II 

109TH CONGRESS 

1ST SESSION S. 1921 

To promote freedom, fairness, and economic opportunity by repealing the 

income tax and other taxes, abolishing the Internal Revenue Service, 

and replacing such taxes with a national sales tax and a business tax. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 26, 2005 

Mr. DEMINT (for himself and Mr. GRAHAM) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To promote freedom, fairness, and economic opportunity by 

repealing the income tax and other taxes, abolishing the 

Internal Revenue Service, and replacing such taxes with 

a national sales tax and a business tax. 

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

3 SECTION 1. TABLE OF CONTENTS. 

4 The table of contents for this Act is as follows: 

Sec. 1. Table of Contents. 

Sec. 2. Congressional findings. 

TITLE I—REPEAL OF THE INCOME TAX AND ESTATE AND GIFT 

TAXES 

Sec. 101. Income taxes repealed. 

Sec. 102. Estate and gift taxes repealed. 

Sec. 103. Effective dates; other matters. 
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TITLE II—GENERAL MATTERS 

Sec. 201. General matters. 

‘‘Subtitle A—General Matters 

‘‘CHAPTER 1—PRINCIPLES OF INTERPRETATION; DEFINITIONS

‘‘Sec. 1. Principles of interpretation. 

‘‘Sec. 2. Definitions. 

TITLE III—SALES TAX ENACTED 

Sec. 301. Sales tax. 

‘‘Subtitle B—Sales Tax 

‘‘CHAPTER 1—IMPOSITION OF TAX; GENERAL RULES, ETC. 

‘‘Sec. 101. Imposition of sales tax. 

‘‘Sec. 102. Intermediate and export sales. 

‘‘Sec. 103. Rules relating to collection and remittance of tax. 

‘‘CHAPTER 2—CREDITS; REFUNDS

‘‘Sec. 201. Credits and refunds. 

‘‘Sec. 202. Business use conversion credit. 

‘‘Sec. 203. Intermediate and export sales credit. 

‘‘Sec. 204. Administration credit. 

‘‘Sec. 205. Bad debt credit. 

‘‘Sec. 206. Insurance proceeds credit. 

‘‘Sec. 207. Refunds. 

‘‘Sec. 208. Previously taxed property credit. 

‘‘CHAPTER 3—FAMILY CONSUMPTION ALLOWANCE

‘‘Sec. 301. Family consumption allowance. 

‘‘Sec. 302. Qualified family. 

‘‘Sec. 303. Monthly poverty level. 

‘‘Sec. 304. Rebate mechanism. 

‘‘Sec. 305. Change in family circumstances. 

‘‘CHAPTER 4—STATE AND FEDERAL COOPERATIVE TAX ADMINISTRATION

‘‘Sec. 401. Authority for States to collect tax. 

‘‘Sec. 402. Federal administrative support for States. 

‘‘Sec. 403. Federal-State conferences. 

‘‘Sec. 404. Federal administration in certain States. 

‘‘Sec. 405. Interstate allocation and destination determination. 

‘‘Sec. 406. General administrative matters. 

‘‘Sec. 407. Jurisdiction. 

‘‘CHAPTER 5—SPECIAL RULES

‘‘Sec. 501. Hobby activities. 

‘‘Sec. 502. Gaming activities. 

‘‘Sec. 503. Government purchases. 

‘‘Sec. 504. Government enterprises. 

‘‘Sec. 505. Mixed use property. 
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‘‘Sec. 506. Not-for-profit organizations. 

‘‘CHAPTER 6—FINANCIAL INTERMEDIATION SERVICES

‘‘Sec. 601. Determination of financial intermediation services amount. 

‘‘Sec. 602. Bad debts. 

‘‘Sec. 603. Timing of tax on financial intermediation services. 

‘‘Sec. 604. Financing leases. 

‘‘Sec. 605. Basic interest rate. 

‘‘Sec. 606. Foreign financial intermediation services. 

TITLE IV—BUSINESS TAX ENACTED 

Sec. 401. Business tax. 

‘‘Subtitle C—Business Tax 

‘‘CHAPTER 1—IMPOSITION OF TAX

‘‘Sec. 1101. Tax imposed. 

‘‘CHAPTER 2—BASIC RULES FOR BUSINESS TAX

‘‘Sec. 1201. Gross profits. 

‘‘Sec. 1202. Taxable receipts. 

‘‘Sec. 1203. Deductible amounts. 

‘‘Sec. 1204. Cost of business purchases. 

‘‘Sec. 1205. Business entity and business activity. 

‘‘Sec. 1206. Loss carryover deduction. 

‘‘CHAPTER 3—CAPITAL CONTRIBUTIONS, MERGERS, ACQUISITIONS, AND

DISTRIBUTIONS

‘‘Sec. 1301. Contributions to a business entity. 

‘‘Sec. 1302. Distributions of property. 

‘‘Sec. 1303. Asset acquisitions. 

‘‘Sec. 1304. Mergers and stock acquisitions. 

‘‘Sec. 1305. Spinoffs, splitoff, etc. 

‘‘Sec. 1306. Allocation of certain tax attributes. 

‘‘CHAPTER 4—LAND AND RENTAL PROPERTY

‘‘Sec. 1401. No deduction for land purchased for nonbusiness use. 

‘‘Sec. 1402. Taxable receipts for land held for nonbusiness use. 

‘‘Sec. 1403. Certain rental property. 

‘‘CHAPTER 5—INSURANCE AND FINANCIAL PRODUCTS

‘‘Sec. 1501. General rules. 

‘‘Sec. 1502. Fees for financial intermediation services. 

‘‘Sec. 1503. Deductible insurance premiums. 

‘‘Sec. 1504. Nondeductible insurance premiums. 

‘‘Sec. 1505. Certain implicit fees for financial intermediation services. 

‘‘CHAPTER 6—FINANCIAL INTERMEDIATION AND FINANCIAL INSTITUTIONS

‘‘Sec. 1601. Activities constituting a financial intermediation business. 

‘‘Sec. 1602. General rule for taxation. 

‘‘Sec. 1603. Special rule for banks. 
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‘‘Sec. 1604. Insurance companies. 

‘‘Sec. 1605. Financial pass-thru entities. 

‘‘CHAPTER 7—TAX-EXEMPT ORGANIZATIONS

‘‘Sec. 1701. Exemption for governmental entities. 

‘‘Sec. 1702. Taxable activity of governmental entities. 

‘‘Sec. 1703. Tax-exempt organizations. 

‘‘Sec. 1704. Special rules for (c)(3) organizations. 

‘‘Sec. 1705. Tax on unrelated business activity. 

‘‘Sec. 1706. Unrelated business activity. 

‘‘CHAPTER 8—COOPERATIVES

‘‘Sec. 1801. Patronage dividends of cooperatives. 

‘‘CHAPTER 9—SOURCING RULES

‘‘Sec. 1901. Exports of property or services. 

‘‘Sec. 1902. Imports of property or services. 

‘‘Sec. 1903. Import or export of services. 

‘‘Sec. 1904. International transportation services. 

‘‘Sec. 1905. International communications. 

‘‘Sec. 1906. Insurance. 

‘‘Sec. 1907. Banking services. 

‘‘CHAPTER 10—IMPORT TAX

‘‘Sec. 2001. Imposition of tax on import of property. 

‘‘Sec. 2002. Imposition of tax on import of services. 

‘‘Sec. 2003. General rules for the import tax. 

TITLE V—TAX ADMINISTRATION AND TRANSITION 

Sec. 501. Tax administration and transition. 

‘‘Subtitle D—Administration and Transition Matters 

‘‘CHAPTER 1—OTHER ADMINISTRATIVE PROVISIONS

‘‘Sec. 2501. Reports and payments. 

‘‘Sec. 2502. Registration. 

‘‘Sec. 2503. Accounting. 

‘‘Sec. 2504. Registration certificates. 

‘‘Sec. 2505. Penalties. 

‘‘Sec. 2506. Burden of persuasion and burden of production. 

‘‘Sec. 2507. Attorneys and accountancy fees. 

‘‘Sec. 2508. Summons, examinations, audits, etc. 

‘‘Sec. 2509. Records. 

‘‘Sec. 2510. Tax to be separately stated and charged. 

‘‘Sec. 2511. Coordination with title 11. 

‘‘Sec. 2512. Applicable interest rate. 

‘‘CHAPTER 2—COLLECTION; APPEALS; TAXPAYER RIGHTS

‘‘Sec. 2601. Collections. 

‘‘Sec. 2602. Power to levy, etc. 

‘‘Sec. 2603. Problem resolution offices. 

‘‘Sec. 2604. Appeals. 
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‘‘Sec. 2605. Taxpayer rights. 

‘‘Sec. 2606. Installment agreements; compromises. 

‘‘CHAPTER 3—ACCOUNTING METHOD RULES

‘‘Sec. 2701. General accounting rules. 

‘‘Sec. 2702. Use of the cash method of accounting. 

‘‘Sec. 2703. Taxable year. 

‘‘Sec. 2704. Long-term contracts. 

‘‘Sec. 2705. Post-sale price adjustments and refunds. 

‘‘Sec. 2706. Bad debts. 

‘‘Sec. 2707. Consolidated returns. 

‘‘Sec. 2708. Transition rules. 

‘‘CHAPTER 4—TRANSITION RULES

‘‘Sec. 2801. Amortization of transition basis. 

‘‘Sec. 2802. Sales of transition basis property. 

‘‘Sec. 2803. Carryovers. 

‘‘Sec. 2804. Transition inventory credit. 

‘‘CHAPTER 5—ADDITIONAL MATTERS

‘‘Sec. 2901. Additional matters. 

‘‘Sec. 2902. Wages To Be reported to Social Security Administration. 

‘‘Sec. 2903. Trust fund revenues. 

TITLE VI—OTHER MATTERS 

Sec. 601. Phase-out of administration repealed Federal taxes. 

Sec. 602. Administration of other Federal taxes. 

Sec. 603. Sales tax inclusive Social Security benefits indexation. 

Sec. 604. Conforming and technical amendments. 

TITLE VII—INDIVIDUAL DEVELOPMENT ACCOUNTS 

Sec. 701. Short title. 

Sec. 702. Purposes. 

Sec. 703. Definitions. 

Sec. 704. Structure and administration of qualified individual development account programs. 

Sec. 705. Procedures for opening and maintaining an individual development 

account and qualifying for matching funds. 

Sec. 706. Deposits by qualified individual development account programs. 

Sec. 707. Withdrawal procedures. 

Sec. 708. Certification and termination of qualified individual development account programs. 

Sec. 709. Reporting, monitoring, and evaluation. 

Sec. 710. Authorization of appropriations. 

Sec. 711. Matching funds for individual development accounts provided for 

qualified financial institutions. 

1 SEC. 2. CONGRESSIONAL FINDINGS. 

2 (a) Congress finds that the income tax— 
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•S 1921 IS 

1 (1) retards economic growth and has reduced 

2 the standard of living of the American public; 

3 (2) impedes the international competitiveness of 

4 the United States industry; 

5 (3) reduces savings and investment in the 

6 United States by taxing them multiple times; 

7 (4) slows the capital formation necessary for 

8 real wages to steadily increase; 

9 (5) lowers productivity; 

10 (6) imposes unacceptable and unnecessary ad11 ministrative and compliance costs on individual and 

12 business taxpayers; 

13 (7) is unfair and inequitable; 

14 (8) unnecessarily intrudes upon the privacy and 

15 civil rights of United States citizens; 

16 (9) hides the true cost of government by embed17 ding taxes in the costs of everything we buy; 

18 (10) is not being complied with at satisfactory 

19 levels and therefore raises the tax burden on law 

20 abiding citizens; and 

21 (11) impedes upward social mobility. 

22 (b) Congress finds further that the estate and gift 

23 taxes— 

24 (1) force family businesses and farms to be sold 

25 out of the family to pay tax; 
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•S 1921 IS 

1 (2) discourage capital formation and entrepre2 neurship; 

3 (3) foster the continued dominance of large en4 terprises over small family-owned companies and 

5 farms; and 

6 (4) impose unacceptably high tax planning costs 

7 on small businesses and farms. 

8 (c) Congress finds further that a broad-based na9 tional sales tax on goods and services purchased for final 

10 consumption— 

11 (1) is similar in many respects to the sales and 

12 use taxes in place in 45 of the 50 States; 

13 (2) will promote savings and investment; 

14 (3) will promote fairness; 

15 (4) will promote economic growth; 

16 (5) will raise the standard of living of the 

17 American people; 

18 (6) will increase investment; 

19 (7) will enhance productivity and international 

20 competitiveness; 

21 (8) will reduce administrative burdens on the 

22 American taxpayer; 

23 (9) will improve upward social mobility; and 

24 (10) will respect the privacy interests and civil 

25 rights of taxpayers. 
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1 (d) Congress finds that a business tax which imposes 

2 the same tax burden on foreign and United States pro3 duced goods and services and is not biased against invest4 ment— 

5 (1) will promote savings and investment; 

6 (2) will promote fairness; 

7 (3) will promote economic growth; 

8 (4) will raise the standard of living of the 

9 American people; 

10 (5) will increase investment; 

11 (6) will enhance productivity and international 

12 competitiveness; 

13 (7) will reduce administrative burdens on the 

14 American taxpayer; and 

15 (8) will improve upward social mobility. 

16 (e) Congress further finds that— 

17 (1) most of the practical experience admin18 istering sales taxes is found at the State govern19 mental level; 

20 (2) it is desirable to harmonize Federal and 

21 State collection and enforcement efforts to the max22 imum extent possible; 

23 (3) it is sound tax administration policy to fos24 ter administration and collection of the Federal sales 
9 

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1 tax at the State level in return for a reasonable ad2 ministration fee to the States; and 

3 (4) businesses that must collect and remit taxes 

4 should receive reasonable compensation for the cost 

5 of doing so. 

6 TITLE I—REPEAL OF THE IN7 COME TAX AND ESTATE AND 

8 GIFT TAXES 

9 SEC. 101. INCOME TAXES REPEALED. 

10 Subtitle A of the Internal Revenue Code of 1986 (re11 lating to income taxes and self-employment taxes) is here12 by repealed. 

13 SEC. 102. ESTATE AND GIFT TAXES REPEALED. 

14 Subtitle B of the Internal Revenue Code of 1986 (re15 lating to estate and gift taxes) is hereby repealed. 

16 SEC. 103. EFFECTIVE DATES; OTHER MATTERS. 

17 (a) Subtitle H of the Internal Revenue Code of 1986 

18 (relating to Financing of Presidential Election Cam19 paigns) is hereby repealed. 

20 (b) Subtitle C (relating to employment taxes) is re21 designated as subtitle E. 

22 (c) Subtitle D (relating to miscellaneous excise taxes) 

23 is redesignated as subtitle F. 

24 (d) Subtitle E (relating to Alcohol, Tobacco and Cer25 tain Other Excise Taxes) is redesignated as subtitle G. 
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•S 1921 IS 

1 (e) Subtitle F (relating to Procedure and Administra2 tion) is redesignated as subtitle H. 

3 (f) Subtitle G (relating to the Joint Committee on 

4 Taxation) is redesignated as subtitle L. 

5 (g) References to provisions repealed by this Act shall 

6 be treated as references to such provisions as in effect on 

7 the day before the date of the enactment of this Act. 

8 (h) EFFECTIVE DATES.—The amendments made by 

9 this Act shall take effect on January 1, 2007. The Internal 

10 Revenue Code of 1986 enacted October 22, 1986 as here11 tofore, hereby, or hereafter amended may be cited as the 

12 ‘‘Internal Revenue Code of 2005’’. 

13 TITLE II—GENERAL MATTERS 

14 SEC. 201. GENERAL MATTERS. 

15 (a) IN GENERAL.—The Internal Revenue Code of 

16 1986 is amended by inserting at the beginning the fol17 lowing new subtitle: 

18 ‘‘Subtitle A—General Matters 

‘‘Chapter 1—Principles of interpretation; definitions. 

19 ‘‘CHAPTER 1—PRINCIPLES OF 

20 INTERPRETATION; DEFINITIONS 

‘‘Sec. 1. Principles of interpretation. 

‘‘Sec. 2. Definitions. 

21 ‘‘SEC. 1. PRINCIPLES OF INTERPRETATION. 

22 ‘‘(a) IN GENERAL.—Any court, the Secretary and 

23 any sales tax administering authority shall consider the 
11 

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1 purposes of this title (as set forth in subsection (b)) as 

2 the primary aid in statutory construction. 

3 ‘‘(b) PURPOSES.— 

4 ‘‘(1) A purpose of this title is to raise revenue 

5 needed by the Federal Government in a manner con6 sistent with the title’s other purposes. 

7 ‘‘(2) A purpose of this title is to tax consump8 tion of goods and services in the United States by 

9 means of the sales tax and the business tax. 

10 ‘‘(3) A purpose of this title is to prevent double, 

11 multiple or cascading taxation. 

12 ‘‘(4) A purpose of this title is to simplify the 

13 tax law and reduce the administration costs of, and 

14 the costs of compliance with, the tax law. 

15 ‘‘(5) A purpose of this title is to provide for the 

16 administration of the tax law in a manner that re17 spects— 

18 ‘‘(A) privacy, 

19 ‘‘(B) due process, 

20 ‘‘(C) individual rights when interacting 

21 with the Government, 

22 ‘‘(D) the presumption of innocence in 

23 criminal proceedings, and 

24 ‘‘(E) the presumption of lawful behavior in 

25 civil proceedings. 
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•S 1921 IS 

1 ‘‘(6) A purpose of this title is to increase the 

2 role of State governments in Federal tax administra3 tion because of State government expertise in sales 

4 tax administration. 

5 ‘‘(7) A purpose of this title is to enhance gen6 erally cooperation and coordination among State tax 

7 administrators and to enhance cooperation and co8 ordination among State and Federal tax administra9 tors, consistent with the principle of intergovern10 mental tax immunity. 

11 ‘‘(c) SECONDARY AIDS TO STATUTORY CONSTRUC12 TION.—As a secondary aid in statutory construction, any 

13 court, the Secretary and any sales tax administering au14 thority shall— 

15 ‘‘(1) consider the common law canons of statu16 tory construction, 

17 ‘‘(2) consider the meaning and construction of 

18 concepts and terms used in the Internal Revenue 

19 Code of 1986 as in force prior to the date of the en20 actment of this subtitle, and 

21 ‘‘(3) construe any ambiguities in this title in 

22 favor of reserving powers to the States respectively, 

23 or to the people. 
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1 ‘‘SEC. 2. DEFINITIONS. 

2 ‘‘(a) AFFILIATED FIRMS.—A firm is affiliated with 

3 another if 1 firm owns 50 percent or more of— 

4 ‘‘(1) the voting shares in a corporation, or 

5 ‘‘(2) the capital interests of a business firm 

6 that is not a corporation. 

7 ‘‘(b) BUSINESS PURPOSE.—The term ‘business pur8 pose’ means a purpose reasonably designed or calculated 

9 to further the profitability of a trade or business, including 

10 without limitation for the purpose of using a good or serv11 ice in that trade or business— 

12 ‘‘(1) for resale, 

13 ‘‘(2) to produce, provide, render or sell taxable 

14 property or services, or 

15 ‘‘(3) in furtherance of other bona fide business 

16 purposes. 

17 ‘‘(c) CONFORMING STATE SALES TAX.—The term 

18 ‘conforming State sales tax’ means a sales tax imposed 

19 by a State that adopts the same definition of taxable prop20 erty and services as the tax imposed by this title. 

21 ‘‘(d) DESIGNATED COMMERCIAL PRIVATE COURIER

22 SERVICE.—The term ‘designated commercial private cou23 rier service’ means a firm designated as such by the Sec24 retary or any sales tax administering authority. The Sec25 retary or any sales tax administering authority shall des26 ignate a firm as a designated commercial private courier 
14 

•S 1921 IS 

1 service upon application of the firm provided that the 

2 firm— 

3 ‘‘(1) provides its services to the general public, 

4 ‘‘(2) records electronically to its data base kept 

5 in the regular course of its business the date on 

6 which an item was given to such firm for delivery, 

7 and 

8 ‘‘(3) has been operating for at least 1 year. 

9 ‘‘(e) EDUCATIONAL EXPENSES.— 

10 ‘‘(1) IN GENERAL.—The term ‘educational ex11 penses’ means expenses directly related to— 

12 ‘‘(A) primary, secondary, college or univer13 sity level instruction or course work, or 

14 ‘‘(B) employment or career related training 

15 or instruction by or under qualified instructors 

16 in a structured program. 

17 ‘‘(2) EXCLUSION.—Such term does not include 

18 room, board, sports activities, recreational activities, 

19 hobbies, games, arts or crafts or cultural activities. 

20 ‘‘(f) FAMILY MEMBER.—The term ‘family member’ 

21 has the meaning given such term by section 302(b). 

22 ‘‘(g) FEDERAL SHORT TERM RATE.—The term ‘Fed23 eral short term rate’ has the meaning given such term by 

24 section 2512(b). 
15 

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1 ‘‘(h) GROSS PAYMENTS.—The term ‘gross payments’ 

2 means payments for the taxable property or services (ex3 cluding Federal taxes imposed by subtitle B). 

4 ‘‘(i) IMPORT TAX.—The term ‘import tax’ means any 

5 tax imposed by chapter 10 of subtitle C. 

6 ‘‘(j) INTANGIBLE PROPERTY.— 

7 ‘‘(1) IN GENERAL.—The term ‘intangible prop8 erty’ includes copyrights, trademarks, patents, good9 will, financial instruments, securities, commercial 

10 paper, debts, notes and bonds and other property 

11 deemed intangible at common law. The Secretary 

12 shall promulgate regulations to resolve differences 

13 among the common law of the several States. 

14 ‘‘(2) CERTAIN TYPES OF PROPERTY.—Such 

15 term does not include tangible personal property (or 

16 rents or leaseholds of any term thereon), real prop17 erty (or rents or leaseholds of any term thereon) and 

18 computer software. 

19 ‘‘(3) CROSS REFERENCE.—For anti avoidance 

20 rules relating to intangible property, see section 

21 2901(a). 

22 ‘‘(k) INVESTMENT PURPOSES.—The term ‘invest23 ment purposes’ means for purposes of appreciation or the 

24 production of income but not entailing more than minor 

25 personal efforts. 
16 

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1 ‘‘(l) PERSON.—The term ‘person’ means any natural 

2 person, and unless the context clearly does not allow it, 

3 any corporation, partnership, limited liability company, 

4 trust, estate, government, agency, administration, organi5 zation, association or other legal entity (foreign or domes6 tic). 

7 ‘‘(m) PRODUCE, PROVIDE, RENDER, OR SELL TAX8 ABLE PROPERTY OR SERVICES.— 

9 ‘‘(1) IN GENERAL.—Taxable property or serv10 ices are used to produce, provide, render or sell a 

11 taxable property or service if such property or serv12 ice is purchased by a person engaged in a trade or 

13 business for the purpose of employing or using such 

14 taxable property or service in the production, provi15 sion, rendering or sale of other taxable property or 

16 services in the ordinary course of that trade or busi17 ness. 

18 ‘‘(2) RESEARCH, EXPERIMENTATION, TESTING, 

19 AND DEVELOPMENT.—Taxable property or services 

20 used in a trade or business for the purpose of re21 search, experimentation, testing and development 

22 shall be treated as used to produce, provide, render 

23 or sell taxable property or services. 

24 ‘‘(3) INSURANCE PAYMENTS.—Taxable property 

25 or services purchased by an insurer on behalf of an 
17 

•S 1921 IS 

1 insured shall be treated as used to produce, provide, 

2 render or sell taxable property or services if the pre3 mium for the insurance contract giving rise to the 

4 insurer’s obligation was subject to tax pursuant to 

5 section 601 (relating to financial intermediation 

6 services). 

7 ‘‘(4) EDUCATION AND TRAINING.—Educational 

8 expenses shall be treated as services used to 

9 produce, provide, render or sell taxable property or 

10 services. 

11 ‘‘(n) PURCHASER’S RECEIPT.—The term ‘pur12 chaser’s receipt’ means the receipt required by section 

13 2510. 

14 ‘‘(o) REGISTERED SELLER.—The term ‘registered 

15 seller’ means a person registered pursuant to section 

16 2502. 

17 ‘‘(p) SAVINGS ASSETS.—The term ‘savings assets’ 

18 means financial assets held for an investment purpose. 

19 ‘‘(q) SALES TAX ADMINISTERING AUTHORITY.—The 

20 term ‘sales tax administering authority’ means— 

21 ‘‘(1) in an administering State, the State agen22 cy designated to collect and administer the sales tax 

23 imposed by subtitle B, or 

24 ‘‘(2) the Secretary, in a State that neither— 

25 ‘‘(A) is an administering States, nor 
18 

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1 ‘‘(B) has elected to have its sales tax ad2 ministered by an administering State, or 

3 ‘‘(3) in a State that has elected pursuant to 

4 section 401(g) to have another State administer the 

5 sales tax, the State agency designated to collect and 

6 administer the sales tax imposed by this subtitle. 

7 ‘‘(r) SECRETARY.—The term ‘Secretary’ means the 

8 Secretary of the Treasury. 

9 ‘‘(s) TAXABLE EMPLOYERS.— 

10 ‘‘(1) IN GENERAL.—The term ‘taxable employ11 ers’ means employers that are not— 

12 ‘‘(A) engaged in a trade or business, 

13 ‘‘(B) a not-for-profit organization (as de14 fined in section 506), or 

15 ‘‘(C) a Government enterprise (as defined 

16 in section 504). 

17 ‘‘(2) EXAMPLES.—Such term includes— 

18 ‘‘(A) households employing domestic serv19 ants (including cooks, gardeners, maids, labor20 ers, child care providers, and nurses), and 

21 ‘‘(B) government except for Government 

22 enterprises as defined in section 504. 

23 ‘‘(3) CROSS REFERENCE.—For rules relating to 

24 collection and remittance of tax on wages by taxable 

25 employers, see section 103. 
19 

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1 ‘‘(t) TAXABLE PROPERTY OR SERVICES.— 

2 ‘‘(1) GENERAL RULE.—For purposes of subtitle 

3 B, the term ‘taxable property or service’ means— 

4 ‘‘(A) any property (including leaseholds of 

5 any term or rents with respect to such prop6 erty) other than intangible property (as defined 

7 in subsection (j)), and 

8 ‘‘(B) any service (including any financial 

9 intermediation services as determined by section 

10 601). 

11 ‘‘(2) SERVICES.—For purposes of subparagraph 

12 (1), the term ‘services’ does not include services per13 formed by an employee for which the employee is 

14 paid wages or a salary (as defined in subsection 

15 (w))— 

16 ‘‘(A) for an employer in the regular course 

17 of the employer’s trade or business, 

18 ‘‘(B) for an employer that is a not-for19 profit organization (as defined in section 506), 

20 and 

21 ‘‘(C) for an employer that is a Government 

22 enterprise (as defined in section 504). 

23 ‘‘(3) WAGES AND SALARY PAID BY TAXABLE

24 EMPLOYERS.— 
20 

•S 1921 IS 

1 ‘‘(A) GENERAL RULE.—The term ‘services’ 

2 includes wages and salary paid by taxable em3 ployers (as defined in subsection (l)). 

4 ‘‘(B) EDUCATIONAL SERVICES.—The term 

5 ‘services’ does not include wages or salary paid 

6 by taxable employers to employees whose work 

7 is directly related to— 

8 ‘‘(i) providing primary, secondary, col9 lege or university level instruction or 

10 course work, or 

11 ‘‘(ii) employment or career related 

12 training or instruction by or under quali13 fied instructors in a structured program. 

14 The term ‘services’ includes wages or salary 

15 paid by taxable employers to employees whose 

16 work is related to providing room, board, sports 

17 activities, recreational activities, hobbies, 

18 games, arts or crafts or cultural activities. 

19 ‘‘(u) UNITED STATES.—The term ‘United States’, 

20 when used in the geographical sense, means the 50 States, 

21 the District of Columbia, and any commonwealth, terri22 tory or possession of the United States. 

23 ‘‘(v) USED PROPERTY.—The term ‘used property’ 

24 means— 
21 

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1 ‘‘(1) property on which the tax imposed by sec2 tion 101 has been collected and for which no credit 

3 has been allowed under section 203, and 

4 ‘‘(2) property that was held other than for a 

5 business purpose (as defined in section 2) on De6 cember 31, 2006. 

7 ‘‘(w) WAGES, SALARY, OR COMPENSATION.—The 

8 term ‘wages and salary’ means all compensation paid for 

9 employment service including cash compensation, em10 ployee benefits, disability insurance or wage replacement 

11 insurance payments, unemployment compensation insur12 ance, workers compensation insurance and the fair market 

13 value of any other consideration paid by an employer to 

14 an employee in consideration for employment services ren15 dered. 

16 ‘‘(x) WHOLESALE SELLER.— 

17 ‘‘(1) IN GENERAL.—The term ‘wholesale seller’ 

18 means a registered seller for whom, in the previous 

19 calendar year, more than 80 percent of gross pay20 ments received were from sales to registered sellers. 

21 ‘‘(2) FIRST YEAR.—Firms may petition the 

22 sales tax administering authority to be deemed 

23 wholesaler sellers for calendar year 2007. The sales 

24 tax administering authority may require reasonable 

25 documentation relating to whether more than 80 
22 

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1 percent of the gross payments received by the firm 

2 were from sales to persons that would have been 

3 registered sellers in the year 2006 had the sales tax 

4 been in effect.’’. 

5 TITLE III—SALES TAX ENACTED 

6 SEC. 301. SALES TAX. 

7 (a) IN GENERAL.—The Internal Revenue Code of 

8 1986 is amended by inserting after subtitle A the following 

9 new subtitle: 

10 ‘‘Subtitle B—Sales Tax 

‘‘Chapter 1. Imposition of tax; general rules, etc. 

‘‘Chapter 2. Credits; refunds. 

‘‘Chapter 3. Family consumption allowance. 

‘‘Chapter 4. State and Federal cooperative tax administration. 

‘‘Chapter 5. Special rules. 

‘‘Chapter 6. Financial intermediation services. 

11 ‘‘CHAPTER 1—IMPOSITION OF TAX; 

12 GENERAL RULES, ETC. 

‘‘Sec. 101. Imposition of sales tax. 

‘‘Sec. 102. Intermediate and export sales. 

‘‘Sec. 103. Rules relating to collection and remittance of tax. 

13 ‘‘SEC. 101. IMPOSITION OF SALES TAX. 

14 ‘‘(a) IN GENERAL.—There is hereby imposed a tax 

15 at the rate of 8.4 percent on the use or consumption in 

16 the United States of taxable property or services (as de17 fined in section 2). 

18 ‘‘(b) COORDINATION WITH IMPORT DUTIES AND

19 BUSINESS TAX.—The tax imposed by this section is in 

20 addition to any import duties imposed by chapter 4 of title 
23 

•S 1921 IS 

1 19 and the tax imposed by subtitle C. The Secretary shall 

2 provide by regulation that, to the maximum extent prac3 ticable, the tax imposed by this section on certain im4 ported taxable property and services is collected and ad5 ministered in conjunction with any applicable import du6 ties imposed by the United States and with any applicable 

7 business tax imposed by subtitle C. 

8 ‘‘(c) LIABILITY FOR TAX.—The person using or con9 suming taxable property or services in the United States 

10 is liable for the tax imposed by this section, except as pro11 vided by subsection (d) of this section. 

12 ‘‘(d) EXCEPTION FROM LIABILITY FOR TAX.—A per13 son using or consuming a taxable property or service in 

14 the United States is not liable for the tax imposed by this 

15 section if the person pays the tax to a person selling the 

16 taxable property or service and receives from such person 

17 a purchaser’s receipt (as defined in section 2). 

18 ‘‘SEC. 102. INTERMEDIATE AND EXPORT SALES. 

19 ‘‘(a) BUSINESS PURPOSE.—No tax shall be imposed 

20 under section 101 on any taxable property or service pur21 chased for a business purpose in a trade or business, pro22 vided that the purchaser provided the seller with a reg23 istration certificate. 

24 ‘‘(b) EXPORTS.—No tax shall be imposed under sec25 tion 101 on any taxable property or service purchased for 
24 

•S 1921 IS 

1 export from the United States for use or consumption out2 side the United States, provided that the purchaser pro3 vided the seller with a registration certificate. 

4 ‘‘(c) PURCHASES FOR INVESTMENT EXEMPT FROM

5 TAX.—No tax shall be imposed under section 101 on any 

6 taxable property or service purchased for an investment 

7 purpose (as defined in section 2) and held exclusively for 

8 an investment purpose. 

9 ‘‘SEC. 103. RULES RELATING TO COLLECTION AND REMIT10 TANCE OF TAX. 

11 ‘‘(a) LIABILITY FOR COLLECTION AND REMITTANCE

12 OF THE TAX.—Any tax imposed by this subtitle shall be 

13 collected and remitted by the seller of taxable property or 

14 services (including financial intermediation services), ex15 cept as provided otherwise by this section. 

16 ‘‘(b) TAX TO BE REMITTED BY PURCHASER IN CER17 TAIN CIRCUMSTANCES.— 

18 ‘‘(1) IN GENERAL.—In the case of taxable prop19 erty or services purchased outside of the United 

20 States and imported into the United States for use 

21 or consumption in the United States, the purchaser 

22 shall remit the tax imposed by section 101. 

23 ‘‘(2) CERTAIN WAGES OR SALARY.—In the case 

24 of wages or salary (as defined in section 2) paid by 

25 a taxable employer (as defined in section 2) for tax-
25 

•S 1921 IS 

1 able services (within the meaning of section 2), the 

2 employer shall remit the tax imposed by section 101. 

3 ‘‘(c) CONVERSION OF BUSINESS OR EXPORT PROP4 ERTY OR SERVICES.—Property or services purchased for 

5 a business purpose, for export or an investment purpose 

6 (sold untaxed pursuant to section 102) that is subse7 quently converted to personal use shall be deemed pur8 chased at the time of conversion and shall be subject to 

9 the tax imposed by section 101 at the fair market value 

10 of the converted property as of the date of conversion. The 

11 tax shall be due as if the property had been sold at the 

12 fair market value during the month of conversion. The 

13 person using or consuming the converted property is liable 

14 for and shall remit the tax. 

15 ‘‘(d) SELLER RELIEVED OF LIABILITY IN CERTAIN

16 CASES.—In the case of any taxable property or service 

17 which is sold untaxed pursuant to section 102, the seller 

18 shall be relieved of the duty to collect and remit the tax 

19 imposed under section 101 on such purchase if the sell20 er— 

21 ‘‘(1) received in good faith, and retains on file 

22 for the period set forth in section 2509, a copy of 

23 a registration certificate from the purchaser, and 
26 

•S 1921 IS 

1 ‘‘(2) did not, at the time of sale, have reason2 able cause to believe that the buyer was not reg3 istered pursuant to section 2502. 

4 ‘‘(e) PURCHASER LIABLE TO COLLECT AND REMIT

5 IN CERTAIN CASES.—In the case of any taxable property 

6 or service which is sold untaxed pursuant to section 102, 

7 if the seller is relieved by virtue of subsection (d) of the 

8 duty to collect and remit the tax imposed by section 101, 

9 then the duty to pay any tax due shall rest with the pur10 chaser. 

11 ‘‘(f) BARTER TRANSACTIONS.—If gross payment for 

12 taxable property or services is made by a means other than 

13 money, then the person responsible for collecting and re14 mitting the tax shall remit the tax to the sales tax admin15 istering authority in money as if the gross payment had 

16 been made in money at the fair market value of the tax17 able property or services purchased. 

18 ‘‘(g) INTERCOMPANY SALES.—Firms that make pur19 chases from or sales to affiliated firms (as defined in sec20 tion 2) that are untaxed pursuant to section 102 shall not 

21 need to comply with the requirements of subsection (d) 

22 (relating to certificates) for such purchases or sales to re23 main untaxed. 

24 ‘‘(h) ELECTION WITH RESPECT TO PRIMARY RESI25 DENCE.— 
27 

•S 1921 IS 

1 ‘‘(1) IN GENERAL.—A purchaser may elect, in 

2 a form prescribed by the Secretary, to pay the tax 

3 imposed by section 101 ratably over 30 years (to4 gether with interest at the applicable interest rate 

5 (as defined in section 2512)) if the taxable property 

6 is the primary residence of the purchaser. 

7 ‘‘(2) SPECIAL RULES.—If property with respect 

8 to which an election has been made under paragraph 

9 (1) ceases to be the primary residence of the pur10 chaser or is sold, then the remaining tax (and any 

11 accrued interest) shall be paid within 5 days of such 

12 sale or such residence ceasing to be the purchaser’s 

13 primary residence. 

14 ‘‘CHAPTER 2—CREDITS; REFUNDS 

‘‘Sec. 201. Credits and refunds. 

‘‘Sec. 202. Business use conversion credit. 

‘‘Sec. 203. Intermediate and export sales credit. 

‘‘Sec. 204. Administration credit. 

‘‘Sec. 205. Bad debt credit. 

‘‘Sec. 206. Insurance proceeds credit. 

‘‘Sec. 207. Refunds. 

‘‘Sec. 208. Previously taxed property credit. 

15 ‘‘SEC. 201. CREDITS AND REFUNDS. 

16 ‘‘(a) IN GENERAL.—Each person shall be allowed a 

17 credit with respect to the taxes imposed by section 101 

18 for each month in an amount equal to the sum of— 

19 ‘‘(1) such person’s business use conversion 

20 credit pursuant to section 202 for such month, 
28 

•S 1921 IS 

1 ‘‘(2) such person’s intermediate and export 

2 sales credit pursuant to section 203 for such month, 

3 ‘‘(3) the administration credit pursuant to sec4 tion 204 for such month, 

5 ‘‘(4) the bad debt credit pursuant to section 

6 205 for such month, 

7 ‘‘(5) the insurance proceeds credit pursuant to 

8 section 206 for such month, 

9 ‘‘(6) the transitional inventory credit pursuant 

10 to section 2804, 

11 ‘‘(7) the previously taxed property credit pursu12 ant to section 208, and 

13 ‘‘(8) any amount paid in excess of the amount 

14 due. 

