421 
‘‘(D) The adjustment factor determined under this 
subparagraph for any individual is the ratio (not greater 
than 1) of— 
‘‘(i) the total number of months during which 
such individual is under a disability (as defined in 
section 223(d)) during the period beginning on the 
date the individual attains age 22 and ending on the 
first day of such individual’s first month of eligibility 
for old-age insurance benefits under section 202(a) 
(or, if earlier, the month of such individual’s death), 
to 
‘‘(ii) the number of months during the period 
beginning on the date the individual attains age 22 
and ending on the first day of such individual’s first 
month of eligibility for old-age insurance benefits 
under section 202(a) (or, if earlier, the month of 
such individual’s death).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) 
Subsections 
(e)(2)(B)(i)(I) 
and 
(f)(2)(B)(i)(I) of section 202 of the Social Security 
Act are each amended by inserting ‘‘or section 
215(a)(2)(B)(iii)’’ after ‘‘section 215(a)(1)(B)(i) and 
(ii)’’. 
(2) Section 203(a)(10) of such Act is amend-
ed— 
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(A) in subparagraph (A)(i), by striking 
‘‘215(a)(2)(B)(i)’’ 
and 
inserting 
‘‘215(a)(3)(B)(i)’’; 
(B) in subparagraph (A)(ii), by striking 
‘‘215(a)(2)(C)’’ and inserting ‘‘215(a)(3)(C)’’; 
and 
(C) in subparagraph (B)(ii), by striking 
‘‘215(a)(2)’’ and inserting ‘‘215(a)(3)’’. 
(3) Section 209(k)(1) of such Act is amended 
by inserting ‘‘215(a)(2)(B), 215(a)(2)(C),’’ after 
‘‘215(a)(1)(D),’’. 
(4) Section 215(a) of such Act is amended— 
(A) in paragraph (4)(A), as redesignated 
by paragraph (2), by striking ‘‘paragraph (4)’’ 
and inserting ‘‘paragraph (5)’’; 
(B) in paragraph (4)(B), as redesignated 
by paragraph (2), by striking ‘‘paragraph 
(2)(A)’’ and inserting ‘‘paragraph (3)(A)’’; 
(C) in paragraph (5), as redesignated by 
paragraph (2), by striking ‘‘paragraph (3)(A)’’ 
and inserting ‘‘paragraph (4)(A)’’; 
(D) in paragraph (6)(A), as redesignated 
by paragraph (2), by striking ‘‘paragraph 
(4)(B)’’ and inserting ‘‘paragraph (5)(B)’’; and 
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423 
(E) in paragraph (8)(B)(ii)(I), as redesig-
nated by paragraph (2), by striking ‘‘paragraph 
(3)(B)’’ and inserting ‘‘paragraph (4)(B)’’. 
(5) Section 215(d)(3) of such Act is amended— 
(A) by striking ‘‘paragraph (4)(B)(ii)’’ and 
inserting ‘‘paragraph (5)(B)(ii)’’; and 
(B) by striking ‘‘subsection (a)(7)(C)’’ and 
inserting ‘‘subsection (a)(8)(C)’’. 
(6) Subsection 215(f) of such Act is amended— 
(A) in paragraph (2)(B), by striking ‘‘sub-
section (a)(4)(B)’’ and inserting ‘‘subsection 
(a)(5)(B)’’; 
(B) in paragraph (7), by striking ‘‘sub-
section (a)(4)(B)’’ and inserting ‘‘subsection 
(a)(5)(B)’’, and by striking ‘‘subsection (a)(6)’’ 
and inserting ‘‘subsection (a)(7)’’; 
(C) in paragraph (9)(A)— 
(i) by striking ‘‘subsection (a)(7)(A)’’ 
and inserting ‘‘subsection (a)(8)(A)’’; and 
(ii) by striking ‘‘subsection (a)(7)(C)’’ 
and inserting ‘‘subsection (a)(8)(C)’’; and 
(D) in paragraph (9)(B), by striking ‘‘sub-
section (a)(7)’’ each place it appears and insert-
ing ‘‘subsection (a)(8)’’. 
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424 
SEC. 409. ADJUSTMENTS TO SCHEDULE FOR INCREASES IN 
NORMAL RETIREMENT AGE. 
