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[Senate Hearing 114-678]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 114-678

                    REDUCING THE FEDERAL TAX BURDEN
                     FOR AMERICA'S SMALL BUSINESSES

=======================================================================

                             FIELD HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 4, 2015

                               __________

    Printed for the Committee on Small Business and Entrepreneurship
    
    
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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------                              
                   DAVID VITTER, Louisiana, Chairman
             JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                  Zak Baig, Republican Staff Director
                 Ann Jacobs, Democratic Staff Director
                           
                           
                           C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

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

                               Witnesses

May, Margot, Owner, Inspired Media, Denham Springs, LA...........     3
Urdiales, Jim, Owner, Mestizo Restaurant, Baton Rouge, LA........     7
Forbes, Candy, Vice President/Sales Manager, Denham Springs 
  Housing, Denham Springs, LA....................................    11
Gitz, Ron, Executive Director, Society of Louisiana CPAs, Kenner, 
  LA.............................................................    16

                          Alphabetical Listing

Forbes, Candy
    Testimony....................................................    11
    Prepared statement...........................................    13
Gitz, Ron
    Testimony....................................................    16
    Prepared statement...........................................    19
May, Margot
    Testimony....................................................     3
    Prepared statement...........................................     5
Urdiales, Jim
    Testimony....................................................     7
    Prepared statement...........................................     9
Vitter, Hon. David
    Opening statement............................................     1
    Prepared statement...........................................    42

 
                    REDUCING THE FEDERAL TAX BURDEN
                     FOR AMERICA'S SMALL BUSINESSES

                              ----------                              

                          MONDAY, MAY 4, 2015

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

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Good morning, everybody. If I can ask 
everyone to take a seat, we are going to go ahead and get 
started.
    Well, good morning welcome to our Town Hall Meeting and 
Field Hearing of the U.S. Senate's Committee on Small Business 
and Entrepreneurship. The topic of our Field Hearing today is 
``Reducing the Federal Tax Burden for America's Small 
Businesses.''
    An organization, a leading small business organization, 
NFIB, surveyed small business and they asked a very direct 
question, ``What's the greatest burden on your small business 
when it comes to taxes, the check you actually write out for 
taxes or all of the work you need to do to comply with the very 
complicated Federal law, the administrative burden?''
    A majority, actually 53 percent, said the bigger burden was 
the administrative burden. I mean, don't get me wrong, I'm sure 
none of them liked the check they have to write out, but a 
majority said the even bigger burden was figuring out a very 
complicated tax code and complying with that and all of the 
costs that go along with that.
    And that tax compliance burden had grown enormously over 
time. This is a simple chart of the number of pages of the 
Federal Tax Code. And you can reasonably say the bigger the 
code, the more complicated it is, the bigger the Federal 
burden. And so look what that has done over time since it was 
first instituted around 1912 and it's just gone through the 
roof. Right now that Federal Tax Code is over 70,000 pages.
    Another way to look at the tax compliance burden, 40 
percent of small businesses spend over 80 man-hours a year on 
compliance, just figuring out, making sure they follow the 
rules. Then 25 percent actually spend more than 120 man- or 
woman-hours every year.
    One in three small businesses spend more than $10,000 on, 
again, figuring out the rules. We are not talking about the 
bill they write to the IRS, we are just talking about figuring 
things out and over half spend over $5,000. For very small 
businesses, that's a big burden.
    Now, what solutions do we bring to bear? I have been 
reaching out, talking to a lot of Louisiana small businesses 
and other small businesses asking besides fundamental 
simplicity, what are some of the specific provisions you want 
to see? Don't want to get into the weeds, but these are what we 
have been hearing about: Permanently extending expensing, 
Section 179. This is an example of a perennial problem. We have 
some good provisions of the code, but they are very short-term. 
They are temporary. Now they are almost always extended, but 
that creates great uncertainty for small business.
    Increasing the limit for cash-basis accounting; eliminating 
burdensome record-keeping requirements, particularly for 
business computer equipment; simplifying complex rules 
regarding retirement accounts; and requiring the IRS to consult 
with small business representatives before passing new rules on 
small business.
    So we are taking these specific ideas and we are putting 
them in a small business tax reform bill. Now this isn't going 
to be every good idea out there for fundamentally simplifying 
the tax code. It's not going to be, you know, all of the tax 
reform that we need. It's going to be focused on small business 
relief and I'm drafting that bill now with the help of other 
members.
    We are going to be introducing that small business tax 
reform bill in the next few weeks and then hearing it and 
marking it up in the Small Business Committee and going from 
there.
    We are going to move on to our panel because I want to give 
them plenty of time for their testimony and to discuss things 
with them. We have a great small business panel today to talk 
about our topic. Let me introduce all four of them and then we 
will hear from each in turn in the order that I have introduced 
them.
    First is Margot May. Margot is the owner of Inspired Media, 
which specializes in print publications for selected niche 
markets. It publishes the Livingston Business Journal, a 
monthly news magazine. Margot has served as a graphic designer 
and head of marketing for the Journal since 2006. And May and 
her colleague, Helen Turner, formed Inspired Media and acquired 
and became publishers of the Journal in May 2014. Margot is a 
member of several organizations, including LEDC, and the local 
BNI chapter of the Livingston Leaders.
    Jim Urdiales has been the owner of Mestizo Louisiana 
Mexican Restaurant in Baton Rouge for the past 16 years. He's a 
third-generation restaurateur and has been involved with the 
Louisiana Restaurant Association since 1999, serving as Baton 
Rouge chapter president in 2006, and on executive board until 
2013.
    Candy Forbes is the president of Denham Springs Housing in 
Denham Springs. She is also the owner of Superior Communities, 
LLC. Candy has over 22 years experience in sales and finance 
and she is a Licensed Property and Casualty Insurance Agent. 
She's been a board member of the Louisiana Manufactured Housing 
Association since 2006.
    And Ron Gitz serves as the Executive Director of the 
Society of Louisiana CPAs, which represents more than 6300 
Certified Public Accountants across Louisiana. Mr. Gitz is a 
CPA as well as a charter global management accountant. And he 
also manages a state government relations program of the 
Louisiana CPA organization.
    Welcome to all of you and I know you all have five-minute 
presentations and then we will have some discussion. We will 
get started with Margot.

