I

104TH CONGRESS

2D SESSION H. R. 4050

To amend the Internal Revenue Code of 1986 to replace the current individual

and corporate income taxes, and the Social Security and Medicare taxes,

with a value added tax.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 11, 1996

Mr. GIBBONS 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 replace

the current individual and corporate income taxes, and

the Social Security and Medicare taxes, with a value

added 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. SHORT TITLE; AMENDMENT OF 1986 CODE.

4 (a) IN GENERAL.—This Act may be cited as the

5 ‘‘Revenue Restructuring Act of 1996’’.

6 (b) FUNDAMENTAL PRINCIPLES FOR TAX RESTRUC7 TURING.—The provisions of this Act are a substitute for
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1 the current Federal income taxes and Social Security and

2 Medicare employment taxes and are designed to meet the

3 following principles which should govern all proposals for

4 fundamental tax reform:

5 (1) REVENUE NEUTRALITY.—The debate about

6 the best method by which the Government raises

7 revenue should not be confused with the issue of how

8 much revenue the Government should raise.

9 (2) FAIRNESS.—Equitable distribution of the

10 tax burden is of paramount importance. Tax reform

11 should not be used as an opportunity to alter the

12 current distribution of the burden of Federal taxes.

13 (3) SIMPLICITY.—Much of the unhappiness

14 with the current Federal tax system arises from its

15 perceived complexity. Tax reform should focus on

16 the creation of a truly simpler system, thereby avoid17 ing the ill will and skepticism generated by the cur18 rent Federal tax system.

19 (4) ECONOMIC EFFICIENCY.—A good revenue

20 system should minimize interference in economic

21 markets. It should result in the least amount of dis22 tortion and bias, should encourage economic growth,

23 and should promote the vigor and competitiveness of

24 American companies.
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1 (5) INTERNATIONAL COMPETITIVENESS.—The

2 current income tax is an impediment to maximum

3 competitiveness of American companies in inter4 national markets. Any reform proposal should be

5 border-adjustable and promote the competitiveness

6 of American companies.

7 (c) RESPONSIBILITIES OF DEPARTMENT OF TREAS8 URY.—The rate of the value added tax and the burden

9 adjustment provisions contained in this Act are tentative

10 and intended to be both revenue neutral and

11 distributionally neutral. The Secretary of the Treasury

12 shall, within 90 days after the date of the enactment of

13 this Act, submit to the Committee on Ways and Means

14 of the House of Representatives such adjustments to—

15 (1) the rate of the tax imposed by title II of

16 this Act, and

17 (2) the burden adjustments established by title

18 III of this Act,

19 to ensure that the provisions of this Act do not result in

20 a significant change in the amount of Federal revenues

21 or in the distribution of the Federal tax burden.

22 (d) AMENDMENT OF 1986 CODE.—Except as other23 wise expressly provided, whenever in this Act an amend24 ment or repeal is expressed in terms of an amendment

25 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 (e) TABLE OF CONTENTS.—

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

TITLE I—REPEAL OF INDIVIDUAL AND CORPORATE INCOME

TAXES AND SOCIAL SECURITY AND MEDICARE TAXES

Sec. 101. Repeal of individual and corporate income taxes.

Sec. 102. Repeal of Social Security and Medicare taxes.

TITLE II—VALUE ADDED TAX

Sec. 201. Imposition of value added tax.

‘‘Subtitle L—Value Added Tax

‘‘CHAPTER 100—VALUE ADDED TAX

‘‘SUBCHAPTER A—IMPOSITION OF TAX

‘‘Sec. 10001. Tax imposed.

‘‘SUBCHAPTER B—COMPUTATION OF TAX

‘‘Sec. 10011. Taxable value added.

‘‘Sec. 10012. Business activity.

‘‘Sec. 10013. Gross receipts from business activities.

‘‘Sec. 10014. Business purchases.

‘‘Sec. 10015. Exemption for certain nontaxable exchanges.

‘‘SUBCHAPTER C—GENERAL RULES

‘‘Sec. 10021. Accounting methods.

‘‘Sec. 10022. Governmental entities and exempt organizations.

‘‘Sec. 10023. Post-sale price adjustments and refunds; bad debts.

‘‘Sec. 10024. Source rules.

‘‘Sec. 10025. Conversions.

‘‘SUBCHAPTER D—SPECIAL RULES

‘‘Sec. 10031. International transportation services.

‘‘Sec. 10032. Financial intermediation services.

‘‘Sec. 10033. Nonbusiness imports of property or services.

‘‘Sec. 10034. Refund for certain nonbusiness purchases.

‘‘SUBCHAPTER E—SMALL BUSINESS EXEMPTION

‘‘Sec. 10041. Small business exemption.

‘‘SUBCHAPTER F—DEFINITIONS

‘‘Sec. 10051. Definitions.

‘‘SUBCHAPTER G—ADMINISTRATION

‘‘Sec. 10061. Liability for tax.
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‘‘Sec. 10062. Time for filing return; taxable period.

‘‘Sec. 10063. Treatment of related businesses.

‘‘Sec. 10064. Secretary to be notified of certain events.

‘‘Sec. 10065. Regulations.

Sec. 202. Refund authority.

Sec. 203. Dedication of portion of VAT revenues to Social Security Trust

Funds.

TITLE III—BURDEN ADJUSTMENTS

Sec. 301. Rebate of value added tax to low-income individuals; burden assessment on high-income individuals.

‘‘CHAPTER 7—VALUE ADDED TAX BURDEN ADJUSTMENTS

‘‘SUBCHAPTER A—REBATE TO LOW-INCOME INDIVIDUALS

‘‘Sec. 1601. Rebate to low-income individuals.

‘‘Sec. 1602. Advance payment of rebate.

‘‘SUBCHAPTER B—BURDEN ASSESSMENT ON HIGH-INCOME INDIVIDUALS

‘‘Sec. 1611. Assessment on high-income individuals.

‘‘Sec. 1612. Inclusion of undistributed income of certain corporations.

1 TITLE I—REPEAL OF INDIVID2 UAL AND CORPORATE IN3 COME TAXES AND SOCIAL SE4 CURITY AND MEDICARE

5 TAXES

6 SEC. 101. REPEAL OF INDIVIDUAL AND CORPORATE IN7 COME TAXES.

8 (a) IN GENERAL.—Subchapter A of chapter 1 (relat9 ing to normal taxes and surtaxes) is hereby repealed.

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

11 subsection (a) shall apply to taxable years beginning after

12 December 31, 1997.

13 SEC. 102. REPEAL OF SOCIAL SECURITY AND MEDICARE

14 TAXES.

15 (a) IN GENERAL.—
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1 (1) Chapter 21 (relating to Federal Insurance

2 Contributions Act) is hereby repealed.

3 (2) Chapter 2 (relating to self-employment tax)

4 is hereby repealed.

5 (b) REPEAL OF TIER 1 RAILROAD RETIREMENT

6 TAXES.—

7 (1) Subsection (a) of section 3201 (relating to

8 tax on employees) is hereby repealed.

9 (2) Subsection (a) of section 3211 (relating to

10 tax on employee representatives) is amended by

11 striking paragraph (1).

12 (3) Section 3221 (relating to tax on employers)

13 is amended by striking subsections (a) and (e).

14 (4) Paragraph (2) of section 3231(e) is amend15 ed—

16 (A) by striking clause (iii) of subparagraph

17 (A), and

18 (B) by striking subparagraph (B) and in19 serting the following new subparagraph:

20 ‘‘(B) APPLICABLE BASE.—The term ‘appli21 cable base’ means for any calendar year the

22 contribution and benefit base determined under

23 section 230 of the Social Security Act for such

24 calendar year; except that—

25 ‘‘(i) for purposes of this chapter, and
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1 ‘‘(ii) computing average monthly com2 pensation under section 3(j) of the Rail3 road Retirement Act of 1974 (except with

4 respect to annuity amounts determined

5 under subsection (a) or (f)(3) of section 3

6 of such Act),

7 clause (2) of the first sentence, and the second

8 sentence, of subsection (c) of section 230 of the

9 Social Security Act shall be disregarded.’’

10 (4) Subsection (e) of section 3231 is amended

11 by striking paragraph (4).

