Friday, November 22, 2019
Karen C. Burke (Florida) presented The Factitious Allure of Passthrough Parity at Northwestern on Wednesday as part of its Advanced Topics in Taxation Colloquium Series hosted by Herbert Beller, David Cameron, Charlotte Crane, Sarah Lawsky, Ajay Mehrotra, Philip Postlewaite, and Jeffrey Sheffield:
In 2017, Congress enacted § 199A, purportedly to maintain tax parity for corporate and noncorporate businesses. Despite concerns about mass conversions to the corporate form, upon closer examination § 199A appears largely to preserve the passthrough advantage, while raising issues concerning the relative tax efficiency of different passthrough types. Other factors, such as the use of partnerships to achieve an asset basis step-up with a single-level tax on sale of a business, are also likely to influence the choice of entity. Moreover, the 2017 Act encourages both corporate and noncorporate owner-managers to mischaracterize labor income as business income, thereby minimizing total income and employment tax exposure.