[House Report 110-14]
[From the U.S. Government Publishing Office]



110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     110-14

======================================================================



 
                 SMALL BUSINESS TAX RELIEF ACT OF 2007

                                _______
                                

 February 15, 2007.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Rangel, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 976]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 976) to amend the Internal Revenue Code of 1986 to 
provide tax relief for small businesses, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Small Business Tax 
Relief Act of 2007''.
  (b) Amendment of 1986 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 of this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Extension and modification of work opportunity tax credit.
Sec. 3. Extension and increase of expensing for small business.
Sec. 4. Determination of credit for certain taxes paid with respect to 
employee cash tips.
Sec. 5. Waiver of individual and corporate alternative minimum tax 
limits on work opportunity credit and credit for taxes paid with 
respect to employee cash tips.
Sec. 6. Family business tax simplification.
Sec. 7. Denial of lowest capital gains rate for certain dependents.
Sec. 8. Suspension of certain penalties and interest.
Sec. 9. Time for payment of corporate estimated taxes.

SEC. 2. EXTENSION AND MODIFICATION OF WORK OPPORTUNITY TAX CREDIT.

  (a) Extension.--Section 51(c)(4)(B) (relating to termination) is 
amended by striking ``2007'' and inserting ``2008''.
  (b) Increase in Maximum Age for Designated Community Residents.--
          (1) In general.--Paragraph (5) of section 51(d) is amended to 
        read as follows:
          ``(5) Designated community residents.--
                  ``(A) In general.--The term `designated community 
                resident' means any individual who is certified by the 
                designated local agency--
                          ``(i) as having attained age 18 but not age 
                        40 on the hiring date, and
                          ``(ii) as having his principal place of abode 
                        within an empowerment zone, enterprise 
                        community, or renewal community.
                  ``(B) Individual must continue to reside in zone or 
                community.--In the case of a designated community 
                resident, the term `qualified wages' shall not include 
                wages paid or incurred for services performed while the 
                individual's principal place of abode is outside an 
                empowerment zone, enterprise community, or renewal 
                community.''.
          (2) Conforming amendment.--Subparagraph (D) of section 
        51(d)(1) is amended to read as follows:
                  ``(D) a designated community resident,''.
  (c) Clarification of Treatment of Individuals Under Individual Work 
Plans.--Subparagraph (B) of section 51(d)(6) (relating to vocational 
rehabilitation referral) is amended by striking ``or'' at the end of 
clause (i), by striking the period at the end of clause (ii) and 
inserting ``, or'', and by adding at the end the following new clause:
                          ``(iii) an individual work plan developed and 
                        implemented by an employment network pursuant 
                        to subsection (g) of section 1148 of the Social 
                        Security Act with respect to which the 
                        requirements of such subsection are met.''.
  (d) Treatment of Disabled Veterans Under the Work Opportunity Tax 
Credit.--
          (1) Disabled veterans treated as members of targeted group.--
                  (A) In general.--Subparagraph (A) of section 51(d)(3) 
                (relating to qualified veteran) is amended by striking 
                ``agency as being a member of a family'' and all that 
                follows and inserting ``agency as--
                          ``(i) being a member of a family receiving 
                        assistance under a food stamp program under the 
                        Food Stamp Act of 1977 for at least a 3-month 
                        period ending during the 12-month period ending 
                        on the hiring date, or
                          ``(ii) entitled to compensation for a 
                        service-connected disability, and--
                                  ``(I) having a hiring date which is 
                                not more that 1 year after having been 
                                discharged or released from active duty 
                                in the Armed Forces of the United 
                                States, or
                                  ``(II) having aggregate periods of 
                                unemployment during the 1-year period 
                                ending on the hiring date which equal 
                                or exceed 6 months.''.
                  (B) Definitions.--Paragraph (3) of section 51(d) is 
                amended by adding at the end the following new 
                subparagraph:
                  ``(C) Other definitions.--For purposes of 
                subparagraph (A), the terms `compensation' and 
                `service-connected' have the meanings given such terms 
                under section 101 of title 38, United States Code.''.
          (2) Increase in amount of wages taken into account for 
        disabled veterans.--Paragraph (3) of section 51(b) is amended--
                  (A) by inserting ``($12,000 per year in the case of 
                any individual who is a qualified veteran by reason of 
                subsection (d)(3)(A)(ii))'' before the period at the 
                end, and
                  (B) by striking ``Only first $6,000 of'' in the 
                heading and inserting ``Limitation on''.
  (e) Effective Date.--The amendments made by this section shall apply 
to individuals who begin work for the employer after the date of the 
enactment of this Act.

SEC. 3. EXTENSION AND INCREASE OF EXPENSING FOR SMALL BUSINESS.

  (a) Extension.--Subsections (b)(1), (b)(2), (b)(5), (c)(2), and 
(d)(1)(A)(ii) of section 179 (relating to election to expense certain 
depreciable business assets) are each amended by striking ``2010'' and 
inserting ``2011''.
  (b) Increase in Limitations.--Subsection (b) of section 179 is 
amended--
          (1) by striking ``$100,000 in the case of taxable years 
        beginning after 2002'' in paragraph (1) and inserting 
        ``$125,000 in the case of taxable years beginning after 2006'', 
        and
          (2) by striking ``$400,000 in the case of taxable years 
        beginning after 2002'' in paragraph (2) and inserting 
        ``$500,000 in the case of taxable years beginning after 2006''.
  (c) Inflation Adjustment.--Subparagraph (A) of section 179(b)(5) is 
amended--
          (1) by striking ``2003'' and inserting ``2007'',
          (2) by striking ``$100,000 and $400,000'' and inserting 
        ``$125,000 and $500,000'', and
          (3) by striking ``2002'' in clause (ii) and inserting 
        ``2006''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 4. DETERMINATION OF CREDIT FOR CERTAIN TAXES PAID WITH RESPECT TO 
                    EMPLOYEE CASH TIPS.

  (a) In General.--Subparagraph (B) of section 45B(b)(1) is amended by 
inserting ``as in effect on January 1, 2007, and'' before ``determined 
without regard to''.
  (b) Effective Date.--The amendment made by this section shall apply 
to tips received for services performed after December 31, 2006.

SEC. 5. WAIVER OF INDIVIDUAL AND CORPORATE ALTERNATIVE MINIMUM TAX 
                    LIMITS ON WORK OPPORTUNITY CREDIT AND CREDIT FOR 
                    TAXES PAID WITH RESPECT TO EMPLOYEE CASH TIPS.

  (a) Allowance Against Alternative Minimum Tax.--Subparagraph (B) of 
section 38(c)(4) is amended by striking ``and'' at the end of clause 
(i), by inserting a comma at the end of clause (ii), and by adding at 
the end the following new clauses:
                          ``(iii) the credit determined under section 
                        45B, and
                          ``(iv) the credit determined under section 
                        51.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to credits determined under sections 45B and 51 of the Internal Revenue 
Code of 1986 in taxable years beginning after December 31, 2006, and to 
carrybacks of such credits.

SEC. 6. FAMILY BUSINESS TAX SIMPLIFICATION.

  (a) In General.--Section 761 (defining terms for purposes of 
partnerships) is amended by redesignating subsection (f) as subsection 
(g) and by inserting after subsection (e) the following new subsection:
  ``(f) Qualified Joint Venture.--
          ``(1) In general.--In the case of a qualified joint venture 
        conducted by a husband and wife who file a joint return for the 
        taxable year, for purposes of this title--
                  ``(A) such joint venture shall not be treated as a 
                partnership,
                  ``(B) all items of income, gain, loss, deduction, and 
                credit shall be divided between the spouses in 
                accordance with their respective interests in the 
                venture, and
                  ``(C) each spouse shall take into account such 
                spouse's respective share of such items as if they were 
                attributable to a trade or business conducted by such 
                spouse as a sole proprietor.
          ``(2) Qualified joint venture.--For purposes of paragraph 
        (1), the term `qualified joint venture' means any joint venture 
        involving the conduct of a trade or business if--
                  ``(A) the only members of such joint venture are a 
                husband and wife,
                  ``(B) both spouses materially participate (within the 
                meaning of section 469(h) without regard to paragraph 
                (5) thereof) in such trade or business, and
                  ``(C) both spouses elect the application of this 
                subsection.''.
  (b) Net Earnings From Self-Employment.--
          (1) Subsection (a) of section 1402 (defining net earnings 
        from self-employment) is amended by striking ``, and'' at the 
        end of paragraph (15) and inserting a semicolon, by striking 
        the period at the end of paragraph (16) and inserting ``; 
        and'', and by inserting after paragraph (16) the following new 
        paragraph:
          ``(17) notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from a 
        qualified joint venture shall be taken into account as provided 
        in section 761(f) in determining net earnings from self-
        employment of such spouse.''.
          (2) Subsection (a) of section 211 of the Social Security Act 
        (defining net earnings from self-employment) is amended by 
        striking ``and'' at the end of paragraph (14), by striking the 
        period at the end of paragraph (15) and inserting ``; and'', 
        and by inserting after paragraph (15) the following new 
        paragraph:
          ``(16) Notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from a 
        qualified joint venture shall be taken into account as provided 
        in section 761(f) of the Internal Revenue Code of 1986 in 
        determining net earnings from self-employment of such 
        spouse.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 7. DENIAL OF LOWEST CAPITAL GAINS RATE FOR CERTAIN DEPENDENTS.

