I 

114TH CONGRESS 

2D SESSION H. R. 5374 

To amend the Internal Revenue Code of 1986 to provide a lower rate of 

tax on a portion of pass-through business income, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 27, 2016 

Mr. HULTGREN introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

a lower rate of tax on a portion of pass-through business 

income, and for other purposes. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Bring Small Busi5 nesses Back Tax Reform Act’’. 

6 SEC. 2. SPECIAL INDIVIDUAL RATES FOR QUALIFIED 

7 SMALL BUSINESS INCOME. 

8 (a) IN GENERAL.—Section 1 of such Code is amend9 ed by adding at the end the following: 


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1 ‘‘(j) MAXIMUM RATE ON QUALIFIED SMALL BUSI2 NESS INCOME.— 

3 ‘‘(1) IN GENERAL.—If a taxpayer has qualified 

4 business income for any taxable year, the tax im5 posed by this section for such taxable year shall not 

6 exceed the sum of— 

7 ‘‘(A) a tax computed at the rates and in 

8 the same manner as if this subsection had not 

9 been enacted on taxable income reduced by 

10 qualified business income, 

11 ‘‘(B) 10 percent of so much of the quali12 fied business income of the taxpayer as does not 

13 exceed $150,000, plus 

14 ‘‘(C) 20 percent of so much of the quali15 fied business income of the taxpayer as exceeds 

16 the amount on which tax is determined under 

17 subparagraph (B). 

18 ‘‘(2) QUALIFIED BUSINESS INCOME.— 

19 ‘‘(A) IN GENERAL.—The term ‘qualified 

20 business income’ means so much of the fol21 lowing of the taxpayer as does not exceed 

22 $1,000,000: 

23 ‘‘(i) Gross earnings derived by an in24 dividual from any active trade or business 

25 carried on by such individual, less the deVerDate Sep 11 2014 23:07 Jun 02, 2016 Jkt 059200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H5374.IH H5374

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1 ductions allowed by the subtitle which are 

2 attributable to such trade or business. 

3 ‘‘(ii) The taxpayer’s distributive or 

4 pro rata share qualified pass-through in5 come. 

6 Such term shall not include any amounts, or 

7 any distributive or pro rata share, attributable 

8 to capital gains, interest, dividends, and royal9 ties. 

10 ‘‘(B) QUALIFIED PASS-THROUGH IN11 COME.—The term ‘qualified pass-through in12 come’ means, in the case of a partnership or S 

13 corporation, so much of the income of the part14 nership computed under section 703, or income 

15 of the S corporation computed under section 

16 1363, as does not exceed $1,000,000 and is 

17 designated as such (at such time and in such 

18 form and manner as the Secretary shall pre19 scribe) and allocated by the partnership or S 

20 corporation. Any income so designated shall be 

21 allocated amongst partners or shareholders in 

22 the same proportion as distributive or pro rata 

23 shares of income or loss are allocated. Such 

24 term shall not include any capital gains, inter25 est, dividends, or royalties. 


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1 ‘‘(3) SPECIAL RULES.— 

2 ‘‘(A) MATERIAL PARTICIPATION.—Para3 graph (1) shall not apply with respect to any 

4 income attributable to a trade or business in 

5 which the taxpayer does not materially partici6 pate. 

7 ‘‘(B) COORDINATION WITH CAPITAL

8 GAINS.—This subsection shall be applied before 

9 the application of subsection (h).’’. 

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

11 this section shall apply to taxable years beginning after 

12 December 31, 2016. 

13 SEC. 3. REPEAL OF LIMITATION ON ELECTION TO EXPENSE 

14 CERTAIN DEPRECIABLE ASSET IN CASE OF 

15 NON-C CORP TAXPAYERS. 

16 (a) IN GENERAL.—Paragraphs (1) and (2) of section 

17 179(b) of the Internal Revenue Code of 1986 are each 

18 amended by striking ‘‘The’’ and inserting ‘‘In the case of 

19 a corporation (or any partnership with a corporation as 

20 a partner), the’’. 

