By Albert B. Crenshaw

Taxes, and the avoidance of them, continue not surprisingly to be a topic of great interest among owners of small businesses.

Unfortunately, there just aren't many ways to avoid taxes legally, and there certainly is no magic bullet, no "little-known loophole," that allows owners to keep all their profits and tell the Internal Revenue Service to stuff it.

But hope springs eternal, as do promoters ready to trade on it.

Last week, for example, the IRS began legal action against promoters of the so-called Section 861 argument, which is that Section 861 of the tax code limits taxable income to certain sources that don't apply to most U.S. citizens. The courts are becoming increasingly fed up with these cases and, the IRS noted, recently whacked a taxpayer who tried the Section 861 argument with a $ 25,000 penalty.

However, other schemes have a certain superficial plausibility -- what the U.S. Tax Court might call "colorable merit." Nevertheless, they don't work either.

One of these is a scheme that appears to get around payroll taxes. This is particularly appealing to very small businesses, since payroll taxes -- those for Social Security and Medicare -- are a substantial burden to them.

The idea is simple enough:

The taxpayer sets his business up as a Subchapter S corporation, which is a special kind of company that does not itself pay income taxes, but is allowed under tax law to pass through to its shareholders its profits and losses. The shareholders then report the amounts on their personal returns.

In this scenario, the taxpayer is the S corporation's owner. When he or she performs work or services for a customer, the customer pays the S corporation. The S corporation then passes the customer's full payment on to the owner/shareholder as "dividends" rather than wages, and -- poof -- no payroll tax.

Nice try, but no cigar, the Tax Court said in two recent cases, one involving a veterinarian and the other a drywall contractor, both in Pennsylvania.

Both taxpayers were employees of their companies and the firms "did not have a reasonable basis for not treating" them as such. Therefore, payroll taxes should have been assessed, the court ruled.

Various business assistance programs are moving through Congress since the terrorist attacks, but small-business groups, worried that their interests are being overlooked, are pressing for action on their behalf.

The U.S. Chamber of Commerce last week sent out an appeal to its members to get behind S. 1499, "The American Small Business Emergency Relief and Recovery Act of 2001," introduced by Senate Small Business Committee Chairman John F. Kerry (D-Mass.) and cosponsored by the ranking minority member, Sen. Christopher S. Bond (R-Mo.).

The measure is hung up at the moment -- there were two Republican holds on it late last week -- and the chamber is telling its people, "We need six (6) senators to cosponsor S. 1499 in order to assure Senate passage. Please call your Senator today and ask that he or she cosponsor S. 1499." And it's sending out a list of senators for those who don't know who theirs are.

"Because of the unique character of this disaster, many of the existing programs meant to act as a 'safety net' to the small-business community have been found to be inadequate or not available," the chamber's alert says.

Because of the tangle, Kerry has introduced another bill as well to try to help small businesses.

Loan assistance applications under existing programs, particularly in New York, have been running below expectations, highlighting the most fundamental difficulty with loans as disaster relief: They still have to be paid back.

That's usually not a problem with disasters like storms because business owners expect to resume operations in the same location and to be able to do business at about the same level as before. If they can get going again, there is a good chance they can recover.

In areas like New York and the District, though, there are now real questions about business prospects. Borrowing to rebuild an enterprise that has lost its purpose or customer base doesn't make a lot of sense; however, if owners give up and take their business elsewhere the consequences for both cities would be severe.

And there also seems to be a chicken-and-egg situation in the making. Business owners are reluctant to borrow when it appears their clientele has been frightened away. And the clientele will be slower to come back when the businesses that attract them are either demolished, as in New York, or cutting back, as in Washington.

The House Small Business Committee last week approved a measure that includes grants and zero-interest loans, and gives the Small Business Administration the option of forgiving loans if compelling repayment would threaten a business with bankruptcy.

Rep. Nydia M. Velazquez (D-N.Y.), ranking minority member of the House panel, is hopeful. She said these "recovery tools" are what small firms need "to help them stay up until business recovers."

The scarcity of skilled labor continues to be an issue for small business, but interestingly, the idea of training people to fill jobs draws little interest from owners.

A study commissioned by the Research Institute for Small & Emerging Business Inc. here found that most small and emerging businesses view "training and skill-development opportunities" as only "moderately important in attracting qualified workers."

The study found that 60 percent of these businesses spend 4 percent or less of their annual sales on training. The majority provide fewer than 20 hours of training per employee per year. And less than 40 percent report their training to be effective.

More than 25 percent indicate that they make no effort to assess the effectiveness of their training programs.

Yet most say training is relatively important in achieving their business goals. Contradictory as these sentiments seem, though, they are not really surprising.

Presumably, many small and emerging businesses are so busy staying alive that training is something owners thing they can't afford.

But historically in industries where workers migrate readily from job to job businesses conclude that training is a losing proposition: It's cheaper to steal somebody else's employee than to train one, and if you invest in a lot of training, it makes your workers more likely to be stolen. When that happens, you've paid for the training while your competitor reaps the benefits.

Albert B. Crenshaw writes on small business issues every other week in Washington business.