U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

97–831 2016

TAX EXTENDERS AND SMALL BUSINESSES AS 

EMPLOYERS OF CHOICE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND 

CAPITAL ACCESS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

DECEMBER 3, 2015 

Small Business Committee Document Number 114–032 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

STEVE CHABOT, Ohio, Chairman 

STEVE KING, Iowa 

BLAINE LUETKEMEYER, Missouri 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

CHRIS GIBSON, New York 

DAVE BRAT, Virginia 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa 

STEVE KNIGHT, California 

CARLOS CURBELO, Florida 

MIKE BOST, Illinois 

CRESENT HARDY, Nevada 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

YVETTE CLARK, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRENDA LAWRENCE, Michigan 

ALMA ADAMS, North Carolina 

SETH MOULTON, Massachusetts 

MARK TAKAI, Hawaii 

KEVIN FITZPATRICK, Staff Director 

STEPHEN DENIS, Deputy Staff Director for Policy 

JAN OLIVER, Deputy Staff Director for Operation 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

SBREP-219 with DISTILLER

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Mike Kelly ....................................................................................................... 1 

Hon. Judy Chu ......................................................................................................... 2 

WITNESSES 

Mr. Jason Duff, Founder and CEO, Bellefontaine Ohio Properties, Ltd., 

Huntsville, OH, testifying on behalf of the Small Business Entrepreneurship Council .......................................................................................................... 4 

Mr. Todd Kriegel, CEO, Global Precision Parts, Inc., Van Wert, OH, testifying 

on behalf of the Precision Machined Products Association .............................. 5 

Rich Shavell, CPA, CVA, CCIFP, President, Shavell & Company, P.A., Boca 

Raton, FL, testifying on behalf of the Associated Builders and Contractors .. 7 

Tom Nichols, Esq., Attorney and Chairman of the Board of Advisors of the 

S Corporation Association, Meissner Tierney Fisher & Nichols S.C., Milwaukee, WI, testifying on behalf of the S Corporation Association ................. 9 

APPENDIX 

Prepared Statements: 

Mr. Jason Duff, Founder and CEO, Bellefontaine Ohio Properties, Ltd., 

Huntsville, OH, testifying on behalf of the Small Business Entrepreneurship Council ........................................................................................... 17 

Mr. Todd Kriegel, CEO, Global Precision Parts, Inc., Van Wert, OH, 

testifying on behalf of the Precision Machined Products Association ...... 21 

Rich Shavell, CPA, CVA, CCIFP, President, Shavell & Company, P.A., 

Boca Raton, FL, testifying on behalf of the Associated Builders and 

Contractors .................................................................................................... 26 

Tom Nichols, Esq., Attorney and Chairman of the Board of Advisors 

of the S Corporation Association, Meissner Tierney Fisher & Nichols 

S.C., Milwaukee, WI, testifying on behalf of the S Corporation Association ................................................................................................................. 31 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

None. 

SBREP-219 with DISTILLER

SBREP-219 with DISTILLER

(1) 

TAX EXTENDERS AND SMALL BUSINESSES AS 

EMPLOYERS OF CHOICE 

THURSDAY, DECEMBER 3, 2015 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360, Rayburn House Office Building. Hon. Trent Kelly presiding. 

Present: Representatives Kelly, Chabot, Huelskamp, Radewagen, 

and Chu. 

Mr. KELLY. Good morning. I call this hearing to order. 

I would like to start by thanking the witnesses, especially the 

small business owners who have traveled here from different parts 

of the country, for being here today. 

Being a small business owner in America is a tough job. No matter what your business, you must wear many different hats. In addition to doing what you went into business for in the first place, 

you probably have to tackle responsibilities as a tax accountant, 

advertising executive, regulations expert, fund-raiser, and human 

resources expert as well. Yet, throughout history, entrepreneurs in 

America have done all these things and more. One of the things 

that is critical for small business owners is finding, attracting, and 

retaining qualified employees. To find success in today’s global 

economy, companies know that creative, adaptable, and engaged 

employees are a critical asset, and while recent surveys show that 

Americans hold small businesses in high esteem, at a rate of three 

times higher than big businesses, small firms still have to aggressively compete with firms of all sizes to fill out their rosters. To 

win this war for talent, firms know that they must become employees of choice so that their organizations can bring together the best 

individuals to work on the challenges and opportunities of a new 

and ever-changing economy. Increasingly, these small businesses 

have expanded the traditional benefits they offer prospective employees in the face of greater competition for talent. 

We have had small firms testify before our committee in the past 

that offer new benefits that small firms would not traditionally 

offer, such as flex time packages with greater work-home balance, 

wellness programs with financial incentives, or bonuses with stock 

options and profit-sharing arrangements. But the competition is 

not always fair. Sometimes, small business owners’ ability to compete for talented employees can be hindered by federal regulatory 

or statutory action, or in some cases, inaction. 

SBREP-219 with DISTILLER

2 

One area of particular importance is tax policy. Most small businesses find it difficult to stay current on tax laws because so many 

tax revisions are temporary. Effective only for a few years or even 

months, and regularly extended, these provisions, commonly referred to as ‘‘tax extenders’’ leave small business owners guessing 

about their tax liabilities each year. This is in contrast to large 

firms that often have tax attorneys and accountants on staff to 

help them get a better grasp of their tax liability in any given year. 

While they dislike the uncertainty the extenders provide, most 

small firms welcome the extension of these provisions because they 

result in lower tax bills and provide opportunities for them to invest in their businesses. Among the most popular are bonus depreciation, section 179 expensing, and the research and experimentation tax credit. 

I suspect that our witnesses today will give us ideas as to what 

they would like to see in the extenders package. I am looking forward to hearing your thoughts. 

Again, I want to thank all of you for taking the time to testify 

before us today. I now yield to our ranking member, Ms. Chu, for 

her opening statement. 

Ms. CHU. Thank you, Mr. Chair. And thank you all for being 

here today. 

As we approach another last minute extension of various tax provisions, it is critical that we continue our efforts to strengthen 

small business by putting certainty back into our tax code. We all 

know that failure to take any action creates greater uncertainty 

and in the end hurts our small businesses who provide two out of 

every three new net jobs in our country. This hearing today will 

give the Committee the opportunity to examine just how useful tax 

extenders are to small business and why their temporary nature 

creates great challenges. 

Section 179 expensing remains one of the most essential tax provisions for small employers in all industries. It is an invaluable tool 

which provides benefits to small firms by giving them bigger immediate write-offs, reduced paperwork and money to invest back into 

their businesses. It also serves as a spark to the economy as money 

saved now is injected back into the marketplace. 

While small businesses primarily utilize and benefit from the enhanced section 179 expensing provisions, several other extender 

provisions are critical to small firms. One such incentive is the research and experimentation credit, the R&D credit. Although this 

tax credit is a source of frustration for many taxpayers due to its 

temporary status and complex rules, it has reduced business costs 

for new research by as much as 7 percent. But most importantly, 

over 70 percent of the benefits from the credit are attributable to 

high-paying, domestic, research-based job salaries. 

With the end of the year fast approaching, the nation’s fiscal 

health is on the minds of many Americans, especially small business owners, and as a member of this Committee, I am well aware 

of the challenges created by the Internal Revenue Code and the 

major obstacles that uncertainty has on business growth. We cannot pass another retroactive extension that applies only to the 2015 

tax year. This singular focus does not help our nation’s job creators; 

instead, it hinders their ability to plan for the future and harms 

SBREP-219 with DISTILLER

3 

the overall economy. We depend on these businesses to spur economic growth by expanding operations, but they cannot do this 

without the existing tax incentives they have come to rely on. 

These provisions are critical for small businesses, and it is also 

critical that we implement these extensions in fiscally responsible 

manners. 

The primary way to achieve this goal is through comprehensive 

tax reform. Long-term reforms will encourage small entities to 

make purchases now and in years to come. Providing this certainty 

helps put money back in the pockets to invest and hire now. 

I would like to thank the witnesses for their participation today, 

and I look forward to their testimony. I yield back. 

Mr. KELLY. If Committee members have an opening statement 

prepared, I ask that they be submitted for the record. 

I would like to take a moment to explain the timing limits for 

you. You will each have 5 minutes to deliver your testimony. The 

light will start out as green. When you have 1 minute remaining, 

the light will turn yellow. Finally, at the end of your 5 minutes it 

will turn red. I ask that you try to adhere to the time limit. 

And with that said, now I will introduce the witnesses. I will do 

all of you and then I will let the ranking member introduce her 

witness. 

Our first witness is Jason Duff, founder and CEO of Bellefontaine Ohio Properties, a development firm that purchases and 

remodels storefront buildings in Bellefontaine, Ohio. The firm then 

works to attract, recruit, and start new businesses in the community. In addition to his real estate business, Jason is also a third 

generation business owner, working for his family-owned enterprise, Ohio Ready Mix. He is a regular advice contributor to INC., 

Forbes, and Entrepreneur magazines, and is testifying on behalf of 

the Small Business Entrepreneurship Council. Thank you for being 

with us today, Mr. Duff. 

