Academic journal article Journal of Accountancy

Subchapter S Reform at Hand?

Academic journal article Journal of Accountancy

Subchapter S Reform at Hand?

Article excerpt

Long-awaited relief for S corporations may finally be on the legislative horizon. At the center of reform efforts are proposals developed by the American Institute of CPAs S corporation taxation committee in cooperation with the American Bar Association section on taxation and the U.S. Chamber of Commerce.

The AICPA package recommended 26 separate changes affecting S corporations. A number of these were contained in the Tax Simplification Act of 1993 (HR 13), introduced earlier, this year by House Ways and Means Committee chairman Dan Rostenkowski (D-Ill.).

The Subchapter S Reform Act of 1993, however, is thought to have a better chance of moving through Congress. Senators David Pryor (D-Ark.) and John Danforth (R-Mo.) agreed to cosponsor the bipartisan bill, which draws on the Institute's proposals (the legislation's final details were being worked out as the Joural went to press).

Samuel P. Starr, chairman of the AICPA S corporation tax committee and a partner of Coopers & Lybrand, Washington, D.C., was guardedly optimistic about the Pryor/Danforth bill, which he termed a compromise. "It won't be everything we asked for," Starr said, "but the legislation will give our S corporation clients more flexibility to attract venture capital and carry out financing operations, and it will help with corporate structuring and with estate planning."

Added Starr, "The bottom line is the bill, if enacted, really will be an improvement over existing subchapter S law."

A better way to do business. In recent testimony before the House Ways and Means Subcommittee on Revenue Measures, Gerald W. Padwe, AICPA vice-president--taxation, reported that over 1.5 million small businesses, representing 42% of corporate tax return filers, were S corporations.

"We believe subchapter S should be amended to better reflect the way small business does business in the 1990s," said Padwe. "The financial environment today is far more complex, and 1950s' legislative restraints are handicapping small business. …

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