19–008 

112TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 112–447 

PROVIDING FOR CONSIDERATION OF THE BILL (H.R. 9) TO AMEND THE 

INTERNAL REVENUE CODE OF 1986 TO PROVIDE A DEDUCTION FOR 

DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL BUSINESSES 

APRIL 17, 2012.—Referred to the House Calendar and ordered to be printed 

Mr. SESSIONS, from the Committee on Rules, 

submitted the following 

R E P O R T 

[To accompany H. Res. 620] 

The Committee on Rules, having had under consideration House 

Resolution 620, by a nonrecord vote, report the same to the House 

with the recommendation that the resolution be adopted. 

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for consideration of H.R. 9, the Small 

Business Tax Cut Act, under a structured rule. The resolution provides one hour of debate equally divided and controlled by the chair 

and ranking minority member of the Committee on Ways and 

Means. The resolution waives all points of order against consideration of the bill. The resolution provides that the amendment in 

the nature of a substitute recommended by the Committee on Ways 

and Means now printed in the bill shall be considered as adopted. 

The bill, as amended, shall be considered as read. The resolution 

waives all points of order against provisions in the bill, as amended. The resolution makes in order the amendment in the nature of 

a substitute printed in this report, if offered by Representative 

Levin of Michigan or his designee, which shall be considered as 

read, shall be debatable for 20 minutes equally divided and controlled by the proponent and an opponent, and shall not be subject 

to amendment. The resolution waives all points of order against 

the amendment printed in this report. Finally, the resolution provides one motion to recommit with or without instructions. 

EXPLANATION OF WAIVERS

Although the resolution waives all points of order against consideration of the bill, the Committee is not aware of any points of 

order. The waiver is prophylactic in nature. 


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Although the resolution waives all points of order against provisions in the bill, as amended, the Committee is not aware of any 

points of order. The waiver is prophylactic in nature. 

Although the resolution waives all points of order against the 

amendment printed in this report, the Committee is not aware of 

any points of order. The waiver is prophylactic in nature. 

COMMITTEE VOTES

The results of each record vote on an amendment or motion to 

report, together with the names of those voting for and against, are 

printed below: 

Rules Committee record vote No. 210 

Motion by Mr. McGovern to make in order and provide the appropriate waivers for amendment #1, offered by Rep. McDermott 

(WA), which would extend for one year 100 percent expensing for 

capital expenditures, and offset the cost by repealing the section 

199 manufacturing deduction for major integrated oil companies. 

Defeated: 3–6. 

Majority Members Vote Minority Members Vote 

Ms. Foxx ............................................................ Nay Mr. McGovern ................................................... Yea 

Mr. Woodall ....................................................... Nay Mr. Hastings of Florida .................................... Yea 

Mr. Nugent ........................................................ Nay Mr. Polis ........................................................... Yea 

Mr. Scott of South Carolina ............................. Nay 

Mr. Webster ...................................................... Nay 

Mr. Dreier, Chairman ........................................ Nay 

SUMMARY OF THE AMENDMENT MADE IN ORDER

Levin, Sander (MI): Would replace the deduction in the underlying bill with a deduction for small businesses for the amounts 

they spend on capital investments in 2012. (20 minutes) 

TEXT OF AMENDMENT MADE IN ORDER

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Small Business Tax Cut Act’’. 

SEC. 2. DEDUCTION FOR DOMESTIC BUSINESS INCOME OF QUALIFIED 

SMALL BUSINESSES. 

(a) IN GENERAL.—Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the 

following new section: 

‘‘SEC. 200. DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL BUSINESSES. 

‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a qualified small 

business, there shall be allowed as a deduction an amount equal 

to 20 percent of the lesser of— 

‘‘(1) the qualified domestic business income of the taxpayer 

for the taxable year, or 

‘‘(2) taxable income (determined without regard to this section) for the taxable year. 

‘‘(b) DEDUCTION LIMITED BASED ON WAGES PAID.— 


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‘‘(1) IN GENERAL.—The amount of the deduction allowable 

under subsection (a) for any taxable year shall not exceed 50 

percent of the greater of— 

‘‘(A) the W–2 wages of the taxpayer paid to non-owners, 

or 

‘‘(B) the sum of— 

‘‘(i) the W–2 wages of the taxpayer paid to individuals who are non-owner family members of direct owners, plus 

‘‘(ii) any W–2 wages of the taxpayer paid to 10-percent-or-less direct owners. 