(a) COMPLETION OF PHASE-IN OF NORMAL RETIRE-
MENT AGE TO AGE 67 BY 2021.— 
(1) IN GENERAL.—Section 216(l) of the Social 
Security Act (42 U.S.C. 416(l)) is amended— 
(A) in paragraph (1)(C), by striking 
‘‘2017’’ and inserting ‘‘2016’’; 
(B) in paragraph (1)(D), by striking 
‘‘2016’’ and inserting ‘‘2015’’, and by striking 
‘‘2022’’ and inserting ‘‘2021’’; 
(C) in paragraph (1)(E), by striking 
‘‘2021’’ and inserting ‘‘2020’’; and 
(D) in paragraph (3)(B), by striking 
‘‘2017’’ and inserting ‘‘2016’’, by striking 
‘‘2021’’ and inserting ‘‘2020’’, and by striking 
‘‘2017’’ and inserting ‘‘2016’’. 
(2) MAINTENANCE OF CURRENT LAW FOR INDI-
VIDUALS BORN PRIOR TO JANUARY 1, 1956.—Section 
216(l)(3) of such Act (as amended by paragraph 
(1)(D)) is amended— 
(A) by redesignating subparagraphs (A) 
and (B) as clauses (i) and (ii), respectively; 
(B) by inserting ‘‘(A)’’ after ‘‘(3)’’; and 
(C) by adding at the end the following new 
subparagraph: 
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‘‘(B) Notwithstanding the preceding provisions of 
this subsection— 
‘‘(i) with respect to an individual who attains 
early retirement age after December 31, 2015, and 
before January 1, 2017, the age increase factor 
under subparagraph (A)(ii) shall not be applied; and 
‘‘(ii) with respect to an individual who attains 
early retirement age after December 31, 2016, and 
before January 1, 2018, the age increase factor 
under subparagraph (A)(ii) shall be 2 months.’’. 
(b) ADJUSTMENTS TO NORMAL RETIREMENT AGE 
AFTER 2021.—Section 216(l) of such Act (as amended 
by subsection (a)) is amended— 
(1) in paragraph (1)(E), by inserting ‘‘and be-
fore January 1, 2022,’’ after ‘‘2020,’’ and by strik-
ing ‘‘age.’’ and inserting ‘‘age; and’’ ; 
(2) in paragraph (1), by adding after subpara-
graph (E) the following new subparagraph: 
‘‘(F) with respect to an individual who attains 
early retirement age after December 31, 2121, 67 
years of age plus the number of months in the age 
increase factor (as determined under paragraph (3)) 
for the calendar year in which such individual at-
tains early retirement age.’’; and 
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426 
(3) in paragraph (3), by adding at the end the 
following new subparagraph: 
‘‘(C) The Commissioner of Social Security shall 
determine (using reasonable actuarial assumptions) 
and publish on or before November 1 of each cal-
endar year after 2020 the number of months 
(rounded, if not a multiple of one month, to the next 
lower multiple of one month) by which the life ex-
pectancy as of October 1 of such calendar year of 
an individual attaining early retirement age on such 
October 1 exceeds the life expectancy as of October 
1, 2020, of an individual attaining early retirement 
age on October 1, 2020. With respect to an indi-
vidual who attains early retirement age in the cal-
endar year following any calendar year in which a 
determination is made under this subparagraph, the 
age increase factor shall be the number of months 
determined under this subparagraph as of October 1 
of such calendar year in which such determination is 
made.’’. 
TITLE V—SIMPLIFIED INCOME 
TAX 
SEC. 501. SHORT TITLE. 
This title may be cited as the ‘‘Taxpayer Choice Act’’. 
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427 
SEC. 502. REPEAL OF ALTERNATIVE MINIMUM TAX FOR 
NONCORPORATE TAXPAYERS. 
(a) IN GENERAL.—Section 55(a) of the Internal Rev-
enue Code of 1986 (relating to alternative minimum tax 
imposed) is amended by adding at the end the following 
new flush sentence: 
‘‘In the case of a taxpayer other than a corporation, no 
tax shall be imposed by this section for any taxable year 
beginning after December 31, 2010, and the tentative 
minimum tax of any taxpayer other than a corporation 
for any such taxable year shall be zero for purposes of 
this title.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 26(c) of such Code is amended by 
striking ‘‘the term ‘tentative minimum tax’ means 
the amount determined under section 55(b)(1)’’ and 
inserting ‘‘the tentative minimum tax is zero.’’. 
