59–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 110–14 

SMALL BUSINESS TAX RELIEF ACT OF 2007 

FEBRUARY 15, 2007.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. RANGEL, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

[To accompany H.R. 976] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 976) to amend the Internal Revenue Code of 1986 to provide tax relief for small businesses, and for other purposes, having 

considered the same, report favorably thereon with an amendment 

and recommend that the bill as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

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

(a) SHORT TITLE.—This Act may be cited as the ‘‘Small Business Tax Relief Act 

of 2007’’. 

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment 

to, or repeal of, a section or other provision, the reference shall be considered to be 

made to a section or other provision of the Internal Revenue Code of 1986. 

(c) TABLE OF CONTENTS.—The table of contents of this Act is as follows: 

Sec. 1. Short title; amendment of 1986 Code; table of contents. 

Sec. 2. Extension and modification of work opportunity tax credit. 

Sec. 3. Extension and increase of expensing for small business. 

Sec. 4. Determination of credit for certain taxes paid with respect to employee cash tips. 

Sec. 5. Waiver of individual and corporate alternative minimum tax limits on work opportunity credit and credit for taxes paid with respect to employee cash tips. 

Sec. 6. Family business tax simplification. 

Sec. 7. Denial of lowest capital gains rate for certain dependents. 

Sec. 8. Suspension of certain penalties and interest. 

Sec. 9. Time for payment of corporate estimated taxes. 

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

(a) EXTENSION.—Section 51(c)(4)(B) (relating to termination) is amended by striking ‘‘2007’’ and inserting ‘‘2008’’. 

(b) INCREASE IN MAXIMUM AGE FOR DESIGNATED COMMUNITY RESIDENTS.— 

(1) IN GENERAL.—Paragraph (5) of section 51(d) is amended to read as follows: 

‘‘(5) DESIGNATED COMMUNITY RESIDENTS.— 


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‘‘(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 


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(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 selfemployment 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.—


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‘‘(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’’. 


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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. 


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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. 


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(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 


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1The 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. 

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. 

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 firstyear 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. 


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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 secondyear 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 firstyear wages plus 50 percent of the first $10,000 of qualified secondyear 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 imVerDate Aug 31 2005 03:24 Feb 16, 2007 Jkt 059006 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\HR014.XXX HR014

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prove 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 DeVerDate Aug 31 2005 03:24 Feb 16, 2007 Jkt 059006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR014.XXX HR014

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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). 

partment 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. Offthe-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

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. 


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4Sec. 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. 5Sec. 179(c)(2). 

An expensing election is made under rules prescribed by the Secretary.4

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

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. 


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6Some 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. 

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

Under present law, employee tip income is treated as employerprovided 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. 


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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 ALTER- NATIVE 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 operVerDate Aug 31 2005 05:02 Feb 16, 2007 Jkt 059006 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\HR014.XXX HR014

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7See 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. 

ation 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 selfemployment (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. 

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 


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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 longterm 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. 


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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. 


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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. 


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G. MODIFICATION OF PROVISION REGARDING SUSPENSION OF INTER- EST 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 payVerDate Aug 31 2005 03:24 Feb 16, 2007 Jkt 059006 PO 00000 Frm 00019 Fmt 6659 Sfmt 6602 E:\HR\OC\HR014.XXX HR014

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ments 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: 


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bajohnson on PROD1PC77 with REPORTSInsert graphic folio 27 here HR14.001
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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 onehalf 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— 

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2007– 2012 

CHANGES IN REVENUES 

Total Changes in Revenues ......................................................... ¥162 ¥422 ¥352 ¥3,113 ¥1,749 6,020 ¥2,725 973 765 502 303 225 

NOTE.

—Numbers may not add to totals due to rounding. 


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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. This would 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 


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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. 


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27 

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 


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28 

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 


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(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—


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30 

(i) for taxable years beginning after December 31, 

2004, the credit determined under section 40, øand¿ 

(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) øONLY 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) * * * 

* * * * * * * 


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(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, ø2007¿ 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) * * * 

* * * * * * * 

ø(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 øagency 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. 

* * * * * * * 

ø(5) HIGH-RISK YOUTH.—

ø(A) IN GENERAL.—The term ‘‘high-risk youth’’ means 

any individual who is certified by the designated local 

agency—

ø(i) as having attained age 18 but not age 25 on the 

hiring date, and 

ø(ii) as having his principal place of abode within an 

empowerment zone, enterprise community, or renewal 

community. 

ø(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 


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32 

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, 

øor¿ 

(ii) a program of vocational rehabilitation carried 

out under chapter 31 of title 38, United States 

Codeø.¿, 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 

* * * * * * * 


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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 (ø$100,000 in the case of taxable 

years beginning after 2002¿ $125,000 in the case of taxable 

years beginning after 2006 and before ø2010¿ 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 

(ø$400,000 in the case of taxable years beginning after 2002¿ 

$500,000 in the case of taxable years beginning after 2006 and 

before ø2010¿ 2011). 

* * * * * * * 

(5) INFLATION ADJUSTMENTS.— (A) IN GENERAL.—In the case of any taxable year beginning in a calendar year after ø2003¿ 2007 and before 

ø2010¿ 2011, the ø$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-ofliving adjustment determined under section 1(f)(3) for 

the calendar year in which the taxable year begins, by 

substituting ‘‘calendar year ø2002¿ 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 ø2010¿ 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 ø2010¿ 2011, 

* * * * * * * 


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34 

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. 

ø(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—


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35 

(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 applyø, and¿; 

(16) the deduction provided by section 199 shall not be 

allowedø.¿; 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 ø18-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 ø18- 

month period¿ 22-month period under paragraph (1); and 

* * * * * * * 


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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); øand¿ 

(15) The deduction under section 162(l) (relating to health insurance costs of self-employed individuals) shall not be 

allowedø.¿; 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 ø106.25 percent¿ 112.75 percent of such amount, 

* * * * * * * 

Æ 


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