[House Report 112-447]
[From the U.S. Government Publishing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-447

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     PROVIDING FOR CONSIDERATION OF THE BILL (H.R. 9) TO AMEND THE 
       INTERNAL REVENUE CODE OF 1986 TO PROVIDE A DEDUCTION FOR 
         DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL BUSINESSES

                                _______
                                

   April 17, 2012.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mr. Sessions, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 620]

    The Committee on Rules, having had under consideration 
House Resolution 620, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for consideration of H.R. 9, the 
Small Business Tax Cut Act, under a structured rule. The 
resolution provides one hour of debate equally divided and 
controlled by the chair and ranking minority member of the 
Committee on Ways and Means. The resolution waives all points 
of order against consideration of the bill. The resolution 
provides that the amendment in the nature of a substitute 
recommended by the Committee on Ways and Means now printed in 
the bill shall be considered as adopted. The bill, as amended, 
shall be considered as read. The resolution waives all points 
of order against provisions in the bill, as amended. The 
resolution makes in order the amendment in the nature of a 
substitute printed in this report, if offered by Representative 
Levin of Michigan or his designee, which shall be considered as 
read, shall be debatable for 20 minutes equally divided and 
controlled by the proponent and an opponent, and shall not be 
subject to amendment. The resolution waives all points of order 
against the amendment printed in this report. Finally, the 
resolution provides one motion to recommit with or without 
instructions.

                         EXPLANATION OF WAIVERS

    Although the resolution waives all points of order against 
consideration of the bill, the Committee is not aware of any 
points of order. The waiver is prophylactic in nature.
    Although the resolution waives all points of order against 
provisions in the bill, as amended, the Committee is not aware 
of any points of order. The waiver is prophylactic in nature.
    Although the resolution waives all points of order against 
the amendment printed in this report, the Committee is not 
aware of any points of order. The waiver is prophylactic in 
nature.

                            COMMITTEE VOTES

    The results of each record vote on an amendment or motion 
to report, together with the names of those voting for and 
against, are printed below:

Rules Committee record vote No. 210

    Motion by Mr. McGovern to make in order and provide the 
appropriate waivers for amendment #1, offered by Rep. McDermott 
(WA), which would extend for one year 100 percent expensing for 
capital expenditures, and offset the cost by repealing the 
section 199 manufacturing deduction for major integrated oil 
companies. Defeated: 3-6.


----------------------------------------------------------------------------------------------------------------
                Majority Members                      Vote               Minority Members               Vote
----------------------------------------------------------------------------------------------------------------
Ms. Foxx........................................          Nay   Mr. McGovern......................          Yea
Mr. Woodall.....................................          Nay   Mr. Hastings of Florida...........          Yea
Mr. Nugent......................................          Nay   Mr. Polis.........................          Yea
Mr. Scott of South Carolina.....................          Nay
Mr. Webster.....................................          Nay
Mr. Dreier, Chairman............................          Nay
----------------------------------------------------------------------------------------------------------------

                 SUMMARY OF THE AMENDMENT MADE IN ORDER

    Levin, Sander (MI): Would replace the deduction in the 
underlying bill with a deduction for small businesses for the 
amounts they spend on capital investments in 2012. (20 minutes)

                    TEXT OF AMENDMENT MADE IN ORDER

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Small Business Tax Cut Act''.

SEC. 2. DEDUCTION FOR DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL 
                    BUSINESSES.

  (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 200. DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL BUSINESSES.