(2) Section 911(f)(2) of such Code is amended 
to read as follows: 
‘‘(2) the tentative minimum tax under section 
55 for the taxable year shall be zero.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
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428 
SEC. 503. SIMPLIFIED INCOME TAX SYSTEM. 
(a) IN GENERAL.—Part I of subchapter A of chapter 
1 of the Internal Revenue Code of 1986 (relating to tax 
on individuals) is amended by redesignating section 5 as 
section 6 and by inserting after section 4 the following 
new section: 
‘‘SEC. 5. SIMPLIFIED INCOME TAX SYSTEM. 
‘‘(a) ELECTION.— 
‘‘(1) IN GENERAL.—A taxpayer other than a 
corporation may elect in accordance with this sub-
section to be subject to the tax imposed by this sec-
tion in lieu of the tax imposed by section 1 for a tax-
able year and all subsequent taxable years. 
‘‘(2) EFFECT OF ELECTION.—For purposes of 
this title, if an election is in effect under paragraph 
(1) for any taxable year, the tax imposed by this sec-
tion shall be treated as the tax imposed by section 
1 for the taxable year and, except as provided by 
sections 31 and 36, no amount shall be allowed as 
a credit against such tax for the taxable year. 
‘‘(3) ELECTION.— 
‘‘(A) IN GENERAL.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii) of this subparagraph 
and clauses (ii) and (iii) of subparagraph 
(B), the election under paragraph (1) may 
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429 
only be made with respect to any taxable 
year beginning before January 1, 2021, on 
a timely filed return for the first taxable 
year for which the election applies. 
‘‘(ii) NEW TAXPAYERS.—In the case 
of an individual with no tax liability under 
this title before January 1, 2021, the elec-
tion under paragraph (1) may only be 
made for the first taxable year beginning 
after December 31, 2020, for which such 
individual has tax liability under this title. 
‘‘(B) EFFECT OF ELECTION.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clauses (ii) and (iii), the election 
under paragraph (1), once made, shall be 
irrevocable. 
‘‘(ii) 
ONE-TIME
REVOCATION
OF 
ELECTION.—A taxpayer may revoke an 
election under paragraph (1) for a taxable 
year and all subsequent taxable years. The 
preceding sentence shall not apply if the 
taxpayer has made a revocation under such 
sentence for any prior taxable year. 
‘‘(iii) FILING STATUS CHANGES DUE 
TO MAJOR LIFE EVENTS.—In the case of 
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430 
any major life event described in clause 
(iv), a taxpayer may make an election 
under paragraph (1) or revoke such an 
election under clause (ii). Any such election 
or revocation shall apply for the taxable 
year for which made and all subsequent 
taxable years until the taxpayer makes an 
election under the preceding sentence for 
any subsequent (and all succeeding) tax-
able year. 
‘‘(iv) MAJOR LIFE EVENT.—For pur-
poses of clause (iii), a major life event de-
scribed in this clause is marriage, divorce, 
and death. 
‘‘(b) TAX IMPOSED.— 
‘‘(1) MARRIED
INDIVIDUALS
AND
SURVIVING 
SPOUSES.—In the case of a taxpayer for whom an 
election under subsection (a) is in effect and who is 
a married individual (as defined in section 7703) 
who makes a single return jointly with his spouse 
under section 6013 or a surviving spouse (as defined 
in section 2(a)), there is hereby imposed on the al-
ternative taxable income of such individual a tax de-
termined in accordance with the following table: 
‘‘If taxable income is: 
The tax is: 
Not over $100,000 ........................
10% of alternative taxable income. 
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431 
‘‘If taxable income is: 
The tax is: 
Over $100,000 ...............................
$10,000, plus 25% of the excess over 
$100,000. 
‘‘(2) UNMARRIED INDIVIDUALS (OTHER THAN 
SURVIVING SPOUSES).—In the case of a taxpayer for 
whom an election under subsection (a) is in effect 
and who is not described in paragraph (1), there is 
hereby imposed on the alternative taxable income of 
such individual a tax determined in accordance with 
the following table: 
‘‘If taxable income is: 
The tax is: 
Not over $50,000 ..........................
10% of alternative taxable income. 
Over $50,000 .................................
$5,000, plus 25% of the excess over 
$50,000. 