12 (c) EFFECTIVE DATE.—

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

14 this section (other than subsection (a)(2)) shall

15 apply to remuneration paid after December 31,

16 1997.

17 (2) SELF-EMPLOYMENT TAX.—The amendment

18 made by subsection (a)(2) shall apply to taxable

19 years beginning after December 31, 1997.

20 TITLE II—VALUE ADDED TAX

21 SEC. 201. IMPOSITION OF VALUE ADDED TAX.

22 The Internal Revenue Code of 1986 is amended by

23 adding at the end the following new subtitle:

24 ‘‘Subtitle L—Value Added Tax

‘‘CHAPTER 100. Value added tax.
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1 ‘‘CHAPTER 100—VALUE ADDED TAX

‘‘SUBCHAPTER A. Imposition of tax.

‘‘SUBCHAPTER B. Computation of tax.

‘‘SUBCHAPTER C. General rules.

‘‘SUBCHAPTER D. Special rules.

‘‘SUBCHAPTER E. Small business exemption.

‘‘SUBCHAPTER F. Definitions.

‘‘SUBCHAPTER G. Administration.

2 ‘‘Subchapter A—Imposition of Tax

‘‘Sec. 10001. Tax imposed.

3 ‘‘SEC. 10001. TAX IMPOSED.

4 ‘‘In the case of any person engaged in any business

5 activity, there is hereby imposed for each taxable period

6 a tax in an amount equal to 20 percent of the taxable

7 value added.

8 ‘‘Subchapter B—Computation of Tax

‘‘Sec. 10011. Taxable value added.

‘‘Sec. 10012. Business activity.

‘‘Sec. 10013. Gross receipts from business activities.

‘‘Sec. 10014. Business purchases.

‘‘Sec. 10015. Exemption for certain nontaxable exchanges.

9 ‘‘SEC. 10011. TAXABLE VALUE ADDED.

10 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

11 term ‘taxable value added’ means the amount by which—

12 ‘‘(1) the gross receipts of any person from busi13 ness activities for a taxable period, exceed

14 ‘‘(2) the business purchases of such person for

15 the taxable period.

16 ‘‘(b) REFUND IF BUSINESS PURCHASES EXCEED

17 GROSS RECEIPTS.—If the business purchases described in

18 subsection (a)(2) exceeds the gross receipts described in
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1 subsection (a)(1) for any taxable period, an amount equal

2 to 20 percent of such excess shall be treated as an over3 payment of the tax imposed by section 10001 for such pe4 riod.

5 ‘‘SEC. 10012. BUSINESS ACTIVITY.

6 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

7 term ‘business activity’ means—

8 ‘‘(1) any of the following transactions by any

9 person in connection with a business—

10 ‘‘(A) any sale of property in the United

11 States,

12 ‘‘(B) any grant of a right to use property

13 in the United States, and

14 ‘‘(C) the performance of services in the

15 United States, and

16 ‘‘(2) the export of property or services from the

17 United States in connection with a business.

18 For purposes of the preceding sentence, the term ‘prop19 erty’ does not include any financial instrument (as defined

20 in section 10051) or money.

21 ‘‘(b) EXCEPTION FOR SERVICES PERFORMED AS EM22 PLOYEE.—For purposes of this chapter, the term ‘busi23 ness activity’ does not include the performance of services

24 by an employee for the employee’s employer.
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1 ‘‘SEC. 10013. GROSS RECEIPTS FROM BUSINESS ACTIVITIES.

2 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

3 term ‘gross receipts’ means all receipts from a business

4 activity.

5 ‘‘(b) EXPORTS.—

6 ‘‘(1) GENERAL RULE.—For purposes of this

7 chapter, the term ‘gross receipts’ does not include

8 amounts received by the exporter for property or

9 services exported from the United States for use or

10 consumption outside the United States.

11 ‘‘(2) EXPORT THROUGH NONBUSINESS EN12 TITY.—For purposes of paragraph (1), if property or

13 services are sold to a governmental entity or exempt

14 organization for export and are exported other than

15 in a business activity of such entity or organization,

16 then the seller of such property or services is deemed

17 to be the exporter thereof.

18 ‘‘(3) INTERNATIONAL TRANSPORTATION.—

‘‘For treatment of international transportation

services, see section 10031.

19 ‘‘(c) EXCHANGES.—For purposes of this chapter, the

20 amount treated as gross receipts from an exchange is the

21 amount of money plus the fair market value of other con22 sideration received in the exchange.

23 ‘‘(d) CERTAIN INSURANCE PROCEEDS.—For pur24 poses of this chapter, the term ‘gross receipts’ includes
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1 the proceeds of property and casualty insurance for losses

2 in connection with a business activity.

3 ‘‘(e) TAXES.—For purposes of this chapter, the term

4 ‘gross receipts’ shall not include—

5 ‘‘(1) any separately stated excise tax, sales tax,

6 customs duty, or other levy imposed by a Federal,

7 State, or local government which is imposed on a

8 business transaction and which is received or col9 lected by the seller in connection with the sale, and

10 ‘‘(2) any tax imposed by chapter 31, 32, 33, 34,

11 35, 36, 39, 51, 52, or 53.

12 ‘‘(f) TRANSFERS TO RELATED PERSONS.—

13 ‘‘(1) IN GENERAL.—For purposes of this chap14 ter, the amount treated as the gross receipts from

15 any transaction described in section 10012(a)(1) be16 tween related persons shall be the fair market value

17 of the property sold, right granted, or services per18 formed (as the case may be).

19 ‘‘(2) RELATED PERSON.—For purposes of this

20 subsection, the term ‘related person’ means—

21 ‘‘(A) in the case of an employment rela22 tionship, an employer and employee,

23 ‘‘(B) in the case of any entity, an owner of

24 the entity,
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1 ‘‘(C) any person specified in regulations,

2 and

3 ‘‘(D) any member of the family (within the

4 meaning of section 267(c)(4)) of any individual

5 described in subparagraph (A), (B), or (C).

6 ‘‘(3) OWNER.—For purposes of paragraph (2),

7 the term ‘owner’ means—

8 ‘‘(A) the proprietor of a sole proprietor9 ship, and

10 ‘‘(B) any holder of a beneficial interest in

11 a corporation, partnership, trust, or other en12 tity.

13 ‘‘SEC. 10014. BUSINESS PURCHASES.

14 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

15 term ‘business purchase’ means any amount paid or in16 curred to acquire property, a right to use property, or

17 services for use or sale in a business activity. For purposes

18 of the preceding sentence, the term ‘property’ does not in19 clude any financial instrument or money.

20 ‘‘(b) EXCEPTIONS.—The term ‘business purchase’

21 does not include—

22 ‘‘(1) any amount paid or incurred as current or

23 deferred compensation to employees or for employee

24 benefits,
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1 ‘‘(2) any payment which is unlawful under Fed2 eral, State, or local law, or

3 ‘‘(3) except as provided in subsection (d)—

4 ‘‘(A) any amount paid or incurred as a

5 premium for insurance other than property and

6 casualty insurance, or

7 ‘‘(B) any other implicit intermediation

8 fees.

9 ‘‘(c) IMPORTS.—The term ‘business purchase’ does

10 not include—

11 ‘‘(1) any amount paid or incurred for the im12 port of property or services, and

13 ‘‘(2) in the case of imported property, any

14 amounts paid or incurred for the transportation of

15 such property to the United States (if such costs are

16 not included in the amount paid for the property).

