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S. HRG. 114–360 

TARGETED TAX REFORM: SOLUTIONS TO RELIEVE 

THE TAX COMPLIANCE BURDENS 

FOR AMERICA’S SMALL BUSINESSES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JULY 22, 2015 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 

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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED FOURTEENTH CONGRESS 

DAVID VITTER, Louisiana, Chairman 

BENJAMIN L. CARDIN, Maryland, Ranking Member 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

DEB FISCHER, Nebraska 

CORY GARDNER, Colorado 

JONI ERNST, Iowa 

KELLY AYOTTE, New Hampshire 

MICHAEL B. ENZI, Wyoming 

MARIA CANTWELL, Washington 

JEANNE SHAHEEN, New Hampshire 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

CHRISTOPHER A. COONS, Delaware 

MAZIE K. HIRONO, Hawaii 

GARY C. PETERS, Michigan 

ZAK BAIG, Republican Staff Director 

ANN JACOBS, Democratic Staff Director 

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C O N T E N T S 

OPENING STATEMENTS

Page 

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana ................... 1 

Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire ............................ 3 

WITNESSES

Panel 1: 

Beebe, Diana, CFO, ProSys, Inc., Baton Rouge, LA ............................................. 5 

Begneaud, Don, Founder/Owner, Begneaud Manufacturing, Scott, LA .............. 9 

O’Steen, Cori, Owner, UPakNShip, Aiken, SC ...................................................... 12 

Panel 2: 

Karellas, Nick, Tax Counsel, National Federation of Independent Business, 

Washington, DC ................................................................................................... 25 

Mathison, Tom, Principal, MATHISON | MATHISON architects, Board of 

Trustees, National Small Business Association, Grand Rapids, MI ................ 33 

Porter, Jeffrey A., Owner, Porter & Associates, CPA’s, Chair, AICPA Tax 

Reform Tax Force, Huntington, WV ................................................................... 46 

Bruckner, Caroline, Professor, Kogod Tax Policy Center, American University, 

Washington, DC ................................................................................................... 64 

Zerbe, Dean, National Managing Director, alliantgroup, Washington, DC ........ 71 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Beebe, Diana 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 7 

Begneaud, Don 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 11 

Bruckner, Caroline 

Testimony .......................................................................................................... 64 

Prepared statement .......................................................................................... 66 

Responses to questions submitted by Senator Enzi ...................................... 129 

Karellas, Nick 

Testimony .......................................................................................................... 25 

Prepared statement .......................................................................................... 27 

Mathison, Tom 

Testimony .......................................................................................................... 33 

Prepared statement .......................................................................................... 35 

O’Steen, Cori 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 14 

Porter, Jeffrey A. 

Testimony .......................................................................................................... 46 

Prepared statement .......................................................................................... 48 

Shaheen, Hon. Jeanne 

Opening statement ........................................................................................... 3 

South Carolina Small Business Chamber of Commerce 

Letter dated July 16, 2015 ............................................................................... 127 

Vitter, Hon. David 

Opening statement ........................................................................................... 1 

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IV 

—Continued 

Letters of Support for the Small Business Tax Compliance Relief Act: 

Angel Capital Association 

Letter dated July 9, 2015 .................................................................. 100 

Louisiana Association of Business and Industry 

Letter dated July 14, 2015 ................................................................ 101 

National Federation of Independent Business 

Letter dated June 17, 2015 ............................................................... 103 

National Small Business Association 

Letter dated July 14, 2015 ................................................................ 104 

National Small Business Network 

Letter dated July 22, 2015 ................................................................ 106 

Small Business Advocacy Council 

Letter dated July 10, 2015 ................................................................ 121 

Small Business and Entrepreneurial Council 

Letter dated July 14, 2015 ................................................................ 122 

Small Business Investor Alliance 

Letter dated July 21, 2015 ................................................................ 124 

Society of Louisiana Certified Public Accountants 

Letter dated July 20, 2015 ................................................................ 126 

Zerbe, Dean 

Testimony .......................................................................................................... 71 

Prepared statement .......................................................................................... 74 

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TARGETED TAX REFORM: SOLUTIONS 

TO RELIEVE THE TAX COMPLIANCE BURDENS 

FOR AMERICA’S SMALL BUSINESSES 

WEDNESDAY, JULY 22, 2015 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:07 a.m., in Room 

428A, Russell Senate Office Building, Hon. David Vitter, Chairman 

of the Committee, presiding. 

Present: Senators Vitter, Fischer, Gardner, Ernst, Ayotte, Enzi, 

Shaheen, Cantwell, Heitkamp, and Coons. 

OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, 

AND A U.S. SENATOR FROM LOUISIANA 

Chairman VITTER. Good morning, everyone, and welcome. The 

hearing of the Senate Small Business Committee will come to 

order. Thanks for joining us today to examine targeted solutions to 

relieve the tax compliance burden for America’s small businesses. 

We will be hearing today from two panels of witnesses. The first 

is a panel of small business owners who will offer their own experiences on tax compliance, and then the second panel includes representatives from small business advocacy groups, two of which are 

also small business owners. I want to thank all of our witnesses 

today for being here and testifying. 

As Chair of this Senate Committee on Small Business and Entrepreneurship, I have really had the pleasure of partnering with 

business owners and their advocates to address many issues. In my 

discussions with that community, there is one that is raised really 

more than any other, and that is the burdensome federal tax code 

and the burden of compliance because of its complicated nature. 

The administrative burden of tax compliance is now a greater 

strain on small businesses than even their tax liability, according 

to an NSBA small business survey. I do not need to tell the business owners here today about that burden because you all live it 

every day. But, I do want to describe it for the others in attendance 

so they can better grasp what we are talking about. 

The federal tax code now is about 74,000 pages long. That is 

about four million words. And, it is continuing to grow, really, with 

no end in sight. Under this Administration, it has already grown 

approximately 7,000 pages. And just for some historical perspective, the code was only 400 pages long when it was first created. 

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While it is convenient to think that only a company’s CPA needs 

to be able to navigate such a behemoth, the reality is that the business owner must be up to date on scores of yearly changes in order 

to stay in compliance him or herself. So, I think it is safe to say 

that every single business owner would much rather focus his or 

her time and energy on growing the company. 

Next, according to the National Federation of Independent Businesses, small businesses annually spent 1.7 billion hours on tax 

compliance—that is billion with a ‘‘b’’—and $15 to $16 billion on 

compliance costs. To put it another way, that is over 194,000 years’ 

worth of time spent cumulatively to comply with all the rules and 

regulations. 

To bring it down to hours we can actually wrap our heads 

around, nearly 40 percent of small businesses spend 80 hours or 

more a year on tax compliance, and a quarter of all small businesses spend more than 120 hours. And that does not even take 

into account state and local income, sales, property taxes, etc. That 

is just the federal compliance burden. Imagine if those billions of 

hours spent complying with the IRS could actually be spent on focusing on the business and job growth. 

Finally, the cost of compliance to small businesses is 70 percent 

higher than bigger firms, and the reason is simple. Small businesses simply do not have the army of accountants and tax attorneys that much bigger entities have. So, clearly, it is a disproportionate burden and hindrance to small businesses. 

So, just to recap and offer some perspective on what a typical 

small business owner may face to remain in compliance, it is equivalent to navigating over five King James Bibles, takes up roughly 

two 40-hour work weeks, and it is the cost of taking your family 

to Disney World, all of that just to comply with the tax code. And, 

of course, I am not even talking about the actual liability, the actual burden of paying the bill. 

While broad tax reform is certainly needed, small businesses 

should not have to wait for super-broad wholesale tax reform to 

have these compliance issues addressed in a common sense way. 

Congress can and should act on them right now. 

And, so, today, I am filing a Small Business Tax Compliance Relief Act. We are going to talk about various parts of it here. That 

is the purpose of this hearing, to touch on those subjects, and I am 

certainly inviting all of the committee’s input as we go to a markup 

in the near future. This provides relief from those provisions most 

often cited by small business as overly restrictive, confusing, or just 

really nonsensical to the small business. These are issues that have 

been raised at previous committee hearings and small business 

roundtables, and the legislation provides real solutions to those 

very real problems. 

And even though wholesale reforms and tax rates are not 

touched, small businesses have indicated that addressing these 

specific issues would be a significant win to reduce their compliance burden in a substantial way. Or, in terms we can all understand, it helps a small business’ bottom line even without touching 

the tax liability itself. 

In addition, many of these provisions enjoy broad support, as evidenced by the many groups that have signed on to supporting this, 

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and I have a stack of those letters of support. Let me just list the 

groups very briefly: the NFIB, National Federation of Independent 

Business, the National Small Business Association, LABI, the Louisiana Association of Business and Industry, the Angel Capital Association, the Louisiana Society of Certified Public Accountants, the 

Small Business and Entrepreneurship Council, the Small Business 

Investor Alliance, the Small Business Advocacy Council. 

And, outside of those who have given their letter of support, we 

also have five groups endorsing the bill publicly, the American Institute of CPAs, the National Association for the Self-Employed, 

the Chamber of Commerce of Hawaii, the Colorado Association of 

Commerce and Industry, and the Greater North Dakota Chamber 

of Commerce. And, I would ask unanimous consent to make all of 

this part of the record. Without objection, so ordered. 

[The letters appear in the Appendix.] 

Many of these compliance solutions even have bipartisan support, and that is very significant, and we are continuing to build 

bipartisan support and take suggestions for this bill as we go to a 

markup. 

In conclusion, small businesses are the job creators around 

America, but when you consider the burden of tax compliance that 

is placed on their shoulders, you may have to wonder how they 

stay open at all. It is an unfortunate truth, but Congress and the 

IRS simply do not often lean toward the options of small businesses 

when crafting laws and regulations, and it is certainly the mission 

of this committee to try to correct that and try to balance that out. 

I am confident that our witnesses today can shed light on these 

and other issues. So, again, thanks to all of our witnesses. Thanks 

to all of the groups that have weighed in on this important issue. 

And now, I will turn to our Ranking Member, Senator Shaheen, 

for her opening comments. 

OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING 

MEMBER, A U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SHAHEEN. Thank you, Mr. Chairman. 

Welcome to all of our witnesses today and to our second panel. 

Thank you all very much for taking the time to be here today to 

testify. 

I want to just explain to all of you that I am going to, unfortunately, have to leave before the end of the hearing to go to another 

briefing on the Iran negotiations, so I apologize for missing what 

I know will be very important discussion. 

As Chairman Vitter explained, and as all of you know too well, 

our tax code is in desperate need of reform. It is too long, too complex, and it creates a burden on middle-class families and small 

businesses across this country. 

When I hear from small businesses who are concerned about red 

tape, they are often talking about our antiquated tax code. As the 

Chairman said, of all the paperwork small businesses do to meet 

federal requirements, 80 percent relates to tax compliance. There 

is bipartisan agreement that we need comprehensive tax reform 

that simplifies the code and that creates a more level playing field 

for small businesses to compete with big business. 