  ``(a) Allowance of Deduction.--In the case of a qualified 
small business, there shall be allowed as a deduction an amount 
equal to 20 percent of the lesser of--
          ``(1) the qualified domestic business income of the 
        taxpayer for the taxable year, or
          ``(2) taxable income (determined without regard to 
        this section) for the taxable year.
  ``(b) Deduction Limited Based on Wages Paid.--
          ``(1) In general.--The amount of the deduction 
        allowable under subsection (a) for any taxable year 
        shall not exceed 50 percent of the greater of--
                  ``(A) the W-2 wages of the taxpayer paid to 
                non-owners, or
                  ``(B) the sum of--
                          ``(i) the W-2 wages of the taxpayer 
                        paid to individuals who are non-owner 
                        family members of direct owners, plus
                          ``(ii) any W-2 wages of the taxpayer 
                        paid to 10-percent-or-less direct 
                        owners.
          ``(2) Definitions related to ownership.--For purposes 
        of this section--
                  ``(A) Non-owner.--The term `non-owner' means, 
                with respect to any qualified small business, 
                any person who does not own (and is not 
                considered as owning within the meaning of 
                subsection (c) or (e)(3) of section 267, as the 
                case may be) any stock of such business (or, if 
                such business is other than a corporation, any 
                capital or profits interest of such business).
                  ``(B) Non-owner family members.--An 
                individual is a non-owner family member of a 
                direct owner if--
                          ``(i) such individual is family 
                        (within the meaning of section 
                        267(c)(4)) of a direct owner, and
                          ``(ii) such individual would be a 
                        non-owner if subsections (c) and (e)(3) 
                        of section 267 were applied without 
                        regard to section 267(c)(2).
                  ``(C) Direct owner.--The term `direct owner' 
                means, with respect to any qualified small 
                business, any person who owns (or is considered 
                as owning under the applicable non-family 
                attribution rules) any stock of such business 
                (or, if such business is other than a 
                corporation, any capital or profits interest of 
                such business).
                  ``(D) 10-percent-or-less direct owners.--The 
                term `10-percent-or-less direct owner' means, 
                with respect to any qualified small business, 
                any direct owner of such business who owns (or 
                is considered as owning under the applicable 
                non-family attribution rules)--
                          ``(i) in the case of a qualified 
                        small business which is a corporation, 
                        not more than 10 percent of the 
                        outstanding stock of the corporation or 
                        stock possessing more than 10 percent 
                        of the total combined voting power of 
                        all stock of the corporation, or
                          ``(ii) in the case of a qualified 
                        small business which is not a 
                        corporation, not more than 10 percent 
                        of the capital or profits interest of 
                        such business.
                  ``(E) Applicable non-family attribution 
                rules.--The term `applicable non-family 
                attribution rules' means the attribution rules 
                of subsection (c) or (e)(3) of section 267, as 
                the case may be, but in each case applied 
                without regard to section 267(c)(2).
          ``(3) W-2 wages.--For purposes of this section--
                  ``(A) In general.--The term `W-2 wages' 
                means, with respect to any person for any 
                taxable year of such person, the sum of the 
                amounts described in paragraphs (3) and (8) of 
                section 6051(a) paid by such person with 
                respect to employment of employees by such 
                person during the calendar year ending during 
                such taxable year.
                  ``(B) Limitation to wages attributable to 
                qualified domestic business income.--Such term 
                shall not include any amount which is not 
                properly allocable to domestic business gross 
                receipts for purposes of subsection (d)(1).
                  ``(C) Other requirements.--Except in the case 
                of amounts treated as W-2 wages under paragraph 
                (4)--
                          ``(i) such term shall not include any 
                        amount which is not allowed as a 
                        deduction under section 162 for the 
                        taxable year, and
                          ``(ii) such term shall not include 
                        any amount which is not properly 
                        included in a return filed with the 
                        Social Security Administration on or 
                        before the 60th day after the due date 
                        (including extensions) for such return.
          ``(4) Certain partnership distributions treated as w-
        2 wages.--
                  ``(A) In general.--In the case of a qualified 
                small business which is a partnership and 
                elects the application of this paragraph for 
                the taxable year--
                          ``(i) the qualified domestic business 
                        taxable income of such partnership for 
                        such taxable year (determined after the 
                        application of clause (ii)) which is 
                        allocable under rules similar to the 
