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House Tax Chief Plans to ‘Simplify’ Rules on Partnerships, LLCs

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House Ways and Means Chairman Kevin Brady said Sunday he anticipates changes in H.R. 1, the Republican tax bill, that would “simplify” rules surrounding a proposed 25% tax rate for partnerships, limited liability companies and other so-called pass-through businesses.

The bill released last week would focus a tax cut on only the highest-earning businesses, leaving out many small operators. The National Federation of Independent Business, a small-business group that usually aligns with Republicans, said it couldn’t support the bill.

(Related:5 Republican Tax Bill Sections for Agents to Track)

The Ways and Means panel plans to begin hearings on the legislation Monday. House Speaker Paul Ryan has set a goal of having the full House pass the bill by Thanksgiving.

“We’re looking to continue to look to ways to simplify pass-through relief both for smaller and larger pass-throughs,” Brady told reporters outside a meeting of Ways and Means Republicans on Sunday. Under current law, pass-through businesses send their business income directly to their owners, who are then taxed at their individual income-tax rates. For the highest earners, that top rate is 39.6%.

Brady said some restrictions will remain — to prevent people who earn large amounts of wages from forming their own LLCs to try to get the favorable rate. “You’ve got to have the guardrails to make sure you’re really driving relief to owner-operator businesses,” he said. “So that’s always been recognized as safeguards we’d have to have in place,” he said.

The Texas Republican didn’t clarify whether he’d restore tax breaks for medical expenses and adoption in response to concerns that ending them will hurt middle-class Americans.

“We’re listening to our members and their constituents,” Brady said. “In all of these — there are just so many provisions that were set aside so we could lower the rates for everyone.”

Brady also declined to say whether a repeal of the Affordable Care Act individual mandate may be added to the bill.

“I don’t want to go into detail on our discussions,” Brady said, with a smile.

 — Read GOP Tax Plan Spares 401(k)s, Targets IRAson ThinkAdvisor.

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