Ways and Means Committee Hearing on Pass-Throughs

On May 15, the Ways and Means Subcommittee on Select Revenue Measures (SRM) held a hearing on the small business and pass-through entity tax reform Discussion Draft, which was released on March 12 by Chairman Dave Camp (R-Mich.). The Committee released the Discussion Draft to solicit feedback on the details of the draft proposals, which the Committee intends to include as part of comprehensive tax reform legislation that broadens the tax base, lowers tax rates, and simplifies the Internal Revenue Code (IRC) for households, small businesses, and corporations. Chairman Camp asked Select Revenue Measures (SRM) Subcommittee Chairman Pat Tiberi (R-Ohio) to schedule this hearing to gather analysis from outside experts on the details of the Discussion Draft. At the hearing, the witness panel testified that the proposal’s attempt to rewrite subchapters K and S of the IRC to treat small businesses more similarly may be counterproductive, complicated, and that the costs may outweigh the benefits. At issue are two options Chairman Camp presented for revamping the IRC’s treatment of pass-through entities. The first option would provide for limited reform and contains some significant modifications to the current regimes applicable to partnerships and S-corporations. The second option seeks to fundamentally reform and replace the current regimes applicable to partnerships and S-corporations with a single unified regime. The Discussion Draft does not address the taxation of other types of entities subject to special tax regimes, such as real estate investment trusts and regulated investment companies. Among highlights of Camp's draft proposal: the small business draft would allow contributions of money and property on a tax-free basis; maintain the pass-through of items of income, gain, loss, and credits; and permit only net ordinary income or loss, net capital gain or loss, and tax credits to be specifically allocated to owners, according to the summary prepared by committee staff SRM Chairman Tiberi encouraged additional practitioner feedback on the small business draft. AGC continues to consult with members of the tax writing committees on proposals and legislation to address large and small businesses’ priorities for reforming the tax code. Information on the hearing can be found on the Ways and Means Committee website. For more information, please contact Brian Lenihan at (202) 547-4733 or lenihanb@agc.org.