[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 46 Introduced in House (IH)]
110th CONGRESS
1st Session
H. R. 46
To amend the Internal Revenue Code of 1986 to provide tax incentives
for small businesses, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 4, 2007
Ms. Velazquez introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide tax incentives
for small businesses, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``Small Business Tax
Fairness and Simplification Act of 2007''.
(b) References to Internal Revenue Code.--Except as otherwise
expressly provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title, etc.
Sec. 2. Application of cafeteria plan rules, etc., to self-employed
individuals.
Sec. 3. Long-term care insurance permitted to be offered under
cafeteria plans and flexible spending
arrangements.
Sec. 4. Amortization of certain intangibles acquired from eligible
small businesses.
Sec. 5. Increase in exclusion of gain from qualified small business
stock.
Sec. 6. Standard home office deduction.
Sec. 7. Qualified small businesses election of taxable year ending in a
month from April to November.
Sec. 8. Increase in maximum number of S corporation shareholders.
Sec. 9. Government contracts with small businesses not subject to tax
withholding.
SEC. 2. APPLICATION OF CAFETERIA PLAN RULES, ETC., TO SELF-EMPLOYED
INDIVIDUALS.
(a) In General.--Section 125(d) (defining cafeteria plan) is
amended by adding at the end the following new paragraph:
``(3) Employee to include self-employed.--
``(A) In general.--The term `employee' includes an
individual who is an employee within the meaning of
section 401(c)(1) (relating to self-employed
individuals).
``(B) Limitation.--The amount which may be excluded
under subsection (a) with respect to a participant in a
cafeteria plan by reason of being an employee under
subparagraph (A) shall not exceed the employee's earned
income (within the meaning of section 401(c)) derived
from the trade or business with respect to which the
cafeteria plan is established.''
(b) Application to Benefits Which May Be Provided Under Cafeteria
Plan.--
(1) Group-term life insurance.--Section 79 (relating to
group-term life insurance provided to employees) is amended by
adding at the end the following new subsection:
``(f) Employee Includes Self-Employed.--
``(1) In general.--For purposes of this section, the term
`employee' includes an individual who is an employee within the
meaning of section 401(c)(1) (relating to self-employed
individuals).
``(2) Limitation.--The amount which may be excluded under
the exceptions contained in subsection (a) or (b) with respect
to an individual treated as an employee by reason of paragraph
(1) shall not exceed the employee's earned income (within the
meaning of section 401(c)) derived from the trade or business
with respect to which the individual is so treated.''
(2) Accident and health plans.--Section 105(g) is amended
to read as follows:
``(g) Employee Includes Self-Employed.--
``(1) In general.--For purposes of this section, the term
`employee' includes an individual who is an employee within the
meaning of section 401(c)(1) (relating to self-employed
individuals).
``(2) Limitation.--The amount which may be excluded under
this section by reason of subsection (b) or (c) with respect to
an individual treated as an employee by reason of paragraph (1)
shall not exceed the employee's earned income (within the
meaning of section 401(c)) derived from the trade or business
with respect to which the accident or health insurance was
established.''
(3) Contributions by employers to accident and health
plans.--
(A) In general.--Section 106 is amended by adding
at the end the following new subsection:
``(c) Employer to Include Self-Employed.--
``(1) In general.--For purposes of this section, the term
`employee' includes an individual who is an employee within the
meaning of section 401(c)(1) (relating to self-employed
individuals).
``(2) Limitation.--The amount which may be excluded under
subsection (a) with respect to an individual treated as an
employee by reason of paragraph (1) shall not exceed the
employee's earned income (within the meaning of section 401(c))
derived from the trade or business with respect to which the
accident or health insurance was established.''
(B) Clarification of limitations on other coverage.--The
first sentence of section 162(l)(2)(B) is amended to read as
follows: ``Paragraph (1) shall not apply to any taxpayer for
any calendar month for which the taxpayer participates in any
subsidized health plan maintained by any employer (other than
an employer described in section 401(c)(4)) of the taxpayer or
the spouse of the taxpayer.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 3. LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED UNDER
CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.
(a) Cafeteria Plans.--The last sentence of section 125(f) (defining
qualified benefits) is amended to read as follows: ``Such term shall
include the payment of premiums for any qualified long-term care
insurance contract (as defined in section 7702B) to the extent the
amount of such payment does not exceed the eligible long-term care
premiums (as defined in section 213(d)(10)) for such contract''.
(b) Flexible Spending Arrangements.--Section 106 (relating to
contributions by employer to accident and health plans), as amended by
section 2, is amended by striking subsection (c) and redesignating
subsection (d) as subsection (c).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 4. AMORTIZATION OF CERTAIN INTANGIBLES ACQUIRED FROM ELIGIBLE
SMALL BUSINESSES.