Up next will be Todd Kriegel, CEO of Global Precision Parts, 

Inc., or GPP. A family-owned business, GPP has three locations in 

the Midwest with approximately 200 team members. The company 

sells into the automotive light truck, plumbing, heavy truck, 

HVAC, tube fabrication, hydraulic, and munitions industries. Testifying on behalf of the Precision Machine Products Association, 

Todd serves on their Government Affairs Committee and Board of 

Directors. We appreciate your participation today, Mr. Kriegel. 

Our next witness is Rich Shavell, president of Shavell and Company, a CPA and consultation firm based in South Florida. The 

company serves contractors of all sizes with financial statement, 

tax, and consulting services. Rich is a long-time member of the Associated Builders and Contractors where he has served as chair of 

the National Tax Advisory Group and chair of the Legislative Committee of ABC’s Florida East Coast Chapter. He has also served as 

chair of the Construction Financial Management Association National Tax and Legislative Affairs Committee. He is testifying on 

behalf of the Associated Builders and Contractors today. Thank you 

again, Mr. Shavell. 

I yield to Ms. Chu for the introduction of Mr. Nichols. 

Ms. CHU. It is my pleasure to introduce Mr. Thomas Nichols, an 

attorney and partner at Meissner Tierney Fisher and Nichols. This 

SBREP-219 with DISTILLER

4 

firm is over 160 years old and the second oldest firm in Wisconsin. 

Mr. Nichols also serves as the chairman of the Board of Advisors 

of the S Corporation Association, and recently served as chair of 

the S Corporation’s Committee of the ABA section of Taxation. Mr. 

Nichols, thank you for joining us today. 

Mr. KELLY. I now yield 5 minutes to Mr. Duff for your opening 

statement. 

STATEMENTS OF JASON DUFF, FOUNDER AND CEO, BELLEFONTAINE OHIO PROPERTIES, LTD.; TODD KRIEGEL, CEO, 

GLOBAL PRECISION PARTS, INC.; RICH SHAVELL, CPA, CVA, 

CCIFP, PRESIDENT, SHAVELL & COMPANY, P.A.; TOM NICHOLS, ESQ., ATTORNEY AND CHAIRMAN OF THE BOARD OF 

ADVISORS OF THE S CORPORATION ASSOCIATION, MEISSNER TIERNEY FISHER & NICHOLS S.C. 

STATEMENT OF JASON DUFF 

Mr. DUFF. Good morning, Chairman Kelly, Ranking Member 

Chu, and members of the Subcommittee. Thank you for the invitation to provide testimony today on the important issue of strengthening the nation’s small businesses. 

My name is Jason Duff, founder and CEO of Bellefontaine Ohio 

Properties. I am a third-generation family business owner and have 

founded several companies of my own. I started my first business 

when I was 8 years old, selling candy bars. In my earlier years, I 

have also sold custom greeting cards, made-to-fit shoes, stamps, 

coins, and even Beanie Babies. 

Bellefontaine Ohio Properties purchases and remodels storefront 

buildings on Main Street. We attract, recruit, and start new businesses in our community. To date, I have purchased and renovated 

14 different historic buildings in our downtown. My passion is to 

build and grow smart, vibrant, and entrepreneurial communities. 

Bellefontaine Ohio now has a multitude of diverse stores and businesses due to the revitalization efforts. These businesses are a 

gourmet pizza shop, baker, hair salon, CrossFit gym, several new 

antique stores, and a brew pub. All of these have helped create our 

downtown having life and vibrancy. Construction has also begun at 

eight new loft apartments on the second story of our buildings. 

Bellefontaine is an area that other communities are taking notice 

of in terms of our approaches and best practices to restoration. I 

am proud to say that our work in Bellefontaine has all been accomplished in the past 4 years. 

While growing assets on our balance sheet is important, I find 

that our greatest asset in my company is our employees, so recruiting and hiring talented employees is a very important piece of our 

success. On this front, I must compete with businesses of all sizes 

to find talented employees I need to operate effectively and productively. I am committed to building a team of people who love their 

community and allow my employees flex time to run and serve in 

public office, volunteer with local service organizations, like Rotary 

and Kiwanis, and have the time they need to successfully raise 

their families. Providing employees with key benefits, like workplace flexibility truly make us and other small businesses an employer of choice. 

SBREP-219 with DISTILLER

5 

Small businesses play a crucial role in the vitality of job growth 

in a local community like Bellefontaine. When we are healthy and 

growing, we are providing consistent quality and skilled job opportunities. When we invest and renovate a commercial storefront, for 

example, we hire local carpenters, plumbers, and electricians. 

Many of our renovation projects have contributed to the direct job 

growth in local trades. We also work with these local companies in 

purchasing cabinetry, flooring, and light fixtures. These investments in hiring local businesses equate to new tax dollars that benefit our municipalities, our schools, and our service organizations. 

As you are aware, the key tax measure, like enhanced section 

179 expensing and bonus depreciation that are part of the tax extenders have expired and were only made retroactive very late in 

2014 for that year. For 2015, businesses like mine have been planning and operating under the outdated section 179 expensing level 

of $25,000. 

The uncertainty of bonus depreciation also affects my investment 

decisions. Bonus depreciation is a benefit that has influenced smart 

decisions for my business. I have purchased new equipment versus 

used equipment because of bonus depreciation, and that new equipment is more efficient, reliable, and cost effective in the long term. 

I believe that these investment incentives are making a positive 

impact in keeping small businesses competitive. With a stable and 

enhanced 179 provision and certainty on bonus depreciation, I am 

able to invest more capital in projects. Again, these projects start 

new small businesses that in turn provide valuable contributions to 

my community. These new businesses create jobs, increase property values, and grow local revenues. 

Here is my basic advice for government work to work better and 

smarter for small business owners and encourage entrepreneurship. Make permanent the incentives, making permanent the most 

robust levels of the section 179 expensing, as well as bonus depreciation, will provide small businesses with practical and needed 

tools to grow, invest, and work harder. The type of stability and 

certainty is critically important. Make the tax code simpler. Simplifying the tax code would reduce complexity and costs for entrepreneurs. The more time and money we have to invest in our businesses, the stronger enterprises will become. Be clear, provide clarity to small business owners. Give us an opportunity to know and 

understand the rules so that we can plan and play by them for the 

future. Provide clear instruction so we can focus on the growth of 

our businesses and invest with confidence and make a long-term 

commitment. Businesses forecast and plan far into the future. A 

smart tax code would mirror effective business planning. Investment thrives when it is encouraged when there is certainty. 

Thank you for the opportunity to share my experiences and my 

views with you today. It is truly an honor to be able to do so, and 

I look forward to your questions in discussion. 

Mr. KELLY. Thank you, Mr. Duff. 

And now I recognize Mr. Kriegel for his opening statement. 

STATEMENT OF TODD KRIEGEL 

Mr. KRIEGEL. Good morning. Thank you for allowing me to testify today. My name is Todd Kriegel. I am the CEO of Global PreciSBREP-219 with DISTILLER

6 

sion Parts, otherwise known as GPP, a family-owned business with 

80 employees in Indiana, and 120 employees split between two facilities in Ohio. 

I am here today to underscore the importance of small business 

manufacturing in America and call on Congress to make permanent key tax provisions which fuel our economy. We founded GPP 

in 1989 as a privately-held family business. I increasingly think 

about what the future holds for my three children manufacturing 

and employees working in our facilities. 

Instability in the tax code prevents manufactures from planning 

investment, hiring more workers, and purchasing new equipment, 

especially for small businesses in industries with razor-thin profit 

margins. In the real world, we cannot simply assume Congress will 

retroactively extend business investment provisions and spend 

money we may not have at the end of the year. 

I am a member of the Precision Machine Products Association, 

whose members flew to Washington this week to personally stress 

the importance of addressing these expired tax provisions. To prepare for our visit to Capitol Hill, PMPA conducted a quick survey 

of its members on which tax provisions they use to compete globally. Respondents average 60 employees, similar to our facilities in 

Ohio and Indiana, yet despite being small businesses, they invest 

heavily in capital equipment, expecting to spend on average 

$552,000 in 2015. Most machines for our industries start at a quarter million dollars and can exceed $2.5 million. At Global Precision 

Parts, to maintain a competitive edge, we continuously buy new 

equipment, spending roughly $2 million each year. 

Because of our capital investments, bonus depreciation is by far most important to us. In 2014, it saved our company $151,000, 

money we used to hire more employees and purchase additional 

equipment. In the precision manufacturing industry, not only is our 

equipment expensive and heavy, it takes time to place into service, 

often 8 weeks to 18 months. Congress extending the expired provisions on December 11th does little for a small business who cannot 

finance, purchase, and place into service a 10-ton machine by December 31st when the provision expires again. 

There is a misleading impression amongst some in Washington 

that bonus costs the Federal government money in lost revenue. 

However, the government does receive the revenue over the life of 

the equipment, but the provision provides smaller companies like 

ours an immediate discount on the price of the new machine we 

could not otherwise afford. The survey also showed the typical precision parts manufacturer claimed nearly $370,000 in section 179 

equipment expensing for 2014. 

