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27–040 2018

SMALL BUSINESS TAX REFORM: MODERNIZING 

THE CODE FOR THE NATION’S JOB CREATORS 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

OCTOBER 4, 2017 

Small Business Committee Document Number 115–037 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

TRENT KELLY, Mississippi 

ROD BLUM, Iowa 

JAMES COMER, Kentucky 

JENNIFFER GONZA ́ LEZ-COLO ́ N, Puerto Rico 

DON BACON, Nebraska 

BRIAN FITZPATRICK, Pennsylvania 

ROGER MARSHALL, Kansas 

RALPH NORMAN, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

DWIGHT EVANS, Pennsylvania 

STEPHANIE MURPHY, Florida 

AL LAWSON, JR., Florida 

YVETTE CLARK, New York 

JUDY CHU, California 

ALMA ADAMS, North Carolina 

ADRIANO ESPAILLAT, New York 

BRAD SCHNEIDER, Illinois 

VACANT 

KEVIN FITZPATRICK, Majority Staff Director 

JAN OLIVER, Majority Deputy Staff Director and Chief Counsel 

ADAM MINEHARDT, Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Steve Chabot ................................................................................................... 1 

Hon. Nydia Vela ́zquez ............................................................................................. 2 

WITNESSES 

Ms. Kristie Arslan, Entrepreneur-In-Residence and Small Business Counsel, 

Small Business & Entrepreneurship Council, Vienna, VA ............................... 5 

Ms. Taylor Wyatt, President, MotionMobs, Birmingham, AL ............................. 7 

Mr. Miguel Centeno, Partner, Shared Economy CPA, Redondo Beach, CA ....... 8 

Ms. Caroline Bruckner, Managing Director, Kogod Tax Policy Center, Executive-in-Residence, Accounting and Taxation, Kogod School of Business, 

American University, Washington, DC .............................................................. 10 

APPENDIX 

Prepared Statements: 

Ms. Kristie Arslan, Entrepreneur-In-Residence and Small Business Counsel, Small Business & Entrepreneurship Council, Vienna, VA ................. 24 

Ms. Taylor Wyatt, President, MotionMobs, Birmingham, AL ...................... 28 

Mr. Miguel Centeno, Partner, Shared Economy CPA, Redondo Beach, 

CA ................................................................................................................... 33 

Ms. Caroline Bruckner, Managing Director, Kogod Tax Policy Center, 

Executive-in-Residence, Accounting and Taxation, Kogod School of 

Business, American University, Washington, DC ...................................... 36 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

ADA - American Dental Association ............................................................... 44 

lyft ...................................................................................................................... 46 

Small Business Council of America Statement .............................................. 47 

Statement of Aumua Amata Coleman Radewagen, Member of Congress ... 50 

UZURV Holdings, Inc. ...................................................................................... 51 

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(1) 

SMALL BUSINESS TAX REFORM: MODERNIZING THE CODE FOR THE NATION’S JOB 

CREATORS 

WEDNESDAY, OCTOBER 4, 2017 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 11:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Steve Chabot [chairman of the Committee] presiding. 

Present: Representatives Chabot, Luetkemeyer, Brat, Knight, 

Blum, Comer, Bacon, Marshall, Norman, Vela ́zquez, Evans, Murphy, Lawson, Clarke, and Schneider. 

Chairman CHABOT. We want to tell everybody we appreciate 

them being here today. Before we begin, I wanted to briefly say 

this Committee continues to track the recovery efforts conducted by 

the SBA as a result of the hurricanes in Texas, Florida, and Puerto 

Rico. Those impacted are in our thoughts and our prayers. They 

have a long road to recovery and this Committee stands ready to 

assist the administration in any way possible. 

Returning to today’s hearing topic, I want to thank you all for 

being here this morning. As the discussion surrounding tax reform 

echo in the capital, it is paramount that part of the conversation 

involves the job creators themselves, the startups, the entrepreneurs, and the small businesses that transform Main Streets all 

across America. Too often these small businesses are at a disadvantage. Beyond overbearing regulations and healthcare issues that 

seem insurmountable, the United States Tax Code consistently 

puts obstacles in front of small businesses. Instead of dedicating 

time and resources to creating the next big idea, small business 

owners must spend inordinate amounts of time just figuring what 

they owe the IRS. 

Not only does the Tax Code provide complexity and uncertainty 

to the Nation’s 29 million small businesses, but it also simply has 

not kept pace with modern technology. Innovation is changing how 

companies do business and how they are interacting with customers. The sharing economy is transforming how businesses operate, from food delivery to locating a contractor to work on your 

home, the advanced digital economy is building momentum. 

However, as the technology revolution changes business ecosystems, the Tax Code continues to hold small businesses back. 

That is why the ranking member and I introduced H.R. 3717, the 

Small Business Owners Tax Simplification Act of 2017, to update 

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2 

the Tax Code for all the Nation’s small businesses, entrepreneurs, 

and startups. H.R. 3717 aims to update the Tax Code by simplifying and modernizing approximately a dozen provisions such as 

realigning estimated payment deadlines and aligning the tax filing 

thresholds of the Form 1099-MISC and Form 1099-K forms. 

Moreover, H.R. 3717 will finally address the cafeteria plan issue 

that many small business owners face. While they can offer cafeteria benefit plans to their employees, such as health savings accounts, too many owners cannot participate themselves. H.R. 3717 

allows small business owners to both offer and participate in these 

pre-tax benefits. With the flexibility of the sharing economy driving 

some businesses, defining a worker versus an independent contractor versus an employee is critical. H.R. 3717 provides clarification as businesses navigate these important decisions by allowing 

companies to enter into voluntary withholding agreements and 

offer voluntary training without impacting worker classifications. 

While not exhaustive, H.R. 3717 is the result of multiple hearings 

and research, and it is a step in the right direction to providing equity for the Nation’s small businesses. 

Today, we will discuss how the Tax Code impacts small businesses and how proposed changes, like those outlined in H.R. 3717 

could impact the Nation’s job creators. 

I appreciate all the witnesses for being here today, and as Congress debates comprehensive tax reform, your thoughts and opinions could not be more timely. 

I am looking forward to your testimony, and I would now like to 

yield to the ranking member, Ms. Vela ́zquez, for her opening remarks. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

I would like to start by expressing my deepest condolences to all 

those harmed and impacted by the shooting in Las Vegas. I also 

want to thank all the first responders and medical personnel that 

responded so quickly. And I want to also thank the chairman and 

echo his comments regarding the hurricane victims, and I am glad 

to hear your willingness to help. 

Main Street is the heart of our economy and a better tax code 

will help it beat stronger. American small businesses have outgrown the tax code thanks in part to ever-changing technology and 

new forms of businesses. Small firms are a unique phenomenon because they do not fall neatly into our tax code. Some are taxed at 

corporate rates and others at individual rates. Some receive great 

benefits from provisions like Section 179 expensing. Others find 

more value in the startup deduction. These differences matter 

when we talk about small business tax reform. Unfortunately, not 

everyone understands such nuances. That was made abundantly 

clear by the framework released last week by the administration 

under Republican leadership. That plan ignores the fact that approximately 86 percent of pass-through entities are already taxed 

at rates lower than 25 percent, though we do not have a clear picture of exactly what incentives will be removed from the tax code 

to help pay for this costly plan. We do know that many of them 

will be at the expense of small firms. 

That is why today’s hearing is so timely. It not only gives us the 

opportunity to discuss tax reform from the perspective of small emSBREP-219A with DISTILLER

3 

ployers, it gives this Committee a chance to show how real bipartisanship can help firms thrive. I have had the pleasure to work with 

the chairman on H.R. 3717, the Small Business Owners Tax Simplifications Act of 2017, and believe it does what the administration’s framework did not, provide thoughtful modifications to simplify the code for our nation’s entrepreneurs. H.R. 3717 considers 

the changing nature of our economy by allowing for more flexibility 

for micro entrepreneurs in the sharing economy. It is important 

that as this technological revolution advances, government policy 

keeps pace and this is a first step. 

This bill also makes it easier for entrepreneurs to access 

healthcare and streamline reporting requirements. At first glance, 

these minor changes may not seem as important as lowering tax 

rates; however, they offer valuable targeted ways to give small employers what they have continually requested, simplicity and certainty. 

Yet, we could go a step further to improve the tax code for job 

creators as we work toward comprehensive tax reform. Congress 

should look at increasing the startup deduction, to offer benefits to 

entrepreneurs in the service industry, and encourage clean energy 

investment where small innovators are leading the way. 