(a) In General.--Section 197 (relating to amortization of goodwill
and certain other intangibles) is amended by redesignating subsection
(g) as subsection (h) and inserting after subsection (f) the following
new subsection:
``(g) Amortization of Intangibles Acquired From Eligible Small
Businesses.--
``(1) In general.--In the case of any qualified amortizable
section 197 intangible, subsection (a) shall be applied by
substituting `5-year period' for `15-year period'.
``(2) Qualified amortizable section 197 intangible.--For
purposes of this subsection, the term `qualified amortizable
section 197 intangible' means any amortizable section 197
intangible which is acquired in a transaction (or series of
transactions) involving the acquisition of assets constituting
a trade or business or substantial portion thereof from an
eligible small business (as defined in section 474(c)) after
the date of the enactment of this subsection.
``(3) Maximum amount per business.--
``(A) In general.--The aggregate adjusted basis of
qualified amortizable section 197 intangibles of each
eligible small business which the taxpayer may amortize
under paragraph (1) shall not exceed $5,000,000.
``(B) Allocation of dollar amount.--
``(i) Controlled group.--For purposes of
applying the dollar limitations in subparagraph
(A)--
``(I) all component members of a
controlled group shall be treated as
one taxpayer, and
``(II) such dollar limitations
shall be allocated among the component
members of such controlled group in
such manner as the Secretary
prescribes.
For purposes of the preceding sentence, the
term `controlled group' has the meaning given
to such term by section 1563(a), except that
`more than 50 percent' shall be substituted for
`at least 80 percent' each place it appears in
section 1563(a)(1).
``(ii) Partnerships and s corporations.--In
the case of a partnership, the dollar
limitations in subparagraph (A) shall apply
with respect to the partnership and with
respect to each partner. A similar rule shall
apply in the case of an S corporation and its
shareholders.
``(C) Subsection not to apply to trusts.--This
subsection shall not apply to trusts.
``(D) Estates.--The benefit of the special
deduction provided by this subsection shall be allowed
to estates in the same manner as in the case of an
individual. The allowable deduction shall be
apportioned between the income beneficiary and the
fiduciary in the manner prescribed by the Secretary.
Any amount so apportioned to a beneficiary shall be
taken into account for purposes of determining the
amount allowable as a deduction under this subsection
to such beneficiary.''.
(b) Effective Date.--The amendment made by this section shall apply
to acquisitions of qualified amortizable section 197 intangibles (as
defined in section 197(g)(2) of the Internal Revenue Code of 1986, as
added by this section) after the date of the enactment of this Act.
SEC. 5. INCREASE IN EXCLUSION OF GAIN FROM QUALIFIED SMALL BUSINESS
STOCK.
(a) In General.--Paragraph (1) of section 1202(a) is amended by
striking ``50 percent'' and inserting ``62.5 percent''.
(b) Empowerment Zone Businesses.--Subparagraph (A) of section
1202(a)(2) is amended--
(1) by striking ``60 percent'' and inserting ``75
percent'', and
(2) by striking ``50 percent'' and inserting ``62.5
percent''.
(c) Effective Date.--The amendments made by this section shall
apply to sales or exchanges of qualified small business stock in
taxable years beginning after the date of the enactment of this Act.
SEC. 6. STANDARD HOME OFFICE DEDUCTION.
(a) In General.--Subsection (c) of section 280A (relating to
disallowance of certain expenses in connection with business use of
home, rental of vacation homes, etc.) is amended by adding at the end
the following new paragraph:
``(7) Standard home office deduction.--Subject to the
limitation of paragraph (5), in the case of a use described in
paragraph (1), (2), or (4), and in the case of a use described
in paragraph (3) where the dwelling unit is used by the
taxpayer during the taxable year as a residence, the deductions
allowed under this chapter for the taxable year by reason of
being attributed to such use shall not be less than $2,500.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.
SEC. 7. QUALIFIED SMALL BUSINESSES ELECTION OF TAXABLE YEAR ENDING IN A
MONTH FROM APRIL TO NOVEMBER.
(a) In General.--Part I of subchapter E of chapter 1 of the
Internal Revenue Code of 1986 (relating to accounting periods) is
amended by inserting after section 444 the following new section:
``SEC. 444A. QUALIFIED SMALL BUSINESSES ELECTION OF TAXABLE YEAR ENDING
IN A MONTH FROM APRIL TO NOVEMBER.