21 (b) EFFECTIVE DATE.—The amendment made by 

22 this section shall apply to taxable years beginning after 

23 December 31, 2016. 


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1 SEC. 4. EXPANDED AVAILABILITY OF CASH ACCOUNTING 

2 RULES AND EXCEPTION TO INVENTORY 

3 RULES FOR CERTAIN SMALL BUSINESSES. 

4 (a) CASH ACCOUNTING PERMITTED.— 

5 (1) IN GENERAL.—Section 446 of the Internal 

6 Revenue Code of 1986 is amended by adding at the 

7 end the following new subsection: 

8 ‘‘(g) CERTAIN SMALL BUSINESS TAXPAYERS PER9 MITTED TO USE CASH ACCOUNTING METHOD WITHOUT

10 LIMITATION.— 

11 ‘‘(1) IN GENERAL.—With respect to an eligible 

12 taxpayer who uses the cash receipts and disburse13 ments method for any taxable year, such method 

14 shall be deemed to clearly reflect income and the 

15 taxpayer shall not be required to use an accrual 

16 method. 

17 ‘‘(2) ELIGIBLE TAXPAYER.—For purposes of 

18 this subsection, a taxpayer is an eligible taxpayer 

19 with respect to any taxable year if— 

20 ‘‘(A) for all prior taxable years beginning 

21 after December 31, 2016, the taxpayer (or any 

22 predecessor) met the gross receipts test of sec23 tion 448(c), and 

24 ‘‘(B) the taxpayer is not subject to section 

25 447 or 448.’’. 

26 (2) EXPANSION OF GROSS RECEIPTS TEST.— 


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1 (A) IN GENERAL.—Paragraph (3) of sec2 tion 448(b) of such Code is amended by strik3 ing ‘‘$5,000,000’’ in the text and in the head4 ing and inserting ‘‘$25,000,000’’. 

5 (B) CONFORMING AMENDMENTS.—Section 

6 448(c) of such Code is amended by striking 

7 ‘‘$5,000,000’’ each place it appears in the text 

8 and in the heading of paragraph (1) and insert9 ing ‘‘$25,000,000’’. 

10 (3) FARMING.— 

11 (A) IN GENERAL.—Section 447(d)(1) of 

12 such Code is amended by striking ‘‘$1,000,000’’ 

13 and inserting ‘‘$25,000,000’’. 

14 (B) CONFORMING AMENDMENT.—Section 

15 447(d)(2) of such Code is amended— 

16 (i) by striking ‘‘; and’’ and all that 

17 follows through to the end and inserting a 

18 period, and 

19 (ii) by striking ‘‘shall be applied—’’ 

20 and all that follows through ‘‘(i) by sub21 stituting’’ and inserting the following: 

22 ‘‘shall be applied by substituting’’. 

23 (b) INVENTORY RULES.— 

24 (1) IN GENERAL.—Section 471 of the Internal 

25 Revenue Code of 1986 is amended by redesignating 


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1 subsection (c) as subsection (d) and by inserting 

2 after subsection (b) the following new subsection: 

3 ‘‘(c) SMALL BUSINESS TAXPAYERS NOT REQUIRED

4 TO USE INVENTORIES.— 

5 ‘‘(1) IN GENERAL.—An eligible taxpayer (as de6 fined in section 446(g)(2)) shall not be required to 

7 use inventories under this section for a taxable year. 

8 ‘‘(2) TREATMENT OF TAXPAYERS NOT USING

9 INVENTORIES.—If an eligible taxpayer (as so de10 fined) does not use inventories with respect to any 

11 property for a taxable year, any cost which (but for 

12 paragraph (1)) would have been included by the tax13 payer in inventory costs shall be treated as an ex14 pense which is deductible for the taxable year in 

15 which the property is purchased.’’. 

16 (2) CONFORMING AMENDMENT.—Section 

17 263A(c) of such Code is amended by adding at the 

18 end the following new paragraph: 

19 ‘‘(7) EXCLUSION FROM INVENTORY RULES.— 

20 This section shall not apply to property with respect 

21 to which a taxpayer does not use inventories pursu22 ant to section 471(c).’’. 

23 (c) EFFECTIVE DATE AND SPECIAL RULES.— 


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1 (1) IN GENERAL.—The amendments made by 

2 this section shall apply to taxable years beginning 

3 after December 31, 2016. 

4 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

5 the case of any taxpayer changing the taxpayer’s 

6 method of accounting for any taxable year under the 

7 amendments made by this section— 

8 (A) such change shall be treated as initi9 ated by the taxpayer; and 

10 (B) such change shall be treated as made 

11 with the consent of the Secretary of the Treas12 ury. 

Æ 


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