[Congressional Record Volume 154, Number 129 (Thursday, July 31, 2008)]
[Senate]
[Pages S7908-S7909]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE (for herself and Mr. Conrad):
  S. 3371. A bill to amend the Internal Revenue Code of 1986 to 
simplify the deduction for use of a portion of a residence as a home 
office by providing an optional standard home office deduction; to the 
Committee on Finance.
  Ms. SNOWE. Mr. President, today I rise to introduce legislation to 
offer a drastically simplified alternative for home-based businesses to 
benefit from the home office tax deduction. The U.S. Small Business 
Administration's, SBA's, Office of Advocacy designated reforming the 
home office tax deduction as one of its top ten Regulatory Review and 
Reform initiatives for 2008. By establishing an optional home office 
deduction, the Home Office Tax Deduction Simplification and Improvement 
Act of 2008 would take a strong step toward making our tax laws easier 
to understand. I thank Senator Conrad for joining me to introduce this 
critical bill.
  As Ranking Member of the Senate Committee on Small Business and 
Entrepreneurship, I continually hear from small enterprises across 
Maine and this nation about the necessity of tax relief and reform. 
Despite the fact that small firms are our economy's real job creators, 
the current tax system places an entirely unreasonable burden on them 
as they struggle to satisfy their tax obligations.
  Notably, according to the Office of Management and Budget's Office of 
Information and Regulatory Affairs, the American public spends 
approximately 9 billion hours each year to complete government-mandated 
forms and paperwork. A staggering 80 percent of this time is consumed 
by completing tax forms. What's even more troubling is that companies 
that employ fewer than 20 employees spend nearly $1,304 per employee in 
tax compliance costs, an amount that is nearly 67 percent more than 
larger firms.
  Turning to the legislation I am offering today, the Internal Revenue 
Code presently offers qualified individuals a home office tax deduction 
if they use a portion of their home as a principal place of business or 
as a space to meet with their patients or clients. That said, although 
recent research from the SBA indicates that roughly 53 percent of 
America's small businesses are home-based, few of these firms take 
advantage of the home office tax deduction. The reason is simple: 
reporting the deduction is complicated.
  A 2006 survey conducted by the National Federation of Independent 
Business, NFIB, Research Foundation found that approximately 33 percent 
of small-employer taxpayers try to comprehend the tax rules governing 
the home office tax deduction, but only about half of those respondents 
believe that they actually have a good understanding of the rules. As 
Dewey Martin, a Certified Public Accountant from my home State of 
Maine, so aptly said in recent testimony before the Senate Finance 
Committee, ``Many small business owners avoid the deduction because of 
the complications and the fear of a potential audit.''
  With a morass of paperwork attributable to the home office deduction, 
the time-consuming process of navigating the tangled web of rules and 
regulations makes it unsurprising that so many small business owners 
forego the home office deduction. So to encourage the use of the home 
office tax deduction, the bill we are introducing today would establish 
an optional, easy-to-use incentive.
  Turning to specifics, our bill would direct the Secretary of the 
Treasury to establish a method for determining a deduction that 
consists of multiplying an applicable standard rate by the square 
footage of the type of property being used as a home office. The 
proposal would also require the IRS to separately state the amounts 
allocated to several types of expenses in order to reduce the burden on 
the taxpayer. It is vital that the IRS clearly identify the amounts of 
the deduction devoted to real estate taxes, mortgage interest, and 
depreciation so that taxpayers do not duplicate them on Schedule A. 
Finally, the bill makes two changes designed to ease the administration 
of the deduction: First, to reflect an economy in which many business 
owners conduct business or consult with customers through the Internet 
or over the phone versus face-to-face, our legislation takes these 
entrepreneurs into account by allowing the home office deduction to be 
taken if the taxpayer uses the home to meet or deal with clients 
regardless of whether the clients are physically present. Second, our 
bill would allow for de minimis use of business space for personal 
activities so that taxpayers would not lose their ability to claim the 
deduction if they make a personal call or pay a bill online.
  I would be remiss not to note that the bill we are introducing today 
is the result of the dedicated efforts of various groups and 
organizations, which have worked with Senator Conrad and me on a 
consensus approach to improve the current law home office tax 
deduction. In particular, it is significant to note that the IRS 
Taxpayer Advocate Service strongly backs this bill. In fact, the 
National Taxpayer Advocate, Nina E. Olson, sent my office the following 
statement regarding our legislation: ``In my 2007 Annual Report to 
Congress, I made a similar proposal to simplify the home office 
business deduction. I am pleased that Senator Snowe and Conrad's 
proposed bill reflects the gist of my legislative recommendation. 
Reducing the burdensome substantiation requirements for employees and 
self-employed taxpayers who incur modest home office costs would make 
the home office business deduction simpler and more accessible to 
them.''
  My office also received an endorsement of the bill from the National 
Federation of Independent Business. Dan Danner, the organization's 
Executive Director, said the following: ``Currently only a small 
percentage of home-based businesses in the U.S. take advantage of the 
home-office deduction because calculating the deduction is 
unnecessarily complicated. NFIB small business owners have advocated 
for a simpler, standard home-office deduction for years. The Snowe-
Conrad legislation gives home-based businesses the option to deduct a 
legitimate business expense with minimum hassle. This commonsense 
change to the tax code will reduce tax complexity and help many home-
based businesses take advantage of this deduction.'' Additionally, the 
SBA's Office of Advocacy added: ``The SBA Office of Advocacy reviewed 
the legislation and supports it.''
  In closing, according to the SBA's Office of Advocacy, America's 
home-

