[Congressional Record Volume 140, Number 22 (Thursday, March 3, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 3, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                    LEGISLATION TO CORRECT TAX CODE

                                 ______


                        HON. BENJAMIN L. CARDIN

                              of maryland

                    in the house of representatives

                        Thursday, March 3, 1994

  Mr. CARDIN. Mr. Speaker, today I am introducing legislation that 
would correct a fundamental inequity in the Tax Code. The change I 
propose affects the alternative minimum tax [AMT] treatment of 
circulation expenditures made by taxpayers operating small, expanding 
publishing companies. The AMT rules presently impose AMT burden on 
small publishing businesses that frequently exceeds the net income of 
the business, forcing the owner to borrow money just to pay the taxes. 
The tax treatment does not affect large, established publishing houses, 
leaving small, growing companies at a competitive disadvantage
  Enactment of this legislation would encourage increased growth and 
investment by small publishing companies while ensuring that these 
businesses pay their fair share of taxes. Their owners would still be 
subject to appropriate regular or AMT taxation. In addition, the bill 
would provide relief only to owners who are actively involved in the 
operation of the business, thereby denying any opportunity for tax 
avoidance through the use of tax shelters.
  Under present law, individuals, either directly or through 
partnerships or S corporations, are permitted to deduct circulation 
expenses currently for regular tax purposes. For small, expanding 
companies, circulation expenses are crucial to the effort to develop, 
increase, and maintain subscription levels of magazines and other 
periodicals. Under the AMT, however, taxpayers must amortize 
circulation expenditures over a 3-year period.
  For a small, expanding publishing business, circulation expenditures 
can consume up to 40 percent of gross revenues. Because these 
expenditures must be amortized for AMT purposes but can be deducted 
immediately for regular purposes, these companies face larger AMT 
liability and are trapped in the AMT as long as they continue to 
expand. Furthermore, since AMT credits cannot be used to offset 
AMT liabilities, these companies accrue tax credits they can't use. The 
effect is to create a disincentive to grow.

  By contrast, large, established publishing houses with stable 
circulations do not spend as large a proportion of their revenues on 
developing and expanding their circulation base. As a result, they are 
not forced indefinitely into the AMT, and do not build up unusable AMT 
credits.
  In 1989, Congress amended the Internal Revenue Code to permit 
individuals operating a business as a partnership or S corporation to 
currently deduct research and experimental [R&E] expenditures for AMT 
purposes, provided the individuals materially participate in the 
operation of the business. The material participation requirement was 
designed to ensure that taxpayers would not use this provision to 
create abusive tax shelters. In permitting the deduction of R&E 
expenditures, Congress recognized the need to eliminate an AMT 
advantage that had been bestowed on C corporations at the expense of 
individuals operating S corporations and partnerships. Given the 
similar fundamental nature of R&E expenditures and circulation 
expenditures to a growing business, we should provide the same AMT tax 
treatment for taxpayers who materially participate in operating the 
business.
  This bill will extend immediate deductibility to circulation 
expenditures, thereby removing a serious inequity from the law. By 
limiting this treatment to individuals who materially participate in 
operating the business, the bill avoids the creation of shelter 
opportunities. By providing rational treatment of circulation and R&E 
expenditures, the bill removes from the Tax Code a disincentive to 
expansion for small publishing companies, which will help in the 
creation of jobs and economic growth.

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