                        rules of section 199(d)(1)(A)(ii) to 
                        each qualified service-providing 
                        partner shall be treated for purposes 
                        of this section as W-2 wages paid 
                        during such taxable year to such 
                        partner as an employee, and
                          ``(ii) the domestic business gross 
                        receipts of such partnership for such 
                        taxable year shall be reduced by the 
                        amount so treated.
                  ``(B) Qualified service-providing partner.--
                For purposes of this paragraph, the term 
                `qualified service-providing partner' means, 
                with respect to any qualified domestic business 
                taxable income, any partner who is a 10-
                percent-or-less direct owner and who materially 
                participates in the trade or business to which 
                such income relates.
          ``(5) Acquisitions and dispositions.--The Secretary 
        shall provide for the application of this subsection in 
        cases where the taxpayer acquires, or disposes of, the 
        major portion of a trade or business or the major 
        portion of a separate unit of a trade or business 
        during the taxable year.
  ``(c) Limitation Based on Investment in Qualified Property.--
          ``(1) In general.--The amount of the deduction 
        allowable under subsection (a) for any taxable year 
        shall not exceed the allowance which would be 
        determined under section 168(k)(1)(A) with respect to 
        the taxpayer for the taxable year if such section were 
        applied--
                  ``(A) by substituting `100 percent' for `50 
                percent', and
                  ``(B) without regard to paragraph (2).
          ``(2) Adjustment of basis.--No deduction shall be 
        allowed to the taxpayer under subsection (a) for any 
        taxable year unless the adjusted basis of property 
        taken into account under paragraph (1) is reduced by 
        the amount of the deduction allowed under subsection 
        (a) before computing the amount otherwise allowable as 
        a depreciation deduction under this chapter (including 
        any allowance otherwise determined under section 
        168(k)) for such taxable year and any subsequent 
        taxable year.
  ``(d) Qualified Domestic Business Income.--For purposes of 
this section--
          ``(1) In general.--The term `qualified domestic 
        business income' for any taxable year means an amount 
        equal to the excess (if any) of--
                  ``(A) the taxpayer's domestic business gross 
                receipts for such taxable year, over
                  ``(B) the sum of--
                          ``(i) the cost of goods sold that are 
                        allocable to such receipts, and
                          ``(ii) other expenses, losses, or 
                        deductions (other than the deduction 
                        allowed under this section), which are 
                        properly allocable to such receipts.
          ``(2) Domestic business gross receipts.--
                  ``(A) In general.--The term `domestic 
                business gross receipts' means the gross 
                receipts of the taxpayer which are effectively 
                connected with the conduct of a trade or 
                business within the United States within the 
                meaning of section 864(c) but determined--
                          ``(i) without regard to paragraphs 
                        (3), (4), and (5) thereof, and
                          ``(ii) by substituting `qualified 
                        small business (within the meaning of 
                        section 200)' for `nonresident alien 
                        individual or a foreign corporation' 
                        each place it appears therein.
                  ``(B) Exceptions.--For purposes of paragraph 
                (1), domestic business gross receipts shall not 
                include any of the following:
                          ``(i) Gross receipts derived from the 
                        sale or exchange of--
                                  ``(I) a capital asset, or
                                  ``(II) property used in the 
                                trade or business (as defined 
                                in section 1231(b)).
                          ``(ii) Royalties, rents, dividends, 
                        interest, or annuities.
                          ``(iii) Any amount which constitutes 
                        wages (as defined in section 3401).
          ``(3) Application of certain rules.--Rules similar to 
        the rules of paragraphs (2) and (3) of section 199(c) 
        shall apply for purposes of this section (applied with 
        respect to qualified domestic business income in lieu 
        of qualified production activities income and with 
        respect to domestic business gross receipts in lieu of 
        domestic production gross receipts).
  ``(e) Qualified Small Business.--For purposes of this 
section--
          ``(1) In general.--The term `qualified small 
        business' means any employer engaged in a trade or 
        business if such employer had fewer than 500 full-time 
        equivalent employees for either calendar year 2010 or 
        2011.
          ``(2) Full-time equivalent employees.--The term 
        `full-time equivalent employees' has the meaning given 
        such term by subsection (d)(2) of section 45R applied--
                  ``(A) without regard to subsection (d)(5) of 
                such section,
                  ``(B) with regard to subsection (e)(1) of 
                such section, and
                  ``(C) by substituting `calendar year' for 
                `taxable year' each place it appears therein.
          ``(3) Employers not in existence prior to 2012.--In 
        the case of an employer which was not in existence on 
        January 1, 2012, the determination under paragraph (1) 