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As the Finance Committee considers tax reform, it is important 

to explore every opportunity for supporting our nation’s job creators. That is our small businesses, where two-thirds of the jobs 

that are created come from small businesses. In the past, this committee has advanced a range of measures to reduce the tax burden 

on small business. For example, the committee, working with the 

Finance Committee, helped craft the Small Business Jobs Act of 

2010, which provided $12 billion in small business tax relief. 

I know the Chairman has introduced legislation this week, and 

I look forward to reviewing it and to working with him on it so that 

we can pass a bipartisan bill out of this committee. 

I also look forward to hearing more from you all today about 

ways that we can help you as you are navigating the tax code. 

I want to take a moment before I close to recognize a witness on 

our first panel, Ms. Cori O’Steen, the owner of UPakNShip in Akin, 

South Carolina. Ms. O’Steen has a great story of entrepreneurship. 

She started selling clothing on eBay to make ends meet, but found 

herself transitioning her business model to shipping supplies. Her 

company now has 15 employees and continues to grow. 

I look forward to her testimony, because one of the things she is 

going to refer to this morning is the Marketplace Fairness Act, or 

as we call it in New Hampshire, the Unfairness Act. As we discuss 

ways to reform the tax code to make it work for small businesses, 

we need to make sure that we do no harm. The Marketplace Fairness Act would enable states to collect taxes from remote retailers 

with no physical presence in that state. This would impose huge 

new tax compliance burdens on entrepreneurs trying to grow their 

businesses through the Internet. 

E-commerce has been a real boon to small businesses all across 

the country. It has helped companies find new markets for their 

products and new revenues. And I believe, and I appreciate that I 

think the Chairman agrees, that imposing a new Internet sales tax 

would be bad for small businesses and bad for the economy. 

So, again, thank you all very much for being here. I look forward 

to hearing your testimony. 

Chairman VITTER. Thank you, Senator Shaheen, and welcome to 

Ms. O’Steen. 

Let me now introduce the two other witnesses on our first panel. 

Diana Beebe is CFO of ProSys, Inc. ProSys is an engineering and 

technology company headquartered in Baton Rouge, Louisiana. It 

specializes in providing alarm management, operator interface, and 

advanced control solutions to process industries around the world, 

and its recent growth has allowed it to expand with new locations 

in Houston and Cologne, Germany. 

And next, I want to introduce Don Begneaud of Begneaud Manufacturing. Don founded Begneaud Manufacturing in 1978 in Lafayette, Louisiana. The business has grown from welding jobs out of 

the back of his truck to a precision sheet metal shop employing 50 

people. Begneaud has used their ‘‘first mover’’ status to stay on the 

cutting edge of CO2 and fiber laser cutting, welding, perforating, 

bending, and other high technologies. And, Don also serves as a 

member of the Small Business Advisory Council at the state level 

and a member of the U.S. Chamber Small Business Council nationally. 

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Thanks to all of you for being here. Thanks in advance for your 

testimony, and we will start with Ms. Beebe. 

STATEMENT OF DIANA BEEBE, CHIEF FINANCIAL OFFICER, 

PROSYS, INCORPORATED, BATON ROUGE, LA 

Ms. BEEBE. Good morning, Chairman Vitter and distinguished 

members of the committee. My name is Diana Beebe, and I, along 

with my husband, Dustin, own an engineering and technology company that is headquartered in Baton Rouge, Louisiana. ProSys specializes in providing alarm management, operator interface, and 

advanced control solutions to the process industry. As a small company, we are very proud to employ teams of engineers, developers, 

and supporting staff who partner with our customers to provide a 

safe work environment in refineries and chemical plants around 

the world. Now, in addition to our office in Baton Rouge, we have 

recently opened offices in Houston and Cologne, Germany. 

As a growing company, we must keep our eye on maintaining our 

competitive edge, and this means not allowing our time to be consumed by tasks that do not provide value. In many small businesses, including our own, the business owner wears many hats. 

The more time the business owner spends on taxes, the less time 

spent on hiring quality employees, innovating new products, and 

providing high quality service to our customer. The smaller the 

business, the more onerous each tax hour is. Many small businesses make bad decisions trying to minimize their tax burden, and 

for many small businesses, accounting is just simply reduced to tax 

accounting. 

Good business behavior of understanding your true costs of delivering your goods and services to the marketplace is replaced by 

business decisions for tax purposes. We spend way too many accounting hours just on tax credits and compliance and too few accounting hours on producing financial and budget statements, analyzing the income and costs, and helping the business making wise 

financial decisions that will continue to build a strong, stable company. 

Mr. Chairman, your recently introduced Small Business Tax 

Compliance Relief Act offers numerous common sense compliance 

solutions that businesses have been requesting for years and are 

steps in the right direction. Increasing the cash flow accounting 

threshold from $5 million to $10 million will move out a looming 

deadline and allow us to have a staff in place to handle the burdens of transitioning to accrual accounting. It is tough for a small 

business owner to understand having to pay taxes on money that 

they did not earn. 

Another provision in the bill addresses limits on the amounts 

that can be deducted for certain types of expenditures. Now, certain of these amounts are so small that it renders them ineffective 

and basically reverses the original intent. It makes sense to adjust 

these amounts and index them to inflation to be in line with the 

original intent. 

A complex tax code with frequent changes is a threat for small 

businesses that are trying to produce value for customers, employees, and business owners. Large complex legislation provides uncertainty and benefits large corporations that have the resources to 

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analyze the impact this legislation has to their market sectors and 

businesses. This is why many small businesses see big government 

and big business going hand in hand. 

I am encouraged that there are provisions in the Small Business 

Tax Compliance Relief Act that will remedy the ‘‘gotcha’’ mentality 

that, correctly or incorrectly, many small businesses believe to be 

pervasive within the IRS. Including the IRS under the purview of 

the Office of Advocacy to better enforce the Regulatory Flexibility 

Act and the Small Business Regulatory Enhancement Flexibility 

Act, and requiring IRS to convene SBREFA panels that include 

small business representations are good steps in making sure that 

rules and regulations issued are sensible and reflective of the small 

business reality. Now, small businesses also welcome further efforts from IRS to lay out tax provisions in layman terms to minimize the burden and the cost of compliance. 

We would not have made it today without great employees. We 

have quite a few employees that have been loyal for a number of 

years, through good times and bad times. One of the ways we stand 

by them is providing a great benefit package. We have always offered a full benefit plan including health care, 401(k), short-term 

and long-term disability, group term life, and dental. Like many 

small businesses, we have been locked into our grandfathered plan 

for some time and we are fearful that we could experience a cost 

increase due to ACA that will put us at a disadvantage to large 

self-insured corporations. The financial resources that we anticipate we will set aside to further grow our business will have to be 

held back to be sure we can continue to offer excellent benefits to 

employees. And, further, self-employed business owners, unlike 

other businesses, cannot fully deduct the costs of own health insurance as ordinary business expense and, therefore, increase payroll 

tax burden. 

In conclusion, as a small business owner, I am encouraged that 

members of Congress listen to the people and are working to a simple, fair tax code. 

And, I appreciate the opportunity to speak with you today and 

I will be glad to answer any questions that you have. Thank you. 

[The prepared statement of Ms. Beebe follows:] 

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Chairman VITTER. Thank you very, very much. 

And next, we will hear from Don Begneaud. Don. 

STATEMENT OF DON BEGNEAUD, FOUNDER/OWNER, 

BEGNEAUD MANUFACTURING, LAFAYETTE, LA 

Mr. BEGNEAUD. Okay. Thank you, Chairman Vitter. First of all, 

I was about to say, because of my reading disability, I was going 

to not read this and I was just going to talk, but the more I think 

about it, let me still take a stab at just reading—— 

Chairman VITTER. Sure. However you would like. 

Mr. BEGNEAUD [continuing]. And please bear with me. 

So, in my 37 years of business, I have been no stranger to the 

burdens that small businesses face, particularly those that tax can 

bring. The expected financial burden taxes place on businesses is 

expanded to include an administrative burden when the business 

is small. Operating on limited monetary resource and staff, the majority of small businesses make a sincere effort to remain in compliance with the regulations, but frequently find themselves faced 

with administrative burdens that tie up their limited resources. 

I come before you to offer my support for the targeted tax reform 

that Senator Vitter is proposing. Having affected change in taxes 

at the local and state level through influence and inspiration, I feel 

it is necessary to be here in support of the outlined initiatives that 

are sure to have an impact on my business, Begneaud Manufacturing, and in particular, in support of the overall spirit of cooperation and collaboration. This bill makes specific efforts to ensure 

that government and businesses are working together instead of 

opposing, and in doing so, making strides towards a common goal. 

A couple of key provisions in the bill stand out for me as being 

in service of collaborative working partnerships. Requiring that the 

IRS include Small Business Review Panels for their input on potential impact shows a willingness to listen and learn from those who 

live the realities of small business ownership daily. Without lobbyists to represent their cause, small businesses rely on outreach 

from governmental agencies to help ensure their voices are heard. 

Instituting panels as a means to be certain that small business 

concerns are voiced solidifies the IRS’s commitment to understanding the unfamiliar challenges faced by so many across the 

country. 

This bill also grants authority to the IRS Commissioner to waive 

penalties and deadlines for businesses, as appropriate, if it is found 

that businesses have been acting in good faith. As I mentioned previously, the majority of the small businesses operate from the intent to stay in compliance. Confusing regulations with limited resources can lead businesses inadvertently falling out of compliance. 

It is refreshing to see that this bill seeks to put emphasis on correcting the actions of small businesses and going forward as opposed to punishing their attempts. 

A common term in political rhetoric today is ‘‘fight.’’ Fighting for 

and against does not leave us with much energy to do anything 

else. 

In Louisiana, many of my colleagues fought against a state use 

tax for years without much headway. Only through our influence 

of Governor Blanco were we able to achieve what so many had 

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fought for, achieving good change for the state. In her statement 

about the bill, attached, she mentioned how powerful and simple 

active influence was. Government and businesses so often fight 

each other, working in opposition, with each claiming that one 

must suffer at the expense of the other. I firmly hope, though, that 

if both look to serve the other, it would benefit the whole. 

My personal declaration that I have committed to, I am a commitment to inspiring others to collaborate, creating new value for 

all to enjoy. I believe that what Senator Vitter is proposing in this 

bill falls directly in line with my values. The proposed bill includes 

excellent steps towards our government making a good faith effort 

to work with small business and meet them where they are. I offer 

you my full support and collaboration effort. 

[The prepared statement of Mr. Begneaud follows:] 

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Chairman VITTER. Thank you very much, Don. Thanks for your 

testimony. 

And now, we will turn to Ms. O’Steen. Welcome. 