When Congress fails to extend this key tax provision, small businesses have a major hole to fill in their budget. This means we will 

cut our current year spending on new equipment and often suspend 

investment for the coming year. Remember, lower machine orders 

by companies like mine mean fewer workers are hired and less tax 

revenue is collected throughout the supply chain. 

Inside the beltway, you may not feel the ripple effects of your inaction, but in the real world we certainly do. When we do not know 

what the future holds, businesses like bankers spend less, take 

fewer risks, and reduce or stop hiring altogether. As a responsible 

SBREP-219 with DISTILLER

7 

business owner, I have to find a way to cover that $150,000 gap 

Congress created for our company if bonus depreciation remains 

expired. 

According to our association survey, dysfunction in Washington would cost the average small manufacturer $600,000 if bonus depreciation section 179 and the R&D tax credit remain expired. Who 

is going to cover the $600,000 tab Congress unnecessarily created? 

This is why we need comprehensive tax reform for all businesses. 

C corporations or pass-throughs, large and small, family-owned or 

publicly-traded. Like most family-owned companies, we are a passthrough, meaning we pay taxes at the much higher individual rate, 

which for us was 39.4 percent last year. If Congress lowers the tax 

rate only for C corporations, Washington will leave behind millions 

of small manufacturers like us to pay the higher taxes. 

Making the expired provisions permanent and tackling comprehensive tax reform is not about paying fewer taxes. GPP’s effective tax rate increased by over 11 percent between 2008 and 2014, 

sending hundreds of thousands of dollars to Washington rather 

than putting it in workers’ pockets. Yes, I said workers’ pockets, 

because at GPP last year, we reinvested 71 percent of our profits 

back into the business. 

Uncertainty surrounding the few tax provisions intended to encourage manufacturing in America is a self-inflicted drag on 

growth. I believe that small businesses can continue deriving the 

economy; however, Congress must make permanent bonus depreciation, section 179 equipment expensing, and the R&D tax credit 

to allow small businesses to invest and plan for the future. 

Thank you for allowing me the opportunity to testify before you 

today on this important issue. 

Mr. KELLY. Thank you for your testimony, Mr. Kriegel. 

We have House votes on the House floor, so we will adjourn for 

about 45 minutes and then have the next two witnesses and reconvene after the votes. 

[Recess] 

Mr. KELLY. Okay. We will reconvene at this time, and with that 

said, we now ask for the opening statement of Mr. Shavell. 

STATEMENT OF RICH SHAVELL 

Mr. SHAVELL. Thank you. My name is Rich Shavell, testifying 

on behalf of Associated Builders and Contractors, a national construction industry trade association with 70 chapters representing 

21,000 members. I am president of Shavell and Company, a full 

service CPA and consulting firm that focuses on services to closelyheld commercial contractors. 

The subject of this hearing is very appropriate as small businesses, in fact, the employer of choice for the average American, 

not only within the commercial construction industry but throughout the U.S. economy. 

Small businesses, and particularly small contractors, are excellent employers for several reasons. First, there is plenty of work in 

commercial construction because we are facing a severe labor shortage. Secondly, training is available for new workers to the industry. According to the ABC Institute in South Florida, the value of 

being a graduated registered apprentice is worth $300,000 addiSBREP-219 with DISTILLER

8 

tional dollars during the career of the typical worker. Moreover, the 

construction industry fosters the realization of the American 

dream. Through effort and determination, many construction workers find themselves picking up small jobs, working them with their 

peers afterhours and on weekends. Anecdotal evidence suggests 

that seasoned workers can earn significant amounts of money this 

way until they are ready to leave their regular position to pursue 

their own businesses on a full-time basis. The single biggest challenge facing small business today is widespread uncertainty and 

specifically, uncertain federal tax policies are chipping away at 

these small businesses’ ability to effectively operate. 

From my perspective there are two main tax issues. First, Congress must do its job and pass tax legislation to stabilize the tax 

environment. The continual expiration of effective dates for tax incentives and other tax provisions included in the Annual Extenders 

Bill hurts the business community, and particularly the small business. Right now, as we are approaching the end of the year, contractors have to project and plan for their 2015 tax liabilities, yet 

it is unknown whether the tax extenders will even be in the law. 

Second, for commercial contractors, Congress should finally rectify certain tax provisions that are hurting these small contractors. 

In 1986, Congress passed legislation that was intended to curb 

abuses by aerospace and defense contractors and how they, these 

large businesses, utilize the completed contract method. The required use of the percentage of completion method was forced upon 

all businesses who perform work under long-term contracts. To address this burden, a small contractor exception was put in place in 

1986 with a $10 million revenue threshold. Almost 30 years later, 

that threshold has never been updated. 

For comparison, Small Business Administration currently utilizes a threshold of $36.5 million. We continue to ask Congress to do 

three things to address this. First, update the small contractor 

threshold from $10 million to $40 million. Second, index the 

threshold going forward. And thirdly, eliminate the section 56(a)(3) 

addback requirement for alternative minimum tax purposes, for 

AMT tax purposes. This third item would eliminate the requirement that is currently law, that revenues from long-term contracts 

we reported under the percentage of completion method solely for 

AMT purposes. So even though they have the small contractor exception, they still have to use percentage of completion solely for 

AMT. And a further horrific result is that the small contractor 

today is required to go through complex computations under the 

lookback method solely for AMT purposes. By eliminating this 

AMT adjustment, this ridiculous lookback requirement would 

eliminated for so many small businesses. 

In summary, Congress must do its job by adding permanency to 

the tax system, and thereby, provide certainty for small businesses, 

including contractors. Moreover, it is time for Congress to rectify 

the wrong that was done in 1987 whereby commercial contractors 

are still saddled with complex tax requirements that were not even 

intended to impact them. It is time to make that right. 

Thank you. 

Mr. KELLY. At this time, I would like to recognize our chairman, 

Mr. Chabot, who has now shown up for the entire Committee, and 

SBREP-219 with DISTILLER

9 

with that said, I now yield to our ranking member, Ms. Chu, for 

the introduction of our next witness. 

Ms. CHU. Well, I did introduce him earlier. So, but I hope that 

you can just testify now. 

Mr. KELLY. I am sorry. Mr. Nichols, at this time, if you will give 

us your opening statement. 

STATEMENT OF TOM NICHOLS 

Mr. NICHOLS. Thank you very much. 

Chairman Kelly and Chairman Chabot, Ranking Member Chu, 

thank you very much for asking me to testify today. 

I am a member and past chair of the ABA Tax Sections Committee on S corporations, and I am currently chairman of the 

Board of Advisors of the S Corporation Association. I have been 

representing closely-held businesses since 1979. 

There are many issues that divide members of Congress, but fortunately, the role Main Street businesses play in creating jobs is 

not one of them. Everybody understands that closely-held businesses create most of the new jobs and employ the majority of the 

private sector workforce; what is less known is the role of startup 

businesses in this success. As the Kauffman Foundation has made 

clear, without startups there would simply be no net new job creation. We need startups to grow the jobs base. The challenge for 

policymakers is that business startup activity has declined sharply 

in recent years. To help reverse this trend, there are a number of 

bipartisan steps that Congress could take to ensure these businesses resume their critical role as a source of jobs, innovation, and 

growth. I will briefly describe four of them. 

First, Congress needs to stop retroactively adopting the so-called 

‘‘extenders.’’ Many of these provisions are of critical importance to 

small business and their retroactive adoption at the end of the year 

creates unnecessary hardship for business owners. For example, I 

have spent considerable time over the past several years answering 

the question of whether the 5-year or the 10-year recognition period for built-in gains tax will apply. The only response I could give 

is that it will probably be 5 years, but that clients cannot count on 

it. This has created a number of difficulties. Several of my farming 

clients, for example, wanted to sell while farmland prices were at 

their peak. Unfortunately, those in the critical 6- to 10-year limbo 

period were unable to commit to sale absent a sale absent congressional action, and now it appears that the optimal time for selling 

may be gone. This makes no sense. Built-in gains relief and other 

business extender provisions are clearly good policy and should be 

made permanent. 

A second, unforced error is section 409A. It imposes rigid guidelines for deferred compensation plan, violation of which triggers 

substantial penalties on employees, even though the corresponding 

tax deduction to their employers has also been deferred. Section 

409A creates an unnecessary impediment to offering employees deferred benefits. In our practice, we have had to restate phantom 

stock plan documents in order to comply with these new rules, 

while some of our clients have simply decided to forgo offering deferred compensation at all. 

SBREP-219 with DISTILLER

10 

This provision represents such poor policy that the full American 

Bar Association Tax Section has come out against it. 

Third, the Affordable Care Act is being implemented in a way 

that has serious negative consequences for even employers with 

less than 50 employees. The IRS has taken the questionable position that the HRAs and other employer plans that reimburse individual policies somehow run afoul of the market reform provisions 

of the ACA. This contorted position is particularly burdensome for 

small, closely-held businesses. One client at a longstanding HRA 

that provided generous reimbursement for premiums on health insurance policies selected by the individual employees, his employees like the plan and so did he, but they just could not keep it. In 

fact, I understand that the NFIB has estimated that 16 percent of 

small businesses are in violation of this provisions. 

