Groups support striking S corp. tax from extenders

Sens. Olympia Snowe (R-Maine), Mike Enzi (R-Wyo.) and John Ensign (R-Nev.) filed an amendment to the so-called tax extenders legislation that would strike the tax from the bill. The provision would raise approximately $11.2 billion by requiring principals in professional-service S corporations to pay employment taxes on a firm’s profit.

As the tax is currently written, it applies to retained earnings, which the groups contends will hurt job creation. They also argue that the IRS already has the tools it needs to clamp down on S corporation tax cheats by employing the “reasonable compensation” test, which determines if S corp owners are paying their fair share of taxes. 

“Replacing this established test with a ‘principal asset’ test is a step backward for tax enforcement and should be rejected by the Senate,” the letter states.

It goes on to criticize lawmakers for never hosting a hearing on the tax that could have addressed its many problems. 

“It was never the subject of hearings or public review,” the letter states, adding, “This new tax is an excellent example of what happens when the legislative process is short circuited.” 

The Senate is expected to continue debate on the bill next week, at which point the senators’ amendment that would strike the tax could be voted on.