10/07/2002
The NFIB Legal Foundation expressed disappointment at the U.S. Supreme Court's refusal to hear an important case which could lead to an arbitrary tax hike--by as much as 40 percent--for many small-business owners.
"Despite the court's disappointing decision not to hear the case, the IRS must remember the vital principle that changes in tax policy must be 'consistent and predictable, not subject to the whim of the Commissioner,'" said NFIB Legal Foundation Executive Director Karen Harned. "This ruling must not be a green light for the IRS to change its policies every time it wants to increase its revenues, with no warning whatsoever to taxpaying small-business owners."
Specifically, the case affects the ability of S corporations--many of which are small businesses--to use "tax affecting" when determining the value of the corporations' stock. Tax affecting is an accepted valuation tool that ensures shareholders are fairly taxed during any transfer of S corporation stock, whether it is as a gift or part of the estate left to heirs upon the death of the stockholder. In Gross v. Commissioner, the IRS suddenly changed longstanding precedent and prohibited tax affecting, increasing the supposed value of the business and thus increasing the amount of tax owed.
The NFIB Legal Foundation joined the S Corporation Association and other business groups in filing an amici curiae brief asking the U.S. Supreme Court to hear the case, Gross v. Commissioner of Internal Revenue.
"The death tax is already an unfair extra tax on small-business families," Harned said. "As a result of this case, not only does the tax man come at the worst possible time, he also retroactively changes the rules so he can take even more from families. The NFIB Legal Foundation is working to protect against what could amount to a 40 percent increase in this unfair tax for the more than 140,000 NFIB members that are S corporations.
"Today's decision is just the latest sign that America's entrepreneurs need a champion in the nation's courtrooms. The NFIB Legal Foundation will continue fighting for them. Like small businesses themselves, we will continue to confront the obstacles laid down by the bureaucracy in Washington," Harned said.
CONTACT: Michelle Dimarob, (202) 554-9000
