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‘‘(1) IN GENERAL.—The term ‘qualified domes-
tic 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 al-
locable to such receipts, and 
‘‘(ii) other expenses, losses, or deduc-
tions (other than the deduction allowed 
under this section), which are properly al-
locable to such receipts. 
‘‘(2) DOMESTIC BUSINESS GROSS RECEIPTS.— 
‘‘(A) IN
GENERAL.—The term ‘domestic 
business gross receipts’ means the gross re-
ceipts of the taxpayer which are effectively con-
nected 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 
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foreign corporation’ each place it appears 
therein. 
‘‘(B) EXCEPTIONS.—For purposes of para-
graph (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, inter-
est, 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 sec-
tion 199(c) shall apply for purposes of this section 
(applied with respect to qualified domestic business 
income in lieu of qualified production activities in-
come and with respect to domestic business gross re-
ceipts in lieu of domestic production gross receipts). 
‘‘(d) QUALIFIED SMALL BUSINESS.—For purposes of 
this section— 
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‘‘(1) IN GENERAL.—The term ‘qualified small 
business’ means any employer engaged in a trade or 
business if such employer 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 sec-
tion 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 
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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 cal-
endar 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. 
‘‘(e) 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. 
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‘‘(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 ac-
count 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 pur-
poses of this section (applied with respect to quali-
fied domestic business income in lieu of qualified 
production activities income). 
‘‘(f) REGULATIONS.—The Secretary shall prescribe 
such regulations as are necessary to carry out the pur-
poses 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. 
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‘‘(g) APPLICATION.—Subsection (a) shall apply only 
with respect to the first taxable year of the taxpayer begin-
ning after December 31, 2011.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 56(d)(1)(A) of such Code is amend-
ed 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 amend-
ed 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). 
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(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 fol-
lowing 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 QUALI-
FIED
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 insert-
ing ‘‘deductions under sections 199 and 200’’. 
(8) Section 613A(d)(1) of such Code is amend-
ed by redesignating subparagraphs (C), (D), and 
(E) as subparagraphs (D), (E), and (F), respec-
tively, and by inserting after subparagraph (B) the 
following new subparagraph: 
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