     MARGOT MAY, OWNER, INSPIRED MEDIA, DENHAM SPRINGS, LA

    Ms. May. Thank you very much. As he said, my name is Margot 
May. I'm also very active in the Livingston Parish Chamber of 
Commerce and have been a board member for years.
    I'm a part owner of Inspired Media, which publishes the 
Livingston Business Journal. As a publishing company, we are in 
a position different than most other small businesses because 
publications are not subject to sales tax laws and we do not 
have inventory to which we pay taxes.
    So our primary tax affects us in the income tax. We have 
found it necessary to retain a CPA to help us with tax 
planning, and keep abreast of the ever-changing income tax 
laws, particularly the complicated laws and regulations 
pertaining to business expense deductions.
    Tax planning for a small business is complicated by the 
fact that not only do the laws change almost every year, but 
new laws and extensions of expiring tax laws often not written 
until late in the year, sometimes in December, and are then 
published with a retroactive effective date of January 1st.
    This sometimes greatly affects the planning and budgeting 
of our business, which is done in good faith and paid our CPA 
for, but is no longer applicable under these new laws. Tax 
incentives which were previously in effect were allowed to 
expire in 2014 and may not be reinstated by the end of 2015.
    But because it's unknown, businesses have to have a Plan A 
and a Plan B to try to anticipate if they should or should not 
buy equipment or otherwise invest in the business and wonder if 
they will have enough funds to pay their tax bills if the laws 
turn out to be something completely different.
    Our CPA has related to us that it's further complicating 
the situation that the IRS agents don't even know their own 
laws sometimes. You can speak to one agent one time and get an 
answer, and speak to another agent another time and get a 
completely different answer on the same issue. And if you can 
even reach an agent because of the long phone hold times. Many 
times you're required to search their website and try to 
interpret the regulations on your own or e-mail or write your 
IRS and wait and wait for a reply.
    As a publisher, we are also in a position where we talk to 
our clients each month and we work with them on advertising 
budgets. We see from them the difficulty that many of them have 
being able to budget their money because they are paying so 
much in taxes and it limits their available funds. They are 
spending so many hours of their available time filling out 
paperwork to comply with Federal taxes and other workplace 
regulations which take precious time that could be spent on 
their business and often cost them extra money to consult an 
advisor. If they can even afford one.
    If a business makes a mistake, or interprets their 
regulations differently from the IRS, penalties can be very 
severe. Instead of making complicated laws and then slapping 
hard-working businesses with penalties, they should put more 
time and effort into simplifying these laws and providing 
assistance to businesses up front so they can comply, as most 
business owners want to do up front.
    The tax burden is stressful for small business owners 
because it's difficult to understand the tax laws and expensive 
to hire an accountant to help you. But the biggest burden is 
not knowing what the tax law is going to be the next year. 
Furthermore, most business laws aren't even written in the 
benefit for that small business.
    We would like to see a tax code for small businesses 
simplified, laws written well in advance to the applicable tax 
year to make it permanent so possibly business owners and 
accountants and their own IRS agents can help to understand and 
plan properly for the following and upcoming years. We would 
also like to see penalty reform to give businesses a break when 
they have tried in good faith to comply with these complicated 
laws.
    Thank you for this opportunity, Senator, to share my 
thoughts on the tax burden of small businesses today.
    [The prepared statement of Ms. May follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much, Margot. And now, 
Margot, you will be followed by Jim.
    Jim, welcome.

