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25–886 PDF 2017

S. HRG. 114–678 

REDUCING THE FEDERAL TAX BURDEN 

FOR AMERICA’S SMALL BUSINESSES 

FIELD HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MAY 4, 2015 

Printed for the Committee on Small Business and Entrepreneurship 

( 

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

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(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED FOURTEENTH CONGRESS 

DAVID VITTER, Louisiana, Chairman 

JEANNE SHAHEEN, New Hampshire, 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 

BENJAMIN L. CARDIN, Maryland 

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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(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

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

WITNESSES

May, Margot, Owner, Inspired Media, Denham Springs, LA .............................. 3 

Urdiales, Jim, Owner, Mestizo Restaurant, Baton Rouge, LA ............................ 7 

Forbes, Candy, Vice President/Sales Manager, Denham Springs Housing, 

Denham Springs, LA ........................................................................................... 11 

Gitz, Ron, Executive Director, Society of Louisiana CPAs, Kenner, LA ............. 16 

ALPHABETICAL LISTING

Forbes, Candy 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 13 

Gitz, Ron 

Testimony .......................................................................................................... 16 

Prepared statement .......................................................................................... 19 

May, Margot 

Testimony .......................................................................................................... 3 

Prepared statement .......................................................................................... 5 

Urdiales, Jim 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 9 

Vitter, Hon. David 

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

Prepared statement .......................................................................................... 42 

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REDUCING THE FEDERAL TAX BURDEN 

FOR AMERICA’S SMALL BUSINESSES 

MONDAY, MAY 4, 2015 

LIVINGSTON PARISH

COUNCIL CHAMBER, LIVINGSTON, LA 

The Committee met, pursuant to notice, at 8:30 a.m., at the Livingston Parish Council Chamber, 20356 Government Blvd., Livingston, LA, Hon. David Vitter, Chairman of the Committee, presiding. 

Present: Senator Vitter. 

OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, 

AND A U.S. SENATOR FROM LOUISIANA 

Chairman VITTER. Good morning, everybody. If I can ask everyone to take a seat, we are going to go ahead and get started. 

Well, good morning welcome to our Town Hall Meeting and Field 

Hearing of the U.S. Senate’s Committee on Small Business and Entrepreneurship. The topic of our Field Hearing today is ‘‘Reducing 

the Federal Tax Burden for America’s Small Businesses.’’ 

An organization, a leading small business organization, NFIB, 

surveyed small business and they asked a very direct question, 

‘‘What’s the greatest burden on your small business when it comes 

to taxes, the check you actually write out for taxes or all of the 

work you need to do to comply with the very complicated Federal 

law, the administrative burden?’’ 

A majority, actually 53 percent, said the bigger burden was the 

administrative burden. I mean, don’t get me wrong, I’m sure none 

of them liked the check they have to write out, but a majority said 

the even bigger burden was figuring out a very complicated tax 

code and complying with that and all of the costs that go along 

with that. 

And that tax compliance burden had grown enormously over 

time. This is a simple chart of the number of pages of the Federal 

Tax Code. And you can reasonably say the bigger the code, the 

more complicated it is, the bigger the Federal burden. And so look 

what that has done over time since it was first instituted around 

1912 and it’s just gone through the roof. Right now that Federal 

Tax Code is over 70,000 pages. 

Another way to look at the tax compliance burden, 40 percent of 

small businesses spend over 80 man-hours a year on compliance, 

just figuring out, making sure they follow the rules. Then 25 percent actually spend more than 120 man- or woman-hours every 

year. 

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One in three small businesses spend more than $10,000 on, 

again, figuring out the rules. We are not talking about the bill they 

write to the IRS, we are just talking about figuring things out and 

over half spend over $5,000. For very small businesses, that’s a big 

burden. 

Now, what solutions do we bring to bear? I have been reaching 

out, talking to a lot of Louisiana small businesses and other small 

businesses asking besides fundamental simplicity, what are some 

of the specific provisions you want to see? Don’t want to get into 

the weeds, but these are what we have been hearing about: Permanently extending expensing, Section 179. This is an example of a 

perennial problem. We have some good provisions of the code, but 

they are very short-term. They are temporary. Now they are almost 

always extended, but that creates great uncertainty for small business. 

Increasing the limit for cash-basis accounting; eliminating burdensome record-keeping requirements, particularly for business 

computer equipment; simplifying complex rules regarding retirement accounts; and requiring the IRS to consult with small business representatives before passing new rules on small business. 

So we are taking these specific ideas and we are putting them 

in a small business tax reform bill. Now this isn’t going to be every 

good idea out there for fundamentally simplifying the tax code. It’s 

not going to be, you know, all of the tax reform that we need. It’s 

going to be focused on small business relief and I’m drafting that 

bill now with the help of other members. 

We are going to be introducing that small business tax reform 

bill in the next few weeks and then hearing it and marking it up 

in the Small Business Committee and going from there. 

We are going to move on to our panel because I want to give 

them plenty of time for their testimony and to discuss things with 

them. We have a great small business panel today to talk about 

our topic. Let me introduce all four of them and then we will hear 

from each in turn in the order that I have introduced them. 

First is Margot May. Margot is the owner of Inspired Media, 

which specializes in print publications for selected niche markets. 

It publishes the Livingston Business Journal, a monthly news magazine. Margot has served as a graphic designer and head of marketing for the Journal since 2006. And May and her colleague, 

Helen Turner, formed Inspired Media and acquired and became 

publishers of the Journal in May 2014. Margot is a member of several organizations, including LEDC, and the local BNI chapter of 

the Livingston Leaders. 

Jim Urdiales has been the owner of Mestizo Louisiana Mexican 

Restaurant in Baton Rouge for the past 16 years. He’s a third-generation restaurateur and has been involved with the Louisiana 

Restaurant Association since 1999, serving as Baton Rouge chapter 

president in 2006, and on executive board until 2013. 

Candy Forbes is the president of Denham Springs Housing in 

Denham Springs. She is also the owner of Superior Communities, 

LLC. Candy has over 22 years experience in sales and finance and 

she is a Licensed Property and Casualty Insurance Agent. She’s 

been a board member of the Louisiana Manufactured Housing Association since 2006. 

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And Ron Gitz serves as the Executive Director of the Society of 

Louisiana CPAs, which represents more than 6300 Certified Public 

Accountants across Louisiana. Mr. Gitz is a CPA as well as a charter global management accountant. And he also manages a state 

government relations program of the Louisiana CPA organization. 

Welcome to all of you and I know you all have five-minute presentations and then we will have some discussion. We will get started with Margot. 

MARGOT MAY, OWNER, INSPIRED MEDIA, DENHAM SPRINGS, 

LA 

Ms. MAY. Thank you very much. As he said, my name is Margot 

May. I’m also very active in the Livingston Parish Chamber of 

Commerce and have been a board member for years. 

I’m a part owner of Inspired Media, which publishes the Livingston Business Journal. As a publishing company, we are in a position different than most other small businesses because publications are not subject to sales tax laws and we do not have inventory to which we pay taxes. 

So our primary tax affects us in the income tax. We have found 

it necessary to retain a CPA to help us with tax planning, and keep 

abreast of the ever-changing income tax laws, particularly the complicated laws and regulations pertaining to business expense deductions. 

Tax planning for a small business is complicated by the fact that 

not only do the laws change almost every year, but new laws and 

extensions of expiring tax laws often not written until late in the 

year, sometimes in December, and are then published with a retroactive effective date of January 1st. 

This sometimes greatly affects the planning and budgeting of our 

business, which is done in good faith and paid our CPA for, but is 

no longer applicable under these new laws. Tax incentives which 

were previously in effect were allowed to expire in 2014 and may 

not be reinstated by the end of 2015. 

But because it’s unknown, businesses have to have a Plan A and 

a Plan B to try to anticipate if they should or should not buy equipment or otherwise invest in the business and wonder if they will 

have enough funds to pay their tax bills if the laws turn out to be 

something completely different. 

Our CPA has related to us that it’s further complicating the situation that the IRS agents don’t even know their own laws sometimes. You can speak to one agent one time and get an answer, and 

speak to another agent another time and get a completely different 

answer on the same issue. And if you can even reach an agent because of the long phone hold times. Many times you’re required to 

search their website and try to interpret the regulations on your 

own or e-mail or write your IRS and wait and wait for a reply. 

As a publisher, we are also in a position where we talk to our 

clients each month and we work with them on advertising budgets. 

We see from them the difficulty that many of them have being able 

to budget their money because they are paying so much in taxes 

and it limits their available funds. They are spending so many 

hours of their available time filling out paperwork to comply with 

Federal taxes and other workplace regulations which take precious 

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time that could be spent on their business and often cost them 

extra money to consult an advisor. If they can even afford one. 

If a business makes a mistake, or interprets their regulations differently from the IRS, penalties can be very severe. Instead of making complicated laws and then slapping hard-working businesses 

with penalties, they should put more time and effort into simplifying these laws and providing assistance to businesses up front so 

they can comply, as most business owners want to do up front. 

The tax burden is stressful for small business owners because it’s 

difficult to understand the tax laws and expensive to hire an accountant to help you. But the biggest burden is not knowing what 

the tax law is going to be the next year. Furthermore, most business laws aren’t even written in the benefit for that small business. 

We would like to see a tax code for small businesses simplified, 

laws written well in advance to the applicable tax year to make it 

permanent so possibly business owners and accountants and their 

own IRS agents can help to understand and plan properly for the 

following and upcoming years. We would also like to see penalty reform to give businesses a break when they have tried in good faith 

to comply with these complicated laws. 

Thank you for this opportunity, Senator, to share my thoughts 

on the tax burden of small businesses today. 

[The prepared statement of Ms. May follows:] 

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Margot T. May 

Publisher /Creative Director 

Inspired Media 

My name is Margot May and I am part owner of Inspired Media, which publishes the Livingston 

Business journaL As a publishing company, we are in a position different from most other small 

businesses because publications are not subject to sales tax laws and we do not have inventory on 

which to pay taxes, so the primary tax that affects us is the income tax. We have found it necessary 

to retain a CPA to help us with tax planning and keep us abreast of the ever-changing income tax 

law, particularly the complicated laws and regulations pertaining to business expense deductions. 

Tax planning for a small business is complicated by the fact that not only do the laws change 

almost every year, but new tax laws and extensions of expiring tax laws are often not written until 

late in the year- sometimes in December- and are then published with a retroactive effective date 

of jan. 1. This sometimes greatly affects the planning and budgeting our business has done in good 

faith (and paid our CPA for} but which no longer are applicable under new laws. Tax incentives 

which were previously in effect were allowed to expire in 2014 and may be reinstituted by the end 

of2015, but because it is unknown, businesses have to have Plan A and Plan Band try to anticipate 

if they should or should not buy equipment or otherwise invest in their business and wonder if they 

will have enough funds to pay their tax bill if the laws turn out to be something completely 

different 

Our CPA has related to us that further complicating the situation is that the IRS agents don't 

know their own laws. You can speak to an agent one time and get one answer and speak to another 

agent another time and get a completely different answer on the same issue. And that's if you can 

even reach an agent because of their long phone hold times. Many times you are required to search 

their website and try to interpret the regulations on your own, or to email or write the IRS and wait 

and wait for a reply. 

