II 

109TH CONGRESS 

1ST SESSION S. 1927 

To amend the Internal Revenue Code of 1986 to make the Federal income 

tax system simpler, fairer, and more fiscally responsible, and for other 

purposes. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 27, 2005 

Mr. WYDEN introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to make 

the Federal income tax system simpler, fairer, and more 

fiscally responsible, 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; AMENDMENT OF 1986 CODE; 

4 TABLE OF CONTENTS. 

5 (a) SHORT TITLE.—This Act may be cited as the 

6 ‘‘Fair Flat Tax Act of 2005’’. 

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment 
2 

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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents for 

5 this Act is as follows: 

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

Sec. 2. Purpose. 

TITLE I—INDIVIDUAL INCOME TAX REFORMS 

Sec. 101. 3 progressive individual income tax rates for all forms of income. 

Sec. 102. Increase in basic standard deduction. 

Sec. 103. Refundable credit for State and local income, sales, and real and personal property taxes. 

Sec. 104. Earned income child credit and earned income credit for childless taxpayers. 

Sec. 105. Repeal of individual alternative minimum tax. 

Sec. 106. Termination of various exclusions, exemptions, deductions, and credits. 

TITLE II—CORPORATE AND BUSINESS INCOME TAX REFORMS 

Sec. 201. Corporate flat tax. 

Sec. 202. Treatment of travel on corporate aircraft. 

Sec. 203. Termination of various preferential treatments. 

Sec. 204. Elimination of tax expenditures that subsidize inefficiencies in the 

health care system. 

Sec. 205. Pass-through business entity transparency. 

TITLE III—TECHNICAL AND CONFORMING AMENDMENTS; 

SUNSET 

Sec. 301. Technical and conforming amendments. 

Sec. 302. Sunset. 

6 SEC. 2. PURPOSE. 

7 The purpose of this Act is to amend the Internal Rev8 enue Code of 1986— 

9 (1) to make the Federal individual income tax 

10 system simpler, fairer, and more transparent by— 

11 (A) recognizing the overall Federal, State, 

12 and local tax burden on individual Americans, 
3 

•S 1927 IS

1 especially the regressive nature of State and 

2 local taxes, and providing a Federal income tax 

3 credit for State and local income, sales, and 

4 property taxes, 

5 (B) providing for an earned income tax 

6 credit for childless taxpayers and a new earned 

7 income child credit, 

8 (C) repealing the individual alternative 

9 minimum tax, 

10 (D) increasing the basic standard deduc11 tion and maintaining itemized deductions for 

12 principal residence mortgage interest and chari13 table contributions, 

14 (E) reducing the number of exclusions, ex15 emptions, deductions, and credits, and 

16 (F) treating all income equally, 

17 (2) to make the Federal corporate income tax 

18 rate a flat 35 percent and eliminate special tax pref19 erences that favor particular types of businesses or 

20 activities, and 

21 (3) to partially offset the Federal budget deficit 

22 through the increased revenues resulting from these 

23 reforms. 
4 

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1 TITLE I—INDIVIDUAL INCOME 

2 TAX REFORMS 

3 SEC. 101. 3 PROGRESSIVE INDIVIDUAL INCOME TAX RATES 

4 FOR ALL FORMS OF INCOME. 

5 (a) MARRIED INDIVIDUALS FILING JOINT RETURNS

6 AND SURVIVING SPOUSES.—The table contained in sec7 tion 1(a) is amended to read as follows: 

‘‘If taxable income is: The tax is: 

Not over $25,000 .......................... 15% of taxable income.

Over $25,000 but not over 

$120,000.

$3,750, plus 25% of the excess over 

$25,000

Over $120,000 ............................... $27,500, plus 35% of the excess over 

$120,000’’. 

8 (b) HEADS OF HOUSEHOLDS.—The table contained 

9 in section 1(b) is amended to read as follows: 

‘‘If taxable income is: The tax is: 

Not over $16,000 .......................... 15% of taxable income.

Over $16,000 but not over 

$105,000.

$2,400, plus 25% of the excess over 

$16,000

Over $105,000 ............................... $24,650, plus 35% of the excess over 

$105,000’’. 

10 (c) UNMARRIED INDIVIDUALS (OTHER THAN SUR11 VIVING SPOUSES AND HEADS OF HOUSEHOLDS).—The 

12 table contained in section 1(c) is amended to read as fol13 lows: 

‘‘If taxable income is: The tax is: 

Not over $15,000 .......................... 15% of taxable income.