  (a) In General.--Subsection (h) of section 1 is amended by adding at 
the end the following new paragraph:
          ``(12) Certain individuals not eligible for lowest rate.--
                  ``(A) In general.--In the case of an individual 
                described in subparagraph (B)--
                          ``(i) the amount determined under paragraph 
                        (1)(A)(ii)(II) shall not be less than the 
                        amount of taxable income which would (without 
                        regard to this subsection) be taxed at a rate 
                        below 15 percent, and
                          ``(ii) the sum of the amounts determined 
                        under subparagraphs (B) and (C) of paragraph 
                        (1) shall be an amount equal to the rate of tax 
                        specified in paragraph (1)(C) multiplied by so 
                        much of the adjusted net capital gain (or, if 
                        less, taxable income) as exceeds the excess (if 
                        any) of--
                                  ``(I) the amount of taxable income 
                                which would (without regard to this 
                                subsection) be taxed at a rate below 15 
                                percent, over
                                  ``(II) the taxable income reduced by 
                                the adjusted net capital gain.
                  ``(B) Individuals to whom paragraph applies.--
                          ``(i) In general.--For purposes of this 
                        paragraph, an individual is described in this 
                        subparagraph if--
                                  ``(I) such individual meets the age 
                                requirements of section 152(c)(3) 
                                (determined without regard to 
                                subparagraph (B) thereof), and
                                  ``(II) such individual's earned 
                                income (as defined in section 
                                911(d)(2)) for the taxable year does 
                                not exceed one-half of such 
                                individual's support (within the 
                                meaning of section 152) for such 
                                taxable year.
                          ``(ii) Special rules for joint returns.--In 
                        the case of a joint return--
                                  ``(I) the taxpayer and the taxpayer's 
                                spouse shall be treated as a single 
                                individual for purposes of applying 
                                subclause (II) of clause (i), and
                                  ``(II) the taxpayer shall be treated 
                                as an individual described in this 
                                subparagraph only if the taxpayer and 
                                the taxpayer's spouse are described in 
                                clause (i) (determined after 
                                application of subclause (I)).''.
  (b) Alternative Minimum Tax.--Section 55 is amended by adding at the 
end the following new subsection:
  ``(f) Certain Individuals Not Eligible for Lowest Rate.--In the case 
of an individual described in section 1(h)(12)(B), no amount shall be 
determined under subsection (b)(3)(B).''.
  (c) Coordination With Sunset of Provisions of the Jobs and Growth Tax 
Relief Reconciliation Act of 2003.--Subparagraph (A) of section 
1(h)(12), as added by this section, is amended by striking ``and'' at 
the end of clause (i), by striking the period at the end of clause (ii) 
and inserting ``, and'', and by adding at the end the following new 
clause:
                          ``(iii) no amount of qualified 5-year gain 
                        shall be taken into account under subparagraph 
                        (A) of paragraph (2) (as in effect after the 
                        application of section 303 of the Jobs and 
                        Growth Tax Relief Reconciliation Act of 
                        2003).''.
  (d) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2006.
          (2) Sunset of jgtrra.--The amendment made by subsection (c) 
        shall apply to taxable years beginning after the date specified 
        in section 303 of the Jobs and Growth Tax Relief Reconciliation 
        Act of 2003.

SEC. 8. SUSPENSION OF CERTAIN PENALTIES AND INTEREST.

  (a) In General.--Paragraphs (1)(A) and (3)(A) of section 6404(g) are 
each amended by striking ``18-month period'' and inserting ``22-month 
period''.
  (b) Effective Date.--The amendments made by this section shall apply 
to notices provided by the Secretary of the Treasury, or his delegate, 
after the date which is 6 months after the date of the enactment of 
this Act.

SEC. 9. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Subparagraph (B) of section 401(1) of the Tax Increase Prevention and 
Reconciliation Act of 2005 is amended by striking ``106.25 percent'' 
and inserting ``112.75 percent''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary


                                PURPOSE

    The bill, H.R. 976, as amended, includes provisions for 
providing small business tax relief.

                                SUMMARY

    Effective for wages paid after December 31, 2007, the bill 
extends the work opportunity tax credit (``WOTC'') for one 
year, and, effective for persons hired after the date of 
enactment, the bill expands three of the targeted groups 
(qualified veterans, designated community residents, and 
vocational rehabilitation referrals). For taxable years 
beginning after December 31, 2006, the bill extends and 
increases the present-law section 179 expensing provision. With 
respect to tips received for services performed after December 
31, 2006, the bill provides that the amount of the FICA tip 
credit will not be reduced if the amount of the minimum wage is 
increased. Effective for credits determined in taxable years 
beginning after December 31, 2006, the WOTC and FICA tip 
credits may offset alternative minimum tax liability. Effective 
for taxable years beginning after December 31, 2006, the bill 
provides for certain family business simplification. The bill 
also denies the lowest maximum tax rate of adjusted net capital 
gain income to any individual who meets certain age 
requirements and whose earned income does not exceed one-half 
of such individual's support. This provision is effective for 
taxable years beginning after December 31, 2006. The bill 
amends the suspension of interest and dividends provision 
effective for IRS notices issued after the date which is six 
months after the date of enactment. Finally, the bill modifies 
the 2012 estimated tax payments requirements for corporations 
with assets of at least $1 billion.

                 B. Background and Need for Legislation

    The enactment of an increased Federal minimum wage may have 
the effect of raising employment costs for the nation's small 
businesses. The bill provides small business tax relief to 
offset these additional employment costs.

                         C. Legislative History


Background

    H.R. 976 was introduced in the House of Representatives on 
February 9, 2007, and was referred to the Committee on Ways and 
Means.

Committee action

    The Committee on Ways and Means marked up the bill on 
February 12, 2007, and ordered the bill, as amended, favorably 
reported.

                      II. EXPLANATION OF THE BILL


      A. Extension and Modification of Work Opportunity Tax Credit


(Sec. 2 of the bill and sec. 51 of the Code)

                              PRESENT LAW

In general

    The work opportunity tax credit is available on an elective 
basis for employers hiring individuals from one or more of nine 
targeted groups. The amount of the credit available to an 
employer is determined by the amount of qualified wages paid by 
the employer. Generally, qualified wages consist of wages 
attributable to service rendered by a member of a targeted 
group during the one-year period beginning with the day the 
individual begins work for the employer (two years in the case 
of an individual in the long-term family assistance recipient 
category).