As publishers, we are also in a position where we talk to our clients each month and work with 

them on their advertising budgets. We see from them the difficulty that many have in being able to 

budget their money because they are paying so much in taxes it limits their available funds. They 

are spending so many hours of their time filling out paperwork to comply with federal taxes and 

other workplace regulations which take their precious time that should be spent on business and 

often costs them extra money to consult an advisor- if they can even afford one. 

If a business makes a mistake or interprets a regulation differently from the IRS, penalties can 

be severe. Instead of making complicated laws and then slapping hardworking businesses with 

penalties, they should put more time and effort into simplifying laws and providing assistance to 

businesses upfront so they can comply, as most of business owners want to do. 

The tax burden is stressful for small business owners because it's difficult to understand the tax 

laws and expensive to hire an accountant to help you, but the biggest burden is not knowing what 

the tax law is going to be each year. Further, most business laws are written to benefit big 

businesses that have paid lobbyists to promote their interests, while small businesses' needs are 

overlooked. 

We would like to see the tax code for small business simplified and laws written well in 

advance of the applicable tax year and made as permanent as possible so business owners, 

accountants and their own IRS agents can understand what the regulations are and plan for them. 
6 

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We would also like to see penalty reform to give businesses a break when they have tried in good 

faith to comply with the complicated laws. 

Furthermore, we would like to see the IRS overhauled and held accountable in the same way 

small business owners continue to be. 

Thank you for this opportunity, Senator Vitter, to share my thoughts on the tax burden on small 

businesses today. 
7 

Chairman VITTER. Thank you very much, Margot. And now, Margot, you will be followed by Jim. 

Jim, welcome. 

JIM URDIALES, OWNER, MESTIZO RESTAURANT, BATON 

ROUGE, LA 

Mr. URDIALES. Thank you. Actually I have to concur with Margot 

with everything you said because that was part of my journey in 

the first few years, too. Probably had the same burdens as well. 

Thank you, Senator Vitter, for taking the time to understand 

some of the issues of small businesses today. I’ve owned and operated my own restaurant for over 16 years and there’s many issues 

that we faced throughout this tenure. 

The first one that’s been interesting that a lot of people don’t understand is the effect that the Farm bill had for corn growers for 

ethanol. Now although there’s a drought in California that has dramatically affected beef prices, that bill in particular has probably 

risen beef prices fourfold in just the last five years. And even your 

average family has seen the prices at the grocery stores increase. 

But in case you’re wondering why you’ve seen beef prices rise in 

restaurants, that’s the one main thing. 

As a restaurant owner, when I started, you know, you were lucky 

if you were operating with a 10 percent margin on a plate of food 

and right now most restaurants, even fast food, are operating with 

probably less than 2 percent margin of profit on food because of the 

increase. And you have got to realize everything that comes from 

the cow, whether it’s the beef, cheese, or sour cream has all risen 

because of this subsidy. 

The second topic is the Earned Tax Tip Credit, which is something I have been to your office in DC and we have lobbied quite 

a bit before. It was a compromise, I think Senator Breaux initiated 

before he left, but basically, what we do is the restaurants, the tip 

reporting is put on the restaurant owners now and no longer on the 

servers. And so what happens is we actually pay a payroll tax on 

their tips. So there’s a discussion, you know, even when people talk 

about minimum wage increases, you know, there’s always the discussion of servers only making 2.13 an hour, but in essence when 

they calculate their tips in a restaurant like mine, they probably 

average between 25 and $30 an hour. 

But what happens is like for a weekly payroll of about 4,000, 

which is what my small restaurant runs, my weekly payroll tax 

940 runs about 2,000 close to 2,000. So basically we overpay and 

then we get back a credit at the end of the year. 

In some ways it’s really great, but there’s a margin between that 

2.13 and 7.25, which is minimum wage, that that money is not 

given back. So basically you’re basically overpaying for the tax period and that’s something that a lot of full service restaurants have 

to deal with. 

And you know, even this year, there was the beginning of some 

changes with automatic gratuities which most restaurants have 

moved away from now because it’s a whole other level of taxation 

that the burden is put on restaurant owners. 

The third topic is, again, the Affordable Care Act and I always 

bring this up that I have 19 employees, but the 25 suppliers that 

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I buy from have over 50 employees and they have seen their prices 

increase. 

So another thing that’s just important for people to know, because that is part of what all restaurants have been going through, 

is that everything that comes through our doors has risen in the 

last two years because basically the Affordable Care Act is a tax 

that affected all small businesses and they have to push it down. 

Something as simple as Coca Cola, I mean, every year it does 

probably about a dollar or two increase on their boxes of soda. This 

year, it was five like 5.20, which is probably the biggest increase 

I have seen them push on a business in one year. 

And then, of course, just the plan that I have for my business 

is three employees with, you know, some dependents. And I remember when I went back and looked at the fact that in 2010, it 

was $1,100 for three people and right now I’m currently at 2,500. 

So it’s one of those things that is a burden every year that I have 

to sit there and analyze. It’s just a lot of these things are bigger 

regulations on the Federal level that affect the small guys. I think 

it’s also always important to remember that restaurants are part 

of the hospitality industry. One in ten jobs in our country is affected by this. So through the restaurant association, NFIB, we 

have always been trying to champion for the smaller guys, as well 

as the multi-level units. 

So again, thank you for listening and taking time. 

[The prepared statement of Mr. Urdiales follows:] 

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Written Statement 

Of 

Jim Urdiales 

For the Record of the 

May4, 2015 

Field Hearing of 

The United States Senate Committee on Small Business and 

Entrepreneurship 

"Reducing the Federal Tax Burden for America's Small Businesses" 
10 

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SMALL BUSINESS ISSUES 

Thank you Senator Vitter for taking time to understand the issues of Small 

Businesses today. I have owned and operated my own restaurant for over sixteen 

years. There are many issues or hurdles that all small businesses face every day 

but here are a few that warrant discussion. 

First there is the effect that the Farm Bill Subsidy on Corn for ethanol has had on 

food prices. The subsidies have taken a major food item that all cows need for 

feed and helped to drive up prices fourfold in the past five years. Every item from 

the cow such as steak, cheese, and sour cream have reached record levels and 

driven up food cost considerably. When I began in business, it was normal to 

have ten percent profit margins on all food items. Most are lucky to operate with 

two percent profit margin today. Although gas prices have dropped recently, most 

businesses that deliver to us are still charging delivery fees to recoup expenses. 

The second topic for discussion is the Earned Tax Tip credit that all restaurants 

comply with. The burden of tip reporting was removed from servers and moved 

to the restaurant owners. Not a problem but all tips for servers are put on their 

weekly checks. I pay payroll taxes on these wages. In return, the IRS gives us a 

credit on all excess wages over 40 hours calculated at minimum wage of $7.25. 

Although most servers make $2.15 an hour, I am paying extra payroll taxes on the 

remaining $5.10 with no return. For instance, I average a weekly payroll of $4200 

and my weekly 941 is close to $2000. The earned tip credit covers my federal bill 

completely but there is an excess paid into the system with no recoup. 

The third issue is the Affordable Care Act effect on business. Although I am under 

the fifty employee limit, my twenty plus vendors are not. Their cost of doing 

business has risen and literally every item that comes through my doors has seen 

an increase in the past year. My own Blue Cross plan of me and two other full 

time employees with dependents is $2500 per month. This same plan was $1100 

in 2010, 

Thank you again for taking time to listen to the issues facing all small businesses 

today 
11 

Chairman VITTER. Thank you, Jim, for being here, very much 

and what you do in our economy. Next we will hear from Candy 

Forbes. 

Candy, welcome. 

CANDY FORBES, VICE PRESIDENT/SALES MANAGER, DENHAM 

SPRINGS HOUSING, DENHAM SPRINGS, LA 

Ms. FORBES. Today I’m here to represent the Livingston Parish 

Chamber of Commerce. In the audience with me today is the CEO 

of the Chamber, April Wehrs, and the co-chair of the Legislative 

Committee for the Chamber, Mr. John Blount, President of Blount 

General Contractors, a commercial and residential contracting 

firm. 

The Chamber represents over 500 local businesses within the 

parish and the majority of those businesses would be characterized 

as small business owners like myself. I’m the president of Denham 

Springs Housing. It’s a small family-owned and operated manufactured housing dealership in Denham Springs and we have been in 

business for over 30 years. We employ eight full-time employees 

and over 12 separate subcontractors at our business. 

Mr. Blount, who is in the audience, he employs about 25 fulltime employees and numerous subcontractors and been in business 

28 years. 

Regardless of the scope or size of our operations, both of us pretty much face a common issue and that’s the complexity and cost 

of dealing with the Internal Revenue Service. There are three thing 

I’d like to touch on today. 

The first one is Section 179 changes that will affect the bottom 

line of most businesses. Very simply put, depreciation of equipment, automobiles, and other tangible business property helps to 

offset a company’s scheduled tax burden. Big ticket purchases that 

business owners make help drive the economy. 

For example, if I decide not to purchase a large piece of equipment in 2015 due to unfavorable depreciation rules, no profit is 

made at the heavy equipment sales center, no taxes are paid to 

help support the local and State economy. If a business can’t depreciate big ticket items, they will simply wait it out until the IRS 

rules are adjusted and they can do so unless they absolutely need 

it. This slows growth and it injures multiple parties. 

I feel like Congress is doing a disservice to American businesses 

whenever depreciation rules and tax code in general are used as leverage in year-end negotiations. We need a long-term solution to 

the problem, not a 2015 year-end retrospective fix. It’s vital that 

Congress act to raise the depreciation limits and give businesses 

stability they need to make informed decisions about purchases 

without gambling with their taxes. That’s the first thing I wanted 

to cover. 

The next thing I wanted to talk about was some of the burdensome IRS regulations, coupled with a lack of accountability on the 

IRS’s part, lead to a lot of problems for small business owners. 

One local CPA that we do business with has been battling with 

the IRS for over six months for a client. Mr. Johnson makes online payments of roughly $2,000 a week for payroll taxes for his 

company. He’s done so consistently for several years. Mr. Johnson 

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accidentally entered $2 million instead of $2,000 into the IRS’s online payment system. 

Mr. Johnson has Parkinson’s disease and it makes his hands unsteady. It was the shaking hands that caused him to enter the 

extra zeroes on the online tax payment. He recognized the mistake 

as soon as he did it, he called the bank and stopped payment. He 

contacted his accountant and he made the $2,000 payment that he 

was supposed to make. The IRS then levied a $45,000 fine against 

Mr. Johnson’s company for what was determined as dishonest form 

of payment. The fine was based on a percentage of the $2 million 

mistake rather than the $2,000 payment that he did owe. 

Mr. Johnson has now given his CPA a power of attorney in order 

to deal with the IRS by U.S. Mail because she said that’s the way 

that it has to be done. That’s how you have to deal with them. 

After all these months, no one has been able to fix the problem. No 

one at the IRS has been able to correct the problem. The CPA is 

so frustrated that she said that she considered contacting the Parkinson’s Disease Foundation to see if she could tell his story to the 

public. 

