partner level.
So what can be consummated tax free under a carryover basis
regime so that the built-in gain is taxed in the future on a
disposition to a taxable disposition to a third party is taxed
immediately under option two.
Mr. NEAL. In Massachusetts, 92 percent of the firms are
structured as pass-through entities, and there are nearly
90,000 businesses structured as S Corporations. The level of
choice is pretty unique to the United States.
Mr. Nichols, in your testimony, you indicated that there
are benefits to offering entrepreneurs multiple options when
choosing a business structure. On the other hand, option two of
Chairman Camp's draft proposes moving most S Corporations and
partnerships into a single uniform structure. Could you go into
a little bit more detail on what you see as the benefits of
sticking with the current set of options of business entities
as well as the potential costs of moving all of these
businesses to a single new entity?
Mr. NICHOLS. I would be happy to. Well, currently you have
approximately 4.5 million S Corporations. It is the most
popular format, it is the most popular tax structure for
closely held businesses. You have got, well, a little more than
3 million partnerships also. But the S Corporation structure
has the advantage of being simple and being easy to administer,
and that is something for many, many corporations. They are not
interested in sophisticated and flexible capital-raising
mechanisms. All they want to do is make widgets. And when given
a choice to simply have a simple structure, not do any
sophisticated transactions, but just focus on their business,
they like that.
The partnership structure is much more flexible and as a
consequence, it is much more complicated, and some of that
complication is imposed by Congress in order to essentially
rein in the flexibility so that abusive transactions don't
occur.
What happens in option two potentially is the partnership
rules are made somewhat more complicated and more restrictive,
and all of the S Corporations that currently exist today
essentially are being forced into that structure. And what
happens then, you have got an unavoidable cost for a lot of
just day-to-day businesses that
[[Page 67]]
have been S Corporations for many times many years. They are
forced into that new structure. They need to deal with both the
transition, but they also need to deal with the ongoing
complexity of the partnership rules. For example, under the
proposal, and even under the current law, there are changes and
adjustments that potentially need to be made whenever there is
a sale of any interest in the business, even a minority
interest. There is also the need to bifurcate transactions for
distributions on sales to determine whether hot assets are
applicable and treating that as a separate transaction.
All of that complexity, it may be appropriate in the
partnership regime, which is much more flexible; on the other
hand, it has not been found necessary in the S Corporation
regime, but you would be essentially requiring all of the
current 4.5 million S Corporations to switch to that more
complicated regime and the compliance costs, but also there
would be ongoing compliance costs. And what I don't see as a
countervailing economic benefit, I don't see any S Corporations
engaging in more economic activity as a consequence, and so as
a consequence, I see a cost, but I don't see the benefit of
that forced conversion.
Mr. NEAL. Thank you, Mr. Chairman.
Chairman TIBERI. Thank you.
Mr. Young is recognized for 5 minutes.
Mr. YOUNG. Thank you, Mr. Chairman. I appreciate you and
Ranking Member Neal for holding this hearing. Very important to
all of my colleagues, really to the country.
Each of us has a plenitude of pass-through entities in our
districts. I would like to begin just with a remark,
respectfully reminding my colleagues and those who are paying
attention, that we need to be attentive to one type of pass-
through entity that has not been addressed yet, at least not in
a specific way in some of the discussion drafts, and that is
ESOPs, the employee stock ownership entities. And I do believe
there will be consideration of this as we move forward, but I
think we should strive to avoid any inadvertent damage we might
do, as Mr. Taylor indicated, to these entities, seeing as they
empower employee ownership. And per my briefing, they are four
times less likely during a recession to lay off employees, so
that is something for us to consider.
My first question relates to withholding, something Mr.
Nichols--we have got a sound issue here. There we go. Relates
to with--it is not working.
Chairman TIBERI. One, two.
Mr. YOUNG. One, two.
Chairman TIBERI. Why don't you try another microphone.
Mr. YOUNG. Here we go. I am Mr. Young. Thanks. As we say in
the Marine Corps, adapt, improvise and overcome, so here we go.
My question relates to withholding. Mr. Nichols, you
touched on this briefly in your testimony, and I believe each
of you are aware that in option two of the discussion draft, we
suggest an entity level withholding rather than our current
practice.
Now, as practitioners that deal with small businesses every
day, can you talk a little, either Mr. Nichols, perhaps others
have thoughts, about the negative impacts as well as the
positive out
[[Page 68]]
comes that this change might create? Specifically, I am
interested in how the provision might impact cash flow, whether
it might create cash flow problems for any type of existing
pass-through entity.