15 ‘‘(b) CREDITS NOT ADDITIVE.—Except for the ad16 ministration credit allowed by section 204, only 1 credit 

17 allowed by chapter 2 may be taken with respect to any 

18 particular gross payment. 

19 ‘‘SEC. 202. BUSINESS USE CONVERSION CREDIT. 

20 ‘‘(a) In GENERAL.—For purposes of section 201, a 

21 person’s business use conversion credit for any month is 

22 the aggregate of the amounts determined under subsection 

23 (b) with respect to taxable property and services— 

24 ‘‘(1) on which tax was imposed by section 101 

25 (and actually paid), and 
29 

•S 1921 IS 

1 ‘‘(2) which commenced to be 95 percent or 

2 more used during such month for business purposes 

3 (within the meaning of section 2). 

4 ‘‘(b) AMOUNT OF CREDIT.—The amount determined 

5 under this paragraph with respect to any taxable property 

6 or service is the lesser of— 

7 ‘‘(1) the product of— 

8 ‘‘(A) the rate imposed by section 101, and 

9 ‘‘(B) the fair market value of the property 

10 or service when its use is converted, or 

11 ‘‘(2) the amount of tax paid with respect to 

12 such taxable property or service, including the 

13 amount, if any, determined in accordance with sec14 tion 505 (relating to mixed use property). 

15 ‘‘(c) CREDIT PROVIDED TO PERSON CONVERTING

16 PROPERTY.—The credit provided by subsection (a) shall 

17 be provided to the person converting the property to busi18 ness use. The credit shall only be available to registered 

19 persons. 

20 ‘‘(d) CERTIFICATION.—The Secretary shall provide a 

21 form whereby a consumer may certify under penalty of 

22 perjury that a consumer good had been subject to the tax 

23 imposed by section 101. Such certification shall be suffi24 cient to meet the requirements of subsection (a)(1). 
30 

•S 1921 IS 

1 ‘‘(e) PURCHASES FROM NON-REGISTERED PER2 SON.—In the case of property purchased by a registered 

3 person from a non-registered person, the purchase price 

4 of the property shall be the fair market value for purposes 

5 of subsection (b). 

6 ‘‘SEC. 203. INTERMEDIATE AND EXPORT SALES CREDIT. 

7 ‘‘For purposes of section 201, a person’s intermediate 

8 and export sales credit is the amount of sales tax paid 

9 on the purchase of any taxable property or service pur10 chased for— 

11 ‘‘(1) a business purpose in a trade or business 

12 (as defined in section 2), or 

13 ‘‘(2) export from the United States for use or 

14 consumption outside the United States. 

15 ‘‘SEC. 204. ADMINISTRATION CREDIT. 

16 ‘‘(a) Every person filing a timely monthly report 

17 (with regard to extensions) in compliance with section 

18 2501 shall be entitled to a taxpayer administrative credit 

19 equal to the greater of— 

20 ‘‘(1) $200, or 

21 ‘‘(2) one-quarter of 1 percent of the tax remit22 ted. 

23 ‘‘(b) The credit afforded by this section shall not ex24 ceed 20 percent of the tax due to be remitted prior to 
31 

•S 1921 IS 

1 the application of any credit or credits permitted by sec2 tion 201. 

3 ‘‘SEC. 205. BAD DEBT CREDIT. 

4 ‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—Any 

5 person who has experienced a bad debt (other than unpaid 

6 invoices within the meaning of subsection (b)) shall be en7 titled to a credit equal to the product of— 

8 ‘‘(1) the rate imposed by section 101, and 

9 ‘‘(2) the amount of the bad debt (as defined in 

10 section 2). 

11 ‘‘(b) UNPAID INVOICES.—Any person electing the ac12 crual method of accounting that has with respect to a 

13 transaction— 

14 ‘‘(1) invoiced the tax imposed by section 101, 

15 ‘‘(2) remitted the invoiced tax, 

16 ‘‘(3) actually delivered the taxable property or 

17 performed the taxable services invoiced, and 

18 ‘‘(4) not been paid 180 days after the date the 

19 invoice was due to be paid shall be entitled to a 

20 credit equal to the amount of tax remitted and un21 paid by the purchaser. 

22 ‘‘(c) SUBSEQUENT PAYMENT.—Any payment made 

23 with respect to a transaction subsequent to a section 205 

24 credit being taken with respect to that transaction shall 

25 be subject to tax in the month the payment was received 
32 

•S 1921 IS 

1 as if a sale of taxable property and services in the amount 

2 of the payment had been made. 

3 ‘‘(d) PARTIAL PAYMENTS.—Partial payments shall 

4 be treated as pro rata payments of the underlying obliga5 tion and shall be allocated proportionately— 

6 ‘‘(1) for fully taxable payments, between pay7 ment for the taxable property and service and tax, 

8 or 

9 ‘‘(2) for partially taxable payments, among pay10 ment for the taxable property and service, tax and 

11 other payment. 

12 ‘‘(e) RELATED PARTIES.—The credit provided by this 

13 section shall not be available with respect to sales made 

14 to related parties. For purposes of this section, the term 

15 ‘related party’ means affiliated firms (as defined in section 

16 2) and family members (as defined in section 2). 

17 ‘‘SEC. 206. INSURANCE PROCEEDS CREDIT. 

18 ‘‘(a) IN GENERAL.—A person receiving a payment 

19 from an insurer by virtue of an insurance contract shall 

20 be entitled to a credit in an amount determined by sub21 section (b), less any amount paid to the insured by the 

22 insurer pursuant to subsection (c), provided that the en23 tire premium (except that portion allocable to the invest24 ment account of the underlying policy) for the insurance 

25 contract giving rise to the insurer’s obligation to make a 
33 

•S 1921 IS 

1 payment to the insured was subject to the tax imposed 

2 by section 101 and such tax was paid. 

3 ‘‘(b) CREDIT AMOUNT.—The amount of the credit 

4 shall be the product of— 

5 ‘‘(1) the rate imposed by section 101, and 

6 ‘‘(2) the amount of the payment made by the 

7 insurer to the insured. 

8 ‘‘(c) ADMINISTRATIVE OPTION.—The credit deter9 mined in accordance with subsection (b) shall be paid by 

10 the insurer to the insured and the insurer shall be entitled 

11 to the credit in lieu of the insured provided, however, that 

12 the insurer may elect, in a form prescribed by the Sec13 retary, to not pay the credit and require the insured to 

14 make application for the credit. In the event of such elec15 tion, the insurer shall provide to the Secretary and the 

16 insured the name and tax identification number of the in17 surer and of the insured and indicate the proper amount 

18 of the credit. 

19 ‘‘(d) COORDINATION WITH RESPECT TO EXEMP20 TION.—If taxable property or services purchased by an in21 surer on behalf of an insured are purchased free of tax, 

22 then the credit provided by this section shall not be avail23 able with respect to that purchase. 

24 ‘‘(e) INSURANCE CONTRACT.—For purposes of sub25 section (a), the term ‘insurance contract’ includes a life 
34 

•S 1921 IS 

1 insurance contract, a health insurance contract, a property 

2 and casualty loss insurance contract, a general liability in3 surance contract, a marine insurance contract, a fire in4 surance contract, an accident insurance contract, a dis5 ability insurance contract, a long-term care insurance con6 tract and an insurance contract that provides a combina7 tion of these types of insurance. 

8 ‘‘SEC. 207. REFUNDS. 

9 ‘‘(a) REGISTERED SELLERS.—If a registered seller 

10 files a monthly tax report with an overpayment, then, 

11 upon application by the registered seller in a form pre12 scribed by the sales tax administering authority, the over13 payment shown on the report shall be refunded to the reg14 istered seller within 60 days of receipt of such application. 

15 In the absence of such application, the overpayment may 

16 be carried forward, without interest, by the person entitled 

17 to the credit. 

18 ‘‘(b) OTHER PERSONS.—If a person other than a reg19 istered seller has an overpayment for any month, then, 

20 upon application by the person in a form prescribed by 

21 the sales tax administering authority, the credit balance 

22 due shall be refunded to the person within 60 days of re23 ceipt of such application. 

24 ‘‘(c) INTEREST.—No interest shall be paid on any 

25 balance due from the sales tax administering authority 
35 

•S 1921 IS 

1 under this subsection for any month if such balance due 

2 is paid within 60 days after the application for refund is 

3 received. Balances due not paid within 60 days after the 

4 application for refund is received shall bear interest from 

5 the date of application. Interest shall be paid at the Fed6 eral short term rate (as defined in section 2512). 

7 ‘‘SEC. 208. PREVIOUSLY TAXED PROPERTY CREDIT. 

8 ‘‘(a) GENERAL RULE.—A seller of used property 

9 (within the meaning of section 2(v)) shall be entitled to 

10 a previously taxed property credit. The previously taxed 

11 property credit amount shall be the lesser of— 

12 ‘‘(1) the amount of tax due and paid by virtue 

13 of the present sales transactions (without regard to 

14 any credits), or 

15 ‘‘(2) the most recent prior tax imposed by sec16 tion 101 with respect to such property (without re17 gard to any credits). 

18 ‘‘(b) TRANSITIONAL DEEMED PAID RULE FOR PROP19 ERTY OWNED ON EFFECTIVE DATE OF ACT.—In the case 

20 of property which was acquired by the seller before De21 cember 31, 2006, the amount of the previously taxed prop22 erty credit allowable pursuant to section (a)(2) shall be 

23 8.4 percent of the fair market value of the property as 

24 of December 31, 2006. The seller shall be entitled to rely 

25 on the local government real property tax assessment of 
36 

•S 1921 IS 

1 the property, or such other means as may be permitted 

2 by the Secretary, to establish fair market value. 

3 ‘‘CHAPTER 3—FAMILY CONSUMPTION 

4 ALLOWANCE 

‘‘Sec. 301. Family consumption allowance. 

‘‘Sec. 302. Qualified family. 

‘‘Sec. 303. Monthly poverty level. 

‘‘Sec. 304. Rebate mechanism. 

‘‘Sec. 305. Change in family circumstances. 

5 ‘‘SEC. 301. FAMILY CONSUMPTION ALLOWANCE. 

6 ‘‘Each qualified family (as defined in section 302) 

7 shall be eligible to receive a sales tax rebate each month. 

8 The sales tax rebate shall be in an amount equal to the 

9 product of— 

10 ‘‘(1) the rate of tax imposed by section 101, 

11 and 

12 ‘‘(2) the monthly poverty level (as defined in 

13 section 303). 

14 ‘‘SEC. 302. QUALIFIED FAMILY. 

15 ‘‘(a) GENERAL RULE.—For purposes of this section, 

16 the term ‘qualified family’ means 1 or more family mem17 bers sharing a common residence. All family members 

18 sharing a common residence shall be considered as part 

19 of 1 qualified family. 

20 ‘‘(b) FAMILY SIZE DETERMINATION.— 

21 ‘‘(1) IN GENERAL.—To determine the size of a 

22 qualified family for purposes of this chapter, the 

23 term ‘family member’ means— 
37 

•S 1921 IS 

1 ‘‘(A) an individual, 

2 ‘‘(B) the individual’s spouse, 

3 ‘‘(C) all lineal ancestors and descendants 

4 of such individual (and such individual’s 

5 spouse), 

6 ‘‘(D) all legally adopted children of such 

7 individual (and such individual’s spouse), and 

8 ‘‘(E) all children under legal guardianship 

9 of such individual (or such individual’s spouse). 

10 ‘‘(2) In order for a person to be counted as a 

11 member of the family for purposes of determining 

12 the size of the qualified family, such person must— 

13 ‘‘(A) have a bona fide social security num14 ber, and 

15 ‘‘(B) be a lawful resident of the United 

16 States. 

17 ‘‘(c) CHILDREN LIVING AWAY FROM HOME.— 

18 ‘‘(1) MEMBERS LIVING AWAY FROM HOME.— 

19 Any person who is a registered student during no 

20 fewer than 5 months in a calendar year while living 

21 away from the common residence of a qualified fam22 ily but who receives over 50 percent of his or her 

23 support during the calendar year from members of 

24 the qualified family shall be included as a member 
38 

•S 1921 IS 

1 of the family unit whose members provided such 

2 support for purposes of this section. 

3 ‘‘(2) CHILDREN OF DIVORCED OR SEPARATED

4 PARENTS.—If a child’s parents are divorced or le5 gally separated, a child for purposes of this section 

6 shall be treated as a member of the qualified family 

7 of the custodial parent. In cases of joint custody, the 

8 custodial parent for purposes of this section shall be 

9 the parent that has custody of the child for more 

10 than one half of the time during a given calendar 

11 year. In the event that both parents have custody of 

12 the child for equal time during a given calendar 

13 year, then they may by agreement in a form pre14 scribed by the Secretary determine which parent is 

15 the custodial parent for purposes of this section. In 

16 the event that both parents have custody of the child 

17 for equal time during a given calendar year and they 

18 have not agreed pursuant to the previous sentence, 

19 then the mother shall be treated as the custodial 

20 parent in even years and the father as the custodial 

21 parent in odd years for purposes of this section. A 

22 parent entitled to treat a child as a member of the 

23 parent’s qualified family pursuant to this subpara24 graph may release this claim to the other parent 

25 provided that such release is in writing. 
39 

•S 1921 IS 

1 ‘‘(d) ANNUAL REGISTRATION.—In order to receive 

2 the family consumption allowance provided by section 301, 

3 a qualified family must register with the sales tax admin4 istering authority (as defined in section 2) in a form pre5 scribed by the Secretary. The annual registration form 

6 shall provide— 

7 ‘‘(1) the name of each family member who 

8 shared the qualified family’s residence on the family 

9 determination date (as defined in subsection (m)), 

10 ‘‘(2) the social security number of each family 

11 member who shared the qualified family’s residence 

12 on the family determination date, 

13 ‘‘(3) the family member or family members to 

14 whom the family consumption allowance should be 

15 paid, 

16 ‘‘(4) a certification that all listed family mem17 bers are lawful residents of the United States, 

18 ‘‘(5) a certification that all family members 

19 sharing the common residence are listed, 

20 ‘‘(6) a certification that no family members 

21 were incarcerated on the family determination date 

22 (within the meaning of subsection (l)), and 

23 ‘‘(7) the address of the qualified family. 
40 

•S 1921 IS 

1 Such registration shall be signed by all members of the 

2 qualified family that have attained the age of 21 years 

3 as the date of filing. 

4 ‘‘(e) REGISTRATION NOT MANDATORY.—Registra5 tion is not mandatory for any qualified family. 

6 ‘‘(f) EFFECT OF FAILURE TO PROVIDE ANNUAL

7 REGISTRATION.—Any qualified family that fails to reg8 ister in accordance with this section within 30 days of the 

9 family determination date shall cease receiving the month10 ly family consumption allowance in the month beginning 

11 90 days after the family determination date. 

12 ‘‘(g) EFFECT OF CURING FAILURE TO PROVIDE AN13 NUAL REGISTRATION.—Any qualified family that failed to 

14 timely make its annual registration in accordance with this 

15 section but subsequently cures its failure to register, shall 

16 be entitled to up to 6 months of lapsed sales tax rebate 

17 payments. No interest on lapsed payment amounts shall 

18 be paid. 

19 ‘‘(h) EFFECTIVE DATE OF ANNUAL REGISTRA20 TIONS.—An annual registration shall take effect for the 

21 month beginning 90 days after the family registration 

22 date. 

23 ‘‘(i) EFFECTIVE DATE OF REVISED REGISTRA24 TIONS.—A revised registration made pursuant to section 

25 305 shall take effect for the first month beginning 60 days 
41 

•S 1921 IS 

1 after the revised registration was filed. The existing reg2 istration shall remain in effect until the effective date of 

3 the revised registration. 

4 ‘‘(j) DETERMINATION OF REGISTRATION FILING

5 DATE.—An annual or revised registration shall be deemed 

6 filed when— 

7 ‘‘(1) deposited in the United States mail, post8 age prepaid, to the address of the sales tax admin9 istering authority, 

10 ‘‘(2) delivered and accepted at the offices of the 

11 sales tax administering authority, or 

12 ‘‘(3) provided to a designated commercial pri13 vate courier service (as defined in section 2) for de14 livery within 2 days to the sales tax administering 

15 authority at the address of the sales tax admin16 istering authority. 

17 ‘‘(k) PROPOSED REGISTRATION TO BE PROVIDED.— 

18 30 or more days before the family determination date, the 

19 sales tax administering authority shall mail to the address 

20 shown on the most recent rebate registration or change 

21 of address notice filed pursuant to section 305(d) a pro22 posed registration that may be simply signed by the appro23 priate family members if family circumstances have not 

24 changed. 
42 

•S 1921 IS 

1 ‘‘(l) INCARCERATED INDIVIDUALS.—An individual 

2 shall not be eligible under this section to be included as 

3 a member of any qualified family if that individual— 

4 ‘‘(1) is incarcerated in a local, State or Federal 

5 jail, prison, mental hospital or other institution on 

6 the family determination date, and 

7 ‘‘(2) is scheduled to be incarcerated for 6 

8 months or more in the 12 month period following 

9 the effective date of the annual registration or the 

10 revised registration of such qualified family. 

11 ‘‘(m) FAMILY DETERMINATION DATE.—The family 

12 determination date is a date assigned to each family by 

13 the Secretary for purposes of determining qualified family 

14 size and other information necessary for the administra15 tion of this Chapter. The Secretary shall promulgate regu16 lations regarding the issuance of family determination 

17 dates. In the absence of any regulations, the family deter18 mination date for all families shall be October 1st. The 

19 Secretary may assign family determination dates for ad20 ministrative convenience. Permissible means of assigning 

21 family determination dates include a method based on the 

22 birth dates of family members. 

23 ‘‘SEC. 303. MONTHLY POVERTY LEVEL. 

24 ‘‘The monthly poverty level for any particular month 

25 shall be the annual level determined by the Department 
43 

•S 1921 IS 

1 of Health and Human Services poverty guidelines required 

2 by sections 652 and 673(2) of the Omnibus Reconciliation 

3 Act of 1981 (All States and the District of Columbia) for 

4 families of a particular size divided by 12. 

5 ‘‘SEC. 304. REBATE MECHANISM. 

6 ‘‘(a) GENERAL RULE.—The Social Security Adminis7 tration shall provide a monthly sales tax rebate to duly 

8 registered qualified families in an amount determined in 

9 accordance with section 301. 

10 ‘‘(b) PERSONS RECEIVING REBATE.—The payments 

11 shall be made to an individual designated by the qualifying 

12 family in the annual or revised registration for each quali13 fied family in effect with respect to the month for which 

14 payment is being made. Payments may only be made to 

15 persons 18 years or older. 

16 ‘‘(c) HOW REBATE PROVIDED.—In the case of em17 ployed persons, the rebate shall be provided (1) by reduc18 ing the amount of Social Security and Medicare payroll 

19 taxes withheld from the individual’s compensation and (2) 

20 reducing the amount that the employer must remit. In the 

21 case of persons that are not employed, the rebate shall 

22 be in the form of a check mailed monthly or provided by 

23 smartcard or by direct electronic deposit (at the election 

24 of the rebate recipient). 
44 

•S 1921 IS 

1 ‘‘(d) WHEN REBATES MAILED.—Rebates shall be 

2 mailed on or before the first business day of the month 

3 for which the rebate is being provided. 

4 ‘‘(e) SMARTCARDS AND DIRECT ELECTRONIC DE5 POSIT PERMISSIBLE.—The Social Security Administration 

6 may provide rebates in the form of smartcards that carry 

7 cash balances in their memory for use in making pur8 chases at retail establishments or by direct electronic de9 posit. The Social Security Administration shall provide 

10 that, at the request of the designated individual, rebates 

11 will be transferred to the individual development account 

12 of such individual in an amount specified by such indi13 vidual. 

14 ‘‘SEC. 305. CHANGE IN FAMILY CIRCUMSTANCES. 

15 ‘‘(a) GENERAL RULE.—In the absence of the filing 

16 of a revised registration in accordance with this section, 

17 the common residence of the qualified family, marital sta18 tus and number of persons in a qualified family on the 

19 family determination date shall govern determinations re20 quired to be made under this subchapter for purposes of 

21 the following year. 

22 ‘‘(b) NO DOUBLE COUNTING.—In no event shall any 

23 person be considered part of more than 1 qualified family. 

24 ‘‘(c) REVISED REGISTRATION PERMISSIBLE.—A 

25 qualified family may file a revised registration for pur-
45 

•S 1921 IS 

1 poses of section 302(d) to reflect a change in family cir2 cumstances. A revised registration form shall provide— 

3 ‘‘(1) the name of each family member who 

4 shared the qualified family’s residence on the filing 

5 date of the revised registration, 

6 ‘‘(2) the social security number of each family 

7 member who shared the qualified family’s residence 

8 on the filing date of the revised registration, 

9 ‘‘(3) the family member or family members to 

10 whom the family consumption allowance should be 

11 paid, 

12 ‘‘(4) a certification that all listed family mem13 bers are lawful residents of the United States, 

14 ‘‘(5) a certification that all family members 

15 sharing the common residence are listed, 

16 ‘‘(6) a certification that no family members 

17 were incarcerated on the family determination date 

18 (within the meaning of section 302(l)), and 

19 ‘‘(7) the address of the qualified family. 

20 Such revised registration shall be signed by all members 

21 of the qualified family that have attained the age of 21 

22 years as of the filing date of the revised registration. 

23 ‘‘(d) CHANGE OF ADDRESS.—A change of address for 

24 a qualified family may be filed with the sales tax admin-
46 

•S 1921 IS 

1 istering authority at any time and shall not constitute a 

2 revised registration. 

3 ‘‘(e) REVISED REGISTRATION NOT MANDATORY.— 

4 Revised registrations reflecting changes in family status 

5 are not mandatory. 

6 ‘‘CHAPTER 4—STATE AND FEDERAL 

7 COOPERATIVE TAX ADMINISTRATION 

‘‘Sec. 401. Authority for States to collect tax. 

‘‘Sec. 402. Federal administrative support for States. 

‘‘Sec. 403. Federal-State conferences. 

‘‘Sec. 404. Federal administration in certain States. 

‘‘Sec. 405. Interstate allocation and destination determination. 

‘‘Sec. 406. General administrative matters. 

‘‘Sec. 407. Jurisdiction. 

8 ‘‘SEC. 401. AUTHORITY FOR STATES TO COLLECT TAX. 

9 ‘‘(a) IN GENERAL.—The tax imposed by section 101 

10 on gross payments for the use or consumption of taxable 

11 property or services within a State shall be administered, 

12 collected, and remitted to the United States Treasury by 

13 such State if the State is an ‘administering State’ (as de14 fined in subsection (b)). 

15 ‘‘(b) ADMINISTERING STATE.—For purposes of this 

16 section, the term ‘administering State’ means any State— 

17 ‘‘(1) which maintains a sales tax, and 

18 ‘‘(2) which enters into a cooperative agreement 

19 with the Secretary governing the administration by 

20 such State of the taxes imposed by this chapter and 

21 the remittance to the United States in a timely man22 ner of taxes collected under this chapter. 
47 

•S 1921 IS 

1 ‘‘(c) COOPERATIVE AGREEMENTS.—The agreement 

2 under subsection (b)(2) shall include provisions for the ex3 peditious transfer of funds, contact officers, dispute reso4 lution (including agreement to abide by the arbitration 

5 process for resolving disputes among States provided in 

6 section 405(i)), information exchange, confidentiality, tax7 payer rights and other matters of importance. The agree8 ment shall not contain extraneous matters. 

9 ‘‘(d) TIMELY REMITTANCE OF TAX.— 

10 ‘‘(1) IN GENERAL.—Administering States shall 

11 remit and pay over taxes collected under this subtitle 

12 on behalf of the United States (less the administra13 tion fee allowable under paragraph (2)) no later 

14 than 5 days after receipt. Interest at 150 percent of 

15 the Federal short-term rate shall be paid with re16 spect to amounts remitted after the due date. 

17 ‘‘(2) ADMINISTRATION FEE.—An administering 

18 State may retain an administration fee equal to one19 quarter of 1 percent of the amounts otherwise re20 quired to be remitted to the United States under 

21 this chapter by the administering State. 

22 ‘‘(e) LIMITATION ON ADMINISTRATION OF TAX BY

23 UNITED STATES.—The Secretary may administer the tax 

24 imposed by this subtitle in an administering State only 

25 if— 
48 

•S 1921 IS 

1 ‘‘(1)(A) such State has failed on a regular basis 

2 to timely remit to the United States taxes collected 

3 under this chapter on behalf of the United States, 

4 or 

5 ‘‘(B) such State has on a regular basis other6 wise materially breached the agreement referred to 

7 in subsection (b)(2), 

8 ‘‘(2) the State has failed to cure such alleged 

9 failures and breaches within a reasonable time, 

10 ‘‘(3) the Secretary provides such State with 

11 written notice of such alleged failures and breaches, 

12 and 

13 ‘‘(4) a District Court of the United States with14 in such State, upon application of the Secretary, has 

15 rendered a decision— 

16 ‘‘(A) making findings of fact that— 

17 ‘‘(i) such State has failed on a regular 

18 basis to timely remit to the United States 

19 taxes collected under this chapter on behalf 

20 of the United States, or such State has on 

21 a regular basis otherwise materially 

22 breached the agreement referred to in sub23 section (b)(2), and 
49 

•S 1921 IS 

1 ‘‘(ii) the Secretary has provided such 

2 State with written notice of such alleged 

3 failures and breaches, and 

4 ‘‘(iii) the State has failed to cure such 

5 alleged failures and breaches within a rea6 sonable time, and 

7 ‘‘(B) making a determination that it is in 

8 the best interest of the citizens of the United 

9 States that the administering State’s authority 

10 to administer the tax imposed by this subtitle 

11 be revoked and such tax be administered di12 rectly by the Secretary. 

13 The order of the District Court revoking the author14 ity of an administering State shall contain provisions 

15 governing the orderly transfer of authority to the 

16 Secretary. 

17 ‘‘(f) REINSTITUTION.—A State that has had its au18 thority revoked pursuant to subsection (e) shall not be an 

19 administering State for a period of not less than 5 years 

20 after the date of the order of revocation. For the first cal21 endar year commencing 8 years after the date of the order 

22 of revocation, the State shall be regarded without preju23 dice as eligible to become an administering State. 

24 ‘‘(g) THIRD STATE ADMINISTRATION PERMIS25 SIBLE.—It shall be permissible for a State to contract with 
50 

•S 1921 IS 

1 an administering State to administer the State’s sales tax 

2 for an agreed fee. In this case, the agreement con3 templated by subsection (c) shall have both States and the 

4 Federal Government as parties. 

5 ‘‘(h) INVESTIGATIONS AND AUDITS.—Administering 

6 States shall not conduct investigations or audits at facili7 ties in other administering States in connection with the 

8 tax imposed by section 101 or conforming State sales tax 

9 but shall instead cooperate with other administering 

10 States using the mechanisms established by section 402 

11 of this chapter, by compact or by other agreement. 

12 ‘‘SEC. 402. FEDERAL ADMINISTRATIVE SUPPORT FOR 

13 STATES. 

14 ‘‘(a) The Secretary shall administer a program to fa15 cilitate information sharing among administering States. 

16 ‘‘(b) The Secretary shall facilitate, and may be a 

17 party to, a compact among the States for purposes of fa18 cilitating the taxation of interstate sales and for other pur19 poses that may facilitate implementation of this subtitle. 

20 ‘‘(c) The Secretary shall enter into an agreement 

21 among conforming States enabling conforming States to 

22 collect conforming State sales tax on sales made by sellers 

23 without a particular conforming State to a destination 

24 within that particular conforming State. 
51 

•S 1921 IS 

1 ‘‘(d) The Secretary shall have the authority to pro2 mulgate regulations, to provide guidelines, to assist States 

3 in administering the national sales tax, to provide for uni4 formity in the administration of the tax and to provide 

5 guidance to the public. 

6 ‘‘SEC. 403. FEDERAL-STATE CONFERENCES. 

7 ‘‘No less than once annually, the Secretary shall host 

8 a conference with the sales tax administrators from the 

9 various administering States to evaluate the state of a na10 tional sales tax system, to address issues of mutual con11 cern and to develop and consider legislative, regulatory 

12 and administrative proposals to improve the tax system. 

13 ‘‘SEC. 404. FEDERAL ADMINISTRATION IN CERTAIN STATES. 

14 ‘‘The Secretary shall directly administer the tax im15 posed by this subtitle in any State or other United States 

16 jurisdiction that has not— 

17 ‘‘(1) become an administering State, or 

18 ‘‘(2) elected to have another State administer 

19 its tax in accordance with section 401(g). 

20 ‘‘SEC. 405. INTERSTATE ALLOCATION AND DESTINATION 

21 DETERMINATION. 

22 ‘‘(a) DESTINATION GENERALLY.—The tax imposed 

23 by this subtitle is a destination principle tax. This section 

24 shall govern for purposes of determining— 
52 

•S 1921 IS 

1 ‘‘(1) whether the destination of taxable property 

2 and services is within or without the United States, 

3 and 

4 ‘‘(2) which State or territory within the United 

5 States is the destination of taxable property and 

6 services. 

7 ‘‘(b) TANGIBLE PERSONAL PROPERTY.—Except as 

8 provided in subsection (g) (relating to certain leases), the 

9 destination of tangible personal property shall be the State 

10 or territory in which the property was first delivered to 

11 the purchaser (including the purchaser’s agents and au12 thorized representatives). 

13 ‘‘(c) REAL PROPERTY.—The destination of real prop14 erty, or rents or leaseholds on real property, shall be the 

15 State or territory in which the real property is located. 

16 ‘‘(d) OTHER PROPERTY.—The destination of any 

17 other taxable property shall be the residence of the pur18 chaser. 

19 ‘‘(e) SERVICES.— 

20 ‘‘(1) GENERAL RULE.—The destination of serv21 ices shall be the State or territory in which the use 

22 or consumption of the services occurred. Allocation 

23 of services relating to more than 1 jurisdiction shall 

24 be on the basis of time or another method deter25 mined by regulation. 
53 

•S 1921 IS 

1 ‘‘(2) TELECOMMUNICATIONS SERVICES.—The 

2 destination of telecommunications services shall be 

3 the residence of the purchaser. The term ‘tele4 communications services’ includes telephone, tele5 graph, beeper, radio, cable television, satellite and 

6 computer online or network services. 

7 ‘‘(3) DOMESTIC TRANSPORTATION SERVICES.— 

8 For transportation services where all of the final 

9 destinations are within the United States, the des10 tination of transportation services shall be the final 

11 destination of the trip (in the case of round or mul12 tiple trip fares, the services amount shall be equally 

13 allocated among each final destination). 

14 ‘‘(4) INTERNATIONAL TRANSPORTATION SERV15 ICES.—For transportation services where the final 

16 destination or origin of the trip is without the 

17 United States, the service amount shall be deemed 

18 50 percent attributable to the United States destina19 tion or origin. 

20 ‘‘(5) ELECTRICAL SERVICE.—The destination of 

21 electrical services shall be the residence of the pur22 chaser. 

23 ‘‘(f) FINANCIAL INTERMEDIATION SERVICES.—The 

24 destination of financial intermediation services shall be the 

25 residence of the purchaser. 
54 

•S 1921 IS 

1 ‘‘(g) RENTS PAID FOR THE LEASE OF TANGIBLE

2 PROPERTY.— 

3 ‘‘(1) GENERAL RULE.—Except as provided in 

4 subparagraph (2), the destination of rents paid for 

5 the lease of tangible property and leaseholds on such 

6 property shall be where the property is located while 

7 in use. 

8 ‘‘(2) LAND VEHICLES; AIRCRAFT; WATER

9 CRAFT.—The destination of rental and lease pay10 ments on land vehicles, aircraft and water craft shall 

11 be— 

12 ‘‘(A) in the case of rentals and leases of a 

13 term 1 month or less, the location where the 

14 land vehicle, aircraft or water craft was origi15 nally delivered to the renter or lessee, and 

16 ‘‘(B) in the case of rentals and leases of a 

17 term greater than 1 month, the residence of the 

18 renter or lessee. 

19 ‘‘(h) ALLOCATION RULES.—Tax revenue from taxes 

20 imposed by this subtitle or from conforming State sales 

21 taxes shall be allocated between or among States by ref22 erence to which State or States are the destination of the 

23 taxable property or service. 

24 ‘‘(i) FEDERAL OFFICE OF REVENUE ALLOCATION.— 

25 The Secretary shall establish an Office of Revenue Alloca-
55 

•S 1921 IS 

1 tion to arbitrate any claims or disputes among admin2 istering States as to the destination of taxable property 

3 and services for purposes of allocating revenue between or 

4 among the States from taxes imposed by this subtitle. The 

5 determination of the Administrator of the Office of Rev6 enue Allocation shall be subject to judicial review in any 

7 Federal court with competent jurisdiction provided: The 

8 standard of such judicial review shall be abuse of discre9 tion. 

10 ‘‘SEC. 406. GENERAL ADMINISTRATIVE MATTERS. 

11 ‘‘(a) IN GENERAL.—The Secretary and each sales tax 

12 administering authority may employ such persons as may 

13 be necessary for the administration of this title and may 

14 delegate to employees the authority to conduct interviews, 

15 hearings, prescribe rules, promulgate regulations and per16 form such other duties as are required by this subtitle. 

17 ‘‘(b) RESOLUTION OF ANY INCONSISTENT RULES

18 AND REGULATIONS.—In the event that the Secretary and 

19 any sales tax administering authority have issued incon20 sistent rules or regulations, any lawful rule or regulation 

21 issued by the Secretary shall govern. 

22 ‘‘(c) ADEQUATE NOTICE TO BE PROVIDED.—Except 

23 in the case of an emergency declared by the Secretary (and 

24 not his designee), no rule or regulation issued by the Sec25 retary with respect to any internal revenue law shall take 
56 

•S 1921 IS 

1 effect before 90 days have elapsed after its publication in 

2 the Federal Register. Upon issuance, the Secretary shall 

3 provide copies of all rules or regulations issued under this 

4 title to each sales tax administering authority. 

5 ‘‘(d) NO RULES, RULINGS OR REGULATIONS WITH

6 RETROACTIVE EFFECT.—No rule, ruling or regulation 

7 issued or promulgated by the Secretary relating to any in8 ternal revenue law or by a sales tax administering author9 ity shall apply to a period prior to its publication in the 

10 Federal Register (or State equivalent) except that a regu11 lation may take retroactive effect to prevent abuse. 

12 ‘‘(e) REVIEW OF IMPACT OF REGULATIONS, RULES

13 AND RULINGS ON SMALL BUSINESS.— 

14 ‘‘(1) SUBMISSION TO SMALL BUSINESS ADMIN15 ISTRATION.—After publication of any proposed or 

16 temporary regulation by the Secretary relating to in17 ternal revenue laws, the Secretary shall submit such 

18 regulation to the Chief Counsel for Advocacy of the 

19 Small Business Administration for comment on the 

20 impact of such regulation on small businesses. Not 

21 later than the date 30 days after the date of such 

22 submission, the Chief Counsel for Advocacy of the 

23 Small Business Administration shall submit com24 ments on such regulation to the Secretary. 
57 

•S 1921 IS 

1 ‘‘(2) CONSIDERATION OF COMMENTS.—In pre2 scribing any final regulation which supersedes a pro3 posed or temporary regulation which had been sub4 mitted under this subsection to the Chief Counsel 

5 for Advocacy of the Small Business Administration 

6 the Secretary shall— 

7 ‘‘(A) consider the comments of the Chief 

8 Counsel for Advocacy of the Small Business 

9 Administration on such proposed or temporary 

10 regulation, and 

11 ‘‘(B) in promulgating such final regulation, 

12 include a narrative that describes the response 

13 to such comments. 

14 ‘‘(3) SUBMISSION OF CERTAIN FINAL REGULA15 TION.—In the case of promulgation by the Secretary 

16 of any final regulations (other than a temporary reg17 ulation) which do not supersede a proposed regula18 tion, the requirements of paragraphs (1) and (2) 

19 shall apply, except that the submission under para20 graph (1) shall be made at least 30 days before the 

21 date of such promulgation, and the consideration 

22 and discussion required under paragraph (2) shall 

23 be made in connection with the promulgation of such 

24 final regulation. 
58 

•S 1921 IS 

1 ‘‘(f) SMALL BUSINESS REGULATORY SAFEGUARDS.— 

2 The Small Business Regulatory Enforcement Fairness 

3 Act, Public Law No. 104–121, 110 Stat. 857 (‘SBREFA’) 

4 and the Regulatory Flexibility Act, 5 U.S.C. 601–612 

5 (‘RFA’) shall apply to regulations promulgated under this 

6 subtitle. 

7 ‘‘SEC. 407. JURISDICTION. 

8 ‘‘(a) STATE JURISDICTION.—A sales tax admin9 istering authority shall have jurisdiction over any gross 

10 payments made which have a destination (as determined 

11 in accordance with section 405) within the State of such 

12 sales tax administering authority. This grant of jurisdic13 tion is not exclusive of other jurisdiction that such sales 

14 tax administering authority may have. 

15 ‘‘(b) FEDERAL JURISDICTION.—The grant of juris16 diction in subsection (a) shall not be in derogation of Fed17 eral jurisdiction over the same matter. The Federal Gov18 ernment shall have the right to exercise pre-emptive juris19 diction over matters relating to the taxes imposed by this 

20 subtitle. 

21 ‘‘CHAPTER 5—SPECIAL RULES 

‘‘Sec. 501. Hobby activities. 

‘‘Sec. 502. Gaming activities. 

‘‘Sec. 503. Government purchases. 

‘‘Sec. 504. Government enterprises. 

‘‘Sec. 505. Mixed use property. 

‘‘Sec. 506. Not-for-profit organizations. 
59 

•S 1921 IS 

1 ‘‘SEC. 501. HOBBY ACTIVITIES. 