There’s a total lack of accountability on the part of the IRS in 

these types of situations. Fines are levied, accounts are frozen, 

liens are placed on assets, and all of these costs that are associated 

don’t do anything to the IRS itself, it only hurts the small business. 

I would like to see Congress increase oversight through legislation and bring about consequences for IRS abuse like this. There 

will never be any kind of change or relief for small business owners 

if we are the only ones that are penalized whenever there is an 

issue. 

And in the interest of time, and because I believe Mr. Urdiales 

covered a couple things I wanted to talk about, I would like to 

thank you for allowing us to come out and speak today and I hope 

that the information that we provided is helpful in helping you understand the problems that we have as small business owners. 

Chairman VITTER. Very helpful. Thank you, Candy. Regarding 

that specific case you outlined, which is outrageous, please—— 

Ms. FORBES. That’s a business owner right here. 

Chairman VITTER [continuing]. Please have them get us, my office, the details of that and we will get actively involved and we 

will blast through this mind-set of the IRS on this particular case. 

Shouldn’t take that, but it often does. We work on individual cases 

like that all the time. So please have them—you will get our contact information before you leave. 

Ms. FORBES. I will. 

Chairman VITTER. Please have them get us the details. They will 

have to sign a privacy release form so we can work on it and we’ll 

get right to work on that. 

Ms. FORBES. They’d probably like to sign any forms with you that 

would help. 

[The prepared statement of Ms. Forbes follows:] 

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My name is Candy Forbes. Today, I am here to represent the Livingston Parish Chamber of Commerce. 

Joining me today is the CEO of the Livingston Parish Chamber of Commerce, April Wehrs, and Mr. John 

Blount, President of Blount General Contractors, a commercial and residential contracting firm. The 

Livingston Parish Chamber of Commerce represents over 500 local business owners within the parish, 

and the majority of those businesses would be characterized as small business owners like me and Mr. 

Blount. I am the President of Denham Springs Housing- a family owned and operated manufactured 

housing dealership which has been in business for over 30 years. Denham Springs Housing employs 8 

full time employees and 12 separate subcontractors involved in the sale, delivery and installation of new 

and used manufactured homes across Southern Louisiana and Mississippi. Blount General Contractors 

employs about 25 full time employees and numerous subcontractors and has been in operation for 28 

years. Regardless of the size or scope of operations, many small businesses owners face once common 

issue: the complexity and cost of dealing with the internal revenue service. 

The Chamber recently had the opportunity to talk with several small business owners and accountants 

in our Parish to discuss federal taxation issues. I would like to touch on a few of these issues today: 

1. Sec 179 changes that will affect the bottom line of most small businesses 

2. Burdensome IRS regulations coupled with a lack of accountability on the part of the IRS coupled 

with a general fear of consequences of misreporting, penalties, and audits. 

3. Lack of knowledge regarding federal taxes with very small businesses (1-2 employees) 

One of the topics I would like to talk about is the ongoing issues with Section 179/ depreciation. Very 

simply put, depreciation of equipment, automobiles and other tangible business property helps to offset 

a company's federal tax burden. Big ticket purchases that business owners make help to drive the 

economy. For example, if Blount General Contractors decides not to purchase a new $100,000 bulldozer 

in 2015 due to unfavorable depreciation rules, no profit is made at the heavy equipment sales center 

and no sales taxes are paid to help support the state and local economy. If a business cannot depreciate 

big ticket items in 2015, they will simply wait to make that purchase unless it is absolutely necessary. If 

a business can wait it out until the IRS rules are adjusted, they will do so. This slows growth and it 

injures multiple parties. Congress is doing a disservice to American businesses when depreciation rules 

and tax code in general are used as leverage in year-end negotiations. Businesses want a level of 

predictability and stability in the rules under which they are asked to play. We need a long-term 

solution, not a 2015 year-end retroactive fix. It is vital that Congress act raise the depreciation limits 

and give businesses the stability needed to make informed purchase decisions without gambling with 

theirtaxes. 

Another ancillary issue that is related to depreciation involves how personal income is calculated by 

lending institutions and bankers when they are looking at the net income of self-employed individuals. 

If a business owner has his individual company set up as an LLC or a "flow through" type entity, 

depreciation can be added back to the business owner's bottom line net income in order to obtain 
14 

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loans, such as a home mortgage. If there are very low limits set by the IRS for the amount that can 

depreciated, then the business owner's personal net income is also reduced. This reduction in net 

income can prevent small business owners, especially newer business owners or start up business 

owners from being able to purchase homes and obtain credit in general. Changes in the mortgage 

lending rules that banks have been forced to adhere to under the Dodd-Frank and The Financial Reform 

Act coupled with limits on depreciation have been double sucker-punch for many small business owners 

who need to obtain homes loans and personal credit lines. 

With respect to IRS accountability and penalties, one CPA told me about one local business client who 

has been battling the IRS for over 6 months. Mr. Johnson makes an online payment of roughly $2000 

per week to the IRS for payroll taxes and has consistently for several years. Mr. Johnson accidentally 

entered $2,000,000.00 instead of $2000.00 into the IRS's online payment system. Mr. Johnson has 

Parkinson's Disease, which causes his hands to be unsteady. It was his shaky hands that caused him to 

add the extra zeros to his online tax payment. He immediately recognized his mistake of adding the 

additional zeros, contacted his bank to stop the payment, paid the original $2000 payroll tax payment, 

and contacted his accountant. The IRS then levied a $45,000.00 fine against Mr. Johnson's company for 

what was termed a "dishonest form of payment." The fine was based on a percentage of the 

uncollectable auto draft of two million dollars that he did not owe, not the $2000.00 payment that he 

did owe. Mr. Johnson now has now given a power of attorney to his CPA to communicate back and 

forth with the IRS via the US mail. All of this is at considerable and unnecessary financial cost and 

nothing has been resolved. No one from the IRS has been able to remove the fine after months of 

communications. The CPA is so frustrated that she has considered contacting the Parkinson's Disease 

Foundation so his horror story could be told to the public. There is a total lack of accountability on the 

part of the IRS in situations like these. Fines are levied, accounts are frozen, liens are placed on assets 

and business owners are held hostage with no consideration of the costs associated with IRS errors. A 

federal tax lien of this size can prevent business owners from obtaining credit lines and renewing 

licenses. I would like to see Congress increase oversight through legislation and bring about 

consequences for the IRS for abuse of this nature. There will never be a change or relief for small 

business owners if the businesses are the only parties that are ever penalized for wrongdoing. 

Lastly, I would like to talk about the knowledge gap between small and large businesses with regard to 

tax law. A large corporation can employ an army of tax attorneys and CPA's to maneuver through the 

myriad of IRS rules and regulations. Most small business owners lack the tax knowledge or the funds to 

employ these same tactics. While the cost of using a qualified CPA is obviously more than going it 

alone, I consider a necessary expense. My dealerships pay several thousand dollars a year in accounting 

costs for the best advice we can afford. Unfortunately, many small business owners attempt to go it 

alone or lack the funds for top notch accounting services. Small business owners need to have better 

access to information from the IRS in simple terms about what activities can trigger audits, how to avoid 

penalties, and what type of tax forms should be filed for their particular business. I spent over two 

hours looking for an answer to one simple question on the IRS website. Then, 1 gave up looking. The 
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system seems to be designed to produce penalties and audits, rather than help small businesses do the 

right thing. The largely unwelcome addition of the affordable care act provisions is an additional source 

of confusion to most business owners and will cause more penalties and tax issues for small business 

owners. We need a more streamlined, simplified tax code that does not cause ignorance of a rule to be 

grounds for a business to be financially penalized or ruined. 

On behalf of the livingston Parish Chamber of Commerce, I want to thank Senator Vitter and Senator 

Cassidy for the invitation to speak on these issues today. We hope that the information provided is 

helpful in understanding the issues for the average small business owner. 
16 

Chairman VITTER. Right. Let me make that offer to everybody 

here. We work on those sorts of individual cases all the time, 

whether it involves the IRS or other Federal agencies like the VA. 

If you or a family member, a neighbor, a business associate has 

anything like that that you need help with, call me and my office, 

and we will get to work on it. I think we have a handout and on 

that blue column on the left-hand side of the handout is all of my 

contact information. We have easy e-mail access on the website, 

and those are all of our offices, including Baton Rouge and 

Metairie. So please call us. 

Now we will hear from Ron Gitz. 

Ron, welcome. 

RON GITZ, EXECUTIVE DIRECTOR, SOCIETY OF LOUISIANA 

CPAS, KENNER, LA 

Mr. GITZ. Thank you. Thank you for being here. I know some 

have thanked you but I really appreciate the fact that you take 

time out of your very busy travel schedule to hear from the taxpayer—— 

Chairman VITTER. Absolutely. 

Mr. GITZ [continuing]. And the businesses that help this country 

tick. 

In the introduction, we represent 6,300 or so CPAs and firms in 

Louisiana. They represent the majority of business here. Prior to 

my stint as Executive Director, I come from an entrepreneurial 

small business background and I have been a partner in small CPA 

firms that represent business. And so now, we represent the firms 

that represent business. So I heard a lot of mention of CPAs 

throughout the panel here. Like Senator Vitter’s offer, we also 

would help the CPA with this client. We do have contacts inside 

the IRS. 

I have written testimony that I’m not reading from because it’s 

quite lengthy. It was actually testimony provided by the AICPA, 

which is the national organization that represents CPAs, actually, 

internationally. They have 400,000 members and so they are out 

there doing this in each and every state. The testimony that they 

helped me provide was actually written testimony that they gave 

to the Committee on Small Business, which is a U.S. House of Representatives’ Committee. Ironically, that testimony was provided on 

April 15th and I don’t know if that’s just an anomaly or if it was 

intended. 

Chairman VITTER. I’m guessing the House planned it that way 

to make a point. 

Mr. GITZ. To make a point, absolutely. Pleased to hear that some 

of the items contained therein are part of your tax reform package 

that you’re going to present. The document that I have is 16 pages 

long. It falls a little lengthy if I were to read it, outside the five 

minutes I’m allotted, but I did select a couple of important items 

from it to share with you. 

The goal of the CPA profession is to work with Congress to help 

ensure that the tax reform package follows principally good tax policy. There are ten of those principles. They are listed in that document. I will speak about one of those today, which is uncertainty, 

which we heard a lot about already. There are nine issues that we 

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17 

have identified that, you know, when you’re talking about 70,000 

pages of tax code, where do you start? 

So we have nine that we think can provide some instant relief. 

You referred to those in some of your opening remarks. We have 

heard Section 179 referred to a lot. That is one of the sunset tax 

provisions that dates back to President Bush’s tenure as president 

that had a ten-year life. That ten years expired and so they have 

been getting annual renewals since then. As it stands now, here we 

are in May of 2015, and will they be renewed or not? Nobody 

knows. That’s the uncertainty part. This is bad tax policy. That’s 

why we are recommending that we make some of these things permanent. 

It’s not just Section 179. There are 50-plus other provisions as 

well that affect various businesses in different ways. So we would 

like to see some permanence in those tax provisions to make them 

more certain. 

