Ways and Means Chairman proposes pass-through reforms. Dave Camp, the Republican Chairman of the House Ways and Means Committee, yesterday proposed to merge the rules for S corporations and partnerships in a single pass-through tax system. But in case that’s too much change for Congress to take, he also proposed more modest changes to Subchapter S and Subchapter K.
The big plan would combine the rules for partnerships and S corporations. Among the many new rules would be restrictions on the ability to specially allocate partnership items. It would automatically adjust the “inside” basis of property when a partnership interest is transferred to match the “outside” basis, and it would require partnerships to recognize gain on distributions of appreciated property – like corporations must do now. The gain recognition rule would strip partnerships of one of their most attractive tax features.
The small plan would merely tweak the existing partnership and S corporation rules. Changes would include making permanent the five-year built-in gain period for S corporations, setting the Section 179 limit permanently at $250,000, and changing the due dates of partnership and S corporation returns to March 15 and March 31. It would also make mandatory basis adjustments on transfers of partnership interests.
It’s very early in the process, and I have no idea whether these ideas will ever become law. It is interesting, though, that Rep. Camp is investing the time in putting out these proposals. I doubt he would do so if he thought there was no opportunity to advance them in the next few years.
The TaxProf has a roundup.