2 ‘‘(a) IN GENERAL.—Neither the exemption afforded 

3 by section 102 for intermediate sales nor the credits avail4 able pursuant to sections 202 or 203 shall be available 

5 for any taxable property or service purchased for use in 

6 an activity if that activity is not engaged in for profit. 

7 ‘‘(b) TREATMENT OF CERTAIN BUSINESS ACTIV8 ITY.—If the activity has received gross payments for the 

9 sale of taxable property or services that exceed the sum 

10 of— 

11 ‘‘(1) taxable property and services purchased, 

12 ‘‘(2) wages and salary paid, and 

13 ‘‘(3) taxes (of any type) paid 

14 in 2 or more of the most recent 3 calendar years during 

15 which it operated, then the business activity shall be con16 clusively deemed to be engaged in for profit. 

17 ‘‘SEC. 502. GAMING ACTIVITIES. 

18 ‘‘(a) REGISTRATION.—Any person engaging in the 

19 trade or business of selling 1 or more chances (as defined 

20 in subsection (b)) is a gaming sponsor and shall register, 

21 in a form prescribed by the Secretary, with the sales tax 

22 administering authority as a gaming sponsor. 

23 ‘‘(b) CHANCE DEFINED.—For purposes of this sec24 tion, the term ‘chance’ means a lottery ticket, a raffle tick25 et, chip, other token, a bet placed, a wager placed or any 

26 similar device where the purchase of the right gives rise 
60 

•S 1921 IS 

1 to an obligation by the gaming sponsor to pay upon the 

2 occurrence of— 

3 ‘‘(1) a random or unpredictable event, or 

4 ‘‘(2) an event over which neither the gaming 

5 sponsor nor the person purchasing the chance has 

6 any substantial degree of control over the outcome. 

7 ‘‘(c) TAXABLE PROPERTY OR SERVICE.—A chance is 

8 taxable property or services for purposes of section 101. 

9 ‘‘(d) IN GENERAL.—A person receiving a gaming 

10 payment from a gaming sponsor because of the purchase 

11 of a chance that was taxed pursuant to section 101 shall 

12 be entitled to a credit in an amount determined by sub13 section (e). The gaming sponsor shall pay the credit to 

14 the person receiving such gaming payment. The gaming 

15 sponsor shall reduce the amount of sales tax remitted to 

16 the sales tax administering authority by the amount of any 

17 credits paid. 

18 ‘‘(e) CREDIT AMOUNT.—The amount of the credit 

19 shall be the product of— 

20 ‘‘(1) the rate imposed by section 101, and 

21 ‘‘(2) the amount of the payment made by the 

22 gaming sponsor to the person. 

23 ‘‘(f) ILLEGAL OPERATIONS.—The credit afforded by 

24 this section shall be available only if— 
61 

•S 1921 IS 

1 ‘‘(1) the sale or purchase of the chance giving 

2 rise to the payment was lawful under Federal and 

3 State law where and when sold and purchased, and 

4 ‘‘(2) the payment by the gaming sponsor to the 

5 person seeking the credit was lawful under Federal 

6 and State law where and when paid. 

7 ‘‘(g) FOREIGN GAMING PAYMENTS.—The credit af8 forded by this section shall not be available unless— 

9 ‘‘(1) the gaming payment is made in the United 

10 States, and 

11 ‘‘(2) the gaming services were provided in the 

12 United States. 

13 ‘‘(h) GAMING PAYMENTS OTHER THAN MONEY.—A 

14 person who receives a gaming payment other than money 

15 shall not be entitled to a credit under this section. 

16 ‘‘(i) GAMING PAYMENTS IN CASES WHERE CONSID17 ERATION NOT PROVIDED.—Gaming payments and prizes 

18 received by a person who did not provide consideration for 

19 the right to receive the gaming payment or prize shall be 

20 treated as a taxable proxy purchase or provision within 

21 the meaning of section 2901. 

22 ‘‘SEC. 503. GOVERNMENT PURCHASES. 

23 ‘‘(a) GOVERNMENT PURCHASES.— 

24 ‘‘(1) PURCHASES BY THE FEDERAL GOVERN25 MENT.—Purchases by the Federal Government of 
62 

•S 1921 IS 

1 taxable property and services shall be subject to the 

2 tax imposed by section 101. 

3 ‘‘(2) PURCHASES BY STATE GOVERNMENTS AND

4 THEIR POLITICAL SUBDIVISIONS.—Purchases by 

5 State governments and their political subdivisions 

6 shall be subject to the tax imposed by section 101 

7 unless— 

8 ‘‘(A) the purchase directly relates to an in9 herently governmental activity within the mean10 ing of section 1702, or 

11 ‘‘(B) the purchase would have been exempt 

12 if made by a tax-exempt organization. 

13 ‘‘(b) CROSS REFERENCES.—For purchases by Gov14 ernment enterprises see section 504. 

15 ‘‘SEC. 504. GOVERNMENT ENTERPRISES. 

16 ‘‘(a) GOVERNMENT ENTERPRISES TO COLLECT AND

17 REMIT TAXES ON SALES.—Nothing in this subtitle shall 

18 be construed to exempt any Federal, State, or local gov19 ernmental entity (whether or not the State is an admin20 istering State) engaged in any business activity from col21 lecting and remitting tax imposed by this subtitle on any 

22 sale of taxable property or services. Government entities 

23 shall comply with all duties imposed by this subtitle and 

24 shall be liable for penalties and subject to enforcement ac25 tion in the same manner as private persons. 
63 

•S 1921 IS 

1 ‘‘(b) GOVERNMENT ENTERPRISE.—Any entity owned 

2 or operated by a Federal, State, or local governmental unit 

3 or political subdivision that receives gross payments from 

4 non-governmental persons is a Government enterprise pro5 vided, however, that a Government-owned entity shall not 

6 become a Government enterprise for purposes of this sec7 tion unless in any quarter it has revenues from selling tax8 able property or services that exceed $2,500. 

9 ‘‘(c) GOVERNMENT ENTERPRISES INTERMEDIATE

10 SALES.— 

11 ‘‘(1) Government enterprises shall not be sub12 ject to tax on purchases that would not be subject 

13 to tax pursuant to section 102 if the Government 

14 enterprise were a private enterprise. 

15 ‘‘(2) Government enterprises may not use the 

16 exemption afforded by section 102 to serve as a con17 duit for tax free purchases by Government units that 

18 would otherwise be subject to taxation on purchases 

19 pursuant to section 503. If taxable property or serv20 ices purchased exempt from tax by a Government 

21 enterprise are transferred by a Government enter22 prise to such Government unit then the Government 

23 enterprise shall remit tax as if a taxable sale were 

24 made on the date of the transfer at the fair market 

25 value of the taxable property or service transferred. 
64 

•S 1921 IS 

1 ‘‘(d) SEPARATE BOOKS OF ACCOUNT.—Any Govern2 ment enterprise must maintain books of account, separate 

3 from the non-enterprise Government accounts, maintained 

4 in accordance with generally accepted accounting prin5 ciples. 

6 ‘‘(e) TRADE OR BUSINESS.—A Government enter7 prise shall be treated as a trade or business for purposes 

8 of this subtitle. 

9 ‘‘(f) ENTERPRISE SUBSIDIES CONSTITUTE TAXABLE

10 PURCHASE.—A transfer of funds to a Government enter11 prise by a Government entity without full consideration 

12 shall constitute a taxable Government purchase within the 

13 meaning of section 503 (to the extent that the transfer 

14 of funds exceeds the fair market value of the consider15 ation). 

16 ‘‘SEC. 505. MIXED USE PROPERTY. 

17 ‘‘(a) MIXED USE PROPERTY OR SERVICE.— 

18 ‘‘(1) MIXED USE PROPERTY OR SERVICE.— 

19 Mixed Use Property or Service is a taxable property 

20 or taxable service used for both— 

21 ‘‘(A) taxable use or consumption, and 

22 ‘‘(B) for a purpose that would not be sub23 ject to tax pursuant to section 102. 

24 ‘‘(2) TAXABLE THRESHOLD.—Mixed Use Prop25 erty or Service shall be subject to tax notwith-
65 

•S 1921 IS 

1 standing section 102 unless such property or service 

2 is used more than 95 percent for purposes that 

3 would give rise to an exemption pursuant to section 

4 102 during each calendar year (or portions thereof) 

5 it is owned. 

6 ‘‘(3) MIXED USE PROPERTY OR SERVICES

7 CREDIT.—A person registered pursuant to section 

8 2502 is entitled to a business use conversion credit 

9 (pursuant to section 202) equal to the product of— 

10 ‘‘(A) the mixed use property amount, 

11 ‘‘(B) the business use ratio, and 

12 ‘‘(C) the rate of tax imposed by section 

13 101. 

14 ‘‘(4) MIXED USE PROPERTY AMOUNT.—The 

15 mixed use property amount for each month (or frac16 tion thereof) in which the property was owned shall 

17 be— 

18 ‘‘(A) one-three-hundred-sixtieth of the 

19 gross payments for real property for 360 

20 months or until the property is sold, 

21 ‘‘(B) one-eighty-fourth of the gross pay22 ments for tangible personal property (other 

23 than vehicles) for 84 months or until the prop24 erty is sold, 
66 

•S 1921 IS 

1 ‘‘(C) one-sixtieth of the gross payments for 

2 vehicles for 60 months or until the property is 

3 sold, or 

4 ‘‘(D) for other types of taxable property or 

5 services, a reasonable amount or in accordance 

6 with regulations prescribed by the Secretary. 

7 ‘‘(5) BUSINESS USE RATIO.—The business use 

8 ratio is the ratio of business use to total use for a 

9 particular calendar month (or portion thereof if the 

10 property was owned for only part of such calendar 

11 month). For vehicles, the business use ratio will be 

12 the ratio of business purpose miles to total miles in 

13 a particular calendar month. For real property, the 

14 business use ratio is the ratio of floor space used 

15 primarily for business purposes to total floor space 

16 in a particular calendar month. For tangible per17 sonal property (except for vehicles), the business use 

18 ratio is the ratio of total time used for business pur19 poses to total time used in a particular calendar 

20 year. For other property or services, the business 

21 ratio shall be calculated using a reasonable method. 

22 Reasonable records must be maintained to support a 

23 person’s business use of the mixed use property or 

24 service. 
67 

•S 1921 IS 

1 ‘‘(b) TIMING OF BUSINESS USE CONVERSION CRED2 IT ARISING OUT OF OWNERSHIP OF MIXED USE PROP3 ERTY.—A person entitled to a credit pursuant to sub4 section (a)(3) arising out of the ownership of mixed use 

5 property must account for the mixed use on a calendar 

6 year basis, and may file for the credit with respect to 

7 mixed use property in any month following the calendar 

8 year giving rise to the credit. 

9 ‘‘(c) CROSS REFERENCES.—For business use conver10 sion credit, see section 202. 

11 ‘‘SEC. 506. NOT-FOR-PROFIT ORGANIZATIONS. 

12 ‘‘(a) NOT-FOR-PROFIT ORGANIZATIONS.—Dues, con13 tributions and similar payments to— 

14 ‘‘(1) organizations described in section 1703, or 

15 ‘‘(2) organizations that are— 

16 ‘‘(A) civic leagues, 

17 ‘‘(B) social welfare organizations, or 

18 ‘‘(C) fraternal beneficiary societies, orders 

19 or associations, no part of the net earnings of 

20 which inures to the benefit of any private share21 holder or individual, 

22 shall not be considered gross payments for taxable prop23 erty or services for purposes of this subtitle. 

24 ‘‘(b) QUALIFICATION CERTIFICATES FOR QUALIFIED

25 NOT-FOR-PROFIT ORGANIZATIONS.—Upon application in 
68 

•S 1921 IS 

1 a form prescribed by the Secretary, the sales tax admin2 istering authority shall provide qualification certificates to 

3 qualified not-for-profit organizations. 

4 ‘‘(c) TREATMENT OF PROPERTY AND SERVICES PRO5 VIDED IN CONNECTION WITH CONTRIBUTIONS.—If an or6 ganization described in subsection (a) provides taxable 

7 property or services in connection with contributions, dues 

8 or similar payments to the organization, then it shall be 

9 required to treat the provision of such taxable property 

10 or services as a purchase taxable pursuant to this subtitle 

11 at the fair market value of such taxable property or serv12 ices. 

13 ‘‘(d) NOT-FOR-PROFIT ORGANIZATION ENTERPRISE

14 INTERMEDIATE SALES.— 

15 ‘‘(1) Not-for-profit organization enterprises 

16 shall not be subject to tax on purchases that would 

17 not be subject to tax pursuant to section 102 if the 

18 not-for-profit organization enterprise were a private 

19 enterprise. 

20 ‘‘(2) Not-for-profit organization enterprises may 

21 not use the exemption afforded by section 102 to 

22 serve as a conduit for tax free purchases by the not23 for-profit organization that would otherwise be sub24 ject to taxation. If taxable property or services pur25 chased exempt from tax by a not-for-profit organiza-
69 

•S 1921 IS 

1 tion enterprise are transferred by such enterprise to 

2 the not-for-profit organization then the not-for-profit 

3 organization enterprise shall remit tax as if a tax4 able sale were made on the date of the transfer at 

5 the fair market value of the taxable property or serv6 ice transferred. 

7 ‘‘(e) TRADE OR BUSINESS.—The determination of 

8 whether an activity engaged in by a not-for-profit organi9 zation is a trade or business shall be made without regard 

10 to— 

11 ‘‘(1) the fact that it is engaged in by a not-for12 profit organization, and 

13 ‘‘(2) the destination or use of the revenue or 

14 profits of the activity engaged in. 

15 ‘‘CHAPTER 6—FINANCIAL 

16 INTERMEDIATION SERVICES 

‘‘Sec. 601. Determination of financial intermediation services 

amount. 

‘‘Sec. 602. Bad debts. 

‘‘Sec. 603. Timing of tax on financial intermediation services. 

‘‘Sec. 604. Financing leases. 

‘‘Sec. 605. Basic interest rate. 

‘‘Sec. 606. Foreign financial intermediation services. 

17 ‘‘SEC. 601. DETERMINATION OF FINANCIAL INTERMEDI18 ATION SERVICES AMOUNT. 

19 ‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—For 

20 purposes of this subtitle— 

21 ‘‘(1) IN GENERAL.—The term ‘financial inter22 mediation services’ means the sum of— 
70 

•S 1921 IS 

1 ‘‘(A) explicitly charged fees for financial 

2 intermediation services, and 

3 ‘‘(B) implicitly charged fees for financial 

4 intermediation services. 

5 ‘‘(2) EXPLICITLY CHARGED FEES FOR FINAN6 CIAL INTERMEDIATION SERVICES.—The term ‘explic7 itly charged fees’ has the meaning given such term 

8 by section 1502(c). 

9 ‘‘(3) Implicitly charged fees for financial inter10 mediation services.— 

11 ‘‘(A) IN GENERAL.—The term ‘implicitly 

12 charged fees for financial intermediation serv13 ices’ includes the gross imputed amount with 

14 respect to any underlying interest bearing in15 vestment, account or debt. 

16 ‘‘(B) GROSS IMPUTED AMOUNT.—For pur17 poses of subparagraph (A), the term ‘gross im18 puted amount’ means— 

19 ‘‘(i) with respect to any underlying in20 terest bearing investment or account, the 

21 product of— 

22 ‘‘(I) the excess (if any) of the 

23 basic interest rate (as defined in sec24 tion 605) over the rate paid on such 

25 investment, and 
71 

•S 1921 IS 

1 ‘‘(II) the amount of the invest2 ment or account, and 

3 ‘‘(ii) with respect to any underlying 

4 interest bearing debt, the product of— 

5 ‘‘(I) the excess (if any) of the 

6 rate paid on such debt over the basic 

7 interest rate (as defined in section 

8 605), and 

9 ‘‘(II) the amount of the debt. 

10 ‘‘(b) PERSONS TREATED AS SELLERS.—For pur11 poses of section 103(a), the seller of financial intermedi12 ation services shall be— 

13 ‘‘(1) in the case of explicitly charged fees for fi14 nancial intermediation services (as defined in sub15 section (a)(2)), the seller shall be the person who re16 ceives the gross payments for the charged financial 

17 intermediation services, 

18 ‘‘(2) in the case of implicitly charged fees for fi19 nancial intermediation services (as defined in sub20 section (a)(3)) with respect to any underlying inter21 est bearing investment or account, the person mak22 ing the interest payments on the interest bearing in23 vestment or account, and 

24 ‘‘(3) in the case of implicitly charged fees for fi25 nancial intermediation services (as defined in sub-
72 

•S 1921 IS 

1 section (a)(3)) with respect to any interest bearing 

2 debt, the person receiving the interest payments on 

3 the interest bearing debt. 

4 ‘‘SEC. 602. BAD DEBTS. 

5 ‘‘(a) For purposes of section 205(a), a bad debt shall 

6 be a business loan or debt that becomes wholly or partially 

7 worthless to the payee. 

8 ‘‘(b) For purposes of subsection (a), a business loan 

9 or debt is a bona fide loan or debt made for a business 

10 purpose that both parties intended to be repaid. 

11 ‘‘(c) No loan or debt shall be considered wholly or 

12 partially worthless unless it has been in arrears for 180 

13 days or more, provided, however, that if a debt is dis14 charged wholly or partially in bankruptcy before 180 days 

15 has elapsed, then it shall be deemed wholly or partially 

16 worthless on the date of discharge. 

17 ‘‘(d) A loan or debt that has been in arrears for 180 

18 days or more may be deemed wholly or partially worthless 

19 by the holder unless a payment schedule has been entered 

20 into between the debtor and the lender. 

21 ‘‘(e) CROSS REFERENCE.—See section 205(c) for tax 

22 on subsequent payments. 
73 

•S 1921 IS 

1 ‘‘SEC. 603. TIMING OF TAX ON FINANCIAL INTERMEDIATION 

2 SERVICES. 

3 ‘‘The tax on financial intermediation services within 

4 the meaning of section 601 with respect to an underlying 

5 investment account or debt shall be imposed and collected 

6 with the same frequency that statements are rendered by 

7 the financial institution in connection with the investment 

8 account or debt but not less frequently than quarterly. 

9 ‘‘SEC. 604. FINANCING LEASES. 

10 ‘‘(a) DEFINED.—For purposes of this section, a fi11 nancing lease shall be any lease under which the lessee 

12 has the right to acquire the property for 50 percent or 

13 less of its fair market value at the end of the lease term. 

14 ‘‘(b) IN GENERAL.—Financing leases shall be taxed 

15 using the method set forth in this section. 

16 ‘‘(c) DETERMINATION OF PRINCIPAL AND INTEREST

17 COMPONENTS OF FINANCING LEASE.—The Secretary 

18 shall promulgate rules for disaggregating the principal 

19 and interest components of a financing lease. The prin20 cipal amount shall be determined to the extent possible 

21 by examination of the contemporaneous sales price or 

22 prices of property the same or similar as the leased prop23 erty. 

24 ‘‘(d) ALTERNATIVE METHOD.—In the event that con25 temporaneous sales prices of property the same or similar 

26 as the leased property are not available, the principal and 
74 

•S 1921 IS 

1 interest components of a financing lease shall be 

2 disaggregating using the applicable interest rate (as de3 fined in section 2512) plus 4 percent. 

4 ‘‘(e) PRINCIPAL COMPONENT.—The principal compo5 nent of the financing lease shall be subject to tax as if 

6 a purchase in the amount of the principal component had 

7 been made on the day on which such lease was executed. 

8 ‘‘(f) INTEREST COMPONENT.—The financial inter9 mediation services amount with respect to the interest 

10 component of the financing lease shall be subject to tax 

11 under this subtitle. 

12 ‘‘(g) COORDINATION.— 

13 ‘‘(1) IN GENERAL.—If the principal component 

14 and financial intermediation services amount with 

15 respect to the interest component of a lease have 

16 been taxed pursuant to this section, then the gross 

17 lease or rental payments shall not be subject to addi18 tional tax. 

19 ‘‘(2) CROSS REFERENCE.—For the definition of 

20 taxable property and services, including as it relates 

21 to leases, see section 2. 

22 ‘‘SEC. 605. BASIC INTEREST RATE. 

23 ‘‘For purposes of this subchapter, the basic interest 

24 rate with respect to a debt instrument, investment, financ25 ing lease or account shall be the applicable interest rate 
75 

•S 1921 IS 

1 (as determined in section 2512). For debt instruments, 

2 investments or accounts of contractually fixed interest, the 

3 applicable interest rate of the month of issuance shall 

4 apply. For debt instruments, investments or accounts of 

5 variable interest rates and which have no reference inter6 est rate, the applicable interest rate shall be the Federal 

7 short-term interest rate for each month. For debt instru8 ments, investments or accounts of variable interest rates 

9 and which have a reference interest rate, the applicable 

10 interest rate shall be the reference interest rate for each 

11 month. 

12 ‘‘SEC. 606. FOREIGN FINANCIAL INTERMEDIATION SERV13 ICES. 

14 ‘‘(a) SPECIAL RULES RELATING TO INTERNATIONAL

15 FINANCIAL INTERMEDIATION SERVICES.—Financial 

16 intermediation services shall be deemed as used or con17 sumed within the United States if the person (or any af18 filiated firm as defined in section 2 or a person’s spouse) 

19 purchasing the services is a resident of the United States. 

20 ‘‘(b) DESIGNATION OF UNITED STATES TAX REP21 RESENTATIVE.—Any person that provides financial inter22 mediation services to United States residents must, as a 

23 condition of lawfully providing such services, designate, in 

24 a form prescribed by the Secretary, a United States tax 

25 representative for purposes of this subtitle. This United 
76 

•S 1921 IS 

1 States tax representative and the person providing finan2 cial intermediation services shall be responsible for ensur3 ing that the taxes imposed by this chapter are collected 

4 and remitted and shall be jointly and severally liable for 

5 collecting and remitting these taxes. The Secretary may 

6 require reasonable bond of the United States tax rep7 resentative. The Secretary or a sales tax administering au8 thority may bring an action seeking a temporary restrain9 ing order, an injunction, or such other order as may be 

10 appropriate to enforce this section.’’. 

11 TITLE IV—BUSINESS TAX 

12 ENACTED 

13 SEC. 401. BUSINESS TAX. 

14 The Internal Revenue Code of 1986 is amended by 

15 inserting after subtitle B the following new subtitle: 

16 ‘‘Subtitle C—Business Tax 

‘‘Chapter 1. Imposition of tax. 

‘‘Chapter 2. Basic rules for business tax. 

‘‘Chapter 3. Capital contributions, mergers, acquisitions, and distributions. 

‘‘Chapter 4. Land and rental property. 

‘‘Chapter 5. Insurance and financial products. 

‘‘Chapter 6. Financial intermediation and financial institutions. 

‘‘Chapter 7. Tax-exempt organizations. 

‘‘Chapter 8. Cooperatives. 

‘‘Chapter 9. Sourcing rules. 

‘‘Chapter 10. Import tax. 

17 ‘‘CHAPTER 1—IMPOSITION OF TAX 

‘‘Sec. 1101. Tax imposed. 
77 

•S 1921 IS 

1 ‘‘SEC. 1101. TAX IMPOSED. 

2 ‘‘(a) TAXABLE BUSINESS ACTIVITY.—A business tax 

3 is imposed on the sale of taxable property and services 

4 in the United States by a business entity. 

5 ‘‘(b) BUSINESS TAX.—The ‘business tax’ imposed on 

6 a business entity that sells or leases property or sells serv7 ices in the United States equals 8.4 percent of the gross 

8 profit of the business entity for the taxable year. 

9 ‘‘(c) TAXABLE EMPLOYERS.—A tax is hereby im10 posed on taxable employers (as defined by section 2(s)) 

11 equal to 8.4 percent of the wages and salary (as defined 

12 by section 2(w)) paid by such taxable employer. The tax 

13 imposed by this subsection is in addition to any tax im14 posed by subtitle B. 

15 ‘‘(d) IMPORT TAX.—For rules relating to the import 

16 tax imposed by this chapter, see section 2001. 

17 ‘‘CHAPTER 2—BASIC RULES FOR 

18 BUSINESS TAX 

‘‘Sec. 1201. Gross profits. 

‘‘Sec. 1202. Taxable receipts. 

‘‘Sec. 1203. Deductible amounts. 

‘‘Sec. 1204. Cost of business purchases. 

‘‘Sec. 1205. Business entity and business activity. 

‘‘Sec. 1206. Loss carryover deduction. 

19 ‘‘SEC. 1201. GROSS PROFITS. 

20 ‘‘The term ‘gross profits’ means for a taxable year 

21 of a business entity the amount by which— 
78 

•S 1921 IS 

1 ‘‘(1) the taxable receipts of the business entity 

2 for the taxable year exceed, 

3 ‘‘(2) the deductible amounts for the business 

4 entity for the taxable year. 

5 ‘‘SEC. 1202. TAXABLE RECEIPTS. 

6 ‘‘(a) IN GENERAL.—The term ‘taxable receipts’ 

7 means all receipts from the sale of taxable property and 

8 services. 

9 ‘‘(b) GAMES OF CHANCE.—Amounts received by busi10 ness entities engaging in the activity of providing games 

11 of chance shall be treated as receipts from the sale of 

12 property or services. 

13 ‘‘(c) IN-KIND RECEIPTS.—The taxable receipts at14 tributable to the receipt of property, use of property or 

15 services in whole or partial exchange for property, use of 

16 property or services shall equal the fair market value of 

17 the services or property received, plus any cash received. 

18 ‘‘(d) TAXES.—The term ‘taxable receipts’ does not 

19 include any excise tax, sales tax, custom duty, or other 

20 separately stated levy imposed by a Federal, State, or local 

21 government received by a business entity in connection 

22 with the sale of property or services or the use of property. 

23 ‘‘(e) FINANCIAL RECEIPTS.— 

24 ‘‘(1) IN GENERAL.—Except as provided in 

25 chapter 6 of this subtitle (relating to financial inter-
79 

•S 1921 IS 

1 mediation and financial institutions), taxable re2 ceipts do not include financial receipts. 

3 ‘‘(2) FINANCIAL RECEIPTS.—The term ‘finan4 cial receipts’ includes— 

5 ‘‘(A) interest, 

6 ‘‘(B) dividends and other distributions by a 

7 business entity, 

8 ‘‘(C) proceeds from the sale of stock, other 

9 ownership interests in business entities, or 

10 other financial instruments (as defined in chap11 ter 6 of this subtitle), 

12 ‘‘(D) proceeds from life insurance policies, 

13 ‘‘(E) proceeds from annuities, 

14 ‘‘(F) proceeds from currency hedging or 

15 exchanges, and 

16 ‘‘(G) proceeds from other financial trans17 actions. 

18 ‘‘(f) CROSS REFERENCES.— 

19 ‘‘(1) FINANCIAL INTERMEDIATION.—See chap20 ters 5 and 6 of this subtitle for rules relating to fi21 nancial intermediation. 

22 ‘‘(2) EXPORTS, SALES IN THE UNITED

23 STATES.—See section 1901 for the exclusion from 

24 gross receipts for export sales and for rules on sales 

25 of property and services in the United States. 
80 

•S 1921 IS 

1 ‘‘(3) INSURANCE PROCEEDS.—See section chap2 ter 5 of this subtitle for rules on the inclusion of cer3 tain insurance proceeds in taxable receipts. 

4 ‘‘SEC. 1203. DEDUCTIBLE AMOUNTS. 

5 ‘‘(a) IN GENERAL.—The term ‘deductible amounts’ 

6 for a business entity in a taxable year includes— 

7 ‘‘(1) the cost of business purchases in the tax8 able year (as determined under section 1204), 

9 ‘‘(2) such entity’s loss carryover deduction (as 

10 determined under section 1206), and 

11 ‘‘(3) the transition basis deduction (as deter12 mined under section 2801). 

13 ‘‘(b) FINANCIAL INTERMEDIATION.—See chapters 5 

14 and 6 for special rules for business entities engaging in 

15 financial intermediation. 

16 ‘‘SEC. 1204. COST OF BUSINESS PURCHASES. 

17 ‘‘(a) BUSINESS PURCHASES.— 

18 ‘‘(1) IN GENERAL.—The term ‘business pur19 chases’ means the acquisition of— 

20 ‘‘(A) property, 

21 ‘‘(B) the use of property, or 

22 ‘‘(C) services, 

23 for a business purpose in connection with a trade or 

24 business in the United States. 
81 

•S 1921 IS 

1 ‘‘(2) EXAMPLES.—Business purchases include 

2 (without limitation) the— 

3 ‘‘(A) purchase or rental of real property, 

4 ‘‘(B) purchase or rental of capital equip5 ment, 

6 ‘‘(C) purchase of supplies and inventory, 

7 ‘‘(D) purchase of services from inde8 pendent contractors (who are registered sellers), 

9 ‘‘(E) purchase of financial intermediation 

10 services, and 

11 ‘‘(F) imports for use in a business activity 

12 in the United States. 

13 ‘‘(3) EXCLUSIONS.—The term ‘business pur14 chases’ does not include— 

15 ‘‘(A) payments for use of money or capital, 

16 such as interest or dividends (except to the ex17 tent that a portion so paid is a fee for financial 

18 intermediation services), 

19 ‘‘(B) premiums for life insurance, 

20 ‘‘(C) the acquisition of savings assets or fi21 nancial instruments, 

22 ‘‘(D) property acquired outside the United 

23 States (but such property shall be taken into 

24 account as an import if imported), 
82 

•S 1921 IS 

1 ‘‘(E) services performed outside the United 

2 States (unless treated as imported into the 

3 United States), 

4 ‘‘(F) compensation expenses for an indi5 vidual (other than amounts paid to an indi6 vidual in his capacity as a business entity), or 

7 ‘‘(G) taxes (except as provided in sub8 section (b)(2) relating to product taxes). 

9 ‘‘(4) COMPENSATION EXPENSES.—The term 

10 ‘compensation expenses’ means— 

11 ‘‘(A) wages, salaries, or other cash payable 

12 for services by employees, 

13 ‘‘(B) any taxes imposed on the recipient 

14 that are withheld by the business entity, 

15 ‘‘(C) the cost of property purchased to pro16 vide employees with compensation (other than 

17 property incidental to the provision of fringe 

18 benefits that are excluded from income under 

19 the individual tax), 

20 ‘‘(D) the cost of fringe benefits which are 

21 provided in connection with the services per22 formed by the employee, partner or proprietor 

23 in their capacity as such, including (without 

24 limitation)— 
83 

•S 1921 IS 

1 ‘‘(i) contributions to retirement and 

2 severance benefit plans, 

3 ‘‘(ii) premiums for the cost of life, 

4 health, accident, disability and other insur5 ance policies for which the service provider, 

6 members of his family, or persons des7 ignated by him or members of his family 

8 are the beneficiaries, 

9 ‘‘(iii) the cost of providing parking to 

10 employees (unless the parking space is 

11 used for a vehicle that is regularly used in 

12 a business activity), 

13 ‘‘(iv) employer-paid educational bene14 fits, 

15 ‘‘(v) employer-paid housing (other 

16 than housing provided for the convenience 

17 of the employer), and 

18 ‘‘(vi) employer-paid meals (other than 

19 meals provided for the convenience of the 

20 employer). 

21 ‘‘(b) COST OF BUSINESS PURCHASES.— 

22 ‘‘(1) IN GENERAL.—The term ‘cost of a busi23 ness purchase’ is the amount paid or to be paid for 

24 the business purchase. 

25 ‘‘(2) TAXES.— 
84 

•S 1921 IS 

1 ‘‘(A) IN GENERAL.—The term ‘cost of 

2 business purchases’ includes any product taxes 

3 paid or to be paid with respect to the property 

4 or services purchased. 

5 ‘‘(B) PRODUCT TAX.—The term ‘product 

6 tax’ means any excise tax, sales or use tax, cus7 tom duty, or other separately stated levy im8 posed by a Federal, State, or local government 

9 on the production, severance or consumption of 

10 property or on the provision of services, whether 

11 or not separately stated, and including any such 

12 taxes that are technically imposed on the seller 

13 of property or services. 

14 ‘‘(C) TAXES NOT PRODUCT TAXES.—The 

15 term ‘product taxes’ does not include— 

16 ‘‘(i) the import tax (imposed by chap17 ter 10), 

18 ‘‘(ii) State and local property taxes, 

19 ‘‘(iii) franchise or income taxes, 

20 ‘‘(iv) payroll taxes and self-employ21 ment taxes, or 

22 ‘‘(v) the business tax (imposed by sec23 tion 1101). 

24 ‘‘(3) IMPORTS.—In the case of an import by a 

25 business entity, the cost of the import is the import 
85 

•S 1921 IS 

1 price for purposes of the import tax. The import tax 

2 is not part of the cost of the import. 

3 ‘‘(c) PROPERTY AND SERVICES ACQUIRED FOR

4 PROPERTY.—If a business entity receives property or serv5 ices from a business entity in whole or partial exchange 

6 for property or services, the property or services acquired 

7 shall be treated as if such property and services were pur8 chased for an amount equal to the fair market value of 

9 the services or property received, plus any cash received. 

10 For purposes of this section, property includes stock and 

11 other equity interests in business other than stock or an 

12 equity interest in the business entity acquiring the prop13 erty or services. See chapter 3 for rules on property or 

14 services received in exchange for an equity interest in the 

15 recipient. 

16 ‘‘(d) GAMBLING PAYMENTS.—In the case of a busi17 ness involving gambling, lotteries, or other games of 

18 chance, business purchases include amounts paid to win19 ners. 

20 ‘‘(e) MIXED USE PROPERTY OR SERVICES.—Deduc21 tions for property or services used both for a business pur22 pose and otherwise shall be allowable only in proportion 

23 to the business use ratio as determined in accordance with 

24 section 505(a)(5), provided however that if property or 

25 services are used 95 percent or more for a business pur-
86 

•S 1921 IS 

1 pose during a taxable year, then the property or service 

2 shall be deemed used exclusively for a business purpose. 

3 ‘‘(f) CROSS REFERENCES.— 

4 ‘‘(1) FINANCIAL INTERMEDIATION AND INSUR5 ANCE.—For rules relating to fees for financial inter6 mediation services and insurance, see subchapter F. 

7 ‘‘(2) LAND.—For special rules relating to the 

8 acquisition of land, see subchapter E. 

9 ‘‘(3) OUTSIDE THE UNITED STATES.—For spe10 cial rules relating to services performed outside the 

11 United States but used inside the United States and 

12 international services, see chapter 9. 

13 ‘‘SEC. 1205. BUSINESS ENTITY AND BUSINESS ACTIVITY. 

14 ‘‘(a) BUSINESS ENTITY.—For purposes of the busi15 ness tax, the term ‘business entity’ means any corporation, 

16 unincorporated association, partnership, limited liability 

17 company, proprietorship, independent contractor, indi18 vidual, or any other person engaging in business activity 

19 in the United States. An individual shall be considered a 

20 business entity only with respect to the individual’s busi21 ness activities. 

22 ‘‘(b) BUSINESS ACTIVITY.—The term ‘business activ23 ity’ means the sale of property or services, the leasing of 

24 property, the development of property or services for sub-
87 

•S 1921 IS 

1 sequent sale or use in producing property or services for 

2 subsequent sale. Such term does not include— 

3 ‘‘(1) casual or occasional sales of property used 

4 by an individual (other than in a business activity), 

5 such as the sale by an individual of a vehicle used 

6 by the individual, or 

7 ‘‘(2) sales by a business entity with gross reve8 nues of $1,200 annually or less. 

9 ‘‘(c) EXCEPTION FOR CERTAIN EMPLOYEES.— 

10 ‘‘(1) IN GENERAL.—The term ‘business activity’ 

11 does not include— 

12 ‘‘(A) the performance of services by an em13 ployee for an employer that is a business entity 

14 with respect to the activity in which the em15 ployee is engaged, or 

16 ‘‘(B) the performance of regular domestic 

17 household services (including babysitting, 

18 housecleaning, and lawn cutting)— 

19 ‘‘(i) by an employee that is com20 pensated in an amount less than $5,000 

21 annually, or 

22 ‘‘(ii) by an employer that is an indi23 vidual or family. 

24 ‘‘(2) EMPLOYEE DEFINED.—For purposes of 

25 this subsection, the term ‘employee’ includes an indi-
88 

•S 1921 IS 

1 vidual partner who provides services to a partner2 ship, an individual member who provides services to 

3 a limited liability company, or a proprietor with re4 spect to compensation for services from his propri5 etorship. 

6 ‘‘SEC. 1206. LOSS CARRYOVER DEDUCTION. 

7 ‘‘(a) DEDUCTION.—The loss carryover deduction for 

8 a taxable year is the lesser of— 

9 ‘‘(1) the business entity’s gross profits for the 

10 taxable year (determined without the loss carryover 

11 deduction), or 

12 ‘‘(2) the amount of the loss carryover to the 

13 taxable year. 

14 ‘‘(b) LOSS CARRYOVER.— 

15 ‘‘(1) GENERAL RULE.—A loss for any taxable 

16 year may be a loss carryover to each of the 10 tax17 able years following the taxable year of the loss. 

18 ‘‘(2) LOSS CARRYOVERS TO A TAXABLE YEAR.— 

19 The loss carryover to a taxable year is the sum of 

20 the loss carryovers from all prior taxable years be21 ginning on or after January 1, 2007, that can be 

22 carried over to the taxable year. 

23 ‘‘(3) REDUCTION OF LOSS CARRYOVERS AS A

24 RESULT OF THE DEDUCTION.—A business entity’s 

25 loss carryovers shall be reduced each year by the 
89 

•S 1921 IS 

1 amount of the loss carryover deduction for the year. 

2 Loss carryovers shall be reduced in the order that 

3 such carryovers arose. 

4 ‘‘(c) LOSS FOR TAXABLE YEAR.—A business entity’s 

5 loss (if any) for the taxable year equals the excess (if any) 

6 of— 

7 ‘‘(1) the sum of— 

8 ‘‘(A) the cost of business purchases for the 

9 taxable year, and 

10 ‘‘(B) the transition basis adjustment for 

11 the taxable year, over 

12 ‘‘(2) taxable receipts for the taxable year. 