What happens is, and beyond just hearing from the panel from 

the business side, from the tax preparer side where CPAs are 

caught in the middle. What advice do you give? And so with the 

last couple of years, you get into the spring of the year following 

the tax year, and then the tax provision get renewed, for instance, 

179, financial statements had to be prepared by year end, there 

had to have been a tax provision put into those financial statements because you can’t do anything that’s not enacted yet. So 

there’s confusion in the marketplace. There’s confusion with compliance, et cetera. 

The other problem that I heard, you know, you may argue it’s 

a big business, but it’s a small business that did it. There’s an estimated payment that a CPA had to recommend to their client to 

make of $250,000 because Section 179 has not been renewed at 

that time. So you’re tying up very important cash flow and business capital. Ultimately, it’s great, there’s a lower tax burden on 

the taxpayer, but to make these things permanent and allow for 

tax planning would certainly be awesome. 

The IRS services have been cut. We just heard big mention of 

that. There used to be the ability, there was thing called E-Services 

that is now gone. It happened two years ago. When I was practicing back in 2011, it worked pretty well. You signed up for EServices and you had the ability to interact with the IRS and do 

some of the things described electronically. 

Well, funding it’s been cut to the IRS. Nobody loves the IRS, 

right? It’s the dreaded tax man. We, at the beginning of every tax 

season, we have a liaison meeting with the local IRS group. One 

of the most dramatic and, quite honestly, sad meetings that I participated in was that meeting two years ago where, you know, it’s 

the experts in the room. It’s not just CPAs, it’s open to tax practitioners and the IRS representatives there. 

These folk, good, good American citizens that have dedicated 

their career to government service on the IRS side and are experts 

that have their hands tied, literally. The frustration in the room, 

mutual respect, because these are the experts on both sides of the 

tax equation. Their services have been just cut to the point where 

they can’t function. 

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18 

So to wrap up, to make the point a little clearer, I was at the 

AICPA Board meeting two weeks ago, there’s this new thing that 

the IRS has come out with a new term called ‘‘the courtesy disconnect.’’ So after you have been on the phone for two hours, 

there’s a courtesy disconnect. 

Chairman VITTER. How courteous is that? 

Mr. GITZ. It’s like the mercy rule, the home run mercy rule in 

baseball. What happens is, to make it even more dramatic, the IRS 

can now claim that at their call center, there are no calls longer 

than two hours. 

Chairman VITTER. What a great way to meet that goal. Disconnect. 

Mr. GITZ. I will leave you with that. Thank you for letting me 

be here. 

[The prepared statement of Mr. Gitz follows:] 

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Written Statement 

Of 

Ronald A. Gitz II, CPA, CGMA 

For the Record of the 

May4, 2015 

Field Hearing of 

The United States Senate Committee on Small Business and 

Entrepreneurship 

Entitled 

"Reducing the Federal Tax Burden for America's Small Businesses" 
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WRITTEN STATEMENT 

OF 

American Institute of CPAs 

1455 Pennsylvania Avenue, NW 

Wash:ngton, DC 20004-1081 

THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS 

FOR THE RECORD OF THE 

APRIL 15, 2015 

HEARING OF 

THE UNITED STATES HOUSE OF REPRESENTATIVES 

COMMITTEE ON SMALL BUSINESS 

ON 

TAX REFORM: ENSURING THAT MAIN STREET ISN'T LEFT BEHIND 

202,737.6600 F: 202.638.4512 I aicpa.org 
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AICPA's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page I of 16 

INTRODUCTION 

The American Institute of Certified Public Accountants (A!CPA) commends Chairman 

Chabot, Ranking Member Velazquez, and Members of the House Committee on Small 

Business for examining the need for and potential economic benefits of comprehensive tax 

reform. We applaud the leadership taken by the Committee to spur tax rcfonn discussions 

and recognize the tremendous effort required to analyze the current complexities in the tax 

law, examine policy trade-offs, and consider the various reform options. 

The AICPA is the world's largest member association representing the accounting 

profession, with more than 400.000 members in 128 countries and a history of serving the 

public interest since 1877. Our members advise clients on federal, state and international 

tax matters, and prepare income and other tax returns for millions of Americans. Our 

members provide services to individuals, not-for-profit organizations, small and mediumsized business, as well as America's largest businesses. 

We are a long-time advocate for an efficient and effective tax system based on principles 

of good tax policy. 1 Our tax system must be administrable, stimulate economic growth, 

have minimal compliance costs, and allow taxpayers to understand their tax obligations. 

We believe these features of a tax system arc achievable if the ten principles of good tax 

policy are considered in the design of the system: 

• Equity and Fairness • Certainty 

• Convenience of Payment • Economy in Collection 

• Simplicity • Neutrality 

• Economic Growth and Efticicncy • Transparency and Visibility 

• Minimum Tax Gap • Appropriate Government Revenues 

We, therefore, appreciate the opportunity to provide input as you begin shaping tax reform 

policy in the small business income tax area. 

In the interest of good tax policy and effective tax administration. specifically focusing on 

the simplification of small business income tax, we respectfully submit comments on the 

following key issues: 

l. Cash Method of Accounting 

2. Tangible Property Regulations- De Minimis Safe Harbor Threshold 

3. Civil Tax Penalties 

4. Permanence of Tax Legislation 

5. Retirement Plans 

6. Alternative Minimum Tax Repeal 

' AI CPA, Guiding Principles lor Good Tax Polkv: Fram~work l<lr Evaluating Tax Proposals. 200 I. 
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AICP A's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 2 of16 

7. Listed Property 

8. Tax Return Due Date Simplification 

9. IRS Taxpayer Assistance 

AICPA PROPOSALS 

1. Cash Method of Accounting 

The AICPA wholly supports the expansion of the number of taxpayers who may use the 

cash method of accounting. The cash method of accounting is simpler in application than 

the accrual method, has fewer compliance costs. and does not require taxpayers to pay tax 

before receiving the income. For these same reasons, we are concerned with, and oppose, 

any new limitations on the use of the cash method for service businesses, including those 

businesses whose income is taxed directly on their owners' individual returns, such as S 

corporations and partnerships. Requiring these businesses to switch to the accrual method 

upon reaching a gross receipts threshold would unnecessarily discourage growth. A 

required switch to the accrual method would affect many small businesses in certain 

industries including accounting firms, law firms, medical and dental oftices, engineering 

firms, and farming and ranching businesses. 

The AICPA believes that limiting the usc of the cash method of accounting for service 

businesses would: 

I) Discourage their natural business growth; 

2) Impose an undue financial burden on their individual owners; 

3) Impose complexities and increase their compliance burden; and 

4) Treat similarly situated taxpayers differently (because income is taxed directly on 

their owners' individual rctums). 

As the AICPA has previously statcd.2 we believe that Congress should not further restrict 

the use of the long-standing cash method of accounting for the thousands of U.S. businesses 

(e.g., sole proprietors, personal service corporations, and pass-through entities) that 

1 AICPA comment letter on the "Continued Availability of Cash Method of Accounting," August 15,2013. 

http://\\'WW.aicpa.org/Advocacyffax/DownloadableDocuments/20 13.08.15 Comments on Continued Av 

ailability_of_Cash_Method_of_Accounting.pdf. AI CPA written statement before the House Committee on 

Ways And Means, dated May 15, 2013, Small Business and Pass-through Entity Tax Reform Discussion 

Draft; 

http://www .aicpa.org/ Advocacv ITaxiPartncrsh i psiDown lnadablcDocumerjtsl :\I CPA· \VR ITT EN· 

STATEMENT ·May-15-20 I 3-hwmc-srsubcomte-camp-small-bus-suhmit.pdf, and AICP A written statement 

before the House Committee on Small Business, Subcommittee on Economic Growth, Tax and Capital 

Access, dated July 10,2014, Hearing on "Cash Accounting: A Simpler Method for Small Firms?"; 

http://www .aicpa.orgl Advocacv/Tax!DownloadableDocumcntsl AICP A %20\V RITTEN%20STA TEMENT 

%20Julv%20 I 0%2020 14%20to%20House%20Subctc%20orl%20Economic%20Gro\\1h%20Tax %20and% 

20Capital%20Access.pdf. 
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AICPA's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 3 of 16 

currently utilize it. We believe that forcing more businesses to use the accrual method of 

accounting for tax purposes would increase their administrative burden, discourage 

business growth in the U.S. economy, and unnecessarily impose financial hardship on cashstrapped businesses. 

2. Tangible Property Regulations- De Minimis Safe Harbor Threshold 

The AICPA urges the IRS and Treasury to increase the de minimis safe harbor threshold in 

order to offer meaningful tax compliance relief to small businesses. Final tangible property 

regulations (T.D. 9636) provide guidance for taxpayers to elect a minimum capitalization 

threshold, otherwise known as the de minimis safe harbor. The safe harbor allows 

taxpayers to set a minimum capitalization amount under which amounts arc not capitalized. 

To reduce the unnecessary compliance burdens placed on small businesses, the AICPA 

recommends increasing the de minimis safe harbor threshold amount for taxpayers without 

an applicable financial statement (AFS) from $500 to $2,500. 

Additionally, we recommend adjusting the de minimis safe harbor threshold amount on an 

annual basis for inflation. 3 

We understand that the intent of the $500 de minimis safe harbor election is to reduce the 

administrative burden of applying the complex set of capitalization rules for business 

taxpayers without an AFS (e.g., small business taxpayers). However, we have concerns 

about the current low amount ($500) of the de minimis safe harbor threshold for taxpayers 

without an AFS:4 

a. Reduction of Administrative Burden 

Many small business owners have stated that repairs are consistently over $500 

(parts are at least $250 and labor is at least $250). A cell phone or printer easily 

cost over $500 and are replaced quickly making it administratively impractical and 

costly to track. The $500 threshold is too low to effectively achieve any reduction 

in administrative burden. 

3 The AI CPA previously commented on increasing the safe harbor de minimis. A copy of the letter can be 

found at the AICPA comment letter on $500 de minimis Safe Harbor Threshold and Retrospective 

Application of Final Tangible Property Regulations (T .D. 9636) for Small Businesses, dated October 8, 2014. 4 An applicable financial statement (AFS) is a financial statement that is (i) a financial statement required to 

be filed with the Securities and Exchange Commission (SEC) (the I 0-K or the Annual Statement to 

Shareholders); (ii) a certified audited financial statement that is accompanied by the report of an independent 

certified public accountant (or in the case of a foreign entity, by the report of a similarly qualified independent 

professional) that is used for credit purposes, reporting to shareholders, partners, or similar persons, or any 

other substantial non-tax purpose; or (iii) a financial statement (other than a tax return) required to be 

provided to the federal or a state government or any federal or state agency (other than the SEC or the IRS). 
24 

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AICPA's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

Aprill5, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 4 of 16 

b. Relation with Section 179 

The Internal Revenue Service (IRS or "Service") states that the safe harbor de 

minimis threshold, in conjunction with section 1795 election to expense certain 

depreciable business assets, provide significant tax simplification to small 

businesses. Unfortunately, section 179 requires costly and time-consuming 

tracking of the item on a fixed asset depreciation schedule. Furthermore, not all 

property qualifies for the section 179 deduction (e.g., air conditioning and heating 

equipment, and real property such as land, buildings, and permanent structures). 

