69–008 

Calendar No. 226 

114TH CONGRESS REPORT " ! SENATE 2d Session 114–424 

S. RES. 252 

DECEMBER 20, 2016.—Ordered to be printed 

Filed, under authority of the order of the Senate of December 10 (legislative day, 

December 9), 2016 

Mr. VITTER, from the Committee on Small Business and 

Entrepreneurship, submitted the following 

R E P O R T 

[To accompany S. Res. 252] 

The Committee on Small Business and Entrepreneurship, having 

considered an original resolution (S. Res. 252) expressing the sense 

of the Committee on Small Business and Entrepreneurship of the 

Senate relating to easing the burden of Federal tax compliance on 

small businesses, having considered the same, reports favorably 

thereon without amendment and with a preamble and recommends 

that the resolution do pass. 

I. INTRODUCTION 

An original resolution expressing the sense of the Committee on 

Small Business and Entrepreneurship of the Senate relating to easing the burden of federal tax compliance on small businesses, S. 

Res. 252 was introduced by Senator Vitter on September 15, 2015. 

II. HISTORY (PURPOSE & NEED FOR LEGISLATION) 

When the federal tax code was created, it contained only 400 

pages, but since then has grown to about 74,000 pages. As the tax 

code has expanded, the compliance costs have increased with it. 

Most small businesses do not have an in-house accounting department and depend on costly outside accounting and legal services. 

As such, small businesses have a disproportionate compliance burden. 

According to the National Federation of Independent Businesses 

(NFIB), for small businesses, the cost of compliance is 70 percent 

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higher than the cost of compliance for larger firms. According to a 

National Small Business Association (NSBA) small business survey, a small business’ administrative burden for tax compliance is 

greater than its actual tax liability. NFIB reported that small businesses spend 1.7 billion hours on tax compliance every year, which 

amounts to approximately $16 billion in compliance related costs. 

Nearly 40 percent of small businesses spend 80 hours or more per 

year on tax compliance, and 25 percent of small business spend 

more than 120 hours. By reducing these compliance burdens, small 

business owners can put more money back into their business, community, and the economy. 

The policy changes included in the resolution have received 

broad support. Many organizations offered their letter of support, 

such as the NFIB, NSBA, Louisiana Association of Business and 

Industry, the Small Business and Entrepreneurship Council, the 

Small Business Investor Alliance, the Small Business Advocacy 

Council, and others. Other organizations have offered support publicly, such as the American Institute of CPAs, the National Association for the Self-Employed, and the chambers of commerce from 

several states. 

III. HEARINGS & ROUNDTABLES 

In the 114th Congress: 

On April 2, 2015, the Committee held a field hearing, titled, ‘‘Reducing the Federal Tax Burden for America’s Small Businesses’’ in 

Lafayette, Louisiana. The Committee heard testimony from local 

small business owners regarding their difficulty in keeping up with 

changes to the tax code. 

On July 22, 2015, the Committee held a hearing, titled, ‘‘Targeted Tax Reform: Solutions to Relieve the Tax Compliance Burdens for America’s Small Businesses.’’ The hearing examined the 

significant tax compliance burden on small businesses. The Committee heard testimony from small business owners and industry 

advocates. Witnesses discussed the compliance burdens and how 

they can outweigh their actual tax liability. The witnesses suggested extending the cash accounting threshold, as well as updating tax exclusions and deductions to reflect the changes that result 

from inflation. 

IV. DESCRIPTION OF BILL 

This resolution endorses provisions amending the Internal Revenue Code relating to the taxation of small businesses. It recommends allowing small business entities with gross receipts not 

exceeding $25 million to use the cash method of accounting. It also 

eliminates the restrictions on depreciating computers or peripheral 

equipment. The resolution also extends the tax deduction for the 

health insurance costs of self-employed individuals. The legislation 

requires inflation adjustments after 2015 to the dollar amounts of 

specified tax exclusions and deductions. It also modifies return due 

dates for partnerships, C corporations, S corporations, and other 

entities and reduces the required holding period from 5 to 3 years 

for qualified small business stock and extends the rollover period 

for such stock. 

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V. COMMITTEE VOTE 

In compliance with rule XXVI (7)(b) of the Standing Rules of the 

Senate, the following vote was recorded on July 29, 2015. A motion 

to adopt the Promotion and Expansion of Private Employee Ownership Act of 2015, a resolution to recognize the need for tax compliance reform in order to ease the disproportionate burden on small 

businesses, was approved, unanimously by voice vote with the following Senators present: Senators Vitter, Scott, Fischer, Gardner, 

Ernst, Enzi, Shaheen, Cantwell, Heitkamp, Booker, Hirono, and 

Peters. 

VI. EVALUATION OF REGULATORY IMPACT 

In compliance with rule XXVI (11)(b) of the Standing Rules of the 

Senate, it is the opinion of the Committee that no significant additional regulatory impact will be incurred in carrying out the provisions of this legislation. There will be no additional impact on the 

personal privacy of companies or individuals who utilize the services provided. 

VII. SECTION-BY-SECTION ANALYSIS 

Section 101—Expansion of cash accounting threshold 

This section explains why cash accounting, as opposed to accrual, 

is a much simpler accounting method and is often utilized by small 

businesses. Cash accounting allows for flexibility, especially for retail stores dealing with cash. The accrual accounting method is 

more complicated and considers accounts receivable rather than 

money a business may have on hand. This section recommends extending the cash accounting threshold from $5 million to $25 million in order reflect inflationary changes and give businesses more 

options. 