But we cannot do this without input from small business owners. 

These entities are a vital part of that equation. It is my hope that 

today’s hearing will allow us to start a dialogue and begin the bipartisan process of building a better tax framework for our country’s small firms. 

On that note, I thank the witnesses for testifying and providing 

their valuable perspective. I yield back the balance of my time. 

Thank you, Mr. Chairman. 

Chairman CHABOT. Thank you very much. The gentlelady 

yields back. 

And if Committee members have opening statements prepared, I 

would ask that they be submitted for the record. 

And I would like to take just a moment to explain our lighting 

system and our timing system. Some of you have testified before 

and are familiar with this, but we basically operate under the 5- 

minute rule. You each get 5 minutes to testify. There is a lighting 

system to help you there. The yellow light will come on after 4 minutes and let you know you have a minute to wrap up and then the 

red light comes on. We would ask you all to stay within that timeframe if at all possible. And we also operate by the 5-minute rule, 

so we will ask questions after you are done and we will go back 

and forth between Republicans and Democrats. 

And before I introduce our distinguished panel, I would like to 

recognize somebody who is here. I happen to have three of my college football buddies who are coming to town today, one of their 

wives and somebody else. And one of them is here in this room 

today. We were roommates our second year. His name is Bob Booth 

and he was a small business person in the travel industry. Bob, 

why do you not you stand up? Let’s hear it for Bob Booth. All right. 

Ms. VELA ́ ZQUEZ. Was he a good player? 

Chairman CHABOT. New Yorker. Better high school player. 

Bob and I were roommates our second year at William and Mary 

and the guy I was my roommate my first year is also coming and 

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4 

his wife. And after my wife and I got married, we have been roommates for 44 years now. So there you go. 

So our first witness here on the panel will be Kristie Arslan. Ms. 

Arslan is the small business counsel and the entrepreneur-in-residence at the Small Business and Enterprise Council. She previously served as executive director of Women Impacting Public 

Policy and president and CEO of the National Association of the 

Self-employed. Ms. Arslan is also the owner of Popped! Republic, a 

small business popcorn company in Virginia. We appreciate you 

being here today. 

And we would also like to introduce the second witness who is 

Taylor Wyatt. Ms. Wyatt is the president of MotionMobs, a small 

custom design and application developer in Birmingham, Alabama 

with six employees. Ms. Wyatt is very active on numerous boards 

in the Birmingham area and on the verge of launching a new startup. We thank you also for joining us here today and I hope that 

you will share with the Committee a little bit more about your new 

venture. 

And I would now like to yield to Ms. Vela ́zquez to introduce our 

second two witnesses. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. It is my pleasure 

to introduce Mr. Miguel Centeno, partner of Shared Economy CPA. 

After 6 years as a tax consultant, he left management at a Big 

Four accounting firm to provide consulting services to micro entrepreneurs. Shared Economy CPA provides tax preparation services 

to 1099 independent contractors and those working in the sharing 

economy. Mr. Centeno, is an enrolled agent and represents taxpayers before the IRS and the U.S. Tax Court. He holds a B.S. in 

Economics and B.A. in Political Science and Government from Loyola Marymount University. Welcome. 

And then I will introduce—— 

Chairman CHABOT. Sure. 

Ms. VELA ́ ZQUEZ. And it is my pleasure to introduce Ms. Caroline Bruckner, managing director at the Kogod Tax Policy Center 

and Executive in Residence for Accounting and Taxation at the 

Kogod School of Business at American University. In this role, she 

has worked to release groundbreaking research on tax challenges 

facing the sharing economy and female entrepreneurs. Prior to her 

work, Ms. Bruckner was chief counsel for the Senate Committee on 

Small Business & Entrepreneurship and a senior associate at 

PricewaterhouseCoopers. She holds a law degree from George 

Mason University School of Law, a Tax LLM from Georgetown University Law Center, and a degree in Political Science from Emory 

University. Welcome. 

Chairman CHABOT. Thank you very much. You are all welcome. 

And Ms. Arslan, you are recognized for 5 minutes. 

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5 

STATEMENTS OF KRISTIE ARSLAN, ENTREPRENEUR-IN-RESIDENCE AND SMALL BUSINESS COUNSEL, SMALL BUSINESS & 

ENTREPRENEURSHIP COUNCIL; TAYLOR WYATT, PRESIDENT, MOTIONMOBS; MIGUEL CENTENO, PARTNER, SHARED 

ECONOMY CPA; CAROLINE BRUCKNER, MANAGING DIRECTOR, KOGOD TAX POLICY CENTER, EXECUTIVE-IN-RESIDENCE, ACCOUNTING AND TAXATION, KOGOD SCHOOL OF 

BUSINESS, AMERICAN UNIVERSITY 

STATEMENT OF KRISTIE ARSLAN 

Ms. ARSLAN. Thank you. Thank you, chairman, ranking member and all of the members of the Committee for allowing me to 

be here today to talk about this important issue. I am here today 

on behalf of the Small Business Entrepreneurship Council. I am 

currently their entrepreneur-in-residence, and as mentioned, I am 

also the co-owner of Popped! Republic Gourmet Popcorn, a gourmet 

popcorn company that I started with my husband about 5 years 

ago. So I always like to say I took all of my expertise and I now 

am an actual small business owner. 

AS many of you know, SBE Council has been around for over 25 

years advocating on behalf of small businesses. We are an advocacy, education, and research organization, and we really work to 

create an ecosystem that allows for both entrepreneurs and small 

businesses to start and grow. We have a nationwide network of 

over 100,000 members, and tax reform, as you know, is one of the 

top issues that are facing all of our members and small businesses 

at large at all phases of their business lifecycle. And working on 

tax reform will have a positive impact on the economy and their 

businesses. 

I always say, you know, in my time both as a policy expert and 

also now as a small business owner working with a lot of other 

small business owners, the great unifier amongst businesses big 

and small is their ire for the U.S. Tax Code, and also the anxiety 

derived from three simple words, the IRS. You can talk to any business. I have talked to businesses big and small and their biggest 

fear is getting a letter that says IRS on it. 

We really believe that the U.S. needs to look at the Tax Code and 

focus on creating a Tax Code that will encourage investment and 

growth, that fosters new business creation, and also alleviates the 

excessive compliance burden that costs businesses a lot of time and 

a lot of money. And we think that there are three key ways to accomplish this. First, tax reform, tax simplification, and also, tax 

cuts. 

I will first start talking a little bit about tax simplification and 

tax reform. I know you are all well versed in the Tax Code. There 

is over 2.4 million words in the Tax Code. It is so overwhelming 

I know for me as a business owner to try and figure out what I 

need to do reliably to comply with the Tax Code and ensure I am 

meeting all of those rules and regulations so that I do not miss 

something or are faced with a huge tax bill at the end of the day. 

And again, for the smallest businesses among us, our business, we 

have nine employees and then my husband and I, so 11 total. We 

cannot afford a fancy CFO. We cannot afford a full-time accountant 

on staff. We do not have someone telling us here is what you need 

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6 

to do or how to structure your business so you can maximize the 

tax code and tax benefits. We do not have someone monitoring 

small business tax policy or new rules coming down the pike that 

can forewarn us about how we need to do something. We are often 

left being reactive like many other small business owners when we 

would love to be proactive when it comes to taxes and tax regulations. And so we think that the current Tax Code really disadvantages small businesses and new entrepreneurs and we would like 

to see that change. 

Again, on top of the compliance burden, the Tax Code really has 

not kept pace with our changing economy. Technology has been a 

game changer. All of you know this. We will be talking about the 

shared economy. But it has been a game changer in terms of the 

way we do business even in my little small gourmet popcorn company. With ecommerce, the exposure of ecommerce in the sharing 

economy, people have different types of jobs. There are different 

types of businesses out there. And we really need policymakers to 

make changes to the tax code that will really bring it into the 21st 

century. I think that is why your bill is so important. The Small 

Business Owners Tax Simplification Act really begins to take that 

step to simplify and also modernize based on what is truly going 

on out there in the economy. It brings a lot of much needed simplification. 

I just want to highlight a few provisions that are going to be very 

important for small business owners. One, increasing the dollar 

thresholds required for filing 1099 forms from $600 to $1,500 is 

going to be of massive help to small business owners. It automatically for our business will cut our filing in half. So it will really 

help alleviate some of that compliance burden and paperwork burden on businesses and also kind of keeps pace with what is going 

on out there with the sharing economy. So I think that change will 

have a massive impact on the small business community. Aligning 

quarterly reporting requirements, something so simple but just 

helps us with planning better for small businesses will make a big 

difference. And I think also allowing business owners to both offer 

and participate in cafeteria plans would mitigate a lot of compliance challenges, but also, more importantly, considering this 

healthcare climate would really help expand coverage and benefit 

offerings in a lot of small businesses out there. So all those are 

great provisions, amongst a whole other host of provisions I think 

will be beneficial. So we are really pleased to support that bill. 