17 ‘‘(d) FINANCIAL INTERMEDIATION SERVICES.—

18 ‘‘(1) IN GENERAL.—For purposes of this chap19 ter, business purchases include implicit financial

20 intermediation fees.

21 ‘‘(2) IMPLICIT FINANCIAL INTERMEDIATION

22 FEES.—For purposes of paragraph (1), the term

23 ‘implicit financial intermediation fees’ means

24 amounts allocable to the business activity for which

25 a person has received notice under section 10032(d)
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1 (relating to implicit financial intermediation fees)

2 and which have otherwise not been taken into ac3 count.

4 ‘‘(3) CROSS REFERENCE.—

For additional treatment of financial intermediation services, see section 10032.

5 ‘‘(e) EXCHANGES.—For purposes of this chapter, the

6 amount treated as paid or incurred for business purchases

7 in connection with an exchange is the amount of money

8 plus the fair market value of other consideration trans9 ferred in the exchange.

10 ‘‘(f) TAXES.—For purposes of this chapter, the term

11 ‘business purchase’ does not include any excise tax, sales

12 tax, customs duty, or other separately stated levy imposed

13 by a Federal, State, or local government on business pur14 chases.

15 ‘‘(g) GAMBLING PAYMENTS.—Except as provided in

16 subsection (a), in the case of a business activity involving

17 gambling, lotteries, or other games of chance, business

18 purchases include amounts paid to winners.

19 ‘‘SEC. 10015. EXEMPTION FOR CERTAIN NONTAXABLE EX20 CHANGES.

21 ‘‘(a) GENERAL RULE.—For purposes of this chapter,

22 gross receipts shall not include gross receipts from an ap23 plicable nontaxable transaction except to the extent attrib-
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1 utable to money or other property received in the trans2 action.

3 ‘‘(b) APPLICABLE NONTAXABLE TRANSACTIONS.—

4 For purposes of this section, the term ‘applicable non5 taxable transaction’ means any transaction—

6 ‘‘(1) to which section 332, 351, 368, or 721 ap7 plies, or

8 ‘‘(2) which is specified by the Secretary and

9 with respect to which gain is not recognized in whole

10 or in part under chapter 1.

11 ‘‘Subchapter C—General Rules

‘‘Sec. 10021. Accounting methods.

‘‘Sec. 10022. Governmental entities and exempt organizations.

‘‘Sec. 10023. Post-sale price adjustments and refunds; bad debts.

‘‘Sec. 10024. Source rules.

‘‘Sec. 10025. Conversions.

12 ‘‘SEC. 10021. ACCOUNTING METHODS.

13 ‘‘(a) IN GENERAL.—Except as provided in this sec14 tion, a person subject to tax under this chapter may use

15 any of the following methods of accounting for purposes

16 of this chapter:

17 ‘‘(1) The cash receipts and disbursements

18 method.

19 ‘‘(2) An accrual method.

20 ‘‘(3) Any other method permitted by the Sec21 retary.

22 The Secretary may require a person to modify any method

23 to clearly reflect gross receipts and business purchases.
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1 ‘‘(b) CONSISTENCY REQUIREMENT.—All persons

2 which are members of a controlled group of corporations

3 which does not elect to be treated as one person for pur4 poses of this chapter under section 10063(a)(2) shall use

5 the same method of accounting for purposes of this chap6 ter.

7 ‘‘(c) SPECIAL RULES FOR LONG-TERM CON8 TRACTS.—

9 ‘‘(1) IN GENERAL.—In the case of any sale pur10 suant to a long-term contract (as defined in section

11 460(f))—

12 ‘‘(A) the seller shall use the percentage of

13 completion method in computing gross receipts

14 from the contract, and

15 ‘‘(B) the purchaser shall use the cash re16 ceipts and disbursements method in computing

17 business purchases from the contract.

18 ‘‘(2) REPORTING.—The Secretary may require

19 taxpayers to file statements containing such infor20 mation with respect to long-term contracts as the

21 Secretary may prescribe.

22 ‘‘(d) INSTALLMENT METHOD PROHIBITED.—Gross

23 receipts from the sale of property shall not be taken into

24 account for purposes of this chapter under the installment

25 method.
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1 ‘‘SEC. 10022. GOVERNMENTAL ENTITIES AND EXEMPT OR2 GANIZATIONS.

3 ‘‘(a) IN GENERAL.—For purposes of this chapter, the

4 transfer of property, the grant of a right to use property,

5 or the furnishing of services by a governmental entity or

6 an exempt organization shall be treated as a business ac7 tivity if there is a separately stated charge for such trans8 fer, grant, or furnishing.

9 ‘‘(b) SPECIAL RULES FOR GOVERNMENTAL ENTI10 TIES.—For purposes of this chapter—

11 ‘‘(1) IN GENERAL.—The transfer of property,

12 the grant of a right to use property, or furnishing

13 of services by a governmental entity with respect to

14 any of the following activities shall be treated as a

15 business activity whether or not there is a separately

16 stated charge for such transfer or furnishing:

17 ‘‘(A) Public utility services.

18 ‘‘(B) Mass transit services.

19 ‘‘(C) Postal services.

20 ‘‘(D) Any activity not involving the exer21 cise of any essential governmental function

22 (within the meaning of section 115).

23 ‘‘(2) GROSS RECEIPTS.—In the case of a trans24 fer of property, grant of a right to use property, or

25 furnishing of services which is treated as a business

26 activity solely by reason of paragraph (1), gross re-
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1 ceipts shall be determined on the basis of the fair

2 market value of such property, right, or services.

3 ‘‘(c) BUSINESS PURCHASES REDUCED BY SUB4 SIDIES.—

5 ‘‘(1) IN GENERAL.—For purposes of this chap6 ter, in the case of a business activity of an exempt

7 organization or a governmental entity (other than an

8 activity which is treated as a business activity solely

9 by reason of subsection (b)(1)), the business pur10 chases for such activity shall be reduced by the

11 amount of any subsidy provided for that activity.

12 ‘‘(2) SUBSIDY.—For purposes of paragraph (1),

13 the term ‘subsidy’ means the portion of the cost of

14 the transfer of property, the right to use property,

15 or the furnishing of services, which is not borne by

16 amounts charged therefor.

17 ‘‘(d) ALLOCATION.—The Secretary shall by regula18 tion provide for the proper allocation of gross receipts and

19 business purchases between business activities and other

20 activities.

21 ‘‘(e) SELF-CONSUMPTION OF PROPERTY OR SERV22 ICES.—Notwithstanding the provisions of this section, the

23 Secretary may by regulation provide that property pro24 duced, or services furnished, by a governmental entity or

25 an exempt organization for use by itself are to be treated
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1 as sold in a business activity if such treatment is necessary

2 to carry out the purposes of this chapter. In any such case

3 the taxable value added shall be determined by reference

4 to the fair market value of the property or services.

5 ‘‘SEC. 10023. POST-SALE PRICE ADJUSTMENTS AND RE6 FUNDS; BAD DEBTS.

7 ‘‘(a) PRICE ADJUSTMENTS AND REFUNDS.—

8 ‘‘(1) RECEIPT TREATED AS REDUCTION IN

9 BUSINESS PURCHASES.—If a person subject to tax

10 under this chapter receives a post-sale price adjust11 ment attributable to a business purchase which was

12 taken into account in computing the taxable value

13 added for a prior taxable period, then the amount of

14 such adjustment shall be treated as a reduction in

15 business purchases for the taxable period in which it

16 is received.