Targeted groups eligible for the credit

    Generally an employer is eligible for the credit only for 
qualified wages paid to members of a targeted group.
            (1) Families receiving TANF
    An eligible recipient is an individual certified by a 
designated local employment agency (e.g., a State employment 
agency) as being a member of a family eligible to receive 
benefits under the Temporary Assistance for Needy Families 
Program (``TANF'') for a period of at least nine months part of 
which is during the 18-month period ending on the hiring date. 
For these purposes, members of the family are defined to 
include only those individuals taken into account for purposes 
of determining eligibility for the TANF.
            (2) Qualified veteran
    A qualified veteran is a veteran who is certified by the 
designated local agency as a member of a family certified as 
receiving assistance under a food stamp program under the Food 
Stamp Act of 1977 for a period of at least three months part of 
which is during the 12-month period ending on the hiring date. 
For these purposes, members of a family are defined to include 
only those individuals taken into account for purposes of 
determining eligibility for a food stamp program under the Food 
Stamp Act of 1977.
    For these purposes, a veteran is an individual who has 
served on active duty (other than for training) in the Armed 
Forces for more than 180 days or who has been discharged or 
released from active duty in the Armed Forces for a service-
connected disability. However, any individual who has served 
for a period of more than 90 days during which the individual 
was on active duty (other than for training) is not a qualified 
veteran if any of this active duty occurred during the 60-day 
period ending on the date the individual was hired by the 
employer. This latter rule is intended to prevent employers who 
hire current members of the armed services (or those departed 
from service within the last 60 days) from receiving the 
credit.
            (3) Qualified ex-felon
    A qualified ex-felon is an individual certified as: (1) 
having been convicted of a felony under any State or Federal 
law, and (2) having a hiring date within one year of release 
from prison or date of conviction.
            (4) High-risk youth
    A high-risk youth is an individual certified as being at 
least age 18 but not yet age 25 on the hiring date and as 
having a principal place of abode within an empowerment zone, 
enterprise community, or renewal community (as defined under 
Subchapter U of Subtitle A, Chapter 1 of the Internal Revenue 
Code (the (``Code'')). Qualified wages do not include wages 
paid or incurred for services performed after the individual 
moves outside an empowerment zone, enterprise community, or 
renewal community.
            (5) Vocational rehabilitation referral
    A vocational rehabilitation referral is an individual who 
is certified by a designated local agency as an individual who 
has a physical or mental disability that constitutes a 
substantial handicap to employment and who has been referred to 
the employer while receiving, or after completing: (a) 
vocational rehabilitation services under an individualized, 
written plan for employment under a State plan approved under 
the Rehabilitation Act of 1973; or (b) under a rehabilitation 
plan for veterans carried out under Chapter 31 of Title 38, 
U.S. Code. Certification will be provided by the designated 
local employment agency upon assurances from the vocational 
rehabilitation agency that the employee has met the above 
conditions.
            (6) Qualified summer youth employee
    A qualified summer youth employee is an individual: (1) who 
performs services during any 90-day period between May 1 and 
September 15, (2) who is certified by the designated local 
agency as being 16 or 17 years of age on the hiring date, (3) 
who has not been an employee of that employer before, and (4) 
who is certified by the designated local agency as having a 
principal place of abode within an empowerment zone, enterprise 
community, or renewal community (as defined under Subchapter U 
of Subtitle A, Chapter 1 of the Internal Revenue Code). As with 
high-risk youths, no credit is available on wages paid or 
incurred for service performed after the qualified summer youth 
moves outside of an empowerment zone, enterprise community, or 
renewal community. If, after the end of the 90-day period, the 
employer continues to employ a youth who was certified during 
the 90-day period as a member of another targeted group, the 
limit on qualified first year wages will take into account 
wages paid to the youth while a qualified summer youth 
employee.
            (7) Qualified food stamp recipient
    A qualified food stamp recipient is an individual aged 18 
but not yet 40 certified by a designated local employment 
agency as being a member of a family receiving assistance under 
a food stamp program under the Food Stamp Act of 1977 for a 
period of at least six months ending on the hiring date. In the 
case of families that cease to be eligible for food stamps 
under section 6(o) of the Food Stamp Act of 1977, the six-month 
requirement is replaced with a requirement that the family has 
been receiving food stamps for at least three of the five 
months ending on the date of hire. For these purposes, members 
of the family are defined to include only those individuals 
taken into account for purposes of determining eligibility for 
a food stamp program under the Food Stamp Act of 1977.
            (8) Qualified SSI recipient
    A qualified SSI recipient is an individual designated by a 
local agency as receiving supplemental security income 
(``SSI'') benefits under Title XVI of the Social Security Act 
for any month ending within the 60-day period ending on the 
hiring date.
            (9) Long-term family assistance recipients
    A qualified long-term family assistance recipient is an 
individual certified by a designated local agency as being: (1) 
a member of a family that has received family assistance for at 
least 18 consecutive months ending on the hiring date; (2) a 
member of a family that has received such family assistance for 
a total of at least 18 months (whether or not consecutive) 
after August 5, 1997 (the date of enactment of the welfare-to-
work tax credit) \1\ if the individual is hired within two 
years after the date that the 18-month total is reached; or (3) 
a member of a family who is no longer eligible for family 
assistance because of either Federal or State time limits, if 
the individual is hired within two years after the Federal or 
State time limits made the family ineligible for family 
assistance.
---------------------------------------------------------------------------
    \1\ The welfare-to-work tax credit was consolidated into the work 
opportunity tax credit in the Tax Relief and Health Care Act of 2006, 
for qualified individuals who begin to work for an employer after 
December 31, 2006.
---------------------------------------------------------------------------

Qualified wages

    Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. The employer's 
deduction for wages is reduced by the amount of the credit.
    For purposes of the credit, generally, wages are defined by 
reference to the FUTA definition of wages contained in sec. 
3306(b) (without regard to the dollar limitation therein 
contained). Special rules apply in the case of certain 
agricultural labor and certain railroad labor.

Calculation of the credit

    The credit available to an employer for qualified wages 
paid to members of all targeted groups except for long-term 
family assistance recipients equals 40 percent (25 percent for 
employment of 400 hours or less) of qualified first-year wages. 
Generally, qualified first-year wages are qualified wages (not 
in excess of $6,000) attributable to service rendered by a 
member of a targeted group during the one-year period beginning 
with the day the individual began work for the employer. 
Therefore, the maximum credit per employee is $2,400 (40 
percent of the first $6,000 of qualified first-year wages). 
With respect to qualified summer youth employees, the maximum 
credit is $1,200 (40 percent of the first $3,000 of qualified 
first-year wages). Except for long-term family assistance 
recipients, no credit is allowed for second-year wages.
    In the case of long-term family assistance recipients, the 
credit equals 40 percent (25 percent for employment of 400 
hours or less) of $10,000 for qualified first-year wages and 50 
percent of the first $10,000 of qualified second-year wages. 
Generally, qualified second-year wages are qualified wages (not 
in excess of $10,000) attributable to service rendered by a 
member of the long-term family assistance category during the 
one-year period beginning on the day after the one-year period 
beginning with the day the individual began work for the 
employer. Therefore, the maximum credit per employee is $9,000 
(40 percent of the first $10,000 of qualified first-year wages 
plus 50 percent of the first $10,000 of qualified second-year 
wages).

Certification rules

    An individual is not treated as a member of a targeted 
group unless: (1) on or before the day on which an individual 
begins work for an employer, the employer has received a 
certification from a designated local agency that such 
individual is a member of a targeted group; or (2) on or before 
the day an individual is offered employment with the employer, 
a pre-screening notice is completed by the employer with 
respect to such individual, and not later than the 28th day 
after the individual begins work for the employer, the employer 
submits such notice, signed by the employer and the individual 
under penalties of perjury, to the designated local agency as 
part of a written request for certification. For these 
purposes, a pre-screening notice is a document (in such form as 
the Secretary may prescribe) which contains information 
provided by the individual on the basis of which the employer 
believes that the individual is a member of a targeted group.

Minimum employment period

    No credit is allowed for qualified wages paid to employees 
who work less than 120 hours in the first year of employment.

Other rules

    The work opportunity tax credit is not allowed for wages 
paid to a relative or dependent of the taxpayer. No credit is 
allowed for wages paid to an individual who is a more than 
fifty-percent owner of the entity. Similarly, wages paid to 
replacement workers during a strike or lockout are not eligible 
for the work opportunity tax credit. Wages paid to any employee 
during any period for which the employer received on-the-job 
training program payments with respect to that employee are not 
eligible for the work opportunity tax credit. The work 
opportunity tax credit generally is not allowed for wages paid 
to individuals who had previously been employed by the 
employer. In addition, many other technical rules apply.

Expiration

    The work opportunity tax credit is not available for 
individuals who begin work for an employer after December 31, 
2007.

                           REASONS FOR CHANGE

    The Committee believes that the experience with the credit 
has been positive and wishes to extend and expand the credit. 
In particular, the Committee believes that the credit can be 
used to improve employment opportunities for broader classes of 
qualified veterans and designated community residents. Also, 
the Committee believes that the expansion of the vocational 
rehabilitation referral group appropriately conforms 
availability of the credit to a previous expansion of the 
vocational rehabilitation referral program.

                        EXPLANATION OF PROVISION

Extension

    The provision extends the work opportunity tax credit for 
one year (for qualified individuals who begin work for an 
employer after December 31, 2007, and before January 1, 2009).

Qualified veterans targeted group

    The provision expands the qualified veterans' targeted 
group to include an individual who is certified as entitled to 
compensation for a service-connected disability and having a 
hiring date which is not more than one year after having been 
discharged or released from active duty in the Armed Forces of 
the United States, or having been unemployed for six months or 
more (whether or not consecutive) during the one-year period 
ending on the date of hiring. Being entitled to compensation 
for a service-connected disability is defined with reference to 
section 101 of Title 38, U.S.C., which means having a 
disability rating of 10-percent or higher for service connected 
injuries.

Qualified first-year wages

    The provision expands the definition of qualified first-
year wages from $6,000 to $12,000 in the case of individuals 
who qualify under either of the new expansions of the qualified 
veteran group, above. The expanded definition of qualified 
first-year wages does not apply to the veterans qualified with 
reference to a food stamp program, as defined under present 
law.

High-risk youth targeted group

    The provision expands the definition of high-risk youths to 
include otherwise qualifying individuals age 18 but not yet age 
40 on the hiring date. The provision also changes the name of 
the category to the ``designated community residents'' targeted 
group.

Vocational rehabilitation referral targeted group

    The provision expands the definition of vocational 
rehabilitation referral to include any individual who is 
certified by a designated local agency as an individual who has 
a physical or mental disability that constitutes a substantial 
handicap to employment and who has been referred to the 
employer while receiving, or after completing, an individual 
work plan developed and implemented by an employment network 
pursuant to subsection (g) of section 1148 of the Social 
Security Act.

Certification

    Under present law, designated local employment agencies may 
enter into information sharing agreements to facilitate 
certification for purposes of WOTC eligibility. Such agreements 
are subject to confidentiality requirements. The Committee 
expects that the Department of Defense, the Department of 
Veterans Affairs, and the Social Security Administration will 
work with the designated local agencies to facilitate 
certification of the expansions of the qualified veteran 
category and the SSI recipient category. Finally, the Committee 
expects that the Internal Revenue Service will develop 
procedures to allow (in addition to original documents) paper 
versions of electronically completed pre-screening notices and 
photographic copies of hand signed original pre-screening 
notices for purposes of the credit. This allowance of pre-
screening notices which are not original documents should be 
allowed only to the extent it does not foster incorrect or 
fraudulent filings.