STATEMENT OF CORI O’STEEN, OWNER, UPAKNSHIP, RANCHO 

CUCAMONGA, CA 

Ms. O’STEEN. Thank you. Chairman Vitter, Ranking Member 

Shaheen, and members of the committee, thank you for holding 

this important hearing and for inviting me here to participate. My 

name is Cori O’Steen and I own and operate UPak, Incorporated, 

an online company that sells shipping supplies and custom packaging. 

I stumbled upon eBay in 2003 while looking for discount brandname clothing for my children. I immediately started selling my 

children’s outgrown clothing in an effort to make ends meet. I could 

not find the shipping supplies I needed then, but my father was in 

the packaging business. I bought two cases of poly mailers, our 

flagship product, and I planned to sell what I did not need. While 

I did not realize it at the time, our business was born. 

Like most small businesses, my expectations in the early days 

were modest. But, I am one of the fortunate small business success 

stories. What started as a single mother packing orders in her family room as a way to earn money while being at home with her kids 

has grown into a business which today employs 15 people and has 

warehouses in California and South Carolina. 

It is hard for me to believe that my business is now 12-and-ahalf years old. Its existence at times has been a turbulent one. We 

have lived through some economic highs and certainly some economic lows, but we are surviving, and I attribute a lot of that to 

the relative ease with which I am able to reach new customers and 

new markets through the Internet. Today, I operate web stores on 

Amazon and eBay and I have created my own Web site, 

UPakNShip.com. 

I applaud the committee for holding this hearing today. As a 

small business owner, tax compliance is certainly a major concern 

of mine and I welcome the opportunity to discuss how we can relieve any unnecessary burdens. If one purpose of this hearing is to 

identify policies that would create significant tax compliance burdens for small businesses, then I encourage you to look no further 

than the Marketplace Fairness Act and its counterpart in the 

House, the Remote Transactions Parity Act. 

These proposals, written without apparent regard for small businesses that use the Internet, fundamentally fail to appreciate the 

incredible burden associated with complying with thousands of dynamic, remote sales tax rates and rules across the country. These 

bills also expose businesses like mine to new audit and litigation 

liabilities. 

While I understand that states want to collect revenue, requiring 

businesses to do this work on their behalf is a bad solution for 

small businesses. This is especially true for small businesses that 

have chosen to reside in states like New Hampshire, that have 

fewer regulatory burdens and do not require sales tax collection. 

I do not believe that states should be able to export their laws 

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tions exist for a very sound reason. Simply, it protects my business 

from abusive cross-border enforcement from remote jurisdictions. 

The Marketplace Fairness Act and the Remote Transactions Parity Act represent a complete departure from that principle. Instead, 

these bills would subject my business to the legislative, executive, 

and judicial whims of a remote taxing jurisdiction, but foreclose my 

access to any public benefit or recourse at the ballot box. 

Although I understand that this specific issue is not in your jurisdiction, as members of this committee, you will have an important responsibility to protect small businesses. As you consider 

ways to improve tax compliance for small businesses, I urge you to 

be cautious of bills like these that would create new regulatory burdens for businesses like mine and others across the country. 

Thank you again for allowing me to testify this morning. It is important that Congress hears the small online business voice in this 

discussion, and I look forward to answering your questions. 

[The prepared statement of Ms. O’Steen follows:] 

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Chairman VITTER. Thank you very much, Ms. O’Steen. 

As we said before, because Senator Shaheen has to go to an Iran 

briefing soon, we will start with her. 

Senator SHAHEEN. Thank you very much, Mr. Chairman, and 

again, thank you to all of our witnesses for your testimony this 

morning. 

Ms. O’Steen, I am going to begin with you because you mentioned the Internet sales tax legislation and talked about the compliance burden that that would put on small businesses. Now, one 

of the things that has been proposed as part of the legislation is 

to offer software to small businesses to help them with that compliance. But, can you talk about whether you think that would address the concerns you have about compliance. 

Ms. O’STEEN. No, it does not, because currently, such software do 

not exist, and I, for one, sell across many channels. I have five different channels. I sell on eBay, Amazon, my own Web site, I sell 

through POs and invoicing customers directly, then also a retail 

type of establishment for walk-in customers. And, I do not believe 

that the software could be made that could possibly comply with 

all the different channels people sell on. I just do not think it is 

possible. People, they build their own Web sites from scratch. I do 

not know how a software developer can predict how something is 

going to work on somebody else’s homemade Web site. So, while 

they could figure out on large platforms how to make it compliant, 

on small ones, it just—I do not see how it could ever be. 

Senator SHAHEEN. Thank you. I share that skepticism. 

Mr. Begneaud, you talked about the importance of cooperating 

between business and government to address the concerns that you 

have. It is an issue that I share, and I applaud the changes you 

were able to make in Louisiana state tax law to address some of 

your concerns. Certainly, advocacy is one of the ways to address 

these issues. 

Can you talk about what particular in the tax code you think 

would be important to change to make it fairer for small businesses. Are there any specifics that you have seen that you would 

like to see? 

Mr. BEGNEAUD. Well, right off the bat, the problem has been the 

continuous change, and the CPAs of the world, they have to continually go back to school to just learn how to, you know, properly file 

to keep us in compliance. I can give you an example right now. 

Senator SHAHEEN. Sure. That would be great. 

Mr. BEGNEAUD. Okay. Just this—from last year’s tax return, 

there has been a change that we no longer can expense our repairs, 

and believe me, we have high tech, multi-million-dollar machines 

on our floor that takes a lot of upkeep and repair and we are having to capitalize that vs. expense it, okay. And, so, now my CPA 

has had to hire a consultant to help him on filing our return because it is so cumbersome. So, now, that is going to come at more 

cost for us. Our tax return has been delayed. And then to top it 

off, we have just been hit with identity theft within the IRS, and 

so it is further putting more burden on us right now. But, it is just 

so complex that it comes at a cost to us. And when we need to be 

spending our time being more efficient serving our customers, it is 

quite challenging. 

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17 

Senator SHAHEEN. And, the identity theft that you mentioned, 

was that part of the Office of OPM at the federal level that has 

been publicized? 

Mr. BEGNEAUD. I really cannot answer that. I do not know, other 

than we had received information from the IRS about, you know, 

this tax return that we had already filed, and it was not from us. 

Senator SHAHEEN. Thank you. 

Ms. Beebe, what are—again, talking about the compliance challenges that you face, are there resources that could be available to 

you through the Small Business Administration or through other 

efforts that might help you with some of the compliance challenges 

that you are facing? 

Ms. BEEBE. Well, currently, I have actually just recently had to 

hire a bookkeeper to keep track of all the tax compliance that I 

have, and that is an additional cost that we have incurred as we 

are growing. For our business, as we are growing, we are entering 

a very critical stage. We are growing internationally and also in 

Houston. In order to have that additional expense just to hire 

someone to do the tax compliance, you know, is a burden on us, 

so—— 

Senator SHAHEEN. Mr. Chairman, I am about out of time, but if 

I could just follow up, you talked about the potential for international business, which is one of the things that I have been very 

concerned about as we help small businesses get into international 

markets. How did you happen to open an office in Cologne, and 

what resources would be helpful to you as you are looking at the 

ability to export? 

Ms. BEEBE. Yes. We opened our—we want to open an office anywhere in the world as long as we can service the customer. That 

is the number one thing for our business. Well, we have a gentleman who actually owns an engineering company there that has 

some contracts with some refinery over there, and we have—my 

husband and I have the opportunity to purchase that company 

from him. So, that kind of started our adventure in having an 

international business. 

Some of the resources that would be helpful for small business 

is actually territorial tax system. Some of the, you know, money 

that we earn overseas that has already been taxed overseas, if at 

any point in time we are to bring it back to the United States, we 

have to be taxed again, and that just really did not leave a lot of 

money left for us to grow our business. We want to grow internationally. We want to employ and send United States people who 

have specialized in certain skills overseas, you know. So, that 

would be a big help, some form of territorial tax system. 

Senator SHAHEEN. Thank you very much. Thank you, Mr. Chairman. 

Chairman VITTER. Thank you. 

And next, we will go to Senator Enzi. 

Senator ENZI. Thank you, Mr. Chairman, and thank you for holding this timely hearing on tax compliance relief for small business. 

I was in small business. I had a shoe store. Actually, I had three 

shoe stores. But, even though I understood those stores, one of the 

things that I do as a Senator is go into different businesses as I 

travel back to Wyoming pretty much every weekend because I 

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18 

found that any business that I have not been involved in, the decisions look pretty easy. But once you get to see what the decisions 

are and how far in advance they have to make them and how complicated they are, and that is even before the government gets involved, it is pretty impressive that people are willing to do that, 

able to do that, and extremely successful doing that. It does take 

some fortitude. 

I am on the Finance Committee and the Finance Committee 

makes the ultimate decisions on the taxes. I appreciate Senator 

Vitter having his bill, which we will emphasize in the Finance 

Committee and try and get those through. 

Ms. Beebe, I appreciate your comments on the territorial tax. I 

wrote an international tax piece that I think would greatly reduce 

the taxes for businesses and make it more possible for them to 

bring their revenue home once they earn it, which, of course, brings 

me to pass-through profits that small businesses have. 

We are talking about doing some corporate tax reform. But, a lot 

of the businesses—most of the businesses in the United States, 

when they earn a profit, they have to pay the taxes on it that year, 

even though they cannot take it out of their business at that point 

in time because they have to keep reinvesting it to grow their business, as you all know. So, we want to make sure that whatever advantages go to the big corporations, they certainly also go to the 

pass-through corporations. 

We just did some regulation hearings in the Oversight Committee for Government and found out a lot more about how many 

costs there are to doing those things. I appreciate all of your suggestions. 

I have been working on marketplace fairness for a long time, 

though, so I do have to make a couple of comments and maybe ask 

a couple of questions in regard to that, because, again, when I was 

in small business, and it is even more prevalent now with the 

phones and the barcodes and things, in a retail store, people come 

in and they get the full explanation of exactly how something 

works and exactly what they need, and then they look it up on 

their phone and they find out they can get it cheaper online. And, 

often, that cheapness is just the difference in sales tax. And, so 

they order it right in front of the store owner and he knows that 

it is just that sales tax thing that is keeping him from getting the 

business, and that is where the Marketplace Fairness Act came 

from. 

Now, Ms. O’Steen, you mentioned that you sell stuff on eBay and 

on Amazon. I know that Amazon already collects the sales tax for 

people and it does all the distributions. eBay has a subscription 

that they can do that takes care of the software problem, because 

they—for a small subscription, they will collect the tax and make 

the distributions for the tax. But, the most important thing that we 

had in Marketplace Fairness was a small business exemption, and 

that was at a million dollars in sales annually. Until a company 

gets to a million dollars in sales annually, they do not have to comply with it at all, and that number is up for negotiation, because 

on the House side, they have a remote transaction thing at $5 million. So, you might be more in favor of the House bill than the SenDeShaun on LAP51NQ082 with DISTILLER

19 

ate bill, although they are very, very similar and get to the same 

point, again, just to make it fair for the brick-and-mortar folks. 