17 ‘‘(2) ISSUANCE TREATED AS REDUCTION IN

18 GROSS RECEIPTS.—If a person subject to tax under

19 this chapter issues a post-sale price adjustment for

20 a sale the gross receipts from which were taken into

21 account in computing the taxable value added for a

22 prior taxable period, then the amount of such ad23 justment shall be treated as a reduction in gross re24 ceipts for the taxable period in which it is issued.
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1 ‘‘(3) POST-SALE PRICE ADJUSTMENT.—For

2 purposes of this subsection, the term ‘post-sale price

3 adjustment’ means a refund, rebate, or other price

4 allowance attributable to a sale of property or serv5 ices.

6 ‘‘(b) BAD DEBTS.—

7 ‘‘(1) SELLER.—

8 ‘‘(A) WRITEOFFS AND WRITEDOWNS.—If

9 an amount owed to a seller of business property

10 or services that was taken into account as gross

11 receipts in computing the taxable value added

12 of the seller for a prior taxable period becomes

13 wholly or partially uncollectible during any sub14 sequent taxable period, then the seller shall

15 treat the amount (or part thereof that is

16 uncollectible) as a reduction in gross receipts

17 for the taxable period in which it becomes whol18 ly or partially uncollectible.

19 ‘‘(B) NOTICE.—Whenever a seller treats

20 an amount as wholly or partially uncollectible

21 under subparagraph (A), the seller shall notify

22 the purchaser of the amount the seller is treat23 ing as uncollectible. The notice shall set forth

24 with specificity the purchase or purchases to

25 which the treatment relates and shall be sent to
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1 the purchaser at the purchaser’s last known ad2 dress within 10 days after close of the taxable

3 period in which the seller treats the amount as

4 wholly or partially uncollectible.

5 ‘‘(C) RECOVERIES.—If a seller receives

6 payment for an amount that was treated as a

7 reduction in gross receipts under subparagraph

8 (A) in a prior taxable period, then the seller

9 shall treat the payment as a gross receipt for

10 the taxable period in which it is received.

11 ‘‘(2) PURCHASER.—

12 ‘‘(A) WRITEOFFS AND WRITEDOWNS.—If a

13 purchaser receives notice under paragraph

14 (1)(B) from a seller for all or a portion of the

15 amount owed for business property or services

16 that the purchaser treated as a business pur17 chase in a prior taxable period, then the pur18 chaser shall treat such amount as a reduction

19 in business purchases for the taxable period in

20 which the notice is received.

21 ‘‘(B) REPAYMENTS.—If a purchaser pays

22 all or part of an amount treated as a reduction

23 in business purchases under subparagraph (A)

24 in a prior taxable period, then the purchaser

25 shall treat the amount paid as a business pur-
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1 chase for the taxable period in which the pay2 ment is made.

3 ‘‘SEC. 10024. SOURCE RULES.

4 ‘‘(a) SALES OF PROPERTY.—For purposes of this

5 chapter, a sale of property shall be treated as occurring

6 in the United States if the property is located in the

7 United States at the time of the sale.

8 ‘‘(b) RIGHT TO USE PROPERTY.—For purposes of

9 this chapter, the grant of a right to use property shall

10 be treated as occurring in the United States to the extent

11 such right involves the use of such property in the United

12 States.

13 ‘‘(c) SALES OF SERVICES.—

14 ‘‘(1) GENERAL RULE.—For purposes of this

15 chapter, a sale of services shall be treated as occur16 ring in the United States to the extent that—

17 ‘‘(A) the services are provided from a place

18 of business, or with respect to property, in the

19 United States, or

20 ‘‘(B) the services are incidental to the pro21 vision of services within the United States.
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1 ‘‘(2) CROSS REFERENCE.—

‘‘For treatment of international transportation

services, see section 10031.

2 ‘‘SEC. 10025. CONVERSIONS.

3 For purposes of this chapter, any conversion of prop4 erty or services from use in a business activity to use in

5 any other activity, or from use in any other activity to

6 use in a business activity, shall be treated as a sale of

7 the property or services for their fair market value.

8 ‘‘Subchapter D—Special Rules

‘‘Sec. 10031. International transportation services.

‘‘Sec. 10032. Financial intermediation services.

‘‘Sec. 10033. Nonbusiness imports of property or services.

‘‘Sec. 10034. Refund for certain nonbusiness purchases.

9 ‘‘SEC. 10031. INTERNATIONAL TRANSPORTATION SERVICES.

10 ‘‘(a) EXPORTS.—For purposes of this chapter, in the

11 case of property exported from the United States—

12 ‘‘(1) GROSS RECEIPTS.—The term ‘gross re13 ceipts’ does not include receipts from transportation

14 of such property from the United States.

15 ‘‘(2) BUSINESS PURCHASES.—The term ‘busi16 ness purchase’ does not include amounts paid or in17 curred for transportation of such property from the

18 United States.

19 ‘‘(b) INTERNATIONAL TRANSPORTATION OF PAS20 SENGERS.—For purposes of this chapter—

21 ‘‘(1) GROSS RECEIPTS.—Gross receipts—
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1 ‘‘(A) do not include receipts from the

2 transportation of passengers from outside the

3 United States to a destination in the United

4 States, but

5 ‘‘(B) include receipts from the transpor6 tation of passengers from the United States to

7 a destination outside the United States.

8 ‘‘(2) BUSINESS PURCHASES.—Business pur9 chases—

10 ‘‘(A) do not include amounts paid or in11 curred in a business activity for the transpor12 tation of passengers from outside the United

13 States to a destination in the United States,

14 but

15 ‘‘(B) include amounts paid or incurred in

16 a business activity for the transportation of

17 passengers from the United States to a destina18 tion outside the United States.

19 ‘‘SEC. 10032. FINANCIAL INTERMEDIATION SERVICES.

20 ‘‘(a) GENERAL RULE.—For purposes of this chap21 ter—

22 ‘‘(1) the providing of financial intermediation

23 services shall be treated as a business activity, and

24 ‘‘(2) this chapter shall be applied to such busi25 ness activity by substituting financial receipts and
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1 adjusted business purchases properly allocable to

2 such business activity for gross receipts and business

3 purchases.

4 ‘‘(b) FINANCIAL RECEIPTS.—For purposes of this

5 section, the term ‘financial receipts’ means all receipts

6 other than amounts received as contributions to capital.

7 ‘‘(c) ADJUSTED BUSINESS PURCHASES.—For pur8 poses of this section, the term ‘adjusted business pur9 chases’ means business purchases, adjusted as follows:

10 ‘‘(1) PRINCIPAL AND INTEREST.—Business

11 purchases include any principal or interest payments

12 properly allocable to the business activity described

13 in subsection (a).

14 ‘‘(2) FINANCIAL INSTRUMENTS.—Notwithstand15 ing any other provision of this chapter, business pur16 chases include the cost of, and payments under, fi17 nancial instruments (other than financial instru18 ments representing equity interests in the person

19 subject to the tax imposed by this chapter).

20 ‘‘(3) INSURANCE CLAIMS.—Business purchases

21 include claims and cash surrender values paid in

22 connection with insurance or reinsurance services.

23 ‘‘(4) REINSURANCE.—Business purchases in24 clude amounts paid for reinsurance.

25 ‘‘(d) REPORTING TO CUSTOMERS.—
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1 ‘‘(1) ALLOCATION AND REPORTING.—

2 ‘‘(A) IN GENERAL.—A person engaged in

3 the business activity of providing financial

4 intermediation services shall—

5 ‘‘(i) allocate fees received for such

6 services (other than services for which sep7 arately stated fees are charged) among re8 cipients of such services on a reasonable

9 and consistent basis, and

10 ‘‘(ii) report to each recipient the fees

11 so allocated.

12 ‘‘(B) TIMING.—The report under subpara13 graph (A)(ii) shall be furnished to the recipient

14 no later than the 45th day after the close of a

15 taxable period.

16 ‘‘(2) EXCEPTION.—The Secretary shall estab17 lish procedures under which notice need not be given

18 under this subsection to persons with respect to

19 whom services are not provided in connection with a

20 business activity.

