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April 25, 2007
The Honorable Charles B. Rangel
Chairman
House Committee on Ways & Means
1102 Longworth House Office Building
Washington, D.C. 20515
Fax: (202) 225-2610
The Honorable Jim McCrery
Ranking Member
House Committee on Ways & Means
1106 Longworth House Office Building
Washington, D.C. 20515
Fax: (202) 225-2610
The Honorable Max Baucus
Chairman
Senate Finance Committee
219 Senate Dirksen Office Building
Washington, D.C. 20510
Fax: (202) 228-0554
The Honorable Charles E. Grassley
Ranking Member
Senate Finance Committee
219 Senate Dirksen Office Building
Washington, D.C. 20510
Fax: (202) 228-0554
The Honorable Thomas A. Barthold
Acting Chief of Staff
Joint Committee on Taxation
1015 Longworth House Office Building
Washington, DC 20515
Fax: (202) 225-0832
Re: Self-Employment Tax Proposals to Reduce Tax Gap
Dear Gentlemen:
In response to suggestions made by the Joint Committee on Taxation to close the tax gap, the AICPA offers the following comments on proposals addressing the employment and self-employment taxation of S corporation shareholders, partners and limited liability company members. The JCT proposals are contained in Options to Improve Tax Compliance and Reform Tax Expenditures, pp 95-104 (issued January 27, 2005) and Additional Options to Improve Tax Compliance, pp 29-34 (issued August 3, 2006).
Our recommendations include: (1) effectively enforce existing law; (2) issue regulatory guidance for LLC members; (3) allow the IRS National Research Program’s S corporation audits to run their course, analyze the results of that program, and then consider options based on those results; (4) listen to the affected public by conducting hearings and encouraging public comment.
We believe the JCT proposals are fundamentally wrong in that any abuse with the current system is not related to the SECA/FICA tax base and therefore such tax base should not be expanded to combat the tax gap. The tax gap represents an underpayment by taxpayers who are not complying with existing law. The tax gap is not closed one penny by expanding the tax base and tapping new sources of revenue. Closing the gap should focus on just that. Policy decisions must be made in a much more public forum without the cover of closing the tax gap – which is clearly and correctly perceived by the public to be solely an enforcement issue.
We further believe that increasing the use of the estimated payment system is a far inferior solution than the opposite solution of increasing the use of the more perfect withholding system.
If you have any questions regarding our comments, please contact me at jeffrey.hoops@ey.com; Laura Howell-Smith, Chair of the AICPA S Corporation Taxation Technical Resource Panel at lhowellsmith@deloitte.com; or Marc A. Hyman, AICPA Technical Manager at mhyman@aicpa.org.
Sincerely,
Jeffrey R. Hoops, Chair
AICPA Tax Executive Committee
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