Mr. NICHOLS. Yes. There are a number of considerations
here. Obviously one is compliance. And the withholding system
that is proposed is not a completely new item. There are a lot
of S Corporations that have out-of-state operations. They
actually have a withholding system that they need to deal with
in order to withhold taxes for their out-of-state operations in
the various states that they are operative in.
Now, the withholding system at the Federal level
potentially creates more of a cash flow situation. The amounts
for the State systems are typically smaller. And the other
thing that would need to be factored in, and I am not sure the
proposal contemplates it, or I am not sure it does, I am not
sure it doesn't, but the other thing that would need to be
factored in is the fact that tax rates at the corporate level,
if they are to be uniform, are unavoidably going to impact cash
flow. And I can give you two examples. One example would be if
the taxpayers are in a lower tax bracket and you have got a
mandated withholding rate that is above that tax bracket,
obviously there is going to be an amount that is going to need
to be withheld, and then the taxpayers are going to have to
wait till next year to get that refunded to them. It is like
any other withholding. You don't get it until you file the
return at the end of the year.
The second one that I think is potentially more
problematic, but maybe it could be dealt with, and that is the
idea that you have got a taxpayer that runs or has interest in
two different businesses, and they have got $100,000 of income
in one business, and $100,000 of loss in the other business,
but they are in two separate entities.
Under the withholding regime, unless you can take into
account the individual taxpayer's facts, you would end up
having to have withholding occur on the $100,000 from the
profitable business, notwithstanding the fact that that
shareholder, that owner is doing exactly what we hope they do
in today's economy: use those profits in another business, hire
people and use that. Well, you can't do that if you--some of
those monies are siphoned off in the form of the withholding
and you are not going to get them back until after the end of
the year.
Mr. YOUNG. Any other quick thoughts here? We have about 30
seconds left.
Mr. TAYLOR. Yeah. I think you are missing something in this
whole picture. You could take withholding tax and put it in
option one, and apply it to S Corporations and partnerships.
The merit of option two is not the particular features, all
of which can go in option one. The merit is it gets you to
focus on the difference between the entities. I mean, take your
ESOP point.
Mr. YOUNG. Yeah.
Mr. TAYLOR. You can have an ESOP as a shareholder of an S
Corporation today. Okay? You cannot have an ESOP partner in a
partnership and get the same tax consequences.
Your point about the net investment income tax. If you are
an S Corporation, you can eliminate a large part of that 3.8
percent tax on your S Corporation earnings, assuming it is not
a passive
[[Page 69]]
activity. You cannot do that generally if you have got a
partnership.
So the point here of option two and option one, I think, is
option two forces you to ask the question, why is this
different from the way it is here?
Mr. YOUNG. Right.
Mr. TAYLOR. And that is what you should be focusing on, I
think, not the particular features, all of which, as I say, you
could put in----
Mr. YOUNG. Great.
Mr. TAYLOR [continuing]. Option one if you wanted.
Mr. YOUNG. Thanks so much. I yield back.
And if you have further testimony, maybe you can submit it
for the record.
Chairman TIBERI. Does someone else have a thought? Go
ahead, Mr. Harris. I feel generous today.
Mr. HARRIS. Thank you.
Mr. YOUNG. Thanks, Mr. Chairman.
Mr. HARRIS. I think one thing in addition to what has been
said when you get to entity level withholding, we have to
consider the complexity on the small business owner of
understanding what are we going to withhold on and what records
are they going to have to keep and what efforts are they going
to have to go through to calculate the number that we are going
to withhold on.
So I think we have to be very cognizant of the fact that we
could be adding complexity that may or may not benefit anyone
for the other problems here, that it could be a wrong amount,
it could be offset somewhere else, and yet we have imposed a
burden. So I think we should always look, if we are going to
look at entity level withholding, withholding on something that
is easy to get to, perhaps like payments that are made to
shareholders and partners, as opposed to a calculated income
amount.
Chairman TIBERI. Thank you. Let me just tell you, I can
tell the difference between someone who is trying to filibuster
an answer and someone who is trying to be substantively
helpful, and I think the four of you, your testimony, both
written and your testimony today, is great, very helpful, very
interesting. And so help us by being substantive in your
answers, and don't feel pressure on the clock. Not everyone
will always tell you that.
