• NASE Announces Creation of Women's Advisory Council

• Medical Liability Reform a Priority for 108th Congress

• IRS Small Business Division Revamps Web site

• Bill Updates: NASE Issues Re-Introduced in 108th

• Paying Reasonable Compensation to the S Corporation Shareholder-Employee

• Spotlight: SBA Online Classroom

NASE Announces Creation of Women's Advisory Council

An increase in women-owned businesses is taking the nation by storm. As of 2002, there were an estimated 6.2 million majority-owned, privately-held, women-owned firms in the U.S., employing 9.2 million people and generating $1.15 trillion in sales.
Are you one of these trendsetters? If so, the NASE wants to hear from you.

The NASE announces the creation of the Women’s Advisory Council to assist the Association in meeting the unique challenges facing women entrepreneurs today. We want to make your Association all it can be, and your valuable feedback can help make that happen.

Up to 10 women-business owners from all over the country will be chosen to participate in the NASE Women’s Advisory Council. Acting as a focus group, the Council will work closely with NASE President Robert Hughes, the Board of Directors and Association staff to provide ideas and insight about new benefits and programs for the NASE Women Entrepreneurship Initiative.

For more information about the Women’s Advisory Council, click here.
 

Medical Liability Reform a Priority for 108th Congress

Congress plans to take up the issue of sky rocketing medical malpractice awards. Various proposals aim to reform medical liability, limiting punitive damages against medical providers and health insurers.

Medical professionals paid more than $7 billion in malpractice insurance premiums in 2001, 15 percent more than they paid in 2000. With the cost of insurance continually increasing, the top two concerns for medical consumers are access to skilled physicians and affordable health coverage.

To avoid extremely high medical malpractice premiums, doctors are leaving some states and opting to practice in states with more reasonable premiums. If this continues, customers will have fewer options in regards to medical professionals and may face severe shortages of specialists. Two states hit hardest by increasing rates are West Virginia and Pennsylvania.

Increases in medical practice rates and liability awards also affect access to affordable health coverage. According to an April 2002 study by the American Association of Health Plans, 7 percent of health insurance premium increases in the year 2001 were directly related to the rise in litigation and malpractice insurance premiums.

President Bush has recently come out in support of medical liability reform. In a speech at the University of Scranton in Pennsylvania, President Bush stated, “for the sake of affordable and accessible health care in America, we must have a limit on what they call non-economic damages. And I propose a cap of $250,000. Excessive jury awards will continue to drive up insurance costs, will put good doctors out of business or run them out of your community.”

A current reform proposal in the House would limit punitive damages to twice the economic damages or $250,000, whichever is greater, in malpractice litigation. It also would limit lawyers’ contingency fees. The battle to get any legislation passed on this issue will be most heated in the Senate. Yet, new Senate Majority Leader Bill Frist (R-TN), himself a physician, plans to make this a top priority of the Senate.

Please stay tuned to Washington Watch for more information on this issue.
 

IRS Small Business Division Revamps Web site

Just in time for the new tax year, the IRS Small Business/ Self-Employed division has made a number of significant content changes to its Web site in order to help businesses with filing their taxes this season. Here are just some of the changes that can help you:

• Where to File Addresses – The new filing addresses for this tax year have been added and are easier to access. Up to date Where-to-File addresses for businesses are now available from every page on the site by clicking on the "Where to File" link on the left navigation bar.

• Allowable Expenses - The National Standards for Allowable Expenses have been updated so that businesses can be sure that they are using the correct standards in claiming expenses.

• Small Business Tax Calendar – The new Small Business Tax Calendar has significant dates and actions necessary to comply with your business tax filing requirements.

• Headliners Page - The Headliners page provides access to all of the IRS headliners – or key messages – by either number or title. This new page will make it much easier to find current and past headliners with information on important tax topics.

• Tax Practitioner Institute Textbook - The new 2002 Tax Practitioner Institute textbook is available for use in teaching tax topics.

• Offers in Compromise – Here you will find comprehensive information explaining the Offers-in-Compromise program and how to make use of this important option.

• International Taxpayer Information - International Taxpayers will find that the amount of information available for their specific tax needs has been increased. This will help both Overseas Taxpayers and Foreign Taxpayers in this country, meet their unique tax obligations.

• Virtual Small Business Workshop –Video streaming technology allows this site to deliver the Small Business Workshop via the Online Classroom on the website. This allows the businessperson to take advantage of this helpful workshop, whenever and wherever it is most convenient for them.