21 ‘‘(e) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) FINANCIAL INTERMEDIATION SERVICE.—

23 The term ‘financial intermediation service’ means—

24 ‘‘(A) lending services,

25 ‘‘(B) insurance services,
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1 ‘‘(C) market-making and dealer services,

2 and

3 ‘‘(D) any other service provided as a busi4 ness activity in which a person acts as an

5 intermediary in—

6 ‘‘(i) the transfer of property, services,

7 or financial assets, liabilities, risks, or in8 struments (or income or expense derived

9 therefrom) between two or more other per10 sons, or

11 ‘‘(ii) the pooling of economic risk

12 among other persons,

13 and derives all or a portion of such person’s

14 gross receipts from streams of income or ex15 pense, discounts, or other financial flows associ16 ated with the matter with respect to which such

17 person is acting as an intermediary.

18 ‘‘(2) LENDING SERVICES.—The term ‘lending

19 services’ means the regular making of loans and pro20 viding credit to, or taking deposits from, customers,

21 but does not include an installment or delayed pay22 ment arrangement provided by a seller of property

23 or services under which additional charges or fees

24 are imposed by the seller for late payment and for

25 which no interest is charged.
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1 ‘‘(3) MARKET-MAKING OR DEALER SERVICES.—

2 The term ‘market-making or dealer services’ means

3 services provided by a person who—

4 ‘‘(A) regularly purchases financial instru5 ments from or sells financial instruments to

6 customers in the ordinary course of a trade or

7 business, or

8 ‘‘(B) regularly offers to enter into, assume,

9 offset, assign, or otherwise terminate positions

10 in financial instruments with customers in the

11 ordinary course of a trade or business.

12 ‘‘SEC. 10033. NONBUSINESS IMPORTS OF PROPERTY OR

13 SERVICES.

14 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed

15 on the taxable nonbusiness import of any property or serv16 ices a tax equal to 20 percent of the sum of—

17 ‘‘(1) the amount paid or incurred for the prop18 erty or services, plus

19 ‘‘(2) in the case of property, any amounts paid

20 or incurred for transportation costs (if such costs

21 are not included in the amount paid for the prop22 erty).

23 ‘‘(b) TAXABLE NONBUSINESS IMPORT.—For pur24 poses of subsection (a), the term ‘taxable nonbusiness im-
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1 port’ means any import of any property or services for

2 use or consumption within the United States unless—

3 ‘‘(1) such property or services is imported for

4 use or sale in a business activity of the importer, or

5 ‘‘(2) such property is imported free of duty

6 under chapter 98 of the Harmonized Tariff Schedule

7 of the United States.

8 ‘‘SEC. 10034. REFUND FOR CERTAIN NONBUSINESS PUR9 CHASES.

10 ‘‘(a) REFUND ALLOWED.—If the tax imposed by sec11 tion 10001 was paid on any qualified nonbusiness pur12 chase, the Secretary shall pay (without interest) to the

13 purchaser an amount equal to such tax.

14 ‘‘(b) QUALIFIED NONBUSINESS PURCHASE.—For

15 purposes of this section, the term ‘qualified nonbusiness

16 purchase’ means any purchase of property or services if—

17 ‘‘(1) such purchase is not in connection with a

18 business,

19 ‘‘(2) the purchaser establishes to the satisfac20 tion of the Secretary that substantially all of the use

21 of such property or services is outside the United

22 States, and

23 ‘‘(3) the amount of the tax imposed by section

24 10001 on such purchase is separately stated.
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1 ‘‘(c) PERIOD FOR FILING CLAIMS.—No claim shall

2 be allowed under this section with respect to any purchase

3 unless filed by the purchaser not later than 180 days after

4 the date of such purchase.

5 ‘‘Subchapter E—Small Business Exemption

‘‘Sec. 10041. Small business exemption.

6 ‘‘SEC. 10041. SMALL BUSINESS EXEMPTION.

7 ‘‘(a) EXEMPTION.—Except as provided in subsection

8 (b), if the aggregate amount of gross receipts of any per9 son for any taxable period and the 3 preceding taxable

10 periods does not exceed the exemption amount, no tax

11 shall be imposed under section 10001 (and no credit or

12 refund shall be allowed under section 10011) for the tax13 able period.

14 ‘‘(b) EXCEPTIONS.—

15 ‘‘(1) PERSON MUST ALWAYS BE EXEMPT.—Sub16 section (a) shall not apply to any person for a tax17 able period unless the person was exempt from the

18 tax imposed by section 10001 for all preceding tax19 able periods.

20 ‘‘(2) ELECTION.—Subsection (a) shall not apply

21 to any person for a taxable period if the person

22 elects not to have subsection (a) apply for the tax23 able period.
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1 ‘‘(c) STATEMENTS.—A person to which this section

2 applies for any taxable period shall file a statement con3 taining such information as the Secretary may prescribe.

4 ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur5 poses of this section—

6 ‘‘(1) EXEMPTION AMOUNT.—The term ‘exemp7 tion amount’ means $12,000 (or an equivalent

8 amount if the taxable period is not a calendar quar9 ter).

10 ‘‘(2) PERSONS NOT ENGAGED IN BUSINESS FOR

11 ENTIRE PERIOD.—If a person was not engaged in a

12 business activity for the entire period referred to in

13 subsection (a), such subsection shall be applied on

14 the basis of the period the person was so engaged.

15 ‘‘(3) PREDECESSORS.—Any reference in this

16 section to a person shall include a reference to any

17 predecessor of the person.

18 ‘‘Subchapter F—Definitions

‘‘Sec. 10051. Definitions.

19 ‘‘SEC. 10051. DEFINITIONS.

20 ‘‘For purposes of this chapter—

21 ‘‘(1) SALE OF SERVICES.—The term ‘sale of

22 services’ means the performance of services for con23 sideration, and includes the granting of a right to

24 the performance of services or to reimbursement (in-
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1 cluding the granting of warranties, insurance, and

2 similar items) for consideration.

3 ‘‘(2) GRANT OF RIGHT TO USE PROPERTY.—

4 The term ‘grant of a right to use property’ means

5 the granting of a right to use property for consider6 ation.

7 ‘‘(3) SALE OF PROPERTY.—The term ‘sale of

8 property’ means the transfer of ownership of prop9 erty from a seller to a purchaser for consideration.

10 ‘‘(4) PROPERTY.—The term ‘property’ means

11 any tangible or intangible property.

12 ‘‘(5) BUSINESS.—The term ‘business’ includes

13 any activity carried on continuously or regularly,

14 whether or not for profit, that involves or is intended

15 to involve the sale of property, the grant of a right

16 to use property, or the sale of services.

17 ‘‘(6) BUSINESS PROPERTY OR SERVICE.—The

18 term ‘business property or service’ means any prop19 erty or service the sale of which by the owner or pro20 vider thereof would be a business activity or which

21 is used by the owner or provider in a business activ22 ity.

23 ‘‘(7) EMPLOYEE.—The term ‘employee’ has the

24 same meaning as when such term is used for pur25 poses of chapter 24 (relating to withholding).
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1 ‘‘(8) PERSON.—The term ‘person’ has the

2 meaning given such term by section 7701(a)(1), but

3 also includes any governmental entity.

4 ‘‘(9) UNITED STATES.—The term ‘United

5 States’, when used in a geographic sense, includes

6 the customs territory of the United States (as de7 fined in General Headnote 2 of the Harmonized

8 Tariff Schedules of the United States) and any area

9 seaward of the States lying within the outer bound10 aries of the outer continental shelf (as defined in

11 section 1331 of title 43, United States Code).

