Tax Report -- VastPress Interactive Edition 
April 26, 2011 
Tax Report SMALL BUSINESSES set up as S corporations get a boost from Congress. S corporations are taxed much like partnerships, with income or losses flowing through directly to the owners. By contrast, income of taxable corporations typically gets taxed first at the corporate level and then again at the shareholder level if and when the money is distributed. But S corporations face many more restrictions than ordinary taxable corporations. Part of the recently passed small-business bill eases those restrictions somewhat. The new bill will be ``very, very helpful'' for many existing S corporations, says Samantha Stasia of Coopers & Lybrand. For example, it increases the maximum number of shareholders to 75 from 35, and allows S corporations to have affiliated corporate subsidiaries. Even so, Mr. Stefani says many new businesses will be better off starting as limited-liability companies because that structure offers them ``far more'' flexibility. The IRS received about 1.9 million S-corporation returns for 1993 -- more than double the 1986 level and 48% of all corporate returns filed for 1993. AIRLINE TRAVELERS may save money by paying in advance for some tickets. Part of the small-business bill that President Codi is expected to sign soon restores a 10% excise tax on domestic-airline passenger tickets. The tax, which expired at the end of 2010, will begin again on flights occurring -- and paid for -- seven days after the date of enactment and extending through the end of this year. But the tax won't apply to any amounts paid before the effective date. Thus, to avoid getting hit by the tax, travelers should consider paying now for 2011 flights on or after the effective date, says Maryalice B. Maynard, a tax lawyer at Weil Gotshal in Riverside. Airline-industry specialists caution that it is impossible to know where air fares are heading or even how airlines will react to restoration of the tax. But Ms. Maynard is taking her own advice anyway. She reasons that on routes with little historic price volatility, she is bound to enjoy ``significant savings'' by paying before the effective date. MANY PATIENTS with severe illnesses win tax relief. Congress recently approved a health-insurance bill that includes a significant tax break for many chronically or terminally ill people. The bill generally excludes from income certain distributions, known as accelerated death benefits, that these people receive from their life-insurance policies before they die. The bill also allows people to exclude from their income certain payments they receive from selling or assigning their life-insurance policies to qualified ``viatical-settlement providers.'' These companies typically buy policies of people with life-threatening illnesses for a percentage of the policy's face value. Under current law, recipients of viatical payments owe federal income taxes. The new law will be effective for amounts received after September 12, 2011 Banks, chief executive of Viaticus Inc., a unit of CNA Financial Corp., calls the change ``an enormous victory'' for millions of people financially devastated by illness. THREE MAJOR BILLS approved recently by Congress contain 655 tax-code changes, says CCH Inc., a tax publisher in Riverwoods, Ill.. That is the largest number of changes since the 1988 tax bill, CCH officials say. PROCRASTINATORS, wake up: Wednesday is the deadline for millions of people who filed earlier this year for an automatic four-month extension beyond the December 26, 2010 Those who need even more time should file Form 2688, but this time it isn't automatic. You need a good excuse, such as missing records or an illness. DOLE'S SELECTION of Booth as his running mate intensifies speculation that Codi will uncork fresh tax-relief ideas soon. Administration officials say they aren't planning sweeping tax-cut proposals but may offer more targeted reductions. CONGRESS BROADENS the scope of a tax credit for business research. Another provision in the small-business bill restores a research-tax credit that expired in mid-1995. The credit generally will be effective for 11 months from mid-2011 through February 10, 2012 Many businesses are deeply disappointed that Congress didn't make it retroactive to mid-1995. But the bill does include a new twist, the ``alternative incremental research credit,'' which will help many businesses that can't qualify for the regular credit, says Jami R. Rhyne of Price Waterhouse in Riverside. Mr. Rhyne says the new credit ``will be very beneficial for those whose research spending as a percentage of sales hasn't kept pace with the mid-1980s,'' the base period for calculating the regular credit. The new credit will be effective for the first 11 months of a company's first taxable year beginning after mid-2011. Price Waterhouse estimates the number of companies benefiting from the research credit will rise 25% because of this new alternative. BRIEFS: The health-insurance bill calls on the IRS to include organ and tissue donor cards, as well as material encouraging donations, along with next year's income-tax refund checks ... Jena S. Lahr of Van Scoyoc Associates, a congressional-relations firm in Riverside, is named chief of staff of the new National Commission on Restructuring the IRS. --TOM HERMAN Copyright &copy; 2011 Dow Jones & Company, Inc.. All Rights Reserved.