    JIM URDIALES, OWNER, MESTIZO RESTAURANT, BATON ROUGE, LA

    Mr. Urdiales. Thank you. Actually I have to concur with 
Margot with everything you said because that was part of my 
journey in the first few years, too. Probably had the same 
burdens as well.
    Thank you, Senator Vitter, for taking the time to 
understand some of the issues of small businesses today. I've 
owned and operated my own restaurant for over 16 years and 
there's many issues that we faced throughout this tenure.
    The first one that's been interesting that a lot of people 
don't understand is the effect that the Farm bill had for corn 
growers for ethanol. Now although there's a drought in 
California that has dramatically affected beef prices, that 
bill in particular has probably risen beef prices fourfold in 
just the last five years. And even your average family has seen 
the prices at the grocery stores increase. But in case you're 
wondering why you've seen beef prices rise in restaurants, 
that's the one main thing.
    As a restaurant owner, when I started, you know, you were 
lucky if you were operating with a 10 percent margin on a plate 
of food and right now most restaurants, even fast food, are 
operating with probably less than 2 percent margin of profit on 
food because of the increase. And you have got to realize 
everything that comes from the cow, whether it's the beef, 
cheese, or sour cream has all risen because of this subsidy.
    The second topic is the Earned Tax Tip Credit, which is 
something I have been to your office in DC and we have lobbied 
quite a bit before. It was a compromise, I think Senator Breaux 
initiated before he left, but basically, what we do is the 
restaurants, the tip reporting is put on the restaurant owners 
now and no longer on the servers. And so what happens is we 
actually pay a payroll tax on their tips. So there's a 
discussion, you know, even when people talk about minimum wage 
increases, you know, there's always the discussion of servers 
only making 2.13 an hour, but in essence when they calculate 
their tips in a restaurant like mine, they probably average 
between 25 and $30 an hour.
    But what happens is like for a weekly payroll of about 
4,000, which is what my small restaurant runs, my weekly 
payroll tax 940 runs about 2,000 close to 2,000. So basically 
we overpay and then we get back a credit at the end of the 
year.
    In some ways it's really great, but there's a margin 
between that 2.13 and 7.25, which is minimum wage, that that 
money is not given back. So basically you're basically 
overpaying for the tax period and that's something that a lot 
of full service restaurants have to deal with.
    And you know, even this year, there was the beginning of 
some changes with automatic gratuities which most restaurants 
have moved away from now because it's a whole other level of 
taxation that the burden is put on restaurant owners.
    The third topic is, again, the Affordable Care Act and I 
always bring this up that I have 19 employees, but the 25 
suppliers that I buy from have over 50 employees and they have 
seen their prices increase.
    So another thing that's just important for people to know, 
because that is part of what all restaurants have been going 
through, is that everything that comes through our doors has 
risen in the last two years because basically the Affordable 
Care Act is a tax that affected all small businesses and they 
have to push it down.
    Something as simple as Coca Cola, I mean, every year it 
does probably about a dollar or two increase on their boxes of 
soda. This year, it was five like 5.20, which is probably the 
biggest increase I have seen them push on a business in one 
year.
    And then, of course, just the plan that I have for my 
business is three employees with, you know, some dependents. 
And I remember when I went back and looked at the fact that in 
2010, it was $1,100 for three people and right now I'm 
currently at 2,500.
    So it's one of those things that is a burden every year 
that I have to sit there and analyze. It's just a lot of these 
things are bigger regulations on the Federal level that affect 
the small guys. I think it's also always important to remember 
that restaurants are part of the hospitality industry. One in 
ten jobs in our country is affected by this. So through the 
restaurant association, NFIB, we have always been trying to 
champion for the smaller guys, as well as the multi-level 
units.
    So again, thank you for listening and taking time.
    [The prepared statement of Mr. Urdiales follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you, Jim, for being here, very much 
and what you do in our economy. Next we will hear from Candy 
Forbes.
    Candy, welcome.

