Although the proposal that lawmakers should consider taxing passthrough entities as corporations has gained attention in recent weeks, former Commissioner of Internal Revenue Larry Gibbs said doing so as part of a tax reform effort would seem to be “wrong-headed.”  Speaking at a benefit reception for Community Tax Aid Inc. sponsored by the American Bar Association Section of Taxation, Gibbs said that, depending upon the details of any formal proposal, the proposal could add new layers of complexity to the partnership and other provisions of the tax code, and instead suggested lawmakers might focus on ways to reduce or ameliorate the double taxation of corporations.

"The income of regular corporations is taxed twice if but only if and to the extent that there is a distribution to the owners -- the shareholders,” he said.  “On the other hand, taxing passthrough entities as well as their owners would result in two levels of tax on the business incomes of passthrough entities and their owners, each year and every year."  Although not yet a formal proposal, the Treasury Department reportedly discussed treating passthrough entities with revenues of $50 million or more as corporations.