13 ‘‘(d) SPECIAL RULES.— 

14 ‘‘(1) CONSOLIDATED RETURNS.—In the case of 

15 a consolidated return, the loss for a taxable year 

16 shall be determined on a consolidated group basis. 

17 In the case of a deconsolidation, the loss carryovers 

18 from the consolidated group shall be allocated in ac19 cordance with rules to be prescribed by the Sec20 retary. 

21 ‘‘(2) LOSS CARRYOVERS OF ACQUIRED BUSI22 NESS ENTITY.— 

23 ‘‘(A) IN GENERAL.—If a business entity 

24 acquires another business entity in a trans25 action that is considered the acquisition of a 
90 

•S 1921 IS 

1 business entity and the 2 entities file a consoli2 dated return or if 2 business entities merge, the 

3 loss carryovers will survive and can be applied 

4 against the taxable receipts attributable to the 

5 business activities carried on (or in the case of 

6 a merger formerly carried on) by either entity. 

7 ‘‘(B) ASSET ACQUISITION.—If a business 

8 entity acquires all or substantially all of the as9 sets of another entity in a transaction that is 

10 considered an asset acquisition rather than the 

11 acquisition of a business entity, the acquirer 

12 will be treated as if it acquired the loss 

13 carryovers of the selling entity. For purposes of 

14 this rule, the assets of a business entity include 

15 ownership interests in other business entities. 

16 ‘‘(C) SUBSTANTIALLY ALL.—For purposes 

17 of this paragraph, the term ‘substantially all’ 

18 means more than 80 percent of the fair market 

19 value of a business entity’s net assets. Under 

20 rules prescribed by the Secretary, the parties to 

21 a transaction may elect to treat acquisitions in 

22 excess of 70 percent of the fair market value of 

23 a business entity’s net assets as acquisitions of 

24 ‘substantially all’ of a business entity’s net as25 sets. 
91 

•S 1921 IS 

1 ‘‘CHAPTER 3—CAPITAL CONTRIBUTIONS, 

2 MERGERS, ACQUISITIONS, AND DIS3 TRIBUTIONS 

‘‘Sec. 1301. Contributions to a business. 

‘‘Sec. 1302. Distributions of property. 

‘‘Sec. 1303. Asset acquisitions. 

‘‘Sec. 1304. Mergers and stock acquisitions. 

‘‘Sec. 1305. Spinoffs, splitoff, etc. 

‘‘Sec. 1306. Allocation of certain tax attributes. 

4 ‘‘SEC. 1301. CONTRIBUTIONS TO A BUSINESS ENTITY. 

5 ‘‘(a) BY BUSINESS ENTITY.— 

6 ‘‘(1) CASH.—If a business entity contributes 

7 cash to a business entity of which it is or becomes 

8 a partial or full owner, the amount contributed is 

9 not a deductible amount to the contributor or a tax10 able receipt to the recipient. 

11 ‘‘(2) PROPERTY OR SERVICES.—If a business 

12 entity contributes property or services to a business 

13 entity of which it is or becomes a partial or full 

14 owner, the transaction will not result in taxable re15 ceipts to the contributor or a deduction for a busi16 ness purchase for the recipient and will not con17 stitute a sale resulting in taxable receipts to the con18 tributor. 

19 ‘‘(b) BY INDIVIDUAL.— 

20 ‘‘(1) CASH.—If an individual contributes cash 

21 to a business entity, the cash received is not a tax22 able receipt. 
92 

•S 1921 IS 

1 ‘‘(2) NEW PROPERTY.—If an individual contrib2 utes to a business entity property that the individual 

3 purchased for the business entity and which was not 

4 used by any person after its purchase, the property 

5 shall be considered purchased by such business enti6 ty from the person from whom the individual pur7 chased the property and the basis of such property 

8 in the hands of the business entity shall be the such 

9 basis in the hands of the individual. 

10 ‘‘(3) PERSONAL USE PROPERTY.— 

11 ‘‘(A) IN GENERAL.—If an individual con12 tributes personal use property to a business en13 tity in which the individual has an ownership 

14 interest or for which the individual receives an 

15 ownership interest, the business entity shall not 

16 be permitted to deduct the value of the property 

17 received as a business expense. The business 

18 entity will have a tax basis in the contributed 

19 property equal to the contributor’s basis. 

20 ‘‘(B) PERSONAL USE PROPERTY.—The 

21 term ‘personal use property’ means any prop22 erty used by an individual at any time other 

23 than in a business activity. 

24 ‘‘(4) SERVICES.—If an individual contributes 

25 services to a business entity in which the individual 
93 

•S 1921 IS 

1 has an ownership interest or receives an ownership 

2 interest, the business entity shall not be permitted to 

3 deduct the value of the services received (or the 

4 value of the equity interest provided to the services 

5 provider). 

6 ‘‘SEC. 1302. DISTRIBUTIONS OF PROPERTY. 

7 ‘‘(a) DISTRIBUTIONS OTHER THAN TO CONTROL8 LING BUSINESS.—If a business entity distributes all or a 

9 portion of its assets to its owners (other than a controlling 

10 business entity), the business entity will be treated as if 

11 it sold the assets to its owners at fair market value. The 

12 fair market value will be determined by the distributing 

13 corporation and those determinations, unless unreason14 able, will be binding on the recipients. 

15 ‘‘(b) DISTRIBUTIONS TO A CONTROLLING BUSI16 NESS.—If a business entity distributes all or a portion of 

17 its assets to a controlling business, the controlling busi18 ness will assume the distributing entity’s tax attributes 

19 with respect to the assets and neither entity will have tax20 able receipts or a deduction as a result of the transaction. 

21 ‘‘(c) CONTROLLING BUSINESS ENTITY.—A business 

22 entity is a ‘controlling business entity’ with respect to an23 other business entity if it owns directly or indirectly more 

24 than 50 percent of the profits or capital interest in the 

25 other business entity. 
94 

•S 1921 IS 

1 ‘‘(d) APPLICATION OF THIS SECTION.—This section 

2 applies to both liquidating and nonliquidating distribu3 tions. Property shall be treated as distributed if the prop4 erty is used for a nonbusiness purpose for more than an 

5 insubstantial period of time during a taxable year. See 

6 chapter 4 for rules relating to certain rental property. 

7 ‘‘SEC. 1303. ASSET ACQUISITIONS. 

8 ‘‘(a) IN GENERAL.—If a business entity transfers 

9 some or all of its assets, the consideration received for 

10 such assets shall be allocated among the assets transferred 

11 in the same manner as was required by section 1060 of 

12 the Internal Revenue Code of 1986. If the transferee and 

13 transferor agree in writing on the allocation of any consid14 eration, or as to the fair market value of any of the assets, 

15 such agreement shall be binding on both the transferor 

16 and transferee unless the Secretary determines that such 

17 allocation (or fair market value) is not appropriate. 

18 ‘‘(b) TAX CONSEQUENCES.—The tax consequences of 

19 an asset acquisition shall be determined in accordance 

20 with the rules of this chapter and shall be dependent upon 

21 allocations made under subsection (a). In general, consid22 eration allocable to savings assets, such as stock in an23 other business entity, would not be included in taxable re24 ceipts of the transferor and would not be a business pur25 chase of the purchaser, but consideration allocable to the 
95 

•S 1921 IS 

1 sale of tangible property and intangible property (other 

2 than savings assets) will constitute taxable receipts to the 

3 seller and a business purchase by the purchaser. 

4 ‘‘(c) ELECTION TO TREAT ASSET ACQUISITION AS A

5 STOCK ACQUISITION.—In the case of the sale of substan6 tially all of the assets of a business entity or substantially 

7 all of the assets of a line of business or a separately stand8 ing business of a business entity, the transferee and trans9 feror can jointly elect to treat the acquisition as if it were 

10 an acquisition of the stock of a business entity holding 

11 the assets so transferred. In such case, the rules of section 

12 1304 shall apply. 

13 ‘‘(d) AUTHORITY TO REQUIRE ALLOCATION AGREE14 MENT AND NOTICE TO THE SECRETARY.—If the Sec15 retary determines that certain types of asset acquisitions 

16 have significant possibilities of tax avoidance, the Sec17 retary may require— 

18 ‘‘(1) parties to such types of acquisitions to 

19 enter into agreements allocating consideration, 

20 ‘‘(2) parties to acquisitions involving certain 

21 kinds of assets to enter into agreements allocating 

22 part of the consideration to those assets, or 

23 ‘‘(3) parties to certain acquisitions to report in24 formation to the Secretary. 
96 

•S 1921 IS 

1 ‘‘(e) ASSET ACQUISITION RULES DO NOT APPLY IF

2 CONSIDERATION INCLUDES EQUITY IN PURCHASER.— 

3 ‘‘(1) IN GENERAL.—If a business entity issues 

4 its own equity or equity in a subsidiary or other con5 trolled entity as part of the consideration for the 

6 transfer of assets to it, the transaction shall not be 

7 treated as an asset acquisition and the rules of sec8 tion 1304 shall apply. 

9 ‘‘(2) EQUITY.—For purposes of this subsection, 

10 the term ‘equity’ means— 

11 ‘‘(A) stock, in the case of a corporation, 

12 ‘‘(B) a partnership or similar interest, in 

13 the case of a partnership or limited liability 

14 company, and 

15 ‘‘(C) an ownership interest or interest in 

16 profits in the case of any other business entity. 

17 ‘‘SEC. 1304. MERGERS AND STOCK ACQUISITIONS. 

18 ‘‘(a) MERGERS.—A merger of 1 business entity into 

19 another or 2 businesses entities into a 3rd business entity 

20 or any other similar transaction shall have no direct con21 sequences under the business tax. The surviving entity 

22 shall assume the tax attributes of the merged corpora23 tions, including any loss carryovers and credit carryovers. 

24 ‘‘(b) STOCK ACQUISITION.—The acquisition of all or 

25 substantially all of the ownership interest in 1 business 
97 

•S 1921 IS 

1 entity either for cash or in exchange for ownership in the 

2 acquiring entity or an entity controlled by the acquired 

3 entity shall have no direct consequences under the busi4 ness tax. 

5 ‘‘SEC. 1305. SPINOFFS, SPLITOFF, ETC. 

6 ‘‘A spinoff, splitoff, or splitup of a business entity 

7 shall have no direct tax consequences under the business 

8 tax. 

9 ‘‘SEC. 1306. ALLOCATION OF CERTAIN TAX ATTRIBUTES. 

10 ‘‘The Secretary shall prescribe rules for allocation of 

11 loss carryovers in cases of substantial shifts of assets from 

12 1 business entity to another business entity. Under such 

13 rules, a portion of a business entity’s carryovers may be 

14 deemed transferred when assets are transferred. 

15 ‘‘CHAPTER 4—LAND AND RENTAL 

16 PROPERTY 

‘‘Sec. 1401. No deduction for land purchased for nonbusiness use. 

‘‘Sec. 1402. Taxable receipts for land held for nonbusiness use. 

‘‘Sec. 1403. Certain rental property. 

17 ‘‘SEC. 1401. NO DEDUCTION FOR LAND PURCHASED FOR 

18 NONBUSINESS USE. 

19 ‘‘(a) IN GENERAL.—The acquisition of unimproved 

20 land shall not constitute a business purchase if the unim21 proved land is not acquired to be used in a business activ22 ity or if the land is acquired for use in compensating em23 ployees. 
98 

•S 1921 IS 

1 ‘‘(b) UNIMPROVED LAND.—The term ‘unimproved 

2 land’ means— 

3 ‘‘(1) land with no buildings on it, 

4 ‘‘(2) land with improvements if the value of the 

5 improvements is relatively small in comparison to 

6 the value of the land and it is anticipated that the 

7 improvements will be demolished and not used, or 

8 ‘‘(3) land in excess of the amount reasonably 

9 needed for the buildings located on it. 

10 ‘‘(c) CONVERSION TO BUSINESS USE.—If the acqui11 sition of land is not treated as a business purchase by rea12 son of subsection (a) and the land is subsequently used 

13 in a manner for which it could have been treated as a 

14 business purchase, the cost of the land will be treated as 

15 a business purchase when the improvements on the land 

16 are placed in service (or in the case of construction for 

17 sale, substantially completed and advertised for sale). 

18 ‘‘SEC. 1402. TAXABLE RECEIPTS FOR LAND HELD FOR NON19 BUSINESS USE. 

20 ‘‘(a) TAX BASIS.—A business entity shall have a tax 

21 basis in land equal to the cost of the land if such cost 

22 is not deductible by reason of section 1401. 

23 ‘‘(b) TAXABLE RECEIPTS OF A LAND SALE.—The 

24 taxable receipts from the sale of land (or portion thereof) 

25 in which a business entity has a tax basis by reason of 
99 

•S 1921 IS 

1 subsection (a) shall be the amount by which the proceeds 

2 exceed the basis of such land (or portion thereof). 

3 ‘‘SEC. 1403. CERTAIN RENTAL PROPERTY. 

4 ‘‘(a) IN GENERAL.—Except as provided in subsection 

5 (b), the activity of rental of real estate is a business activ6 ity to which the business tax applies. 

7 ‘‘(b) NOT RENTAL PROPERTY.— 

8 ‘‘(1) IN GENERAL.—If the owners of property 

9 use the property for at least 14 days during the tax10 able year for a nonbusiness purpose and rent the 

11 property for no more than 14 days during the tax12 able year, the property shall not be considered rental 

13 property or used in the activity of rental of real es14 tate during the taxable year for purposes of the 

15 business tax. 

16 ‘‘(2) NONBUSINESS USE.—For purposes of this 

17 section, the term ‘use for a nonbusiness purpose’ 

18 means use other than— 

19 ‘‘(A) use for which fair rent is paid, 

20 ‘‘(B) use in connection with the prepara21 tion of the property for rental, or 

22 ‘‘(C) use that serves a clear business pur23 pose. 

24 Use during any part of a day shall constitute use for 

25 that day. 
100 

•S 1921 IS 

1 ‘‘(c) RENTAL PROPERTY BECOMES NONRENTAL

2 PROPERTY.—If property which is considered rental prop3 erty for purposes of subsection (a) in 1 taxable year ceases 

4 to be rental property (by reason of subsection (b)) in the 

5 following taxable year, the property (and any associated 

6 debt) shall be treated as distributed by the business entity 

7 to its owners. Section 1302 shall apply to such distribu8 tion. 

9 ‘‘CHAPTER 5—INSURANCE AND FINANCIAL 

10 PRODUCTS 

‘‘Sec. 1501. General rules. 

‘‘Sec. 1502. Fees for financial intermediation services. 

‘‘Sec. 1501. Deductible insurance premiums. 

‘‘Sec. 1501. Nondeductible insurance premiums. 

‘‘Sec. 1501. Certain implicit fees for financial intermediation services. 

11 ‘‘SEC. 1501. GENERAL RULES. 

12 ‘‘(a) TAXABLE RECEIPTS.—Except in the case of a 

13 financial intermediation business, taxable receipts do not 

14 include financial receipts (as defined in section 

15 1202(e)(2)). 

16 ‘‘(b) BUSINESS PURCHASES.—Except in the case of 

17 a financial intermediation business, business purchases do 

18 not include the cost of financial instruments (as defined 

19 in section 1602(b)(3)) or payments for use of money or 

20 capital, other than fees for financial intermediation serv21 ices. 
101 

•S 1921 IS 

1 ‘‘SEC. 1502. FEES FOR FINANCIAL INTERMEDIATION SERV2 ICES. 

3 ‘‘(a) BUSINESS PURCHASES.—Business purchases in4 clude explicit fees and implicit fees (within the meaning 

5 of section 603(a)(3)) for financial intermediation services 

6 (except to the extent that such fees are for services treated 

7 as performed outside the United States and not imported 

8 into the United States or for services treated as ex9 ported.). 

10 ‘‘(b) FINANCIAL INTERMEDIATION SERVICES.—The 

11 definition of ‘financial intermediation service’ in section 

12 1601 applies for purposes of this section. 

13 ‘‘(c) EXPLICIT FEES.— 

14 ‘‘(1) IN GENERAL.—The term ‘explicit fees for 

15 financial intermediation services’ means separately 

16 stated fees for services provided by a business entity 

17 in the financial intermediation business. Explicit fees 

18 do not include fees for use of money or capital. 

19 ‘‘(2) EXAMPLES.—Explicit fees for financial 

20 intermediation services include (without limita21 tion)— 

22 ‘‘(A) separately listed maintenance and 

23 service charges of providers of financial inter24 mediation services, 

25 ‘‘(B) loan documentation fees, 

26 ‘‘(C) brokerage fees, 
102 

•S 1921 IS 

1 ‘‘(D) safe deposit box fees, 

2 ‘‘(E) mutual fund sales, management or 

3 exit fees, 

4 ‘‘(F) loan origination, processing, docu5 mentation, or similar fees, 

6 ‘‘(G) underwriting fees, 

7 ‘‘(H) trustees’ fees, and 

8 ‘‘(I) fees for credit checks. 

9 ‘‘(3) EXCLUSIONS.—Explicit fees for financial 

10 intermediation services do not include prepaid inter11 est and other fees for use of money or capital even 

12 if such fees are separately stated or are labeled as 

13 service fees. 

14 ‘‘SEC. 1503. DEDUCTIBLE INSURANCE PREMIUMS. 

15 ‘‘(a) IN GENERAL.—The cost of insurance premiums 

16 on business loss policies to the extent that such policies 

17 insure risks in the United States constitute costs of busi18 ness purchases. Proceeds from such policies constitute tax19 able receipts. 

20 ‘‘(b) BUSINESS LOSS POLICY.—A ‘business loss pol21 icy’ is an insurance policy— 

22 ‘‘(1) owned by a business entity, 

23 ‘‘(2) the beneficiary of which is the business en24 tity or another business entity doing business with 

25 the owner of the policy, 
103 

•S 1921 IS 

1 ‘‘(3) that has no inside buildup or other savings 

2 component, 

3 ‘‘(4) that covers losses on a loss incurred or 

4 claims made basis during the term of the policy, 

5 ‘‘(5) that has a term of not more than 2 years, 

6 ‘‘(6) that is not a direct or indirect form of 

7 compensation, and 

8 ‘‘(7) that covers direct losses of the business, 

9 such as— 

10 ‘‘(A) damage to or theft of property used 

11 in the business activity, 

12 ‘‘(B) tort claims against the business, 

13 ‘‘(C) loss of use of business premises or 

14 services, 

15 ‘‘(D) malpractice, or 

16 ‘‘(E) alleged or actual breach of fiduciary 

17 obligations. 

18 ‘‘SEC. 1504. NONDEDUCTIBLE INSURANCE PREMIUMS. 

19 ‘‘(a) NONDEDUCTIBILITY.—The cost of insurance 

20 policies that are not business loss policy policies are not 

21 deductible costs of business purchases. 

22 ‘‘(b) PROCEEDS OF NONDEDUCTIBLE POLICIES.—In23 surance proceeds from policies described in subsection (a) 

24 do not constitute taxable receipts. 
104 

•S 1921 IS 

1 ‘‘(c) APPLICATION OF THIS SECTION TO CERTAIN

2 INSURANCE.—This section shall apply to life insurance 

3 policies. 

4 ‘‘SEC. 1505. CERTAIN IMPLICIT FEES FOR FINANCIAL 

5 INTERMEDIATION SERVICES. 

6 ‘‘(a) DEDUCTIBILITY OF FEES.—If a financial inter7 mediation business (as defined in section 1601) elects to 

8 determine implicit fees for financial intermediation serv9 ices pursuant to this section and notify its business cus10 tomers of their share of the implicit fees in accordance 

11 with this section, a business entity which receives such no12 tice may treat the amount reported in the notice as an 

13 implicit fee for financial intermediation services in the cal14 endar year to which such notice relates. 

15 ‘‘(b) ALLOCATION AND REPORTING.— 

16 ‘‘(1) IN GENERAL.—A financial intermediation 

17 business may— 

18 ‘‘(A) allocate fees received for services for 

19 which no separately stated fees are charged 

20 among recipients of such services on a reason21 able and consistent basis, and 

22 ‘‘(B) report to each recipient not later 

23 than February 15th of each year the amount so 

24 allocated to it with respect to the immediately 

25 preceding calendar year. 
105 

•S 1921 IS 

1 ‘‘(2) MAXIMUM FEES ALLOCATED.—The max2 imum amount that may be allocated by a financial 

3 intermediation business for a calendar year is the 

4 excess of— 

5 ‘‘(A) the gross profits of the financial 

6 intermediation business for the calendar year 

7 (as reasonably estimated by the financial inter8 mediation business), over 

9 ‘‘(B) the explicit fees for financial inter10 mediation services received by the financial 

11 intermediation business. 

12 ‘‘(3) REASONABLE ALLOCATION.—An allocation 

13 will not be considered reasonable unless it takes into 

14 account and allocates fees to— 

15 ‘‘(A) both services provided to business en16 tities and services provided to individuals (other 

17 than in a business capacity), and 

18 ‘‘(B) both persons who receive money from 

19 the financial intermediation business and per20 sons who pay money to the financial intermedi21 ation business (even though amounts allocated 

22 to the former do not constitute implicit fees). 

23 ‘‘(4) REGULATIONS.—The Secretary shall pre24 scribe regulations relating to the allocations under 

25 this subsection, including regulations addressing— 
106 

•S 1921 IS 

1 ‘‘(A) rules for timing of deductions of im2 plicit fees paid by fiscal year recipients, 

3 ‘‘(B) subsequent year adjustments if a fi4 nancial intermediation business allocates too 

5 much in a calendar year, 

6 ‘‘(C) rules for advance approval from the 

7 Secretary for allocation procedures, and 

8 ‘‘(D) safe-harbor alternatives to the alloca9 tion procedures described in this subsection. 

10 ‘‘(c) NOT APPLICABLE TO LENDING SERVICES.— 

11 This section shall not apply to lending services. 

12 ‘‘CHAPTER 6—FINANCIAL INTERMEDI13 ATION AND FINANCIAL INSTITUTIONS 

‘‘Sec. 1601. Activities constituting a financial intermediation 

business. 

‘‘Sec. 1602. General rule for taxation. 

‘‘Sec. 1603. Special rule for banks. 

‘‘Sec. 1604. Insurance companies. 

‘‘Sec. 1605. Financial pass-thru entities. 

14 ‘‘SEC. 1601. ACTIVITIES CONSTITUTING A FINANCIAL 

15 INTERMEDIATION BUSINESS. 

16 ‘‘(a) FINANCIAL INTERMEDIATION BUSINESS.—The 

17 providing of financial intermediation services shall be con18 sidered a business activity. The gross profit of a business 

19 entity providing financial intermediation services shall be 

20 determined by taking into account the rules of this sub21 chapter. 
107 

•S 1921 IS 

1 ‘‘(b) SEPARATE BUSINESS ACTIVITY.—The provision 

2 of financial intermediation services for unrelated persons 

3 shall be considered a separate business activity and a busi4 ness shall be considered a separate entity with respect to 

5 such activity. An entity engaging in such business is re6 ferred to in this chapter as a ‘financial intermediation 

7 business’. 

8 ‘‘(c) INTERNAL FINANCIAL INTERMEDIATION BY A

9 BUSINESS.—A business entity that provides financial 

10 intermediation services for itself and related parties but 

11 generally does not provide such services for unrelated par12 ties is not a financial intermediation business. 

13 ‘‘(d) DEFINITIONS.— 

14 ‘‘(1) FINANCIAL INTERMEDIATION SERVICES.— 

15 The term ‘financial intermediation services’ in16 cludes— 

17 ‘‘(A) lending services, 

18 ‘‘(B) insurance services, 

19 ‘‘(C) market-making and dealer services, 

20 and 

21 ‘‘(D) any other service provided as busi22 ness activity in which a person acts as an inter23 mediary in— 

24 ‘‘(i) the transfer of property, services, 

25 or financial assets, liabilities, risks or in-
108 

•S 1921 IS 

1 struments (or income or expense derived 

2 therefrom) between 2 or more persons, or 

3 ‘‘(ii) the pooling of economic risk 

4 among other persons and derives all or a 

5 portion of such person’s gross receipts 

6 from streams of income or expense, dis7 counts, or other financial flows associated 

8 with the matter with respect to which such 

9 person is acting as an intermediary. 

10 ‘‘(2) LENDING SERVICES.—The term ‘lending 

11 services’ means the regular making of loans and pro12 viding credit to, or taking deposits from customers, 

13 but does not include an installment or delayed pay14 ment arrangement provided by a seller of property 

15 or services under which additional charges or fees 

16 are imposed by the seller for the late payment. 

17 ‘‘(3) MARKET-MAKING OR DEALER SERVICES.— 

18 The term ‘market-making or dealer services’ means 

19 services provided by a person who— 

20 ‘‘(A) regularly purchases financial instru21 ments from or sells financial instruments to 

22 customers in the ordinary course of a trade or 

23 business, or 

24 ‘‘(B) regularly offers to enter into, assume, 

25 offset, assign, or otherwise terminate positions 
109 

•S 1921 IS 

1 in financial instruments with customers in the 

2 ordinary course of a trade or business. 

3 ‘‘SEC. 1602. GENERAL RULE FOR TAXATION. 

4 ‘‘(a) IN GENERAL.—In the case of a financial inter5 mediation business, gross profits shall be computed by— 

6 ‘‘(1) substituting financial receipts for taxable 

7 receipts, and 

8 ‘‘(2) including financial expenses as business 

9 purchases. 

10 ‘‘(b) DEFINITIONS.— 

11 ‘‘(1) FINANCIAL RECEIPTS.—The term ‘finan12 cial receipts’ means all receipts other than amounts 

13 received as contributions to capital. 

14 ‘‘(2) FINANCIAL EXPENSES.—The term ‘finan15 cial expenses’ includes— 

16 ‘‘(A) payments for principal and interest 

17 that is properly allocable to the provision of fi18 nancial intermediation services, 

19 ‘‘(B) the cost of and payments under fi20 nancial instruments (other than financial in21 struments of the person subject to the tax im22 posed under this chapter and any person re23 lated to such person), 
110 

•S 1921 IS 

1 ‘‘(C) claims and cash surrender values paid 

2 in connection with insurance or reinsurance 

3 services, and 

4 ‘‘(D) amounts paid for reinsurance. 

5 ‘‘(3) FINANCIAL INSTRUMENT.—The term ‘fi6 nancial instrument’ means any— 

7 ‘‘(A) share of stock in a corporation, 

8 ‘‘(B) equity ownership in any widely held 

9 or publicly traded partnership, trust, or other 

10 business entity, 

11 ‘‘(C) note, bond, debenture, or other evi12 dence of indebtedness, 

13 ‘‘(D) interest rate, currency, or equity no14 tional principal contract, 

15 ‘‘(E) evidence or interest in, or a derivative 

16 financial instrument in, any financial instru17 ment described in subparagraph (A), (B), (C), 

18 or (D), or any currency, including any option, 

19 forward contract, short position, and any simi20 lar financial instrument in such a financial in21 strument or currency, and 

22 ‘‘(F) a position which— 

23 ‘‘(i) is not a financial instrument de24 scribed in subparagraph (A), (B), (C), (D) 

25 or (E), 
111 

•S 1921 IS 

1 ‘‘(ii) is a hedge with respect to such 

2 a financial instrument, and 

3 ‘‘(iii) is clearly identified in the deal4 er’s records as being described in this sub5 paragraph before the close of the day on 

6 which it was acquired or entered into. 

7 ‘‘(c) INTERNATIONAL MATTERS.—For purposes of 

8 this section in the case of a financial intermediation busi9 ness with activity in and outside the United States— 

10 ‘‘(1) INCLUSION REGARDLESS OF SOURCE.— 

11 ‘‘(A) Financial receipts shall be determined 

12 without regard to whether such receipts are re13 ceived for property or service provided in or 

14 outside the United States, except that financial 

15 receipts do not include amounts that— 

16 ‘‘(i) are not taxable receipts (as deter17 mined without regard to this section), but 

18 ‘‘(ii) would have been taxable receipts 

19 (as determined without regard to this sec20 tion) if such receipts had been received for 

21 services or property in the United States. 

22 ‘‘(B) Financial expenses shall be deter23 mined without regard to whether such expenses 

24 are received for property or services acquired in 

25 or outside the United States. 
112 

•S 1921 IS 

1 ‘‘(2) ALLOCATION.—Under regulations pre2 scribed by the Secretary, gross profits (as deter3 mined without regard to this paragraph) shall be re4 duced by the amount of financial intermediation 

5 gross profit attributable to financial intermediation 

6 activity provided outside the United States. 

7 ‘‘(3) GROSS PROFIT ATTRIBUTABLE TO FINAN8 CIAL INTERMEDIATION ACTIVITY.—The term ‘gross 

9 profits attributable to financial intermediation activ10 ity’ means the excess of— 

11 ‘‘(A) gross profits as determined under 

12 this section (but without regard to paragraph 

13 (2)), over 

14 ‘‘(B) gross profits as determined without 

15 regard to this subchapter. 

16 ‘‘SEC. 1603. SPECIAL RULE FOR BANKS. 

17 ‘‘(a) IN GENERAL.—In the case of a bank, gross prof18 its shall be determined in accordance with section 1602, 

19 except that— 

20 ‘‘(1) FINANCIAL RECEIPTS.—Financial receipts 

21 shall include only— 

22 ‘‘(A) taxable receipts (as determined with23 out regard to this subchapter), 

24 ‘‘(B) interest on loans made or acquired by 

25 the bank, 
113 

•S 1921 IS 

1 ‘‘(C) gain on the sale of loans, 

2 ‘‘(D) discount points received, and 

3 ‘‘(E) any explicit fees for financial or fidu4 ciary services not included in subparagraphs 

5 (A) through (D). 

6 ‘‘(2) FINANCIAL EXPENSES.—Financial ex7 penses shall include only— 

8 ‘‘(A) interest paid to depositors and on 

9 other funds borrowed by the bank, and 

10 ‘‘(B) reasonable additions to reserves for 

11 bad debts. 

12 ‘‘(3) FORECLOSURE PROPERTY.—Gross profits 

13 shall properly take into account proceeds from the 

14 operation or sale of foreclosure property. 

15 ‘‘(b) BANK.— 

16 ‘‘(1) IN GENERAL.—The term ‘bank’ means a 

17 bank or trust company incorporated and doing busi18 ness under the laws of the United States, the Dis19 trict of Columbia, or any State, a substantial part 

20 of the business of which consists of receiving depos21 its and making loans and discounts, or of exercising 

22 fiduciary powers similar to those exercised by na23 tional banks under the authority of the Comptroller 

24 of the Currency, and which is subject by law to su25 pervision and examination by State or Federal au-
114 

•S 1921 IS 

1 thority having supervision over banking institutions 

2 or credit unions. Such term includes domestic build3 ing and loan associations and credit unions. 

4 ‘‘(2) OTHER ACTIVITIES.—If a bank is engaged 

5 in significant amounts of activities other than those 

6 described in paragraph (1), the bank shall be consid7 ered as a separate business entity with respect to 

8 such other activity. 

9 ‘‘SEC. 1604. INSURANCE COMPANIES. 

10 ‘‘(a) IN GENERAL.—In the case of companies pro11 viding insurance services, gross profits shall be determined 

12 in accordance with section 1602, except— 

13 ‘‘(1) subsection (c) of section 1602 (relating to 

14 international operations) shall not apply, and 

15 ‘‘(2) the rules of chapter 9 (sourcing rules) 

16 shall apply to determine financial receipts and finan17 cial expenses. 

18 ‘‘(b) RESULT INCONSISTENT WITH STATUTORY IN19 TENT.—If an insurance company determines that the ap20 plication of subsection (a) produces results inconsistent 

21 with the territorial approach of the business tax, it may 

22 apply to the Secretary for permission to apply section 

23 1602 in lieu of subsection (a). 
115 

•S 1921 IS 

1 ‘‘SEC. 1605. FINANCIAL PASS-THRU ENTITIES. 

2 ‘‘(a) IN GENERAL.—In the case of a financial pass3 thru entity, gross profits shall be determined in accord4 ance with section 1602. 

5 ‘‘(b) PASS-THRU ENTITY.— 

6 ‘‘(1) IN GENERAL.—The term ‘pass-thru entity’ 

7 means a business entity that is intended to serve as 

8 a conduit. The Secretary shall prescribe regulations 

9 defining pass-thru entity. Such term shall include— 

10 ‘‘(A) entities that would qualify as regu11 lated investment companies under the Internal 

12 Revenue Code of 1986, 

13 ‘‘(B) entities that would qualify as real es14 tate investment trusts under the Internal Rev15 enue Code of 1986, 

16 ‘‘(C) entities that would qualify as 

17 REMICs under the Internal Revenue Code of 

18 1986, and 

19 ‘‘(D) partnerships whose purposes are to 

20 invest the funds of the partners in financial in21 struments, distribute or reinvest the income 

22 from such investments, and distribute or rein23 vest the proceeds from the sale of such instru24 ments. 

25 ‘‘(2) ENGAGEMENT IN BUSINESS ACTIVITY.— 

26 An entity will not qualify as a pass-thru entity if it 
116 

•S 1921 IS 

1 engages in more than an insubstantial amount of 

2 business activity (other than investing in and selling 

3 financial instruments). The preceding sentence will 

4 not apply if the business entity treats the business 

5 activity as engaged in by a separate business entity 

6 (separately subject to tax under this chapter). 

7 ‘‘CHAPTER 7—TAX-EXEMPT 

8 ORGANIZATIONS 

‘‘Sec. 1701. Exemption for governmental entities. 

‘‘Sec. 1702. Taxable activity of governmental entities. 

‘‘Sec. 1703. Tax-exempt organizations. 

‘‘Sec. 1704. Special rules for (c)(3) organizations. 

‘‘Sec. 1705. Tax on unrelated business activity. 

‘‘Sec. 1706. Unrelated business activity. 

9 ‘‘SEC. 1701. EXEMPTION FOR GOVERNMENTAL ENTITIES. 

10 ‘‘Except as provided in section 1702, a State, political 

11 subdivision thereof, the District of Columbia and the gov12 ernment of any possession of the United States shall be 

13 exempt from taxation under this subtitle on any gross 

14 profits derived from the exercise of any inherently govern15 mental function. 

16 ‘‘SEC. 1702. TAXABLE ACTIVITY OF GOVERNMENTAL ENTI17 TIES. 

18 ‘‘(a) NOT INHERENTLY GOVERNMENTAL FUNC19 TION.—A governmental entity engaged in any business ac20 tivity that is not an inherently government function and 

21 shall be subject to tax. The Secretary shall by regulation 
117 

•S 1921 IS 

1 prescribe rules for differentiating inherently governmental 

2 functions in accordance with this section. 

3 ‘‘(b) CERTAIN ACTIVITIES TAXABLE.—For purposes 

4 of subsection (a), business activity of a type frequently 

5 provided by business entities subject to tax under this sub6 title include (without limitation) the— 

7 ‘‘(1) provision of transportation services, 

8 ‘‘(2) provision of travel and tour services, 

9 ‘‘(3) provision of public utility services, 

10 ‘‘(4) provision of refuse collection and recycling 

11 services, 

12 ‘‘(5) provision of athletic and recreational serv13 ices, 

14 ‘‘(6) provision of hospital services, 

15 ‘‘(7) provision of printing services, 

16 ‘‘(8) provision of water, sanitation and sewer 

17 services, 

18 ‘‘(9) provision of food and restaurant services, 

19 ‘‘(10) provision of music, theater and entertain20 ment, and 

21 ‘‘(11) provision of mail and delivery services. 

22 ‘‘(c) CERTAIN ACTIVITIES INHERENTLY GOVERN23 MENTAL.—For purposes of subsection (a), activities that 

24 are inherently governmental shall include (without limita25 tion) the provision of public safety services (including fire, 
118 

•S 1921 IS 

1 police and defense services) and the provision of justice 

2 and courts. 

3 ‘‘(d) PARITY WITH TAX-EXEMPT ORGANIZATIONS.— 

4 No governmental entity shall be subject to tax if it would 

5 not be subject to tax pursuant to section 1703 were it 

6 a private organization. 

7 ‘‘SEC. 1703. TAX-EXEMPT ORGANIZATIONS. 

8 ‘‘(a) EXEMPTION FROM TAXATION.—An organiza9 tion described in subsection (c) shall be exempt from tax10 ation under this chapter. 

11 ‘‘(b) TAX ON UNRELATED BUSINESS ACTIVITY.—An 

12 organization exempt from taxation under subsection (a) 

13 shall be subject to tax to the extent provided in sections 

14 1705 and 1706, but shall be considered a tax-exempt orga15 nization for purposes of any law that refers to tax-exempt 

16 organizations. 

17 ‘‘(c) LIST OF EXEMPT ORGANIZATIONS.—The fol18 lowing organizations are referred to in subsection (a): 

19 ‘‘(1) TITLE HOLDING COMPANIES.—Corpora20 tions organized for the exclusive purpose of holding 

21 title to property, collecting income therefrom, and 

22 turning over the entire amount thereof, less ex23 penses, to an organization which itself is exempt 

24 under this section. 
119 

•S 1921 IS 

1 ‘‘(2) RELIGIOUS AND APOSTOLIC ORGANIZA2 TIONS.—Religious or apostolic associations or cor3 porations, if such associations or corporations have 

4 a common treasury or community treasury, even if 

5 such associations or corporations engage in business 

6 for the common benefit of the members, but only if 

7 such activity is treated as unrelated business activ8 ity. 

9 ‘‘(3) CHARITABLE, RELIGIOUS, AND EDU10 CATIONAL ORGANIZATIONS.—Corporations, and any 

11 community chest, fund, or foundation, organized and 

12 operated exclusively for religious, charitable, sci13 entific, literary, or educational purposes, or for the 

14 prevention of cruelty to children or animals, no part 

15 of the net earnings of which inures to the benefit of 

16 any private shareholder or individual, no substantial 

17 part of the activities of which is carrying on propa18 ganda, or otherwise attempting, to influence legisla19 tion, and which does not participate in, or intervene 

20 in (including the publishing or distributing of state21 ments), any political campaign on behalf of (or in 

22 opposition to) any candidate for public office. 