                             EFFECTIVE DATE

    Generally, the extension of the credit is effective for 
wages paid or incurred to a qualified individual who begins 
work for an employer after December 31, 2007. The other 
provisions are effective for individuals who begin work for an 
employer after the date of enactment in taxable years ending 
after such date.

       B. Increase and Extension of Expensing for Small Business


(Sec. 3 of the bill and sec. 179 of the Code)

                              PRESENT LAW

    In lieu of depreciation, a taxpayer with a sufficiently 
small amount of annual investment may elect to deduct (or 
``expense'') such costs under section 179. Present law provides 
that the maximum amount a taxpayer may expense, for taxable 
years beginning in 2003 through 2009, is $100,000 of the cost 
of qualifying property placed in service for the taxable 
year.\2\ In general, qualifying property is defined as 
depreciable tangible personal property that is purchased for 
use in the active conduct of a trade or business. Off-the-shelf 
computer software placed in service in taxable years beginning 
before 2010 is treated as qualifying property. The $100,000 
amount is reduced (but not below zero) by the amount by which 
the cost of qualifying property placed in service during the 
taxable year exceeds $400,000. The $100,000 and $400,000 
amounts are indexed for inflation for taxable years beginning 
after 2003 and before 2010. For taxable years beginning in 
2007, the inflation-adjusted amounts are $112,000 and $450,000, 
respectively.\3\
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    \2\ Additional section 179 incentives are provided with respect to 
qualified property meeting applicable requirements that is used by a 
business in an empowerment zone (sec. 1397A), a renewal community (sec. 
1400J), or the Gulf Opportunity Zone (sec. 1400N(e)).
    \3\ Rev. Proc. 2006-53, sec. 2.19, 2006-48 I.R.B. 996 (Nov. 27, 
2006).
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    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for a taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision). Any amount that 
is not allowed as a deduction because of the taxable income 
limitation may be carried forward to succeeding taxable years 
(subject to similar limitations). No general business credit 
under section 38 is allowed with respect to any amount for 
which a deduction is allowed under section 179. An expensing 
election is made under rules prescribed by the Secretary.\4\
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    \4\ Sec. 179(c)(1). Under Treas. Reg. sec. 1.179-5, applicable to 
property placed in service in taxable years beginning after 2002 and 
before 2008, a taxpayer is permitted to make or revoke an election 
under section 179 without the consent of the Commissioner on an amended 
Federal tax return for that taxable year. This amended return must be 
filed within the time prescribed by law for filing an amended return 
for the taxable year. T.D. 9209, July 12, 2005.
---------------------------------------------------------------------------
    For taxable years beginning in 2010 and thereafter (or 
before 2003), the following rules apply. A taxpayer with a 
sufficiently small amount of annual investment may elect to 
deduct up to $25,000 of the cost of qualifying property placed 
in service for the taxable year. The $25,000 amount is reduced 
(but not below zero) by the amount by which the cost of 
qualifying property placed in service during the taxable year 
exceeds $200,000. The $25,000 and $200,000 amounts are not 
indexed. In general, qualifying property is defined as 
depreciable tangible personal property that is purchased for 
use in the active conduct of a trade or business (not including 
off-the-shelf computer software). An expensing election may be 
revoked only with consent of the Commissioner.\5\
---------------------------------------------------------------------------
    \5\ Sec. 179(c)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that section 179 expensing provides 
two important benefits for small businesses. First, it lowers 
the cost of capital for property used in a trade or business. 
With a lower cost of capital, the Committee believes small 
businesses will invest in more equipment and employ more 
workers. Second, it eliminates depreciation recordkeeping 
requirements with respect to expensed property. In 2006, 
Congress acted to extend the increased value of these benefits 
and the increased number of taxpayers eligible for these 
benefits for taxable years through 2009. The Committee believes 
that the changes to section 179 expensing will continue to 
provide important benefits if extended, and the bill therefore 
extends these changes for an additional year. Furthermore, the 
Committee believes that the dollar limits on expensing should 
be increased in order to further lower the cost of capital for 
small businesses, and to make this benefit available for a 
greater number of small businesses.

                        EXPLANATION OF PROVISION

    The provision increases the $100,000 and $400,000 amounts 
to $125,000 and $500,000, respectively, for taxable years 
beginning in 2007 through 2010. These amounts are indexed for 
inflation in taxable years beginning after 2007 and before 
2011.
    In addition, the provision extends for one year the 
increased amount that a taxpayer may deduct and the other 
section 179 rules applicable in taxable years beginning before 
2010. Thus, under the provision, these rules continue in effect 
for taxable years beginning after 2009 and before 2011.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2006.

 C. Tax Credit for Social Security Taxes Paid With Respect to Employee 
                               Cash Tips


(Sec. 4 of the bill and sec. 45B of the Code)

                              PRESENT LAW

    The Federal minimum wage under the Fair Labor Standards Act 
(the ``FLSA'') is $5.15 per hour. In the case of tipped 
employees, the FLSA provides that the minimum wage may be 
reduced to $2.13 per hour (that is, the employer is only 
required to pay cash equal to $2.13 per hour) if the 
combination of tips and cash income equals the Federal minimum 
wage.\6\
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    \6\ Some States require the payment of cash wages to tipped 
employees in excess of the Federal minimum of $2.13 per hour. For a 
history of the tip provisions under the FLSA and a description of 
relevant State laws, see William G. Whittaker, Congressional Research 
Service, The Tip Credit Provisions of the Fair Labor Standards Act 
(Order Code RL33348), March 24, 2006.
---------------------------------------------------------------------------
    Under present law, employee tip income is treated as 
employer-provided wages for purposes of the Federal Insurance 
Contributions Act (``FICA''). Employees are required to report 
the amount of tips received.
    A business tax credit is provided equal to an employer's 
FICA taxes paid on tips in excess of those treated as wages for 
purposes of meeting the minimum wage requirements of the FLSA. 
The credit applies only with respect to FICA taxes paid on tips 
received from customers in connection with the providing, 
delivering, or serving of food or beverages for consumption if 
the tipping of employees delivering or serving food or 
beverages by customers is customary. The credit is available 
whether or not the employee reports the tips on which the 
employer FICA taxes were paid. No deduction is allowed for any 
amount taken into account in determining the tip credit. A 
taxpayer may elect not to have the credit apply for a taxable 
year.

                           REASONS FOR CHANGE

    Under present law, because the amount of tips eligible for 
the FICA tip credit is tied to the minimum wage under the FLSA, 
if the minimum wage increases above $5.15 per hour as provided 
under H.R. 2, the Fair Minimum Wage Act of 2007, as passed by 
the House and the Senate, the amount of the FICA tip credit 
will automatically be reduced. The Committee believes that the 
increase in the minimum wage should not result in an increase 
in taxes for employers in the restaurant industry. Thus, the 
Committee bill freezes the tip credit based on the current 
minimum wage so that, when the minimum wage is increased, the 
tip credit will not be affected.

                        EXPLANATION OF PROVISION

    The provision provides that the amount of the tip credit is 
based on the amount of tips in excess of those treated as wages 
for purposes of the FLSA as in effect on January 1, 2007. That 
is, under the provision, the tip credit is determined based on 
a minimum wage of $5.15 per hour. Therefore, if the amount of 
the minimum wage increases, the amount of the FICA tip credit 
will not be reduced.

                             EFFECTIVE DATE

    The provision applies With respect to tips received for 
services performed after December 31, 2006.

D. Allow Work Opportunity Credit and Credit for Taxes Paid With Respect 
       to Employee Cash Tips Against the Alternative Minimum Tax


(Sec. 5 of the bill and sec. 38 of the Code)

                              PRESENT LAW

    Under present law, business tax credits generally may not 
exceed the excess of the taxpayer's income tax liability over 
the tentative minimum tax (or, if greater, 25 percent of the 
regular tax liability in excess of $25,000). Credits in excess 
of the limitation may be carried back one year and carried over 
for up to 20 years.
    The tentative minimum tax is an amount equal to specified 
rates of tax imposed on the excess of the alternative minimum 
taxable income over an exemption amount. To the extent the 
tentative minimum tax exceeds the regular tax, a taxpayer is 
subject to the alternative minimum tax.
    Thus, business tax credits generally cannot offset the 
alternative minimum tax liability.

                           REASONS FOR CHANGE

    The alternative minimum tax limits the intended effects of 
the work opportunity tax credit and the credit for taxes paid 
with respect to cash tips for some taxpayers. The Committee 
believes that the incentive effects of work opportunity credit 
and credit for taxes paid with respect to employee cash tips 
should be available to taxpayers regardless of their 
alternative minimum tax status. Accordingly, the bill provides 
that these credits can be utilized by offsetting both the 
regular tax and the alternative minimum tax.

                        EXPLANATION OF PROVISION

    The provision treats the tentative minimum tax as being 
zero for purposes of determining the tax liability limitation 
with respect to the work opportunity credit and the credit for 
taxes paid with respect to employee cash tips.
    Thus, the work opportunity tax credit and the credit for 
taxes paid with respect to cash tips may offset the alternative 
minimum tax liability.