Enhanced section 179 relief was also temporary and is, therefore, arguably 

unreliable. Currently, the section 179 deduction limit is only $25,000 for tax year 

2015, despite having a limit of$500,000 for last year. 

c. Clear Reflection of Income Test 

To deduct amounts in excess of the $500 threshold, small businesses must prove 

that expensing such amounts "clearly reflects income." The clear reflection of 

income test is based on the taxpayer's facts, circumstances, and interpretations of 

those facts and circumstances by the taxpayer and IRS. Large businesses (e.g., 

taxpayers with an AFS), however, are allowed the higher ($5,000) threshold 

without the negative added compliance burdens. 

d. Current Capitalization Policies 

We also believe the $500 threshold does not accurately reflect the current 

capitalization policy threshold for many small businesses. An informal survey 

amongst our members, shows that many of our members and/or their small business 

clients have a minimum capitalization threshold in excess of $500 since few items 

costing $500 or less have a useful life of greater than one year. Therefore, we think 

that the $500 threshold does not provide any impactful relief for many small 

businesses. 

e. Expansion of the AFS Definition for $5,000 Safe Harbor De Minimis 

Threshold 

The AI CPA believes the requirement that a taxpayer have an AFS to use the $5,000 

de minimis threshold unfairly discriminates against smaller taxpayers, and 

recommends an alternative test to allow such taxpayers to use the de minimis rule. 

The AICP A recommends an expansion of the definition of AFS to include a 

financial statement that has been reviewed by a certified public accountant. 

5 All section references in this letter are to the Internal Revenue Code of 1986, as amended, or the Treasury 

regulations promulgated there under, unless otherwise specified. 
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AICPA's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 5 of 16 

3. Civil Tax Penalties 

Congress should carefully draft penalty provtstons and the Executive Branch should 

sensibly administer the penalties to ensure they deter bad conduct without deterring good 

conduct or punishing the innocent (i.e., unintentional errors, such as those who committed 

the inappropriate act without intent to commit such act). Targeted, proportionate penalties 

that clearly articulate standards of behavior and that arc administered in an even-handed 

and reasonable manner encourage voluntary compliance with the tax laws. On the other 

hand, overbroad, vaguely-defined, and disproportionate penalties, particularly those 

administered as part of a system that automatically imposes penalties or that otherwise fails 

to provide basic due process safeguards, create an atmosphere of arbitrariness and 

unfaimess that is likely to discourage voluntary compliance. 

We have concerns6 about the current state of civil tax penalties and would like to offer the 

following suggestions for improvement: 

a. Trend Toward Strict Liability 

The IRS discretion to waive and abate penalties where the taxpayer demonstrates 

reasonable cause and good faith is needed most when the tax laws are complex and 

the potential sanction is harsh. This reason is especially true where the taxpayer's 

state of mind is central to the conduct that is subject to penalty. Because it is not 

feasible to anticipate every possible situation to which a penalty might apply, 

permitting a reasonable cause defense and avoiding fixed-dollar amount penalties 

helps to ensure that a disproportionately large penalty is not applied to an 

unforeseen and/or unintended set of facts. 

Over the past several decades, there has been an exponential increase in the 

complexity of the tax laws and a proliferation of increasingly severe civil tax 

penalties, with the lntemal Revenue Code (IRC or "Code'') currently containing 

eight strict liability penalty provisions. 

b. An Erosion of Basic Procedural Due Process 

Penalties should apply prospectively to future conduct and not retroactively to 

conduct that was appropriate at the time the conduct occurred. Judicial review of 

an IRS decision to impose a penalty or to deny waiver is an important constitutional 

check on Executive authority. Statutes that prohibit judicial review of agency 

penalty detenninations undermine voluntary compliance by undercutting 

" See the "AICPA Tax Penalties Legislative Proposals," submitted to Congress in April 2013: 

http://www .aicpa.orgi A dvocacw1· ax/TaxLe!!islation Po !ifviDo.lY!l I oadabk!!ocu m.£ntsi AJ,<:'P A -leuislativeproposals-penalties-20U.pdf; and the "AICPA Report on Civil Tax Penalties," submitted April 2013: 

http://www .aicpa.orgiA dvocacv /Tax/Tax Legi s!ationPol icvl DownloadablcDocu mentsl A I CPA -report -civiltax-penaltv-rcform-20 l3.pdf. 
26 

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AICPA's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 6 of 16 

taxpayers' faith in the system and eliminating an essential and expected avenue of 

potential redress. 

Taxpayers should know their rights to contest penalties and have a timely and 

meaningful opportunity to voice their feedback before assessment of the penalty. 

In general, this process would include the right to an independent review by the IRS 

Appeals office or the IRS's FastTrack appeals process, as well as access to the 

courts. Pre-assessment rights are particularly important where the underlying tax 

provision or penalty standards are complex, the amount of the penalty is high, or 

fact-specific defenses such as reasonable cause are available. 

c. Repeal Technical Termination Rule 

We recommend 7 the repeal of section 708(b)(1)(B) regarding the technical 

termination of a partnership. 8 Under current law, when a partnership is technically 

terminated, the legal entity continues, but for tax purposes, the partnership is treated 

as a newly formed entity. The cmTcnt law requires the partnership to select new 

accounting methods and periods, restart depreciation lives, and make other 

adjustments. Furthermore, under the current law, the final tax return of the "old" 

partnership is due the 15th day of the fourth month after the month-end in which 

the partnership underwent a technical termination.9 

A technical termination most often occurs when, during a 12-month period there is 

a sale or exchange of 50% or more of the total interest in partnership capital and 

profits. Because this 12-month time frame can span a year-end, the partnership 

may not realize that a 30% change (a minority interest) in one year followed by a 

25% change in another year, but within 12 months of the first, has caused the 

partnership to terminate. 

In practice, this earlier required filing of the old partnership's tax return often goes 

unnoticed because the company is unaware of the accelerated deadline due to of the 

equity transfer. Penalties are often assessed upon the business as a result of the 

7 AI CPA submitted comments to the House Committee on Ways and Means on the Tax Reform Act of20 14, 

dated January 12, 20 15; http://www.aicpa.org/Advocacy/Tax/DownloadableDocuments/ AICPA-Commentson-20 14-Camp-Draft-Generai-Comments-Final.pdf. 8 AICPA submitted letters and written statements on Option I and Option 2 of Chairman Camp's Small 

Business Tax Reform Draft: See Option I comments at "AICPA testimony on Small Business and Passthrough Entity Tax Reform," dated May 17, 2013; 

http://www.aicpa.org/Advocacy/Tax/DownloadablcDocumcnts/20 13.05.13 Testimony on Small Busines 

s and Pass-Through Entity Tax Refonn Discussion Dratlpdf, and Option 2 comments, dated July 30, 

20 13; http://www.aicpa.org/ Advocacy/Tax/PartncrshipsiDownloadablcDocuments/ AI CPA -Option-2%20-

comments-7-30-13.pdf. 

9 For example, a partnership that technically tenninated on April 30 of the current year due to a transfer of 

80% of the capital and profits interests in the partnership to be timely filed must file its tax return for that 

final tax year on or before August 15 of the current year. 
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AICPA's Written Statement for the Record 

U.S. House of Representatives, Committee on Small Business 

April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street lsn 't Left Behind 

Page 7 ofl6 

missed deadline. Although ignorance is not an acceptable excuse, this technical 

termination area is often misunderstood and misapplied. The acceleration of the 

filing of the tax return, to reset depreciation lives and to select new accounting 

methods, serves little purpose in terms of abuse prevention and serves more as a 

trap for the unwary. 

d. Late Filing Penalties of Sections 6698 and 6699 

Sections 6698 and 6699 impose a penalty of $195 per partner related to late filed 

partnership or S corporation return. The penalty is imposed monthly not to exceed 

12 months, unless it is shown that the late tiling is due to reasonable cause. 2014 

amendments to sections 6698 and 6699 adjust the penalty for inflation beginning 

after 2014. 

The AI CPA proposes that a partnership, comprised of 50 or fewer partners, each of 

whom are natural persons (who are not nonresident aliens), an estate of a deceased 

partner, a trust established under a will or a trust that becomes irrevocable when the 

grantor dies, and domestic C corporations, will be considered to have met the 

reasonable cause test and will not be subject to the penalty imposed by section 6698 

or 6699 if: 

• The delinquency is not considered willful under section 7423; 

• All partnership income, deductions and credits are allocated to each partner 

in accordance with such partner's capital and profits interest in the 

partnership, on a pro-rata basis; and 

• Each partner fully reported its share of income, deductions and credits of 

the partnership on its timely filed federal income tax return. 

e. Failure to Disclose Reportable Transactions 

Taxpayers who fail to disclose a reportable transaction are subject to a penalty 

under section 6707 A of the Code. For penalties assessed after 2006, the amount of 

the penalty is 75% of the decrease in tax shown on the return as a result of the 

transaction (or the decrease that would have been the result if the transaction had 

been respected for federal tax purposes). If the transaction is a listed transaction 

(or substantially similar to a listed transaction), the maximum penalty is $100,000 

for individuals and $200,000 for all other taxpayers. In the case of reportable 

transactions other than listed transactions, the maximum penalty is $10,000 for 

individuals and $50,000 for all other taxpayers. The minimum penalty is $5,000 

for individuals and $10,000 for all other taxpayers. The section 6707 A penalty 

applies even if there is no tax due with respect to the reportable transaction that has 

not been disclosed. There is no reasonable cause exception to the penalty. The 

Commissioner may, however, rescind all or a portion of a penalty, but only in the 

case of transactions other than listed transactions, where rescinding the penalty 

would promote efficient tax administration and only after the taxpayer submits a 
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lengthy and burdensome application. In the case oflisted transactions, the IRS has 

no discretion to rescind the penalty. The statute precludes judicial review where 

the Commission decides not to rescind the penalty. 

Under section 6662A, taxpayers who have understatements attributable to certain 

reportable transactions are subject to a penalty of 20% (if the transaction was 

disclosed) and 30% (if the transaction was not disclosed). A more stringent 

reasonable cause exception for a penalty under section 6662A is provided in section 

6664, but only where the transaction is adequately disclosed, there is substantial 

authority for the treatment, and the taxpayer had a reasonable belief that the 

treatment was more likely than not proper. In the case of a listed transaction, 

reasonable cause is not available, similar to the penalty under section 6707 A. 