Additional recommendations I have on that front is that having—— 

Chairman CHABOT. I will tell you what. Maybe we will get to 

those in your questions if it is okay. 

Ms. ARSLAN. Sure. Sure. 

Chairman CHABOT. If you could just wrap up. 

Ms. ARSLAN. Sure. But things like looking at self-employment 

taxes and the threshold for that. Expanding HRAs would also be 

a benefit. 

And then I would like to just quickly address tax cuts. I know 

in this budget climate we are wanting to be smart, but I think 

small businesses really need to look at what can we do to allow 

them to keep more of our money. Businesses often use their own 

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revenue to grow and so it is critically important that we are able 

to keep more of our money in order to take that next step moving 

forward. 

Chairman CHABOT. Thank you. We will get to the rest of it in 

the questions. 

Ms. ARSLAN. Thank you. 

Chairman CHABOT. Thank you very much. 

Ms. Wyatt, you are recognized for 5 minutes. 

STATEMENT OF TAYLOR WYATT 

Ms. WYATT. Thank you, chairman, ranking member, and all 

members of the Committee for the invitation to testify today. I am 

really pleased to support H.R. 3717. My name is Taylor Wyatt, excuse me, and I founded a software consulting and development 

company in Birmingham, Alabama, 7 years ago. 

As both an entrepreneur and a consultant for small businesses, 

in my business, including startups in the sharing economy, this bill 

spoke to a lot of the impacts that it could have on my business and 

other businesses that I talk to every day. 

In my experience, the Tax Code is overly complicated. Without 

being an expert in Tax Code and dealing with it as the Committee 

does, it is very complicated to stop running your business just to 

figure out what you need to do to comply with these regulations. 

Our team has built several software products that touch, for example, payment processing components across state lines. And 

even trying to determine tax liability on goods and services sold 

across the state is very complex. And so those recommendations 

are really illustrative of our need to simplify things in the Tax 

Code and to make it easier for these businesses. 

As you know, small businesses create approximately 64 percent 

of new private sector jobs. And the Tax Code really is not friendly 

for these small and medium-sized businesses. Like many businesses fewer than 10 employees, and even like Ms. Arslan mentioned with her Popped! Republic company, we do not have a department or even a person dedicated to tax filings. Making the 

process of paying taxes and making it more user-friendly for our 

team is really a great step in the right direction. 

The purpose of this bill as I understand it is to modernize, clarify, and simplify provisions that apply to small businesses, and 

these are really laudable goals that I hope will really broaden the 

tax reform conversation. 

A few provisions really stand out, based on my experience. Section 5 of the bill requires the IRS to perform a test to determine 

that a bank account belongs to the proper taxpayer before depositing a refund. Because tax fraud is so rampant, the IRS depositing 

a refund into the wrong account is unfortunately too common. Reclaiming the funds deposited into the wrong account takes a great 

deal of time and resources. Somehow, an instance a few years ago, 

shortly after I had started my business, I received the notice that 

a deposit had been made incorrectly into my own account. It was 

somehow corrected on its own, but if it had not been, that would 

have been a huge process just for me to figure out what has happened, to reach out to the right person, and to start taking the 

right steps to correct that issue. 

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Another provision in this is the welcomed proposal and extension 

of the cafeteria plan benefits. This is extremely important for us. 

As our team of six, it actually excludes half of our company from 

currently participating in cafeteria plans with their ownership 

stake. So this would immediately change the nature of our company and how we could offer those plans to our team. 

The provisions, clarifying certain activities in the sharing economy that have an impact on the sharing economy is very important 

for us. We are getting ready to start a new startup called V2 Property Management Group and worker classification is such a huge 

part of the sharing economy currently and will affect us directly in 

this new startup. We are looking to hire workers on an as-needed 

basis to help manage buildings and to perform service tasks within 

those buildings. As part of that, we will be hiring a mix of both employees and independent contractors for those tasks, and our understanding of how these classifications work, how it impacts our 

business, especially as a startup so that we can appropriately 

project and prepare for funds is hugely important. 

But it is not just important to our business. Another business in 

our town, in Birmingham, Alabama, is a company called Shipt that 

has 250 employees and they have grocery delivery independent contractors now that they may want to offer voluntary training services to without impacting those classifications. They have 250 employees but they have thousands of employees when you include 

their independent contractors. And for us to do like Birmingham, 

you can imagine how that impacts our town, how it impacts the 

economic development, and we intend for V2 to play that type of 

role in our city and want to make sure that we really understand 

these classifications and just the impact that it is going to have. 

Thank you again for the opportunity to testify for this really important discussion and for you bringing it before us. 

Chairman CHABOT. Thank you very much. 

Mr. Centeno, you are recognized for 5 minutes. 

STATEMENT OF MIGUEL CENTENO 

Mr. CENTENO. Good morning, Honorable Congressmen and 

Congresswomen. I just want to take a moment to thank you for 

having me. It is an incredible privilege as an individual, as well as 

a tax partner at a CPA firm for 1099 workers. 

Chairman CHABOT. Do not screw it up. 

Mr. CENTENO. Well, thank you for that. 

But most of all, I am excited to have the opportunity to share 

with you a little bit about the stories of the people I talk to every 

day. What is neat about it is I have gone from Big Four dealing 

with vice presidents in tax accounting that did not want to talk to 

me, to small business owners that really are looking for help and 

advice. And it has been overwhelming almost. I was just sharing, 

you know, how is business? It is too overwhelming right now because the economy is growing. 

I have put some numbers in front of you just to talk about the 

magnitude of the industry, but if you just look at the top five companies, you are looking at a $100 billion space. But what makes it 

truly remarkable in the sharing economy are the players. These are 

not companies that are essentially doing, although they disagree; 

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what they are doing is they are getting the sharers and participants to really drive the activity. 

Just this morning I woke up in a home that was not my own and 

it was not that kind of night. I woke up in an Airbnb. Here, I got 

out of a car that was a complete stranger. I heard a cool story 

about a young lady in a graduate program at George Washington 

who is doing it on the side to hustle a little bit. 

So if there is anything I want to do, it is to tell you a little bit 

about their story and kind of how their intersection with tax is 

going because even small businesses have more sophistication than 

our entrepreneur, our solo entrepreneur. That is the term that we 

are using to describe it. 

So the sharers are really the meat of this and the numbers are 

incredible. The McKinsey Report suggests that one in three Americans at some level engage in independent contract work, and part 

of that spans the gig in the sharing economy. So what I am trying 

to share with you is that this affects or is going to affect a lot of 

people and it is not just your typical I am going to find capital and 

start a business person. This is somebody who gets home from 

work at night and is doing additional work on a platform like 

Upwork where they are trying to earn a little bit of cash, and lo 

and behold, all of a sudden they are sitting on something and they 

have no idea what their tax liability is. And that is where we come 

in. 

The stories that have really moved me though are the ones of 

people who would not have options outside the sharing economy. A 

single mom in Cincinnati, Ohio, who was able to list her home and 

not have to find a second job and now can stay at home with her 

kids, or the teacher in Urban LA where I am from who is able to 

do ridesharing to buy the school supplies that the school does not 

provide for. Those are the things that move me. And what troubles 

me is while I cannot help, the helplessness that I am approached 

with is always surprising. And what can I tell them? What can I 

tell them that their tax breaks are? What can I tell them that the 

silver bullet for their tax solution is? I do not have one. 

I spent many years at a big firm where I was locked up in some 

hole and stuck under pages of loopholes and options and structures 

and movements, but yet I have got nothing for the solopreneur. 

This bill is important. It is important to the people I am helping, 

but it is important to a very large demographic in America that is 

everywhere. And more than anything, what I would like to say to 

them is, hey, this year Congress did something. I love this bill. I 

like it. Directionally, it is pointing in the right direction. Magnitude-wise I would be shorting myself if I did not say it did not 

go further. I would love to see reporting requirements come down 

for the 1099. I would like to see some standardizations for the 

1099-K. It is just not enough in my eyes. 

Thank you for my time. I will yield the floor. 

Chairman CHABOT. Thank you very much. Appreciate it. 

Ms. Bruckner, you are recognized for 5 minutes. 