12 ‘‘(10) GOVERNMENTAL ENTITY.—The term

13 ‘governmental entity’ means the United States, any

14 State or political subdivision thereof, the District of

15 Columbia, a Commonwealth or possession of the

16 United States, or any agency or instrumentality of

17 any of the foregoing.

18 ‘‘(11) EXEMPT ORGANIZATION.—The term ‘ex19 empt organization’ means any organization exempt

20 from taxation under chapter 1.

21 ‘‘(12) FINANCIAL INSTRUMENT DEFINED.—The

22 term ‘financial instrument’ means any—

23 ‘‘(A) share of stock in a corporation,
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1 ‘‘(B) partnership or beneficial ownership

2 interest in a widely held or publicly traded part3 nership or trust,

4 ‘‘(C) note, bond, debenture, or other evi5 dence of indebtedness,

6 ‘‘(D) interest rate, currency, or equity no7 tional principal contract,

8 ‘‘(E) evidence of an interest in, or a deriv9 ative financial instrument in, any financial in10 strument described in subparagraph (A), (B),

11 (C), or (D), or any currency, including any op12 tion, forward contract, short position, and any

13 similar financial instrument in such a financial

14 instrument or currency, and

15 ‘‘(F) position which—

16 ‘‘(i) is not a financial instrument de17 scribed in subparagraph (A), (B), (C), (D),

18 or (E),

19 ‘‘(ii) is a hedge with respect to such

20 a financial instrument, and

21 ‘‘(iii) is clearly identified in the deal22 er’s records as being described in this sub23 paragraph before the close of the day on

24 which it was acquired or entered into (or
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1 such other time as the Secretary may by

2 regulations prescribe).

3 ‘‘(13) USE INCLUDES HELD FOR USE.—Prop4 erty or services held for use by any person shall be

5 treated as used by that person.

6 ‘‘(14) EXCHANGES TREATED AS SALES.—An

7 exchange shall be treated as a sale.

8 ‘‘Subchapter G—Administration

‘‘Sec. 10061. Liability for tax.

‘‘Sec. 10062. Time for filing return; taxable period.

‘‘Sec. 10063. Treatment of related businesses.

‘‘Sec. 10064. Secretary to be notified of certain events.

‘‘Sec. 10065. Regulations.

9 ‘‘SEC. 10061. LIABILITY FOR TAX.

10 ‘‘The person selling property, granting the right to

11 use property, or selling services shall be liable for the tax

12 imposed by section 10001.

13 ‘‘SEC. 10062. TIME FOR FILING RETURN; TAXABLE PERIOD.

14 ‘‘(a) FILING RETURN.—Before the 16th day of the

15 second calendar month beginning after the close of each

16 taxable period, each person subject to tax under this chap17 ter shall file a return of the tax imposed by section 10001

18 for such taxable period.

19 ‘‘(b) TAXABLE PERIOD.—For purposes of this chap20 ter—

21 ‘‘(1) IN GENERAL.—The term ‘taxable period’

22 means a calendar quarter, except that if a taxpayer

23 has a taxable year under chapter 1 other than the
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1 calendar year, then such term means a quarter of

2 that taxable year.

3 ‘‘(2) OTHER PERIODS.—To the extent provided

4 in regulations, the term ‘taxable period’ includes a

5 period selected by a person other than a calendar

6 quarter.

7 ‘‘(3) AUTHORITY TO SHORTEN LENGTH OF TAX

8 PERIOD.—The Secretary may shorten the length of

9 a person’s taxable period under this subsection to

10 the extent the Secretary deems such action nec11 essary to protect the revenue.

12 ‘‘SEC. 10063. TREATMENT OF RELATED BUSINESSES.

13 ‘‘(a) GENERAL RULE.—For purposes of this chap14 ter—

15 ‘‘(1) AFFILIATED GROUPS AND BUSINESSES

16 UNDER COMMON CONTROL.—Except to the extent

17 otherwise provided in regulations—

18 ‘‘(A) an affiliated group of corporations (as

19 defined in section 1504(a) without regard to

20 paragraphs (2), (4), and (7) of section

21 1504(b)), or

22 ‘‘(B) two or more businesses (whether or

23 not incorporated) under common control within

24 the meaning of section 52(b) and the regula25 tions thereunder,
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1 shall be treated as one person.

2 ‘‘(2) CONTROLLED GROUP.—A controlled group

3 of corporations, as defined in section 1563(a) (deter4 mined without regard to the second sentence of

5 paragraph (4) of such section and without regard to

6 section 1563(e)(3)(C)), may elect to be treated as

7 one person.

8 ‘‘(b) RELATED PARTY TRANSACTIONS.—For pur9 poses of this chapter, transactions in the United States

10 between corporations or other businesses that are treated,

11 or that may elect to be treated, as one person under sub12 section (a) shall not be taken into account in computing

13 the gross receipts or business purchases of any such cor14 poration or business.

15 ‘‘SEC. 10064. SECRETARY TO BE NOTIFIED OF CERTAIN

16 EVENTS.

17 ‘‘To the extent provided in regulations, each person

18 engaged in a business shall notify the Secretary (at such

19 time or times as may be prescribed by regulation) of—

20 ‘‘(1) any change in the form in which the busi21 ness is conducted, and

22 ‘‘(2) any other change that might affect—

23 ‘‘(A) the liability for the tax imposed by

24 section 10001,
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1 ‘‘(B) the amount of such tax or any credit

2 against such tax, or

3 ‘‘(C) the administration of such tax in the

4 case of such person.

5 ‘‘SEC. 10065. REGULATIONS.

6 ‘‘The Secretary shall prescribe such regulations as

7 may be necessary to carry out the provisions of this chap8 ter.’’

9 SEC. 202. REFUND AUTHORITY.

10 Section 6402 (relating to authority to make credits

11 or refunds) is amended by designating subsection (h) as

12 subsection (j) and by inserting after subsection (g) the fol13 lowing new subsection:

14 ‘‘(h) REPAYMENT OF VALUE ADDED TAX.—Within

15 45 days after the date on which a value added tax return

16 is filed pursuant to section 10062 showing an overpay17 ment, the Secretary shall make, to the extent the Sec18 retary deems practical, a limited examination of the return

19 to discover omissions and errors of computation, and shall

20 determine the amount of the overpayment, if any, for the

21 taxable period to which the return relates and refund the

22 amount of such overpayment to the person who filed the

23 return.’’
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1 SEC. 203. DEDICATION OF PORTION OF VAT REVENUES TO

2 SOCIAL SECURITY TRUST FUNDS.

3 (a) IN GENERAL.—The Secretary of the Treasury

4 shall deposit in each Social Security Trust Fund for peri5 ods after 1997 that portion of the revenues from the tax

6 imposed by chapter 100 of the Internal Revenue Code of

7 1986 which is necessary to maintain each such Fund in

8 the same position it would be in but for the amendments

9 made by section 102 of this Act.

10 (b) SOCIAL SECURITY TRUST FUNDS.—For purposes

11 of subsection (a), the Social Security Trust Funds are—

12 (1) the Federal Old-Age and Survivors Insur13 ance Trust Fund established by section 201(a) of

14 the Social Security Act,

15 (2) the Federal Disability Insurance Trust

16 Fund established by section 201(b) of such Act, and

17 (3) the Federal Hospital Insurance Trust Fund

18 established by section 1817(a) of such Act.

19 TITLE III—BURDEN

20 ADJUSTMENTS

21 SEC. 301. REBATE OF VALUE ADDED TAX TO LOW-INCOME

22 INDIVIDUALS; BURDEN ASSESSMENT ON

23 HIGH-INCOME INDIVIDUALS.

24 (a) IN GENERAL.—Subtitle A is amended by adding

25 at the end the following new chapter:
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1 ‘‘CHAPTER 7—VALUE ADDED TAX BURDEN

2 ADJUSTMENTS

‘‘Subchapter A. Rebate to low-income individuals.