‘‘(c) ALTERNATIVE TAXABLE INCOME.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘alternative tax-
able income’ means— 
‘‘(A) gross income, 
‘‘(B) the amount excluded from income 
under section 139C for capital gains, dividends, 
and interest, minus 
‘‘(C) the sum of— 
‘‘(i) the personal exemption, 
‘‘(ii) the dependent allowance, plus 
‘‘(iii) the alternative standard deduc-
tion. 
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432 
‘‘(2) PERSONAL EXEMPTION.—The personal ex-
emption is— 
‘‘(A) 200 percent of the dollar amount in 
effect under subparagraph (B) in the case of— 
‘‘(i) a joint return, or 
‘‘(ii) a surviving spouse (as defined in 
section 2(a)), and 
‘‘(B) $3,500 in the case of an individual— 
‘‘(i) who is not married and is not a 
surviving spouse, or 
‘‘(ii) who is a married individual filing 
a separate return. 
‘‘(3) DEPENDENT
ALLOWANCE.—The depend-
ent allowance is $3,500 for each dependent (as de-
fined in section 152). 
‘‘(4) ALTERNATIVE
STANDARD
DEDUCTION.— 
The alternative standard deduction means— 
‘‘(A) $25,000 in the case of— 
‘‘(i) a joint return, or 
‘‘(ii) a surviving spouse (as defined in 
section 2(a)), and 
‘‘(B) $12,500 in the case of an indi-
vidual— 
‘‘(i) who is not married and is not a 
surviving spouse, or 
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433 
‘‘(ii) who is a married individual filing 
a separate return. 
‘‘(d) INFLATION ADJUSTMENTS.— 
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning in a calendar year after 2011, each 
of the dollar amounts for the rate brackets in sub-
section (b) and each of the dollar amounts in sub-
section (d)(2)(B), (d)(3), and (d)(4) shall be in-
creased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which the taxable year begins, by sub-
stituting ‘calendar year 2010’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under clause (i) is not a multiple of $100, such 
amount shall be rounded to the nearest multiple of 
$100.’’. 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part I of subchapter A of chapter 1 of such Code 
is amended by striking the item relating to section 5 and 
inserting after the item relating to section 4 the following: 
‘‘Sec. 5. Simplified income tax system. 
‘‘Sec. 6. Cross references relating to tax on individuals.’’. 
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434 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 504. EXCLUSION FOR CAPITAL GAINS, DIVIDENDS, 
AND INTEREST. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by inserting after section 139C the following new section: 
‘‘SEC. 139D. CAPITAL GAINS, DIVIDENDS, AND INTEREST. 
‘‘(a) EXCLUSION.—Gross income does not include 
amounts received by an individual as net capital gains, 
qualified dividends, and interest. 
‘‘(b) QUALIFIED DIVIDENDS.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘qualified divi-
dends’ means dividends received during the taxable 
year from— 
‘‘(A) domestic corporations, and 
‘‘(B) qualified foreign corporations. 
‘‘(2) QUALIFIED FOREIGN CORPORATIONS.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, the term ‘qualified 
foreign corporation’ means any foreign corpora-
tion if— 
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435 
‘‘(i) such corporation is incorporated 
in a possession of the United States, or 
‘‘(ii) such corporation is eligible for 
benefits of a comprehensive income tax 
treaty with the United States which the 
Secretary determines is satisfactory for 
purposes of this paragraph and which in-
cludes an exchange of information pro-
gram. 
‘‘(B) DIVIDENDS
ON
STOCK
READILY 
TRADABLE
ON
UNITED
STATES
SECURITIES 
MARKET.—A foreign corporation not otherwise 
treated as a qualified foreign corporation under 
subparagraph (A) shall be so treated with re-
spect to any dividend paid by such corporation 
if the stock with respect to which such dividend 
is paid is readily tradable on an established se-
curities market in the United States. 
‘‘(C) EXCLUSION OF DIVIDENDS OF CER-
TAIN
FOREIGN
CORPORATIONS.—Such term 
shall not include any foreign corporation which 
for the taxable year of the corporation in which 
the dividend was paid, or the preceding taxable 
year, is a passive foreign investment company 
(as defined in section 1297). 
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436 
‘‘(3) SPECIAL RULE.—If a taxpayer to whom 
this section applies receives, with respect to any 
share of stock, qualified dividend income from 1 or 
more dividends which are extraordinary dividends 
(within the meaning of section 1059(c)), any loss on 
the sale or exchange of such share shall, to the ex-
tent of such dividends, be treated as long-term cap-
ital loss. 