Section 102—Modification of safe harbor for expensing of acquisition or production costs of tangible property 

This section states that a taxpayer electing to apply for de minimis safe harbor, is permitted to deduct certain amounts paid to acquire, produce, or improve tangible property for tax purposes provided certain requirements are met. The de minimis safe harbor 

election provides two threshold amounts: $500 for taxpayers without an AFS and $5,000 for taxpayers with an AFS. An AFS is a 

certified financial statement from a CPA that costs thousands of 

dollars and is traditionally something a smaller business does not 

have. Therefore, they are bound by the $500 limit which is arbitrarily low, compared with the significantly higher $5,000 limit 

available to those companies who can afford an AFS. In increasing 

the limit to $2,500, small businesses can take advantage of de 

minimis safe harbor and they will not have to pay thousands of 

dollars for an AFS. In small businesses this more accurately reflects the costs associated with ‘‘acquiring, producing, or improving 

tangible property.’’ 

Section 103—Removal of computer equipment from listed property 

This section eliminates burdensome record keeping requirements 

on business computer and communication equipment usage. The 

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Small Business Jobs Act of 2010 eliminated the requirements for 

documenting business cell phone usage, but the law did not address burdensome requirements on similar business communication 

devices and portable computers. With the merging of cell phones, 

computers, and cameras into single inexpensive devices, the remaining ‘‘listed property’’ reporting requirements and deduction 

limitations for business computers should be eliminated. 

Section 104—Deduction for health insurance costs in computing 

self-employment taxes 

This section allows for the full deductibility for health insurance 

purchased by the self-employed. Self-employed individuals, unlike 

other businesses, cannot fully deduct the cost of their health insurance as a business expense. The issue arises when self-employed 

individuals have to pay the 15.3% tax on their employer-provided 

health insurance costs to which nobody else is subjected. Because 

individuals cannot deduct this as an ordinary business expense, the 

15.3% payroll tax self-employed individuals pay on their premiums 

amounts to $1,940.04 in extra taxes that only the self-employed 

pay. The Small Business Jobs and Credit Act of 2010 allowed selfemployed individuals to fully deduct the cost of their health insurance from their self-employment taxes but for one year only. 

Section 105—Modification of rules relating to the termination of 

partnerships and S Corporations 

This section modifies the rules on the termination of partnerships and S Corps. Terminated partnerships for tax purposes are 

treated as a newly formed entity. In many case companies don’t always realize they have to file a ‘‘final’’ tax return after the partnership termination, leading to companies misunderstanding the rules 

and having to pay penalties if they miss the deadline. This often 

serves as more of a trap for small businesses rather than a process 

to help prevent tax abuse. 

Section 201—Inflation adjustments for certain provisions 

This section adopts a new inflationary standard that is an adjustment to the provision to numerous fixed limitation amounts in 

different provisions. Many of the IRS’ business provisions and limits were established decades ago and have not grown to keep pace 

with inflation. This includes the gift tax limit of $25, which was 

passed in 1962, and if adjusted for inflation would now be $172 and 

the Employee Achievement Awards that have a $400 and $1,600 

limit which have been the same since 1986. Other specific provisions include the ceiling of group-term limit insurance, exclusion 

for education assistance from an employer, and a deduction for contributing property or a vehicle. The inflation adjustments that are 

present throughout IRS statutes can have the opportunity to be 

standardized. 

Section 202—Report on improvements to customer section 

This section directs the IRS to produce a report to the Small 

Business Committee no later than June 30, 2016 on specific ways 

and ideas to improve its customer service to small businesses and 

shorten its turnaround time for small entities. This idea report 

stems from the method of the IRS to catch small business centers 

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in an act. Though it is very hard to attempt a change to an agency 

with this mentality, the first step is to signal to the public that the 

Congress is aware of the relationship between the IRS and small 

business community and is working to address it. 

Section 203—Return due date modifications 

This section resets dates of certain business filings. For many 

small businesses, a delayed tax statement from an entity can result 

in a late tax filing thus incurring a penalty, requesting an extension, or attempting to rush the tax prep leading to mistakes which 

may lead to more penalties. 

Section 301—Reduction in holding period for qualified small business stock 

This section shortens the holding period under Section 1202 to 

three years. The holding period to qualify for the reduced capital 

gains tax rate, which is a special incentive designed to help startups, under Section 1202 is five years. However, this tax incentive 

is supposed to encourage investments in startup company and five 

years’ defeats that purpose. The regular long-term capital gains 

holding period is 1 year. Therefore, a more appropriate holding period for the tax incentive to invest in startups under Section 1202 

would be 3 years. 

Section 302—Extend of Rollover Period for Qualified Small Business Stock 

This section extends the Rollover Period on Qualified Small Business Stock from 60 days to 1 year. Section 1045 was designed to 

encourage investments in qualified small businesses. In Section 

1045, a taxpayer is allowed to roll over their investment in a qualified small business stock into other qualified small business stock 

tax free. Section 1045 has a very short window in which to make 

the rollover investment: 60 days. In many cases investors need 

time to transition investments from one place to another. Your typical angel investment takes months to find and is especially true 

for investors outside of large metropolitan areas. 

Section 402—Findings 

This section shows findings that the Employee Retirement Income Security Act of 1974 (ESOP) has been successful in providing 

meaningful retirement savings for S Corp owners. 

Section 403—Deferral of tax for certain sales of employer stock to 

employee stock ownership plan sponsored by S Corporation 

This enables owners of S Corporations in addition to existing C 

Corporations to sell their stock to an ESOP. 

Section 404—Department of Treasury Technical Assistance Office 

This directs the Department of Treasury to conduct outreach to 

inform companies and individuals about the possibilities and benefits of employee ownership of S Corps, while providing technical assistance to S Corps in sponsoring ESOPs. 

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Section 405—Small business and employee stock ownership 

This defines the terms ‘‘ESOP’’ and ‘‘ESOP business concern.’’ 

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