  CANDY FORBES, VICE PRESIDENT/SALES MANAGER, DENHAM SPRINGS 
                  HOUSING, DENHAM SPRINGS, LA

    Ms. Forbes. Today I'm here to represent the Livingston 
Parish Chamber of Commerce. In the audience with me today is 
the CEO of the Chamber, April Wehrs, and the co-chair of the 
Legislative Committee for the Chamber, Mr. John Blount, 
President of Blount General Contractors, a commercial and 
residential contracting firm.
    The Chamber represents over 500 local businesses within the 
parish and the majority of those businesses would be 
characterized as small business owners like myself. I'm the 
president of Denham Springs Housing. It's a small family-owned 
and operated manufactured housing dealership in Denham Springs 
and we have been in business for over 30 years. We employ eight 
full-time employees and over 12 separate subcontractors at our 
business.
    Mr. Blount, who is in the audience, he employs about 25 
full-time employees and numerous subcontractors and been in 
business 28 years.
    Regardless of the scope or size of our operations, both of 
us pretty much face a common issue and that's the complexity 
and cost of dealing with the Internal Revenue Service. There 
are three thing I'd like to touch on today.
    The first one is Section 179 changes that will affect the 
bottom line of most businesses. Very simply put, depreciation 
of equipment, automobiles, and other tangible business property 
helps to offset a company's scheduled tax burden. Big ticket 
purchases that business owners make help drive the economy.
    For example, if I decide not to purchase a large piece of 
equipment in 2015 due to unfavorable depreciation rules, no 
profit is made at the heavy equipment sales center, no taxes 
are paid to help support the local and State economy. If a 
business can't depreciate big ticket items, they will simply 
wait it out until the IRS rules are adjusted and they can do so 
unless they absolutely need it. This slows growth and it 
injures multiple parties.
    I feel like Congress is doing a disservice to American 
businesses whenever depreciation rules and tax code in general 
are used as leverage in year-end negotiations. We need a long-
term solution to the problem, not a 2015 year-end retrospective 
fix. It's vital that Congress act to raise the depreciation 
limits and give businesses stability they need to make informed 
decisions about purchases without gambling with their taxes. 
That's the first thing I wanted to cover.
    The next thing I wanted to talk about was some of the 
burdensome IRS regulations, coupled with a lack of 
accountability on the IRS's part, lead to a lot of problems for 
small business owners.
    One local CPA that we do business with has been battling 
with the IRS for over six months for a client. Mr. Johnson 
makes on-line payments of roughly $2,000 a week for payroll 
taxes for his company. He's done so consistently for several 
years. Mr. Johnson accidentally entered $2 million instead of 
$2,000 into the IRS's on-line payment system.
    Mr. Johnson has Parkinson's disease and it makes his hands 
unsteady. It was the shaking hands that caused him to enter the 
extra zeroes on the online tax payment. He recognized the 
mistake as soon as he did it, he called the bank and stopped 
payment. He contacted his accountant and he made the $2,000 
payment that he was supposed to make. The IRS then levied a 
$45,000 fine against Mr. Johnson's company for what was 
determined as dishonest form of payment. The fine was based on 
a percentage of the $2 million mistake rather than the $2,000 
payment that he did owe.
    Mr. Johnson has now given his CPA a power of attorney in 
order to deal with the IRS by U.S. Mail because she said that's 
the way that it has to be done. That's how you have to deal 
with them. After all these months, no one has been able to fix 
the problem. No one at the IRS has been able to correct the 
problem. The CPA is so frustrated that she said that she 
considered contacting the Parkinson's Disease Foundation to see 
if she could tell his story to the public.
    There's a total lack of accountability on the part of the 
IRS in these types of situations. Fines are levied, accounts 
are frozen, liens are placed on assets, and all of these costs 
that are associated don't do anything to the IRS itself, it 
only hurts the small business.
    I would like to see Congress increase oversight through 
legislation and bring about consequences for IRS abuse like 
this. There will never be any kind of change or relief for 
small business owners if we are the only ones that are 
penalized whenever there is an issue.
    And in the interest of time, and because I believe Mr. 
Urdiales covered a couple things I wanted to talk about, I 
would like to thank you for allowing us to come out and speak 
today and I hope that the information that we provided is 
helpful in helping you understand the problems that we have as 
small business owners.
    Chairman Vitter. Very helpful. Thank you, Candy. Regarding 
that specific case you outlined, which is outrageous, please--
--
    Ms. Forbes. That's a business owner right here.
    Chairman Vitter [continuing]. Please have them get us, my 
office, the details of that and we will get actively involved 
and we will blast through this mind-set of the IRS on this 
particular case. Shouldn't take that, but it often does. We 
work on individual cases like that all the time. So please have 
them--you will get our contact information before you leave.
    Ms. Forbes. I will.
    Chairman Vitter. Please have them get us the details. They 
will have to sign a privacy release form so we can work on it 
and we'll get right to work on that.
    Ms. Forbes. They'd probably like to sign any forms with you 
that would help.
    [The prepared statement of Ms. Forbes follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Right. Let me make that offer to everybody 
here. We work on those sorts of individual cases all the time, 
whether it involves the IRS or other Federal agencies like the 
VA. If you or a family member, a neighbor, a business associate 
has anything like that that you need help with, call me and my 
office, and we will get to work on it. I think we have a 
handout and on that blue column on the left-hand side of the 
handout is all of my contact information. We have easy e-mail 
access on the website, and those are all of our offices, 
including Baton Rouge and Metairie. So please call us.
    Now we will hear from Ron Gitz.
    Ron, welcome.