The AI CPA proposes for an amendment of section 6707 A to allow an exception to 

the penalty if there was reasonable cause for the failure and the taxpayer acted in 

good faith for all types of reportable transactions, and to allow for judicial review 

in cases where reasonable cause was denied. Moreover, we propose an amendment 

of section 6664 to provide a general reasonable cause exception for all types of 

reportable transactions, irrespective of whether the transaction was adequately 

disclosed or the level of assurance. 

f. 9100 Relief 

Section 9100 relief, which is currently available with regard to some elections, is 

extremely valuable for taxpayers who miss the opportunity to make certain tax 

elections. Congress should make section 9100 relief available for all tax elections, 

whether prescribed by regulation or statute. The AICPA has compiled a list10 of 

elections (not all-inclusive) for which section 9100 relief currently is not granted 

by the IRS as the deadline for claiming such elections is set by statute. Examples 

of these provisions include section 174(b)(2), the election to amortize certain 

research and experimental expenditures, and section 280C(c), the election to claim 

a reduced credit for research activities. We do not believe taxpayers are likely to 

abuse or exploit hindsight, as the IRS would continue to have discretion as to 

whether to grant relief for each specific request. 

g. Form 5471 Penalty Relief 

On January I, 2009, the IRS began imposing an automatic penalty of$! 0,000 for 

each Form 5471, Information Return of U.S. Persons with Respect to Certain 

Foreign Corporations, filed with a delinquent Form 1120 series return. When 

imposing the penalty on corporations in particular, the IRS does not distinguish 

between: a) large public multinational companies, b) small companies, and c) 

10 A! CPA letter on "Tax Reform Administrative Relief for Various Statutory Elections," submitted January 

23, 2015: http://www.aicpa.org/advocacvltax/downloadab!edocuments/aicpa -lettcr-to-congress-on-9 ! OOrelief-l-23-l5submitted.pdf. 
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companies that may only have insignificant overseas operations, or loss companies. 

This one-size-fits-all approach inadvertently places undue hardship on smaller 

corporations that do not have the same financial resources as larger corporations. 

The AI CPA has submitted recommendations 11 regarding the IRS administration of 

the penalty provision applicable to Form 54 71. Our recommendations focus on the 

need for relieffrom automatic penalties assessed upon the late filing of Form 5471 

in order to promote the fair and efficient administration of the international penalty 

provisions of the Code. 

4. Permanence of Tax Legislation 

Taxpayers and tax practitioners need certainty to perform any long-term tax, cash-flow or 

financial planning and reporting. 12 The permanence of tax provisions, such as the 

enhanced section 179 deduction, can have impacts on the growth of small businesses. The 

section 179 provision allows small and mid-size business owners to immediately take a tax 

deduction on qualifying equipment, rather than delaying the deduction and taking it in 

smaller portions over an extended period of years. With the increased section I 79 expense 

provision, business owners could deduct up to $500,000 of qualifying assets. In 2015, the 

section 179 expense has reverted back to $25,000. However, over the past several years, 

Congress has retroactively passed an increased section 179 limit during or even after the 

applicable tax year. The possibility for such a retroactive action in 2015 still exists; 

however, the uncertainty creates unnecessary confusion, anxiety and administrative and 

financial burdens. 

Without permanency in the Code, we are concerned about the following consequences: 

a. Impact on a Company's Financial Accounting and Reporting 

The retroactive extension of tax deductions and credits has implications for a 

company's financial accounting and reporting. For financial accounting purposes, 

"the effect of a change in tax laws or rates shall be recognized at the date of 

enactment." 13 Accordingly, even if Congress signals that it plans to extend various 

11 AICPA submitted comments to the IRS, dated March 26, 2013; 

http://www.aicpa.org/ Advocacv/Tax/DownloadablcDocumcnts/ AI CPA -Comments-on-Form-54 7lPenalties-3.26.13.pdf. 

12 For example, see the AI CPA testimony before the U.S. House of Representatives Committee on Small 

Business Subcommittee on Economic Growth, Tax, and Capital Access on the September 13,2012, hearing 

on Adding To Uncertainty: Small Businesses' Perspectives on the Tax Cliff, and AICPA written statement 

for the hearing before the U.S. House of Representatives Committee on Ways and Means Subcommittee on 

Select Revenue on May 15,2013, on the Small Business and Pass-Through Entity Tax Reform Discussion 

Draft. 

13 See Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, 

Income Taxes (https://asc.fasb.org/ and 

http://www.uic.edu/classcs/actg/actg593/Cases/ ASC/Standards/ ASC-740-l 0- I nco me-Taxes.pdf), 740-l 0-

25-47, September 29,2011, page 15. 
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tax credits and other tax incentives, because these tax credits and other tax 

incentives were not signed into law by the end of 2014, companies must calculate 

their 2015 tax provisions without regard to the extended tax credits and other tax 

incentives. Where the relevant credits and incentives are material, the failure to 

extend the expired provisions in a timely manner creates unnecessary and 

undesirable ambiguity for financial markets. 

b. Complexity and Administrative Burden for Taxpayers and the IRS 

When Congress enacts extensions of these provisions late in the year or in the 

beginning of the following year, after IRS has already finalized the income tax 

returns for the tax year, it causes confusion, complexity, and compliance burdens 

for taxpayers and practitioners, and the IRS. If the tax forms have already been 

released, the IRS may need to provide additional instructions or revised forms to 

clarify the new law and reporting. This instructions and forms delay causes the 

filing season to be even more compressed and taxpayers are not able to file and 

receive their tax refunds until later in the year. 

If taxpayers have already filed their tax returns prior to the change in the law, they 

may need to file amended tax returns, reflecting the newly enacted tax rules for the 

prior tax year. Those taxpayers may have to pay additional costs for an amended 

tax return, and the IRS will have additional costs and burdens to process the 

amended tax returns. For example, a March 31, 2015 fiscal year corporate filer will 

likely have to (I) report 9/12ths of the research credit on the originally filed return 

and (2) amend the return when the credit is reinstated to claim the credit for the 

additional three months (assuming the credit is reinstated after the tax return is filed, 

which was the case for the provisions that expired in 20 l 0). 

c. Adverse Impact on Small Businesses and Ultimately Jobs and Growth 

These ever-changing, often expiring, short-term changes to the tax laws make it 

increasingly difficult for small businesses and their owners to perform any longterm tax, cash-flow or financial planning. If businesses are not able to rely on these 

tax benefits for the long term, they are limited in their ability to plan, invest, grow 

and expand, and hire additional workers. Therefore, we urge Congress to extend 

these provisions sooner rather than later. 

While taxpayers have come to anticipate the retroactive reinstatement of expiring 

provisions (e.g., the research and development credit and the enhanced section 179 

expense deduction) and may act under the assumption that Congress again may 

extend the provisions, an incorrect assumption may prove costly. While a prudent 

small business owner may wait until Congress provides certainty, the delay may 

result in the small business owner postponing equipment acquisitions and research 

expenditures from 20 15 to 20 16. The intended impact and reason for these 

provisions as an incentive for small businesses to replace aged equipment and 
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April 15,2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page II ofl6 

pursue research and development are not achieved when the tax incentives are not 

available all or much of the year. 

d. Effect on Economic Decisions and Tax Payments 

Uncertainty concerning whether Congress will extend certain tax provisions also 

adversely impacts tax planning and economic decisions made by individuals. 

These planning challenges are further compounded when tax laws are changed after 

the year has already begun but are slated to take effect that same year. When tax 

laws are issued late in the year or at the last minute, individuals try their best to 

comply, with no ability to plan for such provisions, no matter how well-intentioned. 

Incorrect assumptions may result in underpayments of estimated taxes and potential 

penalties or overpayment of taxes. 

e. Lack of Transparency and Certainty witb Short-Term, Retroactive 

Extensions 

The AICP A continues to support long-term tax reform simplification efforts as we 

strongly believe the short-term, retroactive extension of tax provisions on an annual 

basis is counter to the AICPA's Guiding Principles of Good Tax Policy, which 

promote certainty, as well as transparency and visibility. We also generally urge 

Congress to enact future tax changes with a presumption of permanency, except in 

rare situations in which there is an overriding and explicit policy reason for making 

provisions temporary, such as short-term stimulus provisions or when a new 

provision requires evaluation after a trial period. Providing long-term certainty will 

provide simplification. Eliminating the need to constantly extend expiring 

provisions, such as the research and experimentation credit, will decrease the 

current state of confusion and, in many cases, reaffirm (rather than undermine) the 

policy reasons behind these incentives. Eliminating the on-again-off-again nature 

of these provisions, coupled with the often retroactive tax law changes, will better 

support long-term planning, reduce the number of amended returns, and 

significantly decrease the overall complexity of the tax rules. 

5. Retirement Plans 

Small businesses are especially burdened by the overwhelming number of rules inherent 

in adopting and operating a qualified retirement plan. Therefore, we encourage Congress 

to consider the following measures for simplifying the operation of retirement plans: 

a. Create a Uniform Employee Contributory Deferral Plan 

The AICP A suggests that Congress create a uniform contributory deferral plan. 

Currently, there are four employee contributory deferral plans: 40l(k), 403(b), 

457(b), and SIMPLE plans. Having four variations of the same plan type causes 

confusion for many plan participants and employers. Congress could eliminate the 

unnecessary complexity by reducing the number of choices of the same type of plan 
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April 15,2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 12 of 16 

while keeping the desired goal intact; affording employers the opportunity to offer 

a contributory deferral plan to their employees and allowing employees to use this 

type of retirement plan to save for their retirement. 

b. Eliminate Certain Nondiscrimination Tests on Employee Pre-tax and Roth 

Deferrals for 401(k) Plans, Matching Contributions 

We propose eliminating the following nondiscrimination tests since they artificially 

restrict the amount higher-paid employees are entitled to save for retirement on a 

tax preferred basis by creating limits based on the amount deferred by lower-paid 

employees in the same plan. The tests result in placing greater restrictions on the 

ability of higher-paid employees to save for retirement than those placed on lowerpaid employees. Although the 403(b) plan is of a similar design, there is no 

comparable test on deferrals for this type of plan. 

Specifically, we recommend elimination of the following nondiscrimination tests: 

• The actual deferral percentage (ADP) test- The ADP test limits the amount 

highly compensated employees can defer pre-tax or through Roth after-tax 

contributions by reference to the amount deferred by non-highly 

compensated employees. This test applies only to a 40l(k) plan. 

• The actual contribution percentage (ACP) test - The ACP test similarly 

limits, for highly compensated employees, the amount of employer 

matching contributions and the amount of other employee after-tax 

contributions (which are based on employee contributions). This test is 

applicable for both 40l(k) and 403(b) plans. 

c. Eliminate the Top Heavy Rules 

We propose eliminating the top heavy rules because they constrain the adoption of 

40l(k) and other qualified retirement plans by small employers. Since the top 

heavy rules were enacted in 1982, there have been a number of statutory changes 

which have significantly decreased their effectiveness. The sole remaining top 

heavy rule is a required minimum contribution or benefit. The determination of top 

heavy status is difficult and the required 3% minimum contribution is often made 

for safe harbor 401(k) plans. The effect of the top heavy rules is to deter a small 

business from adopting a qualified retirement plan, including a non-safe harbor 

401 (k) plan. Without the top heavy rules, more small businesses would adopt plans 

to benefit their employees. 
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6. Alternative Minimum Tax Repeal 

The AI CPA supports repeal of the alternative minimum tax (AMT). 14 We believe that the 

current system's requirement for taxpayers to compute their income for purposes of both 

the regular income tax and the AMT is a far-reaching complexity of the Code. Small 

businesses, including those businesses operating through pass-through entities, are 

increasingly at risk of being subject to AMT. 

This tax was created to ensure that all taxpayers pay a minimum amount of tax on their 

economic income. However, small businesses suffer a heavy burden because they often 

do not know whether they are affected until they file their taxes. They must constantly 

maintain a reserve for possible AMT, which takes away from resources that could be 

allocated to business needs such as hiring, expanding, and giving raises to workers. 

