II 

Calendar No. 365 

112TH CONGRESS 

2D SESSION S. 2343 

To amend the Higher Education Act of 1965 to extend the reduced interest 

rate for Federal Direct Stafford Loans, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 24 (legislative day, APRIL 23), 2012 

Mr. REID introduced the following bill; which was read twice and ordered 

placed on the calendar 

A BILL 

To amend the Higher Education Act of 1965 to extend 

the reduced interest rate for Federal Direct Stafford 

Loans, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Stop the Student Loan 

5 Interest Rate Hike Act of 2012’’. 

6 SEC. 2. INTEREST RATE EXTENSION. 

7 Section 455(b)(7)(D) of the Higher Education Act of 

8 1965 (20 U.S.C. 1087e(b)(7)(D)) is amended— 


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1 (1) in the matter preceding clause (i), by strik2 ing ‘‘and before July 1, 2012,’’ and inserting ‘‘and 

3 before July 1, 2013,’’; and 

4 (2) in clause (v), by striking ‘‘and before July 

5 1, 2012,’’ and inserting ‘‘and before July 1, 2013,’’. 

6 SEC. 3. EMPLOYMENT TAX TREATMENT OF PROFESSIONAL 

7 SERVICE BUSINESSES. 

8 (a) IN GENERAL.—Section 1402 of the Internal Rev9 enue Code of 1986 is amended by adding at the end the 

10 following new subsection: 

11 ‘‘(m) SPECIAL RULES FOR PROFESSIONAL SERVICE

12 BUSINESSES.— 

13 ‘‘(1) SHAREHOLDERS PROVIDING SERVICES TO

14 SPECIFIED S CORPORATIONS.— 

15 ‘‘(A) IN GENERAL.—In the case of an ap16 plicable shareholder who provides substantial 

17 services with respect to a professional service 

18 business referred to in subparagraph (C) of a 

19 specified S corporation— 

20 ‘‘(i) such shareholder shall be treated 

21 as engaged in the trade or business of such 

22 professional service business with respect 

23 to items of income or loss described in sec24 tion 1366 which are attributable to such 

25 business, and 


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1 ‘‘(ii) such shareholder’s net earnings 

2 from self-employment shall include such 

3 shareholder’s pro rata share of such items 

4 of income or loss, except that in computing 

5 such pro rata share of such items the ex6 ceptions provided in subsection (a) shall 

7 apply. 

8 ‘‘(B) TREATMENT OF FAMILY MEMBERS.— 

9 Except as otherwise provided by the Secretary, 

10 the applicable shareholder’s pro rata share of 

11 items referred to in subparagraph (A) shall be 

12 increased by the pro rata share of such items 

13 of each member of such applicable shareholder’s 

14 family (within the meaning of section 

15 318(a)(1)) who does not provide substantial 

16 services with respect to such professional serv17 ice business. 

18 ‘‘(C) SPECIFIED S CORPORATION.—For 

19 purposes of this subsection, the term ‘specified 

20 S corporation’ means— 

21 ‘‘(i) any S corporation which is a 

22 partner in a partnership which is engaged 

23 in a professional service business if sub24 stantially all of the activities of such S corVerDate Mar 15 2010 02:02 Apr 25, 2012 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2343.PCS S2343

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1 poration are performed in connection with 

2 such partnership, and 

3 ‘‘(ii) any other S corporation which is 

4 engaged in a professional service business 

5 if 75 percent or more of the gross income 

6 of such business is attributable to service 

7 of 3 or fewer shareholders of such corpora8 tion. 

9 ‘‘(D) APPLICABLE SHAREHOLDER.—For 

10 purposes of this paragraph, the term ‘applicable 

11 shareholder’ means any shareholder whose 

12 modified adjusted gross income for the taxable 

13 year exceeds— 

14 ‘‘(i) in the case of a shareholder mak15 ing a joint return under section 6013 or a 

16 surviving spouse (as defined in section 

17 2(a)), $250,000, 

18 ‘‘(ii) in the case of a married share19 holder (as defined in section 7703) filing a 

20 separate return, half of the dollar amount 

21 determined under clause (i), and 

22 ‘‘(iii) in any other case, $200,000. 