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STATEMENT OF CAROLINE BRUCKNER 

Ms. BRUCKNER. Members of the Committee and staff, thank 

you for the invitation to testify today. I am going to speak really 

fast because I have a lot to say. 

My name is Caroline Bruckner and I am a tax professor at American University. I am also the managing director of the Kogard Tax 

Policy Center, which conducts nonpartisan policy research on tax 

issues specific to small businesses. I appreciate the opportunity to 

share my views on this bill which I worked with Committee staff 

to develop because it includes essential tax code changes to address 

sharing economy tax compliance challenges that I brought to this 

Committee’s attention in my report, Shortchanged: The Tax Compliance Challenges of Small Business Operators Driving the On-Demand Platform Economy. This is a bipartisan bill proposing common sense changes to meet the needs of the growing sharing economy, as well as those of the self-employed small business owner. 

Three provisions of this bill stand out as good examples of the 

bill’s results-oriented approach. First, the changing of the due dates 

for quarterly estimated payments; second, the proposed alignment 

of the Form 1099-K and 1099-MISC filing income thresholds; and 

third, the reinstatement of the deduction for health insurance costs 

for the self-employed. 

First, by updating the due dates for the second and third quarter 

quarterly estimated payments to be due after a quarter’s end, the 

bill facilitates compliance because taxpayers will have better information for calculating net income, rather than having to rely on 

their best guess. 

Second, the bill proposes long overdue updates to the Form 1099 

filing thresholds. Expert economists have found that the sharing 

economy is the latest example of a 66 percent increase in alternative work arrangements which have almost doubled in number 

from 2005 to 2015. Income from a significant portion of these arrangements is tracked through Form 1099 filing. However, in 

Shortchanged, we found that 60 percent of sharing economy operators I surveyed did not have any Form 1099 for their platform income and we concluded that the $20,200 transaction threshold for 

credit card payments to be the primary reason why. 

In response to Shortchanged, the IRS and industry have acted to 

help taxpayers by launching the IRS Sharing Economy Tax Center 

on IRS.gov and some platforms have started to issue Form 1099- 

Ks even when not required to by law. This bill takes the next logical step by aligning the 1099 filing thresholds at $1,500. By lowering the filing threshold for Form 1099-K, the bill works to ensure 

at the very least that the majority of sharing economy operators 

will have the tax forms they need to file their taxes. At the same 

time, the bill modernizes the Form 1099-MISC threshold by raising 

it from $600 to $1,500 for the first time since 1954. 

By creating a uniform reporting standard for 1099-MISC and 

1099-K, the bill will generate greater compliance by both taxpayers 

and reporting entities because more taxpayers will receive Form 

1099s. It is really that simple. 

Third, this bill reinstates the deduction for healthcare costs for 

the self-employed that was temporarily available in the 2010 Small 

Business Jobs Act. That had an immediate effect on the health inSBREP-219A with DISTILLER

11 

surance costs of the self-employed small business owners. Let’s return to that. 

This bill is a common sense, results oriented approach to address 

tax challenges faced by America’s small businesses, but I urge the 

Committee to do more. As Congress moves forward with tax reform, this Committee should consider the tax challenges faced by 

women business owners, 99 percent of whom are small business 

owners. Our latest groundbreaking research, Billion Dollar Blind 

Spot: How the U.S. Tax Code’s Small Business Tax Expenditures 

Impact Women Business Owners, assessed how the Tax Code’s 

more than $255 billion of tax revisions designed to help small businesses grow and access capital impact women-owned firms. We 

found that while women-owned firms have increased in number by 

45 percent, a rate five times faster than the national average, the 

majority of women business owners are still small businesses operating in the services industry, and they continue to have challenges 

growing their businesses and accessing capital. Our survey data of 

engaged women owners corroborated our findings and suggested, 

however, that when women-owned firms can take advantage of tax 

breaks, they do. However, more work needs to be done to understand whether or not the Tax Code is operating as Congress intended for these small businesses. In answering the questions that 

we raised in our research impacting millions of women business 

owners, we found that Congress and stakeholders had a billion dollar blind spot when it comes to understanding how pervasive the 

tax challenges are with respect to women-owned firms. Ultimately, 

we urge this Committee to work with the tax writing committees 

to actually hold a hearing on these issues, for the first time ever. 

Second, we request that this Committee work with JCT to demand 

estimates on how small business expenditures impact womenowned firms, for the first time ever. In addition, we request that 

this Committee work with the Federal Commission on evidencebased policymaking to develop strategies for developing the data 

we need to measure how the Tax Code does impact these small 

business owners. 

Thank you very much for the opportunity to testify before you, 

and I am happy to answer any questions that you have. 

Chairman CHABOT. Thank you very much. You have got 20 

more seconds. Do you want to get any more words in there? That 

was impressive. Without doubt, in the 3 years that I have been 

chairman of this Committee, that is the most words in 4-1/2 minutes that we have ever gotten in. So well done. 

Okay. We will move to the questioning now. And I will begin 

with myself. Ms. Arslan, I will go to you first. 

As a small business owner, could you discuss your history and 

interaction, and of course, you mentioned in your testimony, but 

with cafeteria plans? And could you comment on H.R. 3717, the 

legislation that we are considering here, the impact that might 

have? Do you think we are heading in the right direction? 

Ms. ARSLAN. I do. One of the things I did want to mention is 

also maybe looking at HRAs as well. One of the big challenges for 

us as a business, we want to offer benefits to our employees. We 

are looking at right now how we can do that most cost effectively. 

Obviously, I think, you know, in my history working on small busiSBREP-219A with DISTILLER

12 

ness policy as well as now as a small business owner, allowing the 

owner to actually participate in the benefit will help establish—will 

be more of an incentive to establish the benefit. I think for us with 

the cafeteria plans, allowing us to participate will help exponentially in us deciding whether we go that route. One of the challenges with cafeteria plans is the employer contribution. Our employees, our concern is our employees will not have the additional 

income to be able to take that money, you know, tax-free out of 

their check to go towards the benefits, so we are also looking at 

health reimbursement arrangements which are something that we 

as the business owner set up for them. We essentially would reimburse whatever, a set amount that we decide with the health reimbursement arrangement. So, for example, we can say we are going 

to give each of our employees $500 of health expenses. They go out 

and, you know, go visit the doctor or pay for insurance premiums. 

They send us the bill or the receipt and we can expense that or reimburse them through a business expense. That for us might be 

the better choice because of the type of employees we have and 

their financial situation, so we would love to see the same change 

made to HRAs where the owner can participate in those as well. 

If you had both of those, I think you would see significant expansion and benefit opportunities for small businesses and their employees. 

Chairman CHABOT. Thank you very much. I appreciate it. 

Ms. Wyatt, I will go to you next. As an entrepreneur about to 

launch a new startup, you had mentioned the amount of time, the 

complexity of the tax code and how much time you have to spend 

doing that. And if you did not have to spend so much time doing 

that you could devote more time to your business and hopefully be 

even more successful and hopefully be able to hire more people who 

need jobs. Could you comment on the complexity of things and how 

that does impact the time that you allocate in a typical week or 

month or however you want to put it? 

Ms. WYATT. Absolutely. It is a huge impact on time. We do not 

have any person on our team at MotionMobs who is dedicated to 

anything related to the Tax Code, tax filings, things of that issue. 

And so it usually affects us in two ways. It takes up our team’s 

time to be focused on that. When an issue comes up that we have 

not been as proactive on because it is not a primary part of their 

expertise or their daily job. And in addition to that, we usually end 

up spending money on outside resources to help understand, to 

make sure that we are doing what is expected and what we need 

to do to help with those. Preparing to launch V2 Property Management Group, this has been a huge consideration for us because we 

are considering hiring a large number of both employees and independent contractors and making sure that we understand the requirements for each of the classifications is extremely important so 

we know going into this what the expectations are, how much time 

it is going to take, and what resources we need to allocate our time 

wisely and to make sure that we are making the correct hires in 

both categories. 

Chairman CHABOT. Okay. Thank you very much. 

And Mr. Centeno, you had mentioned in your testimony about 

how unique and how new businesses that you are dealing with in 

SBREP-219A with DISTILLER

13 

the sharing economy are coming. What impact does the Tax Code 

as it currently exists have on these folks? How do they pay their 

taxes, or a lot of them maybe not pay their taxes, and that sort of 

thing? And what, if any, impact do you think legislation like this 

might help? 