Mr. Gerlach, you are recognized for 5 minutes.
Mr. GERLACH. Thank you, Mr. Chairman. And, gentlemen, thank
you for testifying today.
Mr. Harris--and I would like to get the other three
gentlemen's thoughts on this as well--but I want to base my
question on your testimony and in particular, your written
testimony on the issue of the startup and organizational
expense provisions that would increase the amount as a startup
company you could deduct under the Code. And you approve of
that proposed draft language, although you go on to say that
you would suggest an even more aggressive approach to startup
expenses for small business owners that qualify for the use of
cash accounting.
Can you expand a little bit more, if you would, on your
thoughts on how the current discussion draft language could be
improved upon relative to that particular expensing that we
would like to see
[[Page 70]]
startups be able to have so that encourages them to move
forward with that initial business activity?
Mr. HARRIS. Sure. I will be happy to, because I think one
thing we can all agree upon, we want more businesses starting
up.
Mr. GERLACH. Right.
Mr. HARRIS. And anything we can do to encourage that is
going to benefit us all.
Mine is more of really expanding the cash accounting rules
to say when you start a business, in the year that you actually
open your doors, I believe we should allow them to deduct any
expenses they incurred through that process. Again, if it
started in a prior year and it rolled into a current year, then
that would be carried forward, but as I said in my opening
statement, it is very hard to explain to a small business owner
that the expense you pay in July, you can fully deduct, but the
exact same expense that you paid in February, because it
happened to come prior to the opening of your doors, may not be
deductible or has to be capitalized, depending on the amount.
And it really comes down to, again, the basic
understanding, as I have heard a lot of discussions today, I
think of it in terms of our clients and our small business
owners, and they are sitting there going, this is what is wrong
with the tax system. You know, if I paid the money and I
started the business, why isn't it a deduction.
Mr. GERLACH. So if you start the business November 1st, but
of course leading up to opening those doors on November the
1st, in February, March and April, you are incurring different
organizational and other expenses that are justifiable for the
startup of that entity on November 1st, all of that should be
deductible for that tax year, is what you are suggesting?
Mr. HARRIS. Right. Because all that money is gone and they
have expended the funds.
Mr. GERLACH. And it is out of the checkbook----
Mr. HARRIS. It is out of the checkbook.
Mr. GERLACH [continuing]. Which is the basis for which they
make decisions.
Mr. HARRIS. Yes.
Mr. GERLACH. Yeah. Gentlemen, the other folks on the panel,
do you have a thought on that same issue? Mr. Nichols.
Mr. NICHOLS. Well, I certainly agree. I would just add to
that, and that essentially what you have got is the dichotomy
between the accounting principles and the tax principles. And
there are a number of provisions in the Code. I know over the
course of its history, for example, for accounting purposes,
you capitalize those startup costs because you want to
communicate to your outside investors that it is not all wasted
money, over time it is going to build up and you are going to
have something of value, and it makes the first year not look
as bad as it otherwise would.
And so you have got the accounting principles that go in
one direction, but you have also got the tax principles that
essentially say from the standpoint of tax policy, is this
really a time in which we want to allow somebody--put somebody
in a position of paying expenses and not give them the
deduction? And when you look at it from the standpoint of tax
policy----
[[Page 71]]
Mr. GERLACH. Because the whole goal is you want them to be
successful.
Mr. NICHOLS. Exactly.
Mr. GERLACH. And it is from a cash flow standpoint that
they will or won't be successful.
Mr. NICHOLS. Exactly.
Mr. GERLACH. Is that--okay. Great. Mr. Taylor, Mr. Rubin,
do you have a thought on that?
Mr. RUBIN. No.
Mr. TAYLOR. No comment.
Mr. GERLACH. Good. Well, thank you very much. I appreciate
that. I yield back. Thank you, Mr. Chairman.
Chairman TIBERI. Thank you, Mr. Gerlach.
Mr. Larson, you are recognized for 5 minutes.
Mr. LARSON. Thank you, Mr. Chairman. And I want to thank
our panelists as well for being here today. And, again, want to
thank Chairman Camp for putting out his proposal.