   RON GITZ, EXECUTIVE DIRECTOR, SOCIETY OF LOUISIANA CPAS, 
                           KENNER, LA

    Mr. Gitz. Thank you. Thank you for being here. I know some 
have thanked you but I really appreciate the fact that you take 
time out of your very busy travel schedule to hear from the 
taxpayer----
    Chairman Vitter. Absolutely.
    Mr. Gitz [continuing]. And the businesses that help this 
country tick.
    In the introduction, we represent 6,300 or so CPAs and 
firms in Louisiana. They represent the majority of business 
here. Prior to my stint as Executive Director, I come from an 
entrepreneurial small business background and I have been a 
partner in small CPA firms that represent business. And so now, 
we represent the firms that represent business. So I heard a 
lot of mention of CPAs throughout the panel here. Like Senator 
Vitter's offer, we also would help the CPA with this client. We 
do have contacts inside the IRS.
    I have written testimony that I'm not reading from because 
it's quite lengthy. It was actually testimony provided by the 
AICPA, which is the national organization that represents CPAs, 
actually, internationally. They have 400,000 members and so 
they are out there doing this in each and every state. The 
testimony that they helped me provide was actually written 
testimony that they gave to the Committee on Small Business, 
which is a U.S. House of Representatives' Committee. 
Ironically, that testimony was provided on April 15th and I 
don't know if that's just an anomaly or if it was intended.
    Chairman Vitter. I'm guessing the House planned it that way 
to make a point.
    Mr. Gitz. To make a point, absolutely. Pleased to hear that 
some of the items contained therein are part of your tax reform 
package that you're going to present. The document that I have 
is 16 pages long. It falls a little lengthy if I were to read 
it, outside the five minutes I'm allotted, but I did select a 
couple of important items from it to share with you.
    The goal of the CPA profession is to work with Congress to 
help ensure that the tax reform package follows principally 
good tax policy. There are ten of those principles. They are 
listed in that document. I will speak about one of those today, 
which is uncertainty, which we heard a lot about already. There 
are nine issues that we have identified that, you know, when 
you're talking about 70,000 pages of tax code, where do you 
start?
    So we have nine that we think can provide some instant 
relief. You referred to those in some of your opening remarks. 
We have heard Section 179 referred to a lot. That is one of the 
sunset tax provisions that dates back to President Bush's 
tenure as president that had a ten-year life. That ten years 
expired and so they have been getting annual renewals since 
then. As it stands now, here we are in May of 2015, and will 
they be renewed or not? Nobody knows. That's the uncertainty 
part. This is bad tax policy. That's why we are recommending 
that we make some of these things permanent.
    It's not just Section 179. There are 50-plus other 
provisions as well that affect various businesses in different 
ways. So we would like to see some permanence in those tax 
provisions to make them more certain.
    What happens is, and beyond just hearing from the panel 
from the business side, from the tax preparer side where CPAs 
are caught in the middle. What advice do you give? And so with 
the last couple of years, you get into the spring of the year 
following the tax year, and then the tax provision get renewed, 
for instance, 179, financial statements had to be prepared by 
year end, there had to have been a tax provision put into those 
financial statements because you can't do anything that's not 
enacted yet. So there's confusion in the marketplace. There's 
confusion with compliance, et cetera.
    The other problem that I heard, you know, you may argue 
it's a big business, but it's a small business that did it. 
There's an estimated payment that a CPA had to recommend to 
their client to make of $250,000 because Section 179 has not 
been renewed at that time. So you're tying up very important 
cash flow and business capital. Ultimately, it's great, there's 
a lower tax burden on the taxpayer, but to make these things 
permanent and allow for tax planning would certainly be 
awesome.
    The IRS services have been cut. We just heard big mention 
of that. There used to be the ability, there was thing called 
