Tax Simplification

For continuing analysis of the tax law and its impact on small business, the bill proposed a standing intragovernmental 17

18

committee on tax simplification for small business and a permanent office of small business tax analysis in the Treasury Department. To facilitate understanding of small business tax provisions, the bill suggested arranging all small and new business provisions in one section or chapter of the Internal 19

Revenue Code. Substantive simplification was suggested for depreciation

policy20 and employee fringe benefits.? 21 Other provisions for simplification

22

suggested less frequent collection of federal taxes, study of differential effect of tax law changes on businesses of varying sizes and ages23 and reimbursement of travel expenses for persons consulting with the Treasury

Department on tax simplification and reform.

24

Increase in Corporation Tax To balance the revenue effect

of the overall bill, the normal tax for corporations would have been increased 25

slightly.

Provisions to Encourage Establishment of New Small

Business Enterprises

Special provisons to encourage new small

business enterprises included a three year tax exemption for the first $25,000

26

of operating income; liberalized rules for amortization of partnership organization expenses27 and bad debt deductions; increase in the deduction for

29

28

losses on small business stock; and provisions to encourage new cooperatives.30

Incentives

31

Provisions to Assist Small Business Growth included an increase in the first year depreciation allowance, elimination of the reserve ratio test for small businesses electing Asset Depreciation Range guidelines for depreciation,32 increase in the net operating loss carryforward period,33 increase in the accumulated earnings tax credit, liberali35 zation of the rules for amortization of research expenditures and expenditures incident to the issuance of stock, and allowance of multiple corporate surtax

36

exemptions for certain controlled family corporations.

37

34

Partnership and Subchapter S Provisions Partnership tax amendments would have modified tax rules for guaranteed payments to estates of 39

38

deceased partners, for closing the taxable year of a deceased partner,

41

40

for terminating the partnership, and for utilization by a partner of partnership losses. Subchapter S changes would have increased and broadened the number and classes of shareholders,42 eased rules relating to termination of the election,4 43 and conformed the loss utilization rules for Subchapter S

Preservation of Small Business Independence These provisions would have allowed refunds of overpayments of estimated taxes before the end 45 of the taxable year, and disallowed interest deductions in excess of $500,000 46

for debt-financed acquisitions." Estate tax changes would have simplified valuation rules for unlisted securities, extended the time for payment of

48

47

estate taxes, and instituted a Treasury Department study of obstacles

Small Business Development Corporations - The bill contained two provisions to encourage state and local development companies.

50

As is evident from this outline of its provisions, the Bible-Evins

Bill was the most comprehensive tax reform proposal for small business ever
to be presented to the Congress. Although it was not enacted in its entirety,
its influence is evidenced by the fact that many of its provisions were

subsequently enacted in the same or in modified form.
serve as a basis for recommendations in this report.

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Some of its provisions

Taxation and Small Business Since 1973

Little comprehensive

small business tax reform legislation has been proposed since 1973. In 1975, hearings were held before the Senate Select Committee on Small Business on the tax needs of small business pursuant to the enactment of the Tax Reduction Act 52

of 1975. These hearings investigated the impact of inflation and recession

on small business.

Other small business impact hearings have been held on

pending tax legislation by the small business committees. Various members of Congress

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For example: The Pension Reform Act of 1974 (ERISA) took steps to equalize
fringe benefits; the Tax Reform Act of 1976 provided for amortization
of partnership organization expenses, increased the net operating loss
carryforward period, increased the number and broadened the classes
of permissable shareholders for election under Subchapter S; simplified
the estate tax valuation procedure for small business real estate, and
liberalized rules for payment of estate tax; The Tax Reduction Act of
1975 increased the accumulated earning credit and increased the corporate
surtax exemption (this had an effect opposite to that recommended in the
Bible-Evins Bill, by reducing corporate taxes); In addition, intragovern-
mental small business tax advisory committees have been established for
the Internal Revenue Service and Treasury Department

"Small Business Tax Needs," Hearings before the Select Committee on Small Business, 94th Congress, 1st Session, February 4, 5 and 20, 1975

have introduced limited small business tax reform proposals. 53

Some of these

54

have contained suggestions similar to those of the Bible-Evins Bill.
The Tax Reform Act of 1976 was of some help to small business, but the

55

thrust of that legislation was to curtail tax shelter investments, to provide individual tax relief and simplification, and to reform the estate and gift taxes. The Tax Reduction and Simplification Act of 1977 contained some provisions helpful to all business, including small business. The monumental Tax Reform Act of 1969 was actually adverse to small business.

It is now appropriate for another comprehensive small business tax reform proposal to be formulated and presented to Congress to encourage the establishment and continued vitality of this vital segment of the economy.

Objectives of This Report

This report is submitted pursuant

to a study authorized by P.L 94-305. The statutory objective of the study is "to determine the impact of the tax structure on small businesses and make legislative and other proposals for altering the tax structure to enable all small businesses to realize their potential for contributing to the improvement

of the Nation's economic well-being."56

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For Example: H. R. 14837, introduced May 16, 1974

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H.R. 14837, like the Bible-Evins Bill recommended increases in the first year depreciation allowance and extension of the net operating loss carryforward period.