And obviously in the case of small businesses, especially
the notion of simplicity is something that we all want to
strive for. In looking at the two options that are before you,
and I would be interested in your responses, in real terms,
real life, anecdotal or otherwise, how does this--what does
simplicity mean to you and what could we best do to assist
small business in the Tax Code? Is it, as my colleague often
suggests, not having to have an accountant 12 months of the
year, but only that 1 month when you actually need them? Is it
the less reporting? What is it in the overall simplification
that we could do to make you more entrepreneurial, as Mr.
Harris said, and to grow businesses and encourage people to get
involved? And we will start with Mr. Harris.
Mr. HARRIS. I think from the perspective of our clients,
what simplicity means to them is that to the extent that it is
possible, that the tax system can follow the records that they
have to keep to run their business, that they aren't being
forced to keep records solely to comply with the tax law, that
the basic records that we all need to keep to run our business
should be sufficient for filing taxes. It shouldn't require a
lot of complexity.
And it should also, I think, allow them to operate in a
real world. As I was listening to the example of partner A and
B merging with partner C and D and all that, in the real world,
those are just four guys that came together to start a
business, and yet if they heard this discussion, their head
would explode, because they are saying, what do you mean? I
mean, we just decided to work together.
So I think what we have to do is we try to mirror the
records they keep and recognize what they are doing every day
to run a business, and try to make that our tax law as best we
can.
Mr. LARSON. Thank you, Mr. Harris. Mr. Taylor.
Mr. TAYLOR. Let me just add one thing without disagreeing
in any way with what you said. It seems to me----
Mr. LARSON. Could you speak into the mic?
Mr. TAYLOR. Yeah. I am sorry. Thank you. It seems to me
great simplicity would be that you did not need to come and
talk to us before deciding whether you were going to be a
partnership or an S Corporation.
[[Page 72]]
And that is the merit of option two, you know, there is
only one system. And we can disagree as to what the features of
that system should be, and I think there is disagreement, but,
you know, not having your fundamental choice being something
that is dictated can only be sensibly made from a tax point of
view if you have an accountant or a lawyer, you know, that is
crazy.
And the differences between limited partnerships--I am
sorry--limited liability companies and S Corporations from a
tax point of view are huge and pervasive. And so if you could
get to a single regime where you didn't need that accountant or
lawyer upfront, that would be simplicity, I think.
Mr. RUBIN. And I guess I would argue that that is only
conceptual simplicity rather than practical simplicity; that
under current law, the regime really provides a choice, that
people who want greater simplicity and less flexibility can
achieve that through an S Corporation, people who need greater
flexibility to distribute properties, need to have debt
included in basis and so forth, they can deal with the more
complicated rules.
You know, again, in concept, combining them means you don't
have a choice, and maybe that is simple in a way, but I think
as a practical matter, it means that a lot of people who
currently are happy with the S Corp regime have to deal with a
much more complicated set of rules.
Mr. NICHOLS. And actually I would agree with Mr. Rubin. I
guess if you look at this from the standpoint of the small
business owner, watch what they do, what they want to do and
what they have done. And 4.5 million of them, the plurality of
them have chosen to be S Corporations. Don't disrupt what they
are doing unless there is good reason to do so. And moving
that--changing--what one of the things that does keep lawyers
and accountants busy and employed is changes. And if you have
got a system that seems to be working and seems to satisfy the
needs of both the--the revenue needs and the needs of the
individual businesses, and they have grown accustomed to it,
don't change that without, you know, solid underpinning of
reasons to do so, just because the disruption alone slows
business down.
Mr. LARSON. Thank you.
Chairman TIBERI. Thank you. Mr. Schock is recognized for 5
minutes.
Mr. SCHOCK. Thank you, Mr. Chairman, and thank you to the
witnesses. A couple quick follow-up questions, one on cash
accounting. I am pleased that the chairman included the
framework of Mr. Thompson in my bill that increased the
threshold from $5 million to $10 million permanently, however,
I am aware of specific groups in my district who were exempted
from current law that allow for unlimited amounts to be used on
cash accounting, particularly in the ag industry. I have got
some large pork producers that currently are allowed to use
cash accounting.
So I am wondering, from your perspective, if you are aware
of other folks who may be exempted currently that will not be
exempted under the chairman's proposal, and if you could talk a
little bit about what effect this will have on perhaps
accountants or others in the service sector, or a large pork
producer like the ones in my district that have to go from an
accrual basis to a cash basis
[[Page 73]]
if, in fact, there are no exemptions for folks over $10
million. Mr. Nichols?
Mr. NICHOLS. I am assuming people being forced to
essentially go from a cash basis to an accrual basis?