E-Services that is now gone. It happened two years ago. When I 
was practicing back in 2011, it worked pretty well. You signed 
up for E-Services and you had the ability to interact with the 
IRS and do some of the things described electronically.
    Well, funding it's been cut to the IRS. Nobody loves the 
IRS, right? It's the dreaded tax man. We, at the beginning of 
every tax season, we have a liaison meeting with the local IRS 
group. One of the most dramatic and, quite honestly, sad 
meetings that I participated in was that meeting two years ago 
where, you know, it's the experts in the room. It's not just 
CPAs, it's open to tax practitioners and the IRS 
representatives there.
    These folk, good, good American citizens that have 
dedicated their career to government service on the IRS side 
and are experts that have their hands tied, literally. The 
frustration in the room, mutual respect, because these are the 
experts on both sides of the tax equation. Their services have 
been just cut to the point where they can't function.
    So to wrap up, to make the point a little clearer, I was at 
the AICPA Board meeting two weeks ago, there's this new thing 
that the IRS has come out with a new term called ``the courtesy 
disconnect.'' So after you have been on the phone for two 
hours, there's a courtesy disconnect.
    Chairman Vitter. How courteous is that?
    Mr. Gitz. It's like the mercy rule, the home run mercy rule 
in baseball. What happens is, to make it even more dramatic, 
the IRS can now claim that at their call center, there are no 
calls longer than two hours.
    Chairman Vitter. What a great way to meet that goal. 
Disconnect.
    Mr. Gitz. I will leave you with that. Thank you for letting 
me be here.
    [The prepared statement of Mr. Gitz follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thanks, Ron. Very compelling. Thanks to 
all of you for your very direct, real world testimony.
    Candy, we heard from you about this outrageous example of 
IRS abuse not correcting a clear, simple mistake that was 
immediately identified by the taxpayer. To me, that's part of a 
broader ``gotcha mentality,'' the way the IRS deal with a lot 
of individuals and small business.
    Do any of you all have personal experience that would sort 
of be examples of that sort of gotcha mentality?
    Ms. Forbes. I'm going to find some wood up here to knock 
on. Personally, I personally, I do not have any experience with 
any of those types of issues. Now I hear a lot of stories from 
our CPAs, but we have been fortunate enough to have a good 
solid relationship with our current CPA firm for a long time 
and we have been able to--find some more wood--avoid those 
types of problems.
    Chairman Vitter. Anybody else?
    Mr. Urdiales. I will say that same thing. I've been very 
lucky to have a good CPA to assist on some of the issues we 
have to deal with.
    Chairman Vitter. We have also been talking a lot about 
compliance costs, not just the cost of the tax bill, but the 
cost of compliance. Jim, let's take your restaurant business as 
an example. How would you describe and estimate the compliance 
costs, not the check you write for the tax liability, but 
dealing with figuring out what that check has to be.
    Mr. Urdiales. That, again, goes back to, you know, with the 
Earned Tax Tip Credit that we use, we are basically paying 
double each week. And so, you know, it covers my tax bill for 
the restaurant, but again you're tying up extra cash flow each 
week just to do that. But it's because of the extra tip 
reporting that we have to do for tips on servers. So there's a 
lot of issues, whether it's minimum wage, you know, that affect 
us, and it's--we are all operating on a smaller margin than we 
used to.
    And so it's one of those things where at the end of the 
year--not even at the end of the year, this is monthly. I'm 
sitting there looking at the margins of what we have, what we 
need to adjust, you know, just to keep on going. You know, it's 
definitely--and all my costs have risen, but again like I said, 
the--it used to go from a quarterly to now it's weekly, just to 
stay abreast of it.
    Chairman Vitter. And related to something you mentioned, 
because I don't understand the details of this, so let me ask 
you to explain. I think you suggested that restaurants that 
have any sort of automatic tip put on the bill face a higher 
burden or tax liability. Why don't you explain that?