Mr. CENTENO. Yeah. I think the reality is that people show up 

and they say I just do not know. I have been a W-2 filer my whole 

life and you know, what do I do now that I have to track my own 

deductions and expenses? So for most of these filers we are talking 

about a Schedule C. So I think half the battle is just talking about 

compliance complexity, the question being how hard is it just to file 

under existing rules? And that seems to trip up a lot of the 

solopreneurs that we are talking about. And that is not even going 

into kind of, you know, tax benefits and where we can kind of simplify it. But I think where this bill really fits in, where it could 

grow is, you know, if we can update the Schedule C to actually reflect expense categories that happened in 2017, that would be a 

way forward. If you look at the Schedule C, tell me where to put 

software expense or tell me where to put any number of expenses. 

So I think just interpretation is one of the hiccups that someone 

who is not used to seeing tax language is going to get hit with. 

Chairman CHABOT. Thank you very much. 

Ms. Bruckner, I want to apologize to you. I did not use my time 

as efficiently as you did and I ran out of time, so I am going to 

have to call myself on that. 

And the ranking member is recognized for 5 minutes. 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

Ms. Bruckner, I have held some different events and roundtables 

on the challenges that women business owners face in accessing 

capital. And I just heard you talking about how the tax code treats 

female entrepreneurs. I would like for you to expand on that but 

also do it in light of the GOP, the Republican proposal that was 

just released last week. 

Ms. BRUCKNER. I think the first thing that we all need to take 

into account when we talk about the tax challenges of women business owners is that the Tax Code does not discriminate against 

women business owners. What we have not considered though is 

how women business owners have challenges accessing capital and 

scaling, and what we can use in our tax toolbox to help these small 

businesses grow because we do have small business tax provisions 

that are specifically designed to help small businesses grow and access capital. The challenge that I found in my research is that they 

are targeted to different industries and different organizational 

firm types than those in which women predominantly operate. So 

they are completely bypassing women who are typically not incorporated, like most small businesses, or women who are in primarily 

the services industries and not in production and construction or 

manufacturing. And these are issues that we have never considered 

because the Tax Code, in fact, does not discriminate against women 

business owners. But that does not mean that these policy challenges and questions are not something that Congress should consider when we know that women business owners have larger existing and pervasive problems accessing capital and trying to scale 

their businesses. 

SBREP-219A with DISTILLER

14 

In terms of the tax framework, I am still reviewing the specifics 

of it, but one thing that I think we should all keep in mind is that 

because business women owners tend to have challenges scaling 

and growing, their receipts tend to be lower. And so 90 percent of 

women business owners report receipts. And that is not net; that 

is just receipts based on the latest commerce data of under 

$100,000 a year. So they are already paying at the lower marginal 

rates. 

Ms. VELA ́ ZQUEZ. Thank you. Thank you. 

Mr. Centeno, the 1099-MISC is used to report payments to independent contractors, but the threshold has not been adjusted since 

1954. Additionally, the 1099-K is required when payments are 

made exceeding $20,000 per year and for more than 200 transactions. Do the micro entrepreneurs you work with fully understand the differences between these forms and how can updating 

the thresholds create more simplicity for them? 

Mr. CENTENO. I think the short answer is no. You know, understanding the differences only becomes necessary when it is in 

the mail. So I think one is what the micro entrepreneur, the 

solopreneur receives, and that is the 1099-K. So what we are seeing right now is a lot of confusion. Someone saying, hey, I made 

$18,000 on Airbnb. I did not get anything. Do I need to report it? 

And I would say on the margins you are going to see underreporting. And perhaps in the future if there is ever audit of 

Airbnb payouts they are going to get called back and audited. And 

we have seen that. We have seen someone say I did not get a 1099- 

K so I did not report it and now I am getting audited. What do I 

do? 

On the 1099-MISC, I think the last update says enough. The last 

time it was updated was 1956? 

Ms. VELA ́ ZQUEZ. 1954. 

Mr. CENTENO. Who was in office? 

Ms. VELA ́ ZQUEZ. I was not born. Thank you. 

Ms. Arslan, Mr. Centeno, you both mentioned the self-employment threshold. Would you like to elaborate on that? 

Ms. ARSLAN. Yeah, sure. So currently it is at $400, and that 

threshold has also never been updated. And so if you would adjust 

it annually we would be around $6,000. And so really taking a look 

at that, especially in light of the sharing economy, looking at what 

we can do to modernize that threshold I think would be significantly important for both the sharing economy and also self-employment. A lot of people, as you know, test the waters and just 

try and see if it is something that they are interested in doing. So 

let’s help incentivize entrepreneurship and support the sharing 

economy to look at modernizing that threshold. 

Ms. VELA ́ ZQUEZ. Thank you. 

I yield back. Thank you. 

Chairman CHABOT. The gentlelady yields back. Thank you very 

much. 

The gentleman from Iowa, Mr. Blum, who is the chairman on the 

Subcommittee on Agriculture, Energy, and Trade is recognized for 

5 minutes. 

Mr. BLUM. Thank you, Chairman Chabot, and thank you for 

being here today to our witnesses. 

SBREP-219A with DISTILLER

15 

Ms. Bruckner, you mentioned the date 1954, I believe, and it just 

came up again. Are you implying that 1954 was a long, long time 

ago? And before you answer, I was born in 1955. 

Ms. BRUCKNER. So the filing threshold for 1099-MISC made its 

way into the code when it was revised one of the times that Congress has successfully undertaken tax reform, which was in 1954. 

And that is when they established the $600 threshold, which adjusted for today’s term by inflation which would be in excess of 

$6,500 today. 

Mr. BLUM. For the record, that is a long time ago. 

The new tax reform package we introduced last week, the unified 

framework for it, we are debating it now, so this is very timely. 

One of the two major goals of this tax reform package is economic 

growth. We have been growing over the last 10 years at 50 percent 

of the post-World War II average and that hurts every small business because it is in our DNA—I am a small business person—to 

grow; correct? So I would like to hear from each of you if you could 

take about a minute each, what part of the current Tax Code do 

you think needs to be changed or eliminated so that small businesses can grow and we can achieve 3 percent GDP growth for our 

economy nationwide? What is the biggest thing? 

Ms. ARSLAN. Well, I know we talked a little bit about passthrough entities. My gourmet popcorn company is a pass-through 

entity. We do pay taxes on the higher end, and so if we would get 

some sort of tax cut for pass-through entities, we would have more 

money in our pocket. We are currently looking to open another location. We would add anywhere from 6 to 10 new jobs with that 

new location. We want to fund it with our current revenue. We do 

not want to have to add new debt, especially because it is so challenging for a business of my size to get access to capital. Even 

though we launched our business with a loan and paid it off 2 

years earlier, we still have trouble with banks getting additional 

funding to open another location. And so that money would be used 

for us for additional growth and job creation, so really looking at 

pass-through entities and what we can do on their tax rates would 

be really important. 

I also think overall simplification. Why does it have to be so hard 

for us to file our taxes? Why do we have to spend the amount of 

time and money to comply with the code? Again, more money that 

could go back reinvested in our business. 

Mr. BLUM. Thank you. 

Ms. Wyatt? 

Ms. WYATT. To focus on just one issue, worker classification I 

think is going to be a very important part, both in this bill and in 

the overall conversation. We have heard about a lot of different 

companies in the sharing economy today. We have talked about 

Airbnb and Uber and I mentioned Shipt, the company in my town, 

Birmingham. And my new startup, V2, all of them are working 

with a combination of both employees and independent contractors 

and the classifications are confusing for both larger companies and 

small businesses alike. And while Shipt, as I mentioned, has 250 

employees now and over 1,000 independent contractor, they were 

a startup 2 years ago with just a few employees and just a few 

independent contractors. And looking at that growth in their busiSBREP-219A with DISTILLER

16 

ness and in many others across the country and wanting to take 

that on, I want to understand what we are getting into to understand these classifications better, and I think it is important for 

other small businesses and startup entrepreneurs to understand 

those classifications so they can experience that growth. 

Mr. BLUM. Thank you. 

Mr. Centeno? 

Mr. CENTENO. I will piggyback on that a little bit. I mean, it 

is very important. As we start to see entities or people go from 

startup to scale, we see a lot of confusion around that. And we have 

seen business owners go to freelancers from India or overseas because they are worried having a local independent contractor is 

going to trigger some of the self-employment taxes. 

Mr. BLUM. What is the single biggest thing in the current Tax 

Code that needs to be changed or eliminated to have us increase 

our economic growth? Single biggest thing? 

Mr. CENTENO. Self-employment threshold. 

Mr. BLUM. Go ahead. 

