109 HR 4006 IH: Small Business Tax Flexibility Act of 2005 U.S. House of Representatives 2005-10-06 text/xml EN Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.

I 109th CONGRESS 1st Session H. R. 4006 IN THE HOUSE OF REPRESENTATIVES October 6, 2005 Mr. Shaw (for himself and Mr. Tanner) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To permit startup partnerships and S corporations to elect taxable years other than required years.

1.

Short title

This Act may be cited as the Small Business Tax Flexibility Act of 2005.

2.

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:

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 December 31, 2005.