I will submit some questions, since I have used up the time that 

you could answer those questions. But, the SBA Office of Advocacy 

estimated that 99.9 percent of online businesses would be exempt 

under the million-dollar provision. 

So, with that, I will yield back my time. 

Chairman VITTER. Okay. Thank you very much, Senator Enzi. 

Next, we will go to Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

I want to just kind of follow on with Senator Enzi’s line of reasoning, but before I do this, I want to talk or ask Ms. Beebe, as 

you work internationally, especially in Europe, are you subject to 

a Value Added Tax in any of those jurisdictions? 

Ms. BEEBE. We have—the way it is set up—the way we have set 

up our business is a whole separate entity over in Germany and 

they have a whole different tax system over there. 

Senator HEITKAMP. Right. That would be the point, though. As 

you are saying, corporate income tax is comparable with a territorial tax, we need to look at the overall tax burden. Obviously, the 

United States has elected not to do a Value Added Tax, although 

typically in Europe, a Value Added Tax is the major revenue producer for most of the countries. And, so, we just want to make sure 

that when we are talking about comparing apples to apples, that 

we actually have the same kind of set of facts. 

And, so, I just want to kind of lay that down that it is important 

that the United States has elected to have a system where we 

allow for a foreign tax credit. That is something that is an anomaly 

in international taxation, something that we need to look at. I am 

not saying I am opposed to the territorial tax, but let us not just 

take two pieces of a tax structure and compare them and say these 

are equivalents. 

I want to talk to Ms. O’Steen for just a little bit. You know, let 

me give you an example. I have a lot of people in North Dakota 

who do exactly what you do, and when a North Dakota customer 

comes to their store, they are subject to the state sales tax along 

with any kind of local tax that they are subject to. 

Do you not think one of the primary elements of taxation is that 

people who do exactly the same thing ought to share the exact 

same burdens? 

Ms. O’STEEN. Yes, I do agree with that, but the Marketplace 

Fairness Act was not leveling the playing field. What the Marketplace Fairness Act is doing is asking me to remit sales tax based 

on a customer location. When I go shop at a retail store, I am 

charged based on the retail store location. 

Senator HEITKAMP. That is not exactly true. If you were a business who basically was audited, you would be subject to sale and 

use tax. That has been a compliance burden for years and years. 

There is not any state that has a sales tax that does not impose 

a corresponding use tax. And, so, I just want to give you the perspective of people who work in Main Street businesses who get 

asked to contribute to the local school fundraiser or do the Girl 

Scout thing. 

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20 

And, there is a woman that we met a couple years ago who runs 

a pet store, and she specializes. She trained all of her employees 

to basically understand pet ailments and to recommend different 

kinds of pet products, pet nutrition products. Unfortunately, the jurisdiction she is in has a 10 percent sales tax. She was losing business every day. She also has a small Internet business that she 

runs. She is losing business every day because that 10 percent, she 

cannot compete against. But, yet, she is providing the customer 

with the service. 

And, so, it is a very challenging issue, and I understand and appreciate what you are saying, but the more international and the 

more national our businesses become, the more important it is to 

really level the playing field, and I think Marketplace Fairness is 

an issue that cuts across small business. In fact, the people in my 

state who support Marketplace Fairness tend to be the small businesses who see the loss in sales every day because they cannot 

compete against a five, seven, 10 percent disadvantage. 

And, so, what we have been trying to do, and just to catch everyone up, Justice Kennedy in a recent Supreme Court case revealed 

that if this case went to the Supreme Court again, he would vote 

the other way. He would vote to basically reverse the Commerce 

Clause limitations on Quill, which means that there is probably a 

five-vote majority, which means that if, in fact, the courts resolve 

this and not the United States Congress, what is likely to happen 

is there will not be a small seller exemption. There will not be a 

requirement for software and that people cooperate. There will not 

be restrictions on the number of audits. It will be wide open, and 

then you will be subject to jurisdiction from literally thousands of 

jurisdictions, as opposed to the streamlined process that has been 

set forth in Marketplace Fairness. 

And, so, I think it is important that we not have the false choice 

of this or that, because right now, I think there are many Internet, 

or many Main Street businesses that are gearing up for a new Supreme Court case, in which case the table might be reversed and 

we might have small business Internet sellers in the Small Business Committee saying, please, please, please give us the protections that are being offered by the Marketplace Fairness bill. 

And, so, this is an incredibly complicated issue. It is an issue of 

fairness, and I appreciate that this is challenging for small business, but it is really challenging for Main Street businesses that 

are competing unfairly and lose sales because of this problem. And, 

so, I, like Senator Enzi, would like to submit some additional questions, but thought it was important to make those two points as we 

move forward. 

And, if I can just, Mr. Chairman, tolerate one more minute, on 

another committee that I am on, we are looking at streamlining 

kind of regulation. We are taking a look at what it means for small 

businesses as we look at other kinds of compliance burdens, including tax compliance burdens. We have a Web site called Cut the Red 

Tape. I hope that you all take advantage of that and send stories 

about other kinds of compliance burdens and tax compliance burdens, because we think we can do a much better job for small business in America. 

Thank you, Mr. Chairman, for the extra time. 

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Chairman VITTER. Thank you, Senator. 

And now, we will go to Senator Ernst. 

Senator ERNST. Thank you, Mr. Chairman, and thanks to our 

witnesses today for appearing before us. 

This has been very beneficial. Small business is something that 

we rely on across the United States, of course, for many of our employees. You generate so many more jobs, I think, than people realize. So, thank you for doing that. 

I would like to get your opinion today on the various tax credits 

that exist out there. Lots of great small business tax credits, and 

I will get to your perspective in just a second. There is a small 

business in Cedar Rapids, Iowa, and it is actually three unique coffee shops in Cedar Rapids, and one of the things that they had 

mentioned to me was a burdensome process of applying for these 

various tax credits. And oftentimes when these businesses need an 

employee, again, small business, they needed those employees yesterday. I mean, they need them right away. They need someone 

that can get started immediately. 

So, the process for applying for tax credits requires the employer 

to ask some really personal questions in an interview-type setting. 

Then they have to fill out lengthy forms—this is what they have 

communicated to me—and get them qualified. And then they can 

offer the job. And, that takes a lot of time, a lot of process. 

And, one of the things these business owners mentioned to me 

is that it would make so much more sense, or be much more efficient, to have the employee start working and then apply for the 

credit after that employee has proven to be a successful hire. 

And, I would just like to hear from you. I loved hearing from 

them about the challenges that they have with some of these different tax credits, but I would like to hear from all of you, if you 

have experienced applying for tax credits, what that process was 

like, if it could be done more efficiently, just in your own words 

some of those experiences. Ms. Beebe, if we could start with you, 

please. 

Ms. BEEBE. Okay. Actually, my company had benefited from tax 

credit. About five years ago, when we are really seriously considering developing alarm management software, we have to heavily 

invest in R&D and hiring developers who specialize in that and 

program that software, and we were not aware—small business, we 

were not aware that there is R&D credit for it, and the only way 

we realized that there is an option to try to apply for is about 

three, four years later, and even then, it was a friend of a CPA who 

said that, hey, you have a technology, you are moving in that direction. This might be something that will help you grow. We are 

thankful for the credit, because it helped us to hire more developers and IT people in our company, but it comes three or four 

years later. 

I think the biggest thing is, even though tax credits are good, 

there needs to be more tax reform to make things easier to understand. You know, we are in business to make a profit and not to 

get credits from government. 

Senator ERNST. Great perspective. Thank you. 

Yes, Mr. Begneaud. 

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Mr. BEGNEAUD. I had good experience with state tax credits. It 

was the Enterprise Zone. But, it did promote me hiring more people, and for the most part, everything went well with that until we 

reached 2008, when the economy started going down. We dropped 

from 78 employees down to 40 when we basically no longer could, 

you know, there was no more credit available for us because we 

were not still—we were not employing as many people. And, then, 

since that time, it has just been much more troublesome for us to 

even be able to have available the tax credits for us because we 

had dropped so far down. It has just been challenging in business 

general, all across the board. 

Senator ERNST. Right. 

Mr. BEGNEAUD. And, then, as far as the R&D tax credits, we did 

apply for one with the state, and we thought that we had everything all filed properly, and the state denied us on that. And, so, 

we had spent a bunch of money with a specialized CPA firm just 

to do the filing for us, just to find out that we got denied. 

Senator ERNST. And, I think that is part of the challenge, is that 

even applying for a tax credit, you need someone else that you are 

hiring and bringing in—— 

Mr. BEGNEAUD. And not just your standard CPA. You are talking 

about the CPA firm that specializes, that understands the law 

itself. 

Senator ERNST. Certainly. Certainly. Thank you. 

And, very quickly, Ms. O’Steen. 

Ms. O’STEEN. Honestly, we are too small. I know that there are 

tax credits available in the State of South Carolina for jobs credits, 

and we have done most of our hiring in the State of South Carolina, as we have only been there for, I believe, three years now— 

no, we are going on our fourth year—but we have missed out on 

them because our accountant is located in California and she is not 

familiar with those. So, I actually need to go find an accountant in 

the State of South Carolina that can handle the state taxes 

there—— 

Senator ERNST. The state ones. 

Ms. O’STEEN [continuing]. Which is something I have not actually gotten around to. I have had my hands very full. And, so, I 

know we are missing out, but I do not know enough about the tax 

system. It is just so complicated, that I know we are paying more 

money than we should be and we are losing out on opportunity. 

Senator ERNST. Right. Well, my time is up. I do appreciate your 

testimony today. Thank you very much. 

Thank you, Mr. Chair. 

Chairman VITTER. Thank you very much, Senator Ernst. 

Now, we will go to Senator Ayotte. 

Senator AYOTTE. Thank you, Chairman. 

Ms. O’Steen, you talked about your business as a mother starting 

it on eBay as a way to sell clothing that your children outgrew. If 

there was an online sales tax collection requirement that would 

have required you to collect for over 9,000 tax jurisdictions and 

also, by the way, under the MFA you could be subject to audit in 

those 9,000 tax jurisdictions, do you think you would have pursued 

this business if you were worried about that? 

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Ms. O’STEEN. Definitely not. I would have maybe continued to do 

what I was doing, selling stuff around the house on eBay to try to 

just make a little extra money for my family just to get by, because, literally, we were in such a tight situation then that that is 

basically what it was, so that I could buy them new clothes. 

But, if I had to pay those kind of—had that kind of tax compliance, I would not have started my own Web site. It would have 

been too overwhelming a thought. It is, like, a whole new taxation 

agency. So, it is like a secondary IRS, is what it is seeming like 

to me, which is, to me, just threatening that I would not want to 

open myself up to. 

