[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 9 Referred in Senate (RFS)]
112th CONGRESS
2d Session
H. R. 9
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 23, 2012
Received; read twice and referred to the Committee on Finance
_______________________________________________________________________
AN ACT
To amend the Internal Revenue Code of 1986 to provide a deduction for
domestic business income of qualified small businesses.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Tax Cut Act''.
SEC. 2. DEDUCTION FOR DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL
BUSINESSES.
(a) In General.--Part VI of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new section:
``SEC. 200. DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL BUSINESSES.
``(a) Allowance of Deduction.--In the case of a qualified small
business, there shall be allowed as a deduction an amount equal to 20
percent of the lesser of--
``(1) the qualified domestic business income of the
taxpayer for the taxable year, or
``(2) taxable income (determined without regard to this
section) for the taxable year.
``(b) Deduction Limited Based on Wages Paid.--
``(1) In general.--The amount of the deduction allowable
under subsection (a) for any taxable year shall not exceed 50
percent of the greater of--
``(A) the W-2 wages of the taxpayer paid to non-
owners, or
``(B) the sum of--
``(i) the W-2 wages of the taxpayer paid to
individuals who are non-owner family members of
direct owners, plus
``(ii) any W-2 wages of the taxpayer paid
to 10-percent-or-less direct owners.
``(2) Definitions related to ownership.--For purposes of
this section--
``(A) Non-owner.--The term `non-owner' means, with
respect to any qualified small business, any person who
does not own (and is not considered as owning within
the meaning of subsection (c) or (e)(3) of section 267,
as the case may be) any stock of such business (or, if
such business is other than a corporation, any capital
or profits interest of such business).
``(B) Non-owner family members.--An individual is a
non-owner family member of a direct owner if--
``(i) such individual is family (within the
meaning of section 267(c)(4)) of a direct
owner, and
``(ii) such individual would be a non-owner
if subsections (c) and (e)(3) of section 267
were applied without regard to section
267(c)(2).
``(C) Direct owner.--The term `direct owner' means,
with respect to any qualified small business, any
person who owns (or is considered as owning under the
applicable non-family attribution rules) any stock of
such business (or, if such business is other than a
corporation, any capital or profits interest of such
business).
``(D) 10-percent-or-less direct owners.--The term
`10-percent-or-less direct owner' means, with respect
to any qualified small business, any direct owner of
such business who owns (or is considered as owning
under the applicable non-family attribution rules)--
``(i) in the case of a qualified small
business which is a corporation, not more than
10 percent of the outstanding stock of the
corporation or stock possessing more than 10
percent of the total combined voting power of
all stock of the corporation, or
``(ii) in the case of a qualified small
business which is not a corporation, not more
than 10 percent of the capital or profits
interest of such business.
``(E) Applicable non-family attribution rules.--The
term `applicable non-family attribution rules' means
the attribution rules of subsection (c) or (e)(3) of
section 267, as the case may be, but in each case
applied without regard to section 267(c)(2).
``(3) W-2 wages.--For purposes of this section--
``(A) In general.--The term `W-2 wages' means, with
respect to any person for any taxable year of such
person, the sum of the amounts described in paragraphs
(3) and (8) of section 6051(a) paid by such person with
respect to employment of employees by such person
during the calendar year ending during such taxable
year.
``(B) Limitation to wages attributable to qualified
domestic business income.--Such term shall not include
any amount which is not properly allocable to domestic
business gross receipts for purposes of subsection
(c)(1).
``(C) Other requirements.--Except in the case of
amounts treated as W-2 wages under paragraph (4)--
``(i) such term shall not include any
amount which is not allowed as a deduction
under section 162 for the taxable year, and
``(ii) such term shall not include any
amount which is not properly included in a
return filed with the Social Security
Administration on or before the 60th day after
the due date (including extensions) for such
return.
