ACEC Achieving Success Against S Corporation Tax Increase in Senate

ACEC and its coalition and Senate allies have been successful in recent weeks in turning back a proposed tax increase that would have affected many A/E firms organized as S corporations.

The tax provision was included in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), which the Senate has dropped from consideration after three failed attempts at passage.

The increase would have applied payroll taxes to S corporation distributions in cases where (1) an S corporation is engaged in a professional services business where 80 percent or more of the gross income of the business is attributable to the service of three or fewer shareholders, or (2) a professional services S corporation is a partner in a partnership.

While these provisions would have affected smaller firms, ACEC had earlier eliminated broader language that applied to large, as well as small, S corporations. Council President Dave Raymond emphasized the importance of the Council’s continuing vigilance on this matter, as the tax provision could re-emerge in future legislation.“If it does, we’ll nip it in the bud,” he said.

Thank you to the ACEC/MA members who assisted with this issue.