WISCONSINREPORT.COM (02/11/2009) - United States Congressmen Steve Kagen and Ron Kind are fighting for tax breaks for small businesses. The Wisconsin Representatives led 12 of their colleagues in a letter to Speaker of the House Nancy Pelosi and Majority Leader Steny Hoyer to include a provision that would provide built-in gains (BIG) tax relief in the final version of the American Recovery and Reinvestment Act. 60 to 80 percent of net new jobs annually over the last decade have been created by small businesses according to the Small Business Administration.
As long-standing advocates of this bipartisan initiative, we believe that BIG reform would provide timely assistance for small businesses currently structured as S corporations, and free up much-needed capital during this critical time in our economic history. These small and family-owned businesses are located in every state, represent all industry sectors, and have between 1 and 100 shareholders who share in both the net income and losses for the business, the letter states.
Under existing law, eligible businesses that convert from C corporation to S corporation status are penalized by BIG taxes at the highest corporate rate on top of normal shareholder-level taxes for a period of 10 years if they sell assets they owned as a C corporation.
In some states, this double-tax burden can reach as high as 65 percent. To avoid incurring this onerous tax burden, small businesses are holding on to valuable assets that could otherwise be part of reversing the economic downturn.
Section 1261 of the American Recovery and Reinvestment Act is based on similar legislation authored by Congressmen Kagen and Kind and would temporarily reduce the BIG tax recognition period from ten to seven years a time-frame more in keeping with a realistic business planning cycle.
This modest decrease would preserve the original policy while allowing hundreds of thousands of S corporations to gain immediate access to their own capital without being penalized.
Even under the best economic conditions, S corporations have difficulties securing capital, but our present economy is making it nearly impossible for them to do so.
The letter to Speaker of the House Nancy Polosi and Majority Leader Steny Hoyer was from the following: STEVE KAGEN, M.D., RON KIND, NYDIA VELAZQUEZ, ALLYSON SCHWARTZ, DANNY DAVIS, DALE KILDEE, DENNIS MOORE, DAN BOREN, MICHAEL ARCURI, HENRY JOHNSON, MARY JO KILROY, JERRY MCNERNEY, LARRY KISSELL, and ZACHARY SPACE.
Copies of the letter were also sent to committee Chairman Charles Rangel and committee Chairman Dave Obey.