23 ‘‘(2) PARTNERS.— 

24 ‘‘(A) IN GENERAL.—In the case of any 

25 partnership which is engaged in a professional 


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1 service business, subsection (a)(13) shall not 

2 apply to any applicable partner who provides 

3 substantial services with respect to such profes4 sional service business. 

5 ‘‘(B) APPLICABLE PARTNER.—For pur6 poses of this paragraph, the term ‘applicable 

7 partner’ means any partner whose modified ad8 justed gross income for the taxable year ex9 ceeds— 

10 ‘‘(i) in the case of a partner making 

11 a joint return under section 6013 or a sur12 viving spouse (as defined in section 2(a)), 

13 $250,000, 

14 ‘‘(ii) in the case of a married partner 

15 (as defined in section 7703) filing a sepa16 rate return, half of the dollar amount de17 termined under clause (i), and 

18 ‘‘(iii) in any other case, $200,000. 

19 ‘‘(3) PROFESSIONAL SERVICE BUSINESS.—For 

20 purposes of this subsection, the term ‘professional 

21 service business’ means any trade or business (or 

22 portion thereof) providing services in the fields of 

23 health, law, lobbying, engineering, architecture, ac24 counting, actuarial science, performing arts, conVerDate Mar 15 2010 02:02 Apr 25, 2012 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2343.PCS S2343

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1 sulting, athletics, investment advice or management, 

2 or brokerage services. 

3 ‘‘(4) MODIFIED ADJUSTED GROSS INCOME.— 

4 For purposes of this subsection, the term ‘modified 

5 adjusted gross income’ means adjusted gross in6 come— 

7 ‘‘(A) determined without regard to any de8 duction allowed under section 164(f), and 

9 ‘‘(B) increased by the amount excluded 

10 from gross income under section 911(a)(1). 

11 ‘‘(5) REGULATIONS.—The Secretary shall pre12 scribe such regulations as may be necessary or ap13 propriate to carry out the purposes of this sub14 section, including regulations which prevent the 

15 avoidance of the purposes of this subsection through 

16 tiered entities or otherwise. 

17 ‘‘(6) CROSS REFERENCE.—For employment tax 

18 treatment of wages paid to shareholders of S cor19 porations, see subtitle C.’’. 

20 (b) CONFORMING AMENDMENT.—Section 211 of the 

21 Social Security Act is amended by adding at the end the 

22 following new subsection: 

23 ‘‘(l) SPECIAL RULES FOR PROFESSIONAL SERVICE

24 BUSINESSES.— 


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1 ‘‘(1) SHAREHOLDERS PROVIDING SERVICES TO

2 SPECIFIED S CORPORATIONS.— 

3 ‘‘(A) IN GENERAL.—In the case of an ap4 plicable shareholder who provides substantial 

5 services with respect to a professional service 

6 business referred to in subparagraph (C) of a 

7 specified S corporation— 

8 ‘‘(i) such shareholder shall be treated 

9 as engaged in the trade or business of such 

10 professional service business with respect 

11 to items of income or loss described in sec12 tion 1366 of the Internal Revenue Code of 

13 1986 which are attributable to such busi14 ness, and 

15 ‘‘(ii) such shareholder’s net earnings 

16 from self-employment shall include such 

17 shareholder’s pro rata share of such items 

18 of income or loss, except that in computing 

19 such pro rata share of such items the ex20 ceptions provided in subsection (a) shall 

21 apply. 

22 ‘‘(B) TREATMENT OF FAMILY MEMBERS.— 

23 Except as otherwise provided by the Secretary 

24 of the Treasury, the applicable shareholder’s 

25 pro rata share of items referred to in subparaVerDate Mar 15 2010 02:02 Apr 25, 2012 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2343.PCS S2343

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1 graph (A) shall be increased by the pro rata 

2 share of such items of each member of such ap3 plicable shareholder’s family (within the mean4 ing of section 318(a)(1) of the Internal Revenue 

5 Code of 1986) who does not provide substantial 

6 services with respect to such professional serv7 ice business. 