23 ‘‘(4) QUALIFIED BENEFIT PLAN OR TRUST.—A 

24 corporation, trust, or other organization described in 
120 

•S 1921 IS 

1 any of the following paragraphs of section 501(c) of 

2 the Internal Revenue Code of 1986— 

3 ‘‘(A) paragraph (9) (relating to voluntary 

4 employees’ beneficiary associations), 

5 ‘‘(B) paragraph (11) (relating to teachers’ 

6 retirement funds), 

7 ‘‘(C) paragraph (17) (relating to supple8 mental unemployment compensation benefits), 

9 ‘‘(D) paragraph (18) (certain grand10 fathered pension trusts), 

11 ‘‘(E) paragraph (21) (relating to Black 

12 Lung Act trusts), 

13 ‘‘(F) paragraph (22) (relating to certain 

14 multiemployer trusts), or 

15 ‘‘(G) paragraph (24) (relating to certain 

16 grandfathered ERISA trusts). 

17 ‘‘SEC. 1704. SPECIAL RULES FOR (C)(3) ORGANIZATIONS. 

18 ‘‘(a) NEW ORGANIZATIONS MUST NOTIFY SEC19 RETARY.—Except as provided in subsection (b), an organi20 zation shall not be treated as an organization described 

21 in section 1703(c)(3)— 

22 ‘‘(1) unless such organization has given notice 

23 to the Secretary, in such manner as the Secretary 

24 may prescribe, that it is applying for recognition of 

25 such status, or 
121 

•S 1921 IS 

1 ‘‘(2) for any period before giving of such notice, 

2 if such notice is given after the time prescribed by 

3 the Secretary by regulations for giving notice under 

4 this subsection. 

5 ‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply 

6 to— 

7 ‘‘(1) organizations which obtained recognition 

8 of tax-exempt status under section 501(c)(3) of the 

9 Internal Revenue Code of 1986, 

10 ‘‘(2) churches, their integrated auxiliaries, and 

11 conventions and associations of churches, 

12 ‘‘(3) any organization the gross receipts of 

13 which in each taxable year are not more than 

14 $50,000, or 

15 ‘‘(4) such other classes of organizations which 

16 the Secretary may exempt. 

17 ‘‘SEC. 1705. TAX ON UNRELATED BUSINESS ACTIVITY. 

18 ‘‘(a) IN GENERAL.—Each organization described in 

19 subsection (b) shall be subject to the business tax under 

20 section 1101 on its gross profits from its unrelated busi21 ness activity. 

22 ‘‘(b) ORGANIZATIONS SUBJECT TO TAX.—This sec23 tion shall apply to organizations exempt from the business 

24 tax under section 1703. 
122 

•S 1921 IS 

1 ‘‘SEC. 1706. UNRELATED BUSINESS ACTIVITY. 

2 ‘‘(a) IN GENERAL.—The term ‘unrelated business ac3 tivity’ means any regularly carried on trade or business 

4 the conduct of which is not substantially related (aside 

5 from the need of such organization for income or funds 

6 or the use it makes of the profits derived) to the exercise 

7 or performance by such organization of its charitable, edu8 cational, or other purpose or function constituting the 

9 basis for its exemption under section 1703 

10 ‘‘(b) ADVERTISING, ETC., ACTIVITIES.—For pur11 poses of this section, the term ‘trade or business’ includes 

12 any activity which is carried on for the production of in13 come from the sale of goods or the performance of serv14 ices. For purposes of the preceding sentence, an activity 

15 does not lose identity as a trade or business merely be16 cause it is carried on within a larger aggregate of similar 

17 activities or within a larger complex of other endeavors 

18 which may, or may not, be related to the exempt purposes 

19 of the organization. Where an activity carried on for profit 

20 constitutes an unrelated trade or business, no part of such 

21 trade or business shall be excluded from such classification 

22 merely because it does not result in profit. 

23 ‘‘(c) CERTAIN BUSINESS ACTIVITIES.—The conduct 

24 of certain trades or business shall be deemed per se unre25 lated to an exempt purpose. These include (without limita26 tion) the— 
123 

•S 1921 IS 

1 ‘‘(1) provision of travel and tour services, 

2 ‘‘(2) provision of public utility services, 

3 ‘‘(3) provision of refuse collection and recycling 

4 services, 

5 ‘‘(4) provision of athletic and recreational serv6 ices, 

7 ‘‘(5) provision of hospital services, 

8 ‘‘(6) provision of water, sanitation and sewer 

9 services, 

10 ‘‘(7) provision of food and restaurant services, 

11 ‘‘(8) provision of map-making services, 

12 ‘‘(9) provision of laundry services, 

13 ‘‘(10) provision of music, theater, and enter14 tainment, and 

15 ‘‘(11) provision of mail and delivery services. 

16 ‘‘CHAPTER 8—COOPERATIVES 

‘‘Sec. 1801. Patronage dividends of cooperatives. 

17 ‘‘SEC. 1801. PATRONAGE DIVIDENDS OF COOPERATIVES. 

18 ‘‘(a) PATRONAGE DIVIDENDS PAID BY SUPPLY CO19 OPERATIVES.—A qualified patronage dividend paid by a 

20 supply cooperative to a patron shall be treated as if it is 

21 a refund of a portion of the amounts paid by the patron 

22 for goods, services, or use of capital. In general, if the 

23 supply cooperative included the amount received from the 

24 patron in taxable receipts, the dividend shall reduce tax-
124 

•S 1921 IS 

1 able receipts in the year incurred. If the recipient of the 

2 dividend is a business entity which deducted the cost of 

3 business purchases to which the dividend related, the re4 cipient will reduce its cost of business purchases by the 

5 amount of the dividend in the year the dividend is paid 

6 or incurred. 

7 ‘‘(b) PATRONAGE DIVIDENDS PAID BY MARKETING

8 COOPERATIVES.—A qualified patronage dividend paid to 

9 a patron by a marketing cooperative shall be treated as 

10 an upward price adjustment in the amount received by the 

11 patron for its goods marketed by the cooperative. In gen12 eral, the cooperative will increase its cost of business pur13 chases by the amount of the qualified patronage dividend 

14 and the recipient will increase its taxable receipts by the 

15 amount of the qualified patronage dividend. 

16 ‘‘(c) DIVIDEND TREATMENT.—Only the portion of a 

17 patronage dividend that is not a qualified patronage divi18 dend shall be treated as a dividend under this chapter and 

19 chapter 1. 

20 ‘‘(d) DEFINITIONS.— 

21 ‘‘(1) QUALIFIED PATRONAGE DIVIDEND.—The 

22 term ‘qualified patronage dividend’ means that part 

23 of a patronage dividend that is attributable to the 

24 patron’s allocable share of patronage earnings of a 

25 marketing cooperative or a supply cooperative. 
125 

•S 1921 IS 

1 ‘‘(2) SUPPLY COOPERATIVE.—The term ‘supply 

2 cooperative’ means a cooperative that sells goods or 

3 services to patrons and provided patronage dividends 

4 with respect to the quantity of purchases of the pa5 trons. 

6 ‘‘(3) MARKETING COOPERATIVE.—The term 

7 ‘marketing cooperative’ means a cooperative that 

8 sells goods produced by its members and provides 

9 patronage dividends to the members based on the 

10 quantities of goods sold or provided for sale. 

11 ‘‘(e) SPECIAL RULES.— 

12 ‘‘(1) NOTICES OF ALLOCATION AND PER-UNIT

13 RETAIN CERTIFICATES.—Except as provided in 

14 paragraph (2), a notice of allocation, per-unit retain 

15 certificate, or other similar document shall not be 

16 treated as a patronage dividend until it is redeemed 

17 in cash or property. 

18 ‘‘(2) OPPORTUNITY TO RECEIVE CASH.—If a 

19 patron is given an opportunity to receive a patron20 age dividend in cash, but instead chooses to accept 

21 a per-unit retain certificate or a qualified notice of 

22 allocation, the patron will be treated as receiving 

23 cash and simultaneously contributing to the capital 

24 of the cooperative. 
126 

•S 1921 IS 

1 ‘‘(3) APPLICATION LIMITED TO QUALIFIED CO2 OPERATIVES.—Under rules to be prescribed by the 

3 Secretary, this section shall apply only to coopera4 tives to which 1 of the following provisions of the In5 ternal Revenue Code of 1986 would have applied: 

6 ‘‘(A) Section 501(c)(12) (relating to coop7 erative telephone companies and similar organi8 zations). 

9 ‘‘(B) Section 501(c)(14) (relating to cer10 tain cooperative banks). 

11 ‘‘(C) Section 521 (relating to farm co12 operatives). 

13 ‘‘(D) Section 1381 (relating to coopera14 tives generally). 

15 ‘‘(4) REGULATIONS.—The Secretary shall pre16 scribe regulations for the application of this section. 

17 The regulations shall generally be consistent with 

18 subchapter T of chapter 1 of the Internal Revenue 

19 Code of 1986 except to the extent that such rules 

20 are inconsistent with provisions of this chapter. 

21 ‘‘CHAPTER 9—SOURCING RULES 

‘‘Sec. 1901. Exports of property or services. 

‘‘Sec. 1902. Imports of property or services. 

‘‘Sec. 1903. Import or export of services. 

‘‘Sec. 1904. International transportation services. 

‘‘Sec. 1905. International communications. 

‘‘Sec. 1906. Insurance. 

‘‘Sec. 1907. Banking services. 
127 

•S 1921 IS 

1 ‘‘SEC. 1901. EXPORTS OF PROPERTY OR SERVICES. 

2 ‘‘(a) GENERAL RULE.—Taxable receipts do not in3 clude amounts received for property or services exported 

4 from the United States by the exporter thereof for use 

5 or consumption outside the United States. 

6 ‘‘(b) EXPORT THROUGH NONBUSINESS ENTITY.— 

7 For purposes of subsection (a), if property or services are 

8 sold to a governmental entity or a tax-exempt organization 

9 for export and are exported other than in an activity of 

10 such entity which is subject to the business tax, then the 

11 seller of such property or services is deemed to be the ex12 porter thereof. 

13 ‘‘(c) EXPORT OF SERVICES.—See section 1903 for 

14 rules for determining whether services are exported or im15 ported. 

16 ‘‘SEC. 1902. IMPORTS OF PROPERTY OR SERVICES. 

17 ‘‘(a) IN GENERAL.—The import of property or serv18 ices for consumption in the United States shall constitute 

19 a business purchase if such property or service is to be 

20 used in a business activity in the United States. Property 

21 being held for sale or retail by a business entity that is 

22 in the business of selling goods shall be considered held 

23 for use in a business activity. 

24 ‘‘(b) AMOUNT OF BUSINESS PURCHASE.— 

25 ‘‘(1) IN GENERAL.—The cost of business pur26 chases with respect to the import of property or 
128 

•S 1921 IS 

1 services for use or consumption in the United States 

2 is the customs value, price, or other amount used for 

3 purposes of determining the import tax under chap4 ter 10. 

5 ‘‘(2) IMPORT TAX.—The cost of business pur6 chases does not include any import tax paid. No de7 duction shall be allowed with respect to property or 

8 service imported by a business entity unless the im9 port tax is paid with respect to such import. 

10 ‘‘SEC. 1903. IMPORT OR EXPORT OF SERVICES. 

11 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

12 this subchapter or in rules prescribed under chapter 6 (re13 lating to financial intermediation business), services shall 

14 not be treated as imported or exported from the location 

15 in which such services are performed. 

16 ‘‘(b) IMPORT OF SERVICES.—A business entity shall 

17 be treated as importing a service if the benefit will be real18 ized solely in connection with the United States business 

19 activities of the business entity. 

20 ‘‘(c) EXPORT OF SERVICES.—A business will be 

21 treated as exporting a service if the benefit will be realized 

22 solely in connection with the activities of the purchaser 

23 occurring outside the United States. 
129 

•S 1921 IS 

1 ‘‘(d) SERVICES ACQUIRED FROM SERVICE PROVIDER

2 THAT PROVIDES SERVICES IN AND OUTSIDE THE

3 UNITED STATES.— 

4 ‘‘(1) IN GENERAL.—If a business entity ac5 quires services from a service provider that provides 

6 services both in and outside the United States and 

7 the service provider shows on the invoice where the 

8 services are provided— 

9 ‘‘(A) the business entity shall treat the 

10 services as provided where stated on the invoice, 

11 and 

12 ‘‘(B) the service provider shall treat as tax13 able receipts any services listed as provided in 

14 the United States. 

15 ‘‘(2) NO INVOICE.—If a business entity acquires 

16 services from a service provider that provides serv17 ices both in and outside the United States and the 

18 service provider does not show on an invoice where 

19 such services are provided— 

20 ‘‘(A) the business entity shall treat the 

21 services as if provided in the location to which 

22 payment is sent, and 

23 ‘‘(B) the service provider shall treat as tax24 able receipts any payments received in the 

25 United States. 
130 

•S 1921 IS 

1 ‘‘(e) SPECIAL RULES PREVAIL.—See sections 1904 

2 and 1905 for special rules relating to transportation and 

3 communication services. 

4 ‘‘SEC. 1904. INTERNATIONAL TRANSPORTATION SERVICES. 

5 ‘‘(a) TRANSPORTATION OF PROPERTY.— 

6 ‘‘(1) TAXABLE RECEIPTS.— 

7 ‘‘(A) EXPORTS.—Taxable receipts do not 

8 include receipts from the transportation of 

9 property exported from the United States. 

10 ‘‘(B) IMPORTS.—Taxable receipts include 

11 receipts from transportation of property im12 ported into the United States only if such costs 

13 are not taken into account in determining the 

14 import tax. 

15 ‘‘(C) PRESUMPTIONS.—The Secretary shall 

16 prescribe regulations describing situations in 

17 which a transporter of property must presume 

18 that no import tax has been paid on the cost of 

19 its services. 

20 ‘‘(2) BUSINESS PURCHASES.— 

21 ‘‘(A) EXPORTS.—Business purchases do 

22 not include amounts paid or incurred for the 

23 cost of transportation of property exported from 

24 the United States. 
131 

•S 1921 IS 

1 ‘‘(B) IMPORTS.—Amounts paid or incurred 

2 for transportation of goods imported into the 

3 United States shall constitute a cost of business 

4 purchase only to the extent that such amounts 

5 are taken into account in determining the cus6 toms value for purposes of the import tax. 

7 ‘‘(b) TRANSPORTATION OF PASSENGERS.— 

8 ‘‘(1) TAXABLE RECEIPTS.—Taxable receipts— 

9 ‘‘(A) include receipts from the transpor10 tation of passengers from the United States to 

11 a destination outside the United States, but 

12 ‘‘(B) do not include receipts from the 

13 transportation of passengers from outside the 

14 United States to a destination in the United 

15 States. 

16 ‘‘(2) BUSINESS PURCHASES.—Business pur17 chases— 

18 ‘‘(A) include amounts paid or incurred in 

19 a business activity for the transportation of 

20 passengers from the United States to a destina21 tion outside the United States, but 

22 ‘‘(B) do not include amounts paid or in23 curred for transportation of passengers from 

24 outside the United States to a destination in 

25 the United States. 
132 

•S 1921 IS 

1 ‘‘(3) SIMPLIFYING RULES.—The Secretary may 

2 provide rules that simplify this subsection, including 

3 rules under which— 

4 ‘‘(A) half of receipts attributable to trans5 portation to or from the United States are 

6 treated as taxable receipts, 

7 ‘‘(B) half of the cost for business trips to 

8 and from the United States are treated as busi9 ness purchases, and 

10 ‘‘(C) all transportation expenses of a busi11 ness entity that has no regular business outside 

12 the United States are treated as business pur13 chases. 

14 ‘‘SEC. 1905. INTERNATIONAL COMMUNICATIONS. 

15 ‘‘(a) IN GENERAL.—For purposes of section 1902, 

16 communications services shall be treated as provided at 

17 the point of origin of the communications and shall not 

18 be treated as imported or exported. 

19 ‘‘(b) COMMUNICATIONS SERVICES.—Communications 

20 services include— 

21 ‘‘(1) telephone communications services, 

22 ‘‘(2) courier services (except in the case of 

23 transportation of property that is imported or ex24 ported), 

25 ‘‘(3) satellite transmission services, 
133 

•S 1921 IS 

1 ‘‘(4) telegraph services, 

2 ‘‘(5) facsimile transmission services, and 

3 ‘‘(6) other similar services. 

4 ‘‘SEC. 1906. INSURANCE. 

5 ‘‘(a) IN GENERAL.—Insurance services will be treat6 ed as provided at the location of the insurance company 

7 providing the services. Except as the Secretary may pre8 scribe by regulations, insurance companies will be treated 

9 as providing services at the location to which insurance 

10 payments are made. 

11 ‘‘(b) INSURED RISKS IN THE UNITED STATES.—If 

12 insurance services are provided outside the United States 

13 and the insured risk is located in the United States— 

14 ‘‘(1) the insurance service shall be treated as 

15 imported, 

16 ‘‘(2) the insurance premiums shall be subject to 

17 the import tax, and 

18 ‘‘(3) payments of insurance benefits shall not be 

19 treated as imported. 

20 ‘‘(c) INSURED RISK OUTSIDE THE UNITED

21 STATES.—If insurance services are provided inside the 

22 United States and the insured risk is located outside the 

23 United States— 

24 ‘‘(1) insurance services shall be treated as ex25 ported, and 
134 

•S 1921 IS 

1 ‘‘(2) payments of insurance benefits shall be 

2 treated as payments for services outside the United 

3 States, and shall not be deducted as business pur4 chases. 

5 ‘‘(d) INSURANCE SERVICES.—The term ‘insurance 

6 services’ means the provision of insurance and services re7 lated to insurance other than insurance that is treated as 

8 a savings asset within the meaning of section 2(p). 

9 ‘‘SEC. 1907. BANKING SERVICES. 

10 ‘‘The Secretary shall prescribe regulations on the lo11 cation of banking services and the extent to which such 

12 services are to be treated as imported or exported. 

13 ‘‘CHAPTER 10—IMPORT TAX 

‘‘Sec. 2001. Imposition of tax on import of property. 

‘‘Sec. 2002. Imposition of tax on import of services. 

‘‘Sec. 2003. General rules for the import tax. 

14 ‘‘SEC. 2001. IMPOSITION OF TAX ON IMPORT OF PROPERTY. 

15 ‘‘(a) GENERAL RULE.—There is hereby imposed a 

16 tax equal to 8.4 percent of the customs value of all prop17 erty entered into the United States for consumption, use 

18 or warehousing. 

19 ‘‘(b) LIABILITY FOR TAX.—The tax imposed on the 

20 import of property by subsection (a) shall be paid by the 

21 person entering the property into the United States for 

22 consumption, use or warehousing. Such tax shall be due 

23 and payable at the time of import. 
135 

•S 1921 IS 

1 ‘‘(c) IMPORTS OF PREVIOUSLY EXPORTED PROP2 ERTY.—In the case of any article that is classified under 

3 a heading or subheading of subchapter I or II of chapter 

4 98 of the Tariff Schedules of the United States, the tax 

5 under this section shall be imposed only on that portion 

6 of the customs value of such article that is dutiable under 

7 such heading or subheading. 

8 ‘‘(d) IMPORTS FOR PERSONAL CONSUMPTION.—The 

9 import tax imposed by this section shall not apply to the 

10 first $400 of goods imported per calendar year by a person 

11 who (1) is not a business entity or (2) if a business entity, 

12 imported such goods for a non-business purpose. 

13 ‘‘SEC. 2002. IMPOSITION OF TAX ON IMPORT OF SERVICES. 

14 ‘‘(a) GENERAL RULE.—There is hereby imposed a 

15 tax equal to 8.4 percent of the cost of all services treated 

16 as imported into the United States during the taxable year 

17 of the service recipient. 

18 ‘‘(b) LIABILITY FOR THE TAX.—The tax on the im19 port of services imposed by subsection (a) shall be paid 

20 by the person who receives the imported services. The tax 

21 shall be payable as if it were an addition to the business 

22 tax imposed by section 1101. 

23 ‘‘(c) IMPORTED SERVICES.—For purposes of this sec24 tion, services shall be treated as imported if such services 

25 are treated as imported under section 1903 (general rules 
136 

•S 1921 IS 

1 on import of services) or section 1906 (related to insur2 ance). 

3 ‘‘(d) SPECIAL RULE FOR INSURANCE.—The seller of 

4 insurance that is treated as imported under section 1906 

5 shall be liable for the collection of the tax imposed by sub6 section (a) on the insurance and for paying such tax to 

7 the Secretary. The first sentence of subsection (b) (relat8 ing to the person liable for the tax) shall apply to insur9 ance only to the extent that the seller of the insurance 

10 services does not collect such tax. 

11 ‘‘SEC. 2003. GENERAL RULES FOR THE IMPORT TAX. 

12 ‘‘(a) IMPORT TAX.—The term ‘import tax’ means the 

13 tax imposed by section 2001 on the import of property 

14 and the tax imposed by section 2002 on the import of serv15 ices. 

16 ‘‘(b) NO CREDITS.—No credits shall be allowed 

17 against the import tax, other than credit for prior overpay18 ment or credits for deposits of the import tax.’’. 

19 TITLE V—TAX ADMINISTRATION 

20 AND TRANSITION 

21 SEC. 501. TAX ADMINISTRATION AND TRANSITION. 

22 The Internal Revenue Code of 1986 is amended by 

23 inserting after subtitle C the following new subtitle: 
137 

•S 1921 IS 

1 ‘‘Subtitle D—Administration and 

2 Transition Matters 

‘‘Chapter 1. Other administrative provisions. 

‘‘Chapter 2. Collection; appeals; taxpayer rights. 

‘‘Chapter 3. Accounting method rules. 

‘‘Chapter 4. Transition rules. 

‘‘Chapter 5. Additional matters. 

3 ‘‘CHAPTER 1—OTHER ADMINISTRATIVE 

4 PROVISIONS 

‘‘Sec. 2501. Reports and payments. 

‘‘Sec. 2502. Registration. 

‘‘Sec. 2503. Accounting. 

‘‘Sec. 2504. Registration certificates. 

‘‘Sec. 2505. Penalties. 

‘‘Sec. 2506. Burden of persuasion and burden of production. 

‘‘Sec. 2507. Attorneys and accountancy fees. 

‘‘Sec. 2508. Summons, examinations, audits, etc. 

‘‘Sec. 2509. Records. 

‘‘Sec. 2510. Tax to be separately stated and charged. 

‘‘Sec. 2511. Coordination with title 11. 

‘‘Sec. 2512. Applicable interest rate. 

5 ‘‘SEC. 2501. REPORTS AND PAYMENTS. 

6 ‘‘(a) IN GENERAL.— 

7 ‘‘(1) SALES TAX REPORTS AND FILING

8 DATES.—On or before the 15th day of each month, 

9 each person who is liable to collect and remit the tax 

10 imposed by subtitle B by reason of section 103(a), 

11 or liable to pay tax imposed by subtitle B which is 

12 not collected pursuant to section 103(a) shall submit 

13 to the appropriate sales tax administering authority 

14 (in a form prescribed by the Secretary) a report re15 lating to the previous calendar month that sets 

16 forth— 
138 

•S 1921 IS 

1 ‘‘(A) the gross payments referred to in sec2 tion 101, 

3 ‘‘(B) the tax collected under this chapter 

4 in connection with such payments, 

5 ‘‘(C) the amount and type of any credit 

6 claimed, and 

7 ‘‘(D) other information reasonably required 

8 by the Secretary or the sales tax administering 

9 authority for the administration, collection and 

10 remittance of the tax imposed by subtitle B. 

11 ‘‘(2) BUSINESS TAX REPORTS AND FILING

12 DATES.—On or before the 15th day of April of each 

13 year, each person that is liable to remit tax pursuant 

14 to subtitle C shall file a tax return in the form pre15 scribed by the Secretary. 

16 ‘‘(b) TAX PAYMENTS DATE.— 

17 ‘‘(1) SALES TAX.—The tax imposed by subtitle 

18 B during any calendar month is due and shall be 

19 paid to the appropriate sales tax administering au20 thority on or before the 15th day of the succeeding 

21 month. Both Federal tax imposed by subtitle B and 

22 conforming State sales tax (as defined in section 2) 

23 (if any) shall be paid in 1 aggregate payment. 

24 ‘‘(2) BUSINESS TAX.—Business entities shall 

25 pay estimated taxes equal to no less than 100 per-
139 

•S 1921 IS 

1 cent of their estimated tax due under subtitle C 

2 within 15 days of the end of their taxable quarter. 

3 Any additional tax due shall be paid along with the 

4 business entities annual tax return. 

5 ‘‘(3) CROSS REFERENCE.—See subsection (e) 

6 relating to remitting of separate segregated funds 

7 for sellers that are not small sellers. 

8 ‘‘(c) EXTENSIONS FOR FILING REPORTS.— 

9 ‘‘(1) AUTOMATIC EXTENSIONS FOR NOT MORE

10 THAN 30 DAYS.—On application, an extension of not 

11 more than 30 days to file reports or returns required 

12 by this section shall be automatically granted. 

13 ‘‘(2) OTHER EXTENSIONS.—On application, ex14 tensions of 30 to 60 days to file such reports or re15 turns shall be liberally granted by the sales tax ad16 ministering authority or the Secretary, as the case 

17 may be, for reasonable cause. Extensions greater 

18 than 60 days may be granted by the sales tax ad19 ministering authority or the Secretary, as the case 

20 may be, to avoid hardship. 

21 ‘‘(3) NO EXTENSION FOR PAYMENT OF

22 TAXES.—Notwithstanding paragraphs (1) and (2), 

23 no extension shall be granted with respect to the 

24 time for paying or remitting the taxes under subtitle 

25 B or subtitle C. 
140 

•S 1921 IS 

1 ‘‘(d) TELEPHONE REPORTING OF VIOLATIONS.—The 

2 Secretary shall establish a system whereby violation of the 

3 this title can be brought to the attention of the sales tax 

4 administering authority for investigation through the use 

5 of a toll-free telephone number and otherwise. 

6 ‘‘(e) SEPARATE SEGREGATED ACCOUNTS.— 

7 ‘‘(1) DEPOSIT REQUIREMENT.—Any registered 

8 seller that is a not a small seller shall deposit all 

9 sales taxes collected pursuant to section 103 in a 

10 particular week in a separate segregated account 

11 maintained at a bank or other financial institution 

12 within 3 business days of the end of such week. 

13 Such registered seller shall also maintain in that ac14 count sufficient funds to meet the bank or financial 

15 institution minimum balance requirements, if any, 

16 and to pay account fees and costs. 

17 ‘‘(2) SMALL SELLER DEFINED.—For purposes 

18 of this subsection, a small seller is any person that 

19 has not collected $20,000 or more of the taxes im20 posed by subtitle B in any of the previous 12 

21 months. 

22 ‘‘(3) LARGE SELLERS.—Any seller that has col23 lected $100,000 or more of the taxes imposed by 

24 subtitle B in any of the previous 12 months is a 

25 large seller. A large seller shall remit to the sales tax 
141 

•S 1921 IS 

1 administering authority the entire balance of depos2 ited taxes in its separate segregated account on the 

3 first business day following the end of the calendar 

4 week. The Secretary may by regulation require the 

5 electronic transfer of funds due from large sellers. 

6 ‘‘(4) WEEK DEFINED.—For purposes of this 

7 subsection, the term ‘week’ shall mean the 7-day pe8 riod ending on a Friday. 

9 ‘‘(f) DETERMINATION OF REPORT FILING DATE.— 

10 A report filed pursuant to subsection (a) shall be deemed 

11 filed when— 

12 ‘‘(1) deposited in the United States mail, post13 age prepaid, addressed to the sales tax administering 

14 authority, 

15 ‘‘(2) delivered and accepted at the offices of the 

16 sales tax administering authority, 

17 ‘‘(3) provided to a designated commercial pri18 vate courier service (as defined in section 2) for de19 livery within 2 days to the sales tax administering 

20 authority at the address of the sales tax admin21 istering authority, or 

22 ‘‘(4) by other means permitted by the Sec23 retary. 

24 ‘‘(g) SECURITY REQUIREMENTS.—A large seller 

25 (within the meaning of subsection (e)(3)) shall be required 
142 

•S 1921 IS 

1 to provide security in an amount equal to the greater of 

2 $100,000 or one and one-half times the seller’s average 

3 monthly tax liability during the previous 6 calendar 

4 months. Security may be a cash bond, a bond from a sur5 ety company approved by the Secretary, a certificate of 

6 deposit, or a State or United States Treasury bond. A 

7 bond qualifying under this subsection must be a con8 tinuing instrument for each calendar year (or portion 

9 thereof) that the bond is in effect. The bond must remain 

10 in effect until the surety or sureties are released and dis11 charged. Failure to provide security in accordance with 

12 this section shall result in revocation of the seller’s section 

13 2502 registration. The security or part of the security, as 

14 the case may be, may be forfeited in favor of the Secretary 

15 to the extent of such tax due (plus interest if any) if a 

16 person who has provided security pursuant to this sub17 section— 

18 ‘‘(1) fails to pay an amount indicated in a final 

19 notice of amount due under this subtitle (within the 

20 meaning of section 2605(d)), and 

21 ‘‘(2) no Taxpayer Assistance Order is in effect 

22 relating to the amount due, and 

23 ‘‘(3) either the time for filing an appeal pursu24 ant to section 2604 has passed or the appeal was de25 nied, and 
143 

•S 1921 IS 

1 ‘‘(4) the amount due is not being litigated in 

2 any judicial forum. 

3 ‘‘(h) REWARDS PROGRAM.—The Secretary is author4 ized to maintain a program of awards wherein individuals 

5 that assist the Secretary or sales tax administering au6 thorities in discovering or prosecuting tax fraud may be 

7 remunerated. 

8 ‘‘(i) CROSS REFERENCE.—For interest due on taxes 

9 remitted late, see section 6601. 

10 ‘‘SEC. 2502. REGISTRATION. 

11 ‘‘(a) IN GENERAL.—Any person liable to collect and 

12 remit taxes pursuant to subtitle B or any business entity 

13 subject to the tax imposed by subtitle C who is engaged 

14 in a trade or business shall register as a seller with the 

15 sales tax administering authority and as a business tax16 payer with the Secretary. 

17 ‘‘(b) AFFILIATED FIRMS.—Affiliated firms (as de18 fined in section 2) shall be treated as 1 person for pur19 poses of this section. Affiliated firms may elect, upon giv20 ing notice to the Secretary in a form prescribed by the 

21 Secretary, to treat separate firms as separate persons for 

22 purposes of this subtitle. 

23 ‘‘(c) DESIGNATION OF TAX MATTERS PERSON.— 

24 Every person registered pursuant to subsection (a) shall 

25 designate a tax matters person who shall be an individual 
144 

•S 1921 IS 

1 whom the sales tax administering authority may contact 

2 regarding tax matters. Each person registered must pro3 vide notice of a change in the identity of the tax matters 

4 person within 30 days of such change. 

5 ‘‘(d) CERTIFICATES OF REGISTRATION.—The sales 

6 tax administering authority and the Secretary shall issue 

7 certificates of registration to registered sellers. 

8 ‘‘(e) EFFECT OF FAILURE TO REGISTER.—Any per9 son that is required to register and who fails to do so is 

10 hereby prohibited from selling taxable property or services. 

11 The Secretary or a sales tax administering authority may 

12 bring an action seeking a temporary restraining order, an 

13 injunction, or such other order as may be appropriate to 

14 enforce this section. 

15 ‘‘SEC. 2503. ACCOUNTING. 

16 ‘‘(a) CASH METHOD TO BE USED GENERALLY.— 

17 For purposes of subtitle B and subtitle C, persons shall 

18 report transactions using the cash method of accounting 

19 unless an election to use the accrual method of accounting 

20 is made pursuant to subsection (b) is made in the form 

21 prescribed by the Secretary. 

22 ‘‘(b) ELECTION TO USE ACCRUAL METHOD.—A per23 son may elect, in the form prescribed by the Secretary, 

24 with respect to a taxable year to remit taxes and report 

25 transactions using the accrual method of accounting. 
145 

•S 1921 IS 

1 ‘‘SEC. 2504. REGISTRATION CERTIFICATES. 

2 ‘‘The sales tax administering authority and the Sec3 retary shall issue certificates of registration to registered 

4 sellers and such other certificates as are necessary or may 

5 prove useful in the administration of the tax imposed by 

6 subtitle B or subtitle C. 

7 ‘‘SEC. 2505. PENALTIES. 

8 ‘‘(a) FAILURE TO REGISTER.—Each person who is 

9 required to register pursuant to section 2502 but fails to 

10 do so prior to notification by the sales tax administering 

11 authority shall be liable for a penalty of $500. 

12 ‘‘(b) RECKLESS OR WILLFUL FAILURE TO COLLECT

13 TAX.— 

14 ‘‘(1) CIVIL PENALTY; FRAUD.—Each person 

15 who is required to collect taxes imposed by subtitle 

16 B as part of a trade or business and recklessly or 

17 willfully fails to do so shall be liable for a penalty 

18 equal to the greater of $500 or 20 percent of the tax 

19 not collected. 

20 ‘‘(2) CRIMINAL PENALTY.—Each person who is 

21 required to collect taxes imposed by subtitle B as 

22 part of a trade or business and willfully fails to do 

23 so may be fined an amount up to the amount deter24 mined in accordance with paragraph (1) or impris25 oned for a period of not more than 1 year or both. 
146 

•S 1921 IS 

1 ‘‘(c) RECKLESS OR WILLFUL ASSERTION OF INVALID

2 EXEMPTION.— 

3 ‘‘(1) CIVIL PENALTY; FRAUD.—Each person 

4 who recklessly or willfully asserts an invalid inter5 mediate or export sales exemption from the taxes 

6 imposed by subtitle B shall be liable for a penalty 

7 equal to the greater of $500 or 20 percent of the tax 

8 not collected or remitted. 

9 ‘‘(2) CRIMINAL PENALTY.—Each person who 

10 willfully asserts an invalid intermediate or export 

11 sales exemption from the taxes imposed by subtitle 

12 B may be fined an amount up to the amount deter13 mined in accordance with paragraph (1) or impris14 oned for a period of not more than 1 year or both. 

15 ‘‘(d) RECKLESS OR WILLFUL FAILURE TO REMIT

16 TAX COLLECTED.— 

17 ‘‘(1) CIVIL PENALTY; FRAUD.—Each person 

18 who is required to remit taxes actually collected pur19 suant to subtitle B and who recklessly or willfully 

20 fails to do so shall be liable for a penalty equal to 

21 the greater of $1,000 or 40 percent of the tax not 

22 remitted. 

23 ‘‘(2) CRIMINAL PENALTY.—Each person who is 

24 required to remit taxes actually collected pursuant to 

25 subtitle B and willfully fails to do so may be fined 
147 

•S 1921 IS 

1 an amount up to the amount determined in accord2 ance with paragraph (1) or imprisoned for a period 

3 of not more than 2 years or both. 

4 ‘‘(e) RECKLESS OR WILLFUL FAILURE TO PAY

5 TAX.—Each person who is required to pay taxes imposed 

6 by subtitle B or C and recklessly or willfully fails to do 

7 so shall be liable for a penalty equal to the greater of $500 

8 or 20 percent of the tax not paid. 

9 ‘‘(f) PENALTY FOR LATE FILING.— 

10 ‘‘(1) IN GENERAL.—In the case of a failure by 

11 any person who is required to file a report or return 

12 required by subtitle B or C on or before the due 

13 date for such report (determined with regard to any 

14 extension) and fails to do so, such person shall pay 

15 a penalty for each month or fraction thereof that 

16 such report is late equal to the greater of— 

17 ‘‘(A) $50, or 

18 ‘‘(B) 0.5 percent of the gross payments 

19 (or, in the case of the business tax, gross prof20 its or the value of the imported good or service) 

21 that is required to be shown on the report. 

22 ‘‘(2) INCREASED PENALTY ON RETURNS FILED

23 AFTER WRITTEN INQUIRY.—The amount of the pen24 alty under paragraph (1) shall be doubled with re25 spect to any report filed after a written inquiry with 
148 

•S 1921 IS 

1 respect to such report is received by the taxpayer 

2 from the sales tax administering authority. 

3 ‘‘(3) The penalty imposed pursuant to this sub4 section shall not exceed 12 percent. 

5 ‘‘(4) EXCEPTIONS.— 

6 ‘‘(A) REASONABLE CAUSE.—No penalty 

7 shall be imposed under this subsection with re8 spect to any failure if it is shown that such fail9 ure is due to reasonable cause. 

10 ‘‘(B) OTHER WAIVER AUTHORITY.—In ad11 dition to penalties not imposed by reason of 

12 subparagraph (A), the sales tax administering 

13 authority, on application, shall waive the pen14 alty imposed by paragraph (1) once per reg15 istered person per 24 month period. The pre16 ceding sentence shall not apply to a penalty de17 termined under paragraph (2). 

18 ‘‘(g) PENALTY FOR WILLFULLY OR RECKLESSLY AC19 CEPTING A FALSE INTERMEDIATE OR EXPORT SALES

20 CERTIFICATE.—A person who willfully or recklessly ac21 cepts a false intermediate or export sales certificate shall 

22 pay a penalty equal to 20 percent of the tax not collected 

23 by reason of such acceptance. 

24 ‘‘(h) PENALTY FOR LATE REMITTANCE OR PAYMENT

25 OF TAXES.— 
149 

•S 1921 IS 

1 ‘‘(1) IN GENERAL.—A person who is required 

2 to timely remit or pay taxes imposed by subtitle B 

3 or subtitle C and remits or pays taxes more than 1 

4 month after they are due shall pay a penalty equal 

5 to 1 percent per month (or fraction thereof) that the 

6 remittance or payment is late provided, however, 

7 that the penalty imposed pursuant to this subsection 

8 shall not exceed 24 percent. 

9 ‘‘(2) EXCEPTIONS FOR REASONABLE CAUSE.— 

10 No penalty shall be imposed under paragraph (1) 

11 with respect to any late remittance if it is shown 

12 that such late remittance is due to reasonable cause. 