Over $15,000 but not over 

$70,000.

$2,250, plus 25% of the excess over 

$15,000

Over $70,000 ................................. $16,000, plus 35% of the excess over 

$70,000’’. 

14 (d) MARRIED INDIVIDUALS FILING SEPARATE RE15 TURNS.—The table contained in section 1(d) is amended 

16 to read as follows: 
5 

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‘‘If taxable income is: The tax is: 

Not over $12,500 .......................... 15% of taxable income.

Over $12,500 but not over 

$60,000.

$1,875, plus 25% of the excess over 

$12,500

Over $60,000 ................................. $13,750, plus 35% of the excess over 

$60,000’’. 

1 (e) CONFORMING AMENDMENTS TO INFLATION AD2 JUSTMENT.—Section 1(f) is amended— 

3 (1) by striking ‘‘1993’’in paragraph (1) and in4 serting ‘‘2006’’, 

5 (2) by striking ‘‘except as provided in para6 graph (8)’’ in paragraph (2)(A), 

7 (3) by striking ‘‘1992’’ in paragraph (3)(B) and 

8 inserting ‘‘2005’’, 

9 (4) by striking paragraphs (7) and (8), and 

10 (5) by striking ‘‘PHASEOUT OF MARRIAGE PEN11 ALTY IN 15-PERCENT BRACKET;’’ in the heading 

12 thereof. 

13 (f) REPEAL OF RATE DIFFERENTIAL FOR CAPITAL

14 GAINS AND DIVIDENDS.— 

15 (1) REPEAL OF 2003 RATE REDUCTION.—Sec16 tion 303 of the Jobs and Growth Tax Relief Rec17 onciliation Act of 2003 is amended by striking ‘‘De18 cember 3, 2008’’ and inserting ‘‘December 31, 

19 2005’’. 

20 (2) TERMINATION OF PRE-2003 CAPITAL GAIN

21 RATE DIFFERENTIAL.—Section 1(h) is amended 
6 

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1 (after the application of paragraph (1)) by adding at 

2 the end the following new paragraph: 

3 ‘‘(13) TERMINATION.—This section shall not 

4 apply to taxable years beginning after December 31, 

5 2005.’’. 

6 (g) ADDITIONAL CONFORMING AMENDMENTS.— 

7 (1) Section 1 is amended by striking subsection 

8 (i). 

9 (2) The Internal Revenue Code of 1986 is 

10 amended by striking ‘‘calendar year 1992’’ each 

11 place it appears and inserting ‘‘calendar year 2005’’. 

12 (3) Section 1445(e)(1) (after the application of 

13 subsection (g)(1)) is amended by striking ‘‘(or, to 

14 the extent provided in regulations, 20 percent)’’. 

15 (h) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2005. 

18 SEC. 102. INCREASE IN BASIC STANDARD DEDUCTION. 

19 (a) IN GENERAL.—Paragraph (2) of section 63(c) 

20 (defining standard deduction) is amended to read as fol21 lows: 

22 ‘‘(2) BASIC STANDARD DEDUCTION.—For pur23 poses of paragraph (1), the basic standard deduction 

24 is— 
7 

•S 1927 IS

1 ‘‘(A) 200 percent of the dollar amount in 

2 effect under subparagraph (C) for the taxable 

3 year in the case of— 

4 ‘‘(i) a joint return, or 

5 ‘‘(ii) a surviving spouse (as defined in 

6 section 2(a)), 

7 ‘‘(B) $26,250 in the case of a head of 

8 household (as defined in section 2(b)), or 

9 ‘‘(C) $15,000 in any other case.’’. 

10 (b) CONFORMING AMENDMENT TO INFLATION AD11 JUSTMENT.—Section 63(c)(4)(B)(i) is amended by strik12 ing ‘‘(2)(B), (2)(C), or’’. 