The penalties of running afoul of this questionable position are 

draconian. A small employer with only 10 employees could face a 

penalty of $365,000 in any given year. There is bipartisan legislation to correct this interpretation, and I urge you to accelerate the 

passage of this bill, perhaps as part of the extenders legislation. 

Fourth, the IRS has adopted comprehensive regulations relating 

to the capitalization of capital expenditures, including a safe harbor 

for expenditures of $500,000 or less. This is good policy, but it only 

applies to taxpayers who have so-called applicable financial statements, such as those required by the SEC. Entities that do not 

have these statements get a much lower standard of just $500. 

That includes many, many closely-held businesses. This unfairness 

should be corrected as part of the upcoming extender package as 

well. 

These are just four areas where Congress could act in a bipartisan way to help Main Street businesses create and maintain good 

jobs. Once again, I would like to thank the Committee for holding 

the hearing and inviting me to testify. We sincerely appreciate all 

your efforts to fix these and other unnecessary burdens small businesses face. 

Mr. KELLY. At this time, I recognize myself for 5 minutes to ask 

questions to the panel. 

During the past 6 years or so, the number of business deaths has 

outpaced the number of business formations, and we have discussed that quite a lot in our Committee this year. In other words, 

more businesses are failing each year than are being created. This 

is a big problem. Do you any of you feel that the increasingly complicated nature of the tax code has played a role in the number of 

business deaths that we have seen in recent years? 

Mr. Duff? 

Mr. DUFF. Entrepreneurs inherently are risk-takers. They are 

people that believe or have ideas, and they want to go out to the 

marketplace and try to solve that problem. But as regulations increase, as things become more confusing and difficult to understand, their ability to stomach that risk is challenged, and at some 

point I see in my work on Main Street some people just throw their 

hands up and give up. I believe by us working to make some of 

these provisions permanent, specifically the section 179 deduction, 

it gives businesses that certainty so they can plan and they can 

SBREP-219 with DISTILLER

11 

speak and inspire other entrepreneurs to take a leadership role in 

opening new businesses. 

Mr. KELLY. Anyone else? 

Mr. NICHOLS. Certainly. 

Mr. KELLY. Mr. Nichols? 

Mr. NICHOLS. There is no question that the complexity and 

even the delayed complexity where they are balancing not only the 

issue of a very complicated set of rules, but also whether or not 

those rules will apply and how they will apply. There is no question that it has a dampening effect. It is the equivalent of being 

told you might have cancer. Yes, technically, you can do everything 

you could have done before, but at the end of the day, you do not 

really know and it is going to slow down your long-term thinking. 

Mr. KELLY. Mr. Kriegel, you talked a little bit about the nexus 

of access to financing and tax liability in your written testimony. 

Could you talk a little more about the interplay between certainty 

in the tax code and assessing financing and capital you need in 

your line of business? 

Mr. KRIEGEL. Sure. I would be happy to. 

So, obviously, you complete budgets that are 5 or 10 years out 

so that you know what your expenses are going to be. With these 

tax extenders, not knowing at the end of the year whether we are 

going to have to fill $150,000 or $250,000 hole, those are dollars 

that we necessarily do not have laying around. So, in my opinion, 

that just, for future years, that minimizes the investments that you 

are going to make, and you have got to readjust your budget constantly. 

Mr. KELLY. Thank you. 

And Mr. Duff, if there were to be an extenders package passed 

next week, could you realistically take advantage and make a snap 

decision, get something ordered, delivered, and installed in time to 

get the tax break? 

Mr. DUFF. When we pass laws that retroactively impact the previous year in such a short timeframe, it makes it very difficult to 

be able to plan and make intelligent decisions. The work that we 

do in purchasing buildings that have been vacant for 30 years, and 

recruiting new businesses to occupy and fill them, there is a lot of 

equipment and needs that need to be purchased, but there is a lot 

of planning that has to happen. So making sure that we provide 

provisions that are clear and give us a runway to plan throughout 

the future would help relieve some of those problems. 

Mr. KELLY. Thank you. 

And Mr. Shavell, in the past, we have had witnesses that have 

said that some small business tax incentives, such as the Small 

Business Healthcare Tax Credit established in Obamacare are not 

worth the time. Have you found this to be the case when working 

with small firms? And how does this contrast provisions like section 179 or bonus depreciation? 

Mr. SHAVELL. Well, there is a lot in these extenders, and some 

of them are small, but some of them are important, too. And not 

just to the commercial contractors that we represent, but also to 

the families of the workers. I mean, you start right at the top of 

the list there and you see the deduction for state and local, state 

taxes, very important to everybody in Florida where we do not have 

SBREP-219 with DISTILLER

12 

the state income tax. I have clients whose spouses are teachers. 

They look for that small amount every year as an adjustment. 

The other bigger items that have been mentioned here already, 

section 179, bonus depreciation, things like that, are very important to small businesses. Anybody who is paying a little more tax 

than they should have, they do not like it, whether it is a small 

item or a big item. But let me give you an example of that section 

179 where this is really important this year. I have a particular client who purchased equipment last year, 2014. He purchased to the 

max, but because of other requirements in the code, he could not 

get the entire benefit, so he has a carryover, six digit carryover of 

section 179 deduction that we let carry over because we anticipated 

income in this year, in 2015. He is now faced with a $25,000 

threshold, and that is incongruent with the intent. He did what 

was expected. He utilized the incentive in 2014. He may not get the 

full benefit in 2015. We are going to have to relook at that. 

Mr. KELLY. Thank you very much. My time is expired. 

I next recognize the ranking member, Ms. Chu. 

Ms. CHU. Thank you, Mr. Chair. 

I would like to address this to anyone on the panel, starting with 

Mr. Nichols. Of course, one of this Committee’s goals is providing 

business owners with certainty when it comes to taxes. We have 

talked about the problems of retroactivity and lack of permanency, 

but what if Congress does not reach a deal on tax extenders at all 

this month? Can you talk about how this would affect your 

business’s decisions to expand, hire workers, or make business investments? 

Mr. NICHOLS. Obviously, as I indicated earlier, it has an unavoidable consequence, and the uncertainty alone has a huge impact. And there are clearly many businesses that have, since these 

things have been extended over the years, there are many businesses that frankly have gone forward on the assumption that they 

will, in fact, be extended. There are other situations, for example, 

the built-in gains tax. I have got a client literally this year that I 

said to him, ‘‘Well, if you sell your business, the built-in gains tax 

will probably be 5 years.’’ He is in that limbo period, and I am communicating with him and I say, ‘‘But what I would do is I would 

get all the paperwork ready to go, but why do you not wait for the 

extenders package gets passed?’’ And I got kind of a heartbreaking 

email back from him saying, ‘‘Well, I cannot wait. I have got health 

problems. I will not be able to do that.’’ These are very real situations and the lack of certainty, and especially in a context like that, 

where they really do have to make a decision. They cannot delay. 

Critical for a small business. 

Ms. CHU. Yes? 

Mr. KRIEGEL. In business there are so many uncertainties—foreign competition, healthcare costs, trained, skilled workers—taxes 

should not be an uncertainty. We should know what our tax liability is going to be. 

Ms. CHU. Anybody else? Mr. Shavell? 

Mr. SHAVELL. Well, the question I get this time of year, every 

day of the week almost, because we are doing tax planning for our 

contractor clients, is what is going to happen? So they want to 

know. And they, in essence, are forced to witness something unSBREP-219 with DISTILLER

13 

usual as just mentioned. There should be some certainty; yet, I am 

in the position where I have to show somebody, hey, look, based on 

what you spent this year and the potential for extenders, your liability would be this versus here is what it is going to be if Congress does not do their job. That level of uncertainty to look at your 

cash flow impact and realize—because there are two parts to tax 

planning. Not just knowing what the number is, but when are you 

going to pay it? So there is an impact as to whether or not there 

is going to be some withholding on a bonus, whether there is going 

to be a fourth quarter estimated coupon on January 15th, or a larger balance due on April 15th. This impacts daily cash flow, this uncertainty, and it is really unfortunate. 

Ms. CHU. Okay. Mr. Nichols, any time we consider renewing tax 

incentives, one of the driving principles is cost. Two of the most expensive provisions are the ones small businesses rely on the most, 

section 179 and the R&D credit. What role should budget neutrality play in our efforts to extend these tax incentives permanently? 

Mr. NICHOLS. I am stumbling a little bit because that is an 

area obviously that you are more—Congress is more on the 

frontlines in terms of making those decisions, but the budget neutrality, obviously, is important. But unfortunately, budget neutrality can have some negative impacts sometimes. Sometimes in 

order to achieve budget neutrality there are other provisions that 

are put in place to offset the budget cost of particularly good provisions. And I would submit that, like, 409A would be one of those 

provisions that I think may have been put in to offset what was 

otherwise a good provision, but 409A, frankly, was bad policy to 

begin with, even though it may have purported to have raised revenue, at the end of the day it hurt maybe as much as whatever it 

was that it was justifying getting into the code. 

Ms. CHU. Mr. Shavell, small firms often have the fewest resources to spend on accountants to identify potential tax breaks. 