13 ‘‘(i) PENALTY FOR FILING FALSE REBATE CLAIM.— 

14 ‘‘(1) CIVIL PENALTY; FRAUD.—A person who 

15 willfully or recklessly files a false claim for a Family 

16 Consumption Allowance rebate shall— 

17 ‘‘(A) pay a penalty equal to the greater of 

18 $500 or 50 percent of the claimed annual re19 bate amount not actually due, and 

20 ‘‘(B) repay any rebates received as a result 

21 of the false rebate claim (together with inter22 est). 

23 ‘‘(2) CRIMINAL PENALTY.—A person who will24 fully files a false claim for a Family Consumption 

25 Allowance rebate may be fined an amount up to the 
150 

•S 1921 IS 

1 amount determined in accordance with paragraph 

2 (1) or imprisoned for a period not more than 1 year 

3 or both. 

4 ‘‘(j) PENALTY FOR BAD CHECK.—If any check or 

5 money order in payment of any amount due under this 

6 subtitle is not duly paid, in addition to other penalties pro7 vided by law, the person who tendered such check shall 

8 pay a penalty equal to the greater of— 

9 ‘‘(1) $25, or 

10 ‘‘(2) 2 percent of the amount of such check. 

11 ‘‘(k) PENALTY FOR FAILURE TO MAINTAIN A SEPA12 RATE SEGREGATED ACCOUNT.—Any person required to 

13 maintain a separate segregated account pursuant to sec14 tion 2501(e) who fails to maintain such a separate seg15 regated account shall pay a penalty of $500. 

16 ‘‘(l) PENALTY FOR FAILURE TO DEPOSIT COL17 LECTED TAXES IN A SEPARATE SEGREGATED AC18 COUNT.—Any person required to deposit collected taxes 

19 into a separate segregated account maintained pursuant 

20 to section 2501(e) who fails to timely deposit such taxes 

21 into the separate segregated account shall pay a penalty 

22 equal to 1 percent of the amount required to be deposited. 

23 The penalty imposed by the previous sentence shall be tri24 pled unless such taxes have been deposited in the separate 

25 segregated account or remitted to the sales tax admin-
151 

•S 1921 IS 

1 istering authority within 16 days of the date such deposit 

2 was due. 

3 ‘‘(m) PENALTY FOR INSUFFICIENT ESTIMATED TAX

4 PAYMENTS.—A business entity that does not make esti5 mated tax payments with respect to the business tax equal 

6 to at least 90 percent of the actual tax due shall be subject 

7 to a penalty equal to 5 percent of such underpayment. A 

8 business entity that does not make estimated tax pay9 ments with respect to the business tax equal to at least 

10 80 percent of the actual tax due shall be subject to a pen11 alty equal to 10 percent of such underpayment, such pen12 alty to be in lieu of the penalty imposed by the previous 

13 sentence. 

14 ‘‘(n) JOINT AND SEVERAL LIABILITY FOR TAX MAT15 TERS PERSON AND RESPONSIBLE OFFICERS.—The tax 

16 matters person (designated pursuant to section 2502(c)) 

17 and responsible officers or partners of a firm shall be 

18 jointly and severally liable for the tax imposed by this sub19 title and penalties imposed by this subtitle. 

20 ‘‘(o) RIGHT OF CONTRIBUTION.—If more than 1 per21 son is liable with respect to any tax or penalty imposed 

22 by this subtitle, each person who paid such tax or penalty 

23 shall be entitled to recover from other persons who are 

24 liable for such tax or penalty an amount equal to the ex-
152 

•S 1921 IS 

1 cess of the amount paid by such person over such person’s 

2 proportionate share of the tax or penalty. 

3 ‘‘(p) CIVIL PENALTIES AND CRIMINAL FINES NOT

4 EXCLUSIVE.— 

5 ‘‘(1) The fact that a civil penalty has been im6 posed shall not prevent the imposition of a criminal 

7 fine. 

8 ‘‘(2) The fact that a criminal fine has been im9 posed shall not prevent the imposition of a civil pen10 alty. 

11 ‘‘(q) FALSE CERTIFICATION.—A person making a 

12 false certification under section 202(d) shall pay a penalty 

13 equal to the greater of $500 or 20 percent of the business 

14 use conversion credit falsely taken. 

15 ‘‘(r) CIVIL PENALTIES NOT ADDITIVE.—More than 

16 1 civil penalty may not be imposed pursuant to this section 

17 as a result of the same act or omission. 

18 ‘‘(s) CONFIDENTIALITY.—Any person who violates 

19 the requirements relating to confidentiality of tax informa20 tion (as provided in section 2605(f)) may be fined up to 

21 $10,000 or imprisoned for a period of not more than 1 

22 year or both. 

23 ‘‘(t) CROSS REFERENCE.—For interest due on late 

24 payments, see section 6601. 
153 

•S 1921 IS 

1 ‘‘SEC. 2506. BURDEN OF PERSUASION AND BURDEN OF PRO2 DUCTION. 

3 ‘‘In all disputes concerning taxes imposed by this 

4 title, the person engaged in a dispute with the sales tax 

5 administering authority or the Secretary, as the case may 

6 be, shall have the burden of production of documents and 

7 records but the sales tax administering authority or the 

8 Secretary shall have the burden of persuasion. In all dis9 putes concerning an exemption claimed by a purchaser, 

10 if the seller has on file an intermediate sale or export sale 

11 certificate from the purchaser and did not have reasonable 

12 cause to believe that the certificate was improperly pro13 vided by the purchaser with respect to such purchase 

14 (within the meaning of section 103), then the burden of 

15 production of documents and records relating to that ex16 emption shall rest with the purchaser and not with the 

17 seller. 

18 ‘‘SEC. 2507. ATTORNEYS AND ACCOUNTANCY FEES. 

19 ‘‘In all disputes concerning taxes imposed by this 

20 title, the person engaged in a dispute with the sales tax 

21 administering authority or the Secretary, as the case may 

22 be, shall be entitled to reasonable attorneys fees, account23 ancy fees and other reasonable professional fees incurred 

24 in direct relation to the dispute unless the sales tax admin25 istering authority or the Secretary establishes that its po26 sition was substantially justified. 
154 

•S 1921 IS 

1 ‘‘SEC. 2508. SUMMONS, EXAMINATIONS, AUDITS, ETC. 

2 ‘‘(a) Persons are subject to administrative summons 

3 by the sales tax administering authority and the Secretary 

4 for records, books, papers, documents and effects required 

5 to accurately determine liability for tax under this subtitle. 

6 A summons shall be served by the sales tax administering 

7 authority or the Secretary by an attested copy delivered 

8 in hand to the person to whom it is directed or left at 

9 his last known address. The summons shall describe with 

10 reasonable certainty what is sought. 

11 ‘‘(b) The sales tax administering authority and the 

12 Secretary have the authority to conduct at a reasonable 

13 time and place examinations and audits of persons who 

14 are or may be liable to collect and remit tax imposed by 

15 this subtitle and to examine the records, books, papers, 

16 documents and effects of such persons which may be rel17 evant and material to the determination of tax due. 

18 ‘‘(c) No administrative summons may be issued by 

19 the sales tax administering authority or the Secretary and 

20 no action may be commenced to enforce an administrative 

21 summons with respect to any person if a Justice Depart22 ment referral or referral to a State Attorney General’s Of23 fice is in effect with respect to such person relating to 

24 a tax imposed by this subtitle (or relating to a conforming 

25 State sales tax). Such referral is in effect with respect to 

26 any person if the sales tax administering authority or the 
155 

•S 1921 IS 

1 Secretary has recommended to the Justice Department or 

2 a State Attorney General’s Office a grand jury investiga3 tion of such person or a criminal prosecution of such per4 son that contemplates criminal sanctions under this title. 

5 A referral shall be terminated when— 

6 ‘‘(1) the Justice Department or a State Attor7 ney General’s Office notifies the sales tax admin8 istering authority or the Secretary that such Depart9 ment of Office will not— 

10 ‘‘(A) prosecute such person for any offense 

11 connected with the internal revenue laws (or a 

12 conforming State sales tax), 

13 ‘‘(B) authorize a grand jury investigation 

14 of such person with respect to such offense, or 

15 ‘‘(C) continue such a grand jury investiga16 tion, or 

17 ‘‘(2) a final disposition has been made of any 

18 criminal proceeding connected with the internal rev19 enue laws, or conforming State sales tax, against 

20 such person. 

21 ‘‘SEC. 2509. RECORDS. 

22 ‘‘Any person liable to remit taxes pursuant to subtitle 

23 B or C shall keep records (including a record of all section 

24 2510 receipts provided, complete records of intermediate 

25 and export sales, including purchaser’s intermediate and 
156 

•S 1921 IS 

1 export sales certificates and tax number and the net of 

2 tax amount of purchase) sufficient to determine the 

3 amounts reported, collected, and remitted for a period of 

4 5 years after the latter of the filing of the report for which 

5 the records formed the basis or the date the report was 

6 due to be filed. Any purchaser who purchased taxable 

7 property or services but did not pay tax by reason of as8 serting an intermediate and export sales exemption shall 

9 keep records sufficient to determine whether such exemp10 tion was valid for a period of 6 years after the purchase 

11 of the taxable property or services. 

12 ‘‘SEC. 2510. TAX TO BE SEPARATELY STATED AND 

13 CHARGED. 

14 ‘‘(a) IN GENERAL.—For each purchase of taxable 

15 property or services for which a tax is imposed pursuant 

16 to section 101 and 1101, the seller shall charge the tax 

17 imposed by section 101 separately from the purchase. For 

18 purchase of taxable property or services for which a tax 

19 is imposed pursuant to section 101, the seller shall provide 

20 to the purchaser a receipt for each transaction that in21 cludes at least the following information— 

22 ‘‘(1) the price of the property or services exclu23 sive of tax, 
157 

•S 1921 IS 

1 ‘‘(2) the amount of tax paid (including both the 

2 tax imposed by section 101 and the tax imposed by 

3 section 1101), 

4 ‘‘(3) the price of the property or service inclu5 sive of tax, 

6 ‘‘(4) the sales tax rate and the business tax 

7 rate, 

8 ‘‘(5) the date that the good or service was sold, 

9 ‘‘(6) the name of the vendor, and 

10 ‘‘(7) the vendor registration number. 

11 ‘‘(b) VENDING MACHINE EXCEPTION.—The require12 ments of subsection (a) shall be inapplicable in the case 

13 of sales by vending machines. For purposes of this sub14 section, the term ‘vending machines’ means machines— 

15 ‘‘(1) that dispense taxable property in exchange 

16 for coins or currency, and 

17 ‘‘(2) that sell no single item exceeding $10 per 

18 unit in price. 

19 ‘‘(c) FINANCIAL INTERMEDIATION SERVICES EXCEP20 TION.—The requirements of subsection (a) shall be inap21 plicable in the case of sales of financial intermediation 

22 service. With respect to financial intermediation services, 

23 receipts shall be issued when the tax is imposed. 
158 

•S 1921 IS 

1 ‘‘SEC. 2511. COORDINATION WITH TITLE 11. 

2 ‘‘No addition to tax shall be made under section 2505 

3 with respect to a period during which a case is pending 

4 under title 11 of the United States Code— 

5 ‘‘(1) if such tax was incurred by the estate and 

6 the failure occurred pursuant to an order of the 

7 court finding probable insufficiency of funds of the 

8 estate to pay administrative expenses, or 

9 ‘‘(2) if— 

10 ‘‘(A) such tax was incurred by the debtor 

11 before the earlier of the order for relief or (in 

12 the involuntary case) the appointment of a 

13 trustee, and 

14 ‘‘(B) the petition was filed before the due 

15 date prescribed by law (including extensions) 

16 for filing a return of such tax, or the date for 

17 making the addition to tax occurs on or after 

18 the date the petition was filed. 

19 ‘‘SEC. 2512. APPLICABLE INTEREST RATE. 

20 ‘‘(a) IN GENERAL.— 

21 ‘‘(1) In the case of a debt instrument, invest22 ment, financing lease or account with a term of not 

23 over 3 years, the applicable interest rate is the Fed24 eral short-term rate. 

25 ‘‘(2) In the case of a debt instrument, invest26 ment, financing lease or account with a term of over 
159 

•S 1921 IS 

1 3 years but not over 9 years, the applicable interest 

2 rate is the Federal mid-term rate. 

3 ‘‘(3) In the case of a debt instrument, invest4 ment, financing lease or account with a term of over 

5 9 years, the applicable interest rate is the Federal 

6 long-term rate. 

7 ‘‘(b) FEDERAL SHORT-TERM RATE.—The Federal 

8 short-term rate shall be the rate determined by the Sec9 retary based on the average market yield (selected by the 

10 Secretary and ending in the calendar month in which the 

11 determination is made during any 1 month) on out12 standing marketable obligations of the United States with 

13 remaining periods to maturity of 3 years or fewer. 

14 ‘‘(c) FEDERAL MID-TERM RATE.—The Federal mid15 term rate shall be the rate determined by the Secretary 

16 based on the average market yield (selected by the Sec17 retary and ending in the calendar month in which the de18 termination is made during any 1 month) on outstanding 

19 marketable obligations of the United States with remain20 ing periods to maturity of more than 3 years and not over 

21 9 years. 

22 ‘‘(d) FEDERAL LONG-TERM RATE.—The Federal 

23 long-term rate shall be the rate determined by the Sec24 retary based on the average market yield (selected by the 

25 Secretary and ending in the calendar month in which the 
160 

•S 1921 IS 

1 determination is made during any 1 month) on out2 standing marketable obligations of the United States with 

3 remaining periods to maturity of over 9 years. 

4 ‘‘(e) DETERMINATION OF RATES.—During each cal5 endar month, the Secretary shall determine the Federal 

6 short-term rate, the Federal mid-term rate and the Fed7 eral long-term rate which shall apply during the following 

8 calendar month. 

9 ‘‘CHAPTER 2—COLLECTIONS; APPEALS; 

10 TAXPAYER RIGHTS 

‘‘Sec. 2601. Collections. 

‘‘Sec. 2602. Power to levy, etc. 

‘‘Sec. 2603. Problem resolution offices. 

‘‘Sec. 2604. Appeals. 

‘‘Sec. 2605. Taxpayer rights. 

‘‘Sec. 2606. Installment agreements; compromises. 

11 ‘‘SEC. 2601. COLLECTIONS. 

12 ‘‘The sales tax administering authority (as defined by 

13 section 2) shall collect the taxes imposed by subtitle B and 

14 the Secretary shall collect the taxes imposed by subtitle 

15 C. 

16 ‘‘SEC. 2602. POWER TO LEVY, ETC. 

17 ‘‘(a) IN GENERAL.—The sales tax administering au18 thority and the Secretary may levy and seize property, 

19 garnish wages or salary and file liens to collect amounts 

20 due under this title, pursuant to enforcement of— 

21 ‘‘(1) a judgment duly rendered by a court of 

22 law, 
161 

•S 1921 IS 

1 ‘‘(2) an amount due if the taxpayer has failed 

2 to exercise his appeals rights under section 2604, or 

3 ‘‘(3) an amount due if the appeals process de4 termined that an amount remained due and the tax5 payer has failed to timely petition the Tax Court for 

6 relief. 

7 ‘‘(b) EXEMPTION FROM LEVY, SEIZURE AND GAR8 NISHMENT.—There shall be exempt from levy, seizure and 

9 garnishment or penalty in connection with any tax im10 posed by this title— 

11 ‘‘(1) wearing apparel, school books, fuel, provi12 sions, furniture, personal effects, tools of a trade or 

13 profession, and livestock in a household up to an ag14 gregate value of $15,000, and 

15 ‘‘(2) monthly money income equal to 150 per16 cent of the monthly poverty level (as defined in sec17 tion 303). 

18 ‘‘(c) LIENS TO BE TIMELY RELEASED.—Subject to 

19 such reasonable regulations as the Secretary may provide, 

20 any lien imposed with respect to a tax imposed by this 

21 title shall be released not later than 30 days after— 

22 ‘‘(1) the liability was satisfied or became unen23 forceable, or 

24 ‘‘(2) a bond was accepted as security. 
162 

•S 1921 IS 

1 ‘‘SEC. 2603. PROBLEM RESOLUTION OFFICES. 

2 ‘‘(a) PROBLEM RESOLUTION OFFICE TO BE ESTAB3 LISHED.—Each sales tax administering authority and the 

4 Secretary shall establish an independent Problem Resolu5 tion Office and appoint an adequate number of Problem 

6 Resolution Officers. The head of the Problem Resolution 

7 Office must be appointed by, and serve at the pleasure 

8 of, either the governor of the administering State or the 

9 President of the United States. 

10 ‘‘(b) AUTHORITY OF PROBLEM RESOLUTION OFFI11 CERS.—Problem Resolution Officers shall have the au12 thority to investigate complaints and issue Taxpayer As13 sistance Orders to administratively enjoin any collection 

14 activity (by the sales tax administering authority if ap15 pointed by the governor and by the Secretary if appointed 

16 by the President) if, in the opinion of the Problem Resolu17 tion Officer, such collection activity is reasonably likely to 

18 not be in compliance with law or to prevent hardship 

19 (other than by reason of having to pay taxes lawfully due). 

20 Problem Resolution Officers shall also have the authority 

21 to issue Taxpayer Assistance Orders releasing or return22 ing property that has been levied upon or seized and order23 ing that a lien be released or that garnished wages be re24 turned. Such Taxpayer Assistance Order may only be re25 scinded or modified by the Problem Resolution Officer 

26 that issued it, by either the highest official in the relevant 
163 

•S 1921 IS 

1 sales tax administering authority or by its General Coun2 sel (or by the Secretary or his designated counsel) upon 

3 a finding that the collection activity is justified by clear 

4 and convincing evidence. The authority to reverse this tax5 payer assistance order may not be delegated. 

6 ‘‘(c) FORM OF REQUEST FOR TAXPAYER ASSISTANCE

7 ORDER.—The Secretary shall establish a form and proce8 dure to aid persons requesting the assistance of the Prob9 lem Resolution Office and to aid the Problem Resolution 

10 Office in understanding the needs of the person seeking 

11 assistance. The use of this form, however, shall not be a 

12 prerequisite to a Problem Resolution Officer taking action, 

13 including issuing a Taxpayer Assistance Order. 

14 ‘‘(d) CONTENT OF TAXPAYER ASSISTANCE ORDER.— 

15 A Taxpayer Assistance Order shall contain the name of 

16 the Problem Resolution Officer, any provision relating to 

17 the running of any applicable period of limitation, the 

18 name of the person that the Taxpayer Assistance Order 

19 assists, the Government office (or employee or officer of 

20 such Government office) to whom it is directed and the 

21 action or cessation of action that the Taxpayer Assistance 

22 Order requires of such Government office (or employee or 

23 officer of such Government office). The Taxpayer Assist24 ance Order need not contain findings of fact or its legal 

25 basis; however, the Problem Resolution Officer must pro-
164 

•S 1921 IS 

1 vide findings of fact and the legal basis for the issuance 

2 of the Taxpayer Assistance Order to the sales tax admin3 istering authority upon the request of an officer of such 

4 authority within 2 weeks of the receipt of such request. 

5 ‘‘(e) INDEPENDENCE PROTECTED.—Problem Resolu6 tion Officers shall not be disciplined or adversely affected 

7 for the issuance of administrative injunctions unless a pat8 tern of issuing injunctions that are unreasonable is proven 

9 in an administrative hearing by a preponderance of the 

10 evidence. 

11 ‘‘(f) OTHER RIGHTS NOT LIMITED.—Nothing in this 

12 section shall limit the authority of the sales tax admin13 istering authority, the Secretary, the registered person or 

14 other person from pursuing any legal remedy in any court 

15 of competent jurisdiction. 

16 ‘‘(g) LIMITATIONS.—The running of any applicable 

17 period of limitation shall be suspended for a period of 8 

18 weeks following the issuance of a Taxpayer Assistance 

19 Order or, if specified, for a longer period set forth in the 

20 Taxpayer Assistance Order, provided, however, that such 

21 suspension may not exceed 6 months. 

22 ‘‘SEC. 2604. APPEALS. 

23 ‘‘(a) ADMINISTRATIVE APPEALS.—The sales tax ad24 ministering authority and the Secretary shall establish an 

25 administrative appeals process wherein a registered per-
165 

•S 1921 IS 

1 son, business entity or other person in disagreement with 

2 a decision of the sales tax administering authority or the 

3 Secretary asserting liability for tax is provided a full and 

4 fair hearing in connection with any disputes such person 

5 has with the sales tax administering authority or the Sec6 retary. 

7 ‘‘(b) TIMING OF ADMINISTRATIVE APPEALS.—Such 

8 administrative appeal must be made within 60 days of re9 ceiving a final notice of amount due pursuant to section 

10 2605(d) unless leave for an extension is granted by the 

11 appeals officer in a form prescribed by the Secretary. 

12 Leave shall be granted to avoid hardship. 

13 ‘‘SEC. 2605. TAXPAYER RIGHTS. 

14 ‘‘(a) RIGHTS TO BE DISCLOSED.—The sales tax ad15 ministering authority or the Secretary shall provide to any 

16 person against whom it has— 

17 ‘‘(1) commenced an audit or investigation, 

18 ‘‘(2) issued a final notice of amount due, 

19 ‘‘(3) filed an administrative lien, levy or gar20 nishment, 

21 ‘‘(4) commenced other collection action, 

22 ‘‘(5) commenced an action for civil penalties, or 

23 ‘‘(6) any other legal action, 

24 a document setting forth in plain English the rights of 

25 such person. The document shall explain the administra-
166 

•S 1921 IS 

1 tive appeals process, the authority of the Problem Resolu2 tion Office (established pursuant to section 2603) and how 

3 to contact that office, the burden of production and per4 suasion that the person and the sales tax administering 

5 authority (or the Secretary as the case may be) bear (pur6 suant to section 2506), the right of the person to profes7 sional fees (pursuant to section 2507), the right to record 

8 interviews and such other rights as the person may posses 

9 under this title. Such document will also set forth the pro10 cedures for entering into an installment agreement. 

11 ‘‘(b) RIGHT TO PROFESSIONAL ASSISTANCE.—In all 

12 dealings with the sales tax administering authority (or the 

13 Secretary as the case may be), a person shall have the 

14 right to assistance, at the person’s own expense, of 1 or 

15 more professional advisors. 

16 ‘‘(c) RIGHT TO RECORD INTERVIEWS.—Any person 

17 who is interviewed by an agent of the sales tax admin18 istering authority (or the Secretary as the case may be) 

19 shall have the right to video or audio tape the interview 

20 at the person’s own expense. 

21 ‘‘(d) RIGHT TO FINAL NOTICE OF AMOUNT DUE.— 

22 No collection or enforcement action will be commenced 

23 against a person until 30 days after they have been pro24 vided with a final notice of amount due under subtitle B 

25 or C by the sales tax administering authority (or the Sec-
167 

•S 1921 IS 

1 retary as the case may be). Such final notice of amount 

2 due shall set forth the amount of tax due (along with any 

3 interest and penalties due) and the factual and legal basis 

4 for such amounts being due with sufficient specificity that 

5 such basis can be understood by a reasonable person who 

6 is not a tax professional. Such final notice shall be sent 

7 by certified mail, return receipt requested, to— 

8 ‘‘(1) the address last provided by a registered 

9 seller, business entity or other person, or 

10 ‘‘(2) in the case where an address was not pro11 vided, the best available address with respect to such 

12 person. 

13 ‘‘(f) CONFIDENTIALITY OF TAX INFORMATION.— 

14 ‘‘(1) IN GENERAL.—All reports and report in15 formation (related to any internal revenue law) shall 

16 be confidential and except as authorized by this 

17 title— 

18 ‘‘(A) no officer or employee (including 

19 former officers and employees) of the United 

20 States, 

21 ‘‘(B) no officer or employee (including 

22 former officers and employees) of any State or 

23 local agency who has had access to returns or 

24 return information, and 
168 

•S 1921 IS 

1 ‘‘(C) no other person who has had access 

2 to returns or return information, 

3 shall disclose any report or report information ob4 tained by him in any manner in connection with his 

5 service as such officer or employee or otherwise. 

6 ‘‘(2) DESIGNEES.—The sales tax administering 

7 authority may, subject to such requirements as the 

8 Secretary may impose, disclose the report and report 

9 information of a person to that person or persons as 

10 that person may designate to receive such informa11 tion or return. 

12 ‘‘(3) OTHER SALES TAX ADMINISTERING AU13 THORITIES.—A sales tax administering authority 

14 may, subject to such requirements as the Secretary 

15 may impose, disclose report and report information 

16 to another sales tax administering authority or the 

17 Secretary. 

18 ‘‘(4) INCOMPETENCY.—A sales tax admin19 istering authority or the Secretary may, subject to 

20 such requirements as the Secretary may impose, dis21 close report and report information to the com22 mittee, trustee or guardian of a person who is in23 competent. 

24 ‘‘(5) DECEASED PERSONS.—A sales tax admin25 istering authority or the Secretary may, subject to 
169 

•S 1921 IS 

1 such requirements as the Secretary may impose, dis2 close report and report information to the decedent’s 

3 ‘‘(A) administrator, executor, estate trust4 ee, or 

5 ‘‘(B) heir at law, next of kin or beneficiary 

6 under a will who has a material interest that 

7 will be affected by the report and report infor8 mation. 

9 ‘‘(6) BANKRUPTCY.—A sales tax administering 

10 authority or the Secretary may, subject to such re11 quirements as the Secretary may impose, disclose re12 port and report information to a person’s trustee in 

13 bankruptcy. 

14 ‘‘(7) CONGRESS.—Upon written request from 

15 the Chairman of the Committee on Ways and 

16 Means, the Chairman of the Committee on Finance 

17 of the Senate, or the Chairman or Chief of Staff of 

18 the Joint Committee on Taxation, a sales tax admin19 istering authority or the Secretary shall disclose re20 port and report information provided, however, that 

21 any report or report information that can be associ22 ated with or otherwise identify a particular person 

23 shall be furnished to such Committee only when sit24 ting in closed executive session unless such person 

25 otherwise consents in writing to such disclosure. 
170 

•S 1921 IS 

1 ‘‘(8) WAIVER OF PRIVACY RIGHTS.—A person 

2 may waive confidentiality rights provided by this sec3 tion. Such waiver must be in writing. 

4 ‘‘(9) INTERNAL USE.—Disclosure of report or 

5 report information by officers or employees of a 

6 sales tax administering authority (or the Secretary, 

7 as the case may be) to other officers or employees 

8 of a sales tax administering authority (or the Sec9 retary, as the case may be) in the ordinary course 

10 of tax administration activities shall not constitute 

11 unlawful disclosure of report or report information. 

12 ‘‘(10) STATISTICAL USE.—Upon request in 

13 writing by the Secretary of Commerce, the Secretary 

14 shall furnish such reports and report information to 

15 officers and employees of the Department of Com16 merce as the Secretary may prescribe by regulation 

17 for the purposes of, and only to the extent necessary 

18 in, the structuring of censuses and national eco19 nomic accounts and conducting related statistical ac20 tivities authorized by law. 

21 ‘‘(11) DEPARTMENT OF THE TREASURY.—Re22 turns and return information shall be open for in23 spection by officers and employees of the Depart24 ment of the Treasury whose official duties require 

25 such inspection or disclosure for the purpose of, and 
171 

•S 1921 IS 

1 only to the extent necessary for, preparing economic 

2 or financial forecasts, projections, analyses or esti3 mates. Such inspection or disclosure shall be per4 mitted only upon written request that sets forth the 

5 reasons why such inspection or disclosure is nec6 essary and is signed by the head of the bureau or 

7 office of the Department of the Treasury requesting 

8 the inspection or disclosure. 

9 ‘‘SEC. 2606. INSTALLMENT AGREEMENTS; COMPROMISES. 

10 ‘‘The sales tax administering authority (or the Sec11 retary, as the case may be) is authorized to enter into 

12 written agreements with any person under which the per13 son is allowed to satisfy liability for payment of any tax 

14 under this subtitle (and penalties and interest relating 

15 thereto) in installments payments if the sales tax admin16 istering authority (or the Secretary, as the case may be) 

17 determines that such agreement will facilitate the collec18 tion of such liability. The agreement shall remain in effect 

19 for the term of the agreement unless the information that 

20 the person provided to the sales tax administering author21 ity or the Secretary was materially inaccurate or incom22 plete. The sales tax administering authority (or the Sec23 retary, as the case may be) may compromise any amounts 

24 alleged to be due. 
172 

•S 1921 IS 

1 ‘‘CHAPTER 3—ACCOUNTING METHOD 

2 RULES 

‘‘Sec. 2701. General accounting rules. 

‘‘Sec. 2702. Use of the cash method of accounting. 

‘‘Sec. 2703. Taxable year. 

‘‘Sec. 2704. Long-term contracts. 

‘‘Sec. 2705. Post-sale price adjustments and refunds. 

‘‘Sec. 2706. Bad debts. 

‘‘Sec. 2707. Consolidated returns. 

‘‘Sec. 2708. Transition rules. 

3 ‘‘SEC. 2701. GENERAL ACCOUNTING RULES. 

4 ‘‘(a) IN GENERAL.—Except as provided in section 

5 2702, a business entity shall use an accrual method of 

6 accounting for purposes of determining the timing of rec7 ognition of taxable receipts and deductions of business 

8 purchases. All business purchases shall be deducted when 

9 incurred (in the case of a business entity using an accrual 

10 method of accounting) or when paid (in the case of a busi11 ness entity using the cash receipts and disbursements 

12 method of accounting) without regard to whether the busi13 ness purchases are for or relate to— 

14 ‘‘(1) inventory, 

15 ‘‘(2) assets with a useful life of more than 1 

16 year, or 

17 ‘‘(3) property that will be used to produce other 

18 property. 

19 ‘‘(b) ECONOMIC PERFORMANCE.—For purposes of 

20 determining whether an amount has been incurred, the all 

21 events test shall not be treated as met any earlier than 
173 

•S 1921 IS 

1 when economic performance with respect to such item oc2 curs. 

3 ‘‘(c) CHANGE IN ACCOUNTING METHODS.—Except as 

4 otherwise expressly provided in this chapter, a business 

5 entity shall secure the consent of the Secretary before 

6 changing the method of accounting by which it determines 

7 gross profits. This provision shall not apply to changes 

8 required by the adoption of the business tax. 

9 ‘‘SEC. 2702. USE OF THE CASH METHOD OF ACCOUNTING. 

10 ‘‘(a) IN GENERAL.—A business entity that was per11 mitted to use and used the cash receipts and disburse12 ments method of accounting under the Internal Revenue 

13 Code of 1986 shall be permitted to continue to use the 

14 cash receipts and disbursements method of accounting. A 

15 business entity that has gross receipts of less than $10 

16 million annually shall be permitted to use the cash receipts 

17 and disbursements method of accounting. 

18 ‘‘(b) NEW BUSINESS ENTITIES.—A new business en19 tity shall be permitted to use the cash receipts and dis20 bursements method of accounting if permitted to under 

21 regulations prescribed by the Secretary. 

22 ‘‘(c) CHANGE OR EXPANSION OF BUSINESS.—Sub23 section (a) shall cease to apply to a business entity that 

24 changes or expands its business such that under regula25 tions prescribed by the Secretary it is no longer eligible 
174 

•S 1921 IS 

1 to use the cash receipts and disbursements method of ac2 counting. 

3 ‘‘(d) REGULATIONS.— 

4 ‘‘(1) USE OF CASH RECEIPTS AND DISBURSE5 MENTS METHOD.—The Secretary shall prescribe reg6 ulations defining which business entities may use the 

7 cash receipts and disbursements method of account8 ing. In general, those regulations shall be consistent 

9 with the rules under sections 447 and 448 of the In10 ternal Revenue Code of 1986, except that all cor11 porations shall be treated as C corporations were 

12 treated under those sections. 

13 ‘‘(2) CHANGE IN ACCOUNTING METHOD.—The 

14 Secretary shall prescribe regulations to prevent dou15 ble counting of taxable receipts and deductible ex16 penses in the case of a change in accounting method. 

17 ‘‘SEC. 2703. TAXABLE YEAR. 

18 ‘‘(a) COMPUTATION OF GROSS PROFITS.—Gross 

19 profits shall be computed on the basis of a business enti20 ty’s taxable year. 

21 ‘‘(b) TAXABLE YEAR.—The term ‘taxable year’ 

22 means— 

23 ‘‘(1) the taxpayer’s annual accounting period, if 

24 it is a calendar year or a fiscal year, 
175 

•S 1921 IS 

1 ‘‘(2) the calendar year, if subsection (g) applies, 

2 or 

3 ‘‘(3) the period for which the return is made if 

4 the return is made for a period of less than 12 

5 months. 

6 ‘‘(c) ANNUAL ACCOUNTING PERIOD.—The term ‘an7 nual accounting period’ means the annual period on the 

8 basis of which the business entity regularly keeps its 

9 books. 

10 ‘‘(d) CALENDAR YEAR.—The term ‘calendar year’ 

11 means a period of 12 months ending on December 31. 

12 ‘‘(e) FISCAL YEAR.—The term ‘fiscal year’ means a 

13 period of 12 months ending on the last day of any month 

14 other than December. In the case of any business entity 

15 that has made the election provided by subsection (f), the 

16 term means the annual period (varying from 52 to 53 

17 weeks) so elected. 

18 ‘‘(f) ELECTION OF 52- to 53-WEEK YEAR.— 

19 ‘‘(1) GENERAL RULE.—A business entity which, 

20 in keeping its books, regularly computes its income 

21 or profits on a basis of an annual period which var22 ies from 52 to 53 weeks and ends always on the 

23 same day of the week and ends always— 

24 ‘‘(A) on whatever date such same day of 

25 the week last occurs in a calendar month, or 
176 

•S 1921 IS 

1 ‘‘(B) on whatever date such same day of 

2 the week falls which is nearest to the last day 

3 of a calendar month, may elect to compute its 

4 gross profits on the basis of such annual period. 

5 ‘‘(2) REGULATIONS.—The Secretary shall pre6 scribe such regulations as he deems necessary for 

7 the application of this subsection, including regula8 tions relating to the application of effective dates to 

9 taxpayers using a 52- to 53-week year. 

10 ‘‘(g) CALENDAR YEAR REQUIRED.— 

11 ‘‘(1) NO ACCOUNTING PERIOD.—A business en12 tity’s taxable year shall be the calendar year if the 

13 business entity does not have an annual accounting 

14 period or has an annual accounting period that does 

15 not qualify as a fiscal year. 

16 ‘‘(2) NEW BUSINESS ENTITY.—The taxable 

17 year of a business entity that begins business activ18 ity after December 31, 2006, shall be the calendar 

19 year (or a 52- to 53-week fiscal year ending in De20 cember) unless the business entity can demonstrate 

21 a business reason for selecting an accounting period 

22 other than the calendar year. 

23 ‘‘(h) TRANSITION RULE FOR BUSINESS ENTITIES

24 WITH A FISCAL YEAR.— 
177 

•S 1921 IS 

1 ‘‘(1) IN GENERAL.—A business entity with a 

2 taxable year that is not the calendar year shall have 

3 a short taxable year ending on December 31, 2006, 

4 and a subsequent taxable year beginning on January 

5 1, 2007, and ending on the day immediately pre6 ceding the beginning of the business entity’s next 

7 fiscal year. 

8 ‘‘(2) BUSINESS ENTITIES WITH 52- TO 53-WEEK

9 YEAR ENDING IN DECEMBER.— 

10 ‘‘(A) IN GENERAL.—If a business entity 

11 has a 52- to 53-week taxable year (under the 

12 Internal Revenue Code of 1986) that ends in 

13 December 2006, it may elect to begin its first 

14 taxable year for the business tax on the first 

15 day immediately following the last day of such 

16 taxable year. 

17 ‘‘(B) NO ELECTION.—If a business entity 

18 that has a 52- to 53-week taxable year that 

19 ends in December 2006, does not make the 

20 election under subparagraph (A) or is prohib21 ited from making such election by subpara22 graph (C), the business entity’s taxable year 

23 under the Internal Revenue Code of 1986 that 

24 would end in December 2006 shall end on De25 cember 31, 2006. 
178 

•S 1921 IS 

1 ‘‘(C) ANTI-ABUSE RULE.—Subparagraph 

2 (A) shall not apply to any taxpayer that enters 

3 into business transactions in 2006 following the 

4 scheduled end of its fiscal year with business 

5 entities that are not subject to the business tax 

6 at the time of such transactions if such trans7 actions deviate from the normal course of busi8 ness in order to achieve some tax benefit. 

9 ‘‘SEC. 2704. LONG-TERM CONTRACTS. 

10 ‘‘(a) IN GENERAL.—In the case of a long-term con11 tract— 

12 ‘‘(1) CONTRACTOR EXPENSES.—The contractor 

13 shall be entitled to deduct its business purchases 

14 when paid or incurred. 

15 ‘‘(2) CONTRACTOR RECEIPTS.—The contractor 

16 shall recognize taxable receipts— 

17 ‘‘(A) in the case of a project in which the 

18 acquirer has no ownership interest in the 

19 project until delivery— 

20 ‘‘(i) upon delivery of the project, in 

21 the case of an accrual basis contractor, or 

22 ‘‘(ii) upon the later of delivery of the 

23 project or the receipt of payment, in the 

24 case of a cash-basis contractor, and 
179 

•S 1921 IS 

1 ‘‘(B) in the case of a project in which the 

2 acquirer obtains an ownership interest as the 

3 project is constructed— 

4 ‘‘(i) when the contractor has the right 

5 to payments, in the case of an accrual 

6 basis contractor, or 

7 ‘‘(ii) upon the later of when the con8 tractor receives the cash or has the right 

9 to payments, in the case of a cash basis 

10 contractor. 

