[House Report 110-14]
[From the U.S. Government Publishing Office]
110th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 110-14
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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.
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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.
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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\
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\5\ Sec. 179(c)(2).
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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.
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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.
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\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.
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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.
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By fiscal year, in millions of dollars--
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2007- 2007-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2012 2017
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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,
* * * * * * *