[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.
                                 <all>