And there are individuals and businesses that spend 6.1 billion 

hours a year complying with these filing requirements. How does 

the continuing debate about how to extend tax provisions create 

advantages for firms that can devote those resources to monitoring 

tax modifications? 

Mr. SHAVELL. Well, tax compliance, as you point out, ridiculous 

number of hours, and there are provisions in there that are difficult. And yes, smaller companies have a great deal of difficulty 

complying with some of the rules. Larger firms are going to have 

internal counsel in a lot of cases. They are going to have more accountants on staff who are specialized in various areas, so they can 

take care of those things. 

In the construction industry, when you talk about complexity, 

one of the things I mentioned in my testimony, this lookback method that affects all contractors performing long-term contracts. The 

amount of work and time that is required to comply is incredibly 

difficult. We have had conversations with IRS and folk at the IRS 

do not like this provisions any more than the industry does. It is 

something that for quite a long time needs to be removed. This 

lookback method, which requires taxpayers to go back and look at 

their contracts on a hypothetical basis. So you are looking back a 

SBREP-219 with DISTILLER

14 

year on a hypothetical basis, recomputing what the tax would have 

been if you did not use estimates, then compute a hypothetical—— 

Mr. KELLY. If you can wrap it up pretty quick. We are past our 

time. 

Mr. SHAVELL. So these rules are incredibly complex. Sure, larger companies are going to have a little more resources. 

Ms. CHU. Thank you. I yield back. 

I now recognize the chairman, Chairman Chabot, for 5 minutes. 

Mr. CHABOT. Thank you very much, Mr. Chairman. 

Just a couple of questions. In order of their value to small businesses, and I would ask each of the panel members if they would 

like to weigh in on this. Which of the various so-called tax extenders do you believe are the most important and would you most 

strongly encourage us to extend? And maybe we will start at this 

end here, if that is okay. 

Mr. DUFF. Thank you. The work that I do in purchasing vacant 

buildings and reinvesting and recruiting new businesses to occupy 

them, it is very capital-intensive for the types of equipment that we 

have to purchase. So the section 179 provisions are extremely essential for us to continue to purchase and buy additional equipment, and the same goes with having access to bonus depreciation. 

Those monies keep more working capital in our business so we can 

actually grow our footprint in making a larger impact in our community. 

Mr. CHABOT. Thank you. 

Mr. Kriebel? 

Mr. KRIEGEL. Thank you. Companies in our industry invest sig- nificant capital, $250,000 is kind of a minimum threshold. So from 

our standpoint, bonus and section 179 are very important. R&D is 

important, too, so really from our perspective, all three are very important. 

Mr. CHABOT. Okay, thank you. 

Mr. Shavell? 

Mr. SHAVELL. Well, for commercial contractors, I would say 

there are three categories. The first category discussed is 179 and 

bonus. Past that, there are incentives, other depreciation rules that 

are very helpful because they induce investment. So you have the 

15-year expensing on real property costs. You have section 179D, 

which is an energy deduction that is available to certain parties, 

whether it is the owner of the property or in some cases it is actually the contractor-designer. So that is very important. And thirdly, 

you have some labor-related items, the empowerment zone credits, 

which are pegged to wage rates as far as how much of a credit you 

are going to get. And also, the work opportunity tax credit. That 

is the old targeted jobs tax credit. So those are all valuable to commercial contractors. As far as the order goes, I would have to argue 

179 and bonus are at the top, just like everybody else. 

Mr. CHABOT. Thank you. 

Mr. Nichols? 

Mr. NICHOLS. I am going to agree with everybody and repeat 

179 and bonus. In answer to your question, I am thinking in terms 

of how many people are impacted and the importance of the policy, 

179 and bonus, for reasons set forth in more detail in my written 

testimony. I do not think 179 and bonus are even a tax expendiSBREP-219 with DISTILLER

15 

ture. I think it is choosing the right time to tax individuals and tax 

businesses when they actually are getting income from the capital 

that they have been spending. 

I would then, as far as having a priority after those items, there 

you are balancing how serious of a disruption it is to the induvial 

taxpayer versus how many people it affects. I would probably throw 

the built-in gains tax next, only because even though the 5-year period only affects a relatively small number of people, the pretty 

dramatic impact that a forced double tax built-in gains tax has for 

an individual owner who is trying to sell their business on retirement or something like that, I would probably throw that in there, 

too. And then another one that has been mentioned in that is the 

qualified restaurant and retail property and things like that. There 

again it is not as important because it does not affect a broad cross 

section, but for the people that it does affect, the difference between having a 15-year recovery period versus having a 39-year recovery period is huge and can have a very dramatic impact on individual, real living businesses. 

Mr. CHABOT. Thank you. 

I have been on this Committee for about 20 years and have 

talked to an awful lot of small business districts in the past in my 

district, but now being chair of the Full Committee, talking to folks 

from all over the country, and the one word that I always heard 

over and over was uncertainty was the biggest concern that they 

had, and that is what comes out of Washington. And I have only 

got a half minute left. Does anybody have a real world example of 

how this kind of uncertainty on these extenders or any other tax 

items is really adversely impacted or we could have done much better on something if we had just gotten it done up here? Anybody 

got anything in particular that they would like to bring before the 

Committee? Yes? 

Mr. DUFF. We have empty buildings in our community that people do want to take risks. They want to invest in them, but they 

are uncertain. You know, there are enough uncertainties in the 

world and the tax consequence of knowing if this is a smart move 

or not is causing them to not move forward with taking that risk. 

Mr. CHABOT. Okay, thank you. 

Mr. SHAVELL. May I? 

Mr. CHABOT. Yes, Mr. Shavell. Yes. 

Mr. SHAVELL. I have a real world example. We were engaged 

to do a section 179D analysis for a client who has a hotel property. 

We started the study. We took a retainer. The client pointed out 

that it is not in the law yet because we are waiting for extenders. 

I am sitting with a retainer. We finished the project and the arrangement that was made was that while if it does not pass, we 

are going to give her back the retainer, and if it does pass, they 

are going to pay us the second piece. But the engineer that we 

used, he has yet to get paid, yet he has done all the work. That 

is a real-life example of dollars now sitting in a bank waiting to 

go to the service providers, and a client who does not know whether they are going to get that accelerated deduction. 

Mr. CHABOT. Thank you. I yield back, Mr. Chairman. 

Mr. KELLY. The gentleman’s time is expired. Thank you, Mr. 

Chairman. 

SBREP-219 with DISTILLER

16 

I next recognize for 5 minutes Ms. Radewagen. 

Ms. RADEWAGEN. Thank you, Mr. Chairman. I want to welcome the entire panel here today. 

My question is specific to my home district. I am familiar with 

the 30(a) style tax credits and the American Samoa Economic Development Credit. Are you aware of any other tax credits specific 

for U.S. territories? And if so, which of these would provide the biggest benefit for the territories? 

Okay. Can you elaborate on how important these credits are for 

economic stability in these territories? For example, these tax credits are one of the major reasons our tuna canneries are able to operate in American Samoa, so therefore, these tax credits provide 

my islands employment. 

Mr. DUFF. I grew up in a small town in a rural community, so 

I understand that a lot of—agriculture is a big thing in the middle 

of Ohio, and for farm families, being able to invest and purchase 

a combine or tractor may be the largest expense that they make. 

By having certainty and knowing when you are making that investment, that large piece of equipment, you will be able to grow 

that family business and maybe extend that or pass that on to siblings and see multi-generations of hard work actually pay off. And 

I think that is the American dream, and these tax credits help people achieve that. 

Ms. RADEWAGEN. Thank you very much. I would appreciate if 

I could get a little information on my earlier question if that is possible. 

Thank you, Mr. Chairman. I yield back. 

Mr. KELLY. Thank you. The gentlewoman has yielded her time 

back. 

In closing, again, I want to thank each of the witnesses for being 

with us. All of you provided excellent testimony, both orally and in 

writing, and I appreciate that. 

As this Congress progresses, my colleagues and I on the Committee on Small Business will continue to work to simplify the tax 

code and provide small business owners the certainty they need to 

focus on growing their businesses instead of guessing what their 

tax liability will be in the coming year. In the meantime, we will 

share what you have shared with us today with members of the 

House Ways and Means Committee to help them craft a thoughtful 

and robust tax extenders package. 

I ask unanimous consent that members have 5 legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 12:10 P.m., the Subcommittee was adjourned.] 

SBREP-219 with DISTILLER

17 

A P P E N D I X 

‘‘Tax Extenders and Small Businesses as Employers of 

Choice’’ 

Testimony of 

Jason Duff 

Founder & CEO 

Bellefontaine Ohio Properties Limited 

Before the 

Subcommittee on Economic Growth, Tax and Capital Access 

Committee on Small Business 

United States House of Representatives 

December 3, 2015 

The Honorable Trent Kelly, Chairman 

The Honorable Judy Chu, Ranking Member 

SBREP-219 with DISTILLER

18 

Good morning Chairman Kelly, Ranking Member Chu and members of the subcommittee. Thank you for the invitation to provide 

testimony today on the important issue of strengthening our nation’s small businesses. 