Mr. CENTENO. Self-employment threshold. I think that one, especially if we have solopreneurs who are testing the water. They 

are getting hit and I have seen it. They say, you know what? I 

made 4 grand but I am getting hit at 15 percent. I am out. You 

just had an entrepreneur quit. 

Mr. BLUM. We have 12 seconds left. Ms. Bruckner, but you 

speak fast, so go for it. Go for it. 

Ms. BRUCKNER. I would reconsider what we can do to enhance 

the startup deduction. I think that that is an overlooked, underutilized. It is something that Kristie Arslan could use immediately if 

it was more generous to help capitalize her second location. And I 

think that is one of those expenditures that should remain in the 

code because we do have economic evidence that it is successful. I 

think that it is definitely the number one thing I would look at. 

Mr. BLUM. Thank you. My time is expired. I yield back. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time has expired. 

The gentleman from Pennsylvania, Mr. Evans, who is the ranking member on the Subcommittee of Economic Growth, Tax, and 

Capital Access is recognized for 5 minutes. 

Mr. EVANS. Thank you, Mr. Chairman. 

Mr. Centeno, I want to go back to something you said earlier in 

terms of this bill, you would go further. Three specific ways you 

would say you would go further than what this bill is proposing at 

this point? 

Mr. CENTENO. Well, I can give you one. Two might take me a 

little more time. 

Mr. EVANS. Okay. 

Mr. CENTENO. And, yeah, so I think an exemption on self-employment income would be a good way forward. $6,500 seems to be 

the inflation amount that we are talking about, so that would be 

good directionally. 

On the 1099-MISC form, we would like to see that go up. I cannot tell you how many business owners do not understand at the 

end of the year how much they have got to send out because they 

tested out three or four different independent contractors. So raisSBREP-219A with DISTILLER

17 

ing that threshold would be very powerful if done at a significant 

level. Increasing at the rate now, it just does not go far enough in 

my opinion. 

Mr. EVANS. Ms. Bruckner, small firms often have the fewest resources to spend on accountants to work through complicated tax 

problems like workers’ classification. What steps can be taken to 

put small businesses on a level playing field when it comes to their 

tax compliance? 

Ms. BRUCKNER. I think that the number one thing that we can 

do is education outreach. Make it easier for people to access the information that they need from the IRS, and I think that if people 

can answer these questions by looking it up on their smartphones, 

which that is how most people have access to the Internet, modernizing the technology that the IRS uses to make it more easily accessible for taxpayers to answer tax questions easily and in a straightforward manner would go a long way to solving compliance problems. 

Mr. EVANS. What I sense from your testimony, and you can tell 

me if you think I am correct, do you think the Tax Code is friendly 

to small businesses? 

Ms. BRUCKNER. I do not think taxes are friendly to anyone. I 

do not like paying them myself but I do it because I am a patriotic 

American. And I think that I also have deep, deep concerns about 

our current budget picture. And what I am all about is—— 

Mr. EVANS. Tell me exactly what do you mean when you say 

‘‘deep concerns about the budget picture’’? 

Ms. BRUCKNER. I have very deep concerns about our current 

state of our debt and deficit and the trajection at which we are 

going. What I think that we can do now though to make life better 

for people is make it easier for people to comply with the rules as 

they are. I think that it is very important to focus on compliance 

and efficiency and making life better and making real changes that 

small businesses can take less time having to figure out their 

taxes. Making compliance challenges more efficient. Making the 

IRS more efficient will go a long way to addressing the hassle of 

paying taxes without addressing the larger question of how much 

we actually pay in taxes. 

Mr. EVANS. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Chairman CHABOT. Thank you. The gentleman yields back. 

The gentleman from South Carolina, Mr. Norman, is recognized 

for 5 minutes. 

Mr. NORMAN. First of all, I want to thank you all for coming. 

I am going to start off with a comment and then I will ask a question. 

I am a small business. I am a developer. The number one thing 

that you all could do as small business people and as tax preparers 

is tell your reps the things you are telling us. Have a group. 

Groups scare politicians. And I have been in the private sector. 

Now I am on the political end. But you can imagine the people that 

come to us now, all of us, with their hand out. It is the deficit that 

you are talking about that I am very concerned with, so what you 

can help us with is tell your story, get your reps in a room and tell 

SBREP-219A with DISTILLER

18 

them you want a meeting with them. Ask them some of the very 

things and suggest the things you are telling us. 

Let me ask, I guess, Ms. Arslan and Ms. Wyatt, when you hire 

people, what is the decision-making whether to hire an independent contractor versus putting them on the payroll? Is it 

healthcare, tort reform, or tort issues? 

Ms. ARSLAN. It is labor cost. For our type of business, it is our 

labor cost and managing labor cost, and based on our needs. Also, 

the type of work we need. If we need someone who has a particular 

expertise, we tend to look at them more as an independent contractor, how we can hire them as a contractor, versus if we need 

staff to do the daily functions of our business. And that is how we 

make those distinctions for our business. So, for example, most of 

the contractors we hire have specialized skillsets. Our accountant, 

the person helping us with our marketing, the gentleman that handles all of the repair of our specialized equipment, those people 

working on our food truck. So all those people have specialized 

skills, so we hire them as contractors. Anyone helping us with daily 

operations, we hire them as employees and that helps kind of keep 

for us the distinction so that we do not fall into that murky gray 

area of 20 questions to figure out contractor or not. So that is how 

we make those distinctions in our business. 

Ms. WYATT. For us, for the last 7 years at MotionMobs, we have 

paid all of our full-time employees 100 percent of their healthcare 

benefits for them and for their families. And what I have found is 

that that is very uncommon amongst other small businesses in our 

area and across the country. And so we are really dedicated to our 

staff. We really care about company culture and we care about setting good expectations when we hire employees. So if we are asking 

them to make a commitment to work with us and to call them after 

hours and to really be committed to what we are putting together, 

we try to show that in return. And so understanding this worker 

classification that I have been talking about going into this new 

startup, we are going to have a core set of employees who are 

working full time and who we are providing benefits for, and then 

separately, we are going to have a team that has specialized skills, 

and specifically is set up such that when a building needs a maintenance request, we can send that request out in an on-demand 

manner just like you would order a car with Uber in an on-demand 

manner. And therefore, we would need contractors to fulfill those 

requests for those tasks. In those circumstances, we are looking at 

them currently as independent contractors but really want to understand, for example, if we need to provide limited training on 

when they access someone’s building and they are accessing their 

property and we are responsible for it. If we provide that training, 

does that mean that they are going to be classified as an employee? 

And how does that affect us as a brand new business with limited 

funds if our workers’ classifications of hundreds of people suddenly 

shifts from an independent contractor to an employee classification? 

I also want to point out that I understand that we do not want 

to impose employee-like obligations on those independent contractors such that we would just be classifying them as independent 

contractors to avoid something. But all of this is why we really 

SBREP-219A with DISTILLER

19 

want to understand more about these classifications and how this 

bill could clarify that for our current business and our new business. 

Mr. NORMAN. In the startups, or as new businesses and starting new businesses, anything that you could—where would we go, 

where would you advise us to go further with the Tax Code? 

Ms. ARSLAN. I think that Caroline mentioned the startup deduction. I think that is important. I would love to be able to see 

existing businesses be able to use the startup deduction when they 

are opening new locations. It is a whole new business but we would 

have to, you know, we do not get any more tax benefit for opening 

up new locations. I think, again, dealing with some of the thresholds that this bill does, looking at self-employment thresholds, I 

think looking at tax cuts, and then simplification are all things 

that will help us move forward. But at the end of the day I think 

with the deficit in mind, I still think we need to have a tax cut that 

is going to incentivize entrepreneurship. 

Mr. NORMAN. Right. 

Ms. ARSLAN. Incentivize people wanting to start businesses and 

stay in small business. 

Mr. NORMAN. I think my time is expired. Thank you all so 

much. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time has expired. 

The gentleman from Florida, Mr. Lawson, who is the ranking 

member of the Subcommittee on Health and Technology is recognized for 5 minutes. 

Mr. LAWSON. Thank you. That was very interesting to hear all 

of you all. But I wanted to know, there is a lot of talk about small 

businesses in general and what the needs may be in regards to tax 

reform. But what consideration for microbusinesses should be 

taken into consideration during this discussion of tax reform? And 

everyone can respond to it. 