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

14 this section shall apply to taxable years beginning after 

15 December 31, 2005. 

16 SEC. 103. REFUNDABLE CREDIT FOR STATE AND LOCAL IN17 COME, SALES, AND REAL AND PERSONAL 

18 PROPERTY TAXES. 

19 (a) GENERAL RULE.—Subpart C of part IV of sub20 chapter A of chapter 1 (relating to refundable credits) is 

21 amended by redesignating section 36 as section 37 and 

22 by inserting after section 35 the following new section: 
8 

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1 ‘‘SEC. 36. CREDIT FOR STATE AND LOCAL INCOME, SALES, 

2 AND REAL AND PERSONAL PROPERTY TAXES. 

3 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in4 dividual, there shall be allowed as a credit against the tax 

5 imposed by this subtitle for the taxable year an amount 

6 equal to 10 percent of the qualified State and local taxes 

7 paid by the taxpayer for such year. 

8 ‘‘(b) QUALIFIED STATE AND LOCAL TAXES.—For 

9 purposes of this section, the term ‘qualified State and local 

10 taxes’ means— 

11 ‘‘(1) State and local income taxes, 

12 ‘‘(2) State and local general sales taxes, 

13 ‘‘(3) State and local real property taxes, and 

14 ‘‘(4) State and local personal property taxes. 

15 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur16 poses of this section— 

17 ‘‘(1) STATE OR LOCAL TAXES.—A State or local 

18 tax includes only a tax imposed by a State, a posses19 sion of the United States, or a political subdivision 

20 of any of the foregoing, or by the District of Colum21 bia. 

22 ‘‘(2) GENERAL SALES TAXES.— 

23 ‘‘(A) IN GENERAL.—The term ‘general 

24 sales tax’ means a tax imposed at one rate with 

25 respect to the sale at retail of a broad range of 

26 classes of items. 
9 

•S 1927 IS

1 ‘‘(B) APPLICATION OF RULES.—Rules 

2 similar to the rules under subparagraphs (C), 

3 (D), (E), (F), (G), and (H) of section 164(b)(5) 

4 shall apply. 

5 ‘‘(3) PERSONAL PROPERTY TAXES.—The term 

6 ‘personal property tax’ means an ad valorem tax 

7 which is imposed on an annual basis in respect of 

8 personal property. 

9 ‘‘(4) APPLICATION OF RULES TO PROPERTY

10 TAXES.—Rules similar to the rules of subsections (c) 

11 and (d) of section 164 shall apply. 

12 ‘‘(5) NO CREDIT FOR MARRIED INDIVIDUALS

13 FILING SEPARATE RETURNS.—If the taxpayer is a 

14 married individual (within the meaning of section 

15 7703), this section shall apply only if the taxpayer 

16 and the taxpayer’s spouse file a joint return for the 

17 taxable year. 

18 ‘‘(6) DENIAL OF CREDIT TO DEPENDENTS.—No 

19 credit shall be allowed under this section to any indi20 vidual with respect to whom a deduction under sec21 tion 151 is allowable to another taxpayer for a tax22 able year beginning in the calendar year in which 

23 such individual’s taxable year begins. 

24 ‘‘(7) DENIAL OF DOUBLE BENEFIT.—Any 

25 amount taken into account in determining the credit 
10 

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1 allowable under this section may not be taken into 

2 account in determining any credit or deduction 

3 under any other provision of this chapter.’’. 

4 (b) TECHNICAL AMENDMENTS.— 

5 (1) Paragraph (2) of section 1324(b) of title 

6 31, United States Code, is amended by inserting ‘‘or 

7 from section 36 of such Code’’ before the period at 

8 the end. 

9 (2) The table of sections for subpart C of part 

10 IV of subchapter A of chapter 1 is amended by 

11 striking the item relating to section 36 and inserting 

12 the following: 

‘‘Sec. 36. Credit for state and local income, sales, and real and personal property taxes. 

‘‘Sec. 37. Overpayments of tax.’’. 

13 (c) REPORT REGARDING USE OF CREDIT BY RENT14 ERS.—Not later than 180 days after the date of the enact15 ment of this Act, the Secretary of the Treasury shall re16 port to the Committee on Finance of the Senate and the 

17 Committee on Ways and Means of the House of Rep18 resentatives recommendations regarding the treatment of 

19 a portion of rental payments in a manner similar to real 

20 property taxes under section 36 of the Internal Revenue 

21 Code of 1986 (as added by this section). 

22 (d) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2005. 
11 

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1 SEC. 104. EARNED INCOME CHILD CREDIT AND EARNED IN2 COME CREDIT FOR CHILDLESS TAXPAYERS. 

