Should There Be One Set of Passthrough Rules for All Non-Publicly Traded Businesses? (Option 2 of the Ways and Means Committee Draft to Reform the Taxation of Small Businesses and Passthrough Entities)

Abstract

This article argues that Option 2 of the March 2013 Ways and Means Committee discussion draft for the reform of the taxation of passthrough entities, which would replace the current S corporation and partnership rules with a single set of rules for all non-publicly traded passthroughs, is much better than simply making changes to specific S corporation and partnership rules. The S corpration rules were enacted for reasons nolonger relevant, and it makes no sense today to distinguish for tax purposes between entities that are and that are not incorpoated. Optioin 2 is far simpler and more straight-forward than the alternatives, and it would also focus on the need to reform payroll taxes.