Small business tax reform was the topic of two Congressional hearings in July. House and Senate lawmakers heard from small business owners and leaders in the tax and accounting area about concerns over tax complexity, compliance, and penalties. After the hearings, the chair of the Senate Small Business Committee said that he is moving forward with a small business tax compliance reform bill.

Complexity and compliance

The owner of a small manufacturing business told the Senate Small Business Committee that "small businesses operate from the intent to stay in compliance, but confusing regulations coupled with limited resources can lead to businesses inadvertently falling out of compliance." A representative of a business association added that tax regulations cause the greatest difficulties for small employers. "The current tax code has become a confusing and unpredictable challenge for the vast majority of small business owners. Small business owners continue to be excessively burdened by direct, indirect, complicated and ever changing taxes related to operating their business," the representative testified.

Small Business Tax Compliance Act

The Small Business Tax Compliance Relief Bill, introduced by Sen. David Vitter, R-La., in July, addresses a number of issues raised by speakers at the hearings. Among other provisions, the bill would reform some penalty provisions for small businesses and require the IRS to expand its outreach to small businesses. "Unlike many previous small business tax bills, this legislation does not seek to alter tax rates or pursue wholesale reform. Instead, it provides relief from those provisions most often cited as overly restrictive for a small business," Vitter said.

"The Small Business Tax Compliance Act of 2015 can ease compliance costs and improve the overall tax system for small businesses across the country," Jeffrey Porter, CPA, chair of the AICPA Tax Reform Task Force, testified before the Senate Small Business Committee. "Targeted, proportionate penalties that are administered in a reasonable manner encourage voluntary compliance with the tax laws, Porter said. Businesses that act in good faith should not be subject to the same rules as businesses trying to scam the system," he added.

Repair regulations

Testifying before the House Small Business Committee, Troy Lewis, CPA, chair of the Tax Executive Committee of the American Institute of Certified Public Accountants (AICPA), recommended changes to the tangible property regulations ("repair regulations") that address how businesses should report the acquisition and improvement of tangible property to reduce complexity. "The $500 de minimis safe harbor threshold for taxpayers without an applicable financial statement should be increased to $2,500 and should provide for annual inflation adjustments. In addition, the definition of applicable financial statement should be expanded to include a reviewed set of financial statements so more businesses could benefit from the higher $5,000 threshold," Lewis told lawmakers.

If you have any questions about pending small business tax legislation, please contact our office.