3 (a) IN GENERAL.—Subsection (a) of section 32 (re4 lating to earned income) is amended to read as follows: 

5 ‘‘(a) ALLOWANCE OF EARNED INCOME CHILD CRED6 IT AND EARNED INCOME CREDIT.— 

7 ‘‘(1) IN GENERAL.—There shall be allowed as a 

8 credit against the tax imposed by this subtitle for 

9 the taxable year— 

10 ‘‘(A) in the case of any eligible individual 

11 with 1 or more qualifying children, an amount 

12 equal to the earned income child credit amount, 

13 and 

14 ‘‘(B) in the case of any eligible individual 

15 with no qualifying children, an amount equal to 

16 the earned income credit amount. 

17 ‘‘(2) EARNED INCOME CHILD CREDIT

18 AMOUNT.—For purposes of this section, the earned 

19 income child credit amount is equal to the sum of— 

20 ‘‘(A) the credit percentage of so much of 

21 the taxpayer’s earned income for the taxable 

22 year as does not exceed the earned income limit 

23 amount, plus 

24 ‘‘(B) the supplemental child credit amount 

25 determined under subsection (n) for such tax26 able year. 
12 

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1 ‘‘(3) EARNED INCOME CREDIT AMOUNT.—For 

2 purposes of this section, the earned income credit 

3 amount is equal to the credit percentage of so much 

4 of the taxpayer’s earned income for the taxable year 

5 as does not exceed the earned income limit amount. 

6 ‘‘(4) LIMITATION.—The amount of the credit 

7 allowable to a taxpayer under paragraph (2)(A) or 

8 (3) for any taxable year shall not exceed the excess 

9 (if any) of— 

10 ‘‘(A) the credit percentage of the earned 

11 income amount, over 

12 ‘‘(B) the phaseout percentage of so much 

13 of the adjusted gross income (or, if greater, the 

14 earned income) of the taxpayer for the taxable 

15 year as exceeds the phaseout amount.’’. 

16 (b) SUPPLEMENTAL CHILD CREDIT AMOUNT.—Sec17 tion 32 is amended by adding at the end the following 

18 new subsection: 

19 ‘‘(n) SUPPLEMENTAL CHILD CREDIT AMOUNT.— 

20 ‘‘(1) IN GENERAL.—For purposes of subsection 

21 (a)(2)(B), the supplemental child credit amount for 

22 any taxable year is equal to the lesser of— 

23 ‘‘(A) the credit which would be allowed 

24 under section 24 for such taxable year without 

25 regard to the limitation under section 24(b)(3) 
13 

•S 1927 IS

1 with respect to any qualifying child as defined 

2 under subsection (c)(3), or 

3 ‘‘(B) the amount by which the aggregate 

4 amount of credits allowed by subpart A for 

5 such taxable year would increase if the limita6 tion imposed by section 24(b)(3) were increased 

7 by the excess (if any) of— 

8 ‘‘(i) 15 percent of so much of the tax9 payer’s earned income which is taken into 

10 account in computing taxable income for 

11 the taxable year as exceeds $10,000, or 

12 ‘‘(ii) in the case of a taxpayer with 3 

13 or more qualifying children (as so defined), 

14 the excess (if any) of— 

15 ‘‘(I) the taxpayer’s social security 

16 taxes for the taxable year, over 

17 ‘‘(II) the credit allowed under 

18 this section for the taxable year. 

19 The amount of the credit allowed under this sub20 section shall not be treated as a credit allowed under 

21 subpart A and shall reduce the amount of credit oth22 erwise allowable under section 24(a) without regard 

23 to section 24(b)(3). 

24 ‘‘(2) SOCIAL SECURITY TAXES.—For purposes 

25 of paragraph (1)— 
14 

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1 ‘‘(A) IN GENERAL.—The term ‘social secu2 rity taxes’ means, with respect to any taxpayer 

3 for any taxable year— 

4 ‘‘(i) the amount of the taxes imposed 

5 by section 3101 and 3201(a) on amounts 

6 received by the taxpayer during the cal7 endar year in which the taxable year be8 gins, 

9 ‘‘(ii) 50 percent of the taxes imposed 

10 by section 1401 on the self-employment in11 come of the taxpayer for the taxable year, 

12 and 

13 ‘‘(iii) 50 percent of the taxes imposed 

14 by section 3211(a)(1) on amounts received 

15 by the taxpayer during the calendar year 

16 in which the taxable year begins. 