Senator AYOTTE. Yes. So, Senator Heitkamp asked you about the 

pet shop in North Dakota that is worried they have to collect 10 

percent sales tax, and maybe these jurisdictions should think about 

dropping their taxes. I mean, that might be a way to solve this, 

rather than making businesses collect taxes for over 9,000 jurisdictions in the country. What do you think about that? 

Ms. O’STEEN. Oh, yeah. I completely agree with you. The issue 

is the competition. I mean, we online are also charging—and I am 

not saying that this is a reason not to charge sales tax, but we are 

also charging shipping. So, we are dealing with lower margins. I 

mean, if government could help work with businesses and that 

would help them to at least—— 

Senator AYOTTE. Right. 

Ms. O’STEEN [continuing]. Deal with what they have, or maybe 

they need to find a way to become more competitive, as well. And, 

we have to—we are always trying to find ways to become more 

competitive, working with very little. And, we also are in the same 

retail location, and it is very difficult for us, because we have—we 

ship to multiple jurisdictions in the State of California, so we are 

still paying jurisdiction tax all over the State of California. 

Senator AYOTTE. I actually come from a state, the State of New 

Hampshire, that does not have a sales tax, and if we want to talk 

about fairness, the way that New Hampshire has decided to compete is by not having a sales tax. So, as we look at this so-called 

Marketplace Fairness, it is really a money grab from Washington 

to allow other states to require states like mine, who have made 

a choice to be competitive by not having a sales tax, to require our 

businesses to become the tax collectors for the nation. 

Senator Heitkamp talked about how you could be subject to the 

use tax, too. Well, there is a big difference between the use tax and 

what they are talking about with this online sales tax, because the 

use tax—the collector for the use tax is the state or municipality, 

not requiring the private business—yes, you could be subject to 

asking for information for that use tax, but they are not asking you 

to collect the use tax. This is done by the actual state or the municipality. So, the government is collecting it. 

You know, what is so unbelievable about this proposal is that 

they are asking businesses like you—here you are, a small business 

owner—to be the tax collectors and to take on that role for over 

9,000 jurisdictions. What a mess. 

I would say to these other states, decrease your sales tax. Be be 

competitive. Be like New Hampshire. Do not just impose this big 

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Washington mandate to make these businesses become the tax collectors for the nation. 

I know that Senator Enzi, whom I have a great respect for, 

talked about the small business exemption under both the Senate 

MFA proposal and the House proposal. Well, the House proposal 

actually phases out the small business exemption after three years, 

so, yes, you can be small for three years, but then become a tax 

collector for the country. And then, also, if you have an eBay business, that does not have an exemption whatsoever. 

And, so, as you look at this small business exemption, one of the 

things to be aware of, it sounds good on paper, but the people here 

who want to collect an online sales and the states who want the 

money, eventually, they are going to want that money from small 

businesses too. 

I just appreciate your hard work in starting your own business 

and I am going to do everything I can to fight this money grab and 

the requirement that would make businesses like yours, or larger 

businesses, or businesses across this country become the tax collectors for over 9,000 jurisdictions in this country. By the way, I got 

that wrong. It is not electronics. It is electronic marketplace that 

is exempt. So, eBay. So, that is a big issue. So, the House version 

actually, I think, puts you people, a lot of people who start their 

business and use eBay would be subject, apparently, to this. 

But, in any event, I just do not think this is a role for the federal 

government, and I have great respect for my colleagues like Senator Heitkamp and Senator Enzi, but this is one I do not think that 

we should be imposing on businesses across the country. 

Chairman VITTER. Okay. Thank you, Senator Ayotte. 

Thanks to all of our witnesses. I have several questions. I am 

going to submit those to the record, because we are a little 

squeezed for time and we have a very significant second panel and 

I do not want to be disrespectful to them. But, thank you all very, 

very much for your testimony, for being here. 

And now, I will invite our second panel to come up and get seated. As they do, if you all could try to do it as quietly as possible, 

I am going to go ahead and begin to introduce them, in the interest 

of time. 

Nick Karellas is Tax Counsel for the National Federation of Independent Business. Prior to joining NFIB in October of 2014, Nick 

worked as Tax Counsel to Representative Lynn Jenkins and for 

Senator Kit Bond. NFIB represents over 350,000 small business 

owners across the country in every region and every industry. 

Next is Tom Mathison. He is principal and co-founder, along with 

his son, of Mathison | Mathison Architects, a full-service architectural and planning firm in Grand Rapids, Michigan. They have 

projects throughout several states in housing, K through 12 and 

higher education, commercial and institutional facilities. And, Tom 

is here toady representing the National Small Business Association 

and sits on its Board of Trustees. He is also Past Chair of the 

Small Business Association of Michigan and Past Vice Chair of the 

American Institute of Architects. 

Jeffrey Porter is a tax practitioner at Porter and Associates, 

based in Huntington, West Virginia, and he is the Immediate Past 

Chair of the Tax Executive Committee of the American Institute of 

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Certified Public Accountants and Chair of the AICPA Tax Reform 

Task Force. He is testifying today on behalf of the AICPA, the 

world’s largest member association representing the accounting 

profession. 

Caroline Bruckner is a Tax Professor at American University’s 

Kogod School of Business. She is also the Managing Director of the 

Kogod Tax Policy Center, which conducts nonpartisan research on 

tax and compliance issues specific to small business and entrepreneurs. Prior to her appointment, Ms. Bruckner served on the 

staff of this committee as Chief Counsel, focusing on tax and budget issues. 

And, finally, Dean Zerbe is the National Managing Director for 

alliantgroup. He is alliantgroup’s National Managing Director 

based in the Washington, D.C., office, and prior to joining 

alliantgroup, he was Senior Counsel and Tax Counsel to the U.S. 

Senate Committee on Finance. Senator Coons invited him to speak 

to the importance of the R&D tax credit, specifically. 

Thanks to all of you for being here, and we are looking forward 

to your testimony. 

We will start with Mr. Karellas. 

STATEMENT OF NICHOLAS KARELLAS, TAX COUNSEL, 

NATIONAL FEDERATION OF INDEPENDENT BUSINESS 

Mr. KARELLAS. Good morning, Chairman Vitter and members of 

the Senate Committee on Small Business. I am pleased to be here 

on behalf of the National Federation of Independent Business as 

the committee explores ways to reduce the tax compliance burden 

on American small businesses. 

NFIB is the nation’s leading small business advocacy organization and we represent over 350 small businesses, and those businesses are in every region, in every industry, across the country. 

The small business economy is slowly emerging from one of the 

worst recessions in U.S. history. NFIB’s monthly surveys show that 

from 2008 to 2012, businesses reported poor sales were the number 

one problem, as consumer spending had sharply declined. But, now 

we see that taxes is now often the top concern reported in our surveys, a problem that is, no doubt, slowing our economic recovery. 

In fact, tax-related issues comprise five of the top 10 most severe 

problems for small business owners. 

Following a promising string of improvements during the first 

months of this year, our small business optimism index showed 

signs of weakness among small business owners. Our June 2015 report showed that the optimism index plunged four points, to 94.1 

points, the lowest point of this year and the most significant decline since November 2012, and this is well below our pre-recession 

average of 99.5. Small business owners reported that they plan to 

spend less and had weaker expectations for sales growth and business conditions over the next six months. 

Regardless of their industry, our members consistently rank taxrelated complexity and compliance burdens as their most difficult 

problems facing their business. Generally, these tax problems fall 

into three categories: costs, complexity, and the frequency of 

changes. 

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The cost of tax obligations for our members include the amount 

they pay in federal, state, and local taxes, the costs they have to 

pay to hire a CPA or tax advisor, and the owners’ time that is required to put together the paperwork or file their taxes themselves. 

In fact, 88 percent of our small employer members have gone to 

hiring a tax preparer to deal with the complexity and to ensure 

their compliance with the code. 

As mentioned by the Chairman earlier, compliance costs are especially problematic for our members. They are nearly 70 percent 

higher than for their larger counterparts. It costs them $18 to $19 

billion a year, or about $74 per hour. 

Taking prudent steps to reduce the complexity and uncertainty 

in the tax code will promote smart business planning, increased 

compliance, while also reducing the burdens on these small business owners. In the end, it can be a win for the owners, their employees, the economy, and even the IRS. 

A couple areas where simplification would ease the compliance 

burden are expensing and cash accounting. The tax code and the 

Treasury regulations that determine whether an expense is currently deductible or must be capitalized are one of the most difficult areas of the tax law. Navigating the over 200 pages of regulation requires performing a multiple-step facts and circumstances 

analysis for many of the most common purchases, regardless of 

their amount. Increasing the ability to expense even small dollar 

amounts would reduce the unnecessary compliance burdens that 

owners face in trying to comply with these complex capitalization 

rules. 

Likewise, expanding the availability of the cash method of accounting is another example where Congress could act to provide 

compliance relief. The cash method is easier to use, easier to administer, and most closely matches the way that a small business 

owner will keep his books. 

To sum up, the current tax code places an excessive burden on 

small business owners. Alleviating the significant costs associated 

with compliance is an essential component in creating a strong, 

healthy environment for owners to operate and grow their business. 

I appreciate that the committee is taking a serious look at easing 

the tax code challenges facing American small businesses and look 

forward to answering any questions. Thank you. 

[The prepared statement of Mr. Karellas follows:] 

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Chairman VITTER. Absolutely. Thank you. 

And, next, Mr. Mathison. Welcome. 

STATEMENT OF TOM MATHISON, PRINCIPAL, MATHISON | 

MATHISON ARCHITECTS, GRAND RAPIDS, MI, ON BEHALF OF 

THE NATIONAL SMALL BUSINESS ASSOCIATION 

Mr. MATHISON. Thank you. Good morning, Chairman Vitter and 

Ranking Member Shaheen and members of the committee for inviting me to speak here today. My name is Tom Mathison. I am a 

principal co-owner of Mathison | Mathison Architects. We are a 

full-service architectural and planning firm in Grand Rapids, 

Michigan. 

I am a small business owner. Our firm is less than two years old 

and we have already grown from two to seven staff members, and 

we recently moved to larger quarters to accommodate our growth. 

I am proud to be here representing not only my company, but 

also the National Small Business Association, where I currently 

serve on the Board of Directors and the Tax Committee Chair. 

NSBA has been a consistent proponent of comprehensive tax reform and we welcome Congress’ efforts to replace the current broken tax code. However, we also recognize the challenges you face 

to achieve comprehensive reform in the near future. Therefore, in 

the interim, we believe this measure, the Small Business Tax Compliance Relief Act, will reduce the complexity and costs of compliance to promote economic growth. 

NSBA’s members consistently rank the tax and tax compliance 

burden among the top issues to be addressed. One in three small 

business owners reported spending more than 80 hours, two full 

work weeks, per year dealing with just federal taxes and compliance. More than half of NSBA members have fewer than five employees, without in-house accounting, legal, and human resources 

staff. This means that business owners, like me, have no other 

choice but to hire outside help to keep track of all the reporting 

and filing requirements and changes. In fact, according to our 

member survey, only 15 percent of small business owners handle 

their taxes internally. 