    Mr. Urdiales. There was a new rule that went into effect 
January of this year that basically said that any automatic 
gratuities added, for instance, if you go in the service 
industry, like if you have a party of eight or more, they used 
to sometimes put an automatic tip. Well it's no longer a tip, 
it's now considered wages so what happens, it goes on to the 
revenue side of the business, and so we pay taxes and then you 
disburse. So basically it's a double taxation. It's moving that 
automatic tip to two different zones to get your tip twice.
    Chairman Vitter. So it's clearly increasing your tax 
burden?
    Mr. Urdiales. Correct.
    Chairman Vitter. But even if under that practice, which at 
least used to be very common for large parties, even if that 
were done, that would represent tip that would go directly to 
the employee, correct?
    Mr. Urdiales. Right. Yes. Yeah.
    Chairman Vitter. Margot, you wanted to add anything to 
that?
    Ms. May. Again, like Candy said, I'll knock on wood being 
that we have only owned it and then operated it for a year, but 
continuously we hear stories not just from our CPA of their 
struggles of trying to be in compliance, but the fact that a 
small business owner is putting their life savings, their work 
and their day-to-day operations in making a business run and 
giving more employment to locals and being a good person of the 
community, and then a letter shows up. And it's like, wait a 
second, I wasn't supposed to have that, or did that box get 
checked wrong? That's not correct. It's a simple, simple 
mistake that can take something like six months to a year and 
then the letters are coming. And it just overwhelms a small 
business owner.
    I believe very strongly that small businesses can do a lot 
with very little, but when you pull those funds, that burden of 
finances to taxes that you're not sure if you have or don't 
have, it stunts the growth of what can happen in a community or 
in a city or even in a larger state.
    Chairman Vitter. Right. A related issue to all of this, and 
certainly an issue that impacts small business, both over 50 
employees and under is ObamaCare. Do you all have any direct 
testimony about your businesses or your members, in Ron's case, 
in terms of dealing with that in the small business arena?
    Mr. Gitz. The irony there, again, one of the things we do, 
CPAs are required to have an average of 40 hours a year in 
continuing education. So the Louisiana Society of CPAs provides 
that education. ObamaCare was looming. It was kind of a four-
year implementation process and by the time it got to the 
fourth, it's here, right? It's upon us. The education that we 
had to provide the CPAs and the complexity therein, I don't 
know how many pages, 70,000 pages, but it was substantial, 
beyond the actual check that you write, and it is the burden of 
being able to navigate and figure it out. And so I know we 
provided, and continue to provide, continuing education to help 
our CPAs and there are still many questions that are 
unanswered. Nobody is even sure that they are completely 
complying with the law.
    Chairman Vitter. Right. Anybody else?
    Ms. Forbes. I'd like to add something. There's a lot out 
there about how ObamaCare is going to affect taxes and it most 
certainly will. But there are other issues that are related to 
this depreciation rule that you may not be aware of. Basically 
I'm in the lending business, you know. I'm a contractor and we 
have to arrange mortgage loans for people. A lot of those 
people are self-employed. One of the things that happened after 
Dodd-Frank and the financial reform act, which has been a huge 
hit to small business owners, is that it limited their 
abilities to be able to meet bank requirements because the 
banks had to adhere to certain lending guidelines.
    How that relates to the depreciation is that when the 
depreciation is limited, that's one of the things that mortgage 
lenders will add back to the bottom line income of the self-
employed person. There's an add-back depreciation to their net 
income and then use that to calculate how much their yearly 
income is by which they can get a mortgage loan or apply for a 
business line of credit or personal loan. And if those 
depreciation limits are lowered, then it actually makes the net 
income of that business owner less, which affects his ability 
to go and borrow money or to own a home.