The AMT is a separate and distinct tax regime from the "regular'' income tax. Code 

sections 56 and 57 create AMT adjustments and preferences that require taxpayers to make 

a second, separate computation of their income, expenses, allowable deductions, and 

credits under the AMT system. This separate calculation must be done on all components 

of income including business income for sole proprietors. partners in partnerships and 

shareholders in S corporations. Small businesses must maintain annual supplementary 

schedules used to compute these necessary adjustments and preferences for many years to 

calculate the treatment of future AMT items and, occasionally, receive a credit for them in 

future years. Calculations governing AMT credit carryovers are complex and contain traps 

for unwary taxpayers. 

Sole proprietors who are also owners in pass-through entities must combine the AMT 

information from all their activities in order to calculate AMT. Including adjustments and 

preferences from pass-through entities contributes to AMT complexity. The computations 

are extremely difficult for business taxpayers preparing their own returns and the 

complexity affects the IRS's ability to meaningfully track compliance. 

AI CPA suppmts repealing the AMT for corporations and individuals altogether. As AMT 

complexities increase, so do the tax regime's impact on unintended taxpayers 15 and related 

compliance problems. 

14 A!Cl'A written testimony before the House Committee on Ways And Means, Subcommittee on Select 

Revenue Measures, dated March 03, 20 II, "Hearing on Small Businesses and Tax Refonn," 

http:!!www.aicpa.org/AdvocacV!Tax/DownloadablcDocumcnts/FINAl.l'EST!MONYFORTHOMPSONMa 

rch3201l.pdf; and AlCPA submitted comments to the House Committee on Ways and Means on the Tax 

Reform Act of 2014, dated January 12, 2015; 

http://www.aicpa.org/ Advocacv/Tax/DownloadableDocumcntsl AI CP A-Commcnts-on-:w 14-Camp-DraftGenerai-Comments-Final.pdf. 

15 Although most sophisticated taxpayers are aware of the AMT and that they may be subject to its provisions, 

the majority of middle-class taxpayers has never heard of the AMT and is unaware that the tax may apply to 

them. Unfortunately, the number of taxpayers facing potential AMT liability is expanding exponentially due 
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April 15, 2015 Hearing on Tax Reform: Ensuring that Main Street Isn't Left Behind 

Page 14 of 16 

7. Listed Property 

We recommend the removal of"computer or peripheral equipment" from the definition of 

"listed property" in order to simplify and modernize the traditional tax treatment of 

computers and laptops. Classifying computers and similar property as "listed property" 

under section 280F is clearly outdated in a business environment where employees are 

increasingly becoming expected to work outside of traditional business hours. Various 

forms of technology, including laptops, tablets and cell phones, are all converging to serve 

similar purposes and cost roughly the same prices to purchase. The costs for the internet 

and service plans are now frequently sold in "bundles" and shared between multiple 

devices so it has become arguably impossible to segregate the cost of service between a 

cell phone, tablet, and laptop. The AICPA believes legislative change to update the 

treatment of mobile devices is the best simplification, similar to section 2043 of the Small 

Business Jobs Act of 20 I 0, where cell phones were removed from the definition of listed 

property for taxable years beginning after December 31, 2009. 

Additionally, guidance is needed to simplify the determination of when an employerprovided cell phone or similar device is considered a working condition or de minimis 

fringe benefit under section 132. A safe harbor approach is recommended for 

simplification purposes and in light of the fact that cell phones often allow for unlimited 

phone calls making any personal use de minimis. When taxpayers do not meet the safe 

harbor for treating a device as a non-taxable fringe benefit, additional guidance is needed 

to help determine the taxable amount of the benefit in a simple manner. 

8. Tax Return Due Date Simplification 

Taxpayers and preparers have long struggled with problems created by the inefficient 

timeline and flow of information. Federal Schedules K-ls are often delivered late, 

sometimes within days of the due date of taxpayers' personal returns and up to a month 

after the due date of their business returns. Late schedules make it difficult, if not 

impossible, to file a timely, accurate return. The current inefficient tirneline of tax return 

due dates is a problem for taxpayers as well as their tax practitioners. 

The AICP A recommendation would alleviate the problems mentioned above by 

establishing a logical set of due dates, focused on promoting a chronologically-correct flow 

of information between pass-through entities and their owners. Our proposal includes the 

changes as follows: 

Current Tax Due Dates: 

• March 15: S corporation and C corporation Forms li20S and 1120; and 

to: (I) "bracket creep;" (2) classifying as "tax preferences" the commonly used personal and dependency 

exemptions, standard deductions, and itemized deductions for taxes paid, some medical costs, and 

miscellaneous expenses; and (3) the inability to use many tax credits to offset AMT. 
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U.S. House of Representatives, Committee on Small Business 

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• April 15: Individual, Trust and Estate, and Partnership Forms I 040, I 041, 

and 1065 

Proposed Tax Due Dates: 

• March 15: Partnership Form I 065; 

• March 31: S corporation Form 1120S; and 

• April 15: Individual, Trust and Estate, and C Corporation Forms I 040, I 041, 

and 1120 

We recommend the extended due dates to be six months after the original filing due dates 

for all these forms, except the trust and estate Form I 041, which we recommend be 

extended five and half months. 

The AICPA supports 16 the proposal to change due dates for tax returns of partnerships, S 

corporations and C corporations because it would: 

• Improve the accuracy of tax and information returns by allowing corporations and 

individuals to file using current data from flow-through returns that have already 

been filed rather than relying on estimates; 

• Better facilitate the flow of information between taxpayers (i.e., corporations, 

partnerships, and individuals); 

• Reduce the need for extended and amended tax returns; and 

• Simplify tax administration for the government, taxpayers. and practitioners. 

9. IRS Taxpaver Assistance 

To further reduce the burdens of income tax compliance, the AICPA urges Congress to 

address the "taxpayer service'' issues at the IRS. Specifically, Congress should consider 

dedicating supplemental funds to ensure IRS is responsive to the needs of all taxpayers, 

including small businesses. 

In order for small businesses (and their tax practitioners) to receive the assistance they need 

on tax issues, it is essential for the IRS to respond to them in a timely manner. At a 

minimum, for example, the IRS should improve (I) wait times for incoming telephone calls 

and (2) the time required for them to respond (in a substantive manner) to taxpayers' 

16 We are pleased that this due dates proposal has wide bipartisan support and has been included in proposed 

legislation introduced by Sen. Enzi and Rep. Jenkins, including in 2013 GL:I20 and ll.R. 90 I) and in 2011 

(S.8-15 and I !.R. 2382). It was also included in the Senate Finance Committee Tax Reform options paper on 

Simplifying the Tax System for Families and Businesses dated March 21. 2013; the Senate Finance 

Committee staff discussion draft on tax reform of tax administration provisions dated November 20, 20 13; 

and the House Ways and Means Committee Chairman comprehensive tax reform discussion draft "Tax 

Reform Act of2014" dated February 26, 2014. See A1CPA webpage for recommendations on Change to 

Return Due Dates: 

http://www .aicpa.orglintcrcstarcasltaxiresourcesltax lcgi slationpol icylpagcsid ucdatcsproposal20 I O.aspx. 
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written correspondence on tax notices. The current levels of service for these two areas 

are simply unacceptable. 

The AICPA also recommends that Congress provide the IRS with dedicated, traceable 

and supplemental funds for specified ''taxpayer service'' purposes only. We recognize 

that the IRS budget is oftentimes the subject of debate, and may be even more now given 

the various events that have occurred over the last few years. However. the need to 

provide assistance to taxpayers and tax practitioners remain important responsibilities. 

We are concerned that the IRS is spending a signiflcantly lower percentage of its limited 

budget on taxpayer services (e.g., Individual Income Tax Line, Refund Hotline, 

Practitioner Priority Hotline, etc.) than in prior years. We understand that the IRS has new 

initiatives and vital responsibilities (such as addressing identity theft), but taxpayer service 

must remain a priority in a voluntary compliance system, such as the U.S. income tax 

system, which relies on individuals and businesses to properly report their income. 

CONCLUDING REMARKS 

The AICPA understands the challenges that Congress faces as it tackles the complex issues 

inherent in drafting tax legislation, and note that both taxpayers and tax practitioners are 

interested in, and need, tax simplilication. Compliance burdens for small business 

taxpayers are too heavy, both in terms of time required and out-of-pocket cost. Likewise, 

complexity increases the ·'Tax Gap" and may impair the efficiency of tax administration. 17 

While there are costs associated with simplification reforms, it is also important to 

recognize the elimination of significant compliance burdens by such reforms. 

The proliferation of new income tax provisions since the 1986 tax reform effort has led to 

compliance hurdles for taxpayers, administrative complexity, and enforcement challenges 

for the IRS. We encourage you to examine all aspects of the tax code to improve the 

current rules. The AICPA has consistently supported tax reform simplification efforts 

because we are convinced such actions will significantly reduce taxpayers' compliance 

costs and encourage voluntary compliance through an understanding of the rules. We look 

forward to working with the 114'11 Congress and the tax-writing committees as you address 

tax reform. 

"AI CPA testimony on the House Committee on Ways And Means hearing on "How the Tax Code's Burdens 

on Individuals and Families demonstrate the need for Comprehensive Tax Reform," dated April 13, 2011; 

http://www.aicpa.org/Advocacyrr,L,JDownloadahlcDocuments/FINAL TESTIMONY FOR NELLEN A 

pril 13, 2011.pdf. 
37 

Chairman VITTER. Thanks, Ron. Very compelling. Thanks to all 

of you for your very direct, real world testimony. 

Candy, we heard from you about this outrageous example of IRS 

abuse not correcting a clear, simple mistake that was immediately 

identified by the taxpayer. To me, that’s part of a broader ‘‘gotcha 

mentality,’’ the way the IRS deal with a lot of individuals and 

small business. 

Do any of you all have personal experience that would sort of be 

examples of that sort of gotcha mentality? 

Ms. FORBES. I’m going to find some wood up here to knock on. 

Personally, I personally, I do not have any experience with any of 

those types of issues. Now I hear a lot of stories from our CPAs, 

but we have been fortunate enough to have a good solid relationship with our current CPA firm for a long time and we have been 

able to—find some more wood—avoid those types of problems. 

Chairman VITTER. Anybody else? 

Mr. URDIALES. I will say that same thing. I’ve been very lucky 

to have a good CPA to assist on some of the issues we have to deal 

with. 

Chairman VITTER. We have also been talking a lot about compliance costs, not just the cost of the tax bill, but the cost of compliance. Jim, let’s take your restaurant business as an example. How 

would you describe and estimate the compliance costs, not the 

check you write for the tax liability, but dealing with figuring out 

what that check has to be. 

Mr. URDIALES. That, again, goes back to, you know, with the 

Earned Tax Tip Credit that we use, we are basically paying double 

each week. And so, you know, it covers my tax bill for the restaurant, but again you’re tying up extra cash flow each week just 

to do that. But it’s because of the extra tip reporting that we have 

to do for tips on servers. So there’s a lot of issues, whether it’s minimum wage, you know, that affect us, and it’s—we are all operating 

on a smaller margin than we used to. 