Ms. BRUCKNER. I think first and foremost this bill represents 

some of those needs. Number one, by lowering the 1099-K threshold from $20,000 to $1,500 to make sure people actually get the 

forms that they need to file their taxes would go a long way. That 

could impact as many as, you know, millions and millions of people 

that are operating in the sharing economy. Also, raising the threshold for 1099-MISC. But I also think the allowance for the deduction 

for the self-employed that had been allowed under the Small Business Jobs Act in 2010, reinstating that would help small business 

owners who are paying for their own health insurance go a long 

way to deducting those costs and help make health insurance more 

affordable for that population. 

Mr. CENTENO. Yeah, I mean, the components of filing a tax return are what you know and what you have got. Right? So being 

able to get the right tax form in the mail when you have done the 

work is part of what you have got. And the other part, I am not 

sure how to answer. How do you educate a country that does not 

include any tax or finance in education? Now, I know this is not 

the Education Committee, but I am seriously wondering because 

people ask us all the time, you know, what is the resource that we 

should go to? The IRS does have a new website, and we get a lot 

SBREP-219A with DISTILLER

20 

of traffic of people finding a dead end and then coming to our 

website. This is really not a response to the question which is, 

yeah, what can be done to educate taxpayers on the minimums 

that they need to do? Because we have a lot of solopreneurs who 

just have no idea, throw their hands up and quit the business. 

Ms. WYATT. I think H.R. 3717 does a lot of things and takes a 

lot of steps in the right direction. I am excited about some of the 

provisions in the bill such as the cafeteria plans and that being an 

option. Right now it excludes half of my team, so if this was available now this would have a huge impact on my current company, 

MotionMobs. And the worker classification that we have been talking about I think is really important. In terms of how you can go 

further, currently how it is proposed is worker classifications would 

be voluntary training. You could provide voluntary training to independent contractors, and in the sharing economy, like we have discussed with several companies and with my new startup, there are 

cases where you may want to provide training to them and make 

that training mandatory in certain circumstances. And so finding 

the right balance between mandatory training and not imposing 

employee-like obligations on independent contractors I think is a 

tough balance but something definitely to consider because it is 

such an important issue. 

Ms. ARSLAN. As a microbusiness, I think that the Small Business Owners Tax Simplification Act is going in the right direction. 

I think additionally doing things like modernizing or increasing the 

threshold on self-employment income would go a long way for 

smaller businesses. Expansion of HRAs. Looking at the startup deduction, ways we can use that as well. I think all would help microbusinesses. 

And I do think something that was discussed is what can we do 

to continue to support things like the Small Business Development 

Centers, Women Business Centers, because they do a lot of on-theground training on tax stuff during tax time on teaching these selfemployed and microbusinesses on what they are responsible for, 

how to understand the Schedule C form. And so how can we support them better in that training and education so that smaller 

businesses and microbusinesses know what is required of them, 

and what can we do to make the IRS more responsive to questions 

from smaller businesses so they can clearly understand their compliance obligations? 

Mr. LAWSON. My time is almost out but I wanted to know when 

do you make the decision about whether that employee is—how 

many hours can that employee work before they be considered a 

full-time employee in reference to someone you contract out with 

for tax purpose? And you might not be able to answer but, you 

know. 

Ms. WYATT. I am not certain what the exact time is. For us, in 

reference to the sharing economy, I think that it is going to be for 

specialty skillsets. So 20 hours would be a lot during the week but 

I am not exactly certain what the right timeframe should be. I 

think it is more around what obligations are required of that contractor versus employee. 

Mr. LAWSON. Okay. I yield back, Mr. Chairman. 

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Chairman CHABOT. Thank you very much. The gentleman’s 

time is expired. 

The gentleman from Nebraska, Mr. Bacon, is recognized for 5 

minutes. 

Mr. BACON. Thank you, Mr. Chairman. And I appreciate all 

four of you being here and your feedback on this bill. 

After hearing your feedback, reading the bill, and doing the hard 

work the chairman and the ranking member have done on this, I 

will be a cosponsor as of today, so you earned my support. 

I also want to support you for just your general comments today 

because what the four of you cumulatively have talked about is the 

themes that we have heard since I have been on this Committee 

since January. So I think we have heard from many that 

healthcare costs for small businesses are a top issue. We have 

heard red tape. And I think you mentioned it really well how hard 

it is to work through all the regulations and you just cannot hire 

someone to do this costly. I have heard about pass-through, you 

know, tax rates. Also, the access to capital. And those are the four 

common themes that we keep hearing and I think you all, three 

of the four of you have touched on those four. 

I would like to just go back to the bigger tax law that we are 

working on, just get your feedback and some have here. If we lower 

the C corp rates to 20 percent, S corp to 25 percent, remove all of 

those deductions so people are paying around 25 percent or 20 depending on what you are, is this helpful? 

Ms. ARSLAN. With taxes I always say ‘‘the devil is in the details’’. I think the framework is a great start. I do want to say, I 

think in terms of the business ecosystem, there is an ecosystem between large and little firms. We want large firms to be competitive 

because that helps our little business. We do a lot of business with 

big companies. 

Mr. BACON. Right. 

Ms. ARSLAN. And so we think it needs to be done simultaneously, both on the corporate side and the small business side. I 

do not think you can leave out one. But ‘‘the devil is in the details’’ 

because all these deductions matter when you are looking as a 

small business owner. For us, expensing, reporting requirements, 

thresholds, all of that matters, so we really need to see what it is 

going to look like at the end of the day to see how it is truly going 

to impact our business. 

Mr. BACON. I got the impression earlier that you were paying 

above 25 percent. 

Ms. ARSLAN. We are. Yes. 

Mr. BACON. So getting this down to 25 is a good thing. 

Ms. ARSLAN. On the face of it, lowering the pass-through rates 

would benefit our business. I would also like to see what deductions might be adjusted and how that would balance out for our 

business. 

Mr. BACON. Okay. Any other commentary? 

Ms. WYATT. The details of how it is lowered and just specifically, what tax credits are affected. Currently, approximately 64 

percent of new private sector jobs are from small businesses, and 

I really like our return on investment on some of these tax credits. 

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I own an office building in Birmingham, and in our city the historic 

tax credit has been such a huge part of revitalizing the city. 

Mr. BACON. I was a cosponsor on that, too, but you are right. 

That may go away with the simplification to lower the rates. 

Ms. WYATT. It could. And so I think you have to look at the tax 

credits as the huge return on investment for small businesses and 

for examples like the historic tax credit as well. 

Mr. BACON. Right. 

Ms. WYATT. So I think it is very important to study the details, 

and yes, lower taxes can be great but we have to look at where it 

is coming from and if it is better to leave those credits in. 

Mr. BACON. Thank you. Any other comments? 

Mr. CENTENO. Yeah, I mean, I will say, you know, kind of the 

question we have in our circles is, you know, what do we give up 

for that? 

Mr. BACON. A lot of deductions. But we will get you down to 25 

or 20. 

Mr. CENTENO. No, and I think anecdotally, you are going to see 

a lot of people, there are already a lot of S corps. You are going 

to see a lot of people move into S corps. Even solopreneurs. We are 

kind of seeing that. So when you hit a certain threshold it probably 

makes sense and there is probably benefit. And those are the kind 

of scenarios that we run. So there is certainly a benefit there. 

Mr. BACON. Thank you. 

Ms. Bruckner? 

Ms. BRUCKNER. I think that, as Kristie said, ‘‘the devil is in 

the details’’, and before moving forward I think that we would definitely have to have the input of the Joint Committee on Tax and 

CBO to see exactly how this is going to impact the debt and deficit 

because, remember, if we throw our debt and deficit out of whack, 

that does a lot of damage in terms of financing down the road for 

small businesses because it could have an impact on interest rates 

and how much interest that we are having to pay on the debt. And 

that is something that is of concern. As someone that worked on 

the Budget Control Act of 2011, I know how serious it can be when 

the credit rating agencies decide to take action or make commentary on our ability to pay our debts and that is something that 

would concern me. 

Mr. BACON. With my remaining time maybe I will just focus on 

Ms. Arslan. I think you have already talked about healthcare a little bit. Can you talk a little bit about how the individual market 

has impacted your business with the ACA? 

Ms. ARSLAN. Sure. We actually get our health insurance 

through the exchange in Virginia, and our rates have gone up 

every year the past three years double digit. I am literally paying 

almost equal to my mortgage for our health insurance for my family of four. And then every year also we have had insurers leave 

the exchange, so trying to figure out what the best way is to find 

coverage. Again, we want to make sure that our—we want that 

balance. We need lower costs. We want to be able to offer benefits 

for our employees which is why things like cafeteria plan expansion 

and HRA expansion would be a huge help for our business, especially if us as owners can participate in that. But what can we do 

to address some of the affordability costs. 