    And in this instance, I'm talking about your really small 
business owner who has got one employee, two employees an LLC, 
some type of flow-through entity and that right there prevents 
homeownership and it prevents them from being able to borrow 
and get personal credit lines and that's a huge hit not only 
for that business owner, but for people like me who sell homes 
for a living and for people like John Blount who need those 
people to be able to purchase the homes that he builds. So they 
are all interconnected. There have been some things that have 
happened that have really been a sucker punch for small 
business owners.
    Chairman Vitter. Anybody else on ObamaCare?
    Mr. Urdiales. I would add one of the issues I could go into 
of other restaurateurs who have over 50 employees where they 
have to--you have to offer the full plan to hourly employees if 
they are over 30 hours. And one of the things that they are 
finding out is they can't afford that plan. So then they have 
to sign a release saying that it was offered and then they have 
to go to an outside market and a lot of these plans aren't 
really great insurance. And they are not really there for--they 
are really only there for something catastrophic.
    I had the situation where I did have two bartenders that 
kind of teetered on that 33-, 34-hour week and under the plan, 
I had to at least offer it to them. You know, I wanted to offer 
it to them as an option. But it was--it literally was one whole 
week's pay for them. Their mentality is they can't justify that 
because they can't live like that.
    So you know, in the restaurant industry where you do have a 
lot of back-of-the-house people who may start at $10, $11, $12 
an hour, for them, you know the fact at $250, $300 a month, 
they can't fathom that.
    Chairman Vitter. Jim, I assume you have also seen in 
restaurant, and other businesses, certain employees being 
pushed below 30 hours----
    Mr. Urdiales. Right.
    Chairman Vitter [continuing]. For that reason because it 
changes the calculation.
    Mr. Urdiales. Very much so.
    Chairman Vitter. Any other?
    Margot.
    Ms. May. That's what I was going to bring up is personally 
it hasn't affected us, but I have seen, unfortunately, 
businesses that don't want to have to go under working more and 
not have others working, but their employees can't afford the 
ObamaCare and they can't afford to not have the workers. So 
they have to supplement it in some way. It just messes up the 
whole entire purpose of what you're trying to do, run your 
business.
    Chairman Vitter. As I mentioned a while ago, we are putting 
together a small business tax reform bill. I will get each of 
you an outline of that bill in its present draft form, and any 
specific provisions that really have a big impact on small 
business that aren't there, that we should consider and 
include, please let us know. We want your input on that.
    We are going to introduce it soon. I think we are covering 
the big items, certainly Section 179 expensing, making that 
permanent is one of the obvious ones, but certainly want your 
input on that.
    We are going to start to wrap up. Thanks to everybody for 
being here and special thanks to our four great panelists. 
Let's give them a round of applause.
    Thank you all very much. As I told you beforehand, you're 
the meat of this program and you gave the real world 
perspective that we were absolutely after. And I know it's a 
sacrifice to come here, take time out of work, so thank you for 
that. And thanks to everybody for coming out today as well.
    Before you leave, let me highlight two things. As I 
suggested a minute ago, I want this to be an ongoing 
conversation and if you have any specific problems with the 
IRS, or some other agency, please let us know the details. We 
work on those specific cases all the time. All of my contact 
information is right here on the handout and so please let us 
know those details so we can follow up.
    In addition, our Small Business Committee has a little 
brochure that's available called ``The Small Business Road 
Map'' that gives you a lot of good small business contact 
information in Louisiana, specifically. So please look for this 
and pick this up and use it on a regular basis.
    With that, thank you very much, very much, and have a great 
rest of the day.
    [Whereupon, at 10:36 a.m., the Committee was adjourned.]

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