‘‘(2) DEFINITIONS RELATED TO OWNERSHIP.—For purposes of 

this section— 

‘‘(A) NON-OWNER.—The term ‘non-owner’ means, with respect to any qualified small business, any person who does 

not own (and is not considered as owning within the meaning of subsection (c) or (e)(3) of section 267, as the case 

may be) any stock of such business (or, if such business is 

other than a corporation, any capital or profits interest of 

such business). 

‘‘(B) NON-OWNER FAMILY MEMBERS.—An individual is a 

non-owner family member of a direct owner if— 

‘‘(i) such individual is family (within the meaning of 

section 267(c)(4)) of a direct owner, and 

‘‘(ii) such individual would be a non-owner if subsections (c) and (e)(3) of section 267 were applied without regard to section 267(c)(2). 

‘‘(C) DIRECT OWNER.—The term ‘direct owner’ means, 

with respect to any qualified small business, any person 

who owns (or is considered as owning under the applicable 

non-family attribution rules) any stock of such business 

(or, if such business is other than a corporation, any capital or profits interest of such business). 

‘‘(D) 10-PERCENT-OR-LESS DIRECT OWNERS.—The term 

‘10-percent-or-less direct owner’ means, with respect to any 

qualified small business, any direct owner of such business 

who owns (or is considered as owning under the applicable 

non-family attribution rules)— 

‘‘(i) in the case of a qualified small business which 

is a corporation, not more than 10 percent of the outstanding stock of the corporation or stock possessing 

more than 10 percent of the total combined voting 

power of all stock of the corporation, or 

‘‘(ii) in the case of a qualified small business which 

is not a corporation, not more than 10 percent of the 

capital or profits interest of such business. 

‘‘(E) APPLICABLE NON-FAMILY ATTRIBUTION RULES.—The 

term ‘applicable non-family attribution rules’ means the 

attribution rules of subsection (c) or (e)(3) of section 267, 

as the case may be, but in each case applied without regard to section 267(c)(2). 

‘‘(3) W–2 WAGES.—For purposes of this section— 

‘‘(A) IN GENERAL.—The term ‘W–2 wages’ means, with 

respect to any person for any taxable year of such person, 

the sum of the amounts described in paragraphs (3) and 


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(8) of section 6051(a) paid by such person with respect to 

employment of employees by such person during the calendar year ending during such taxable year. 

‘‘(B) LIMITATION TO WAGES ATTRIBUTABLE TO QUALIFIED

DOMESTIC BUSINESS INCOME.—Such term shall not include 

any amount which is not properly allocable to domestic 

business gross receipts for purposes of subsection (d)(1). 

‘‘(C) OTHER REQUIREMENTS.—Except in the case of 

amounts treated as W–2 wages under paragraph (4)— 

‘‘(i) such term shall not include any amount which 

is not allowed as a deduction under section 162 for the 

taxable year, and 

‘‘(ii) such term shall not include any amount which 

is not properly included in a return filed with the Social Security Administration on or before the 60th day 

after the due date (including extensions) for such return. 

‘‘(4) CERTAIN PARTNERSHIP DISTRIBUTIONS TREATED AS W–2

WAGES.— 

‘‘(A) IN GENERAL.—In the case of a qualified small business which is a partnership and elects the application of 

this paragraph for the taxable year— 

‘‘(i) the qualified domestic business taxable income 

of such partnership for such taxable year (determined 

after the application of clause (ii)) which is allocable 

under rules similar to the rules of section 

199(d)(1)(A)(ii) to each qualified service-providing partner shall be treated for purposes of this section as W– 

2 wages paid during such taxable year to such partner 

as an employee, and 

‘‘(ii) the domestic business gross receipts of such 

partnership for such taxable year shall be reduced by 

the amount so treated. 

‘‘(B) QUALIFIED SERVICE-PROVIDING PARTNER.—For purposes of this paragraph, the term ‘qualified service-providing partner’ means, with respect to any qualified domestic business taxable income, any partner who is a 10- 

percent-or-less direct owner and who materially participates in the trade or business to which such income relates. 

‘‘(5) ACQUISITIONS AND DISPOSITIONS.—The Secretary shall 

provide for the application of this subsection in cases where 

the taxpayer acquires, or disposes of, the major portion of a 

trade or business or the major portion of a separate unit of a 

trade or business during the taxable year. 