My name is Jason Duff, Founder and CEO of Bellefontaine Ohio 

Properties, Ltd. As background, I am a third generation family 

business owner, and founder of several businesses. My grandparents and parents were small business owners. I started m first 

business when I was eight years old, when I sold candy bars. In 

my earlier years I have also sold custom greeting cards, made-tofit shoes, stamps, coins and beanie babies. 

Bellefontaine Ohio Properties purchases and remodels storefront 

buildings on Main Street. We attract, recruit and start new businesses in our community. To date, I have purchased and renovated 

fourteen different historic buildings in Downtown Bellefontaine. My 

passion is to build and grow smart, vibrant and entrepreneurial 

communities. 

Bellefontaine, Ohio now has a multitude of diverse stores and 

businesses due to these revitalization efforts. These businesses—a 

gourmet pizza shop, bakery, hair salon, CrossFit gym, several new 

antique stores, and a brewpub, for example—have helped to give 

new life to downtown Bellefontaine. Construction has also begun on 

eight new loft apartments above the Main Street storefronts of 

Bellefontaine. 

Bellefontaine is community that other communities are taking 

note of in terms of approaches and best practices towards restoring 

small town Main Streets and downtown areas. I am proud to say 

that our work to rejuvenate Bellefontaine has all been accomplished in the past four years. 

Human Capital is Our Foundation 

While growing assets on my balance sheet is important, I find 

that the greatest asset to my company is my employees. So recruiting and hiring talented employees is a very important piece of our 

success. 

On this front, I must compete with businesses of all sizes to find 

the talented employees I need to operate effectively and productively. I am committed to building a team of people who love their 

community and allow my employees flex time to run and serve 

public office, serve on local service organizations like Rotary and 

Kiwanis and the time they need to raise their families. 

Providing employees with key benefits—like workplace flexibility—truly make us and other small businesses an ‘‘employer of 

choice.’’ In small businesses like mine, employees can more quickly 

learn critical and well-rounded skills, provide ideas and feedback 

that are more quickly implemented in operations, and in the end 

feel appreciated and valued by their employer. Such attributes, 

combined with innovative benefits, add greatly to our staying 

power and ability to grow. 

Why the Tax Extenders are Important 

SBREP-219 with DISTILLER

19 

Small businesses play a crucial role in the vitality of job growth 

in a local community like Bellefontaine. When we are healthy and 

growing, we provide consistent, quality and skilled job opportunities. When we invest in renovating a commercial storefront, for example, we hire local carpenters, plumbers, and electricians. Many 

of our renovation projects have contributed to direct job growth in 

local trades. We also work with local companies to purchase cabinetry, flooring and light fixtures. These investments in hiring local 

businesses equate to new tax dollars that benefit local municipalities, schools and service organizations. 

As you are aware, key tax measures—like enhanced Section 179 

expensing and bonus depreciation—that are part of the ‘‘tax extenders’’ have expired and were only made retroactive very late in 

2014 for that year. For 2015, businesses like mine have been planning and operating under the outdated Section 179 expensing level 

of $25,000. The uncertainty of bonus depreciation also affects my 

investment decisions. 

Bonus depreciation is a benefit that has influenced smart decisions for my business. I have purchased new equipment vs. used 

because of bonus depreciation and the new equipment is more efficient, reliable and cost effective in the long term. I believe that 

these investment incentives are making a positive impact in keeping small businesses competitive. 

I cannot tell you how important it is for my businesses, and for 

the economic health of my local community, that entrepreneurs and 

risk-takers like me have practical and stable expensing levels established so that we can invest with confidence. Being able to plan 

our investment strategies and opportunities will not only strengthen our businesses, but local communities and job growth as well. 

My business model centers on investment in order to restore and 

rehabilitate buildings so they are suitable for modern businesses 

that customers would like to visit, and spaces that entrepreneurs 

can adequately compete and operate in. As noted above, this investment has helped to launch new businesses and spark a downtown micro-economy revival in Bellefontaine. Stability and certainty when it comes to investment incentives in the tax code is 

critical for me in terms of planning, taking risks, and moving forward with projects. For example, and as noted above, expensing allows me to confidently invest in equipment to help start new businesses and improve the efficiency and combativeness of my operations. One small example is the purchase of new freezers and coolers that are more energy efficient for our restaurants. 

With a stable and enhanced Section 179 provision and certainty 

on bonus depreciation, I am able invest more capital in projects. 

Again, these projects start new small businesses that in turn provide valuable contributions to my community. These new businesses create jobs, increase property values and grow local tax revenues. 

I am also able to encourage investment in areas that have traditionally been challenged by the dominance of the Internet, or large 

international corporations. Again, investment is central to risk-taking, growth, revitalization and competitiveness. The impact of a 

SBREP-219 with DISTILLER

20 

permanent, enhanced Section 179 expensing provision and bonus 

depreciation would be powerful for my business and community. I 

can only imagine what the impact would be for our broader economy if all small businesses were provided the certainty of the enhanced and permanent expensing limits. 

Here is my basic advice to make government work better for 

small business owners and to encourage entrepreneurship: 

Make permanent the incentives. Making permanent the more 

robust levels of Section 179 expensing, as well as bonus depreciation, will provide small businesses with practical and needed tools 

to grow, invest and work harder. This type of stability and certainty is critically important. 

Make the tax code simpler. Simplifying the tax code would reduce complexity and costs for entrepreneurs. The more time and 

money we have to invest in our businesses, the stronger our enterprises will become. Small businesses like mine compete with larger 

businesses and in a competitive global marketplace. Tax relief, simplification and certainty will boost the competitiveness of small 

businesses in Bellefontaine and throughout the United States. 

Be clear. Provide clarity to small business owners. Give us 

an opportunity to know and understand the rules so we can plan 

for the future. Provide clear instructions so we can focus on the 

growth of our businesses to invest with confidence. Not only does 

this include clarity when it comes to taxes and tax compliance, but 

for all rules and regulations as well. 

Make a long-term commitment. Businesses forecast and plan 

far into the future. A smart tax code would mirror effective business planning. Investment thrives when it is encouraged and when 

there is certainty. 

Thank you for the opportunity to share my experiences and 

views with you today. It is truly an honor to be able to do so, and 

I look forward to your questions and our discussion. 

SBREP-219 with DISTILLER

21 

Written Testimony 

Of 

Todd Kriegel 

CEO, Global Precision Parts, Inc. 

Before the 

Small Business Subcommittee on Economic Growth, Tax, and 

Capital Access 

U.S. House of Representatives 

Thursday, December 3, 2015 

Thank you for allowing me to testify today about the role small 

businesses like us play in the economy and the impact of expired 

tax provisions on manufacturing companies. My name is Todd 

Kriegel, I am the CEO of Global Precision Parts, Inc. (GPP), a family owned business based in Ohio. I came here today to underscore 

the importance of small businesses manufacturing in America and 

call on Congress to make permanent key tax provisions which fuel 

our economy. 

After graduating from Xavier University, I went into banking 

until I came back to the family business, then known as Acme Machine Automatics, Inc. Even while working for a larger regional 

bank, I always admired the small businesses to whom I was lending, for their unique ability to control their own destiny. I went 

back to manufacturing because at the end of the day, you have 

something to show for it and can say, ‘‘As a manufacturing company, we produced that product.’’ 

Following its creation in 1989, GPP expanded through growth 

and acquisition and we now have metalworking manufacturing facilities in Ottoville and East Liberty, Ohio and Wabash, Indiana. 

GPP is a privately held Subchapter S Corporation owned by the 

Kriegel family and as my three children grow, I think about what 

the future holds for manufacturing and the employees working at 

our facilities. 

We have sixty employees each in Wabash and East Liberty and 

eighty in Ottoville, manufacturing precision parts for the hydraulics and tube fabrication industries, automotive, light and heavy 

truck, agriculture and mining. Our industry is certainly starting to 

see a leveling off in our recovery from the Great Recession of 2008– 

2009, when our employee numbers were half what they are today. 

While we are receiving more orders these days, the volume is consistently lower. However, we can succeed and compete with any 

SBREP-219 with DISTILLER

22 

company around the world, but only if Washington does its job and 

lets us do ours. 

Instability in the tax code prevents manufacturers from planning 

investment, hiring more workers, and purchasing new equipment, 

especially for small businesses in industries with razor-thin profit 

margins. As a former banker, I know the added scrutiny these companies face when financing major equipment and infrastructure investments. Today the lending market is even tighter for manufacturers as bankers try to assess our tax liabilities and downgrade 

our credit due to increased potential tax liabilities from expired 

credits and deductions. In the real world, we cannot simply assume 

Congress will retroactively extend business investment provisions 

and spend money we may not have at the end of the tax year. 

I am a member of the Precision Machined Products Association 

(PMPA) whose members flew to Washington this week to personally stress the importance of addressing these expired tax provisions. In preparation for those visits with Senators and Representatives, PMPA conducted a quick survey of its members. The results 

clearly underline the role small businesses play energizing the 

economy and the importance of specific tax provisions on manufacturers of our size. 

Respondents had an average employee size of 60, quite similar 

to our facilities in Ohio and Indiana. Most businesses in the precision parts industry have roughly $12–15 million in annual revenues but as this survey shows, they invest heavily in capital equipment purchases, expecting to spend on average $552,000 in 2015. 