Mr. SCHOCK. Correct. I am sorry. Yes.
Mr. NICHOLS. And that--well, one of the big exemptions that
currently exists in that is closely held--S Corporations are
exempt currently, and this essentially would eliminate that
exemption for all S Corporations below the $10 million level,
and so as--and that--I think any time you vary from the cash
being in the door to pay the tax and you are requiring tax to
be paid perhaps before it--in this case, before it is
collected, you should take into account that you are creating a
cash flow situation that is potentially problematic.
Under the current rules, there are a number of
corporations, S Corporations and partnerships that don't have C
Corporations as partners that are eligible for the cash basis
method of accounting. This would eliminate that. It would
essentially create another one of these demarcation lines that
is somewhat arbitrary, unavoidably. If it is, you know, $10
million, you know, if they move $1 million above $10 million
for 3 years in a row, then suddenly they are on a completely
different system.
And there I would focus on is there a policy reason that is
important enough to require enterprises that haven't collected
the cash right away, they haven't collected the cash already,
is there a policy reason important enough to require them to
pay the tax on that income that they haven't received yet. And
that is--if there is--it is kind of if it is not broken, don't
fix it. Be careful if you change things so as not to disrupt
the business.
Mr. SCHOCK. Mr. Harris.
Mr. HARRIS. Just to add to that, I think we have to
understand that the only real difference between cash and
accounting is when the income shows up, not if it shows up. So
to his point, what is the incentive to require the perhaps
accelerated reporting of the income, what is the benefit of
doing that, as opposed to waiting until it actually shows up,
because it will eventually show up and be income when the money
is paid.
So unless there is a real policy reason, as he said, to
force that acceleration into income, I don't know why we don't
just wait until they actually have it.
Mr. SCHOCK. Okay. It may have something to do with the CBO
score.
The second question really is just genuinely interested in
your view on this effect on small businesses. A lot of times we
focus on the big C Corp guys. We have got a few of those
important ones in my district. But we also recognize that the
majority of Americans work for small companies. And it is the
startups, really, who are the engine of our economy. And some
of the things we do, like 179, raising that threshold to 250,
making that permanent, is there anything else you guys are
aware of that maybe we aren't doing that we should be doing, or
perhaps we should look at, particularly for small startup
companies? You think about the Apples, the Microsofts. They
started in garages. They didn't have your traditional
framework. You are not going to use R&D incentives for a
[[Page 74]]
small startup like that. Are there other things that we could
be looking at for some of those organic startups?
Mr. HARRIS. I think we have discussed a lot of the things
that we should do. Again, when you are starting up at the
smallest of small businesses, cash flow is of critical
importance. They don't have access to capital. They are
probably doing it from maybe even credit cards or living on a
spouse's salary.
So we should do everything we can to allow them to keep as
much of their cash as they can and not get into complicated,
broadening base exercises, if you will, which is basically
saying something you spent can't be reported yet, can't be
deducted yet, is to allow them to keep the money in their
startup years when it is the most critical. Because if they can
get through those 1 or 2 startup years, they tend to have a
chance to survive.
So we should be very careful to do everything we can in a
startup mode to allow their tax return to mirror their cash
flow as closely as possible. Because cash is at a premium at
that point.
Mr. SCHOCK. Anyone else?
Mr. Nichols.
Mr. NICHOLS. Well, I am finding myself agreeing with Mr.
Harris more and more. But, essentially, to a great extent what
I am going to do is repeat what he just said, but essentially
there are two ways; one is by recognizing income only when it
is collected, and the other is by giving the benefit of
deductions to startup businesses when they actually pay it as
opposed to over time. And both of those, frankly, help small
businesses, especially startups, who are cash starved.
Mr. SCHOCK. And what is proposed in the rough draft you
feel is sufficient.
Mr. NICHOLS. It is an improvement. I don't disagree with
Mr. Harris that the idea of allowing startups to actually
expense, at least maybe up to a cap, actually expense
immediately startup expenses. I am not sure that is bad policy.
I understand cost revenue, but it is putting the incentives
towards starting up businesses right where they should be. At
least, I am going to get my deduction when I am paying the cash
out.
Mr. SCHOCK. Okay. Thank you guys.
Chairman TIBERI. Thank you, Mr. Schock.
Mr. Marchant, you are recognized for 5 minutes.
Mr. MARCHANT. Thank you, Mr. Chairman.