17 ‘‘(B) COORDINATION WITH SPECIAL RE18 FUND OF SOCIAL SECURITY TAXES.—The term 

19 ‘social security taxes’ shall not include any 

20 taxes to the extent the taxpayer is entitled to 

21 a special refund of such taxes under section 

22 6413(c). 

23 ‘‘(C) SPECIAL RULE.—Any amounts paid 

24 pursuant to an agreement under section 3121(l) 

25 (relating to agreements entered into by Amer-
15 

•S 1927 IS

1 ican employers with respect to foreign affiliates) 

2 which are equivalent to the taxes referred to in 

3 subparagraph (A)(i) shall be treated as taxes 

4 referred to in such paragraph. 

5 ‘‘(3) INFLATION ADJUSTMENT.—In the case of 

6 any taxable year beginning in a calendar year after 

7 2005, the $10,000 amount contained in paragraph 

8 (1)(B) shall be increased by an amount equal to— 

9 ‘‘(A) such dollar amount, multiplied by 

10 ‘‘(B) the cost-of-living adjustment deter11 mined under section 1(f)(3) for the calendar 

12 year in which the taxable year begins, deter13 mined by substituting ‘calendar year 2000’ for 

14 ‘calendar year 1992’ in subparagraph (B) 

15 thereof. 

16 Any increase determined under the preceding sen17 tence shall be rounded to the nearest multiple of 

18 $50.’’. 

19 (c) CONFORMING AMENDMENT.—Section 24(d) is 

20 amended by adding at the end the following new para21 graph: 

22 ‘‘(4) TERMINATION.—This subsection shall not 

23 apply with respect to any taxable year beginning 

24 after December 31, 2005.’’. 
16 

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1 (d) CERTAIN TREATMENT OF EARNED INCOME

2 MADE PERMANENT.—Clause (vi) of section 32(c)(2)(B) 

3 is amended to read as follows: 

4 ‘‘(vi) a taxpayer may elect to treat 

5 amounts excluded from gross income by 

6 reason of section 112 as earned income.’’. 

7 (e) REPEAL OF DISQUALIFIED INVESTMENT INCOME

8 TEST.—Subsection (i) of section 32 is repealed. 

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

10 this section shall apply to taxable years beginning after 

11 December 31, 2005. 

12 SEC. 105. REPEAL OF INDIVIDUAL ALTERNATIVE MINIMUM 

13 TAX. 

14 (a) IN GENERAL.—Section 55(a) (relating to alter15 native minimum tax imposed) is amended by adding at 

16 the end the following new flush sentence: 

17 ‘‘For purposes of this title, the tentative minimum tax on 

18 any taxpayer other than a corporation for any taxable year 

19 beginning after December 31, 2005, shall be zero.’’. 

20 (b) MODIFICATION OF LIMITATION ON USE OF

21 CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.— 

22 Subsection (c) of section 53 (relating to credit for prior 

23 year minimum tax liability) is amended to read as follows: 

24 ‘‘(c) LIMITATION.— 
17 

•S 1927 IS

1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), the credit allowable under subsection (a) 

3 for any taxable year shall not exceed the excess (if 

4 any) of— 

5 ‘‘(A) the regular tax liability of the tax6 payer for such taxable year reduced by the sum 

7 of the credits allowable under subparts A, B, D, 

8 E, and F of this part, over 

9 ‘‘(B) the tentative minimum tax for the 

10 taxable year. 

11 ‘‘(2) TAXABLE YEARS BEGINNING AFTER

12 2005.—In the case of any taxable year beginning 

13 after 2005, the credit allowable under subsection (a) 

14 to a taxpayer other than a corporation for any tax15 able year shall not exceed 90 percent of the regular 

16 tax liability of the taxpayer for such taxable year re17 duced by the sum of the credits allowable under sub18 parts A, B, D, E, and F of this part.’’. 

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

20 this section shall apply to taxable years beginning after 

21 December 31, 2005. 
18 

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1 SEC. 106. TERMINATION OF VARIOUS EXCLUSIONS, EXEMP2 TIONS, DEDUCTIONS, AND CREDITS. 

3 (a) IN GENERAL.—Subchapter C of chapter 90 (re4 lating to provisions affecting more than one subtitle) is 

5 amended by adding at the end the following new section: 

6 ‘‘SEC. 7875. TERMINATION OF CERTAIN PROVISIONS. 