‘‘Subchapter B. Burden assessment on high-income individuals.

3 ‘‘Subchapter A—Rebate to Low-Income

4 Individuals

‘‘Sec. 1601. Rebate to low-income individuals.

‘‘Sec. 1602. Advance payment of rebate.

5 ‘‘SEC. 1601. REBATE TO LOW-INCOME INDIVIDUALS.

6 ‘‘(a) GENERAL RULE.—The Secretary shall, for each

7 taxable year, pay to each eligible individual an amount

8 equal to the VAT rebate for such year.

9 ‘‘(b) VAT REBATE.—For purposes of this section—

10 ‘‘(1) IN GENERAL.—The VAT rebate for any

11 taxable year is an amount equal to the applicable

12 percentage of so much of the adjusted net income of

13 the eligible individual for such year as does not ex14 ceed $30,000.

15 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

16 of paragraph (1), the applicable percentage is 20

percent reduced (but not below zero) by 2 17 ⁄3 of 1 per18 centage point for each whole $1,000 of the individ19 ual’s adjusted net income.

20 ‘‘(3) ADJUSTED NET INCOME.—The term ‘ad21 justed net income’ means the sum of—

22 ‘‘(A) the net income (as defined in section

23 1611(c)) for the taxable year, plus
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1 ‘‘(B) the value of specified Federal trans2 fer payments received during the taxable year.

3 ‘‘(4) SPECIFIED FEDERAL TRANSFER PAY4 MENTS.—The term ‘specified Federal transfer pay5 ments’ means—

6 ‘‘(A) aid provided under a State plan ap7 proved under part A of title IV of the Social

8 Security Act (relating to aid to families with de9 pendent children),

10 ‘‘(B) assistance provided under—

11 ‘‘(i) the food stamp program (as de12 fined in section 3(h) of the Food Stamp

13 Act of 1977), or

14 ‘‘(ii) the portion of the program under

15 sections 21 and 22 of such Act which pro16 vides food assistance, and

17 ‘‘(C) any other Federal assistance which

18 consists of money payments or script and which

19 is not adjusted for changes in the cost-of-living.

20 ‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this

21 section, the term ‘eligible individual’ means any individual

22 if—

23 ‘‘(1) such individual is a citizen or resident of

24 the United States for the entire taxable year,
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1 ‘‘(2) such individual’s principal place of abode

2 is in the United States for more than one-half of

3 such taxable year,

4 ‘‘(3) such individual is not a dependent of an5 other taxpayer for any taxable year beginning in the

6 same calendar year as such taxable year, and

7 ‘‘(4) such individual’s adjusted net income for

8 the taxable year does not exceed $30,000.

9 ‘‘(d) AMOUNT OF REBATE TO BE DETERMINED

10 UNDER TABLES.—

11 ‘‘(1) IN GENERAL.—The amount of the rebate

12 allowed by this section shall be determined under ta13 bles prescribed by the Secretary.

14 ‘‘(2) REQUIREMENTS FOR TABLES.—The tables

15 prescribed under paragraph (1) shall reflect the pro16 visions of subsection (b) and shall have income

17 brackets of not greater than $50 each.

18 ‘‘(e) MARRIED INDIVIDUALS MUST FILE JOINT

19 CLAIM.—In the case of an individual who is married

20 (within the meaning of section 7703), this section shall

21 apply only if a joint claim is filed by such individual and

22 such individual’s spouse, and such joint claim shows the

23 combined adjusted net incomes of such individual and

24 spouse.
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1 ‘‘(f) COORDINATION WITH PERIODIC PAYMENTS OF

2 REBATE.—If any payment is made to the individual under

3 section 1602 during any calendar year or if periodic pay4 ments have been made to the individual under this section

5 during any calendar year, then such individual shall pay

6 to the Secretary an amount equal to the excess (if any)

7 of—

8 ‘‘(1) the aggregate amount of such payments,

9 over

10 ‘‘(2) the maximum amount which would be pay11 able to such individual under this section (for such

12 individual’s last taxable year beginning in such cal13 endar year) without regard to such payments and on

14 the basis of the actual adjusted net income of such

15 individual for such taxable year.

16 Any amount required to be paid under this subsection

17 shall be assessed and collected in the same manner as tax

18 imposed by chapter 1.

19 ‘‘(g) CLAIM REQUIRED TO BE FILED, ETC.—

20 ‘‘(1) IN GENERAL.—No payment shall be made

21 under this section unless claim therefor is filed with

22 the Secretary.

23 ‘‘(2) REBATE PAYABLE WITH FEDERAL TRANS24 FER PAYMENTS, ETC.—To the maximum extent

25 practical, the Secretary shall arrange for the pay-
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1 ment of the rebate under this section to be made

2 with Federal transfer payments and payments of so3 cial security benefits.

4 ‘‘SEC. 1602. ADVANCE PAYMENT OF REBATE.

5 ‘‘(a) GENERAL RULE.—Except as otherwise provided

6 in this section, every employer making payment of wages

7 to an employee with respect to whom a VAT rebate eligi8 bility certificate is in effect shall, at the time of paying

9 such wages, make an additional payment to such employee

10 equal to such employee’s VAT rebate advance amount.

11 ‘‘(b) VAT REBATE ELIGIBILITY CERTIFICATE.—For

12 purposes of this title, a VAT rebate eligibility certificate

13 is a statement furnished by an employee to the employer

14 which—

15 ‘‘(1) certifies that the employee will be eligible

16 to receive payments under section 1601 for the tax17 able year,

18 ‘‘(2) certifies the employee’s estimate of his ad19 justed net income (as defined in section 1601(b)) for

20 the taxable year other than income from wages from

21 such employer, and

22 ‘‘(3) certifies—

23 ‘‘(A) that the employee does not have an24 other VAT rebate eligibility certificate in effect
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1 for the calendar year with respect to the pay2 ment of wages by another employer, and

3 ‘‘(B) that the spouse of the employee does

4 not have a VAT rebate eligibility certificate in

5 effect.

6 For purposes of this section, a certificate shall be treated

7 as being in effect with respect to a spouse if such a certifi8 cate will be in effect on the first status determination date

9 following the date on which the employee furnishes the

10 statement in question.

11 ‘‘(c) VAT REBATE ADVANCE AMOUNT.—–For pur12 poses of this title, the term ‘VAT rebate advance amount’

13 means, with respect to any payroll period, the amount de14 termined—

15 ‘‘(1) on the basis of the employee’s wages from

16 the employer for such period and the employee’s es17 timate under subsection (b)(2) of his adjusted net

18 income (as defined in section 1601(b)) for the tax19 able year other than from such wages, and

20 ‘‘(2) in accordance with tables prescribed by the

21 Secretary.

22 ‘‘(d) PAYMENTS TO BE TREATED AS PAYMENTS

23 VALUE ADDED TAX.—
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1 ‘‘(1) IN GENERAL.—For purposes of this title,

2 payments made by an employer under subsection (a)

3 to his employees for any payroll period—

4 ‘‘(A) shall not be treated as the payment

5 of compensation, and

6 ‘‘(B) shall be treated as made out of

7 amounts of the taxes imposed for the payroll

8 period under chapter 100 (relating to value

9 added tax), as if the employer had paid to the

10 Secretary, on the day on which the wages are

11 paid to the employees, an amount equal to such

12 payments.

13 ‘‘(2) ADVANCE PAYMENTS EXCEED TAXES

14 DUE.—In the case of any employer, if for any pay15 roll period the aggregate amount of VAT rebate ad16 vance payments exceeds the sum of the amounts re17 ferred to in paragraph (1)(B), each such advance

18 payment shall be reduced by an amount which bears

19 the same ratio to such excess as such advance pay20 ment bears to the aggregate amount of all such ad21 vance payments.

