I

106TH CONGRESS

1ST SESSION H. R. 2087

To amend the Internal Revenue Code of 1986 to provide tax relief for

small businesses, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JUNE 9, 1999

Mr. TALENT (for himself, Mr. MCCRERY, Mr. ENGLISH, Mrs. BONO, and Mr.

DEMINT) 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

tax relief for small businesses, 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 ‘‘Small Employer Tax

5 Relief Act of 1999’’.

6 SEC. 2. DEDUCTION FOR HEALTH INSURANCE COSTS OF

7 SELF-EMPLOYED INDIVIDUALS INCREASED.

8 (a) IN GENERAL.—Paragraph (1) of section 162(l)

9 of the Internal Revenue Code of 1986 (relating to special
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1 rules for health insurance costs of self-employed individ2 uals) is amended to read as follows:

3 ‘‘(1) ALLOWANCE OF DEDUCTION.—In the case

4 of an individual who is an employee within the

5 meaning of section 401(c)(1), there shall be allowed

6 as a deduction under this section an amount equal

7 to the amount paid during the taxable year for in8 surance which constitutes medical care for the tax9 payer, the taxpayer’s spouse, and dependents.’’.

10 (b) CLARIFICATION OF LIMITATIONS ON OTHER COV11 ERAGE.—The first sentence of section 162(l)(2)(B) of the

12 Internal Revenue Code of 1986 is amended to read as fol13 lows: ‘‘Paragraph (1) shall not apply to any taxpayer for

14 any calendar month for which the taxpayer participates

15 in any subsidized health plan maintained by any employer

16 (other than an employer described in section 401(c)(4))

17 of the taxpayer or the spouse of the taxpayer.’’.

18 SEC. 3. SMALL BUSINESSES ALLOWED INCREASED DEDUC19 TION FOR MEAL AND ENTERTAINMENT EX20 PENSES.

21 Subsection (n) of section 274 of the Internal Revenue

22 Code of 1986 (relating to only 50 percent of meal and

23 entertainment expenses allowed as deduction) is amended

24 by adding at the end the following new paragraph:

25 ‘‘(4) SPECIAL RULE FOR SMALL BUSINESSES.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 taxpayer which is a small business, paragraph

3 (1) shall be applied by substituting ‘the applica4 ble percentage (as defined in paragraph

5 (3)(B))’ for ‘50 percent’.

6 ‘‘(B) SMALL BUSINESS.—For purposes of

7 this paragraph, the term ‘small business’

8 means, with respect to expenses paid or in9 curred during any taxable year—

10 ‘‘(i) any C corporation which meets

11 the requirements of section 55(e)(1) for

12 such year, and

13 ‘‘(ii) any S corporation, partnership,

14 or sole proprietorship which would meet

15 such requirements if it were a C corpora16 tion.’’.

17 SEC. 4. INCREASE IN EXPENSE TREATMENT FOR SMALL

18 BUSINESSES.

19 Paragraph (1) of section 179(b) of the Internal Rev20 enue Code of 1986 (relating to dollar limitation) is amend21 ed to read as follows:

22 ‘‘(1) DOLLAR LIMITATION.—The aggregate cost

23 which may be taken into account under subsection

24 (a) for any taxable year shall not exceed $35,000.’’.
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1 SEC. 5. REDUCTION OF MAXIMUM INCOME TAX RATE FOR

2 SMALL BUSINESS TAXPAYERS.

3 Section 1 of the Internal Revenue Code of 1986 (re4 lating to tax imposed) is amended by adding at the end

5 the following new subsection:

6 ‘‘(i) TAX RATE ON CERTAIN SMALL BUSINESS IN7 COME.—

8 ‘‘(1) IN GENERAL.—Except as provided in para9 graph (4), if a small business taxpayer has taxable

10 income for any taxable year to which this subsection

11 applies, then the tax imposed by this section shall

12 not exceed the sum of—

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

14 the same manner as if this subsection had not

15 been enacted on the greater of—

16 ‘‘(i) taxable income reduced by quali17 fied small business income, or

18 ‘‘(ii) the amount of taxable income

19 taxed at a rate below 34 percent, plus

20 ‘‘(B) a tax of 34 percent of qualified small

21 business income in excess of the taxable income

22 that is subject to tax under subparagraph (A).

23 ‘‘(2) TAXABLE SMALL BUSINESS INCOME.—For

24 purposes of this subsection—

25 ‘‘(A) QUALIFIED SMALL BUSINESS IN26 COME.—The term ‘qualified small business in-
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1 come’ means taxable income of a small business

2 to the extent such income does not exceed

3 $5,000,000.

4 ‘‘(B) TAXABLE SMALL BUSINESS IN5 COME.—The term ‘taxable small business in6 come’ means, with respect to any taxable year,

7 the taxable income of the taxpayer for such

8 year attributable to the active conduct of any

9 trade or business of an eligible small business.

10 ‘‘(D) ELIGIBLE SMALL BUSINESS.—The

11 term ‘eligible small business’ means an S cor12 poration, partnership, limited liability company

13 or sole proprietorship, except that such term

14 does not include a personal service corporation

15 (as defined in section 469(j)(2)) unless such

16 corporation is a qualified personal service cor17 poration (as defined in section 448(d)(2)).

18 ‘‘(3) REGULATIONS.—The Secretary shall pre19 scribe such regulations as may be necessary or ap20 propriate to carry out the purposes of this section,

21 including regulations preventing the characterization

22 of income for purposes of compensation or personal

23 use as qualified small business income.’’.
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1 SEC. 6. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

2 (a) IN GENERAL.—The text of section 3301 of the

3 Internal Revenue Code of 1986 is amended to read as fol4 lows:

5 ‘‘There is hereby imposed on every employer (as de6 fined in section 3306(a)) for each calendar year an excise

7 tax, with respect to having individuals in his employ, equal

8 to 6.0 percent of the total wages (as defined in section

9 3306(b)) paid by him during the calendar year with re10 spect to employment (as defined in section 3306(c)).’’

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

12 subsection (a) shall apply to calendar years beginning

13 after the date of the enactment of this Act.

14 SEC. 7. CLARIFICATION OF CASH ACCOUNTING RULES FOR

15 SMALL BUSINESS.

16 Section 446 of the Internal Revenue Code of 1986

17 (relating to general rule for methods of accounting) is

18 amended by adding at the end the following new sub19 section:

20 ‘‘(g) SMALL TAXPAYERS PERMITTED TO USE CASH

21 ACCOUNTING METHOD WITHOUT LIMITATION.—A tax22 payer shall not be required to use an accrual method of

23 accounting for any taxable year by reason of using mer24 chandise or inventory, if the average annual gross receipts

25 of such taxpayer (or any predecessor) for the 3-year-period

26 ending with such prior taxable year does not exceed
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1 $5,000,000. The rules of paragraphs (2) and (3) of section

2 448(c) shall apply for purposes of the preceding sentence.

3 In the case of a C corporation or a partnership which has

4 a C corporation as a partner, the first sentence of this

5 subsection shall apply only if such C corporation or part6 nership meets the requirements of section 448(b)(3).’’

7 SEC. 8. EFFECTIVE DATE.

8 Except as otherwise provided in this Act, the amend9 ments made by this Act shall apply to taxable years begin10 ning after the date of the enactment of this Act.

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