And so it’s one of those things where at the end of the year— 

not even at the end of the year, this is monthly. I’m sitting there 

looking at the margins of what we have, what we need to adjust, 

you know, just to keep on going. You know, it’s definitely—and all 

my costs have risen, but again like I said, the—it used to go from 

a quarterly to now it’s weekly, just to stay abreast of it. 

Chairman VITTER. And related to something you mentioned, because I don’t understand the details of this, so let me ask you to 

explain. I think you suggested that restaurants that have any sort 

of automatic tip put on the bill face a higher burden or tax liability. 

Why don’t you explain that? 

Mr. URDIALES. There was a new rule that went into effect January of this year that basically said that any automatic gratuities 

added, for instance, if you go in the service industry, like if you 

have a party of eight or more, they used to sometimes put an automatic tip. Well it’s no longer a tip, it’s now considered wages so 

what happens, it goes on to the revenue side of the business, and 

so we pay taxes and then you disburse. So basically it’s a double 

taxation. It’s moving that automatic tip to two different zones to 

get your tip twice. 

Chairman VITTER. So it’s clearly increasing your tax burden? 

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Mr. URDIALES. Correct. 

Chairman VITTER. But even if under that practice, which at least 

used to be very common for large parties, even if that were done, 

that would represent tip that would go directly to the employee, 

correct? 

Mr. URDIALES. Right. Yes. Yeah. 

Chairman VITTER. Margot, you wanted to add anything to that? 

Ms. MAY. Again, like Candy said, I’ll knock on wood being that 

we have only owned it and then operated it for a year, but continuously we hear stories not just from our CPA of their struggles of 

trying to be in compliance, but the fact that a small business owner 

is putting their life savings, their work and their day-to-day operations in making a business run and giving more employment to 

locals and being a good person of the community, and then a letter 

shows up. And it’s like, wait a second, I wasn’t supposed to have 

that, or did that box get checked wrong? That’s not correct. It’s a 

simple, simple mistake that can take something like six months to 

a year and then the letters are coming. And it just overwhelms a 

small business owner. 

I believe very strongly that small businesses can do a lot with 

very little, but when you pull those funds, that burden of finances 

to taxes that you’re not sure if you have or don’t have, it stunts 

the growth of what can happen in a community or in a city or even 

in a larger state. 

Chairman VITTER. Right. A related issue to all of this, and certainly an issue that impacts small business, both over 50 employees and under is ObamaCare. Do you all have any direct testimony 

about your businesses or your members, in Ron’s case, in terms of 

dealing with that in the small business arena? 

Mr. GITZ. The irony there, again, one of the things we do, CPAs 

are required to have an average of 40 hours a year in continuing 

education. So the Louisiana Society of CPAs provides that education. ObamaCare was looming. It was kind of a four-year implementation process and by the time it got to the fourth, it’s here, 

right? It’s upon us. The education that we had to provide the CPAs 

and the complexity therein, I don’t know how many pages, 70,000 

pages, but it was substantial, beyond the actual check that you 

write, and it is the burden of being able to navigate and figure it 

out. And so I know we provided, and continue to provide, continuing education to help our CPAs and there are still many questions that are unanswered. Nobody is even sure that they are completely complying with the law. 

Chairman VITTER. Right. Anybody else? 

Ms. FORBES. I’d like to add something. There’s a lot out there 

about how ObamaCare is going to affect taxes and it most certainly 

will. But there are other issues that are related to this depreciation 

rule that you may not be aware of. Basically I’m in the lending 

business, you know. I’m a contractor and we have to arrange mortgage loans for people. A lot of those people are self-employed. One 

of the things that happened after Dodd-Frank and the financial reform act, which has been a huge hit to small business owners, is 

that it limited their abilities to be able to meet bank requirements 

because the banks had to adhere to certain lending guidelines. 

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How that relates to the depreciation is that when the depreciation is limited, that’s one of the things that mortgage lenders will 

add back to the bottom line income of the self-employed person. 

There’s an add-back depreciation to their net income and then use 

that to calculate how much their yearly income is by which they 

can get a mortgage loan or apply for a business line of credit or 

personal loan. And if those depreciation limits are lowered, then it 

actually makes the net income of that business owner less, which 

affects his ability to go and borrow money or to own a home. 

And in this instance, I’m talking about your really small business 

owner who has got one employee, two employees an LLC, some 

type of flow-through entity and that right there prevents homeownership and it prevents them from being able to borrow and get personal credit lines and that’s a huge hit not only for that business 

owner, but for people like me who sell homes for a living and for 

people like John Blount who need those people to be able to purchase the homes that he builds. So they are all interconnected. 

There have been some things that have happened that have really 

been a sucker punch for small business owners. 

Chairman VITTER. Anybody else on ObamaCare? 

Mr. URDIALES. I would add one of the issues I could go into of 

other restaurateurs who have over 50 employees where they have 

to—you have to offer the full plan to hourly employees if they are 

over 30 hours. And one of the things that they are finding out is 

they can’t afford that plan. So then they have to sign a release saying that it was offered and then they have to go to an outside market and a lot of these plans aren’t really great insurance. And they 

are not really there for—they are really only there for something 

catastrophic. 

I had the situation where I did have two bartenders that kind 

of teetered on that 33-, 34-hour week and under the plan, I had to 

at least offer it to them. You know, I wanted to offer it to them 

as an option. But it was—it literally was one whole week’s pay for 

them. Their mentality is they can’t justify that because they can’t 

live like that. 

So you know, in the restaurant industry where you do have a lot 

of back-of-the-house people who may start at $10, $11, $12 an 

hour, for them, you know the fact at $250, $300 a month, they can’t 

fathom that. 

Chairman VITTER. Jim, I assume you have also seen in restaurant, and other businesses, certain employees being pushed 

below 30 hours—— 

Mr. URDIALES. Right. 

Chairman VITTER [continuing]. For that reason because it 

changes the calculation. 

Mr. URDIALES. Very much so. 

Chairman VITTER. Any other? 

Margot. 

Ms. MAY. That’s what I was going to bring up is personally it 

hasn’t affected us, but I have seen, unfortunately, businesses that 

don’t want to have to go under working more and not have others 

working, but their employees can’t afford the ObamaCare and they 

can’t afford to not have the workers. So they have to supplement 

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40 

it in some way. It just messes up the whole entire purpose of what 

you’re trying to do, run your business. 

Chairman VITTER. As I mentioned a while ago, we are putting 

together a small business tax reform bill. I will get each of you an 

outline of that bill in its present draft form, and any specific provisions that really have a big impact on small business that aren’t 

there, that we should consider and include, please let us know. We 

want your input on that. 

We are going to introduce it soon. I think we are covering the 

big items, certainly Section 179 expensing, making that permanent 

is one of the obvious ones, but certainly want your input on that. 

We are going to start to wrap up. Thanks to everybody for being 

here and special thanks to our four great panelists. Let’s give them 

a round of applause. 

Thank you all very much. As I told you beforehand, you’re the 

meat of this program and you gave the real world perspective that 

we were absolutely after. And I know it’s a sacrifice to come here, 

take time out of work, so thank you for that. And thanks to everybody for coming out today as well. 

Before you leave, let me highlight two things. As I suggested a 

minute ago, I want this to be an ongoing conversation and if you 

have any specific problems with the IRS, or some other agency, 

please let us know the details. We work on those specific cases all 

the time. All of my contact information is right here on the handout and so please let us know those details so we can follow up. 

In addition, our Small Business Committee has a little brochure 

that’s available called ‘‘The Small Business Road Map’’ that gives 

you a lot of good small business contact information in Louisiana, 

specifically. So please look for this and pick this up and use it on 

a regular basis. 

With that, thank you very much, very much, and have a great 

rest of the day. 

[Whereupon, at 10:36 a.m., the Committee was adjourned.] 

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APPENDIX MATERIAL SUBMITTED 

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Chairman David Vitter Hearing Summary Statement 

U.S. Senate Committee on Small Business and Entrepreneurship 

"Reducing the Federal Tax Burden for America's Small Businesses" 

May4, 2015 

Good morning, and thank you for joining me for today's Senate Small Business Committee field hearing to examine 

ways to reduce the federal tax burden for Louisiana small businesses. 

Small businesses provide the majority of job opportunities across the United States; but when you consider the 

burden of tax compliance that's placed on their shoulders, you may wonder how small businesses stay open at all. 

Small businesses now rank the administrative portion of taxes as a greater burden than the financial cost. I don't 

need to tell you about that because you feel it every day and so does every other small business in America. I want 

today's conversation to discuss your experiences and your recommendations so that others including my 

colleagues in Washington can better understand the consequences of the current regulatory environment. 

The federal tax code is approximately 74,000 pages long and is continuing to grow. Under the current Administration, 

it's already grown approximately 7,000 pages with no end in sight. And just for some perspective, the code was only 

400 pages when it was first created. 

Small businesses in the U.S. spend approximately 6 billion hours fulfilling their income tax obligations. That doesn't 

even take into account state income taxes or sales tax that small business may have to handle. Over forty percent of 

small businesses spend 80 hours, and over a quarter of all small businesses now spend more than 120 hours a year 

on tax compliance. Imagine if those billions of hours spent complying with IRS could be spent focusing on growing 

your company, and what that would mean for our national economy and our Louisiana economy. 

The cost of compliance to small businesses is 70% higher than bigger firms. In fact, 1 in 3 small businesses spend 

more than $10,000 just on federal tax administration, and half spend more than $5000. No offense to our accountant 

who is with us today, but a small business shouldn't have to hire an accountant in the first place to start and maintain 

a business. It should be simple enough that you can take that money you would otherwise pay an accountant and 

invest that into your company. 

For some perspective on all these facts I've just mentioned: that's equivalent to over 50 King James Bibles, three 40 

hour work weeks, and the cost of taking your family to Disneyworld, all for a small business owner like you to comply 

with federal tax law each year. And I haven't even mentioned the actual taxes themselves and how much those cost 

you. 

You don't have the army of accountants and tax attorneys that "too big to fail" banks have at their disposal that take 

advantage of every loophole of the overly complicated tax code. No, you may only have you and a few others 

concentrating on the business side, and if you are really fortunate, a CPA on payroll to worry about the taxes. 
43 

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It's an unfortunate truth, but Congress and the IRS simply do not lean towards the opinions of small businesses when 

crafting laws and regulations. But as Chairman of the Senate Small Business Committee, I'm working to change that 

That is what this hearing is all about today. 

I've been listening to the concerns and issues of small businesses across this state and am here to listen to your 

experiences and feedback. When I get back to Washington, I am preparing to introduce legislation that can reduce 

some of that burden and address many of the issues that you have discussed with me 

Just a few of the provisions include permanently extending Section 179 expensing, increasing the limit for cash basis 

accounting, eliminate burdensome record keeping requirements for business computer equipment, reducing the 

complex rules associated with small business retirement accounts, and requiring the IRS to consult small business 

representatives before passing new rules and regulations that may affect them, among many others. 

These are real solutions to real problems and I am confident they will be a first step to removing that burden 

altogether 

Again, thank you for being here this morning, and I look forward to hearing from our witnesses.