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Mr. BACON. Right. 

Ms. ARSLAN. While also making sure that people have access to 

coverage. 

Mr. BACON. I would love to have asked the other three of you, 

too, but I am out of time. Thank you. 

Chairman CHABOT. Thank you very much. The gentleman’s 

time has expired. 

In closing, we want to thank the panel for your excellent testimony here this morning. And now this afternoon. I think you did 

a great job, and this will certainly help us not only in H.R. 3717, 

and we hear your support. That is the one where the ranking member and I are cosponsors of the legislation, so I think it is safe to 

say we probably will not necessarily completely agree with the 

overall tax reform that Congress is considering right now. That will 

be a little bit tougher one I think for both sides to come together 

on, but with this one we are in sync. And I think the plan is to 

hopefully have this included in the overall tax reform, if at all possible. So we will see how this all plays out. But thank you very 

much. 

We ask unanimous consent that members have 5 legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. And if there is no further business 

to come before the Committee, we are adjourned. 

Thank you very much. 

[Whereupon, at 12:14 p.m., the Committee was adjourned.] 

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A P P E N D I X 

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Chairman Chabot, Ranking Member Velazquez and Members of 

the Committee, thank you for allowing me to participate in this important hearing today on behalf of the Small Business & Entrepreneurship Council (SBE Council). In addition to acting as SBE 

Council’s Entrepreneur-in-Residence, I am also the co-owner of 

Popped! Republic Gourmet Popcorn, a small business in Alexandria, Virginia. 

SBE Council is a nonpartisan, nonprofit advocacy, research and 

education organization dedicated to protecting small business and 

promoting entrepreneurship. For nearly 25 years SBE Council has 

worked to advance a range of policy and private sector initiatives 

to strengthen the ecosystem for startups and small business 

growth. We have a nationwide network of more than 100,000 members and as one of those members, I welcome this opportunity to 

discuss the importance of tax reform to small business, at all 

phases in their business lifecycle, and the positive impact it can 

have on our economy. 

In the September 25, 2017 CNBC/SurveyMonkey Small Business 

Survey of over 2,200 business owners, taxes topped the list of ‘‘critical issues,’’ for small business, beating out health care, regulation, 

and customer demand. This issue is not solely a small business 

issue—nearly nine in 10 CEO chief executive respondents to the 

Business Roundtable’s September 2017 economic outlook survey 

identified the tax code as the most important disadvantage to the 

U.S. economy relative to other major economies. The great unifier 

amongst businesses big and small is their ire for the U.S. tax code 

and the anxiety derived from three simple letters—the IRS. 

The U.S. business community is in dire need of a tax code that 

encourages investment and growth, fosters new business creation, 

and alleviates the excessive compliance burden costing businesses 

both substantial time and money. Three ways to accomplish this— 

tax cuts, tax reform, and tax simplification. 

Tax Simplification & Tax Reform 

With over 2.4 million words, the tax code is so overwhelming 

that it is extremely difficult for small business taxpayers to reliably 

and accurately comply with the breadth of tax regulations. Most especially, the smallest businesses among us who cannot afford an 

accountant or CFO to consistently monitor the tax code and tax 

policy are the most disadvantaged. 

According to a 2016 Tax Foundation study, Americans will spend 

more than 8.9 billion hours complying with IRS tax filing requirements in 2016. The majority those hours was spent complying with 

business tax regulations (2.8 billion hours) and individual income 

tax requirements (2.6 billion hours.) The price tag for this compliance burden was $409 billion last year. 

On top of the compliance burden, our tax code has not kept pace 

with our changing economy. Technology has been a game changer 

in the way we do business, evident by the explosion of ecommerce 

and the sharing economy. Policymakers need to consider changes 

to the tax code to bring it into the 21st Century. 

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The Small Business Owner’s Tax Simplification Act (H.R. 3717), 

cosponsored by Chair Chabot and Ranking Member Velazquez on 

this committee is a necessary first step and would bring about 

much needed simplification and reform to our tax code. 

Key provisions such as increasing the dollar threshold required for filing a 1099-MISC form from $600 to $1,500, aligning quarterly 

reporting deadlines, and allowing business owners to both offer and 

participate in Cafeteria Plans would mitigate compliance challenges as well as expand benefit offerings for small businesses. 

Additional Recommendations 

To further modernize the code, SBE Council recommends that 

the committee look at the current $400 threshold on self-employment taxes, which has never been updated. If the self-employment 

tax floor had been adjusted at the same rate as the standard deduction on federal income, which is adjusted annually, it would be 

more than $6,000. Updating this threshold would give new entrepreneurs a better chance for success and encourage more people to 

start businesses. 

Similar to the expansion of Section 125 Cafeteria Plans laid out 

in H.R. 3717, we encourage the committee to also consider the expansion health reimbursement arrangements (HRAs) found in Section 105 of the Internal Revenue Code. HRAs are a flexible benefit 

option that allows small business owners to reimburse employees 

tax free four out-of-pocket medical costs, including health insurance 

premiums. 

Key features of an HRA is that they do not require the business 

owner to purchase a group health plan nor require any contribution 

from employees out of their paycheck. Thus, business owners unable to provide health insurance as a benefit to their workers due 

to affordability and those with lower wage staff that cannot afford 

to set aside funds, can utilize an HRA to offer some financial assistance to their employees for their health costs. Unfortunately, 

like Cafeteria plans business owners cannot participate in their 

own HRA. SBE Council supports amending HRAs to allow business 

owner participation. 

Tax Cuts 

Providing tax cuts to small business and their corporate partners 

are also a vital component to kickstarting economic growth. SBE 

Council supports reducing both the tax rate of pass-through entities and the corporate tax rate. 

Over 90% of businesses are—LLCs, partnerships, sole proprietorships or S corps—that pay their taxes based on their individual income tax rate. For these business, every dollar is typically reinvested back into their business to help with operations and growth. 

Our business, Popped! Republic Gourmet Popcorn, is currently 

structured as an LLC. This structure dictates that we pay taxes 

based on our individual income tax rate and as owners we are not 

considered employees thus when we pay ourselves, we are then responsible for paying estimated taxes to the IRS. Additionally, as 

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our revenue grows we need to be mindful of our tax status to ensure we are not faced with a huge tax bill at the end of the year. 

Thus, tax cuts and tax reform are very important to us and our 

business, as well as something we are always thinking about as we 

make business decisions. 

We hit our 5-year anniversary this May, at present have 11 employees and are currently in growth mode. We now operate a store 

in Alexandria, VA, a mobile food truck in D.C. and we just opened 

a kiosk location at the Fort Belvoir Military Base. We are working 

to add another retail location in northern Virginia which would create an additional six to eight jobs. We would like to fund this 

growth with the revenue from our existing business operations. 

Tax cuts on pass through entities such as ours, would allow us 

to keep more of our money to fund this expansion and minimize 

our need to take on increased debt. Growth, job creation, and enhancing the local economy—the exact mantra we’ve heard from 

lawmakers year over year. 

You may ask, why should a small business care about the corporate tax rate. Reducing and reforming the corporate income tax 

rate is not just a ‘‘big business’’ issue. According to the latest Census Bureau data, 86 percent of corporations have less than 20 employees, and 96.7 percent less than 100 workers. Many of these 

businesses are in high-growth sectors, and they—as well as their 

employees and our economy—would benefit tremendously from reducing the corporate rate. Additionally, small businesses such as 

our gourmet popcorn company, do significant business with corporations and large companies. Their health and competitiveness 

impacts our bottom line. 

Reducing the tax rates for small and large businesses alike 

would provide a needed jolt to the economic ecosystem in our nation to spur growth and job creation. 

Conclusion 

A surprising ‘‘Gap Analysis’’ report on entrepreneurship release 

by SBE Council this year found that there is a massive shortfall 

of businesses—some 3.4 million ‘‘missing’’ businesses, compared to 

where we should be based on historical trends and key data related 

to incorporated and unincorporated self-employed, and employer 

firms as shares of the relevant population. A top priority of SBE 

Council is to promote policy that will enable greater levels of business ownership and support existing entrepreneurs. 

We believe that a pro-growth tax code is vital to reinvigorate entrepreneurship and improve the competitiveness of the U.S. economy. Our nation needs a tax code that enables small business sustainability and growth—the combined approach of tax cuts, tax reform and tax simplification will get us there. 

We appreciate this committee’s consistent support of small businesses and commitment to work together to find bipartisan solutions to the challenges business owners face on this issue and others. 

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