                             EFFECTIVE DATE

    The provision applies to credits determined in taxable 
years beginning after December 31, 2006.

                 E. Family Business Tax Simplification


(Sec. 6 of the bill and sec. 761 of the Code)

                              PRESENT LAW

    Under present law, a partnership is defined to include a 
syndicate, group, pool, joint venture, or other unincorporated 
organization through or by means of which any business, 
financial operation or venture is carried on, and which is not 
a trust or estate or a corporation (sec. 7701(a)(2)). A 
partnership is treated as a pass-through entity, and income 
earned by the partnership, whether distributed or not, is taxed 
to the partners. The income of a partnership and its partners 
is determined under subchapter K of the Code. An election not 
to be subject to the rules of subchapter K is provided for 
certain partnerships that meet specified criteria (e.g., the 
partnership is for investment purposes only, is for the joint 
production, extraction or use of property but not for selling 
services or property produced or extracted, or is used by 
securities dealers for short periods to underwrite, sell or 
distribute securities). Otherwise, the rules of subchapter K 
apply to a venture that is treated as a partnership for Federal 
tax purposes.
    In the case of an individual with self-employment income, 
the income subject to self-employment tax is the net earnings 
from self-employment (sec. 1402(a)). Net earnings from self-
employment is the gross income derived by an individual from 
any trade or business carried on by the individual, less the 
deductions attributable to the trade or business that are 
allowed under the self-employment tax rules. If the individual 
is a partner in a partnership, the net earnings from self-
employment generally include his or her distributive share 
(whether or not distributed) of income or loss from any trade 
or business carried on by the partnership.

                           REASONS FOR CHANGE

    The Committee is concerned that certain business ventures 
whose sole members are a husband and wife filing a joint return 
may be subject to unnecessary complexity under present law.\7\ 
In the situation in which the spouses share all items of 
income, gain, loss, deduction and credit from the venture, the 
venture should not be required to file a partnership return if 
each of the two spouses' income can be accurately recorded on 
Schedule C (or F, in the case of a farm) filed with the joint 
return. The reported income would be the same on the joint 
return, whether or not a partnership return is filed. Further, 
the Committee is concerned that if only one spouse is treated 
as having net earnings from self-employment from the venture, 
when in fact both spouses materially participate in it, only 
the spouse that is treated as having net earnings from self-
employment from the venture will receive credit for purposes of 
Social Security benefits. The Committee believes that, 
therefore in this situation, both spouses, not just one, should 
be treated as having net earnings from self-employment from the 
venture in accordance with their respective interests, and 
should receive credit for the appropriate net earnings from 
self-employment for purposes of Social Security benefits.
---------------------------------------------------------------------------
    \7\ See National Taxpayer Advocate FY 2002 Annual Report to 
Congress, ``Married Couples as Business Co-owners,'' at 172, 
recommending a similar change for this reason as well as other reasons. 
This recommendation was also included in the National Taxpayer Advocate 
FY 2004 Annual Report to Congress.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision generally permits a qualified joint venture 
whose only members are a husband and wife filing a joint return 
not to be treated as a partnership for Federal tax purposes. A 
qualified joint venture is a joint venture involving the 
conduct of a trade or business, if (1) the only members of the 
joint venture are a husband and wife, (2) both spouses 
materially participate in the trade or business, and (3) both 
spouses elect to have the provision apply.
    Under the provision, a qualified joint venture conducted by 
a husband and wife who file a joint return is not treated as a 
partnership for Federal tax purposes. All items of income, 
gain, loss, deduction and credit are divided between the 
spouses in accordance with their respective interests in the 
venture. Each spouse takes into account his or her respective 
share of these items as a sole proprietor. Thus, it is 
anticipated that each spouse would account for his or her 
respective share on the appropriate form, such as Schedule C. 
The provision is not intended to change the determination under 
present law of whether an entity is a partnership for Federal 
tax purposes (without regard to the election provided by the 
provision).
    For purposes of determining net earnings from self-
employment, each spouse's share of income or loss from a 
qualified joint venture is taken into account just as it is for 
Federal income tax purposes under the provision (i.e., in 
accordance with their respective interests in the venture). A 
corresponding change is made to the definition of net earnings 
from self-employment under the Social Security Act. The 
provision is not intended to prevent allocations or 
reallocations, to the extent permitted under present law, by 
courts or by the Social Security Administration of net earnings 
from self-employment for purposes of determining Social 
Security benefits of an individual.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2006.

      F. Denial of Lowest Capital Gain Rate for Certain Dependents


(Sec. 7 of the bill and secs. 1(h) and 55 of the Code)

                              PRESENT LAW

In general

    In general, gain or loss reflected in the value of an asset 
is not recognized for income tax purposes until a taxpayer 
disposes of the asset. On the sale or exchange of a capital 
asset, any gain generally is included in income. Any net 
capital gain of an individual generally is taxed at maximum 
rates lower than the rates applicable to ordinary income. Net 
capital gain is the excess of the net long-term capital gain 
for the taxable year over the net short-term capital loss for 
the year. Gain or loss is treated as long-term if the asset is 
held for more than one year.
    In the case of a gift of an appreciated capital asset, when 
the asset is sold by the donee, the gain is taxed to the donee 
and not the donor. The tax rate of the donee (and not the 
donor) applies. The holding period of the donee includes the 
period the asset is held by the donor.

Tax rates before 2011

    Under present law, for taxable years beginning before 
January 1, 2011, the maximum rate of tax on the adjusted net 
capital gain of an individual is 15 percent. Any adjusted net 
capital gain which otherwise would be taxed at a 10- or 15-
percent rate is taxed at a five-percent rate (zero for taxable 
years beginning after 2007). These rates apply for purposes of 
both the regular tax and the alternative minimum tax.
    Under present law, the ``adjusted net capital gain'' of an 
individual generally is the net capital gain reduced (but not 
below zero) by the sum of the 28-percent rate gain and the 
unrecaptured section 1250 gain.
    In addition, for taxable years beginning before January 1, 
2011, dividend income generally is treated as adjusted net 
capital gain for purposes of applying the maximum tax rates.
    The term ``28-percent rate gain'' means the excess of the 
sum of the amount of net gain attributable to long-term capital 
gains and losses from the sale or exchange of collectibles (as 
defined in section 408(m) without regard to paragraph (3) 
thereof) and the amount of gain equal to the additional amount 
of gain that would be excluded from gross income under section 
1202 (relating to certain small business stock) if the 
percentage limitations of section 1202(a) did not apply, over 
the sum of the net short-term capital loss for the taxable year 
and any long-term capital loss carryover to the taxable year.
    ``Unrecaptured section 1250 gain'' generally means any 
long-term capital gain from the sale or exchange of section 
1250 property (i.e., depreciable real estate) held more than 
one year to the extent of the gain that would have been treated 
as ordinary income if section 1250 applied to all depreciation, 
reduced by the net loss (if any) attributable to the items 
taken into account in computing 28-percent rate gain.
    An individual's unrecaptured section 1250 gain is taxed at 
a maximum rate of 25 percent, and the 28-percent rate gain is 
taxed at a maximum rate of 28 percent. Any amount of 
unrecaptured section 1250 gain or 28-percent rate gain 
otherwise taxed at a 10- or 15-percent rate is taxed at the 
otherwise applicable rate.

Tax rates after 2010

    For taxable years beginning after December 31, 2010, the 
maximum rate of tax on the adjusted net capital gain of an 
individual is 20 percent. Any adjusted net capital gain which 
otherwise would be taxed at a 10- or 15-percent rate is taxed 
at a 10-percent rate.
    In addition, any gain from the sale or exchange of property 
held more than five years that would otherwise have been taxed 
at the 10-percent rate is taxed at an 8-percent rate. Any gain 
from the sale or exchange of property held more than five years 
and the holding period for which began after December 31, 2000, 
that would otherwise have been taxed at a 20-percent rate is 
taxed at an 18-percent rate.
    The tax rates on 28-percent gain and unrecaptured section 
1250 gain are the same as for taxable years beginning before 
2011.
    After 2010, dividend income is taxed as ordinary income.

Taxation of certain minor children

    Generally, children under the age of 19 are taxed on their 
net unearned income in excess of specified amounts as if the 
income was their parent's income. Thus, their parent's tax 
rates apply to the net unearned income, including the net 
capital gain.

                           REASONS FOR CHANGE

    Under present law, each individual taxpayer is allowed the 
benefit of the lowest capital gain rate on a certain amount of 
adjusted net capital gain. Also, before 2011, dividends are 
taxed at capital gains rates. This may allow a family unit the 
benefit of the lowest rates on multiple amounts of capital gain 
and dividends. For example, if a high-income parent gives a 
child in college appreciated property which the child then 
sells, much or all of the appreciation may be taxed at the 
lower capital gain rate of the child.
    In order to deny the multiple use of these lower rates by a 
single family, the bill denies the benefits of the lowest rates 
to a person whose age could allow his or her parents to claim 
the person for a dependency exemption as a qualifying child. In 
cases where the person's earned income is greater than half of 
his or her support, the benefit of the lowest rate is allowed.

