Main Street Fairness Act

To amend the Internal Revenue Code of 1986 to ensure that pass-through businesses do not pay tax at a higher rate than corporations. 1. Short title This Act may be cited as the Main Street Fairness Act 2. Business income of pass-through entities and individuals (a) Qualified business income taxed at corporate rate Section 1 (i) Qualified business income (1) In general If a taxpayer has qualified business income for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of— (A) a tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of— (i) taxable income reduced by the sum of net capital gain plus qualified business income, or (ii) the amount determined under clause (i) plus so much of qualified business income that, when added together, would not be taxed at a rate greater than the maximum rate in effect under section 11(b), (B) tax on qualified business income reduced by the amount of qualified business income on which a tax is determined under subparagraph (A) (if any), determined under section 11 for the taxable year by treating qualified business income as taxable income of a corporation, plus (C) a tax on net capital gain, computed as if subsection (h) imposed a tax on net capital gain. (2) Qualified business income defined For purposes of this subsection— (A) Qualified business income The term qualified business income (i) in the case of a partnership, the taxpayer holds a capital or profits interest, (ii) in the case of an S corporation, the taxpayer is a shareholder, (iii) in the case of a sole proprietorship or an entity otherwise disregarded as separate from its sole owner, the taxpayer is the sole owner, and (iv) in the case of a trust or estate, the taxpayer is a beneficiary. (B) Net capital gain Such term shall not include any item taken into account in determining net capital gain. (C) Exception for financial services income of partnerships In the case of a taxpayer who holds a capital or profits interest in a partnership, such term does not include financial services income (as defined in section 904(d)(2)(D)). (3) Limitation Paragraph (1) shall only apply to a taxable year in which the maximum rate of tax under this section exceeds the maximum rate of tax under section 11. (4) Net capital gain For purposes of this subsection, the term net capital gain (5) Regulations The Secretary shall issue such regulations or other guidance as may be necessary to carry out the purposes of this subsection. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

Summary: Main Street Fairness Act This bill amends the Internal Revenue Code to prevent qualified business income attributed to individuals from being taxed at a higher rate than corporate income. (Under current law, business income attributed to individuals is taxed using individual income tax rates rather than the corporate tax rate.) Qualified business income is all items of income, deduction, loss, or credit properly attributable to the taxpayer from the active conduct of a trade or business, including: a partnership in which the taxpayer holds a capital or profits interest; an S corporation in which the taxpayer is a shareholder; a sole proprietorship or an entity otherwise disregarded as separate from its sole owner, in which the taxpayer is the sole owner; and a trust or estate in which the taxpayer is a beneficiary. Qualified business income does not include any item taken into account in determining net capital gain or the financial services income of partnerships.