11 ‘‘(3) ACQUIRER EXPENSES.—The acquirer that 

12 is a business entity shall be entitled to deduct its 

13 costs of the business purchase— 

14 ‘‘(A) in the case of a cash-basis acquirer, 

15 at such time as a cash basis contractor would 

16 be required to treat the amounts paid as tax17 able receipts, or 

18 ‘‘(B) in the case of an accrual-basis 

19 acquirer, at such time as an accrual basis con20 tractor would be required to treat the amounts 

21 paid or due as taxable receipts. 

22 ‘‘(b) RIGHT TO PAYMENTS.— 

23 ‘‘(1) IN GENERAL.—A contractor shall be treat24 ed as having a right to payments with respect to a 

25 project at any time to the extent that the contractor 
180 

•S 1921 IS 

1 would not be required to return payments received 

2 (or would be entitled to collect payments not yet re3 ceived) if the project were terminated at such time 

4 by the contractor. 

5 ‘‘(2) CONTRACTUAL PROVISIONS.—If a long6 term contract includes a procedure for paying the 

7 contractor as work is completed (for example, by 

8 reason of a draw down from a trust account), the 

9 contractual provisions shall generally govern when a 

10 contractor has a right to payment. 

11 ‘‘(3) PERCENTAGE COMPLETION METHOD OF

12 ACCOUNTING.—If a long-term contract does not in13 clude a mechanism for paying the contractor as 

14 work is completed, the percentage-of-completion 

15 method of accounting shall be used to determine the 

16 timing of taxable receipts of the contractor and busi17 ness purchases of the acquirer. 

18 ‘‘(c) LONG-TERM CONTRACT.— 

19 ‘‘(1) IN GENERAL.—The term ‘long-term con20 tract’ means— 

21 ‘‘(A) any contract that covers service or 

22 production through parts of 2 different calendar 

23 years if the contract includes a formal deposit 

24 and draw-down mechanism, and 
181 

•S 1921 IS 

1 ‘‘(B) any contract for the manufacture, 

2 building, installation, or construction of prop3 erty if such contract is not completed within the 

4 taxable year of the contractor in which such 

5 contract is entered into. 

6 ‘‘(2) EXCEPTION.—A contract for the manufac7 ture of property shall not be treated as a long-term 

8 contract unless such contract involves the manufac9 ture of— 

10 ‘‘(A) any unique item of a type which is 

11 not normally included in the finished goods in12 ventory of the taxpayer, or 

13 ‘‘(B) any item which normally requires 

14 more than 12 calendar months to complete. 

15 ‘‘(d) CONSISTENCY.—The Secretary may require 

16 business entities to file statements containing such infor17 mation with respect to long-term contracts as the Sec18 retary may prescribe to ensure consistency in reporting. 

19 ‘‘(e) FOREIGN CONTRACTS.—This section shall not 

20 be construed to permit a deduction for a business purchase 

21 for the cost of property produced outside the United 

22 States pursuant to a long-term contract at any time prior 

23 to the import of such property into the United States. 
182 

•S 1921 IS 

1 ‘‘SEC. 2705. POST-SALE PRICE ADJUSTMENTS AND RE2 FUNDS. 

3 ‘‘(a) RECEIPT OF PRICE ADJUSTMENT.—In the case 

4 of a post-sale price adjustment attributable to a business 

5 purchase which was taken into account in computing gross 

6 profits for a prior taxable year, the amount of such adjust7 ment shall be treated as a reduction or increase, as the 

8 case may be, in the cost of business purchases for the tax9 able year in which the adjustment is made or incurred. 

10 ‘‘(b) ISSUANCE OF PRICE ADJUSTMENT.—In the case 

11 of a post-sale price adjustment attributable to a sale the 

12 receipts from which were taken into account in deter13 mining taxable receipts for a prior taxable year, the 

14 amount of such adjustment shall be treated as a reduction 

15 or increase, as the case may be, in taxable receipts for 

16 the taxable year in which the adjustment is made or in17 curred. 

18 ‘‘(c) POST-SALE PRICE ADJUSTMENT.—The term 

19 ‘post-sale price adjustment’ means a refund, rebate, or 

20 other price allowance attributable to a sale of property or 

21 services or an upward adjustment in price that was not 

22 previously taken into account under the business entity’s 

23 method of accounting. 

24 ‘‘SEC. 2706. BAD DEBTS. 

25 ‘‘(a) SELLER.—If an amount owed to an accrual 

26 basis business entity for property or services sold— 
183 

•S 1921 IS 

1 ‘‘(1) was taken into account as a taxable receipt 

2 in a prior taxable year, and 

3 ‘‘(2) becomes wholly or partially uncollectible 

4 during the taxable year, 

5 then the seller shall treat the amount as a reduction in 

6 taxable receipts for the taxable year in which it becomes 

7 wholly or partially uncollectible. 

8 ‘‘(b) NOTICE REQUIREMENT.—No reduction shall be 

9 allowed under subsection (a) unless the seller notifies the 

10 purchaser of the amount which the seller has treated as 

11 wholly or partially uncollectible. 

12 ‘‘(c) SUBSEQUENT COLLECTION.—If an amount 

13 which was treated as uncollectible under subsection (a) is 

14 subsequently collected, it shall be treated as a taxable re15 ceipt when collected. 

16 ‘‘(d) PURCHASER.—If a purchaser receives notice 

17 under subsection (b) from a seller and the purchaser has 

18 treated the amount labeled uncollectible as a business pur19 chase in a prior taxable year, then the purchaser shall 

20 treat such amount as a reduction in the cost of business 

21 purchases in the taxable year to which the notice relates. 

22 If the purchaser subsequently repays such amount, the re23 payment shall constitute the cost of a business purchase. 
184 

•S 1921 IS 

1 ‘‘SEC. 2707. CONSOLIDATED RETURNS. 

2 ‘‘(a) IN GENERAL.—Business entities may file con3 solidated returns of business tax if such entities would 

4 have been permitted to file consolidated returns under sec5 tion 1501 of the Internal Revenue Code of 1986 and such 

6 section was applied by treating each business entity as a 

7 corporation and its owners or partners as shareholders. 

8 ‘‘(b) FINANCIAL INSTITUTIONS.—Financial inter9 mediation businesses may be included in consolidated re10 turns, but each financial intermediation business must 

11 compute its gross profits separately. 

12 ‘‘(c) INTERCOMPANY TRANSACTIONS.—In computing 

13 the gross profits of a consolidated group, intercompany 

14 transactions can be taken into account, or at the election 

15 of the filer, be disregarded (except in the case of trans16 actions with financial intermediation businesses). 

17 ‘‘SEC. 2708. TRANSITION RULES. 

18 ‘‘(a) NO DOUBLE DEDUCTIONS.—A business entity 

19 shall not be entitled to treat as a ‘cost of business pur20 chase’ any amount that the business entity deducted in 

21 computing taxable income under the income tax in effect 

22 prior to the effective date of the business tax. 

23 ‘‘(b) NO DOUBLE INCLUSION.—A business entity 

24 shall not be required to include in taxable receipts any 

25 receipt that the business entity took into account in com-
185 

•S 1921 IS 

1 puting taxable income under the income tax in effect prior 

2 to the effect date of the business tax. 

3 ‘‘(c) NO LOSS OF DEDUCTION.—An expense which— 

4 ‘‘(1) a business entity would have been able to 

5 deduct as a cost of a business purchase in an ac6 counting period before the effective date of the busi7 ness tax if the business tax had been in effect in 

8 such period, and 

9 ‘‘(2) the business entity would have been able to 

10 deduct as an expense in computing taxable income 

11 in a period after the business tax is effective if the 

12 income tax had continued in effect, 

13 shall be treated as a cost of a business purchase incurred 

14 or paid at the time that it would have been paid or in15 curred under the income tax if the income tax had contin16 ued in effect. This subsection shall not apply to any 

17 amount which is to be taken into account under chapter 

18 4 (relating to amortization of transition basis, and inven19 tory costs), any amounts which would have been deducted 

20 under the income tax through loss carryover deductions, 

21 or any deductions deferred by the uniform capitalization 

22 rules under section 263A of the Internal Revenue Code 

23 of 1986. 

24 ‘‘(d) ALL TAXABLE RECEIPTS TAXED.—A receipt 

25 which— 
186 

•S 1921 IS 

1 ‘‘(1) a business entity would have been required 

2 to treat as a taxable receipt in an accounting period 

3 before the effective date of the business tax if the 

4 business tax had been in effect in such period, and 

5 ‘‘(2) the business entity would have been re6 quired to include in gross income in a period after 

7 the business tax is effective if the income tax had 

8 continued in effect, 

9 shall be treated as a taxable receipt at the time that it 

10 would have been included in income if the income tax had 

11 continued in effect. 

12 ‘‘CHAPTER 4—TRANSITION RULES 

‘‘Sec. 2801. Amortization of transition basis. 

‘‘Sec. 2802. Sales of transition basis property. 

‘‘Sec. 2803. Carryovers. 

‘‘Sec. 2804. Transition inventory credit. 

13 ‘‘CHAPTER 4—TRANSITION RULES 

14 ‘‘SEC. 2801. AMORTIZATION OF TRANSITION BASIS. 

15 ‘‘(a) TRANSITION BASIS DEDUCTION.—The ‘transi16 tion basis deduction’ for a taxable year is the sum of the 

17 amortization allowance determined under this section for 

18 the taxable year using either— 

19 ‘‘(1) the 1986 Internal Revenue Code Method, 

20 or 

21 ‘‘(2) the simplified method. 

22 ‘‘(b) AMORTIZATION RULES.—For purposes of the 

23 simplified method, the amortization allowance for each 
187 

•S 1921 IS 

1 category of amortizable basis shall be determined by amor2 tizing the amortizable basis of such category ratably over 

3 the amortization period determined in subsection (c) for 

4 the category beginning January 1, 2007. 

5 ‘‘(c) AMORTIZATION PERIOD.—The amortization pe6 riods shall be determined in accordance with the following 

7 table: 

‘‘In the case of: The amortization period is: 

Category I basis ........................................................... 8 years. 

Category II basis .......................................................... 20 years. 

Category III basis ........................................................ 30 years. 

Unrecovered inventory costs ......................................... 2 years. 

8 ‘‘(d) CATEGORIES.— 

9 ‘‘(1) CATEGORY I BASIS.—The term ‘Category 

10 I basis’ is the sum of the unrecovered bases as of 

11 January 1, 2007, of all depreciable property placed 

12 in service prior to January 1, 2007, and the 

13 unamortized portion of amortizable costs incurred 

14 before January 1, 2007, if— 

15 ‘‘(A) cost recovery or amortization began 

16 before January 1, 2007, and 

17 ‘‘(B) the remaining recovery period or am18 ortization period as of January 1, 2007, is less 

19 than 15 years. 

20 ‘‘(2) CATEGORY II BASIS.—The term ‘Category 

21 II basis’ is the sum of the unrecovered bases as of 

22 January 1, 2007, of all depreciable property placed 

23 in service prior to January 1, 2007, and the 
188 

•S 1921 IS 

1 unamortized portion of amortizable costs incurred 

2 before January 1, 2007, if— 

3 ‘‘(A) cost recovery or amortization began 

4 before January 1, 2007, and 

5 ‘‘(B) the remaining recovery period or am6 ortization period as of January 1, 2007, is 15 

7 years or more. 

8 ‘‘(3) CATEGORY III BASIS.—The term ‘Category 

9 III basis’ is the sum of the adjusted basis of each 

10 asset satisfying the following requirements: 

11 ‘‘(A) The asset was placed in service prior 

12 to January 1, 2007. 

13 ‘‘(B) The asset was used in a business ac14 tivity in 2007. 

15 ‘‘(C) The cost of the asset was capitalized 

16 and not depreciable or otherwise recoverable 

17 under the Internal Revenue Code of 1986. 

18 ‘‘(D) The cost of the asset would have con19 stituted deductible expenses under the business 

20 tax if such cost had been incurred after 2006. 

21 ‘‘(4) UNRECOVERED INVENTORY COSTS.—The 

22 term ‘unrecovered inventory costs’ means the cost of 

23 goods sold (as determined under the Internal Rev24 enue Code of 1986) determined as if a business enti-
189 

•S 1921 IS 

1 ty sold all of its inventory (including inventory being 

2 produced) on the effective date of the business tax. 

3 ‘‘(e) RULES OF APPLICATION.— 

4 ‘‘(1) REMAINING RECOVERY PERIOD.— 

5 ‘‘(A) TIME OF MEASURE.—The remaining 

6 recovery period shall be determined as of De7 cember 31, 2006, and shall include each taxable 

8 year ending after such date in which a deduc9 tion would have been allowed under the Internal 

10 Revenue Code of 1986. 

11 ‘‘(B) ACCOUNTING METHOD.—The remain12 ing recovery period shall be determined using 

13 the cost recovery method and rules applicable 

14 for determining taxable income under the Inter15 nal Revenue Code of 1986. 

16 ‘‘(2) DEPLETABLE ASSETS.—Under rules pre17 scribed by the Secretary, this section shall apply to 

18 the remaining cost basis of depletable property and 

19 to other property for which a cost recovery method 

20 other than one based on time is used. 

21 ‘‘(f) 1986 INTERNAL REVENUE CODE METHOD.— 

22 The ‘transition basis deduction’ for a taxable year using 

23 the ‘1986 Internal Revenue Code Method’ shall be deter24 mined by determining the capital cost recovery, amortiza25 tion and depletion deductions that would have been al-
190 

•S 1921 IS 

1 lowed for property placed in service prior to the date of 

2 the enactment of this section as if the Internal Revenue 

3 Code of 1986 were still in place. 

4 ‘‘(g) IRREVOCABLE ELECTION.—A taxpayer must 

5 make an irrevocable election with the first business tax 

6 return filed after the date of the enactment of this section 

7 (relating to the tax imposed by section 1101) to use either 

8 the simplified method or the 1986 Internal Revenue Code 

9 Method for determining the transition basis deduction. 

10 ‘‘SEC. 2802. SALES OF TRANSITION BASIS PROPERTY. 

11 ‘‘(a) IN GENERAL.—Except as provided in subsection 

12 (b), for purposes of determining the tax consequences of 

13 a sale, retirement, casualty or conversion to personal use 

14 of an asset whose basis or cost is taken into account under 

15 section 2801, the amount to be amortized shall be treated 

16 as fully deducted upon the adoption of the business tax. 

17 ‘‘(b) SUBSTANTIAL SALES.— 

18 ‘‘(1) IN GENERAL.—In the case of a substantial 

19 sale of assets to which the amortization rules of sec20 tion 2801 apply, the purchaser and seller may joint21 ly elect to have the purchaser assume the amortiza22 tion deductions attributable to such assets, in which 

23 case— 

24 ‘‘(A) the seller’s taxable receipts from such 

25 sale shall be reduced by the amount of 
191 

•S 1921 IS 

1 unamortized basis or cost assumed by the pur2 chaser, 

3 ‘‘(B) the purchaser may treat as a cost of 

4 a business purchase only the portion of the pur5 chase price in excess of the amount of 

6 unamortized basis or cost assumed, and 

7 ‘‘(C) the unamortized basis or cost as8 sumed shall continue to be amortized in the 

9 manner amortized by the seller. 

10 ‘‘(2) SUBSTANTIAL SALE.—A sale of assets by 

11 a business entity to another business entity is a sub12 stantial sale if— 

13 ‘‘(A) more than 20 percent (in fair market 

14 value or in original cost) of the assets of the 

15 seller are sold, 

16 ‘‘(B) the total consideration for the sale 

17 exceeds $1,000,000 or 20 percent of the taxable 

18 receipts of the seller for the taxable year pre19 ceding the year of the sale, or 

20 ‘‘(C) the sale satisfies other criteria estab21 lished by the Secretary to prevent distortions in 

22 gross profits resulting from asset sales. 

23 ‘‘SEC. 2803. CARRYOVERS. 

24 ‘‘(a) NO LOSS CARRYOVERS.—No deduction shall be 

25 allowed under the business tax for net operating loss 
192 

•S 1921 IS 

1 carryovers, capital loss carryovers, or any other loss 

2 carryovers from the income tax under the Internal Rev3 enue Code of 1986. 

4 ‘‘(b) NO CREDIT CARRYOVERS.—No credits shall be 

5 allowed under the business tax for business credit 

6 carryovers, minimum tax credit carryovers, or any other 

7 credit carryovers from the income tax under the Internal 

8 Revenue Code of 1986. 

9 ‘‘SEC. 2804. TRANSITION INVENTORY CREDIT. 

10 ‘‘(a) INVENTORY.— 

11 ‘‘(1) QUALIFIED INVENTORY.—Inventory held 

12 by a trade or business on the close of business De13 cember 31, 2006 shall be qualified inventory if it is 

14 sold— 

15 ‘‘(A) before December 31, 2008, 

16 ‘‘(B) by a registered person, and 

17 ‘‘(C) subject to the tax imposed by section 

18 101 (or incorporated into taxable property or 

19 services subject to the tax imposed by section 

20 101). 

21 ‘‘(2) COST.—For purposes of this section, quali22 fied inventory shall have the cost that it had for 

23 Federal income tax purposes for the trade or busi24 ness as of December 31, 2006 (including any 

25 amounts capitalized by virtue of Internal Revenue 
193 

•S 1921 IS 

1 Code section 263A as in effect on December 31, 

2 2006). 

3 ‘‘(3) TRANSITIONAL INVENTORY CREDIT.—The 

4 trade or business which held the qualified inventory 

5 on the close of business on December 31, 2006 shall 

6 be entitled to a transitional inventory credit equal to 

7 the cost of the qualified inventory (determined in ac8 cordance with subparagraph (2)) times the rate of 

9 tax imposed by section 101. The business entitled to 

10 the transitional inventory credit may sell the right to 

11 receive such transitional inventory credit. 

12 ‘‘(4) TIMING OF CREDIT.—The credit provided 

13 under subparagraph (3) shall be allowed with re14 spect to the month when the inventory is sold sub15 ject to the tax imposed by this subtitle. Such credit 

16 shall be reported as an intermediate and export sales 

17 credit and the person claiming such credit shall at18 tach supporting schedules in the form that the Sec19 retary may prescribe. 

20 ‘‘(b) WORK-IN-PROCESS.—For purposes of this sec21 tion, inventory shall include work-in-process. 

22 ‘‘(c) QUALIFIED INVENTORY HELD BY BUSINESSES

23 NOT SELLING SUCH QUALIFIED INVENTORY AT RE24 TAIL.— 
194 

•S 1921 IS 

1 ‘‘(1) IN GENERAL.—Qualified inventory held by 

2 a business that sells such qualified inventory not 

3 subject to tax pursuant to section 102(a) shall be el4 igible for the transitional inventory credit only if 

5 that business (or a business that has successor 

6 rights pursuant to paragraph (2)) receives certifi7 cation in a form satisfactory to the Secretary that 

8 the qualified inventory was subsequently sold subject 

9 to the tax imposed by this subtitle (or incorporated 

10 into taxable property or services sold subject to the 

11 tax imposed by section 101). 

12 ‘‘(2) TRANSITIONAL INVENTORY CREDIT RIGHT

13 MAY BE SOLD.—Any purchaser of such qualified in14 ventory (or taxable property or services into which 

15 the qualified inventory has been incorporated) may 

16 sell the right to such transitional inventory credit to 

17 a subsequent purchaser of such qualified inventory 

18 (or taxable property or services into which the quali19 fied inventory has been incorporated). 

20 ‘‘CHAPTER 5—ADDITIONAL MATTERS 

‘‘Sec. 2901. Additional matters. 

‘‘Sec. 2902. Wages to be reported to Social Security Administration. 

‘‘Sec. 2903. Trust Fund revenues. 

21 ‘‘SEC. 2901. ADDITIONAL MATTERS. 

22 ‘‘(a) INTANGIBLE PROPERTY ANTI AVOIDANCE

23 RULE.—Notwithstanding section 2, the sale of a copyright 
195 

•S 1921 IS 

1 or trademark shall be treated as the sale of taxable prop2 erty or services (within the meaning of section 102) if the 

3 substance of such sale of copyright or trademark con4 stituted the sale of the services that produced the copy5 righted material or the trademark. 

6 ‘‘(b) DE MINIMIS PAYMENTS.—Up to $400 of aggre7 gate gross payments per calendar year shall be exempt 

8 from the tax imposed by section 101 if— 

9 ‘‘(1) made by a person not in connection with 

10 a trade or business, and 

11 ‘‘(2) made to purchase any taxable property or 

12 service which is imported into the United States by 

13 such person for use or consumption by such person 

14 (or their family within the meaning of section 

15 302(b)) in the United States. 

16 ‘‘(c) DE MINIMIS SALES.—Up to $1,200 per calendar 

17 year of gross payments received by a person shall be ex18 empt from the tax imposed by section 101 if received by 

19 a person not in connection with a trade or business, and 

20 in connection with casual or isolated sales. 

21 ‘‘(d) DE MINIMIS SALE OF FINANCIAL INTERMEDI22 ATION SERVICES.—Up to $10,000 per calendar year of 

23 gross payments received by a person from the sale of fi24 nancial intermediation services (as determined in accord25 ance with section 601) shall be exempt from the tax im-
196 

•S 1921 IS 

1 posed by section 101. The exemption provided by this sub2 section is in addition to other exemptions afforded by this 

3 chapter. The exemption provided by this subsection shall 

4 not be available to large sellers (as defined in section 

5 2501(e)(3)). 

6 ‘‘(e) PROXY PURCHASE OR PROVISION TAXABLE.— 

7 The purchase for, or provision to, a person by a registered 

8 person of taxable property or services as a gift, prize, re9 ward, remuneration for employment or for a similar pur10 pose, such taxable property or services having not pre11 viously been subject to tax pursuant to section 101, shall 

12 be deemed the conversion of such taxable property or serv13 ices to personal use subject to tax pursuant to section 

14 103(c) at the fair market value of such taxable property 

15 or services (as defined in section 2) and the registered per16 son shall remit the tax as if a taxable sale were made on 

17 the date of conversion. 

18 ‘‘(f) SUBSTANCE OVER FORM.—The substance of a 

19 transaction will prevail over its form if the transaction has 

20 no bona fide economic purpose and is designed to evade 

21 tax imposed by subtitle B or C. 

22 ‘‘(g) CERTAIN EMPLOYEE DISCOUNTS TAXABLE.— 

23 ‘‘(1) EMPLOYEE DISCOUNT.—The term ‘em24 ployee discount’ means when an employer offers tax25 able property or services for sale to its employees or 
197 

•S 1921 IS 

1 their families (within the meaning of section 302(b)) 

2 for less than such taxable property or services are 

3 offered to the general public. 

4 ‘‘(2) EMPLOYEE DISCOUNT AMOUNT.—The em5 ployee discount amount is the amount by which tax6 able property or services are sold pursuant to an em7 ployee discount (as defined in paragraph 1) below 

8 the amount for which such taxable property or serv9 ices would have been sold to the general public. 

10 ‘‘(3) TAXABLE AMOUNT.—If the employee dis11 count amount exceeds 20 percent of the price that 

12 the taxable property or services would have been sold 

13 to the general public, then the sale of such taxable 

14 property or services by the employer shall be deemed 

15 the conversion of such taxable property or services 

16 to personal use and tax shall be imposed on the tax17 able employee discount amount. The taxable em18 ployee discount amount shall be— 

19 ‘‘(A) the employee discount amount, less 

20 ‘‘(B) 20 percent of the amount for which 

21 such taxable property or services would have 

22 been sold to the general public. 

23 ‘‘(h) SATURDAY, SUNDAY, OR LEGAL HOLIDAY.— 

24 When the last day prescribed for performing any act re25 quired by this title falls on a Saturday, Sunday or legal 
198 

•S 1921 IS 

1 holiday (in the jurisdiction where the return is to be filed), 

2 the performance of such act shall be considered timely if 

3 it is performed on the next day which is not a Saturday, 

4 Sunday or legal holiday (in the jurisdiction where the re5 turn is to be filed). 

6 ‘‘SEC. 2902. WAGES TO BE REPORTED TO SOCIAL SECURITY 

7 ADMINISTRATION. 

8 ‘‘(a) IN GENERAL.—Employers shall submit such in9 formation to the Social Security Administration as is re10 quired by the Social Security Administration to calculate 

11 social security benefits under the Social Security Act, in12 cluding wages paid, in a form prescribed by the Secretary. 

13 A copy of the employer submission to the Social Security 

14 Administration relating to each employee shall be provided 

15 to each employee by the employer. 

16 ‘‘(b) WAGES.—For purposes of this section, the term 

17 ‘wages’ means all cash remuneration for employment (in18 cluding tips to an employee by third parties provided that 

19 the employer or employee maintains records documenting 

20 such tips) including self-employment income (as defined 

21 in subsection (c)), except that such term shall not in22 clude— 

23 ‘‘(1) any insurance benefits received (including 

24 death benefits), 

25 ‘‘(2) pension or annuity benefits received, 
199 

•S 1921 IS 

1 ‘‘(3) tips received by an employee over $5,000 

2 per year, or 

3 ‘‘(4) benefits received under a Government enti4 tlement program (including social security benefits, 

5 and unemployment compensation benefits). 

6 ‘‘(c) SELF-EMPLOYMENT INCOME.—For purposes of 

7 subsection (b), the term ‘self-employment income’ means 

8 gross payments received for taxable property or services 

9 less the sum of— 

10 ‘‘(1) gross payments made for taxable property 

11 or services (without regard to whether tax was paid 

12 pursuant to section 101 on such taxable property or 

13 services), and 

14 ‘‘(2) wages (as defined in subsection (b)) paid 

15 by the self-employed person to employees of the self16 employed person. 

17 ‘‘SEC. 2903. TRUST FUND REVENUES. 

18 ‘‘(a) IN GENERAL.—The Secretary shall allocate the 

19 revenue received by virtue of the tax imposed by section 

20 101 in accordance with this section. The revenue shall be 

21 allocated first to— 

22 ‘‘(1) the old-age and survivors insurance trust 

23 fund, until it has received the amount of money it 

24 would have received in absence of the rebate pro25 vided by chapter 3 of subtitle B, then to 
200 

•S 1921 IS 

1 ‘‘(2) the disability insurance trust fund, until it 

2 has received the amount of money it would have re3 ceived in absence of the rebate provided by chapter 

4 3 of subtitle B, then to 

5 ‘‘(3) the hospital insurance trust fund, until it 

6 has received the amount of money it would have re7 ceived in absence of the rebate provided by chapter 

8 3 of subtitle B, then to 

9 ‘‘(4) the Federal supplementary medical insur10 ance trust fund, until it has received the amount of 

11 money it would have received in absence of the re12 bate provided by chapter 3 of subtitle B, then to the 

13 general revenue. If the amount received by a fund is 

14 not reduced by virtue of the rebate provided by 

15 chapter 3 of subtitle B then the amount received by 

16 such fund shall remain the same. 

17 ‘‘(b) MAINTENANCE OF TRANSFERS TO PAYOR FUND

18 AND HOSPITAL INSURANCE TRUST FUND.—There are 

19 hereby appropriated to the payor fund (as defined in sec20 tion 121(e)(3)(A) of the Social Security Amendments of 

21 1983) and the Hospital Insurance Trust Fund established 

22 under section 1817 of the Social Security Act amounts 

23 equal to the reduction in revenues to the Treasury by rea24 son of the repeal of sections 86 and 871(a)(3) of the Inter25 nal Revenue Code of 1986 as in effect on the day before 
201 

•S 1921 IS 

1 the date of the enactment of this section. Amounts appro2 priated by the preceding sentence shall be transferred 

3 from the general fund at such times and in such manner 

4 as to replicate to the extent possible the transfers which 

5 would have occurred to such payor fund and Trust Fund 

6 had such repeal not been enacted.’’. 

7 TITLE VI—OTHER MATTERS 

8 SEC. 601. PHASE-OUT OF ADMINISTRATION REPEALED FED9 ERAL TAXES. 

10 (a) APPROPRIATIONS.—Appropriations for any ex11 penses of the Internal Revenue Service, including those 

12 for processing income tax returns for years prior to the 

13 repeal of the taxes repealed by title II of this Act, revenue 

14 accounting, management, and transfer of payroll and wage 

15 data to the Social Security Administration and otherwise, 

16 for years after fiscal year 2010 are not authorized. 

17 (b) FEDERAL RECORDS.—Federal records related to 

18 the administration of taxes repealed by Title II of this Act 

19 shall be destroyed by the end of fiscal year 2010 provided, 

20 however, that any records necessary to calculate social se21 curity benefits shall be retained by the Social Security Ad22 ministration and further provided that any records nec23 essary to support ongoing litigation with respect to taxes 

24 owed or refunds due shall be retained until final disposi25 tion of such litigation. 
202 

•S 1921 IS 

1 SEC. 602. ADMINISTRATION OF OTHER FEDERAL TAXES. 

2 (a) TAX BUREAUS.—Section 7801 is amended by 

3 adding the following new subsections: 

4 ‘‘(d) EXCISE TAX BUREAU.—There shall be in the 

5 Department of the Treasury an Excise Tax Bureau to ad6 minister those excise taxes not administered by the Bu7 reau of Alcohol, Tobacco, and Firearms. 

8 ‘‘(e) SALES TAX BUREAU.—There shall be in the De9 partment of the Treasury a Sales Tax Bureau to admin10 ister the national sales tax in those States where it is re11 quired pursuant to section 404, and to discharge other 

12 Federal duties and powers relating the national sales tax 

13 (including those required by sections 402, 403 and 405(i). 

14 The Office of Revenue Allocation shall be within the Sales 

15 Tax Bureau.’’. 

16 (b) ASSISTANT GENERAL COUNSELS.—Section 

17 7801(b)(2) is amended to read as follows: 

18 ‘‘(2) ASSISTANT GENERAL COUNSELS.—The 

19 Secretary of the Treasury may appoint, without re20 gard to the provisions of the civil service laws, and 

21 fix the duties of not more than 5 Assistant General 

22 Counsels.’’. 
203 

•S 1921 IS 

1 SEC. 603. SALES TAX INCLUSIVE SOCIAL SECURITY BENE2 FITS INDEXATION. 

3 Subparagraph (D) of section 215(i)(1) of the Social 

4 Security Act (relating to cost-of-living increases in social 

5 security benefits) is amended to read as follows: 

6 ‘‘(D)(i) IN GENERAL.—The term ‘CPI in7 crease percentage’, with respect to a base quar8 ter or cost-of-living quarter in any calendar 

9 year, means the percentage (rounded to the 

10 nearest one-tenth of 1 percent) by which the 

11 Consumer Price Index for that quarter (as pre12 pared by the Department of Labor) exceeds 

13 such index for the most recent prior calendar 

14 quarter which was a base quarter under para15 graph (A)(ii) or, if later, the most recent cost16 of-living computation quarter under subpara17 graph (B). 

18 ‘‘(ii) RULE IF CPI NOT SALES TAX INCLU19 SIVE.—If the Consumer Price Index (as pre20 pared by the Department of Labor) does not in21 clude the national sales tax paid, then the term 

22 ‘CPI increase percentage’ with respect to a base 

23 quarter or cost-of-living quarter in any calendar 

24 year, means the percentage (rounded to the 

25 nearest one-tenth of 1 percent) by which the 

26 product of— 
204 

•S 1921 IS 

1 ‘‘(I) the Consumer Price Index for 

2 that quarter (as prepared by the Depart3 ment of Labor), and 

4 ‘‘(II) the national sales tax factor, 

5 exceeds such index for the most recent prior 

6 calendar quarter which was a base quarter 

7 under paragraph (A)(ii) or, if later, the most 

8 recent cost-of-living computation quarter under 

9 subparagraph (B). 

10 ‘‘(iii) NATIONAL SALES TAX FACTOR.—For 

11 purposes of this subparagraph, the ‘national 

12 sales tax factor’ is equal to 1 plus the quotient 

13 that is— 

14 ‘‘(I) the sales tax rate imposed by sec15 tion 101 of the Internal Revenue Code of 

16 2005, divided by 

17 ‘‘(II) the quantity that is 1 minus 

18 such sales tax rate.’’ 

19 SEC. 604. CONFORMING AND TECHNICAL AMENDMENTS. 

20 (1) Subchapter A of chapter 61 of redesignated sub21 title D (relating to information and returns) is hereby re22 pealed. 

23 (2) Sections 6103 through 6116 of subchapter B of 

24 chapter 61 of redesignated subtitle D is hereby repealed. 
205 

•S 1921 IS 

1 (3) Subsection (b) of section 6151 is hereby repealed 

2 and subsection (c) of section 6151 is redesignated as sub3 section (b). 

4 (4) Section 6157 (relating to unemployment taxes) 

5 is hereby repealed. 

6 (5) Section 6161 is amended to read as follows: 

7 ‘‘SEC. 6161. EXTENSION OF TIME FOR PAYING TAX. 

8 ‘‘The Secretary, except as otherwise provided in this 

9 title, may extend the time for payment of the amount of 

10 the tax shown or required to be shown on any return, re11 port or declaration required under authority of this title 

12 for a reasonable period not to exceed 6 months (12 months 

13 in the case of a taxpayer who is abroad).’’. 

14 (6) Section 6163 (relating to estate taxes) is hereby 

15 repealed. 

16 (7) Section 6164 (relating to corporate taxes) is here17 by repealed. 

18 (8) Section 6166 (relating to estate taxes) is hereby 

19 repealed. 

20 (9) Section 6167 (relating to foreign expropriation 

21 losses) is hereby repealed. 

22 (10) Section 6201, 6205, and 6207 (relating to as23 sessments) are hereby repealed. 

24 (11) Section 6211(a) is amended by striking ‘‘income, 

25 estate, and gift taxes imposed by subtitles A and B and’’. 
206 

•S 1921 IS 

1 (12) Section 6211(b) is amended by repealing para2 graphs (1), (3), and (4) and by striking the paragraph 

3 designation ‘‘(2)’’ and ‘‘subtitle A or B or’’. 

4 (13) Section 6212 is amended by striking ‘‘Income 

5 and gift taxes and’’. 

6 (14) Sections 6212(b)(2) and 6212(b)(3) are hereby 

7 repealed. 

8 (15) Subchapter C of chapter 63 of redesignated sub9 title D (relating to tax treatment of partnership items) 

10 is hereby repealed. 

11 (16) Section 6302(b) is amended by striking ‘‘21’’. 

12 (17) Section 6305 (relating to collections of certain 

13 liabilities) is hereby repealed. 

14 (18) Sections 6314, 6315, 6316, and 6317 (relating 

15 to payments of repealed taxes) are hereby repealed. 

16 (19) Sections 6324, 6324A, and 6324B (relating to 

17 liens for estate and gift taxes) are hereby repealed. 

18 (20) Section 6325(c) (relating to estate and gift tax 

19 liens) is hereby repealed and subsections (d) through (h) 

20 of section 6325 are redesignated subsections (c) through 

21 (g), respectively. 

22 (21) Section 6344 (relating to cross references) is 

23 hereby repealed. 

24 (22) Section 6402(j) (relating to affiliated groups of 

25 corporations) is hereby repealed. 
207 

•S 1921 IS 

1 (23) Section 6411 (relating to carrybacks) is hereby 

2 repealed. 

3 (24) Section 6414 (relating to withheld income taxes) 

4 is hereby repealed. 

5 (25) Section 6422 (relating to cross references) is 

6 hereby repealed. 

7 (26) Section 6425 (relating to overpayment of cor8 porate estimated taxes) is hereby repealed. 

9 (27) Section 6501 is amended— 

10 (A) by striking ‘‘except tax imposed by chapter 

11 3, 21, or 24,’’ in subsection (b)(1), 

12 (B) by striking paragraph (2) of subsection (b) 

13 and by redesignating paragraphs (3) and (4) of sub14 section (b) as paragraphs (2) and (3), respectively. 

15 (28) Section 6501(c)(5) through (c)(9) are hereby re16 pealed. 

17 (29) Sections 6501(e)(1) and (e)(2) (relating to in18 come tax and estate taxes) are hereby repealed. 

19 (30) Sections 6501(f) through 6501(k) and sections 

20 6501(m) and 6501(n) are hereby repealed and section 

21 6501(l) is redesignated as section 6501(f). 

22 (31) Section 6503(a)(1) is amended by striking ‘‘(1) 

23 GENERAL RULE’’ and ‘‘income, estate, gift and’’. 

24 (32) Paragraph (2) of section 6503(a) is hereby re25 pealed. 
208 

•S 1921 IS 

1 (33) Subsections (e), (f), (i), and (k) of section 6503 

2 are hereby repealed and subsections (g) through (j) of 

3 such section are redesignated as subsections (e) through 

4 (g), respectively. 

5 (34) Section 6504 (relating to cross references) is 

6 hereby repealed. 

7 (35) Sections 6511(d) (relating to income taxes) and 

8 6511(g) (relating to partnership items) are hereby re9 pealed; subsections (f) and (h) of section 6511 are redesig10 nated as subsections (d) and (e), respectively. 

11 (36) Section 6512(b)(1) is amended by striking ‘‘of 

12 income tax for the same taxable year, of gift tax for the 

13 same calendar year or calendar quarter, of estate tax in 

14 respect of the taxable estate of the same decedent or’’. 

15 (37) Subsections (b) through (e) of section 6513 are 

16 hereby repealed and section 6513(a) is amended by strik17 ing ‘‘(a) EARLY RETURN OR ADVANCE PAYMENT OF

18 TAX.—’’. 

19 (38) Chapter 67 (relating to interest) is hereby re20 pealed and a new section 6601 is hereby inserted as fol21 lows: 

22 ‘‘SEC. 6601. INTEREST ON OVERPAYMENTS AND UNDERPAY23 MENTS. 

24 ‘‘(a) UNDERPAYMENTS.—If any amount of tax im25 posed by this title is not paid on or before the last date 
209 

•S 1921 IS 

1 prescribed for payment, interest on such amount at the 

2 Federal short-term rate (as defined in section 2512(b)) 

3 shall be paid from such last date to the date paid. 

4 ‘‘(b) OVERPAYMENTS.—Interest shall be allowed and 

5 paid upon any overpayment in respect of any internal rev6 enue tax at the Federal short-term rate (as defined in sec7 tion 2512(b)) from 60 days after the date of the overpay8 ment until the date the overpayment is refunded.’’. 

