WASHINGTON Community bank lobbyists on Tuesday began urging the Bush administration to give them what Bill Clinton would not: expanded eligibility for tax-advantaged S corporation status.
S corporations pay no taxes on their revenue, but shareholders are taxed on their dividends. In a letter to Treasury Secretary Paul ONeill, Paul Merski, chief economist and director of federal tax policy for the Independent Community Bankers of America, urged the Bush administration to make broader eligibility part of its pending tax-cut legislation.
Mr. Merski recommended the administration seek to raise the maximum number of shareholders for an S corporation to 150, from 75. A tax relief package vetoed last year by former President Clinton had contained such a provision, along with several other changes supported by small banks.
Mr. Merski said 1,431 banks 16% of the nations total have converted to S corporation status since it became legal in 1997. He also cited a survey by the accounting firm Grant Thornton, scheduled to be released today, that found another 14% of banks with less than $500 million of assets would like to convert but cannot. Of those, 43% cited an inability to comply with the 75-shareholder limit. An additional 72% cited problems meeting other shareholder criteria.
Community-based banks face onerous tax burdens not carried by their key competitors, such as tax-exempt credit unions, Mr. Merski said. The tax code should not be used to create an unfair competitive advantage for a competing industry to the detriment of the community banks serving the same customer base.
Mr. Merski also asked the administration to consider tax incentives to spur savings by consumers.