‘‘(c) LIMITATION BASED ON INVESTMENT IN QUALIFIED PROPERTY.— 

‘‘(1) IN GENERAL.—The amount of the deduction allowable 

under subsection (a) for any taxable year shall not exceed the 

allowance which would be determined under section 

168(k)(1)(A) with respect to the taxpayer for the taxable year 

if such section were applied— 

‘‘(A) by substituting ‘100 percent’ for ‘50 percent’, and 

‘‘(B) without regard to paragraph (2). 


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‘‘(2) ADJUSTMENT OF BASIS.—No deduction shall be allowed to 

the taxpayer under subsection (a) for any taxable year unless 

the adjusted basis of property taken into account under paragraph (1) is reduced by the amount of the deduction allowed 

under subsection (a) before computing the amount otherwise 

allowable as a depreciation deduction under this chapter (including any allowance otherwise determined under section 

168(k)) for such taxable year and any subsequent taxable year. 

‘‘(d) QUALIFIED DOMESTIC BUSINESS INCOME.—For purposes of 

this section— 

‘‘(1) IN GENERAL.—The term ‘qualified domestic business income’ for any taxable year means an amount equal to the excess (if any) of— 

‘‘(A) the taxpayer’s domestic business gross receipts for 

such taxable year, over 

‘‘(B) the sum of— 

‘‘(i) the cost of goods sold that are allocable to such 

receipts, and 

‘‘(ii) other expenses, losses, or deductions (other than 

the deduction allowed under this section), which are 

properly allocable to such receipts. 

‘‘(2) DOMESTIC BUSINESS GROSS RECEIPTS.— 

‘‘(A) IN GENERAL.—The term ‘domestic business gross receipts’ means the gross receipts of the taxpayer which are 

effectively connected with the conduct of a trade or business within the United States within the meaning of section 864(c) but determined— 

‘‘(i) without regard to paragraphs (3), (4), and (5) 

thereof, and 

‘‘(ii) by substituting ‘qualified small business (within 

the meaning of section 200)’ for ‘nonresident alien individual or a foreign corporation’ each place it appears 

therein. 

‘‘(B) EXCEPTIONS.—For purposes of paragraph (1), domestic business gross receipts shall not include any of the 

following: 

‘‘(i) Gross receipts derived from the sale or exchange 

of— 

‘‘(I) a capital asset, or 

‘‘(II) property used in the trade or business (as 

defined in section 1231(b)). 

‘‘(ii) Royalties, rents, dividends, interest, or annuities. 

‘‘(iii) Any amount which constitutes wages (as defined in section 3401). 

‘‘(3) APPLICATION OF CERTAIN RULES.—Rules similar to the 

rules of paragraphs (2) and (3) of section 199(c) shall apply for 

purposes of this section (applied with respect to qualified domestic business income in lieu of qualified production activities 

income and with respect to domestic business gross receipts in 

lieu of domestic production gross receipts). 

‘‘(e) QUALIFIED SMALL BUSINESS.—For purposes of this section— 

‘‘(1) IN GENERAL.—The term ‘qualified small business’ means 

any employer engaged in a trade or business if such employer 


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had fewer than 500 full-time equivalent employees for either 

calendar year 2010 or 2011. 

‘‘(2) FULL-TIME EQUIVALENT EMPLOYEES.—The term ‘full-time 

equivalent employees’ has the meaning given such term by 

subsection (d)(2) of section 45R applied— 

‘‘(A) without regard to subsection (d)(5) of such section, 

‘‘(B) with regard to subsection (e)(1) of such section, and 

‘‘(C) by substituting ‘calendar year’ for ‘taxable year’ 

each place it appears therein. 

‘‘(3) EMPLOYERS NOT IN EXISTENCE PRIOR TO 2012.—In the 

case of an employer which was not in existence on January 1, 

2012, the determination under paragraph (1) shall be made 

with respect to calendar year 2012. 

‘‘(4) APPLICATION TO CALENDAR YEARS IN WHICH EMPLOYER IN

EXISTENCE FOR PORTION OF CALENDAR YEAR.—In the case of 

any calendar year during which the employer comes into existence, the number of full-time equivalent employees determined 

under paragraph (2) with respect to such calendar year shall 

be increased by multiplying the number so determined (without regard to this paragraph) by the quotient obtained by dividing— 

‘‘(A) the number of days in such calendar year, by 

‘‘(B) the number of days during such calendar year 

which such employer is in existence. 

‘‘(5) SPECIAL RULES.— 

‘‘(A) AGGREGATION RULE.—For purposes of paragraph (1), 

any person treated as a single employer under subsection 

(a) or (b) of section 52 (applied without regard to section 

1563(b)) or subsection (m) or (o) of section 414 shall be 

treated as a single employer for purposes of this subsection. 