Most machines for our industry start at a quarter million dollars 

and can exceed $2.5 million. At Global Precision Parts, in order to 

maintain a competitive edge, we need to continuously upgrade our 

operation and buy new equipment, leading us to spend roughly two 

million dollars a year. 

Among the tax provisions Congress allowed to expire, Bonus Depreciation is by far the most important to our company and to 

many other small manufacturers who must continuously invest in 

their businesses. In fact, some businesses like ours forego Section 

179 Equipment Expensing because a single machine can exceed the 

$500,000 cap and rely on Accelerated or Bonus. In 2014, Bonus 

saved our company $151,000; money we used to hire more employees and purchase additional equipment. Bankers are very aware of 

these provisions as well and in recent years, manufacturers would 

receive notices from lenders to act quickly to finance capital expenditures before key tax provisions expired at the end of the year. 

In the precision manufacturing industry, not only is our equipment expensive and heavy, it takes time to place into service, often 

eight weeks to eighteen months. Congress extending expired investment provisions on December 11 does little for a small business 

who cannot finance, purchase, and place into service a 10-ton machine by December 31 when the provision expires again. 

For a typical PMPA member, the survey showed Bonus Depreciation saved them on average $188,000 with one manufacturing business reporting a $503,000 savings. Half a million dollars is a lot 

of money for businesses of our size—resources we could use to buy 

SBREP-219 with DISTILLER

23 

another one or two machines or hire a half a dozen skilled workers 

with full benefits. There is a misleading impression among some in 

Washington that Bonus ‘‘costs’’ the federal government money in 

lost revenue. However, the government does receive the revenue 

over the life of the equipment but the provision provides smaller 

companies like ours an immediate discount on the price of a new 

machine we could not otherwise afford. 

Were our three facilities wholly separate and not under the control of a single company, we would also benefit from Section 179, 

as do many of our PMPA colleagues. The survey showed the typical 

small business claimed nearly $370,000 in 2014. When Congress 

fails to extend this key tax provision, small businesses have a 

major hole to fill in their budget and will cut back their current 

year spending on new equipment and often suspend investment for 

the coming year. Remember, lower machine orders by companies 

like mine means fewer workers are hired and less tax revenue is 

collected throughout the supply chain. 

Although many PMPA members are contract manufacturers who 

do not design their own consumer end product, we still benefit 

greatly from our own Research and Development activities, and 

even more so from our customers’ R&D efforts. The typical PMPA 

company claimed roughly $40,000 in 2014 in R&D Credits, with 

the maximum being just over $100,000. At GPP, last year we 

claimed $28,000 in federal R&D and saved another $10,000 under 

the Indiana state R&D credit. Small businesses in particular are 

increasingly wary of R&D triggered federal and state tax audits 

and prefer to avoid spending $20,000 on accountant and legal fees 

to defend a $40,000 claim. However, I believe a permanent enhanced and expanded federal R&D Tax Credit will incentivize more 

small manufacturers to further engage in developing their own new 

technologies. 

Inside the beltway, you may not feel the ripple effects of your inaction, but in the real world, we certainly do. When we do not 

know what the future holds, businesses, like investors, spend less, 

take fewer risks, and reduce or stop hiring all together. As a responsible business owner, I have to find a way to cover that 

$150,000 gap Congress created for our company if Bonus Depreciation remains expired. Our lenders will recognize we have less cash 

on hand, artificially increasing the price of a new machine we could 

have bought. 

I cannot underscore enough the importance on small businesses 

and our economy of these three tax provisions Congress keeps allowing to lapse. Dysfunction in Washington could cost the average 

small manufacturer $370,000 in Section 179, $188,000 in Bonus 

Depreciation, and $40,000 in R&D. Who is going to cover this 

$600,000 tab Congress unnecessarily created? As usual, it is America’s small businesses and their millions of employees who suffer 

most, not politicians in Washington or the ‘‘fat cats’’ on Wall Street. 

The expired tax credits and deductions are only one layer to the 

complicated relationship small businesses have with the Internal 

Revenue Code. The vast majority of companies like ours are not CCorporations but are structured as pass-through businesses, often 

SBREP-219 with DISTILLER

24 

Subchapter S-Corporations, paying taxes at the higher individual 

rate. Throughout PMPA, pass-throughs make up two-thirds of our 

400-member association; and in the broader economy, they account 

for over half of all business revenue. 

We structured ourselves as an S-Corporation because, as a family 

owned business, it provides us flexibility in the event that my children decide to become the next generation of manufacturers. Especially as many of the original owners are considering retirement, 

we can develop critical succession plans that ensure the previous 

generation still receives some compensation for their contributions 

while bridging the business to the younger Americans who will 

serve as the backbone of our industry for years to come. Indeed, we 

are not alone in recognizing the advantages of a pass-through over 

C-Corps—the U.S. Census estimates less than six percent of all 

businesses today are C-Corporations. 

Given these statistics on the number of pass-throughs in the 

country, and the clear fact that the majority of them are small 

businesses, I am curious why some in Washington are calling for 

C-Corp only tax reform. If we leave America’s small entrepreneurs 

behind, big business wins as usual and Congress will only have 

themselves to blame. We need comprehensive tax reform for all 

businesses, C-Corp or pass-through, large and small, family owned 

or publicly traded. Washington must create an environment in 

which manufacturers cannot only compete globally but can defeat 

our competition. 

This is not about paying less taxes, it is about the government 

being smarter about who it taxes and how. The top tax rate for 

pass-throughs is 39.6% and 44% when factoring in health care 

taxes, higher than 35% C-Corp rate, which Congress is considering 

lowering to 25–30%. Some are arguing that lowering the rates for 

pass-throughs will amount to a tax cut for Wall Street and pharmaceutical giants. I assure you that does not describe us nor do we 

have plans to reincorporate in Ireland, but do want to grow here 

in the U.S. if Congress lets us. 

GPPs current federal effective tax rate is 39.4%, far higher than 

our C-Corp counterparts, not to mention the Chinese companies 

who we really are competing against. In 2008, we had a 28.07% effective federal tax rate with the Alternative Minimum Tax. That 

11.33% jump in our tax liability cost us hundreds of thousands of 

dollars we could have used to hire more workers for the machines 

we would have purchased. Instead, we sent that money to Washington rather than putting it in workers’ pockets. Yes, I said workers’ because at GPP last year we reinvested 71% of our profits back 

into the business. When we can leave the money in the business 

instead of sending it to bureaucrats and politicians, it generates additional payroll and sales tax revenue as we add employees and 

order new machines. 

I believe that small businesses can continue driving the economy 

and serving as the backbone of our nation. However, Washington’s 

inaction on comprehensive reform and Congress allowing the continued expiration of key tax provisions creates a globally uncompetitive environment for small businesses manufacturing in AmerSBREP-219 with DISTILLER

25 

ica. Absent updating the Code for all companies, Congress must 

make permanent Bonus Depreciation, Section 179 Equipment Expensing, and the R&D Tax Credit to allow small businesses to invest and plan for the future. Remember, Congressional inaction can 

cause as much harm as acting and nowhere have those negative effects been felt more than by the small businesses on Main Street. 

Thank you for the opportunity to testify before you today on this 

important issue. 

SBREP-219 with DISTILLER

26 

SBREP-219 with DISTILLER


Insert offset folio 27 here 97831.001
27 

Thank you for the opportunity to appear today in front of your 

Committee. My name is Rich Shavell, and I am testifying today on 

behalf of Associated Builders and Contractors (ABC), a national 

construction industry trade association with 70 chapters representing nearly 21,000 chapter members. I am President of 

Shavell & Company, P.A., a full service CPA and consulting firm 

that focuses on services to closely-held commercial contractors. 

These are the general contractors, subcontractors, highway, and infrastructure contractors who build many of the great projects in 

South Florida and Southeastern United States. 

The subject of this hearing is highly appropriate, as small businesses are indeed the employer of choice for the average American, 

not only within the commercial construction industry, but throughout the US economy as a whole. They provide the engine for economic growth and job creation, and reflect the spirit of free enterprise in its most basic form. Moreover, small businesses, particularly small contractors are excellent employers for several reasons: 

• First, there is plenty of opportunity for workers choosing 

a career in commercial construction because the industry currently faces a labor shortage. I recently met with a small contractor who must turn down work because he cannot field sufficient numbers of qualified workers—and he is not alone. 

• Secondly, training is available for new workers to the industry and in most cases these individuals do not even need 

to pay for apprenticeship training if they meet certain employment requirements. 

• Third, there is excellent money for workers pursuing a career in the commercial construction industry. Via the ABC Institute (www.WeTrain.org) in South Florida, the Department of 

Labor has quantified the value of being a graduated Registered 

Apprentice at over $300,000 during the career of the typical 

workers.i

• Fourth, the construction industry fosters the realization of 

the American Dream. The majority of the owners of my clients 

started out in the field working for someone else. Through effort and determination many construction workers find themselves picking-up small jobs and working them with their peers 

after hours and on weekends. Anecdotal evidence suggest that 

seasoned workers can earn significant amounts of money this 

way until they are ready to leave their regular position to pursue their own businesses on a full-time basis. 