        shall be made with respect to calendar year 2012.
          ``(4) Application to calendar years in which employer 
        in existence for portion of calendar year.--In the case 
        of any calendar year during which the employer comes 
        into existence, the number of full-time equivalent 
        employees determined under paragraph (2) with respect 
        to such calendar year shall be increased by multiplying 
        the number so determined (without regard to this 
        paragraph) by the quotient obtained by dividing--
                  ``(A) the number of days in such calendar 
                year, by
                  ``(B) the number of days during such calendar 
                year which such employer is in existence.
          ``(5) Special rules.--
                  ``(A) Aggregation rule.--For purposes of 
                paragraph (1), any person treated as a single 
                employer under subsection (a) or (b) of section 
                52 (applied without regard to section 1563(b)) 
                or subsection (m) or (o) of section 414 shall 
                be treated as a single employer for purposes of 
                this subsection.
                  ``(B) Predecessors.--Any reference in this 
                subsection to an employer shall include a 
                reference to any predecessor of such employer.
  ``(f) Special Rules.--
          ``(1) Elective application of deduction.--Except as 
        otherwise provided by the Secretary, the taxpayer may 
        elect not to take any item of income into account as 
        domestic business gross receipts for purposes of this 
        section.
          ``(2) Coordination with section 199.--If a deduction 
        is allowed under this section with respect to any 
        taxpayer for any taxable year--
                  ``(A) any gross receipts of the taxpayer 
                which are taken into account under this section 
                for such taxable year shall not be taken into 
                account under section 199 for such taxable 
                year, and
                  ``(B) the W-2 wages of the taxpayer which are 
                taken into account under this section shall not 
                be taken into account under section 199 for 
                such taxable year.
          ``(3) Application of certain rules.--Rules similar to 
        the rules of paragraphs (1), (2), (3), (4), (6), and 
        (7) of section 199(d) shall apply for purposes of this 
        section (applied with respect to qualified domestic 
        business income in lieu of qualified production 
        activities income).
  ``(g) Regulations.--The Secretary shall prescribe such 
regulations as are necessary to carry out the purposes of this 
section, including regulations which prevent a taxpayer which 
reorganizes from being treated as a qualified small business if 
such taxpayer would not have been treated as a qualified small 
business prior to such reorganization.
  ``(h) Application.--Subsection (a) shall apply only with 
respect to the first taxable year of the taxpayer beginning 
after December 31, 2011.''.
  (b) Conforming Amendments.--
          (1) Section 56(d)(1)(A) of such Code is amended by 
        striking ``deduction under section 199'' both places it 
        appears and inserting ``deductions under sections 199 
        and 200''.
          (2) Section 56(g)(4)(C) of such Code is amended by 
        adding at the end the following new clause:
                          ``(vii) Deduction for domestic 
                        business income of qualified small 
                        businesses.--Clause (i) shall not apply 
                        to any amount allowable as a deduction 
                        under section 200.''.
          (3) The following provisions of such Code are each 
        amended by inserting ``200,'' after ``199,''.
                  (A) Section 86(b)(2)(A).
                  (B) Section 135(c)(4)(A).
                  (C) Section 137(b)(3)(A).
                  (D) Section 219(g)(3)(A)(ii).
                  (E) Section 221(b)(2)(C)(i).
                  (F) Section 222(b)(2)(C)(i).
                  (G) Section 246(b)(1).
                  (H) Section 469(i)(3)(F)(iii).
          (4) Section 163(j)(6)(A)(i) of such Code is amended 
        by striking ``and'' at the end of subclause (III) and 
        by inserting after subclause (IV) the following new 
        subclause:
                                  ``(V) any deduction allowable 
                                under section 200, and''.
          (5) Section 170(b)(2)(C) of such Code is amended by 
        striking ``and'' at the end of clause (iv), by striking 
        the period at the end of clause (v) and inserting ``, 
        and'', and by inserting after clause (v) the following 
        new clause:
                          ``(vi) section 200.''.
          (6) Section 172(d) of such Code is amended by adding 
        at the end the following new paragraph:
          ``(8) Domestic business income of qualified small 
        businesses.--The deduction under section 200 shall not 
        be allowed.''.
          (7) Section 613(a) of such Code is amended by 
        striking ``deduction under section 199'' and inserting 
        ``deductions under sections 199 and 200''.
          (8) Section 613A(d)(1) of such Code is amended by 
        redesignating subparagraphs (C), (D), and (E) as 
        subparagraphs (D), (E), and (F), respectively, and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                  ``(C) any deduction allowable under section 
                200,''.
          (9) Section 1402(a) of such Code is amended by 
        striking ``and'' at the end of paragraph (16), by 
        redesignating paragraph (17) as paragraph (18), and by 
        inserting after paragraph (16) the following new 
        paragraph:
          ``(17) the deduction provided by section 200 shall 
        not be allowed; and''.
  (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at 
the end the following new item:

``Sec. 200. Domestic business income of qualified small businesses.''.

                                  
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