To amend the Internal Revenue Code of 1986 to allow the subchapter S election to be made on a return filed before the due date with extensions, to reduce the payroll deposit penalties for failures to make deposits in the prescribed manner, and to allow a married couple who operates a unincorporated business as co-owners to file separate self-employment tax returns.

Summary: Taking Care of Small Business Tax Simplification Act of 2005 - Amends the Internal Revenue Code to: (1) extend the deadline for filing a subchapter S election; (2) authorize the Secretary of the Treasury to abate penalties for payroll taxes timely paid but not deposited in the prescribed manner; and (3) permit married couples who operate certain joint ventures to file separate tax returns.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Taking Care of Small Business Tax 
Simplification Act of 2005''.

SEC. 2. SUBCHAPTER S ELECTION PERMITTED ON RETURN FILED BEFORE DUE DATE 
              WITH EXTENSIONS.

    (a) In General.--Subsection (b) of section 1362 of the Internal 
Revenue Code of 1986 (relating to when subchapter S election made) is 
amended to read as follows:
    ``(b) When Made.--
            ``(1) In general.--An election under subsection (a) may be 
        made by a small business corporation for any taxable year at 
        any time during the period--
                    ``(A) beginning on the first day of the preceding 
                taxable year, and
                    ``(B) ending on the due date (with extensions) for 
                filing the return for the taxable year.
            ``(2) Certain elections treated as made for next taxable 
        year.--If--
                    ``(A) an election under subsection (a) is made for 
                any taxable year within the period described in 
                paragraph (1), but
                    ``(B) either--
                            ``(i) on 1 or more days in such taxable 
                        year before the day on which the election was 
                        made the corporation did not meet the 
                        requirements of subsection (b) of section 1361, 
                        or
                            ``(ii) 1 or more of the persons who held 
                        stock in the corporation during such taxable 
                        year and before the election was made did not 
                        consent to the election,
                then such election shall be treated as made for the 
                following taxable year.
            ``(3) Election made after due date treated as made for 
        following taxable year.--If--
                    ``(A) a small business corporation makes an 
                election under subsection (a) for any taxable year, and
                    ``(B) such election is made after the due date 
                (with extensions) for filling the return for such year,
        hen such election shall be treated as made for the following 
        taxable year.
            ``(4) Authority to treat late elections, etc., as timely.--
        If--
                    ``(A) an election under subsection (a) is made for 
                any taxable year (determined without regard to 
                paragraph (3)) after the date prescribed by this 
                subsection for making such election for such taxable 
                year or no such election is made for any taxable year, 
                and
                    ``(B) the Secretary determines that there was 
                reasonable cause for the failure to timely make such 
                election,
        the Secretary may treat such an election as timely made for 
        such taxable year (and paragraph (3) shall not apply)''.
    (b) Revocations.--Subparagraph (C) of section 1362(d)(1) of such 
Code is amended to read as follows:
                    ``(C) When effective.--Except as provided in 
                subparagraph (D)--
                            ``(i) a revocation made on or before the 
                        due date (with extensions) for filing the 
                        return for a taxable year shall be effective on 
                        the 1st day of such taxable year unless the 
                        revocation specifies that it is to take effect 
                        on the 1st day of the taxable year in which 
                        made, and
                            ``(ii) a revocation made during a taxable 
                        year but after the due date (with extensions) 
                        for filing the return for the preceding taxable 
                        year shall be effective on the 1st day of the 
                        taxable year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to elections for taxable years beginning after the date of the 
enactment of this Act.

SEC. 3. RELIEF FROM PENALTIES FOR DEPOSITS OF TAXES MADE ON A TIMELY 
              BASIS BUT NOT IN THE PRESCRIBED MANNER.

    (a) In General.--Section 6656 of the Internal Revenue Code of 1986 
(relating to failure to make deposits of taxes) is amended by 
redesignating subsection  (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection:
    ``(e) Relief From Penalties for Deposits of Taxes Made on a Timely 
Basis but not in the Prescribed Manner.--The Secretary may abate all or 
any portion of the penalty imposed by subsection (a) on the failure to 
make a deposit in the manner prescribed by the Secretary if--
            ``(1) the deposit was made not later than the date 
        prescribed therefor, and
            ``(2) such failure was due to reasonable cause and not 
        willful neglect.
The applicable percentage under subsection (b) shall not exceed 2 
percent in the case of any failure with respect to which the 
requirements of paragraphs (1) and (2) are met.''.
    (b) Conforming Amendment.--Subparagraph (A) of section 6656(b)(1) 
of such Code is amended by striking ``subparagraph (B)'' and inserting 
``subparagraph (B) and subsection (e)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to deposits required to be made after the date of the enactment 
of this Act.

SEC. 4. UNINCORPORATED BUSINESSES OPERATED BY HUSBAND AND WIFE AS CO-
              OWNERS.

    (a) In General.--Section 761 of the Internal Revenue Code of 1986 
(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 of such Code (defining 
        net earnings from self-employment) is amended by striking 
        ``and'' at the end of paragraph (15), 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 (15), 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) 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 the date of the enactment of 
this Act .