                        EXPLANATION OF PROVISION

    The provision denies the lowest maximum tax rate on 
adjusted net capital gain (5 percent in 2007, zero percent in 
2008, 2009, and 2010, and 8 percent or 10 percent thereafter) 
to any individual (i) who meets the age requirements of section 
152(c)(3) (i.e., is under the age of 19 (age of 24, in the case 
of a full-time student)), and (ii) whose earned income (as 
defined in section 911(d)(2)) does not exceed one-half of the 
amount of the individual's support (within the meaning of 
section 152(c)(1)(D)). In the case of a joint return, the 
provision applies if both spouses meet the age requirement and 
their combined earned income does not exceed one-half of their 
combined support.
    An individual subject to this provision computes his or her 
tax on adjusted net capital gain using a tax rate of 15 percent 
before 2011 and 18 percent or 20 percent thereafter. This 
applies both to the regular tax and the alternative minimum 
tax. To the extent the adjusted net capital gain would 
otherwise be taxed at the 10-percent rate under the regular tax 
rate schedule, the 10-percent rate applies in computing the 
maximum rate on adjusted net capital gain for purposes of the 
regular tax.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2006.

   G. Modification of Provision Regarding Suspension of Interest and 
   Penalties Where Internal Revenue Service Fails To Contact Taxpayer


(Sec. 8 of the bill and sec. 6404(g) of the Code)

                              PRESENT LAW

    In general, interest and penalties accrue during periods 
for which taxes were unpaid without regard to whether the 
taxpayer was aware that there was tax due. The Code suspends 
the accrual of certain penalties and interest starting 18 
months after the filing of the tax return if the IRS has not 
sent the taxpayer a notice specifically stating the taxpayer's 
liability and the basis for the liability within the specified 
period. If the return is filed before the due date, for this 
purpose it is considered to have been filed on the due date. 
Interest and penalties resume 21 days after the IRS sends the 
required notice to the taxpayer. The provision is applied 
separately with respect to each item or adjustment. The 
provision does not apply where a taxpayer has self-assessed the 
tax. The suspension applies only to taxpayers who are 
individuals and who file a timely tax return. In addition, the 
provision does not apply to the failure-to-pay penalty, in the 
case of fraud, or with respect to criminal penalties. 
Generally, the provision also does not apply to interest 
accruing with respect to underpayments resulting from listed 
transactions or undisclosed reportable transactions.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to provide the IRS 
with additional time to provide taxpayers with notice that they 
failed to comply with their tax obligations before the IRS is 
required to suspend the imposition of interest and penalties on 
underpayments. The Committee believes this change is 
appropriate for effective administration of the tax system.

                        EXPLANATION OF PROVISION

    The provision extends the period before which accrual of 
interest and certain penalties are suspended. Under the 
provision, the accrual of certain penalties and interest is 
suspended starting 22 months after the later of the filing of 
the tax return or the due date of the return, without regard to 
extensions, if the IRS has not sent the taxpayer a notice 
specifically stating the taxpayer's liability and the basis for 
the liability.

                             EFFECTIVE DATE

    The provision is effective for IRS notices issued after the 
date that is six months after the date of enactment.

          H. Modification to Corporate Estimated Tax Payments


(Sec. 9 of the bill)

                              PRESENT LAW

    In general, corporations are required to make quarterly 
estimated tax payments of their income tax liability. For a 
corporation whose taxable year is a calendar year, these 
estimated tax payments must be made by April 15, June 15, 
September 15, and December 15. Fiscal year taxpayers make 
quarterly payments on corresponding dates.
    The Tax Increase Prevention and Reconciliation Act of 2005 
(``TIPRA'') provided that in the case of a corporation with 
assets of at least $1 billion, the payments due in July, 
August, and September, 2012 (for fiscal and calendar year 
taxpayers, respectively) are increased to 106.25 percent of the 
payment otherwise due and the next required payment is reduced 
accordingly.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to adjust the 
corporate estimated tax payments.

                        EXPLANATION OF PROVISION

    The provision increases the corporate estimated tax 
payments due in July, August, and September, 2012, from 106.25 
percent to 112.75 percent of the payment otherwise due. As 
under present law, the next payment is reduced accordingly.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 976, the ``Small Business Tax 
Relief Act of 2007.''
    The bill, H.R. 976, as amended, was ordered favorably 
reported by voice vote (with a quorum being present).

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 976 as reported.
    The bill is estimated to have the following effects on 
Federal budget receipts for fiscal years 2007-2017:


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

H.R. 976--Small Business Tax Relief Act

    Summary: H.R. 976 would make several changes to tax law. 
Some would reduce revenue and others would raise revenue. The 
legislation would reduce revenue by extending existing tax 
incentives for certain businesses and making other changes to 
business taxation. It would increase revenue by denying low tax 
rates on capital gains and dividends to certain dependents and 
making other tax-related changes.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 976 would decrease revenues by $162 million in 
2007 and increase revenues by $225 million over the 2007-2012 
period and by $45 million over the 2007-2017 period. The 
Congressional Budget Office estimates that H.R. 976 would not 
affect direct spending.
    JCT has determined that the bill contains one private-
sector mandate as defined in the Unfunded Mandates Reform Act 
(UMRA): The denial of lower capital gains and dividend rate for 
dependents under the age of 24 who do not provide more than 
one-half of their own support with earned income. JCT has also 
determined that the bill contains no intergovernmental mandates 
as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill over the 2007-2017 period is shown 
in the following table.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            By fiscal year, in millions of dollars--
                                                               ---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                2007-     2007-
                                                                  2007      2008      2009      2010      2011      2012      2013      2014      2015      2016      2017      2012      2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Total Changes in Revenues.....................................      -162      -422      -352    -3,113    -1,749     6,020    -2,725       973       765       502       303       225       45
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE.--Numbers may not add to totals due to rounding.

    Basis of estimate: JCT assumes that the bill will be 
enacted by April 1, 2007.

Revenues

    The legislation would reduce revenues through multiple tax 
relief provisions related to small businesses, and it would 
also raise revenues by denying lower tax rates on capital gains 
and dividends for certain dependents and making other changes. 
All in all, CBO and JCT estimate that the bill would increase 
revenues by $225 million over the 2007-2012 period and by $45 
million over the 2007-2017 period.
    Revenue Reductions. Several provisions would reduce 
revenues over the 2007-2012 and 2007-2017 periods. First, the 
bill would extend the work opportunity tax credit. Currently, 
employers who hire workers from among certain targeted groups 
may claim a work opportunity tax credit. This bill would extend 
(through December 31, 2008) and expand certain criteria for 
eligibility for the credit. JCT estimates that this provision 
would reduce revenues by $641 million over the 2007-2012 period 
and by $695 million over the 2007-2017 period.
    Second, the bill would increase the amounts of investment 
between 2007 and 2010 that qualify for immediate deductibility 
(``expensing'') under section 179 of the Internal Revenue Code. 
In addition, it would extend for one year through 2010 the 
expansion in the types of investments that qualify. JCT 
estimates that these changes would reduce revenues by $3.5 
billion over the 2007-2012 period and by $68 million over the 
2007-2017 period.
    Third, the bill would allow individual and corporate 
taxpayers to claim both the work opportunity tax credit and the 
FICA tip credit against the alternative minimum tax. Thiswould 
reduce revenues by $431 million over the 2007-2012 period and by $572 
million over the 2007-2017 period, JCT estimates.
    Revenue Increases. Two other provisions would increase 
revenues over the budget period. First, the bill would not 
allow certain dependents under the age of 24 (those who do not 
provide more than half of their own support with earned income) 
to use the lowest capital gains and dividend tax rates. JCT 
estimates that this would increase revenues by $525 million 
over the 2007-2012 period and by $874 million over the 2007-
2017 period.
    Second, the bill would increase the amount of time before a 
suspension of interest and penalties begins from 18 months to 
22 months if the Internal Revenue Service has not notified 
taxpayers of a tax deficiency. JCT estimates that this would 
increase revenues by $249 million over the 2007-2012 period and 
by $506 million over the 2007-2017 period.
    Other Revenue Effects. One provision would shift revenues 
between 2012 and 2013. For corporations with at least $1 
billion in assets in 2012, the bill would increase the portion 
of corporate estimated tax payments due in July through 
September of that year. This change would increase revenues by 
$4.0 billion in 2012 and decrease revenues by $4.0 billion in 
2013.
    Additionally, a provision in section 4 of the bill would 
have no effect on revenues relative to current law. The 
provision would change the calculation of the business income 
tax credit for employer-paid Social Security and Medicare taxes 
on tip income of certain restaurant employees. The credit is 
currently based on the amount of tips earned that boost an 
employee's combined tip and cash hourly income above a 
threshold amount equal to the minimum wage specified in 
statute, currently $5.15 per hour. As a result, increases in 
the minimum wage above $5.15 per hour automatically result in 
reductions in tax credits, because the threshold for the credit 
would automatically increase. H.R. 976 would set the threshold 
amount at $5.15 per hour. Because the bill would maintain the 
threshold at the current law level, it would have no effect on 
revenues relative to current law, regardless of whether the 
minimum wage were increased above $5.15 per hour.
    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains one private-sector mandate as 
defined in the Unfunded Mandates Reform Act (UMRA): The denial 
of lower capital gains and dividend rate for dependents under 
the age of 24 who do not provide more than one-half of their 
own support with earned income. JCT estimates that the cost of 
this mandate would not exceed the threshold established in UMRA 
($131 million in 2007, adjusted for inflation in subsequent 
years) in any of the first five years it would be in effect. 
JCT has also determined that the bill contains no 
intergovernmental mandates as defined in UMRA.
    Estimate prepared by: Emily Schlect.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

