[Congressional Record Volume 158, Number 52 (Thursday, March 29, 2012)]
[Senate]
[Pages S2251-S2253]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FRANKEN (for himself, Ms. Snowe, and Mr. Enzi):
  S. 2271. A bill to amend the Internal Revenue Code of 1986 to extend 
the time for making S corporation elections, and for other purposes; to 
the Committee on Finance.
  Mr. FRANKEN. Mr. President, today I am introducing the Small Business 
Election Simplification Act with my friends, Senators Snowe and Enzi.
  I want to thank them for this collaboration, and I especially want to 
acknowledge Senator Snowe for her leadership. As Ranking Member of the 
Committee on Small Business and Entrepreneurship, Senator Snowe is one

[[Page S2252]]

of the Senate's experts on small business issues. She is always working 
to make sure that the Federal Government meets the needs of small 
businesses and is committed to creating the best possible environment 
for entrepreneurs.
  That is exactly what our legislation is about--making it easier and 
more straightforward for entrepreneurs to start small businesses.
  When starting up a new business, entrepreneurs often choose to 
organize their business as an S Corporation because of its simplicity. 
Owners of S Corporations report business income on their individual tax 
returns. So instead of having their business profits taxed at the 
corporate level of 35 percent, they pay taxes at their individual 
income tax rate. Not only is this simpler, but it also often saves 
small business owners money.
  To become an S Corporation, small business owners have to go through 
what's called an ``election process'' and submit an election form to 
the IRS. The deadline to submit this election form is currently set a 
year in advance of the tax return deadline for businesses. This means 
that a new small business owner must know to submit the election form a 
full year before they have to do their taxes.
  Unsurprisingly, many first-time business owners are unaware of this 
rule and therefore miss the election deadline. These taxpayers must 
wait an additional year before their business becomes an S Corporation, 
which can have serious tax consequences. Or they must go through a late 
election process with the IRS, which can be time-consuming and costly.
  This is a real problem. In 2009, nearly 100,000 S Corporation returns 
could not be processed as filed. That was almost a quarter of all new S 
Corporation fillings. Missing or late elections is one of the main 
reasons that returns are rejected as filed.
  The National Taxpayer Advocate--whose job is to watch out for the 
needs of taxpayers--described the current S Corporation election 
process as an undue burden on small businesses. Simplifying the S 
Corporation election process was one of 11 legislative recommendations 
outlined in the National Taxpayer Advocate's 2011 Annual Report to 
Congress.
  Our legislation does just that. The Small Business Election 
Simplification Act would extend and coordinate S Corporation deadlines. 
It would match the S Corporation election deadline for new businesses 
with the deadline for tax returns. This would reduce the number of 
taxpayers who inadvertently miss the S Corporation election deadline 
and suffer negative tax consequences.
  To further simplify the process and reduce paperwork, our legislation 
would also allow new small businesses to elect to become an S 
Corporation simply by designating the election on their S Corporation 
tax return. This would eliminate the need for business owners to fill 
out an additional election form.
  Here in the Senate, we are always saying that small businesses are 
the engine of our economy; that they are the job creators; and that we 
need to support entrepreneurs coming up with the next big idea that 
will get our economy growing again.
  Passing the Small Business Election Simplification Act is one thing 
we can do to help them. It can make a difference right now. By making 
it easier and more straightforward for new small businesses to become S 
Corporations, our legislation would free business owners to concentrate 
on the important stuff--like growing their business and hiring new 
workers, instead of worrying about IRS election form deadlines and 
learning about complicated business tax rules.
  I urge my colleagues to support this legislation and send it to the 
President's desk to be signed into law as soon as possible.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2271

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Election 
     Simplification Act''.

     SEC. 2. EXTENSION OF TIME FOR MAKING S CORPORATION ELECTIONS.