7 ‘‘The following provisions shall not apply to taxable 

8 years beginning after December 31, 2005: 

9 ‘‘(1) Section 44 (relating to credit for expendi10 tures to provide access to disabled individuals). 

11 ‘‘(2) Section 62(a)(2)(D) (relating to deduction 

12 for certain expenses of elementary and secondary 

13 school teachers). 

14 ‘‘(3) Section 67 (relating to 2-percent floor on 

15 miscellaneous itemized deductions). 

16 ‘‘(4) Section 74(c) (relating to exclusion of cer17 tain employee achievement awards). 

18 ‘‘(5) Section 79 (relating to exclusion of group19 term life insurance purchased for employees). 

20 ‘‘(6) Section 104(a)(1) (relating to exclusion of 

21 workmen’s compensation). 

22 ‘‘(7) Section 104(a)(2) (relating to exclusion of 

23 damages for physical injuries and sickness). 

24 ‘‘(8) Section 107 (relating to exclusion of rental 

25 value of parsonages). 
19 

•S 1927 IS

1 ‘‘(9) Section 119 (relating to exclusion of meals 

2 or lodging furnished for the convenience of the em3 ployer). 

4 ‘‘(10) Section 125 (relating to exclusion of cafe5 teria plan benefits). 

6 ‘‘(11) Section 132 (relating to certain fringe 

7 benefits), except with respect to subsection (a)(5) 

8 thereof (relating to exclusion of qualified transpor9 tation fringe). 

10 ‘‘(12) Section 163(h)(4)(A)(i)(II) (relating to 

11 definition of qualified residence). 

12 ‘‘(13) Section 165(d) (relating to deduction for 

13 wagering losses). 

14 ‘‘(14) Section 217 (relating to deduction for 

15 moving expenses). 

16 ‘‘(15) Section 454 (relating to deferral of tax 

17 on obligations issued at discount). 

18 ‘‘(16) Section 501(c)(9) (relating to tax-exempt 

19 status of voluntary employees’ beneficiary associa20 tions). 

21 ‘‘(17) Section 911 (relating to exclusion of 

22 earned income of citizens or residents of the United 

23 States living abroad). 

24 ‘‘(18) Section 912 (relating to exemption for 

25 certain allowances).’’. 
20 

•S 1927 IS

1 (b) CONFORMING AMENDMENT.—The table of sec2 tions for subchapter C of chapter 90 is amended by adding 

3 at the end the following new item: 

‘‘Sec. 7875. Termination of certain provisions.’’. 

4 TITLE II—CORPORATE AND 

5 BUSINESS INCOME TAX RE6 FORMS 

7 SEC. 201. CORPORATE FLAT TAX. 

8 (a) IN GENERAL.—Subsection (b) of section 11 (re9 lating to tax imposed) is amended to read as follows: 

10 ‘‘(b) AMOUNT OF TAX.—The amount of tax imposed 

11 by subsection (a) shall be equal to 35 percent of the tax12 able income.’’. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) Section 280C(c)(3)(B)(ii)(II) is amended by 

15 striking ‘‘maximum rate of tax under section 

16 11(b)(1)’’ and inserting ‘‘rate of tax under section 

17 11(b)’’. 

18 (2) Sections 860E(e)(2)(B), 860E(e)(6)(A)(ii), 

19 860K(d)(2)(A)(ii), 860K(e)(1)(B)(ii), 

20 1446(b)(2)(B), and 7874(e)(1)(B) are each amended 

21 by striking ‘‘highest rate of tax specified in section 

22 11(b)(1)’’ and inserting ‘‘rate of tax specified in sec23 tion 11(b)’’. 
21 

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1 (3) Section 904(b)(3)(D)(ii) is amended by 

2 striking ‘‘(determined without regard to the last sen3 tence of section 11(b)(1))’’. 

4 (4) Section 962 is amended by striking sub5 section (c) and by redesignating subsection (d) as 

6 subsection (c). 

7 (5) Section 1201(a) is amended by striking 

8 ‘‘(determined without regard to the last 2 sentences 

9 of section 11(b)(1))’’. 

