[Congressional Record Volume 155, Number 97 (Thursday, June 25, 2009)]
[Senate]
[Pages S7073-S7074]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE (for herself and Mr. Conrad):
  S. 1349. 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 reintroduce 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 10 regulatory review and 
reform initiatives for 2008. By establishing an optional home office 
deduction, the Home Office Tax Deduction Simplification and Improvement 
Act of 2009 would take a strong step toward making our tax laws easier 
to understand. I would like to thank Senator Conrad for joining me to 
introduce this critical bill here in the Senate and Representative 
Gonzalez for introducing identical legislation in the House of 
Representatives.
  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 nine 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 is 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 we are reintroducing today, the Internal 
Revenue Code currently 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 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 testimony last year 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.
  Specifically, 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 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:

[[Page S7074]]

``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.''
  Our bill also received an endorsement 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-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. 1349

       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 2009''.

     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, 
     2009.
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