Amendment to H.R. 4213, Section 413 – Employment Tax Treatment of Professional Service Businesses – S. Amdt. 4342 

    June 14, 2010


    The Honorable Max Baucus, Chairman                                             

    Senate Committee on Finance                                   

    511 Hart Senate Office Building                               

    Washington, DC 20510

    The Honorable Charles Grassley

    Ranking Member

    Senate Committee on Finance

    135 Hart Senate Office Building

    Washington, DC 20510

    Amendment to H.R. 4213, Section 413 
    Employment Tax Treatment of Professional Service Businesses – S. AMDT. 4342


    Dear Chairman Baucus and Ranking Member Grassley:


    The American Institute of Certified Public Accountants (AICPA) opposes  Section 413 of the American Jobs and Closing Tax Loopholes Act of 2010 (the 2010 Act) which we believe threatens to result in a significant increase in taxes and complexity for S corporations and their shareholders, and for certain limited partners. Section 413 represents a major change in longstanding tax policy that has never been the subject of public hearings, thus, we are concerned that there may be unintended consequences that have not been fully aired and discussed. Accordingly, we strongly support the amendment being offered by Senators Snowe and Enzi, S. Amdt. 4342, which would strike Section 413. The proposed Section 413:


    • Fails to take into account a fair and reasonable return on the human and investment capital of the owners;
    • may reduce Social Security benefits for early retirees;
    • may create unintended consequences to qualified and non-qualified retirement plans of owners that would now have both wages and self-employment income; and
    • ignores the fact that the IRS currently has the appropriate enforcement tools it needs to re-characterize the distributions of S corporations as salary subject to employment taxes under FICA.


    The AICPA would like to work with Congress and the IRS to address the best way to collect S corporation shareholders’ and partners’ fair share of employment/self-employment taxes.  Such a provision should not be rushed through the legislative process without due process and deliberation. Thank you very much for taking time to consider our serious concerns and suggestions regarding Section 413 of this Act, and the much needed Snowe-Enzi amendment.  If we can be of assistance, please contact Peter Kravitz, AICPA Director of Congressional & Political Affairs at (202) 434-9218 or; or Edward S. Karl, AICPA Vice President - Taxation at (202) 434-9228 or




    Alan R. Einhorn

    Chair, Tax Executive Committee

    cc: Members of the Senate Finance Committee

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