10 (6) Section 1561(a) is amended— 

11 (A) by striking paragraph (1) and by re12 designating paragraphs (2), (3), and (4) as 

13 paragraphs (1), (2), and (3), respectively, 

14 (B) by striking ‘‘The amounts specified in 

15 paragraph (1), the’’ and inserting ‘‘The’’, 

16 (C) by striking ‘‘paragraph (2)’’ and in17 serting ‘‘paragraph (1)’’, 

18 (D) by striking ‘‘paragraph (3)’’ both 

19 places it appears and inserting ‘‘paragraph 

20 (2)’’, 

21 (E) by striking ‘‘paragraph (4)’’ and in22 serting ‘‘paragraph (3)’’, and 

23 (F) by striking the fourth sentence. 

24 (7) Subsection (b) of section 1561 is amended 

25 to read as follows: 
22 

•S 1927 IS

1 ‘‘(b) CERTAIN SHORT TAXABLE YEARS.—If a cor2 poration has a short taxable year which does not include 

3 a December 31 and is a component member of a controlled 

4 group of corporations with respect to such taxable year, 

5 then for purposes of this subtitle, the amount to be used 

6 in computing the accumulated earnings credit under sec7 tion 535(c)(2) and (3) of such corporation for such taxable 

8 year shall be the amount specified in subsection (a)(1) di9 vided by the number of corporations which are component 

10 members of such group on the last day of such taxable 

11 year. For purposes of the preceding sentence, section 

12 1563(b) shall be applied as if such last day were sub13 stituted for December 31.’’. 

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

15 this section shall apply to taxable years beginning after 

16 December 31, 2005. 

17 SEC. 202. TREATMENT OF TRAVEL ON CORPORATE AIR18 CRAFT. 

19 (a) IN GENERAL.—Section 162 (relating to trade or 

20 business expenses) is amended by redesignating subsection 

21 (q) as subsection (r) and b inserting after subsection (p) 

22 the following new subsection: 

23 ‘‘(q) TREATMENT OF TRAVEL ON CORPORATE AIR24 CRAFT.—The rate at which an amount allowable as a de25 duction under this chapter for the use of an aircraft owned 
23 

•S 1927 IS

1 by the taxpayer is determined shall not exceed the rate 

2 at which an amount paid or included in income by an em3 ployee of such taxpayer for the personal use of such air4 craft is determined.’’. 

5 (b) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to taxable years beginning after 

7 December 31, 2005. 

8 SEC. 203. TERMINATION OF VARIOUS PREFERENTIAL 

9 TREATMENTS. 

10 (a) IN GENERAL.—Section 7875, as added by section 

11 106, is amended— 

12 (1) by inserting ‘‘(or transactions in the case of 

13 sections referred to in paragraphs (21), (22), (23), 

14 (24), and (27))’’ after ‘‘taxable years beginning’’, 

15 and 

16 (2) by adding at the end the following new 

17 paragraphs: 

18 ‘‘(19) Section 43 (relating to enhanced oil re19 covery credit). 

20 ‘‘(20) Section 263(c) (relating to intangible 

21 drilling and development costs in the case of oil and 

22 gas wells and geothermal wells). 

23 ‘‘(21) Section 382(l)(5) (relating to exception 

24 from net operating loss limitations for corporations 

25 in bankruptcy proceeding). 
24 

•S 1927 IS

1 ‘‘(22) Section 451(i) (relating to special rules 

2 for sales or dispositions to implement Federal En3 ergy Regulatory Commission or State electric re4 structuring policy). 

5 ‘‘(23) Section 453A (relating to special rules for 

6 nondealers), but only with respect to the dollar limi7 tation under subsection (b)(1) thereof and sub8 section (b)(3) thereof (relating to exception for per9 sonal use and farm property). 

10 ‘‘(24) Section 460(e)(1) (relating to special 

11 rules for long-term home construction contracts or 

12 other short-term construction contracts). 

13 ‘‘(25) Section 613A (relating to percentage de14 pletion in case of oil and gas wells). 

15 ‘‘(26) Section 616 (relating to development 

16 costs). 

17 ‘‘(27) Sections 861(a)(6), 862(a)(6), 863(b)(2), 

18 863(b)(3), and 865(b) (relating to inventory prop19 erty sales source rule exception).’’. 