I would like to follow up on some of the chairman's earlier
questions. Partnerships draw their earnings through K1s, don't
they? And Sub-S. Basically, it is a straight pass-through. So
going back to the ObamaCare tax and the Pease tax that is
attached to that, is it going to provide a disincentive for an
investor to look at a small business, a Sub-S or a partnership,
and know that they possibly could get a K1 or pass-through
income, that there will be no cash following those documents,
so that they can be taxed? Normally, in small businesses there
is no requirement, is there, that the amount of income that you
have to show on your income taxes as a pass-through is followed
by any cash. Is that correct?
Mr. TAYLOR. That is correct. You would normally make sure
that it was followed by cash as a contractual matter. If you
were
[[Page 75]]
just an investor, you would make sure the cash distributions
were at least equal to what you thought the tax liability was.
Mr. MARCHANT. But in a C Corp, you can have earnings----
Mr. TAYLOR. In a C Corp, you are perfectly right. You can
have earnings and nothing to report. Unless you get a
distribution, you just report your distribution. If you are in
an S Corp or a partner in a partnership, you report your share
of the income or loss of the S Corporation or partnership,
whether or not you got it, on the one hand. On the other hand,
typically you would make sure that, either because you were
part of the management or you thought about this in advance,
that they did make distributions sufficient to cover your
liability.
Mr. MARCHANT. Well, if you are a passive investor in a
partnership, then you usually don't have a lot to say about the
general day-to-day----
Mr. TAYLOR. Okay, fine. But would have a lot to say about
the terms of your investment. You want my money, here's the
circumstances under which I will make it.
Mr. MARCHANT. In the discussion draft, it sets a $250,000
limit on the cost of new property and equipment that a small
business can expense during the tax year, and immediate expense
begins to phase out once the taxpayer places more than $800,000
of that property into service in a year. These levels parallel
those that were in effect prior to the stimulus. Do you think
that these levels reasonably reflect the need of small
businesses?
Mr. HARRIS. Well, as I said in my opening statement, from
our client perspective, it is going to get most of them. Those
limits would be sufficient for most. But it is very clear you
can go buy a printing press if you are in a printing business
that is going to exceed $800,000, or it can be $1 million. So
no matter what the limits are, there is always going to be
someone who wants more. And I guess that is the beauty that we
have on this panel. We don't have to consider revenue impacts.
In a perfect world, I would say let everybody write off their
equipment no matter how much they buy in a year. But we can
just say that because we don't have to balance a budget in
Washington. But I think that is going to depend on the kind of
business you are in. But I can say for a lot of our clients,
$250,000 and $800,000 would cover most of our clients'
acquisitions in a year.
Mr. MARCHANT. Mr. Chairman, in the spirit of the Chairman
Camp's intent that the Tax Code be simplified and that the
rates get lowered and that we encourage formation of small
business, I think this is a very important hearing. I do think
that the whole issue of the additional 5 percent tax on the K1
and the Sub S income is a very significant thing in this whole
formula. And I don't want to see us do anything in the Tax Code
that will encourage people to go into C Corps instead of
partnerships and Sub S's, because in my district probably
three-quarters of the businesses organize at that level.
Thank you.
Chairman TIBERI. Ditto. Thank you, Mr. Marchant.
Mr. Young brought up earlier ESOPs. And I know Mr. Neal is
a big supporter of ESOPs as well. And you all know that in the
draft, option two, going to a single entity, we don't address
the
[[Page 76]]
issue of S Corp ESOPs in terms of how we go forward on that.
Have any of you thought of a way to do that? The reason why I
ask is what we don't want to do is have a detrimental impact on
something that I think there is bipartisan agreement on that it
has been successful in our communities and in our districts.
Mr. Nichols, do you want to start?
Mr. NICHOLS. I would be happy to. S Corporation ESOPs have
actually been very successful in essentially expanding the base
of ownership, essentially, and moving, frankly, both the profit
and loss and risk to the business among the entire employee
base, which from the standpoint of inclusion in the American
economy, has a pretty fundamental function. And so as a
consequence, doing what can be done in order to encourage that,
it doesn't surprise me that there is bipartisan support.
You are right, I am not sure I read anything in one way or
another in the proposals. I am not quite sure I would tinker
with that. In order to have an ESOP, you would have to have a
corporation. But the proposals don't seem to change that. So if
the policy is along the lines of if it is not broke, don't fix
it, it seems to be working very well. I am not quite sure I
would try to change that as part of these proposals.