8 ‘‘(C) SPECIFIED S CORPORATION.—For 

9 purposes of this subsection, the term ‘specified 

10 S corporation’ means— 

11 ‘‘(i) any S corporation (as defined in 

12 section 1361(a) of the Internal Revenue 

13 Code of 1986) which is a partner in a 

14 partnership which is engaged in a profes15 sional service business if substantially all 

16 of the activities of such S corporation are 

17 performed in connection with such partner18 ship, and 

19 ‘‘(ii) any other S corporation (as so 

20 defined) which is engaged in a professional 

21 service business if 75 percent or more of 

22 the gross income of such business is attrib23 utable to service of 3 or fewer shareholders 

24 of such corporation. 


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1 ‘‘(D) APPLICABLE SHAREHOLDER.—For 

2 purposes of this paragraph, the term ‘applicable 

3 shareholder’ means any shareholder whose 

4 modified adjusted gross income for the taxable 

5 year exceeds— 

6 ‘‘(i) in the case of a shareholder mak7 ing a joint return under section 6013 of 

8 the Internal Revenue Code of 1986 or a 

9 surviving spouse (as defined in section 2(a) 

10 of such Code), $250,000, 

11 ‘‘(ii) in the case of a married share12 holder (as defined in section 7703 of such 

13 Code) filing a separate return, half of the 

14 dollar amount determined under clause (i), 

15 and 

16 ‘‘(iii) in any other case, $200,000. 

17 ‘‘(2) PARTNERS.— 

18 ‘‘(A) IN GENERAL.—In the case of any 

19 partnership which is engaged in a professional 

20 service business, subsection (a)(12) shall not 

21 apply to any applicable partner who provides 

22 substantial services with respect to such profes23 sional service business. 

24 ‘‘(B) APPLICABLE PARTNER.—For pur25 poses of this paragraph, the term ‘applicable 


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1 partner’ means any partner whose modified ad2 justed gross income for the taxable year ex3 ceeds— 

4 ‘‘(i) in the case of a partner making 

5 a joint return under section 6013 of the 

6 Internal Revenue Code of 1986 or a sur7 viving spouse (as defined in section 2(a) of 

8 such Code), $250,000, 

9 ‘‘(ii) in the case of a married partner 

10 (as defined in section 7703 of such Code) 

11 filing a separate return, half of the dollar 

12 amount determined under clause (i), and 

13 ‘‘(iii) in any other case, $200,000. 

14 ‘‘(3) PROFESSIONAL SERVICE BUSINESS.—For 

15 purposes of this subsection, the term ‘professional 

16 service business’ means any trade or business (or 

17 portion thereof) providing services in the fields of 

18 health, law, lobbying, engineering, architecture, ac19 counting, actuarial science, performing arts, con20 sulting, athletics, investment advice or management, 

21 or brokerage services. 

22 ‘‘(4) MODIFIED ADJUSTED GROSS INCOME.— 

23 For purposes of this subsection, the term ‘modified 

24 adjusted gross income’ means adjusted gross income 


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1 as determined under section 62 of the Internal Rev2 enue Code of 1986— 

3 ‘‘(A) determined without regard to any de4 duction allowed under section 164(f) of such 

5 Code, and 

6 ‘‘(B) increased by the amount excluded 

7 from gross income under section 911(a)(1) of 

8 such Code.’’. 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to taxable years beginning after 

11 December 31, 2012. 

12 SEC. 4. COMPLIANCE PROVISION. 

13 The budgetary effects of this Act, for the purpose of 

14 complying with the Statutory Pay-As-You-Go-Act of 2010, 

15 shall be determined by reference to the latest statement 

16 titled ‘‘Budgetary Effects of PAYGO Legislation’’ for this 

17 Act, submitted for printing in the Congressional Record 

18 by the Chairman of the Senate Budget Committee, pro19 vided that such statement has been submitted prior to the 

20 vote on passage. 


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Calendar No. 365 

112TH CONGRESS 

2D SESSION S. 2343 

A BILL 

To amend the Higher Education Act of 1965 to exStafford Loans, and for other purposes. tend the reduced interest rate for Federal Direct 

APRIL 24, 2012 

Read twice and ordered placed on the calendar 


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