22 ‘‘(3) EMPLOYER MAY MAKE FULL ADVANCE

23 PAYMENTS.—The Secretary shall prescribe regula24 tions under which an employer may elect (in lieu of

25 any application of paragraph (2))—
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1 ‘‘(A) to pay in full all VAT rebate advance

2 amounts, and

3 ‘‘(B) to have additional amounts paid by

4 reason of this paragraph treated as the advance

5 payment of taxes imposed by this title.

6 ‘‘(e) FURNISHING AND TAKING EFFECT OF CERTIFI7 CATES.—Rules similar to the rules of section 3507(e) shall

8 apply for purposes of this section.

9 ‘‘Subchapter B—Burden Assessment on High10 Income Individuals

‘‘Sec. 1611. Assessment on high-income individuals.

‘‘Sec. 1612. Inclusion of undistributed income of certain corporations.

11 ‘‘SEC. 1611. ASSESSMENT ON HIGH-INCOME INDIVIDUALS.

12 ‘‘(a) GENERAL RULE.—Each assessable person

13 whose net income for the taxable year exceeds the thresh14 old amount shall pay an assessment for such year equal

15 to 17 percent of the excess (if any) of such income over

16 the threshold amount.

17 ‘‘(b) ASSESSABLE PERSON.—For purposes of this

18 subchapter, the term ‘assessable person’ means any indi19 vidual, estate, or trust other than a trust exempt from

20 taxation under chapter 1.

21 ‘‘(c) NET INCOME.—

22 ‘‘(1) IN GENERAL.—For purposes of this sec23 tion, the term ‘net income’ means adjusted gross in-
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1 come determined with the modifications described in

2 the following paragraphs.

3 ‘‘(2) CERTAIN EXCLUSIONS DISREGARDED.—

4 Net income shall be determined without regard to—

5 ‘‘(A) sections 911, 931, and 933,

6 ‘‘(B) section 457, and

7 ‘‘(C) any exclusion from gross income for

8 any elective deferral (as defined in section

9 402(g)(3)).

10 ‘‘(3) CERTAIN AMOUNTS INCLUDED.—

11 ‘‘(A) TAX EXEMPT INTEREST.—Net in12 come shall be increased by the amount of inter13 est received or accrued by the taxpayer during

14 the taxable year which is exempt from tax.

15 ‘‘(B) NONQUALIFIED DEFERRED COM16 PENSATION.—Deferred compensation shall be

17 included in gross income for the 1st taxable

18 year in which there is no substantial risk of for19 feiture of the rights to such compensation

20 (within the meaning of section 457(f)(3)). The

21 preceding sentence shall not apply to any plan

22 or contract described in section 457(f)(2).

23 ‘‘(4) ESTATES AND TRUSTS.—The adjusted

24 gross income of an estate or trust shall be deter25 mined in accordance with section 67(e).
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1 ‘‘(d) THRESHOLD AMOUNT.—For purposes of this

2 section—

3 ‘‘(1) IN GENERAL.—The term ‘threshold

4 amount’ means—

5 ‘‘(A) except as provided in subparagraph

6 (B), $75,000, and

7 ‘‘(B) zero in the case of a taxpayer who—

8 ‘‘(i) is married as of the close of the

9 taxable year (within the meaning of section

10 7703) but does not file a joint return for

11 such year, and

12 ‘‘(ii) does not live apart from his

13 spouse at all times during the taxable year.

14 ‘‘(2) SPECIAL RULES FOR TRUSTS.—

15 ‘‘(A) IN GENERAL.—Except as otherwise

16 provided in this paragraph, the threshold

17 amount for any trust shall be zero.

18 ‘‘(B) EXCEPTION FOR CURRENT DISTRIBU19 TION TRUSTS.—Subparagraph (A) shall not

20 apply to any trust to which section 651 applies

21 for the taxable year.

22 ‘‘(C) BENEFICIARY MAY ALLOCATE

23 THRESHOLD.—Any beneficiary of a trust to

24 which subparagraph (A) applies may elect to al25 locate any portion of such beneficiary’s thresh-
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1 old amount under paragraph (1) for any tax2 able year to such trust. Such allocation shall

3 apply for such trust’s taxable year beginning in

4 the taxable year from which made and shall re5 duce the threshold amount otherwise available

6 to such beneficiary.

7 ‘‘(d) ASSESSMENT COLLECTED AS TAX.—For pur8 poses of subtitle F, the assessment imposed by this section

9 shall be treated as if it were a tax imposed by chapter

10 1.

11 ‘‘SEC. 1612. INCLUSION OF UNDISTRIBUTED INCOME OF

12 CERTAIN CORPORATIONS.

13 ‘‘(a) GENERAL RULE.—Each assessable person who

14 owns (within the meaning of section 542(a)) stock in a

15 corporation on the last day in the taxable year of such

16 corporation on which such corporation was an applicable

17 corporation shall include in gross income (for such per18 son’s taxable year in which or with which such taxable

19 year of the corporation ends) as a dividend the amount

20 such person would have received as a dividend if on such

21 last day such corporation had distributed pro rata to its

22 shareholders an amount which bears the same ratio to the

23 undistributed income of the corporation for the taxable

24 year as the portion of such taxable year during which such
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1 corporation is an applicable corporation bears to the entire

2 taxable year.

3 ‘‘(b) APPLICABLE CORPORATION.—For purposes of

4 this section—

5 ‘‘(1) IN GENERAL.—The term ‘applicable cor6 poration’ means—

7 ‘‘(A) any corporation engaged in a service8 related business in which a shareholder per9 forms substantial services, and

10 ‘‘(B) any closely held C corporation.

11 Such term shall not include any corporation exempt

12 from taxation under chapter 1.

13 ‘‘(2) SERVICE-RELATED BUSINESS.—The term

14 ‘service-related business’ means any trade or busi15 ness described in subparagraph (A) of section

16 1202(e)(3).

17 ‘‘(3) CLOSELY HELD C CORPORATION.—The

18 term ‘closely held C corporation’ means any C cor19 poration if, at any time during the last half of the

20 taxable year, more than 50 percent in value of its

21 outstanding stock is owned, directly or indirectly

22 through the application of section 544, by or for not

23 more than 10 individuals.

24 ‘‘(c) UNDISTRIBUTED INCOME.—For purposes of this

25 section—
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1 ‘‘(1) IN GENERAL.—The term ‘undistributed in2 come’ means the net income of the corporation for

3 the taxable year reduced any distributions by the

4 corporation to its shareholders with respect to its

5 stock—

6 ‘‘(A) which are made during the taxable

7 year and not taken into account under subpara8 graph (B) for the preceding taxable year, or

9 ‘‘(B) which—

10 ‘‘(i) are made after the close of the

11 taxable year and on or before the 45th day

12 following the close of the taxable year, and

13 ‘‘(ii) are designated, at such time and

14 in such manner as the Secretary may pre15 scribe, as distributions for purposes of this

16 paragraph.

17 Any distribution described in subparagraph (B) shall

18 be included in the gross income of the shareholder

19 for the shareholder’s taxable year which includes the

20 last day of the taxable year of the corporation for

21 which the reduction under this paragraph was made.

22 ‘‘(2) NET INCOME.—Net income shall be deter23 mined in the same way as taxable income under

24 chapter 1 as in effect on the day before the date of

25 the enactment of this section.
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1 ‘‘(d) CERTAIN RULES TO APPLY.—Rules similar to

2 the rules of subsections (d) and (e) of section 551 shall

3 apply with respect to amounts required to be included in

4 gross income under this section.’’

5 (b) CLERICAL AMENDMENT.—The table of chapters

6 for subtitle A is amended adding at the end the following

7 new item:

‘‘Chapter 7. Value added tax burden adjustments.’’

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

9 this section shall apply to taxable years beginning after

10 December 31, 1997.

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