Chairman TIBERI. Mr. Rubin, anything to add?
Mr. RUBIN. I guess I would say that I agree that in general
S Corp ESOPs have certainly broadened ownership of S
corporations and allowed employees to participate in that. I
guess, with a nod to Mr. Taylor, I would say there is probably
no conceptual reason why you couldn't craft a regime that
allowed an ESOP to own interest in an LLC. But on the other
hand, I don't think that there is a great need to do that,
given where we are today.
Chairman TIBERI. Mr. Taylor.
Mr. TAYLOR. To just reiterate what I said, if you have a
special rule for ESOPs, it ought to be across the board. You
shouldn't have people saying well, I have got to form an S
Corporation because it is the only way I can do an ESOP, as
opposed to setting up a limited liability company. So it ought
to be across the board.
I do think there is a fundamental issue about ESOPs. You
give them treatment that you do not give to other tax exempts,
including regular pension plans. Because there you would have
so-called unrelated business income for many of these
investments, and you do not when it is done through an ESOP. So
you have another issue not related to this small business
reform, if you will, about whether or not you are not giving
ESOPs an advantage from a tax point of view that should not be
given to other tax exempt organizations, including other
benefit plans.
Chairman TIBERI. Mr. Harris.
Mr. HARRIS. I really don't have much to add to what has
already been said other than, again, if we have got something
that is working, the last thing we want to do is do anything to
make it not work. So I would defer to their judgment. But I
think it is working, so let's just don't hurt it.
Chairman TIBERI. Okay. Any other members have any questions
with our expert witnesses here?
You want to ask us a question? I defer to Mr. Neal.
[[Page 77]]
Mr. TAYLOR. I don't have the courage to do that. But I
would make one point here; that it is not working, to start
right there. The system is conceptually enormously messed up. I
am not talking specifically about ESOPs or anything like that.
Chairman TIBERI. You are talking about the Tax Code?
Mr. TAYLOR. The Tax Code and the particular provisions we
are talking about, they don't work. And you ought to start from
the assumption that there are serious flaws in them. And that
is why, as I said, there is great deal of merit in focusing on
option two. Even if you decide in the end you are not going to
do it, you are just going to take the ideas and build them into
option one, it has the merit of making you focus on what is
wrong.
Chairman TIBERI. Thank you. Anybody else want to add a
comment? That is why we are having this hearing. That is why
the chairman has decided to do these drafts. And we appreciate
you four being here today and adding your input to this
process. I appreciate the time that you have taken.
That concludes today's hearing. Please be advised that
members may submit written questions to the witnesses. Those
questions and the witnesses answers will be made part of the
record.
Again, thank you all for your time for appearing today, for
the thoughtfulness and for our wonderful, educational
discussion that we have had. I think this helps us continue to
move the ball forward. Thank you.
This hearing is adjourned.
[Whereupon, at 11:12 a.m., the subcommittee was adjourned.]
[Public Submissions for the Record follows:]
[[Page 78]]
AdvaMed
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 79]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 80]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 81]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 82]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 83]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 84]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 85]]
AIA
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 86]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 87]]
AICPA
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 88]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 89]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 90]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 91]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 92]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 93]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 94]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 95]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 96]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 97]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 98]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 99]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 100]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 101]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 102]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 103]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 104]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 105]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 106]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 107]]
American Council of Engineering Companies
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 108]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 109]]
American Farm Bureau Federation
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 110]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 111]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 112]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 113]]
Alliantgroup
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 114]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 115]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 116]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 117]]
BIO
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 118]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 119]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 120]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 121]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 122]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 123]]
CBSI
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 124]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 125]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 126]]
FAIR Coalition
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 127]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 128]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 129]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 130]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 131]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 132]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 133]]
Florists Coalition
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 134]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 135]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 136]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 137]]
Independent Community Bankers of America
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 138]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 139]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 140]]
National Association for the Self Employed
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 141]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 142]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 143]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 144]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 145]]
National Pork Producers Council
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 146]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 147]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 148]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 149]]
National Retail Federation
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 150]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 151]]
Real Estate Roundtable
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 152]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 153]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 154]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 155]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 156]]
SBLC
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 157]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 158]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 159]]
Small Business Investor Alliance
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 160]]
[[Page 161]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 162]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 163]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 164]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 165]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 166]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]