‘‘(B) PREDECESSORS.—Any reference in this subsection to 

an employer shall include a reference to any predecessor 

of such employer. 

‘‘(f) SPECIAL RULES.— 

‘‘(1) ELECTIVE APPLICATION OF DEDUCTION.—Except as otherwise provided by the Secretary, the taxpayer may elect not to 

take any item of income into account as domestic business 

gross receipts for purposes of this section. 

‘‘(2) COORDINATION WITH SECTION 199.—If a deduction is allowed under this section with respect to any taxpayer for any 

taxable year— 

‘‘(A) any gross receipts of the taxpayer which are taken 

into account under this section for such taxable year shall 

not be taken into account under section 199 for such taxable year, and 

‘‘(B) the W–2 wages of the taxpayer which are taken into 

account under this section shall not be taken into account 

under section 199 for such taxable year. 

‘‘(3) APPLICATION OF CERTAIN RULES.—Rules similar to the 

rules of paragraphs (1), (2), (3), (4), (6), and (7) of section 

199(d) shall apply for purposes of this section (applied with respect to qualified domestic business income in lieu of qualified 

production activities income). 


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‘‘(g) REGULATIONS.—The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations which prevent a taxpayer which reorganizes 

from being treated as a qualified small business if such taxpayer 

would not have been treated as a qualified small business prior to 

such reorganization. 

‘‘(h) APPLICATION.—Subsection (a) shall apply only with respect 

to the first taxable year of the taxpayer beginning after December 

31, 2011.’’. 

(b) CONFORMING AMENDMENTS.— 

(1) Section 56(d)(1)(A) of such Code is amended by striking 

‘‘deduction under section 199’’ both places it appears and inserting ‘‘deductions under sections 199 and 200’’. 

(2) Section 56(g)(4)(C) of such Code is amended by adding at 

the end the following new clause: 

‘‘(vii) DEDUCTION FOR DOMESTIC BUSINESS INCOME OF

QUALIFIED SMALL BUSINESSES.—Clause (i) shall not 

apply to any amount allowable as a deduction under 

section 200.’’. 

(3) The following provisions of such Code are each amended 

by inserting ‘‘200,’’ after ‘‘199,’’. 

(A) Section 86(b)(2)(A). 

(B) Section 135(c)(4)(A). 

(C) Section 137(b)(3)(A). 

(D) Section 219(g)(3)(A)(ii). 

(E) Section 221(b)(2)(C)(i). 

(F) Section 222(b)(2)(C)(i). 

(G) Section 246(b)(1). 

(H) Section 469(i)(3)(F)(iii). 

(4) Section 163(j)(6)(A)(i) of such Code is amended by striking 

‘‘and’’ at the end of subclause (III) and by inserting after subclause (IV) the following new subclause: 

‘‘(V) any deduction allowable under section 200, 

and’’. 

(5) Section 170(b)(2)(C) of such Code is amended by striking 

‘‘and’’ at the end of clause (iv), by striking the period at the end 

of clause (v) and inserting ‘‘, and’’, and by inserting after clause 

(v) the following new clause: 

‘‘(vi) section 200.’’. 

(6) Section 172(d) of such Code is amended by adding at the 

end the following new paragraph: 

‘‘(8) DOMESTIC BUSINESS INCOME OF QUALIFIED SMALL BUSINESSES.—The deduction under section 200 shall not be allowed.’’. 

(7) Section 613(a) of such Code is amended by striking ‘‘deduction under section 199’’ and inserting ‘‘deductions under 

sections 199 and 200’’. 

(8) Section 613A(d)(1) of such Code is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), 

(E), and (F), respectively, and by inserting after subparagraph 

(B) the following new subparagraph: 

‘‘(C) any deduction allowable under section 200,’’. 

(9) Section 1402(a) of such Code is amended by striking 

‘‘and’’ at the end of paragraph (16), by redesignating paragraph 


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(17) as paragraph (18), and by inserting after paragraph (16) 

the following new paragraph: 

‘‘(17) the deduction provided by section 200 shall not be allowed; and’’. 

(c) CLERICAL AMENDMENT.—The table of sections for part VI of 

subchapter B of chapter 1 of such Code is amended by adding at 

the end the following new item: 

‘‘Sec. 200. Domestic business income of qualified small businesses.’’. 

Æ 


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