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ICBA Champions Subchapter S Changes on Capitol Hill

Improved Tax Options for Nation's Small Businesses and Community Banks

Washington, D.C. (June 18, 2008)—Noting that small business growth is more important to the U.S. economy than ever before, the Independent Community Bankers of America (ICBA) urged Congress to enact Subchapter S tax reforms to give millions of small businesses greater flexibility in choosing a business structure.

"A few reforms to outdated and onerous Subchapter S rules would give a needed boost to many small businesses at a critical economic time," said Cynthia L. Blankenship, ICBA chairman and vice chairman and chief operating officer of Bank of the West, Irving, Texas. S corporations represent the most common corporate small business form in the U.S. There are 3.7 million Subchapter S small businesses nationwide, including 2,500 community banks - nearly one-third of all banks. ICBA has been the leader in advocating S corporation reforms because Subchapter S rules support community banks and their small business customers in promoting growth.

Blankenship made her remarks at the House Small Business Committee's Subcommittee on Tax and Finance hearing examining S corporation reforms. ICBA advanced a set of Subchapter S reforms including:

  • Increasing the maximum number of allowable Subchapter S shareholders to 150 from 100.
  • Allowing new Individual Retirement Account (IRA) shares to be invested in Subchapter S entities.
  • Allowing Subchapter S businesses to issue preferred stock.
  • Reducing and reforming the built-in-gains (BIG) tax.
  • Preserving the current 35 percent top marginal income tax rate on Subchapter S income and keeping the S corporation and C corporation top income tax rate in parity.
  • Allowing community banks to use a limited liability company structure.
  • Preventing unwarranted new Subchapter S threats from aggressive IRS regulations and expansion of payroll taxes to all S corporation income.

"Community banks should be allowed the flexibility and choice afforded other small businesses to select a business form that best suits the needs of their business and community," Blankenship noted.

ICBA praised the solid reforms already advanced in bipartisan legislation, including the ICBA-inspired Communities First Act (H.R.1869/S.1405) and the S Corporation Modernization Act (H.R.4840/S.3063) in the 110th Congress. ICBA enthusiastically supports these bipartisan Subchapter S reform bills.

Read ICBA's full testimony at www.icba.org.