[[Page S7909]]

based sole proprietors generate $102 billion in revenue annually. With 
this in mind, it is absolutely critical to endow these small firms with 
as much relief from burdensome tax constraints as possible so that they 
can focus their efforts on developing the products and services of the 
future, as well as creating new jobs. The confusion over the home 
office business tax deduction, in my estimation, can be easily solved 
by passing this legislation. I urge all Senators to consider the 
benefits this bill will provide to thousands of small business owners, 
and I look forward to working with my colleagues to enact it in a 
timely manner.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3371

       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 ``Home Office Tax Deduction 
     Simplification and Improvement Act of 2008''.

     SEC. 2. OPTIONAL STANDARD HOME OFFICE DEDUCTION.

       (a) In General.--Subsection (c) of section 280A of the 
     Internal Revenue Code of 1986 (relating to exceptions for 
     certain business or rental use; limitation on deductions for 
     such use) is amended by adding at the end the following new 
     paragraph:
       ``(7) Election of standard home office deduction.--
       ``(A) In general.--In the case of an individual who is 
     allowed a deduction for the use of a portion of a dwelling 
     unit as a business by reason of paragraph (1), (2), or (4), 
     notwithstanding the limitations of paragraph (5), if such 
     individual elects the application of this paragraph for the 
     taxable year with respect to such dwelling unit, such 
     individual shall be allowed a deduction equal to the standard 
     home office deduction for the taxable year in lieu of the 
     deductions otherwise allowable under this chapter for such 
     taxable year by reason of paragraph (1), (2), or (4).
       ``(B) Standard home office deduction.--
       ``(i) In general.--For purposes of this paragraph, the 
     standard home office deduction is an amount equal to the 
     product of--

       ``(I) the applicable home office standard rate, and
       ``(II) the square footage of the portion of the dwelling 
     unit to which paragraph (1), (2), or (4) applies.

       ``(ii) Applicable home office standard rate.--For purposes 
     of this subparagraph, the term `applicable home office 
     standard rate' means the rate applicable to the taxpayer's 
     category of business, as determined and published by the 
     Secretary for the 3 categories of businesses described in 
     paragraphs (1), (2), and (4) for the taxable year.
       ``(iii) Maximum square footage taken into account.--The 
     Secretary shall determine and publish annually the maximum 
     square footage that may be taken into account under clause 
     (i)(II) for each of the 3 categories of businesses described 
     in paragraphs (1), (2), and (4) for the taxable year.
       ``(C) Effect of election.--
       ``(i) General rule.--Except as provided in clause (ii), any 
     election under this paragraph, once made by the taxpayer with 
     respect to any dwelling unit, shall continue to apply with 
     respect to such dwelling unit for each succeeding taxable 
     year.
       ``(ii) One-time election per dwelling unit.--A taxpayer who 
     elects the application of this paragraph in a taxable year 
     with respect to any dwelling unit may revoke such application 
     in a subsequent taxable year. After so revoking, the taxpayer 
     may not elect the application of this paragraph with respect 
     to such dwelling unit in any subsequent taxable year.
       ``(D) Denial of double benefit.--
       ``(i) In general.--Except as provided in clause (ii), in 
     the case of a taxpayer who elects the application of this 
     paragraph for the taxable year, no other deduction or credit 
     shall be allowed under this subtitle for such taxable year 
     for any amount attributable to the portion of a dwelling unit 
     taken into account under this paragraph.
       ``(ii) Exception for disaster losses.--A taxpayer who 
     elects the application of this paragraph in any taxable year 
     may take into account any disaster loss described in section 
     165(i) as a loss under section 165 for the applicable taxable 
     year, in addition to the standard home office deduction under 
     this paragraph for such taxable year.
       ``(E) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this paragraph.''.
       (b) Modification of Home Office Business Use Rules.--
       (1) Place of meeting.--Subparagraph (B) of section 
     280A(c)(1) of the Internal Revenue Code of 1986 is amended to 
     read as follows:
       ``(B) as a place of business which is used by the taxpayer 
     in meeting or dealing with patients, clients, or customers in 
     the normal course of the taxpayer's trade or business, or''.
       (2) De minimis personal use.--Paragraph (1) of section 
     280A(c) of such Code is amended by striking ``for the 
     convenience of his employer'' and inserting ``for the 
     convenience of such employee's employer. A portion of a 
     dwelling unit shall not fail to be deemed as exclusively used 
     for business for purposes of this paragraph solely because a 
     de minimis amount of non-business activity may be carried out 
     in such portion''.
       (c) Reporting of Expenses Relating to Home Office 
     Deduction.--Within 60 days after the date of the enactment of 
     this Act, the Secretary of the Treasury shall ensure that all 
     forms and schedules used to calculate or report itemized 
     deductions and profits or losses from business or farming 
     state separately amounts attributable to real estate taxes, 
     mortgage interest, and depreciation for purposes of the 
     deductions allowable under paragraphs (1), (2), (4), and (7) 
     of section 280A(c) of the Internal Revenue Code of 1986.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2008.
                                 ______