When we asked our members to rate the most significant challenge posed by the federal tax code, the clear majority, 59 percent, 

picked administrative burdens, and this is up from 53 percent just 

a year ago. In addition to time, the out-of-pocket cost for legal and 

accounting services adds thousands more. 

I personally know this to be true in my firm. I spend significant 

time each week in the administration and filing of monthly and 

quarterly income and payroll reports, as well as trying to stay informed of changes to the tax code, changes to regulations, and the 

status of expired tax extenders and so on. 

The U.S. Small Business Administration Office of Advocacy reports that the proportionate cost of compliance in terms of per cost 

per employee is three times higher for small business than that of 

larger firms. 

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panies, like my company. Eighty-three percent of these businesses 

pay taxes on their business at the personal income level, the socalled pass-through entities, subject to individual tax rates. For my 

firm, these pass-through implications are a major driver in our own 

tax strategy, succession planning, and governance. 

And, so, we believe—NSBA believes that addressing only corporate tax reform will only lead to even greater complexity and a 

massive tipping of the scales in favor of the nation’s largest companies at the expense of businesses, and this, in turn, will stymie 

growth from what is widely recognized as the primary creator of 

jobs, and that is small business. 

So, we support the legislation that Chairman Vitter has announced today and we believe that it will, by increasing the threshold for cash accounting to $10 million, will provide the flexibility 

and simplicity that small businesses need. I use a cash accounting 

system. Forty-six percent of small businesses use cash accounting. 

The health insurance deductibility for those who are self-employed will allow those businesses to capture the payroll tax on 

health insurance premiums that they alone pay. Small firms and 

NSBA members rated the full deductibility of health insurance 

costs as the number one most important deduction or credit when 

it comes to stimulating small business growth. 

And, then, requiring the IRS to convene Small Business Review 

Panels when making rule changes that would impact small businesses and directing the IRS to produce a report that details definitions that can be standardized and made layman-proof will add 

clarity. 

Finally, NSBA believes that without change, the current tax code 

will continue to serve as a disadvantage to small businesses. The 

ever-growing patchwork of credits, deductions, and sunset dates is 

a roller coaster ride for small business, without the slightest indication of what is around the corner. However, short of comprehensive 

reform, we must fix the tax problems with the current tax code by 

developing simplification measures. The work of this committee 

will lead to a better outcome in that respect. 

Again, I commend you for working on this legislation and bringing it to the Senate. I would like again to thank you, Chairman 

Vitter and the members of this committee, for the opportunity to 

speak with you today. 

[The prepared statement of Mr. Mathison follows:] 

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Chairman VITTER. Thank you very much for your perspective, 

and thank you for that support. 

Next, we will hear from Mr. Porter. Welcome. 

STATEMENT OF JEFFREY A. PORTER, OWNER, PORTER AND 

ASSOCIATIONS, HUNTINGTON, WV, ON BEHALF OF THE 

AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS 

Mr. PORTER. Thank you. Thank you, Chairman Vitter, Ranking 

Member Shaheen, and members of the committee. My name is Jeffrey Porter and I am a tax practitioner at Porter and Associations 

in Huntington, West Virginia. And on behalf of the American Institute of CPAs, I appreciate the opportunity to testify. 

Tax compliance is particularly burdensome on small businesses. 

While our tax code has always had a tendency to change, in recent 

years, the rate of change has accelerated. New rules and regulations providing guidance on tax laws comes out daily. Extender 

bills pass annually and then expire within a month, leaving businesses once again unsure what the rules are. 

When a small business asks me a simple question, such as what 

is my tax rate, you have to explain that it is really not that simple, 

because you have the regular rate, the AMT, the net investment 

income tax, and a variety of phase-ins and phase-outs. America’s 

small businesses need a tax code that is certain, simple, and transparent. 

In preparation for this hearing, I reached out to several of my 

small business clients and asked them about the impact regulations have on their businesses. To say their response was passionate was an understatement. And before I could explain that I 

mostly was interested in tax compliance issues, they began to talk 

about the IRS, the state taxing authorities, OSHA, EPA, the ACA, 

and a host of other acronyms for government agencies. While we 

are here today to specifically discuss tax compliance, we need to remember that the cascading burden of government compliance, tax 

and otherwise, takes the focus of an entrepreneur from expanding 

their business and hiring more employees to complying with laws 

and regulations. 

Today, I would like to discuss a number of targeted tax reform 

and administrative solutions, many of which are included in Chairman Vitter’s bill, the Small Business Compliance Relief Act of 

2015. Although technical, these changes are important and allow 

entrepreneurs to spend more of their time focusing on operating 

and expanding their business. 

So, first, it is imperative that small businesses and their tax return preparers be able to communicate with the IRS when preparing their taxes and addressing compliance issues. Our members 

have expressed deep concerns regarding their ability to effectively 

represent small businesses in an environment where the IRS service levels are so degraded that during the last filing season, the 

IRS answered only 37 percent of their phone calls, and the IRS’s 

processing of taxpayer correspondence in a timely manner declined 

by over 16 percent last year, leaving a backlog of almost 79,000 

cases. 

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Having to contact the IRS repeatedly to resolve a tax matter is 

frustrating and a waste of resources of both the business owner 

and their advisors. We believe taxpayer service must remain a high 

priority for the IRS and agree with requiring the agency to produce 

a report with specific ideas on how to improve its customer service. 

Another challenging tax compliance burden that small businesses 

had to deal with recently was the tangible property regulations, 

which address how businesses should report the purchase and improvement of tangible property. We appreciate the Chairman’s bill, 

which includes a provision to increase the de minimis safe harbor 

threshold for most small businesses from $500 to $2,500 and provides an opportunity for more small businesses to use the higher 

$5,000 threshold. 

Currently, to deduct amounts higher than $500, small businesses 

must prove that expensing such amounts in the purchase year 

clearly reflects income. However, the clear reflection of income test 

can be challenging for any small business, especially for small businesses, forcing them to depreciate the cost of items such as computers or printers over a number of years for tax purposes. 

We also support the provisions in Chairman Vitter’s bill that address some of the unfair or untargeted penalty provisions. Penalties should deter bad conduct without deterring good conduct or 

punishing small businesses which are acting in good faith. Targeted penalties that are administered in a reasonable manner encourage voluntary compliance with the laws. Good tax policy also 

suggests that we avoid strict liability provisions and instead allow 

the IRS to consider the facts and circumstances particular to a 

business’ situation. Businesses that act in good faith should not be 

subject to the same rules as businesses trying to scam the system. 

The AICPA appreciates the committee’s efforts and particularly 

wants to thank Chairman Vitter for his introduction of the Small 

Business Tax Compliance Relief Act of 2015, which we believe 

could ease compliance costs, improve the overall tax system for 

small businesses across the country. These businesses and their tax 

practitioners are interested in and need this type of targeted reform. 

Again, Mr. Chairman, thank you for the opportunity to testify 

and I would be happy to answer your questions. 

[The prepared statement of Mr. Porter follows:] 

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Chairman VITTER. Thank you very, very much for your testimony. 

And next will be Ms. Bruckner. 

STATEMENT OF CAROLINE BRUCKNER, PROFESSOR, ACCOUNTING AND TAXATION, AND MANAGING DIRECTOR, 

KOGOD TAX POLICY CENTER, KOGOD SCHOOL OF BUSINESS, 

AMERICAN UNIVERSITY 

Ms. BRUCKNER. Members of the committee and staff, thank you 

for the opportunity to testify today. My name is Caroline Bruckner 

and I am a Tax Professor at American University’s Kogod School 

of Business. As part of my responsibilities at American University, 

I am also the Managing Director of the Kogod Tax Policy Center, 

which conducts nonpartisan research on tax and compliance issues 

specific to small businesses and entrepreneurs. 

Prior to my appointment at Kogod, I served on the staff of this 

committee from 2009 until 2014, ultimately as Chief Counsel under 

the leadership of its former Chair, Senator Mary Landrieu. During 

my tenure with the committee, I handled tax, labor, and budget 

issues and worked with small business stakeholders across the 

country and political spectrum to develop small business legislation, including provisions of the Small Business Jobs Act of 2010, 

which provided more than $12 billion of tax relief for small businesses. 

In addition, at the direction of Chair Landrieu, I organized multiple hearings and roundtables to discuss tax and compliance issues 

specific to small businesses and entrepreneurs and advised the 

Chair on small business tax policy recommendations in response to 

Senate Finance Committee requests for tax reform proposals. 

In my current role at Kogod, I direct our team of small business 

tax policy experts, economists, and researchers, and we are currently focused on developing research on the tax and compliance 

issues impacting emerging entrepreneurs, who are America’s latest 

iteration of small business owners. 

Emerging entrepreneurs are the new self-employed entrepreneurs who are powering the evolving on-demand digital economy. These emerging entrepreneurs are renting rooms, providing 

ride sharing services, running errands, and selling goods for consumers in business transactions coordinated online and through 

app-based platforms developed by companies such as Airbnb, 

Flipkey, Onefinestay, Uber, Lyft, Taskrabbit, Instacart, and others. 

As you know and have heard today, overwhelming complexity 

and inefficiency are the hallmarks of the current tax code. This reality is particularly acute for many emerging entrepreneurs who 

are first-time small business owners and have little experience 

with the requirements of quarterly estimated payments or self-employment taxes. As a result, many emerging entrepreneurs are 

finding out for the very first time this filing season that they are 

liable for tax underpayment penalties. 

In the coming months, we will be publishing research and corresponding policy recommendations for your committee and colleagues to review. In the meantime, we applaud the committee’s 

initiative in discussing targeted tax solutions for America’s small 

businesses. 

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As many of you know, a one-size-fits-all approach for small business tax compliance burdens is inefficient and fails to recognize the 

specific attributes and various criteria policy makers, academics, 

government agencies, and legal authorities rely on to characterize 

small businesses as opposed to other firms. 

The definition of ‘‘small business’’ has very significant implications for policy consideration purposes, as the numbers can vary 

widely. For example, the U.S. Department of Treasury has developed a methodology based on taxpayer filing information to identify 

more than 23 million small businesses. However, SBA’s Office of 

Advocacy, relying on U.S. Census Bureau data, has identified more 

than 28 million small businesses for purposes of its programs. Consequently, a discussion of targeted tax solutions for small businesses should include some facts about small business as generally 

used for tax administration purposes. 

According to GAO’s most recent research released this week, 

small businesses are primarily individuals who report some business income, either as a sole proprietor or a landlord, on a separate 

schedule together with their Form 1040s. This group of approximately 16 million small business taxpayers, which is about 69 percent of all small businesses, on average earns $100,000 or less per 

year and generates $1.4 trillion of the total small business income 

reported to the IRS every year. In contrast, the remaining 7.3 million small businesses, which is about 31 percent of reporting small 

businesses’ income, are partnerships, S Corporations, or C Corporations that earn, on average, about $450,000 or more per year and 

generate approximately $4.5 trillion of total small business income. 