``(4) Certain partnership distributions treated as w-2
wages.--
``(A) In general.--In the case of a qualified small
business which is a partnership and elects the
application of this paragraph for the taxable year--
``(i) the qualified domestic business
taxable income of such partnership for such
taxable year (determined after the application
of clause (ii)) which is allocable under rules
similar to the rules of section
199(d)(1)(A)(ii) to each qualified service-
providing partner shall be treated for purposes
of this section as W-2 wages paid during such
taxable year to such partner as an employee,
and
``(ii) the domestic business gross receipts
of such partnership for such taxable year shall
be reduced by the amount so treated.
``(B) Qualified service-providing partner.--For
purposes of this paragraph, the term `qualified
service-providing partner' means, with respect to any
qualified domestic business taxable income, any partner
who is a 10-percent-or-less direct owner and who
materially participates in the trade or business to
which such income relates.
``(5) Acquisitions and dispositions.--The Secretary shall
provide for the application of this subsection in cases where
the taxpayer acquires, or disposes of, the major portion of a
trade or business or the major portion of a separate unit of a
trade or business during the taxable year.
``(c) Qualified Domestic Business Income.--For purposes of this
section--
``(1) In general.--The term `qualified domestic business
income' for any taxable year means an amount equal to the
excess (if any) of--
``(A) the taxpayer's domestic business gross
receipts for such taxable year, over
``(B) the sum of--
``(i) the cost of goods sold that are
allocable to such receipts, and
``(ii) other expenses, losses, or
deductions (other than the deduction allowed
under this section), which are properly
allocable to such receipts.
``(2) Domestic business gross receipts.--
``(A) In general.--The term `domestic business
gross receipts' means the gross receipts of the
taxpayer which are effectively connected with the
conduct of a trade or business within the United States
within the meaning of section 864(c) but determined--
``(i) without regard to paragraphs (3),
(4), and (5) thereof, and
``(ii) by substituting `qualified small
business (within the meaning of section 200)'
for `nonresident alien individual or a foreign
corporation' each place it appears therein.
``(B) Exceptions.--For purposes of paragraph (1),
domestic business gross receipts shall not include any
of the following:
``(i) Gross receipts derived from the sale
or exchange of--
``(I) a capital asset, or
``(II) property used in the trade
or business (as defined in section
1231(b)).
``(ii) Royalties, rents, dividends,
interest, or annuities.
``(iii) Any amount which constitutes wages
(as defined in section 3401).
``(3) Application of certain rules.--Rules similar to the
rules of paragraphs (2) and (3) of section 199(c) shall apply
for purposes of this section (applied with respect to qualified
domestic business income in lieu of qualified production
activities income and with respect to domestic business gross
receipts in lieu of domestic production gross receipts).
``(d) Qualified Small Business.--For purposes of this section--
``(1) In general.--The term `qualified small business'
means any employer engaged in a trade or business if such
employer had fewer than 500 full-time equivalent employees for
either calendar year 2010 or 2011.
``(2) Full-time equivalent employees.--The term `full-time
equivalent employees' has the meaning given such term by
subsection (d)(2) of section 45R applied--
``(A) without regard to subsection (d)(5) of such
section,
``(B) with regard to subsection (e)(1) of such
section, and
``(C) by substituting `calendar year' for `taxable
year' each place it appears therein.
``(3) Employers not in existence prior to 2012.--In the
case of an employer which was not in existence on January 1,
2012, the determination under paragraph (1) shall be made with
respect to calendar year 2012.
``(4) Application to calendar years in which employer in
existence for portion of calendar year.--In the case of any
calendar year during which the employer comes into existence,
the number of full-time equivalent employees determined under
paragraph (2) with respect to such calendar year shall be
increased by multiplying the number so determined (without
regard to this paragraph) by the quotient obtained by
dividing--
``(A) the number of days in such calendar year, by
``(B) the number of days during such calendar year
which such employer is in existence.
``(5) Special rules.--
``(A) Aggregation rule.--For purposes of paragraph
(1), any person treated as a single employer under
subsection (a) or (b) of section 52 (applied without
regard to section 1563(b)) or subsection (m) or (o) of
section 414 shall be treated as a single employer for
purposes of this subsection.