                             E. PAY-GO Rule

    In compliance with clause 10 of the rule XXI of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 976, as reported: the provisions 
of the bill affecting revenues have the net effect of not 
increasing the deficit or reducing the surplus for either: (1) 
the period comprising the current fiscal year and the five 
fiscal years beginning with the fiscal year that ends in the 
following calendar year; and (2) the period comprising the 
current fiscal year and the ten fiscal years beginning with the 
fiscal year that ends in the following calendar year.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it is appropriate and timely to 
enact the revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises . . .''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the revenue provisions of 
the bill contain one Federal mandate on the private sector. 
That provision is the denial of the lower capital gains and 
dividend rate for any dependent under the age of 24 who does 
not provide more than one-half of their support with their 
earned income. The Committee has determined that the revenue 
provisions of the bill do not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Clause 5 of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or joint 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

                        G. Limited Tax Benefits

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Ways and Means Committee has determined 
that the bill as reported contains no congressional earmarks, 
limited tax benefits, or limited tariff benefits within the 
meaning of that Rule.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 1. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Maximum Capital Gains Rate.--
          (1) * * *

           *       *       *       *       *       *       *

          (12) Certain individuals not eligible for lowest 
        rate.--
                  (A) In general.--In the case of an individual 
                described in subparagraph (B)--
                          (i) the amount determined under 
                        paragraph (1)(A)(ii)(II) shall not be 
                        less than the amount of taxable income 
                        which would (without regard to this 
                        subsection) be taxed at a rate below 15 
                        percent,
                          (ii) the sum of the amounts 
                        determined under subparagraphs (B) and 
                        (C) of paragraph (1) shall be an amount 
                        equal to the rate of tax specified in 
                        paragraph (1)(C) multiplied by so much 
                        of the adjusted net capital gain (or, 
                        if less, taxable income) as exceeds the 
                        excess (if any) of--
                                  (I) the amount of taxable 
                                income which would (without 
                                regard to this subsection) be 
                                taxed at a rate below 15 
                                percent, over
                                  (II) the taxable income 
                                reduced by the adjusted net 
                                capital gain, and
                          (iii) no amount of qualified 5-year 
                        gain shall be taken into account under 
                        subparagraph (A) of paragraph (2) (as 
                        in effect after the application of 
                        section 303 of the Jobs and Growth Tax 
                        Relief Reconciliation Act of 2003).
                  (B) Individuals to whom paragraph applies.--
                          (i) In general.--For purposes of this 
                        paragraph, an individual is described 
                        in this subparagraph if--
                                  (I) such individual meets the 
                                age requirements of section 
                                152(c)(3) (determined without 
                                regard to subparagraph (B) 
                                thereof), and
                                  (II) such individual's earned 
                                income (as defined in section 
                                911(d)(2)) for the taxable year 
                                does not exceed one-half of 
                                such individual's support 
                                (within the meaning of section 
                                152) for such taxable year.
                          (ii) Special rules for joint 
                        returns.--In the case of a joint 
                        return--
                                  (I) the taxpayer and the 
                                taxpayer's spouse shall be 
                                treated as a single individual 
                                for purposes of applying 
                                subclause (II) of clause (i), 
                                and
                                  (II) the taxpayer shall be 
                                treated as an individual 
                                described in this subparagraph 
                                only if the taxpayer and the 
                                taxpayer's spouse are described 
                                in clause (i) (determined after 
                                application of subclause (I)).

           *       *       *       *       *       *       *


PART IV--CREDIT AGAINST TAX

           *       *       *       *       *       *       *


Subpart D-- Business Related Creditss

           *       *       *       *       *       *       *


SEC. 38. GENERAL BUSINESS CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation Based on Amount of Tax.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rules for specified credits.--
                  (A) * * *
                  (B) Specified credits.--For purposes of this 
                subsection, the term ``specified credits'' 
                means--
                          (i) for taxable years beginning after 
                        December 31, 2004, the credit 
                        determined under section 40, [and]
                          (ii) the credit determined under 
                        section 45 to the extent that such 
                        credit is attributable to electricity 
                        or refined coal produced--
                                  (I) at a facility which is 
                                originally placed in service 
                                after the date of the enactment 
                                of this paragraph, and
                                  (II) during the 4-year period 
                                beginning on the date that such 
                                facility was originally placed 
                                in service,
                          (iii) the credit determined under 
                        section 45B, and
                          (iv) the credit determined under 
                        section 51.

           *       *       *       *       *       *       *


SEC. 45B. CREDIT FOR PORTION OF EMPLOYER SOCIAL SECURITY TAXES PAID 
                    WITH RESPECT TO EMPLOYEE CASH TIPS.

  (a) * * *
  (b) Excess Employer Social Security Tax.--For purposes of 
this section--
          (1) In general.--The term ``excess employer social 
        security tax'' means any tax paid by an employer under 
        section 3111 with respect to tips received by an 
        employee during any month, to the extent such tips--
                  (A) * * *
                  (B) exceed the amount by which the wages 
                (excluding tips) paid by the employer to the 
                employee during such month are less than the 
                total amount which would be payable (with 
                respect to such employment) at the minimum wage 
                rate applicable to such individual under 
                section 6(a)(1) of the Fair Labor Standards Act 
                of 1938 (as in effect on January 1, 2007, and 
                determined without regard to section 3(m) of 
                such Act).

           *       *       *       *       *       *       *


Subpart F--Rules for Computing Work Oppportunity Credit

           *       *       *       *       *       *       *


SEC. 51. AMOUNT OF CREDIT.

  (a) * * *
  (b) Qualified Wages Defined.--For purposes of this subpart--
          (1) * * *

           *       *       *       *       *       *       *

          (3) [Only first $6,000 of] Limitation on wages per 
        year taken into account.--The amount of the qualified 
        first-year wages which may be taken into account with 
        respect to any individual shall not exceed $6,000 per 
        year ($12,000 per year in the case of any individual 
        who is a qualified veteran by reason of subsection 
        (d)(3)(A)(ii)).
  (c) Wages Defined.--For purposes of this subpart--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Termination.--The term ``wages'' shall not 
        include any amount paid or incurred to an individual 
        who begins work for the employer--
                  (A) * * *
                  (B) after December 31, [2007] 2008.
  (d) Members of Targeted Groups.--For purposes of this 
subpart--
          (1) In general.--An individual is a member of a 
        targeted group if such individual is--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) a high-risk youth,]
                  (D) a designated community resident,

           *       *       *       *       *       *       *

          (3) Qualified veteran.--
                  (A) The term ``qualified veteran'' means any 
                veteran who is certified by the designated 
                local [agency as being a member of a family 
                receiving assistance under a food stamp program 
                under the Food Stamp Act of 1977 for at least a 
                3-month period ending during the 12-month 
                period ending on the hiring date.] agency as--
                          (i) being a member of a family 
                        receiving assistance under a food stamp 
                        program under the Food Stamp Act of 
                        1977 for at least a 3-month period 
                        ending during the 12-month period 
                        ending on the hiring date, or
                          (ii) entitled to compensation for a 
                        service-connected disability, and--
                                  (I) having a hiring date 
                                which is not more that 1 year 
                                after having been discharged or 
                                released from active duty in 
                                the Armed Forces of the United 
                                States, or
                                  (II) having aggregate periods 
                                of unemployment during the 1-
                                year period ending on the 
                                hiring date which equal or 
                                exceed 6 months.

           *       *       *       *       *       *       *

                  (C) Other definitions.--For purposes of 
                subparagraph (A), the terms ``compensation'' 
                and ``service-connected'' have the meanings 
                given such terms under section 101 of title 38, 
                United States Code.