20 (b) FULL TAX RATE ON NUCLEAR DECOMMIS21 SIONING RESERVE FUND.—Subparagraph (B) of section 

22 468A(e)(2) is amended to read as follows: 

23 ‘‘(B) RATE OF TAX.—For purposes of sub24 paragraph (A), the rate set forth in this sub25 paragraph is 35 percent.’’. 
25 

•S 1927 IS

1 (c) DEFERRAL OF ACTIVE INCOME OF CONTROLLED

2 FOREIGN CORPORATIONS.—Section 952 (relating to sub3 part F income defined) is amended by adding at the end 

4 the following new subsection: 

5 ‘‘(e) SPECIAL APPLICATION OF SUBPART.— 

6 ‘‘(1) IN GENERAL.—For taxable years begin7 ning after December 31, 2005, notwithstanding any 

8 other provision of this subpart, the term ‘subpart F 

9 income’ means, in the case of any controlled foreign 

10 corporation, the income of such corporation derived 

11 from any foreign country. 

12 ‘‘(2) APPLICABLE RULES.—Rules similar to the 

13 rules under the last sentence of subsection (a) and 

14 subsection (d) shall apply to this subsection.’’. 

15 (d) DEFERRAL OF ACTIVE FINANCING INCOME.— 

16 Section 953(e)(10) is amended— 

17 (1) by striking ‘‘2006’’ and inserting ‘‘2005’’, 

18 and 

19 (2) by striking ‘‘2007’’ and inserting ‘‘2006’’. 

20 (e) DEPRECIATION ON EQUIPMENT IN EXCESS OF

21 ALTERNATIVE DEPRECIATION SYSTEM.—Section 

22 168(g)(1) (relating to alternative depreciation system) is 

23 amended by striking ‘‘and’’ at the end of subparagraph 

24 (D), by adding ‘‘and’’ at the end of subparagraph (E), 
26 

•S 1927 IS

1 and by inserting after subparagraph (E) the following new 

2 subparagraph: 

3 ‘‘(F) notwithstanding subsection (a), any 

4 tangible property placed in service after Decem5 ber 31, 2005,’’. 

6 (f) EFFECTIVE DATE.—The amendments made by 

7 subsections (b), (c), and (d) shall apply to taxable years 

8 beginning after December 31, 2005. 

9 SEC. 204. ELIMINATION OF TAX EXPENDITURES THAT SUB10 SIDIZE INEFFICIENCIES IN THE HEALTH 

11 CARE SYSTEM. 

12 Not later than 180 days after the date of the enact13 ment of this Act, the Secretary of the Treasury shall re14 port to the Committee on Finance of the Senate and the 

15 Committee on Ways and Means of the House of Rep16 resentatives recommendations regarding the elimination of 

17 Federal tax incentives which subsidize inefficiencies in the 

18 health care system and if eliminated would result in Fed19 eral budget savings of not less than $10,000,000,000 an20 nually. 

21 SEC. 205. PASS-THROUGH BUSINESS ENTITY TRANS22 PARENCY. 

23 Not later than 90 days after the date of the enact24 ment of this Act, the Secretary of the Treasury shall re25 port to the Committee on Finance of the Senate and the 
27 

•S 1927 IS

1 Committee on Ways and Means of the House of Rep2 resentatives regarding the implementation of additional 

3 reporting requirements with respect to any pass-through 

4 entity with the goal of the reduction of tax avoidance 

5 through the use of such entities, In addition, the Secretary 

6 shall develop procedures to share such report data with 

7 State revenue agencies under the disclosure requirements 

8 of section 6103(d) of the Internal Revenue Code of 1986. 

9 TITLE III—TECHNICAL AND CON10 FORMING AMENDMENTS; 

11 SUNSET 

12 SEC. 301. TECHNICAL AND CONFORMING AMENDMENTS. 

13 The Secretary of the Treasury or the Secretary’s del14 egate shall not later than 90 days after the date of the 

15 enactment of this Act, submit to the Committee on Ways 

16 and Means of the House of Representatives and the Com17 mittee on Finance of the Senate a draft of any technical 

18 and conforming changes in the Internal Revenue Code of 

19 1986 which are necessary to reflect throughout such Code 

20 the purposes of the provisions of, and amendments made 

21 by, this Act. 

22 SEC. 302. SUNSET. 

23 (a) IN GENERAL.—All provisions of, and amend24 ments made by, this Act shall not apply to taxable years 

25 beginning after December 31, 2010. 
28 

•S 1927 IS

1 (b) APPLICATION OF CODE.—The Internal Revenue 

2 Code of 1986 shall be applied and administered to taxable 

3 years described in subsection (a) as if the provisions of, 

4 and amendments made by, this Act had never been en5 acted. 

Æ