The term small business can be parsed in many ways, be it number of employees, amount of annual revenue, or any number of 

other metrics, but perhaps the most useful proxy is the use of passthrough entities. The pass-through structure is the simplest, most 

straightforward option for small, closely-held and family-owned 

Main Street businesses that have little use for the capital markets. 

As a result, according to a 2011 study by Ernst & Young, nearly 

95 percent of all US businesses are structured as pass-through entities.ii These pass-through businesses generate 54 percent of all 

net business income, and employ 54 percent of all private sector 

employees.iii

SBREP-219 with DISTILLER

28 

In other words, small business is the employer of choice for most 

Americans because that is simply where the jobs are. According to 

the Small Business Administration, small businesses account for 

nearly two thirds of all net new jobs.iv Construction is no differentaccording to Tax Foundation analysis of US Census data, the 94 

percent of contractors structured as pass-through entities employ 

over 75 percent of the more than 7.5 million workers employed in 

the industry.v And, as noted above, given the inherently entrepreneurial bent of the skilled trades, today’s laborer or independent 

contractor is likely to be tomorrow’s small business employer. 

The single biggest challenge facing small business today is widespread uncertainty- uncertain economic prospects, an uncertain 

regulatory environment, and uncertain tax policy. While the Congress can’t very well control the ebb and flow of the business cycle, 

it can and must do better to relieve the self-inflicted economic constraints caused by regulatory overreach and anti-growth tax policies. 

After years of Congressional showdowns and kicking the can on 

marginal tax rates, business owners finally get some needed tax 

certainty in 2013 when the ‘‘fiscal cliff’’ ended in permanent policy 

for the first time in over a decade. Unfortunately for the passthrough community, certainty is no salve for onerous tax policy. 

The terms of the fiscal cliff agreement took a 35 percent top rate 

on pass-through businesses, one that mirrored the C-Corp rate, and 

raised it to 39.6 percent. With the coincidence of Affordable Care 

Act implementation (and its associated taxes) in the same year, the 

combined marginal rate for many Main Street businesses surged 

nearly 25 percent higher than that faced by the Fortune 500. This 

sudden structural disadvantage gives a window into why permanence must not be an end goal in and of itself- first and foremost 

the aim must be to set prudent tax policy that helps the economy 

and its key driver, the small business. 

We ask Congress to now take a step in that direction - of prudent 

tax policy - by rectifying a problem it put in place almost 30 years 

ago. In 1986 Congress passed legislation that was intended to curb 

abuses by aerospace and defense contractors and how they utilized 

the Completed Contract Method. The required use of the Percentage of Completion Method (PCM) was forced upon all businesses 

that perform construction services. There were a few carve outs, 

namely for home builders. But commercial contractors got the short 

end and have been increasingly paying for it ever since. 

A ‘‘small contractor’’ exception was put in place in 1986 with a 

$10 million average annual revenue threshold, demonstrating Congress’ intent to shield these small businesses. Yet this figure was 

not indexed for inflation and almost 30 years later the threshold 

has never been updated. By comparison, the Small Business Administration’s current standard puts the definition of a small contractor in certain construction categories at $36.5 million. Congress 

needs to do three things: 

1. First, update the small contractor threshold in section 

460(e) from $10 million to $40 million; 

2. Index the threshold going forward; and 

SBREP-219 with DISTILLER

29 

3. Eliminate the Section 56(a)(3) add back requirement for 

Alternative Minimum Tax (AMT) purposes. 

This third item eliminates the requirement that long-term contracts be reported under the PCM solely for AMT purposes. And a 

further horrific result is that the small contractor must then go 

through complex computations under the look-back method solely 

for AMT purposes. By eliminating the AMT adjustment, as we recommended, this onerous look-back requirement is eliminated for so 

many small businesses. 

Next Congress needs to finally address the so-called tax ‘‘extenders,’’ the 52 tax provisions and incentives that expired at the end 

of 2014, just days after having been renewed retroactively. These 

assorted tax provisions have little in common, other than the fact 

that they are temporary, and now, having been lumped together at 

some point over the years, are presumed to be extended each year 

in perpetuity. The problem, of course, is that many (if not all) of 

these provisions are premised upon stimulating or otherwise 

incentivizing economic behavior, so unless enacted well in advance 

they yield diminishing returns. While Congress may be able to go 

back and retroactively extend tax policies to apply to the previous 

year, contractors don’t have the same luxury with their capital investments and business planning. 

This year is a perfect example of the trouble with the current 

practice. As the year end approaches, the small business owner 

must project their 2015 taxes both with and without these tax provisions. They are left with a terrible choice: pay-in more taxes 

based on these laws not being effective or take the chance that the 

law will be passed. This is no way to do business, and the cash flow 

impact can limit expansion plans, force contraction, affect hiring 

decisions and even employee benefits that may or may no longer 

be available to employees. 

Going back to the imperative of prudent tax policy, it is incumbent on Congress to go through these measures line by line to determine what belongs in the underlying tax code, and what should 

be allowed to expire or stand on its own merits, however temporarily, without hijacking the broader package. 

The House has already done yeoman’s work in separating out 

broad based tax policies from rifle shot carve-outs, passing half a 

dozen key extender provisions on a permanent basis, and establishing a strong bipartisan agreement in favor of tax relief and certainty for small business. These bills include top priorities for ABC 

and the construction industry, in particular making permanent increased expensing under Section 179 and 50 percent bonus depreciation, respectively. 

In a capital-intensive business such as construction, expensing 

and accelerated depreciation create a tremendous incentive to invest in equipment that might otherwise be cost prohibitive. The 

ability to write off up to $500,000 in qualified purchases under Section 179 strongly encourages this sort of spending, while the precipitous drop to $25,000 under current law (after the expiration of 

last year’s extenders bill) would have a disastrous effect, as cautious contractors opt to delay or forego these purchases altogether. 

SBREP-219 with DISTILLER

30 

More cavalier counterparts, on the other hand, are stuck with big 

ticket items and an unexpected tax bill as they find themselves unable to utilize these anticipated accelerated deductions. 

Likewise, traditional extenders such as the research and development (R&D) tax credit enjoy a wide, bipartisan consensus in Congress and should be made part of the permanent code. The R&D 

credit in particular has been extended 16 times since 1981, and is 

effectively viewed as part of the code, but in the meantime has 

turned into a must-pass vehicle for extraneous policy to attach 

itself it. Other sensible policies supported by contractors needlessly 

tied up in the extenders include: 

• 15-year straight-line cost recovery for qualified leasehold, 

restaurant and retail improvements; 

• the abbreviated five-year built-in gain holding period for S 

Corporations; 

• the 179D deduction for energy efficient commercial buildings; 

• Empowerment/Enterprise Zone Credits; and 

• Work Opportunity Tax Credits 

Small businesses are the employer of choice for most Americans, 

but without a commitment - and action - by Congress this status 

may be soon jeopardized. Congress needs to: 

• End the annual extenders debacle and make permanent 

those provisions that belong in the underlying code. 

• Fix the unfortunate and unintended accident of 1986 

whereby all construction contractors regardless of size are now 

forced to report income under the percentage-of-completion 

method; and 

• Address the recently inflated income tax rates that now 

befall profitable small businesses structured as pass-through 

entities. 

Some of this can be done piecemeal, through easy fixes, such as 

reform of the small contractor definition under Section 460(e); others will require the political will to pass broad-based, fundamental 

tax reform. Until these issues are addressed, small business is 

playing with one hand tied behind its back. 

—————————— 

i

U.S. Department of Labor. Apprenticeship: Frequently Asked Questions. http://www.dol.gov/apprenticeship/faqs.htm iiCarroll, Robert and Prante, Gerald. (April 2011). The Flow-Through Business Sector and Tax 

Reform. http://www.s-corp.org/wp-content/uploads/2011/04/Flow-Through-Report-Final-2011-04- 

08.pdf iiiIbid. 

ivOffice of Advocacy, U.S. Small Business Administration. (September 2012). Frequently Asked 

Questions about Small Business. https://www.sba.gov/sites/default/files/FAQ—Sept—2012.pdf vPomerleau, Kyle. (January 2015). An Overview of Pass-through Businesses in the United 

States. http://taxfoundation.org/sites/taxfoundation.org/files/docs/TaxFoundation—SR227.pdf 

SBREP-219 with DISTILLER

31 

SBREP-219 with DISTILLER


Insert offset folio 32 here 97831.002
32 

SBREP-219 with DISTILLER


Insert offset folio 33 here 97831.003
33 

SBREP-219 with DISTILLER


Insert offset folio 34 here 97831.004
34 

SBREP-219 with DISTILLER


Insert offset folio 35 here 97831.005
35 

SBREP-219 with DISTILLER


Insert offset folio 36 here 97831.006
36 

SBREP-219 with DISTILLER


Insert offset folio 37 here 97831.007
37 

SBREP-219 with DISTILLER


Insert offset folio 38 here 97831.008
38 

SBREP-219 with DISTILLER


Insert offset folio 39 here 97831.009
39 

Æ 

SBREP-219 with DISTILLER


Insert offset folio 40 here 97831.010