           *       *       *       *       *       *       *

          [(5) High-risk youth.--
                  [(A) In general.--The term ``high-risk 
                youth'' means any individual who is certified 
                by the designated local agency--
                          [(i) as having attained age 18 but 
                        not age 25 on the hiring date, and
                          [(ii) as having his principal place 
                        of abode within an empowerment zone, 
                        enterprise community, or renewal 
                        community.
                  [(B) Youth must continue to reside in zone or 
                community.--In the case of a high-risk youth, 
                the term ``qualified wages'' shall not include 
                wages paid or incurred for services performed 
                while such youth's principal place of abode is 
                outside an empowerment zone, enterprise 
                community, or renewal community.]
          (5) Designated community residents.--
                  (A) In general.--The term ``designated 
                community resident'' means any individual who 
                is certified by the designated local agency--
                          (i) as having attained age 18 but not 
                        age 40 on the hiring date, and
                          (ii) as having his principal place of 
                        abode within an empowerment zone, 
                        enterprise community, or renewal 
                        community.
                  (B) Individual must continue to reside in 
                zone or community.--In the case of a designated 
                community resident, the term ``qualified 
                wages'' shall not include wages paid or 
                incurred for services performed while the 
                individual's principal place of abode is 
                outside an empowerment zone, enterprise 
                community, or renewal community.
          (6) Vocational rehabilitation referral.--The term 
        ``vocational rehabilitation referral'' means any 
        individual who is certified by the designated local 
        agency as--
                  (A) * * *
                  (B) having been referred to the employer upon 
                completion of (or while receiving) 
                rehabilitative services pursuant to--
                          (i) an individualized written plan 
                        for employment under a State plan for 
                        vocational rehabilitation services 
                        approved under the Rehabilitation Act 
                        of 1973, [or]
                          (ii) a program of vocational 
                        rehabilitation carried out under 
                        chapter 31 of title 38, United States 
                        Code[.], or
                          (iii) an individual work plan 
                        developed and implemented by an 
                        employment network pursuant to 
                        subsection (g) of section 1148 of the 
                        Social Security Act with respect to 
                        which the requirements of such 
                        subsection are met.

           *       *       *       *       *       *       *


PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Certain Individuals Not Eligible for Lowest Rate.--In the 
case of an individual described in section 1(h)(12)(B), no 
amount shall be determined under subsection (b)(3)(B).

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

  (a) * * *
  (b) Limitations.--
          (1) Dollar limitation.--The aggregate cost which may 
        be taken into account under subsection (a) for any 
        taxable year shall not exceed $25,000 ([$100,000 in the 
        case of taxable years beginning after 2002] $125,000 in 
        the case of taxable years beginning after 2006 and 
        before [2010] 2011).
          (2) Reduction in limitation.--The limitation under 
        paragraph (1) for any taxable year shall be reduced 
        (but not below zero) by the amount by which the cost of 
        section 179 property placed in service during such 
        taxable year exceeds $200,000 ([$400,000 in the case of 
        taxable years beginning after 2002] $500,000 in the 
        case of taxable years beginning after 2006 and before 
        [2010] 2011).

           *       *       *       *       *       *       *

          (5) Inflation adjustments.--
                  (A) In general.--In the case of any taxable 
                year beginning in a calendar year after [2003] 
                2007 and before [2010] 2011, the [$100,000 and 
                $400,000] $125,000 and $500,000 amounts in 
                paragraphs (1) and (2) shall each be increased 
                by an amount equal to--
                          (i) such dollar amount, multiplied by 
                        (ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for 
                        the calendar year in which the taxable 
                        year begins, by substituting ``calendar 
                        year [2002] 2006'' for ``calendar year 
                        1992'' in subparagraph (B) thereof.

           *       *       *       *       *       *       *

  (c) Election.--
          (1) * * *
          (2) Election irrevocable.--Any election made under 
        this section, and any specification contained in any 
        such election, may not be revoked except with the 
        consent of the Secretary. Any such election or 
        specification with respect to any taxable year 
        beginning after 2002 and before [2010] 2011 may be 
        revoked by the taxpayer with respect to any property, 
        and such revocation, once made, shall be irrevocable.
  (d) Definitions and Special Rules.--
          (1) Section 179 property.--For purposes of this 
        section, the term ``section 179 property'' means 
        property--
                  (A) which is--
                          (i) tangible property (to which 
                        section 168 applies), or
                          (ii) computer software (as defined in 
                        section 197(e)(3)(B)) which is 
                        described in section 197(e)(3)(A)(i), 
                        to which section 167 applies, and which 
                        is placed in service in a taxable year 
                        beginning after 2002 and before [2010] 
                        2011,

           *       *       *       *       *       *       *


Subchapter K--Partners and Parnerships

           *       *       *       *       *       *       *


PART III--DEFINITIONS

           *       *       *       *       *       *       *


SEC. 761. TERMS DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Qualified Joint Venture.--
          (1) In general.--In the case of a qualified joint 
        venture conducted by a husband and wife who file a 
        joint return for the taxable year, for purposes of this 
        title--
                  (A) such joint venture shall not be treated 
                as a partnership,
                  (B) all items of income, gain, loss, 
                deduction, and credit shall be divided between 
                the spouses in accordance with their respective 
                interests in the venture, and
                  (C) each spouse shall take into account such 
                spouse's respective share of such items as if 
                they were attributable to a trade or business 
                conducted by such spouse as a sole proprietor.
          (2) Qualified joint venture.--For purposes of 
        paragraph (1), the term ``qualified joint venture'' 
        means any joint venture involving the conduct of a 
        trade or business if--
                  (A) the only members of such joint venture 
                are a husband and wife,
                  (B) both spouses materially participate 
                (within the meaning of section 469(h) without 
                regard to paragraph (5) thereof) in such trade 
                or business, and
                  (C) both spouses elect the application of 
                this subsection.
          [(f)] (g) Cross Reference.--For rules in the case of the sale, 
        exchange, liquidation, or reduction of a partner's interest, see 
        sections 704(b) and 706(c)(2).

           *       *       *       *       *       *       *


CHAPTER 2--TAX ON SELF-EMPLOYMENT INCOME

           *       *       *       *       *       *       *


SEC. 1402. DEFINITIONS

  (a) Net Earnings from Self-Employment.--The term ``net 
earnings from self-employment'' means the gross income derived 
by an individual from any trade or business carried on by such 
individual, less the deductions allowed by this subtitle which 
are attributable to such trade or business, plus his 
distributive share (whether or not distributed) of income or 
loss described in section 702(a)(8) from any trade or business 
carried on by a partnership of which he is a member; except 
that in computing such gross income and deductions and such 
distributive share of partnership ordinary income or loss--
          (1) * * *

           *       *       *       *       *       *       *

          (15) in the case of a member of an Indian tribe, the 
        special rules of section 7873 (relating to income 
        derived by Indians from exercise of fishing rights) 
        shall apply[, and];
          (16) the deduction provided by section 199 shall not 
        be allowed[.]; and
          (17) notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from 
        a qualified joint venture shall be taken into account 
        as provided in section 761(f) in determining net 
        earnings from self-employment of such spouse.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter A--Procedure in General

           *       *       *       *       *       *       *


SEC. 6404. ABATEMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Suspension of Interest and Certain Penalties Where 
Secretary Fails to Contact Taxpayer.--
          (1) Suspension.--
                  (A) In general.--In the case of an individual 
                who files a return of tax imposed by subtitle A 
                for a taxable year on or before the due date 
                for the return (including extensions), if the 
                Secretary does not provide a notice to the 
                taxpayer specifically stating the taxpayer's 
                liability and the basis for the liability 
                before the close of the [18-month period] 22-
                month period beginning on the later of--
                          (i) * * *

           *       *       *       *       *       *       *

          (3) Suspension period.--For purposes of this 
        subsection, the term ``suspension period'' means the 
        period--
                  (A) beginning on the day after the close of 
                the [18-month period] 22-month period under 
                paragraph (1); and

           *       *       *       *       *       *       *

                              ----------                              


                 SECTION 211 OF THE SOCIAL SECURITY ACT

                            SELF-EMPLOYMENT

Sec. 211. For the purposes of this title--

                   Net Earnings From Self-Employment

  (a) The term ``net earnings from self-employment'' means the 
gross income, as computed under subtitle A of the Internal 
Revenue Code of 1986, derived by an individual from any trade 
or business carried on by such individual, less the deductions 
allowed under such subtitle which are attributable to such 
trade or business, plus his distributive share (whether or not 
distributed) of the ordinary net income or loss, as computed 
under section 702(a)(8) of such Code, from any trade or 
business carried on by a partnership of which he is a member; 
except that in computing such gross income and deductions and 
such distributive share of partnership ordinary net income or 
loss--
          (1) * * *

           *       *       *       *       *       *       *

          (14) There shall be excluded income excluded from 
        taxation under section 7873 of the Internal Revenue 
        Code of 1986 (relating to income derived by Indians 
        from exercise of fishing rights); [and]
          (15) The deduction under section 162(l) (relating to 
        health insurance costs of self-employed individuals) 
        shall not be allowed[.]; and
          (16) Notwithstanding the preceding provisions of this 
        subsection, each spouse's share of income or loss from 
        a qualified joint venture shall be taken into account 
        as provided in section 761(f) of the Internal Revenue 
        Code of 1986 in determining net earnings from self-
        employment of such spouse.

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 401 OF THE TAX INCREASE PREVENTION AND RECONCILIATION ACT OF 
                                  2005

SEC. 401. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

  Notwithstanding section 6655 of the Internal Revenue Code of 
1986--
          (1) in the case of a corporation with assets of not 
        less than $1,000,000,000 (determined as of the end of 
        the preceding taxable year)--
                  (A) * * *
                  (B) the amount of any required installment of 
                corporate estimated tax which is otherwise due 
                in July, August, or September of 2012 shall be 
                [106.25 percent] 112.75 percent of such amount,

           *       *       *       *       *       *       *


                                  
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