``(B) Predecessors.--Any reference in this
subsection to an employer shall include a reference to
any predecessor of such employer.
``(e) Special Rules.--
``(1) Elective application of deduction.--Except as
otherwise provided by the Secretary, the taxpayer may elect not
to take any item of income into account as domestic business
gross receipts for purposes of this section.
``(2) Coordination with section 199.--If a deduction is
allowed under this section with respect to any taxpayer for any
taxable year--
``(A) any gross receipts of the taxpayer which are
taken into account under this section for such taxable
year shall not be taken into account under section 199
for such taxable year, and
``(B) the W-2 wages of the taxpayer which are taken
into account under this section shall not be taken into
account under section 199 for such taxable year.
``(3) Application of certain rules.--Rules similar to the
rules of paragraphs (1), (2), (3), (4), (6), and (7) of section
199(d) shall apply for purposes of this section (applied with
respect to qualified domestic business income in lieu of
qualified production activities income).
``(f) Regulations.--The Secretary shall prescribe such regulations
as are necessary to carry out the purposes of this section, including
regulations which prevent a taxpayer which reorganizes from being
treated as a qualified small business if such taxpayer would not have
been treated as a qualified small business prior to such
reorganization.
``(g) Application.--Subsection (a) shall apply only with respect to
the first taxable year of the taxpayer beginning after December 31,
2011.''.
(b) Conforming Amendments.--
(1) Section 56(d)(1)(A) of such Code is amended by striking
``deduction under section 199'' both places it appears and
inserting ``deductions under sections 199 and 200''.
(2) Section 56(g)(4)(C) of such Code is amended by adding
at the end the following new clause:
``(vii) Deduction for domestic business
income of qualified small businesses.--Clause
(i) shall not apply to any amount allowable as
a deduction under section 200.''.
(3) The following provisions of such Code are each amended
by inserting ``200,'' after ``199,''.
(A) Section 86(b)(2)(A).
(B) Section 135(c)(4)(A).
(C) Section 137(b)(3)(A).
(D) Section 219(g)(3)(A)(ii).
(E) Section 221(b)(2)(C)(i).
(F) Section 222(b)(2)(C)(i).
(G) Section 246(b)(1).
(H) Section 469(i)(3)(F)(iii).
(4) Section 163(j)(6)(A)(i) of such Code is amended by
striking ``and'' at the end of subclause (III) and by inserting
after subclause (IV) the following new subclause:
``(V) any deduction allowable under
section 200, and''.
(5) Section 170(b)(2)(C) of such Code is amended by
striking ``and'' at the end of clause (iv), by striking the
period at the end of clause (v) and inserting ``, and'', and by
inserting after clause (v) the following new clause:
``(vi) section 200.''.
(6) Section 172(d) of such Code is amended by adding at the
end the following new paragraph:
``(8) Domestic business income of qualified small
businesses.--The deduction under section 200 shall not be
allowed.''.
(7) Section 613(a) of such Code is amended by striking
``deduction under section 199'' and inserting ``deductions
under sections 199 and 200''.
(8) Section 613A(d)(1) of such Code is amended by
redesignating subparagraphs (C), (D), and (E) as subparagraphs
(D), (E), and (F), respectively, and by inserting after
subparagraph (B) the following new subparagraph:
``(C) any deduction allowable under section 200,''.
(9) Section 1402(a) of such Code is amended by striking
``and'' at the end of paragraph (16), by redesignating
paragraph (17) as paragraph (18), and by inserting after
paragraph (16) the following new paragraph:
``(17) the deduction provided by section 200 shall not be
allowed; and''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 of such Code is amended by adding at the end
the following new item:
``Sec. 200. Domestic business income of qualified small businesses.''.
Passed the House of Representatives April 19, 2012.
Attest:
KAREN L. HAAS,
Clerk.