``(a) General Rule.--A qualified small business may elect to have a
taxable year, other than the required taxable year, which ends on the
last day of any of the months of April through November (or at the end
of an equivalent annual period (varying from 52 to 53 weeks)).
``(b) Years for Which Election Effective.--An election under
subsection (a)--
``(1) shall be made not later than the due date (including
extensions thereof) for filing the return of tax for the first
taxable year of the qualified small business, and
``(2) shall be effective for such first taxable year or
period and for all succeeding taxable years of such qualified
small business until such election is terminated under
subsection (c).
``(c) Termination.--
``(1) In general.--An election under subsection (a) shall
be terminated on the earliest of--
``(A) the first day of the taxable year following
the taxable year for which the entity fails to meet the
gross receipts test,
``(B) the date on which the entity fails to qualify
as an S corporation, or
``(C) the date on which the entity terminates.
``(2) Gross receipts test.--For purposes of paragraph (1),
an entity fails to meet the gross receipts test if the entity
fails to meet the gross receipts test of section 448(c).
``(3) Effect of termination.--An entity with respect to
which an election is terminated under this subsection shall
determine its taxable year for subsequent taxable years under
any other method that would be permitted under subtitle A.
``(4) Income inclusion and deduction rules for period after
termination.--If the termination of an election under paragraph
(1)(A) results in a short taxable year--
``(A) items relating to net profits for the period
beginning on the day after its last fiscal year-end and
ending on the day before the beginning of the taxable
year determined under paragraph (4) shall be includible
in income ratably over the succeeding 4 taxable years,
or (if fewer) the number of taxable years equal to the
fiscal years for which the election under this section
was in effect, and
``(B) items relating to net losses for such period
shall be deductible in the first taxable year after the
taxable year with respect to which the election
terminated.
``(d) Definitions.--For purposes of this section--
``(1) Qualified small business.--The term `qualified small
business' means an entity--
``(A)(i) for which an election under section
1362(a) is in effect for the first taxable year or
period of such entity and for all subsequent years, or
``(ii) which is treated as a partnership for the
first taxable year or period of such entity for Federal
income tax purposes,
``(B) which conducts an active trade or business or
which would qualify for an election to amortize start-
up expenditures under section 195, and
``(C) which is a start-up business.
``(2) Start-up business.--For purposes of paragraph (1)(C),
an entity shall be treated as a start-up business so long as
not more than 75 percent of the entity is owned by any person
who previously conducted a similar trade or business at any
time within the 1-year period ending on the date on which such
entity is formed. For purposes of the preceding sentence, a
person and any other person bearing a relationship to such
person specified in section 267(b) or 707(b)(1) shall be
treated as one person, and sections 267(b) and 707(b)(1) shall
be applied as if section 267(c)(4) provided that the family of
an individual consists of the individual's spouse and the
individual's children under the age of 21.
``(3) Required taxable year.--The term `required taxable
year' has the meaning given to such term by section 444(e).
``(e) Tiered Structures.--The Secretary shall prescribe rules
similar to the rules of section 444(d)(3) to eliminate abuse of this
section through the use of tiered structures.''.
(b) Conforming Amendment.--Section 444(a)(1) of such Code is
amended by striking ``section,'' and inserting ``section and section
444A''.
(c) Clerical Amendment.--The table of sections for part I of
subchapter E of chapter 1 of such Code is amended by inserting after
the item relating to section 444 the following new item:
``Sec. 444A. Qualified small businesses election of taxable year ending
in a month from April to November.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 8. INCREASE IN MAXIMUM NUMBER OF S CORPORATION SHAREHOLDERS.
(a) In General.--Subparagraph (A) of section 1361(b)(1) is amended
by striking ``100'' and inserting ``150''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after the date of the enactment of
this Act.
SEC. 9. GOVERNMENT CONTRACTS WITH SMALL BUSINESSES NOT SUBJECT TO TAX
WITHHOLDING.
(a) In General.--Paragraph (2) of section 3402(t) is amended by
striking ``and'' at the end of subparagraph (H), by striking the period
at the end of subparagraph (I) and inserting ``, and'', and by adding
at the end the following new subparagraph:
``(J) to any specified small business.''.
(b) Specified Small Business.--Subsection (t) of section 3402 is
amended by redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new paragraph:
``(3) Specified small business.--For purposes of this
subsection, the term `specified small business' means a
corporation or partnership which meets the gross receipts test
of section 448(c) for the taxable year prior to the taxable
year in which the payment is received (or, in the case of a
sole proprietorship, which would meet such test if such
proprietorship were a corporation).''.
(c) Effective Date.--The amendments made by this section shall take
effect as if included in section 511 of the Tax Increase Prevention and
Reconciliation Act of 2005.
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