Given the foregoing facts regarding small business taxpayers, it 

is no great surprise that millions of small business owners, mostly 

individuals running businesses and earning less than $100,000 

each year, are unnecessarily burdened by an antiquated tax code 

and an IRS that cannot address their questions. Targeted tax proposals can alleviate some of the burdensome recordkeeping requirements or inequitable treatment small business owners sometimes 

encounter in complying with the code. 

This committee has a long history dating back to its days as a 

Select Senate Committee of working on behalf of America’s small 

businesses on tax issues. Beginning in 1953, this committee prepared a comprehensive survey of the impact of federal taxes on 

small businesses, culminating in an annual report to the Senate 

with key recommendations. Since then, this committee has held 

more than 38, now 39, hearings over the years on tax-related concerns of small businesses. The work continues. 

Again, I thank you for the opportunity to testify today and for 

the work you do on behalf of America’s small businesses and I welcome any questions from the committee or its staff. 

[The prepared statement of Ms. Bruckner follows:] 

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Chairman VITTER. Thank you very much, Ms. Bruckner. 

Now, we will hear from Mr. Zerbe. Welcome. 

STATEMENT OF DEAN ZERBE, NATIONAL MANAGING 

DIRECTOR, ALLIANTGROUP, HOUSTON, TX 

Mr. ZERBE. Thank you, Mr. Chairman. I appreciate it. Thank you 

very much for having this important hearing about tax reform and 

how tax reform can help deal with the burdens for small businesses 

in terms of tax compliance. Just as a brief note, alliantgroup works 

with small and medium businesses across the country, working 

with them to help them benefit from the tax code, the tax provisions that you all have placed into the code, and also working with 

CPA firms very closely to assist in their working with their clients. 

We also work with small businesses, representing them before the 

IRS. So, I have a good sense of knowledge of the issues before you. 

Mr. Chairman, when I think of what you are trying to deal with 

in this in terms of the tax code and small business, I step back and 

think of kind of three points. One, you want to talk about policy 

and say, okay, what can we do to make sure the policy and the tax 

laws, the tax regulations, are working for small businesses and understanding the problems there. I give you a lot of detail on the 

R&D credit in my testimony, but that is just a one-off. 

We have provision after provision after provision in the tax code 

that is very difficult and hard for small businesses to qualify for. 

It can be the law. It can be the guidance. You heard the testimony 

earlier from the question from Senator Ernst. Sometimes it can be 

they learn about it later or it is very cumbersome, like the work 

credits. So, I think understanding more in detail why is it that a 

small business cannot take this credit is critical. 

I think that then leads you to the next step of, okay, now that 

we understand the problems, now let us talk about what could be 

the solutions. What can we do to make this code provision, this incentive work better for small businesses, and I think that could be 

safe harbors, it can be things that you proposed, different rules for 

small businesses. All those are ways that you can get there to get 

small businesses able to take advantage of the credits and incentives that are in there for the code. 

I would say, as a general rule, simpler is going to be a better 

place for you to do, but I do think thinking about ways that you 

can have a credit or provision that works for small business is also 

a start point. So, I think it is getting the policy right. 

Then it is education. I could not have asked for a better—again, 

the statement from Senator Ernst to the question, education is 

huge. So many small business owners do not have a clue in the 

world what is out there for the credits and incentives that the Congress has put forward. That is what I spend all my days, out there 

talking to them about what is out there that you have put forward. 

We could do so much more. 

To be honest, the IRS is not really pulling oars on this. I know 

they have got a lot on their plate, but they could do more to help 

other tax service providers that are trying to educate folks on what 

is going on. SBA may be a way to do this, as well, too. But, I cannot tell you enough how much small business owners do not have 

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any idea what is out there for them to take advantage of. So, I 

think education is a key part. 

The third part, then, is compliance, and there are two parts to 

compliance. One is service. You heard earlier, it is exactly right. 

IRS not answering phones, IRS not answering letters, people who 

do not have good training at the IRS. That is not a happy day for 

a small business owner and their CPA. They want people who will 

respond to their phone calls, will answer their letters, and know 

what they are talking about. 

So, I think the committee has got to look long and hard about 

the level of professionalism and service that we want to see out of 

the IRS, the resources we want to see for the IRS to accomplish 

that, and also management of the IRS’s resources that they currently have. But, we have got to look at that. 

So, if you can get the law better, if you can get education in a 

place where people know they can qualify and how they can qualify, you get service better, better guidance—what you are talking 

about, I think, is exactly spot on, Chairman—all that, I think, will 

then get you to the bottom line on the enforcement. It will help the 

burden on compliance, but it will get you to enforcement, as well, 

too, and I think you will be in a better place in enforcement. 

Obviously, the IRS needs to have an enforcement presence, but 

I would tell you quite frankly, and I put it into detail in my testimony, we are a little bit afraid the IRS does not have its feet on 

the ground on some cases in some enforcement. Overall, yes, it can 

be fine, but the trend line is not good regarding small business. 

They tend to have a tendency to treat small businesses like big 

businesses in terms of requirements for what they want to accomplish in terms of recordkeeping, production of data, all that. 

So, I have laid out some details for the committee in my testimony. A lot could be done, I think, to get the IRS back on the rails 

in terms of where they are on that. So, I think all that can accomplish a great deal in terms of what you are looking at and trying 

to achieve. 

I just want to take one last moment on the Startup Act, just because—let me say this. I think as you are looking at reform, I gave 

you three areas that I think this committee, in particular, should 

think about in reform: entrepreneurs, greater employee ownership, 

and also capital for startups. But, the tax code right now does a 

pretty lousy job of helping startups because they do not have income and we are basically based around that. But, the problem is, 

for a business owner, they are paying tax. They are paying a lot 

of tax. They are paying—for them, it looks, walks, talks like a tax. 

We put it with different labels, with the payroll tax, there is this 

kind of tax. For the business owner, it is a tax. 

And, I think for Senator Coons, his proposal that says, hey, we 

are going to make the R&D credit available for startups, starts 

being the driver for both innovation and for new jobs in this country, is a godsend. I think it is going to be a game changer in really 

helping so many of our new innovative companies across the board 

finally take advantage of the R&D credit. 

I know Senators make lots of wonderful speeches about, geez, 

R&D credit, we are going to help those two fellows in a garage who 

are starting their new business. In simple reality, it does not help 

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them a bit. It helps IBM. It helps 3M. It helps a lot of the companies that we work with, you know, kind of the 200-person tool and 

die shop, but it does not work for them. So, I think with Senator 

Coons’ provision that just got passed the other day—congratulations, Senator—we are on a good start there. But, that is just one 

example of a host of things that are out there. 

With that, I will stop, and thank you very much, Chairman, for 

having today’s hearing. 

[The prepared statement of Mr. Zerbe follows:] 

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Chairman VITTER. Great. Thanks to all of you for your testimony, 

very much. 

Now, we will go to Senator Enzi if you would care to stay, but 

if you cannot, we understand. 

Senator ENZI. I am late—— 

Chairman VITTER. Okay. 

Senator ENZI [continuing]. But I wanted to hear the testimony. 

Chairman VITTER. Yes. Thank you. 

In that case, we will go to Senator Fischer. 

Senator FISCHER. Thank you, Mr. Chairman. 

This would be a question for the entire panel, if you would like 

to weigh in on it. The Senate Finance Committee marked up tax 

extender legislation that would reenact all the provisions that expired in December of 2014. So, if these provisions are good enough 

for the past decade, and in many cases almost 30 years, such as 

the R&D credit, then should not they be made permanent? 

I hear about the 179 deduction all the time. More than 21,000 

Nebraskans work in equipment manufacturing, and that is about 

one in five Nebraska manufacturing employees. Sales of goods produced by equipment manufacturing and related industries are almost $3.4 billion. 

So, my constituents would like to see a longer extension of this deduction allowing up to $500,000 to be expensed in a given year. 

So, do any of you have objections to making it permanent, and if 

so, what would you propose instead? 

Mr. ZERBE. I guess I will start, Senator—— 

Senator FISCHER. We will let the gentleman from Omaha go first. 

Mr. ZERBE. Thank you, Senator, very much—— 

Senator FISCHER. It is nice to see you. 

Mr. ZERBE. Thank you very much. Glad to see my Omaha ties 

have finally come in handy. 

[Laughter.] 

I think it would be terrific. I think, for everyone, 179, little ‘‘d’’ 

in particular, if I had to pick one out, that would probably be it, 

along with the R&D credit, because they are based on behaviors 

that you are trying to affect. I think you are absolutely right, 

though. It is really the devil that you have this stop and start in 

terms of the tax provisions, and to get those put into permanency 

would be a godsend. 

Ms. BRUCKNER. I think it was really encouraging to see that the 

two-year extension for the 100 percent exclusion from cap gains on 

1202 stock, which is investments into certain qualified small business stock. Chair Vitter, your bill builds on that specific provision 

in a number of ways. We know that that provision operates to get 

equity into the hands of entrepreneurs and it would be—it would 

likely be a very successful provision in the code if it were made permanent at the 100 percent exclusion level. 

Mr. PORTER. I, likewise, agree completely, that what we need 

more than anything is permanency in the code. The in and the out, 

you know, constantly, it is maddening for clients and it is maddening for us. I mean, I have clients that have me on their speed 

dial in December and they call me every other day. ‘‘Has the bill 

passed? Has the bill passed?’’ So, I think it is a huge issue, and 

then passing them late in the year, as we have been doing, ends 

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up to the point where clients do not have the ability to go out and 

invest like they need to invest and they keep waiting and waiting 

for that. So, I agree. Many of the provisions need to be made permanent. 

Mr. MATHISON. I would echo the same thing. NSBA is very clearly in support of making them permanent. This is the roller coaster 

I referred to in my testimony. This is the knowing, not knowing, 

pass, expire, try to get it redone. This is a mess and needs to be 

fixed. 

Mr. KARELLAS. Yes, I join the chorus. This 179, in particular, is 

one of the items we hear about repeatedly from our members, especially in December, wanting to know what the chances are that 

Congress is going to pass this, at least for the year that just happened. And, so, we, of course, are for permanency. Our members 

always want the opportunity to be able to plan ahead. If we cannot 

get permanency, we hope to at least get something that looks as 

far ahead of time as we can. 

Senator FISCHER. Good to hear. It is such a problem when there 

is no certainty for businesses. And, as you said, you receive hundreds of calls, thousands of calls, as the deadline is approaching 

and people do not know how they are going to make decisions that 

are going to improve their business. 

