Read our interview with Jeff Ahola, CEO of The Ahola Corporation, a family-owned, national payroll and workforce management company that provides tools and resources for family enterprises. Jeff was a participant in the May conference, Capital City Family Reunion, organized by Family Enterprise -USA.
Practitioner: Why did you decide to come to Washington to meet with lawmakers regarding family enterprise?
Jeff Ahola: I am a huge supporter of the work being done by Family Enterprise USA and the Family Firm Institute, and it only seems natural to take our issues to our national lawmakers and educate them about the economic impact of family enterprises. Our lawmakers, at all levels, need to understand the terrific empirical research about family business that is flowing internationally from a variety of new sources. As a business grows through its natural life cycle, the evolution of a family enterprise is totally different from that of a non-family one. Our lawmakers need to better understand this very important subject: The key generator of revenue into the federal treasury payroll withholding system is family enterprise employment taxes.
Practitioner: Do you think there is broad-based awareness on the Hill of the value, contributions and predominance of family enterprise in the US and world economies?
JA: With only four CPAs in all of Congress, I think awareness on the Hill is still pretty low. And because accounting is the language of business, our tax laws—estate, income and payroll—are still complex processes that need simplification. We must repeatedly and clearly communicate the need for reform in order to significantly increase awareness. I think we can do a lot to change that perception with some hard, passionate and persistent work.
Practitioner: Can you comment on the S corp vs. C corp conversations?
JA: The growth of small business in this country was ignited along with the post-World War II economic boom. These enterprises, primarily organized as sole proprietorships without the legal protections of corporations, were perceived to be at a disadvantage. Our predecessors dealt with that by amending Chapter 1 of the Internal Revenue Code, which defines the different types of business entities and the rules governing them. They created the subchapter S corp (“S” for small), which established “flow-through entities” that allowed income to pass through corporations to their shareholders. The S corp classification solved the tax problems of the day, but those regulations haven’t changed over the years, while small businesses have. And 55 years later, we face a similar tsunami of perceived (if not actual) taxation without representation in regard to the unique issues facing this country’s 5 million family businesses.
Practitioner: Is there a need for a new category specifically focused on the characteristics of family enterprise?
JA: I think the time is right for the collective family business stakeholder community to rally behind a new IRS business entity type: the “F” corp. The F corp (or Family corp) should be designed as an elective process (similar to the S corp), distinct from any other entity type, to equitably address the following issues: estate tax complications; the lopsided income tax rates for C corporations versus S corporations; employee benefits regulations (like tax credits that exempt family members); complicated and expensive related-party rules in 401(k) plans; and other stipulations embedded in the code. Establishing the F corp, or Family corp, would be bipartisan, revenue neutral and significantly less complicated than amending the tax code! This new category of business would protect the flow of funds into the treasury via consistent and growing payroll tax revenue, uninterrupted by tragic events like the current Death Tax that destroy family business.
Practitioner: The European Union has developed a formal definition of family business. Do you think this approach would be helpful in the U.S.?
JA: A formal IRS definition of what constitutes a family business, from our perspective as Americans, would be extremely helpful in legitimizing this vital sector of our economy. Internal Revenue Code section 267, and numerous other sections of the tax code, describes the related-party rules in a disjointed manner. The creation of a tax-based, comprehensive definition is imperative. An updated definition of “family member” is necessary as well, especially considering the potential complications in regard to the prevalent issue of same-sex marriage.
Practitioner: What advice would you give to family enterprise advisors and consultants who would like to influence public policy?
JA: I would look for opportunities to discuss personally the importance of family business with reachable legislators—perhaps at a client’s important anniversary or other milestone event where elected officials are in attendance. The response we received in Washington, D.C., has inspired me to get it done locally and in our state capitol.
Jeff Ahola is CEO of The Ahola Corporation, a family-owned, national payroll and workforce management company that provides tools and resources for family businesses. Jeff is committed to continuing education and addressing the unique issues facing family businesses. Jeff can be reached at firstname.lastname@example.org.
Yours in Practice,