Congressman Dave Camp (R-MI), Chairman of the Committee on Ways and Means, today announced that the Committee will hold the second of two hearings on how accounting rules cause different types of businesses – specifically, publicly-traded and closely-held businesses – to evaluate tax policy choices differently. Whereas the previous hearing focused on financial accounting rules and publicly-traded companies, this hearing will focus on the special challenges faced by small and closely-held businesses that are less concerned with financial accounting rules but must confront tremendous complexity in dealing with tax accounting and various choice of entity regimes. The hearing will take place on Wednesday, March 7, 2012, in Room 1100 of the Longworth House Office Building, beginning at 10:00 A.M.
In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow.
Unlike publicly-traded companies, closely-held companies often rely less on Generally Accepted Accounting Principles (“GAAP”) to report information to owners and creditors, although there are exceptions. (For example, a non-public entity with outside investors or a closely-held entity that issues debt instruments might be required to provide GAAP-compliant statements.) Instead, closely-held entities tend to focus almost exclusively on how tax policy changes affect cash flows. Closely-held companies, however, face their own set of challenges with regard to tax complexity and uncertainty. These challenges range from compliance with complicated rules on inventory accounting and cost recovery to numerous sets of tax rules governing different business forms.
The three major business forms from which closely-held companies must choose for federal tax purposes are C corporations, S corporations, and partnerships, although a number of other types of business entities exist to serve specific purposes. While C corporations are subject to entity-level tax and shareholders are again subject to tax on dividends and capital gains, S corporations and partnerships are “pass-through” entities that do not pay entity-level tax – rather, partners and shareholders pay tax on their share of the entity’s income on their individual tax returns (and therefore under the individual rate schedule). Companies must choose to operate under one of these regimes, and this choice can have significant tax consequences. Many commentators recommend modifications to the choice of entity rules to reduce the potential distortions introduced by such rules – with ideas ranging from consolidating existing pass-through rules into a “unified pass-through regime,” making it easier for closely-held C corporations to convert to pass-through status, or even subjecting some existing pass-through entities to double taxation as C corporations. On the other hand, tax reform proposals that create too large a spread between the top corporate rate and the top individual rate risk exacerbating these distortions rather than reducing them.
In announcing this hearing, Chairman Camp said, “Closely-held businesses – including millions of small and family-owned businesses – form the backbone of our economy, but our current tax code imposes a variety of burdens on them that public companies do not face. Tax compliance costs are especially high for small and closely-held businesses, and complex rules often prevent them from maximizing their ability to invest and create jobs. Higher marginal rates on individuals, as have been proposed by others, would stunt their growth even more. As part of comprehensive tax reform, the Committee must determine how best to reduce tax compliance costs and tax rates on closely-held businesses so that they can devote their resources to innovation and job creation, rather than to tax compliance and tax planning.”
FOCUS OF THE HEARING:
The hearing will examine how the tax code affects closely-held businesses in particular, and how tax reform might improve their ability to grow and create jobs. To this end, the hearing will consider how and under which sets of rules closely-held entities should be taxed, as well as general burdens imposed on closely-held businesses such as high compliance costs and tax rates.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms. From the Committee homepage, https://waysandmeans.house.gov, select “Hearings.” Select the hearing for which you would like to submit, and click on the link entitled, “Click here to provide a submission for the record.” Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close of business on Wednesday, March 21, 2012. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225-3625 or (202) 225-2610.
The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, but we reserve the right to format it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All submissions and supplementary materials must be provided in Word format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official hearing record.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. All submissions must include a list of all clients, persons and/or organizations on whose behalf the witness appears. A supplemental sheet must accompany each submission listing the name, company, address, telephone, and fax numbers of each witness.
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
Note: All Committee advisories and news releases are available on the World Wide Web at http://www.waysandmeans.house.gov/.