Mr. Porter, earlier this year, I introduced legislation which was 

the Taxpayer Accountability Act, which would require the IRS to 

provide a substantive written response, not just an acknowledgement letter, to any written correspondence from a taxpayer not 

later than 30 days after receiving such correspondence, and if the 

IRS discloses any taxpayer information to any federal, state, or 

local government, to provide that to the taxpayer in a written notification within 30 days. Do you think that would help to resolve 

some of the issues that you highlighted in your testimony? 

Mr. PORTER. Yes, ma’am, I think it would, and let me give you 

a scenario of how it typically works in my practice. A client comes 

in with a notice from the IRS and so you have to provide some supporting information. The notice may be right, may be wrong. So, 

you send in a letter, and 45 days later, you get a letter that says, 

we have not had time to look at your letter yet. You know, so then 

you say, okay. Forty-five days later, you may get another letter. So, 

now you are out to 90 days. But in the meantime, the computers 

are generating notices every 30 days, adding additional penalties 

and interest, threatening liens and levies, and so what that means 

is you have to call the IRS then every time and say, hey, would 

you put a hold until we get some kind of response to our letter. 

It would be hugely helpful if they were to acknowledge that they 

received your notice and let you know that they have it and that 

they are going to cease any collections activities until they resolve 

your issue. 

Senator FISCHER. If they do not acknowledge that they received 

your notice, then the fees continue, right, the fines? 

Mr. PORTER. The penalties and interest? 

Senator FISCHER. Right, yes. 

Mr. PORTER. Oh, absolutely, until it is resolved. Of course, if it 

is resolved in the favor of the taxpayer, those go away. But, again, 

it is the client comes running in the door with that letter again 

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and, you know, you will call the IRS, after you sit on hold for who 

knows how long and they will say, yes, we have that, I can see it 

here in the computer system. 

Senator FISCHER. Okay. Thank you very much. Thank you all. 

Chairman VITTER. Great. Thank you. 

Senator Coons. 

Senator COONS. Well, thank you, Chairman Vitter and Ranking 

Member Shaheen, both, for holding this hearing. 

It is great to be in a room where we can agree on a lot of different things—one in particular, I suspect. We have heard from a 

lot of different folks on both sides of the aisle is that when it comes 

to tax reform, the stakes could not be higher for small business. 

And, I suspect that every Senator who has been here and questioned and every witness who has testified has suggested that 

America’s tax code today is too long, too complex, frankly, too unfair for small business, and that the $100 billion a year, roughly, 

spent in tax compliance is a cost that we should find a way to reduce, that the complexity of the tax code and the difficulty and expense of tax compliance puts small business, innovators, startups, 

and families really at a significant and unfair disadvantage. 

So, Senator Fischer has left, but I was going to agree with her 

that Section 179 permanency is something I would also support 

and advocate for. I grew up in a small business-owning family and 

I hear week in and week out from Delawareans who are trying to 

run small businesses exactly the points that our panel testified to, 

which is that they have great difficulty understanding, accessing, 

affording, taking advantage of the incentives that are provided in 

the tax code for small business, and that particularly the ones that 

expire year in and year out are of modest helpfulness, particularly 

when they seem to always be retroactively enacted. 

So, let me speak for a few minutes, if I could, to the Innovators 

Job Creation Act. I am really grateful for the opportunity to speak 

to that, and I really appreciate Senator Enzi working with me initially and Senator Roberts being the cosponsor of the provision 

that, as Mr. Zerbe mentioned, was included in extenders yesterday. 

One of the key areas, I think, for tax reform and for us to look 

at in tax policy is innovation. The R&D tax credit has made a huge 

difference, particularly for very large and very profitable companies, over a long period of time. And as someone who was in-house 

counsel to a company that relied on that to help finance its investments in cutting-edge research, I think it is a positive thing. My 

very first bill as a Senator was permanency for the R&D tax credit. 

But, finding ways to make it accessible to early stage and startup 

businesses is a challenge that eluded me for a number of years, 

and that is why I first worked with Senator Enzi, and then with 

Senator Roberts. The Innovators Job Creation Act allows the R&D 

credit to be claimed against the AMT, the alternative minimum 

tax. So, even if a company is entitled to the R&D credit, many 

pass-through entities cannot claim it because the R&D credit cannot be used in its current form against the AMT. Eight out of 10 

businesses that could otherwise benefit from taking the R&D credit 

get little or no benefit because of the AMT. And, this was previously in the Small Business Jobs Act of 2010, but expired after 

a year. 

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So, working together, we came up with an innovative solution to 

solve a major problem. If a startup company cannot access the 

R&D credit because they do not have an income tax liability, which 

most early stage startups do not, then they can claim the R&D 

credit against the taxes they pay on employee wages. 

So, I am very pleased to say that Senators Roberts and Schumer 

introduced this provision in Senate Finance Committee markup, 

which was adopted unanimously as part of the extenders package, 

and it is my real hope that it will ultimately become a permanent 

feature of the R&D credit and that we will ultimately get to a permanent R&D credit. 

So, if I might, in the time we have got left, Mr. Zerbe, I would 

welcome your thoughts on this particular provision. You have been 

a strong advocate of boosting access to the R&D credit for all businesses. What types of businesses do you think will benefit from 

this? Given previous testimony about how difficult it is sometimes 

for small businesses to be informed of and aware of and to access, 

what recommendations would you have, given that this looks to be 

on track to be in the extenders for accessing it? 

And before I conclude my question, let me simply say I am eternally grateful to J.J. Singh of my staff, who really helped lead all 

the very hard and disciplined work on this. He has been a tremendous contributor on many different areas, but this one in particular, he should take all the credit for. I am just the person who 

gets to say publicly—I get to have my name on the bill, but it is 

really his work that has helped make this possible. 

Mr. ZERBE. Yes, J.J. has been fantastic, and I am very sorry that 

he—I understand he is leaving your staff. I do not know if you did 

not know that, but—— 

[Laughter.] 

Senator COONS. No, no, I am well aware. It is my loss, but Delaware’s gain. 

Mr. ZERBE. That is right. 

Senator COONS. He is going to move to Delaware, which I am 

very excited about. 

Mr. ZERBE. But, you are right to point out the AMT turnoff, 

which I was so keen on getting into the refundable piece, but that, 

Mr. Chairman, goes right to the point I made. The reason small 

businesses cannot take the R&D credit, the key reason is the AMT. 

I mean, there is a legal bar to doing it, and that is kind of just a 

good example. It is not just for the R&D credit. Thirty-two other 

credits, they cannot take, because that AMT bar for pass-throughs, 

that is just the devil if they cannot take it. 

So, yes, I mean, that will be a massive change. We had it in 2010 

for one year. It was just a sea change for folks being able to take 

it across the board and across the country. 

I think for the startup—well, I think the refundable piece of it 

that will be for new businesses and startups, I think that the industries that will be particularly benefiting from that, Senator, 

would be biochemistry. We saw that with the Qualifying Therapeutic Discovery Project that we had, which is almost a version of 

this. That was in the Affordable Care Act. I think biochemical, 

pharmaceutical, I think anything in the medical field will all be 

very good targets for this, folks that are trying to find a new new. 

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But, I think the great thing about, in a sense, working this with 

the R&D credit is that the R&D credit is as wide as the ocean. In 

other words, it is not Congress picking winners and losers and saying, this is who should get funding. This is who should not get 

funding. So, I think you are going to actually encourage more folks 

to say, hey, I want to do that. I want to make that try. I want to 

make that leap to that new company to try this, because I know 

that this provision you have put in place is out there. 

So, I think it will be very broad geographically. That is one thing 

we learned from the QTDP, is that this kind of provision is not 

going to be limited to just one valley in California, or one part of 

Route 128. It will be across the board. That is what we found working with companies on the Qualifying Therapeutic. It will help all 

sorts of businesses throughout the country, and, I think, all types 

of businesses. But, I think those are the specific ones. 

I think you are right. Education is going to be critical, because 

if the small businesses have difficulty, the startups are going to 

have a greater difficulty in doing it. And, I think you have done 

a wonderful job, though, of making it pretty clean and clear how 

it is going to work and operate, and I think that helps a lot. The 

rules are pretty clean and simple. It is when you get into, well, hop 

on one foot, wear a pink dress, have a bow in your hair type of provision, that is when small businesses and CPAs say, you know, 

maybe not worth the candle. 

So, I think you have got, thanks to J.J. and your good work, you 

have got a nice clean bill. I think it is going to be a challenge to 

educate. We are certainly going to be doing that and working with 

other folks who are very much champions of what you have done. 

But, you are right. That is going to be the big second piece of the 

challenge to that. 

And then it goes to the point we were talking about, Mr. Chairman, is making sure for the IRS that they implement this properly, 

with service, that they are doing it properly, that they are not 

there, because if folks think there is a root canal at the end of the 

day when they are going to take this, they are not going to take 

it. So, we need to make sure that the IRS is working with them 

on that. And, I think we can accomplish all that and have a real 

success here. 

Senator COONS. Well, thank you. Thank you very much for your 

input, for your enthusiasm. I hope all the committee members will 

take up the opportunity to reach out into our home states and communities, and I really am optimistic that this great work product 

that Senator Roberts and Senator Schumer played such a central 

role in getting into extenders will actually be of meaningful benefit 

to a very wide range of sectors and companies, and I look forward 

to making sure that that implementation goes as well as possible. 

Thank you very much, Mr. Chairman. 

Chairman VITTER. Thank you, Senator. 

I certainly want to agree with several comments that have been 

made, including the need for greater access to the R&D credit, including the need for greater permanency, in general. We do not get 

nearly the bang out of the buck we should from these provisions 

when we let them limp along by extending them for short periods 

of time, either at the last minute or actually retroactively. We just 

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get a pittance of the economic bang for the buck that we could if 

we made them permanent. And, certainly, including Section 179 

expensing, making that permanent, and I am introducing legislation to make it permanent. 

Again, to reiterate, this discussion was meant as a prelude, in 

part, to a markup we will be having fairly soon on my Small Business Tax Compliance Relief Act. That is a collection of significant 

small business tax issues. I look forward to it getting wide bipartisan support in this committee, and we are completely open for 

suggestions from all committee members as we work toward that 

markup. I am introducing the bill today, but that is certainly not 

the end of the discussion. It is the beginning of the discussion. And, 

so, we are actively reaching out to every committee member to 

work toward a markup and come together around a really strong 

bipartisan committee product focused specifically on key small 

business provisions. 

It will not be overall tax reform. It will not be everything I would 

like to see. It will be very significant provisions that mean a lot for 

small business specifically that we can move forward on, hopefully 

sooner rather than later, and not wait on the whole world and the 

whole tax code being solved to pass these common sense reforms. 

So, that is the idea behind it. 

Again, thanks to all of you for your testimony. Thanks again to 

our first panel for their testimony. 

And with that, our hearing is adjourned. 

[Whereupon, at 11:49 a.m., the committee was adjourned.] 

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