Bill Updates: NASE Issues Re-introduced in 108th

When the 107th Congress ended last year, any legislation that had not yet been passed by both the House and Senate was lost. It is up to Members of the 108th Congress to re-introduce issues that they want to carry over from last year as well as draft new legislation on issues that are important to their constituents.

Already this session, several bills have been introduced on key small-business priorities.

Estate Tax Repeal: Sen. Jon Kyl (R-AZ) introduced S. 96 and S. 169 and Reps. Jennifer Dunn (R-WA) and Bud Cramer (D-AL) introduced H.R. 57, all of which would make the repeal of the estate tax permanent. The NASE has actively advocated for an increase in the permanent exemption to $5 million dollars.

Small Business Expensing: Chair of the Senate Committee on Small Business and Entrepreneurship, Sen. Olympia Snowe, introduced S. 158, and Rep. Wally Herger introduced H.R. 179, both of which would increase the Section 179 direct expensing limits for small businesses. The NASE is pleased to see this legislative priority taking focus in the 108th Congress.

Health Care Tax Credits: Sen. Hillary Clinton introduced S. 86, which would provide a credit for health insurance expenses for small businesses.

For more information about the NASE 2003 Legislative Priorities, links to important legislation and to your Members of Congress, visit http://advocacy.nase.org/.
 

Paying Reasonable Compensation to the S Corporation Shareholder-Employee

(The following article has been provided by the IRS Taxpayer Education and Communication office in an effort to educate micro-business owners and make it easier to fulfill their tax obligations. For more information about any of the information contained in this article, please contact the IRS Small Business/ Self-Employed division at http://www.irs.gov/businesses/small/index.html.)

The IRS sends this reminder: An S Corporation must pay reasonable compensation (subject to employment taxes) to shareholder-employee(s) in return for the services that the employee provides to the corporation, before a non-wage distribution may be made to that shareholder-employee. This issue has been identified as an area of non-compliance and will receive greater scrutiny in the foreseeable future.

Unlike a partnership, flow-through income from an S corporation is not subject to self-employment tax (Revenue Ruling 59-221, 1959-1C.B. 22). In direct contrast, a partnership’s flow-through ordinary income is generally subject to self-employment tax. On the surface, this appears to be a clear tax advantage of an S corporation vs. a partnership. However, in terms of “shareholder-employees” of an S corporation, the analysis does not end here.

If a shareholder-employee of an S corporation provides services to that S corporation, then reasonable compensation (subject to employment taxes) generally needs to be paid in return before any non-wage distributions may be made to that shareholder-employee. Several court cases support the authority of the IRS to reclassify other forms of payments made to the shareholder-employee as a wage expense. See Joly v Comm. 2000-1 USTC 50315 (6th Cir., 2000). In addition, several court cases have reinforced and clarified the IRS position as to the employee status of S corporation shareholders who perform services for the S corporation. See Veterinary Surgical Consultants, PC v. Commissioner, 117 T.C. 141 (2001) and Joseph M. Grey Public Accountant, P.C. vs. Commissioner, 119 T.C. No. 5, (Sept. 16, 2002).

Provided an S corporation shareholder is an employee and has received an actual distribution, the only remaining area of question is what amount is considered “reasonable” for that particular shareholder-employee. Whether the amount paid for the services provided constitutes “reasonable compensation” is based upon all the relevant facts and circumstances.

For more information, visit http://www.irs.gov/businesses/small/index.html.
 

Spotlight: SBA Online Classroom

The U.S. Small Business Administration’s Small Business Classroom is an on-line resource for training and informing entrepreneurs and other students of enterprise. It is a new, easy to use dimension in entrepreneurial learning. The classroom is a digital strategy for reaching new markets and training small-business clients in a changing, global environment.

At the Classroom site, you can read articles, take courses, or begin researching areas of small-business development that interest you. Or, through a SCORE Cyber-Chapter, you can access business advice on an issue via E-mail. With SCORE, you can establish a confidential E-mail dialogue with an experienced business counselor.

Courses are available for many of your small-business needs, including business development, financing, risk management and procurement. For more information about the Small Business Classroom, or to browse the course listings, visit http://www.sba.gov/classroom/About.html.
 

Do any of these issues affect you? Do you want to be proactive in helping the micro-business community? Visit the NASE's Legislative Action Center and “Tell Your Small Business Story.” This will help the NASE understand - on a personal level - how key legislative issues are affecting your business and your bottom line.

For more information about any of the articles in Washington Watch, contact Maureen Petron, NASE public affairs manager, at (202) 466-2100 or mpetron@nase.org.