Bring Small Businesses Back Tax Reform Act
This bill amends the Internal Revenue Code to establish new maximum individual tax rates for qualified business income that does not exceed $1 million (i.e., small business income). The maximum rates are: (1) 10% of such income not exceeding $150,000, and (2) 20% for income that exceeds $150,000 and is not more than $1 million.
The rates apply to up to $1 million of qualified business income that is: (1) gross earnings derived by an individual from any active trade or business carried on by the individual, excluding deductions attributable to the trade or business; and (2) the taxpayer's distributive or pro rata share of pass-through income from entities such as a partnership or S corporation. Qualified business income does not include capital gains, interest, dividends, or royalties.
For taxpayers that are not a corporation or a partnership with a corporation as a partner, the bill repeals the annual limitation on the election to deduct certain depreciable business assets.
The bill also permits certain small businesses whose average gross receipts do not exceed $25 million (currently, $5 million) to use the cash accounting method without limitations and exempts such businesses from inventory rules.
[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5374 Introduced in House (IH)]
<DOC>
114th CONGRESS
2d Session
H. R. 5374
To amend the Internal Revenue Code of 1986 to provide a lower rate of
tax on a portion of pass-through business income, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 27, 2016
Mr. Hultgren introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide a lower rate of
tax on a portion of pass-through business income, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Bring Small Businesses Back Tax
Reform Act''.
SEC. 2. SPECIAL INDIVIDUAL RATES FOR QUALIFIED SMALL BUSINESS INCOME.
(a) In General.--Section 1 of such Code is amended by adding at the
end the following:
``(j) Maximum Rate on Qualified Small Business Income.--
``(1) In general.--If a taxpayer has qualified business
income for any taxable year, the tax imposed by this section
for such taxable year shall not exceed the sum of--
``(A) a tax computed at the rates and in the same
manner as if this subsection had not been enacted on
taxable income reduced by qualified business income,
``(B) 10 percent of so much of the qualified
business income of the taxpayer as does not exceed
$150,000, plus
``(C) 20 percent of so much of the qualified
business income of the taxpayer as exceeds the amount
on which tax is determined under subparagraph (B).
``(2) Qualified business income.--
``(A) In general.--The term `qualified business
income' means so much of the following of the taxpayer
as does not exceed $1,000,000:
``(i) Gross earnings derived by an
individual from any active trade or business
carried on by such individual, less the
deductions allowed by the subtitle which are
attributable to such trade or business.
``(ii) The taxpayer's distributive or pro
rata share qualified pass-through income.
Such term shall not include any amounts, or any
distributive or pro rata share, attributable to capital
gains, interest, dividends, and royalties.
``(B) Qualified pass-through income.--The term
`qualified pass-through income' means, in the case of a
partnership or S corporation, so much of the income of
the partnership computed under section 703, or income
of the S corporation computed under section 1363, as
does not exceed $1,000,000 and is designated as such
(at such time and in such form and manner as the
Secretary shall prescribe) and allocated by the
partnership or S corporation. Any income so designated
shall be allocated amongst partners or shareholders in
the same proportion as distributive or pro rata shares
of income or loss are allocated. Such term shall not
include any capital gains, interest, dividends, or
royalties.
``(3) Special rules.--
``(A) Material participation.--Paragraph (1) shall
not apply with respect to any income attributable to a
trade or business in which the taxpayer does not
materially participate.
``(B) Coordination with capital gains.--This
subsection shall be applied before the application of
subsection (h).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2016.
SEC. 3. REPEAL OF LIMITATION ON ELECTION TO EXPENSE CERTAIN DEPRECIABLE
ASSET IN CASE OF NON-C CORP TAXPAYERS.
(a) In General.--Paragraphs (1) and (2) of section 179(b) of the
Internal Revenue Code of 1986 are each amended by striking ``The'' and
inserting ``In the case of a corporation (or any partnership with a
corporation as a partner), the''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2016.
SEC. 4. EXPANDED AVAILABILITY OF CASH ACCOUNTING RULES AND EXCEPTION TO
INVENTORY RULES FOR CERTAIN SMALL BUSINESSES.
(a) Cash Accounting Permitted.--
(1) In general.--Section 446 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new
subsection:
``(g) Certain Small Business Taxpayers Permitted To Use Cash
Accounting Method Without Limitation.--
``(1) In general.--With respect to an eligible taxpayer who
uses the cash receipts and disbursements method for any taxable
year, such method shall be deemed to clearly reflect income and
the taxpayer shall not be required to use an accrual method.
``(2) Eligible taxpayer.--For purposes of this subsection,
a taxpayer is an eligible taxpayer with respect to any taxable
year if--
``(A) for all prior taxable years beginning after
December 31, 2016, the taxpayer (or any predecessor)
met the gross receipts test of section 448(c), and
``(B) the taxpayer is not subject to section 447 or
448.''.
(2) Expansion of gross receipts test.--
(A) In general.--Paragraph (3) of section 448(b) of
such Code is amended by striking ``$5,000,000'' in the
text and in the heading and inserting ``$25,000,000''.
(B) Conforming amendments.--Section 448(c) of such
Code is amended by striking ``$5,000,000'' each place
it appears in the text and in the heading of paragraph
(1) and inserting ``$25,000,000''.
(3) Farming.--
(A) In general.--Section 447(d)(1) of such Code is
amended by striking ``$1,000,000'' and inserting
``$25,000,000''.
(B) Conforming amendment.--Section 447(d)(2) of
such Code is amended--
(i) by striking ``; and'' and all that
follows through to the end and inserting a
period, and
(ii) by striking ``shall be applied--'' and
all that follows through ``(i) by
substituting'' and inserting the following:
``shall be applied by substituting''.
(b) Inventory Rules.--
(1) In general.--Section 471 of the Internal Revenue Code
of 1986 is amended by redesignating subsection (c) as
subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Small Business Taxpayers Not Required To Use Inventories.--
``(1) In general.--An eligible taxpayer (as defined in
section 446(g)(2)) shall not be required to use inventories
under this section for a taxable year.
``(2) Treatment of taxpayers not using inventories.--If an
eligible taxpayer (as so defined) does not use inventories with
respect to any property for a taxable year, any cost which (but
for paragraph (1)) would have been included by the taxpayer in
inventory costs shall be treated as an expense which is
deductible for the taxable year in which the property is
purchased.''.
(2) Conforming amendment.--Section 263A(c) of such Code is
amended by adding at the end the following new paragraph:
``(7) Exclusion from inventory rules.--This section shall
not apply to property with respect to which a taxpayer does not
use inventories pursuant to section 471(c).''.
(c) Effective Date and Special Rules.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2016.
(2) Change in method of accounting.--In the case of any
taxpayer changing the taxpayer's method of accounting for any
taxable year under the amendments made by this section--
(A) such change shall be treated as initiated by
the taxpayer; and
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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