The pass-through structure has several benefits aside from its impact on taxes, which appeal to many business owners. Perhaps most important, it limits the owners' financial liability, says . "If you're a sole proprietor, you are subject to unlimited liability. If anything happens to the business, your personal assets are at risk."

What's more, while some larger companies organize as pass-throughs, current regulations limit how many can take this approach. For instance, S-corporations typically can have no more than 100 shareholders, Thompson says.

Dennis Tarnay is CFO of Lake Erie Electric, a Cleveland-based electrical contracting firm with between $80 and $100 million in revenue. Tarnay, who also testified before Congress, notes in an interview that the company initially organized as a C-corporation in the 1950s, but switched to an S-corporation in the 1980s. "When the Revenue Act lowered the tax rate at the individual level, it made sense for small businesses that qualified for the pass-through structure," to become one, says Tarnay.

For many small business owners, their business is their primary asset, Thompson adds in an interview. "When they sell, they expect to live on it (the proceeds) the rest of their lives. If you double-tax it, there's less available for them to live on."

What's more, any concerns that elected officials may harbor about owners of pass-through entities shirking their tax obligations are unfounded, according to Rys. "The IRS has the ability to go after people who don't pay," he says.