       (a) In General.--Subsection (b) of section 1362 of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(b) When Made.--
       ``(1) Rules for new corporations.--Except as provided in 
     paragraph (2)--
       ``(A) In general.--An election under subsection (a) may be 
     made by a small business corporation for any taxable year at 
     any time during the period--
       ``(i) beginning on the first day of the taxable year for 
     which made, and
       ``(ii) ending on the due date (with extensions) for filing 
     the return for the taxable year.
       ``(B) Certain elections treated as made for next taxable 
     year.--If--
       ``(i) an election under subsection (a) is made for any 
     taxable year within the period described in subparagraph (A), 
     but
       ``(ii) either--

       ``(I) on 1 or more days in such taxable year and before the 
     day on which the election was made the corporation did not 
     meet the requirements of subsection (b) of section 1361, or
       ``(II) 1 or more of the persons who held stock in the 
     corporation during such taxable year and before the election 
     was made did not consent to the election,

     then such election shall be treated as made for the following 
     taxable year.
       ``(C) Election made after due date treated as made for 
     following taxable year.--If--
       ``(i) a small business corporation makes an election under 
     subsection (a) for any taxable year, and
       ``(ii) such election is made after the due date (with 
     extensions) for filing the return for such year and on or 
     before the due date (with extensions) for filing the return 
     for the following taxable year,

     then such election shall be treated as made for the following 
     taxable year.
       ``(2) Rules for existing c corporations.--In the case of 
     any small business corporation which was a C corporation for 
     the taxable year prior to the taxable year for which the 
     election is made under subsection (a), the rules under this 
     paragraph shall apply in lieu of the rules under paragraph 
     (1):
       ``(A) In general.--An election under subsection (a) may be 
     made by a small business corporation for any taxable year--
       ``(i) at any time during the preceding taxable year, or
       ``(ii) at any time during the taxable year and on or before 
     the 15th day of the 3d month of the taxable year.
       ``(B) Certain elections made during 1st 2\1/2\ months 
     treated as made for next taxable year.--If--
       ``(i) an election under subsection (a) is made for any 
     taxable year during such year and on or before the 15th day 
     of the 3d month of such year, but
       ``(ii) either--

       ``(I) on 1 or more days in such taxable year and before the 
     day on which the election was made the corporation did not 
     meet the requirements of subsection (b) of section 1361, or
       ``(II) 1 or more of the persons who held stock in the 
     corporation during such taxable year and before the election 
     was made did not consent to the election,

     then such election shall be treated as made for the following 
     taxable year.
       ``(C) Election made after 1st 2\1/2\ months treated as made 
     for following taxable year.--If--
       ``(i) a small business corporation makes an election under 
     subsection (a) for any taxable year, and
       ``(ii) such election is made after the 15th day of the 3d 
     month of the taxable year and on or before the 15th day of 
     the 3rd month of the following taxable year,

     then such election shall be treated as made for the following 
     taxable year.
       ``(D) Taxable years of 2\1/2\ months or less.--For purposes 
     of this paragraph, an election for a taxable year made not 
     later than 2 months and 15 days after the first day of the 
     taxable year shall be treated as timely made during such 
     year.
       ``(3) Authority to treat late elections, etc., as timely.--
     If--
       ``(A) an election under subsection (a) is made for any 
     taxable year after the date prescribed by this subsection for 
     making such election for such taxable year or no such 
     election is made for any taxable year, and
       ``(B) the Secretary determines that there was reasonable 
     cause for the failure to timely make such election,

     the Secretary may treat such an election as timely made for 
     such taxable year.
       ``(4) Manner of election.--Elections may be made at any 
     time as provided in this subsection by filing a form 
     prescribed by the Secretary. For purposes of any election 
     described under paragraph (1), the Secretary shall provide 
     that the election may be made on any timely filed small 
     business corporation return for such taxable year, with the 
     consents of all persons who held stock in the corporation 
     during such taxable year included therewith.
       ``(5) Secretarial authority.--The Secretary may prescribe 
     such regulations, rules, or other guidance as may be 
     necessary or appropriate for purposes of applying this 
     subsection.''.

[[Page S2253]]

       (b) Revocations.--Paragraph (1) of section 1362(d) of the 
     Internal Revenue Code of 1986 is amended--
       (1) by striking ``subparagraph (D)'' in subparagraph (C) 
     and inserting ``subparagraphs (D) and (E)'', and
       (2) by adding at the end the following new subparagraph:
       ``(E) Authority to treat late revocations as timely.--If--
       ``(i) a revocation under subparagraph (A) is made for any 
     taxable year after the date prescribed by this paragraph for 
     making such revocation for such taxable year or no such 
     revocation is made for any taxable year, and
       ``(ii) the Secretary determines that there was reasonable 
     cause for the failure to timely make such revocation,

     the Secretary may treat such a revocation as timely made for 
     such taxable year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to elections for taxable years beginning after 
     the date of the enactment of this Act.
                                 ______