9 (39) Section 6651(a)(1) is amended by striking ‘‘sub10 chapter A of chapter 61 (other than part III thereof),’’. 

11 (40) Section 6652 (relating to failure to file certain 

12 information returns) is hereby repealed. 

13 (41) Sections 6654 and 6655 (relating to failure to 

14 payment estimated income tax) are hereby repealed. 

15 (42) Section 6656(c) (relating to deposit of employ16 ment taxes) is hereby repealed and subsection (d) of sec17 tion 6656 is redesignated as subsection (c). 

18 (43) Section 6662 (relating to penalties) is hereby re19 pealed. 

20 (44) Section 6663(c) (relating joint returns) is hereby 

21 repealed. 

22 (45) Paragraphs (2) and (3) of section 6664(c) are 

23 hereby repealed and Section 6664(c)(1) is amended by 

24 striking ‘‘(1) IN GENERAL’’. 
210 

•S 1921 IS 

1 (46) Sections 6677 through 6711 (relating to income 

2 tax related penalties) are hereby repealed. 

3 (47) Part II of subchapter B of chapter 68 (relating 

4 to certain information returns) is hereby repealed. 

5 (48) Part I of subchapter A of chapter 70 (relating 

6 to termination of taxable year) is hereby repealed. 

7 (49) Section 6864 (relating to certain carrybacks) is 

8 hereby repealed. 

9 (50) Subchapter A of chapter 72 (relating to licens10 ing) is hereby repealed and chapter 72 is amended by 

11 striking ‘‘SUBCHAPTER B.—Registration’’. 

12 (51) Section 7103 (relating to cross references) is 

13 hereby repealed. 

14 (52) Section 7211 (relating certain statements) is 

15 hereby repealed. 

16 (53) Section 7231 (relating to failure to obtain cer17 tain licenses) is hereby repealed. 

18 (54) Section 7270 (relating to insurance policies) is 

19 hereby repealed. 

20 (55) Section 7404 (relating to estate taxes) is hereby 

21 repealed. 

22 (56) Section 7407 (relating to income tax preparers) 

23 is hereby repealed. 

24 (57) Section 7408 (relating to income tax shelters) 

25 is hereby repealed. 
211 

•S 1921 IS 

1 (58) Section 7409 (relating to 501(c)(3) organiza2 tions) is hereby repealed. 

3 (59) Sections 7422(h) and 7422(i) are hereby re4 pealed. 

5 (60) Section 7427 (relating to income tax preparers) 

6 is hereby repealed. 

7 (61) Section 7428 (relating to 501(c)(3) organiza8 tions) is hereby repealed. 

9 (62) Section 7451 is amended to read as follows: 

10 ‘‘SEC. 7451. FEE FOR FILING PETITION. 

11 ‘‘The Tax Court is authorized to impose a fee in an 

12 amount not in excess of $60 to be fixed by the Tax Court 

13 for the filing of any petition for the redetermination of 

14 a deficiency.’’. 

15 (63) Subsection (b) of section 7454 (relating to foun16 dation managers) is hereby repealed and subsection (c) is 

17 redesignated as subsection (b). 

18 (64) Paragraph (2) (relating to estate taxes) and 

19 paragraph (3) (relating to gift taxes) of subsection 

20 7463(a) are hereby repealed. 

21 (65) Paragraph (4) of subsection 7463(a) is redesig22 nated as paragraph (2) and such paragraph (4) is amend23 ed by striking ‘‘D’’ and inserting ‘‘B’’. 

24 (66) Section 7463(c) is amended by striking ‘‘sec25 tions 6214(a) and’’ and inserting ‘‘section’’. 
212 

•S 1921 IS 

1 (67) Section 7463(e) is amended by striking ‘‘, to the 

2 extent that the procedures described in subchapter B of 

3 chapter 63 apply’’. 

4 (68) Section 7476 (relating to declaratory judgments 

5 relating to retirement plans) is hereby repealed. 

6 (69) Section 7478 (relating to declaratory judgments 

7 relating to certain tax-exempt obligations) is hereby re8 pealed. 

9 (70) Section 7481(d) (relating to estate taxes) is 

10 hereby repealed. 

11 (71) Section 7508 (relating to postponing time for 

12 certain actions required by the income, estate, and gift 

13 tax) is hereby repealed. 

14 (72) Section 7517 (relating to estate and gift tax 

15 evaluation) is hereby repealed. 

16 (73) Section 7518 (relating to Merchant Marine tax 

17 incentives) is hereby repealed. 

18 (74) Section 7519 (relating to taxable years) is here19 by repealed. 

20 (75) Section 7520 (relating to insurance and annuity 

21 valuation tables) is hereby repealed. 

22 (76) Section 7523 (relating to reporting Federal in23 come and outlays on Form 1040s) is hereby repealed. 

24 (77) Section 7608 is amended by striking ‘‘subtitle 

25 E’’ each place it appears and inserting ‘‘subtitle C’’. 
213 

•S 1921 IS 

1 (78) Section 7611 (relating to church income tax ex2 emptions and church unrelated business income tax in3 quiries) is hereby repealed. 

4 (79) Section 7654 (relating to possessions’ income 

5 taxes) is hereby repealed. 

6 (80) Section 7655 (relating to cross references) is 

7 hereby repealed. 

8 (81) Section 7701(a)(16) is hereby repealed. 

9 (82) Section 7701(a)(19) is hereby repealed. 

10 (83) Section 7701(a)(20) is hereby repealed. 

11 (84) Section 7701(a)(29) is amended by striking 

12 ‘‘1986’’ and inserting ‘‘1998’’. 

13 (85) Paragraphs (32) through (38) of subsection 

14 7701(a) are hereby repealed. 

15 (86) Paragraphs (41) through (46) of subsection 

16 7701(a) are hereby repealed. 

17 (87) Section 7701(b) is hereby repealed. 

18 (88) Sections 7701(e) through 7701(m) are hereby 

19 repealed. 

20 (89) Section 7702 (relating to life insurance con21 tracts) is hereby repealed. 

22 (90) Section 7702A (relating to modified endowment 

23 contracts) is hereby repealed. 

24 (91) Section 7702B (relating to long-term care insur25 ance) is hereby repealed. 
214 

•S 1921 IS 

1 (92) Section 7703 (relating to the determination of 

2 marital status) is hereby repealed. 

3 (93) Section 7704 (relating to publicly traded part4 nerships) is hereby repealed. 

5 (94) Section 7804 is hereby repealed. 

6 (95) Section 7805 is hereby repealed. 

7 (96) Section 7809(c)(1) and 7809(c)(4) are hereby 

8 repealed and paragraphs (2) and (3) of section 7809(c) 

9 are redesignated as paragraphs (1) and (2), respectively. 

10 (97) Section 7851 is hereby repealed. 

11 (98) Sections 7871(a)(1) and 7871(a)(3) through 

12 7871(a)(6) are hereby repealed. 

13 (99) Section 7871(c) is hereby repealed. 

14 (100) Section 7872 is hereby repealed. 

15 (101) Section 7873 is hereby repealed. 

16 (102) Section 8021(a) is hereby repealed and sub17 sections (b) through (d) are redesignated as subsection (a) 

18 through (c), respectively. 

19 (103) Section 8022(2)(A) is amended by striking ‘‘, 

20 particularly the income tax’’. 

21 (104) Section 8023 is amended by striking ‘‘Internal 

22 Revenue Service’’ each place it appears and inserting 

23 ‘‘Treasury Department’’. 

24 (105) Section 9501(b)(2) is amended by striking ‘‘de25 scribed in section 501(c)(21)’’. 
215 

•S 1921 IS 

1 (106) Section 9702(a)(4) is hereby repealed. 

2 (107) Section 9705(a)(4) is hereby repealed. 

3 (108) Section 9706(d)(2) is amended by striking ‘‘, 

4 including section 6103’’. 

5 (109) Section 9706(g) is amended by striking ‘‘6103’’ 

6 and inserting ‘‘605(f)’’. 

7 (110) Section 9707(f) is hereby repealed. 

8 (111) Section 9712(d)(5) is hereby repealed. 

9 (112) Section 9803(a) is amended by striking ‘‘(as 

10 defined in section 414(f))’’. 

11 (113) Section 1441 is amended to read as follows: 

12 ‘‘SEC. 1441. WITHHOLDING OF TAX ON NONRESIDENT 

13 ALIENS AND FOREIGN CORPORATIONS. 

14 ‘‘(a) IN GENERAL.—All persons, in whatever capacity 

15 acting (including lessees or mortgagors or real or personal 

16 property, fiduciaries, employers, and all officers and em17 ployees of the United States), having control, receipt, cus18 tody, disposal, or payment of any income to the extent 

19 such income constitute gross income from sources within 

20 the United States of any nonresident alien individual, for21 eign partnership, or foreign corporation shall deduct and 

22 withhold from that income a tax equal to 16.4 percent 

23 thereof. 

24 ‘‘(b) EXCEPTION.—No tax shall be required to be de25 ducted from interest on portfolio debt investments. 
216 

•S 1921 IS 

1 ‘‘(c) TREATY COUNTRIES.—In the case of payments 

2 to nonresident alien individuals, foreign partnerships or 

3 foreign corporations that have a residence in (or the na4 tionality of a country) that has entered into a tax treaty 

5 with the United States, then the rate of withholding tax 

6 prescribed by the treaty shall govern.’’. 

7 TITLE VII—INDIVIDUAL 

8 DEVELOPMENT ACCOUNTS 

9 SEC. 701. SHORT TITLE. 

10 This title may be cited as the ‘‘Savings for Working 

11 Families Act of 2005’’. 

12 SEC. 702. PURPOSES. 

13 The purposes of this title are to provide for the estab14 lishment of individual development account programs that 

15 will— 

16 (1) provide individuals and families with limited 

17 means an opportunity to accumulate assets and to 

18 enter the financial mainstream, 

19 (2) promote education, homeownership, and the 

20 development of small businesses, 

21 (3) stabilize families and build communities, 

22 and 

23 (4) support continued United States economic 

24 expansion. 
217 

•S 1921 IS 

1 SEC. 703. DEFINITIONS. 

2 As used in this title: 

3 (1) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible 

4 individual’’ means, with respect to any calendar 

5 year, an individual if— 

6 (A) such individual is a member of a quali7 fied family (as defined in section 302 of the In8 ternal Revenue Code of 2005) who is entitled to 

9 a rebate under section 301 of such Code for 

10 any month of such year, 

11 (B) the income of such family for the im12 mediately preceding calendar year does not ex13 ceed an amount equal to twice the poverty level, 

14 and 

15 (C) such individual is designated under 

16 section 304 to receive the rebate payment under 

17 section 301 for such family. 

18 (2) INDIVIDUAL DEVELOPMENT ACCOUNT.— 

19 The term ‘‘Individual Development Account’’ means 

20 an account established for an eligible individual as 

21 part of a qualified individual development account 

22 program, but only if the written governing instru23 ment creating the account meets the following re24 quirements: 

25 (A) The owner of the account is the indi26 vidual for whom the account was established. 
218 

•S 1921 IS 

1 (B) No contribution will be accepted unless 

2 it is in cash. 

3 (C) The trustee of the account is a quali4 fied financial institution. 

5 (D) The assets of the account will not be 

6 commingled with other property except in a 

7 common trust fund or common investment 

8 fund. 

9 (E) Except as provided in section 707(b), 

10 any amount in the account may be paid out 

11 only for the purpose of paying the qualified ex12 penses of the account owner. 

13 (3) PARALLEL ACCOUNT.—The term ‘‘parallel 

14 account’’ means a separate, parallel individual or 

15 pooled account for all matching funds and earnings 

16 dedicated to an Individual Development Account 

17 owner as part of a qualified individual development 

18 account program, the trustee of which is a qualified 

19 financial institution. 

20 (4) QUALIFIED FINANCIAL INSTITUTION.— 

21 (A) IN GENERAL.—The term ‘‘qualified fi22 nancial institution’’ means a bank or such other 

23 person who demonstrates to the satisfaction of 

24 the Secretary that the manner in which such 
219 

•S 1921 IS 

1 other person will administer the trust will be 

2 consistent with the requirements of this section. 

3 (B) BANK.—For purposes of subparagraph 

4 (A), the term ‘‘bank’’ means— 

5 (i) any bank (as defined in section 

6 581), 

7 (ii) an insured credit union (within 

8 the meaning of section 101(6) of the Fed9 eral Credit Union Act), or 

10 (iii) a corporation which, under the 

11 laws of the State of its incorporation, is 

12 subject to supervision and examination by 

13 the Commissioner of Banking or other offi14 cer of such State in charge of the adminis15 tration of the banking laws of such State. 

16 (5) QUALIFIED INDIVIDUAL DEVELOPMENT AC17 COUNT PROGRAM.—The term ‘‘qualified individual 

18 development account program’’ means a program es19 tablished upon approval of the Secretary under sec20 tion 704 after December 31, 2005, under which— 

21 (A) Individual Development Accounts and 

22 parallel accounts are held in trust by a qualified 

23 financial institution, and 

24 (B) additional activities determined by the 

25 Secretary, in consultation with the Secretary of 
220 

•S 1921 IS 

1 Health and Human Services, as necessary to re2 sponsibly develop and administer accounts, in3 cluding recruiting, providing financial education 

4 and other training to Account owners, and reg5 ular program monitoring, are carried out by the 

6 qualified financial institution. 

7 (6) QUALIFIED EXPENSE DISTRIBUTION.— 

8 (A) IN GENERAL.—The term ‘‘qualified ex9 pense distribution’’ means any amount paid (in10 cluding through electronic payments) or distrib11 uted out of an Individual Development Account 

12 or a parallel account established for an eligible 

13 individual if such amount— 

14 (i) is used exclusively to pay the quali15 fied expenses of the Individual Develop16 ment Account owner or such owner’s 

17 spouse or dependents, 

18 (ii) is paid by the qualified financial 

19 institution— 

20 (I) except as otherwise provided 

21 in this clause, directly to the unre22 lated third party to whom the amount 

23 is due, 

24 (II) in the case of any qualified 

25 rollover, directly to another Individual 
221 

•S 1921 IS 

1 Development Account and parallel ac2 count, or 

3 (III) in the case of a qualified 

4 final distribution, directly to the 

5 spouse, dependent, or other named 

6 beneficiary of the deceased Account 

7 owner, and 

8 (iii) is paid after the Account owner 

9 has completed a financial education course 

10 if required under section 705(b). 

11 (B) QUALIFIED EXPENSES.— 

12 (i) IN GENERAL.—The term ‘‘qualified 

13 expenses’’ means any of the following ex14 penses approved by the qualified financial 

15 institution: 

16 (I) Qualified higher education ex17 penses. 

18 (II) Qualified first-time home19 buyer costs. 

20 (III) Qualified business capital21 ization or expansion costs. 

22 (IV) Qualified rollovers. 

23 (V) Qualified final distribution. 

24 (ii) QUALIFIED HIGHER EDUCATION

25 EXPENSES.— 
222 

•S 1921 IS 

1 (I) IN GENERAL.—The term 

2 ‘‘qualified higher education expenses’’ 

3 means— 

4 (aa) tuition, fees, books, 

5 supplies, and equipment required 

6 for the enrollment or attendance 

7 of the designated individual or a 

8 family member at an eligible edu9 cational institution, and 

10 (bb) in the case of a special 

11 needs beneficiary, expenses for 

12 special needs services which are 

13 incurred in connection with such 

14 enrollment or attendance. 

15 (II) ROOM AND BOARD IN16 CLUDED FOR STUDENTS WHO ARE AT

17 LEAST HALF-TIME.— 

18 (aa) IN GENERAL.—In the 

19 case of an individual who is an 

20 eligible student for any academic 

21 period, such term shall also in22 clude reasonable costs for such 

23 period (as determined under the 

24 qualified tuition program) in25 curred by the designated bene-
223 

•S 1921 IS 

1 ficiary for room and board while 

2 attending such institution. 

3 (bb) LIMITATION.—The 

4 amount treated as qualified high5 er education expenses by reason 

6 of this subclause shall not exceed 

7 the allowance (applicable to the 

8 student) for room and board in9 cluded in the cost of attendance 

10 (as defined in section 472 of the 

11 Higher Education Act of 1965 

12 (20 U.S.C. 1087ll), as in effect 

13 on the date of the enactment of 

14 the Economic Growth and Tax 

15 Relief Reconciliation Act of 

16 2001) as determined by the eligi17 ble educational institution for 

18 such period, or, if greater, the ac19 tual invoice amount the student 

20 residing in housing owned or op21 erated by the eligible educational 

22 institution is charged by such in23 stitution for room and board 

24 costs for such period. 
224 

•S 1921 IS 

1 (cc) ELIGIBLE STUDENT.— 

2 For purposes of this subclause, 

3 the term ‘‘eligible student’’ 

4 means, with respect to any aca5 demic period, a student who 

6 meets the requirements of section 

7 484(a)(1) of the Higher Edu8 cation Act of 1965 (20 U.S.C. 

9 1091(a)(1)), as in effect on the 

10 date of the enactment of this sec11 tion, and is carrying at least 1/2 

12 the normal full-time work load 

13 for the course of study the stu14 dent is pursuing. 

15 (iii) QUALIFIED FIRST-TIME HOME16 BUYER COSTS.— 

17 (I) IN GENERAL.—The term 

18 ‘‘qualified first-time homebuyer costs’’ 

19 means qualified acquisition costs with 

20 respect to a principal residence for a 

21 qualified first-time homebuyer. 

22 (II) QUALIFIED ACQUISITION

23 COSTS.— For purposes of this clause, 

24 the term ‘‘qualified acquisition costs’’ 

25 means the costs of acquiring, con-
225 

•S 1921 IS 

1 structing, or reconstructing a resi2 dence. Such term includes any usual 

3 or reasonable settlement, financing, or 

4 other closing costs. 

5 (III) FIRST-TIME HOMEBUYER.— 

6 For purposes of this clause, the term 

7 ‘‘first-time homebuyer’’ means any in8 dividual if— 

9 (aa) such individual (and if 

10 married, such individual’s 

11 spouse) had no present ownership 

12 interest in a principal residence 

13 during the 2-year period ending 

14 on the date of acquisition of the 

15 principal residence to which this 

16 paragraph applies, and 

17 (bb) subsection (h) or (k) of 

18 section 1034 (as in effect on the 

19 day before the date of the enact20 ment of this section) did not sus21 pend the running of any period 

22 of time specified in section 1034 

23 (as so in effect) with respect to 

24 such individual on the day before 

25 the date the distribution is ap-
226 

•S 1921 IS 

1 plied pursuant to subparagraph 

2 (A). 

3 (IV) DATE OF ACQUISITION.— 

4 The term ‘‘date of acquisition’’ means 

5 the date— 

6 (aa) on which a binding con7 tract to acquire the principal res8 idence to which subparagraph 

9 (A) applies is entered into, or 

10 (bb) on which construction 

11 or reconstruction of such a prin12 cipal residence is commenced. 

13 (V) SPECIAL RULE WHERE

14 DELAY IN ACQUISITION.—If any dis15 tribution fails to meet the require16 ments of subclause (I) solely by rea17 son of a delay or cancellation of the 

18 purchase or construction of the resi19 dence, the amount of the distribution 

20 may be recontributed to an Individual 

21 Development Account of the indi22 vidual. 

23 (iv) QUALIFIED BUSINESS CAPITAL24 IZATION OR EXPANSION COSTS.— 
227 

•S 1921 IS 

1 (I) IN GENERAL.—The term 

2 ‘‘qualified business capitalization or 

3 expansion costs’’ means qualified ex4 penditures for the capitalization or ex5 pansion of a qualified business pursu6 ant to a qualified business plan. 

7 (II) QUALIFIED EXPENDI8 TURES.—The term ‘‘qualified expendi9 tures’’ means expenditures normally 

10 associated with starting or expanding 

11 a business and included in a qualified 

12 business plan, including costs for cap13 ital, plant, and equipment, inventory 

14 expenses, and attorney and accounting 

15 fees. 

16 (III) QUALIFIED BUSINESS.— 

17 The term ‘‘qualified business’’ means 

18 any business that does not contravene 

19 any law. 

20 (IV) QUALIFIED BUSINESS

21 PLAN.—The term ‘‘qualified business 

22 plan’’ means a business plan which 

23 has been approved by the qualified fi24 nancial institution and which meets 
228 

•S 1921 IS 

1 such requirements as the Secretary 

2 may specify. 

3 (v) QUALIFIED ROLLOVERS.—The 

4 term ‘‘qualified rollover’’ means the com5 plete distribution of the amounts in an In6 dividual Development Account and parallel 

7 account to another Individual Development 

8 Account and parallel account established in 

9 another qualified financial institution for 

10 the benefit of the Account owner. 

11 (vi) QUALIFIED FINAL DISTRIBU12 TION.—The term ‘‘qualified final distribu13 tion’’ means, in the case of a deceased Ac14 count owner, the complete distribution of 

15 the amounts in the Individual Development 

16 Account and parallel account directly to 

17 the spouse, any dependent, or other named 

18 beneficiary of the deceased. 

19 (7) SECRETARY.—The term ‘‘Secretary’’ means 

20 the Secretary of the Treasury. 

21 SEC. 704. STRUCTURE AND ADMINISTRATION OF QUALI22 FIED INDIVIDUAL DEVELOPMENT ACCOUNT 

23 PROGRAMS. 

24 (a) ESTABLISHMENT OF QUALIFIED INDIVIDUAL DE25 VELOPMENT ACCOUNT PROGRAMS.—Any qualified finan-
229 

•S 1921 IS 

1 cial institution may apply to the Secretary for approval 

2 to establish 1 or more qualified individual development ac3 count programs which meet the requirements of this title 

4 and for payments under section 711. 

5 (b) BASIC PROGRAM STRUCTURE.— 

6 (1) IN GENERAL.—All qualified individual de7 velopment account programs shall consist of the fol8 lowing 2 components for each participant: 

9 (A) An Individual Development Account to 

10 which an eligible individual may contribute cash 

11 in accordance with section 705. 

12 (B) A parallel account to which all match13 ing funds shall be deposited in accordance with 

14 section 706. 

15 (2) TAILORED IDA PROGRAMS.—A qualified fi16 nancial institution may tailor its qualified individual 

17 development account program to allow matching 

18 funds to be spent on 1 or more of the categories of 

19 qualified expenses. 

20 (c) COORDINATION WITH PUBLIC HOUSING AGENCY

21 INDIVIDUAL SAVINGS ACCOUNTS.—Section 3(e)(2) of the 

22 United States Housing Act of 1937 (42 U.S.C. 

23 1437a(e)(2)) is amended by inserting ‘‘or in any Indi24 vidual Development Account established under the Sav-
230 

•S 1921 IS 

1 ings for Working Families Act of 2005’’ after ‘‘sub2 section’’. 

3 SEC. 705. PROCEDURES FOR OPENING AND MAINTAINING 

4 AN INDIVIDUAL DEVELOPMENT ACCOUNT 

5 AND QUALIFYING FOR MATCHING FUNDS. 

6 (a) OPENING AN ACCOUNT.—An eligible individual 

7 may open an Individual Development Account with a 

8 qualified financial institution upon certification that such 

9 individual has never maintained any other Individual De10 velopment Account (other than an Individual Development 

11 Account to be terminated by a qualified rollover). 

12 (b) REQUIRED COMPLETION OF FINANCIAL EDU13 CATION COURSE.— 

14 (1) IN GENERAL.—Before becoming eligible to 

15 withdraw funds to pay for qualified expenses, owners 

16 of Individual Development Accounts must complete 

17 1 or more financial education courses specified in 

18 the qualified individual development account pro19 gram. 

20 (2) STANDARD AND APPLICABILITY OF

21 COURSE.—The Secretary, in consultation with rep22 resentatives of qualified individual development ac23 count programs and financial educators, shall, not 

24 later than January 1, 2007, establish minimum 

25 quality standards for the contents of financial edu-
231 

•S 1921 IS 

1 cation courses and providers of such courses de2 scribed in paragraph (1) and a protocol to exempt 

3 individuals from the requirement under paragraph 

4 (1) in the case of hardship, lack of need, or a quali5 fied final distribution. 

6 (c) PROOF OF STATUS AS AN ELIGIBLE INDI7 VIDUAL.—Any evidence of eligibility which may be re8 quired by a qualified financial institution shall be pre9 sented to such institution at the time of the establishment 

10 of the Individual Development Account and in any cal11 endar year in which contributions are made to the Account 

12 to qualify for matching funds under section 706(b)(1)(A). 

13 SEC. 706. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOP14 MENT ACCOUNT PROGRAMS. 

15 (a) PARALLEL ACCOUNTS.—The qualified financial 

16 institution shall deposit all matching funds for each Indi17 vidual Development Account into a parallel account at a 

18 qualified financial institution. 

19 (b) REGULAR DEPOSITS OF MATCHING FUNDS.— 

20 (1) IN GENERAL.—Subject to paragraph (2), 

21 the qualified financial institution shall deposit into 

22 the parallel account with respect to each eligible in23 dividual the following amounts: 

24 (A) A dollar-for-dollar match for the first 

25 $500 contributed by the eligible individual into 
232 

•S 1921 IS 

1 an Individual Development Account with re2 spect to any calendar year of such individual. 

3 (B) Any matching funds provided by State, 

4 local, or private sources in accordance with the 

5 matching ratio set by those sources. 

6 (2) TIMING OF DEPOSITS.—A deposit of the 

7 amounts described in paragraph (1) shall be made 

8 into a parallel account— 

9 (A) in the case of amounts described in 

10 paragraph (1)(A), not later than 30 days after 

11 the end of the calendar quarter during which 

12 the contribution described in such paragraph 

13 was made, and 

14 (B) in the case of amounts described in 

15 paragraph (1)(B), not later than 2 business 

16 days after such amounts were provided. 

17 (c) UNIFORM ACCOUNTING REGULATIONS.—To en18 sure proper recordkeeping and determination of the pay19 ments under section 711, the Secretary shall prescribe 

20 regulations with respect to accounting for matching funds 

21 in the parallel accounts. 

22 (d) REGULAR REPORTING OF ACCOUNTS.—Any 

23 qualified financial institution shall report the balances in 

24 any Individual Development Account and parallel account 
233 

•S 1921 IS 

1 of an individual on not less than an annual basis to such 

2 individual. 

3 SEC. 707. WITHDRAWAL PROCEDURES. 

4 (a) WITHDRAWALS FOR QUALIFIED EXPENSES.— 

5 (1) IN GENERAL.—An Individual Development 

6 Account owner may withdraw funds in order to pay 

7 qualified expense distributions from such individ8 ual’s— 

9 (A) Individual Development Account, but 

10 only from funds which have been on deposit in 

11 such Account for at least 1 year, and 

12 (B) parallel account, but only— 

13 (i) from matching funds which have 

14 been on deposit in such parallel account 

15 for at least 1 year, 

16 (ii) from earnings in such parallel ac17 count, after all matching funds described 

18 in clause (i) have been withdrawn, and 

19 (iii) to the extent such withdrawal 

20 does not result in a remaining balance in 

21 such parallel account which is less than the 

22 remaining balance in the Individual Devel23 opment Account after such withdrawal. 

24 (2) PROCEDURE.—Upon receipt of a with25 drawal request which meets the requirements of 
234 

•S 1921 IS 

1 paragraph (1), the qualified financial institution 

2 shall directly transfer the funds electronically to the 

3 distributees described in section 703(6)(A)(ii). If a 

4 distributee is not equipped to receive funds electroni5 cally, the qualified financial institution may issue 

6 such funds by paper check to the distributee. 

7 (b) WITHDRAWALS FOR NONQUALIFIED EX8 PENSES.—An Individual Development Account owner may 

9 withdraw any amount of funds from the Individual Devel10 opment Account for purposes other than to pay qualified 

11 expense distributions, but if, after such withdrawal, the 

12 amount in the parallel account of such owner (excluding 

13 earnings on matching funds) exceeds the amount remain14 ing in such Individual Development Account, then such 

15 owner shall forfeit to the United States from the parallel 

16 account the lesser of such excess or the amount with17 drawn. 

18 (c) WITHDRAWALS FROM ACCOUNTS OF NON19 ELIGIBLE INDIVIDUALS.—If the individual for whose ben20 efit an Individual Development Account is established 

21 ceases to be an eligible individual, such account shall re22 main an Individual Development Account, but such indi23 vidual shall not be eligible for any further matching funds 

24 under section 706(b)(1)(A) for contributions which are 
235 

•S 1921 IS 

1 made to the Account during any calendar year when such 

2 individual is not an eligible individual. 

3 (d) EFFECT OF PLEDGING ACCOUNT AS SECU4 RITY.—If, during any calendar year of the individual for 

5 whose benefit an Individual Development Account is es6 tablished, that individual uses the Account, the individ7 ual’s parallel account, or any portion thereof as security 

8 for a loan, the portion so used shall be treated as a with9 drawal of such portion from the Individual Development 

10 Account for purposes other than to pay qualified expenses. 

11 SEC. 708. CERTIFICATION AND TERMINATION OF QUALI12 FIED INDIVIDUAL DEVELOPMENT ACCOUNT 

13 PROGRAMS. 

14 (a) CERTIFICATION PROCEDURES.—Upon estab15 lishing a qualified individual development account pro16 gram under section 704, a qualified financial institution 

17 shall certify to the Secretary at such time and in such 

18 manner as may be prescribed by the Secretary and accom19 panied by any documentation required by the Secretary, 

20 that— 

21 (1) the accounts described in subparagraphs 

22 (A) and (B) of section 704(b)(1) are operating pur23 suant to all the provisions of this title, and 

24 (2) the qualified financial institution agrees to 

25 implement an information system necessary to mon-
236 

•S 1921 IS 

1 itor the cost and outcomes of the qualified individual 

2 development account program. 

3 (b) AUTHORITY TO TERMINATE QUALIFIED IDA 

4 PROGRAM.—If the Secretary determines that a qualified 

5 financial institution under this title is not operating a 

6 qualified individual development account program in ac7 cordance with the requirements of this title (and has not 

8 implemented any corrective recommendations directed by 

9 the Secretary), the Secretary shall terminate such institu10 tion’s authority to conduct the program. If the Secretary 

11 is unable to identify a qualified financial institution to as12 sume the authority to conduct such program, then any 

13 funds in a parallel account established for the benefit of 

14 any individual under such program shall be deposited into 

15 the Individual Development Account of such individual as 

16 of the first day of such termination. 

17 SEC. 709. REPORTING, MONITORING, AND EVALUATION. 

18 (a) RESPONSIBILITIES OF QUALIFIED FINANCIAL IN19 STITUTIONS.— 

20 (1) IN GENERAL.—Each qualified financial in21 stitution that operates a qualified individual develop22 ment account program under section 704 shall re23 port annually to the Secretary within 90 days after 

24 the end of each calendar year on— 
237 

•S 1921 IS 

1 (A) the number of individuals making con2 tributions into Individual Development Ac3 counts and the amounts contributed, 

4 (B) the amounts contributed into Indi5 vidual Development Accounts by eligible individ6 uals and the amounts deposited into parallel ac7 counts for matching funds, 

8 (C) the amounts withdrawn from Indi9 vidual Development Accounts and parallel ac10 counts, and the purposes for which such 

11 amounts were withdrawn, 

12 (D) the balances remaining in Individual 

13 Development Accounts and parallel accounts, 

14 and 

15 (E) such other information needed to help 

16 the Secretary monitor the effectiveness of the 

17 qualified individual development account pro18 gram (provided in a nonindividually-identifiable 

19 manner). 

20 (2) ADDITIONAL REPORTING REQUIREMENTS.— 

21 Each qualified financial institution that operates a 

22 qualified individual development account program 

23 under section 704 shall report at such time and in 

24 such manner as the Secretary may prescribe any ad25 ditional information that the Secretary requires to 
238 

•S 1921 IS 

1 be provided for purposes of administering and super2 vising the qualified individual development account 

3 program. This additional data may include, without 

4 limitation, identifying information about Individual 

5 Development Account owners, their Accounts, addi6 tions to the Accounts, and withdrawals from the Ac7 counts. 

8 (b) RESPONSIBILITIES OF THE SECRETARY.— 

9 (1) MONITORING PROTOCOL.—Not later than 

10 12 months after the date of the enactment of this 

11 Act, the Secretary, in consultation with the Sec12 retary of Health and Human Services, shall develop 

13 and implement a protocol and process to monitor the 

14 cost and outcomes of the qualified individual devel15 opment account programs established under section 

16 704. 

17 (2) ANNUAL REPORTS.—For each year after 

18 2006, the Secretary shall submit a progress report 

19 to Congress on the status of such qualified indi20 vidual development account programs. Such report 

21 shall, to the extent data are available, include from 

22 a representative sample of qualified individual devel23 opment account programs information on— 

24 (A) the characteristics of participants, in25 cluding age, gender, marital status, number of 
239 

•S 1921 IS 

1 children, employment status, and monthly in2 come, 

3 (B) deposits, withdrawals, balances, uses 

4 of Individual Development Accounts, and par5 ticipant characteristics, 

6 (C) the characteristics of qualified indi7 vidual development account programs, including 

8 match rate, economic education requirements, 

9 permissible uses of accounts, staffing of pro10 grams in full-time employees, and the total 

11 costs of programs, and 

12 (D) process information on program imple13 mentation and administration, especially on 

14 problems encountered and how problems were 

15 solved. 

16 (3) REAUTHORIZATION REPORT ON COST AND

17 OUTCOMES OF IDAS.— 

18 (A) IN GENERAL.—Not later than July 1, 

19 2011, the Secretary of the Treasury shall sub20 mit a report to Congress and the chairmen and 

21 ranking members of the Committee on Finance, 

22 the Committee on Banking, Housing, and 

23 Urban Affairs, and the Committee on Health, 

24 Education, Labor, and Pensions of the Senate 

25 and the Committee on Ways and Means, the 
240 

•S 1921 IS 

1 Committee on Banking and Financial Services, 

2 and the Committee on Education and the 

3 Workforce of the House of Representatives, in 

4 which the Secretary shall— 

5 (i) summarize the previously sub6 mitted annual reports required under para7 graph (2), 

8 (ii) from a representative sample of 

9 qualified individual development account 

10 programs, include an analysis of— 

11 (I) the economic, social, and be12 havioral outcomes, 

13 (II) the changes in savings rates, 

14 asset holdings, and household debt, 

15 and overall changes in economic sta16 bility, 

17 (III) the changes in outlooks, at18 titudes, and behavior regarding sav19 ings strategies, investment, education, 

20 and family, 

21 (IV) the integration into the fi22 nancial mainstream, including de23 creased reliance on alternative finan24 cial services and increase in acquisi-
241 

•S 1921 IS 

1 tion of mainstream financial products, 

2 and 

3 (V) the involvement in civic af4 fairs, including neighborhood schools 

5 and associations, 

6 associated with participation in qualified 

7 individual development account programs, 

8 (iii) from a representative sample of 

9 qualified individual development account 

10 programs, include a comparison of out11 comes associated with such programs with 

12 outcomes associated with other Federal 

13 Government social and economic develop14 ment programs, including asset building 

15 programs, and 

16 (iv) make recommendations regarding 

17 the reauthorization of the qualified indi18 vidual development account programs, in19 cluding— 

20 (I) recommendations regarding 

21 reforms that will improve the cost and 

22 outcomes of the such programs, in23 cluding the ability to help low-income 

24 families save and accumulate produc25 tive assets, 
242 

•S 1921 IS 

1 (II) recommendations regarding 

2 the appropriate levels of subsidies to 

3 provide effective incentives to financial 

4 institutions and Account owners under 

5 such programs, and 

6 (III) recommendations regarding 

7 how such programs should be inte8 grated into other Federal poverty re9 duction, asset building, and commu10 nity development policies and pro11 grams. 

12 (B) AUTHORIZATION.—There is authorized 

13 to be appropriated $2,500,000, for carrying out 

14 the purposes of this paragraph. 

15 (4) USE OF ACCOUNTS IN RURAL AREAS EN16 COURAGED.—The Secretary shall develop methods to 

17 encourage the use of Individual Development Ac18 counts in rural areas. 

19 SEC. 710. AUTHORIZATION OF APPROPRIATIONS. 

20 There is authorized to be appropriated to the Sec21 retary such sums as may be necessary for the purposes 

22 of implementing this title, including the reporting, moni23 toring, and evaluation required under section 709, to re24 main available until expended. 
243 

•S 1921 IS 

1 SEC. 711. MATCHING FUNDS FOR INDIVIDUAL DEVELOP2 MENT ACCOUNTS PROVIDED FOR QUALIFIED 

3 FINANCIAL INSTITUTIONS. 

4 (a) IN GENERAL.—Each qualified financial institu5 tion shall be entitled, for each calendar year, to a payment 

6 from the Secretary in an amount equal to the individual 

7 development account investment provided by such institu8 tion during such year under an individual development ac9 count program established under section 704. 

10 (b) INDIVIDUAL DEVELOPMENT ACCOUNT INVEST11 MENT.—For purposes of this section, the term ‘‘individual 

12 development account investment’’ means, with respect to 

13 an individual development account program in any cal14 endar year, an amount equal to the sum of— 

15 (1) the aggregate amount of dollar-for-dollar 

16 matches under such program under section 

17 706(b)(1)(A) for such calendar year, plus 

18 (2) $50 with respect to each Individual Devel19 opment Account maintained as of the end of such 

20 calendar year, with a balance of not less than $100 

21 (other than the calendar year in which such Account 

22 is opened). 

23 (c) REGULATIONS.—The Secretary may prescribe 

24 such regulations as may be necessary or appropriate to 

25 carry out this section, including regulations providing for 

26 a repayment of any amount paid under this section (not-
244 

•S 1921 IS 

1 withstanding any termination date described in subsection 

2 (d)) in cases where there is a forfeiture under section 

3 707(b) in a subsequent calendar year of any amount which 

4 was taken into account in determining the amount of such 

5 payment. 

6 (d) APPLICATION OF SECTION.—This section shall 

7 apply to any expenditure made in calendar years after 

8 2005. 

Æ