S Corporation Reform May Be Added to Tax Extension Bill

A revised version of the S corporation reform legislation that was included in the tax bill that passed Congress earlier this year (and that the President vetoed) may be resurrected in a bill to extend popular tax deductions and credits now working its way through Congress. The new legislation would retain the previous bill's language providing that allocations of stock to people who (1) collectively own 50% or more of the company's shares and either (a) own 10% or more of the ESOP shares or (b) with their family members own 20% or more of the ESOP shares would be subject both to income tax and an excise tax. It would add, however, a new provision providing a 50% excise tax on ownership attributable to certain individuals whose ownership is evidenced indirectly, such as through options. The precise language is being worked on as this is written.

It is still far from certain this will become law, however. The provisions must first be accepted by both houses of Congress, the larger bill must pass, and the president must sign it, all of which are uncertain.