‘‘(c) INTEREST.—For purposes of this section, the 
term ‘interest’ means— 
‘‘(1) interest on deposits with a bank (as de-
fined in section 581), 
‘‘(2) amounts (whether or not designated as in-
terest) paid, in respect to deposits, investment cer-
tificates, or withdrawable or repurchasable shares, 
by— 
‘‘(A) a mutual savings bank, cooperative 
bank, domestic building and loan association, 
industrial loan association or bank, or credit 
union, or 
‘‘(B) any other savings or thrift institu-
tion, which is chartered and supervised under 
Federal or State law, 
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437 
the deposits or accounts in which are insured under 
Federal or State law or which are protected and 
guaranteed under State law, 
‘‘(3) interest on— 
‘‘(A) evidences of indebtedness (including 
bonds, debentures, notes, and certificates) 
issued by a domestic corporation in registered 
form, and 
‘‘(B) to the extent provided in regulations 
prescribed by the Secretary, other evidences of 
indebtedness issued by a domestic corporation 
of a type offered by corporations to the public, 
‘‘(4) interest on obligations of the United 
States, a State, or a political subdivision of a State 
(not excluded from gross income of the taxpayer 
under any other provision of law), and 
‘‘(5) interest attributable to participation shares 
in a trust established and maintained by a corpora-
tion established pursuant to Federal law. 
‘‘(d) CERTAIN NONRESIDENT ALIENS INELIGIBLE 
FOR EXCLUSION.—In the case of a nonresident alien indi-
vidual, subsection (a) shall apply only— 
‘‘(1) in determining the tax imposed for the 
taxable year pursuant to section 871(b)(1) and only 
in respect to dividends and interest which are effec-
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438 
tively connected with the conduct of a trade or busi-
ness within the United States, or 
‘‘(2) in determining the tax imposed for the 
taxable year pursuant to section 877(b).’’. 
(b) CONFORMING AMENDMENT.—Section 1 of such 
Code is amended by striking subsection (h). 
(c) CLERICAL AMENDMENT.—The table of sections 
for such part III is amended by inserting after the item 
relating to section 139C the following new item: 
‘‘Sec. 139D. Capital gains, dividends, and interest.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2010. 
SEC. 505. REPEAL OF ESTATE AND GIFT TAXES. 
(a) IN GENERAL.—Subtitle B of the Internal Rev-
enue Code of 1986 is hereby repealed. 
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to the estates of decedents dying, 
and gifts made, and generation-skipping transfers after 
December 31, 2010. 
TITLE VI—BUSINESS 
CONSUMPTION TAX 
SEC. 601. SHORT TITLE. 
This title may be cited as the ‘‘Competitive American 
Business Tax’’. 
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439 
SEC. 602. REPEAL OF CORPORATE INCOME TAX; NEW TAX 
PAID BY CORPORATIONS AND OTHER BUSI-
NESSES. 
(a) IN GENERAL.—Chapter 2 of the Internal Rev-
enue Code is renumbered chapter 3 and the following new 
chapter is inserted after chapter 1: 
‘‘CHAPTER 2—COMPETITIVE AMERICAN 
BUSINESS TAX 
‘‘SUBCHAPTER A. IMPOSITION OF TAX 
‘‘SUBCHAPTER B. BASIC RULES FOR BUSINESS CONSUMPTION TAX 
‘‘SUBCHAPTER C. CAPITAL CONTRIBUTIONS, MERGERS, ACQUISITIONS, AND 
DISTRIBUTIONS 
‘‘SUBCHAPTER D. ACCOUNTING METHOD RULES 
‘‘SUBCHAPTER E. LAND AND RENTAL PROPERTY 
‘‘SUBCHAPTER F. INSURANCE AND FINANCIAL PRODUCTS 
‘‘SUBCHAPTER G. TAX-EXEMPT ORGANIZATIONS 
‘‘SUBCHAPTER H. COOPERATIVES 
‘‘SUBCHAPTER I. SOURCING RULES 
‘‘SUBCHAPTER J. BUSINESS CONDUCTED IN A POSSESSION 
‘‘SUBCHAPTER K. IMPORT TAX 
‘‘SUBCHAPTER L. TRANSITION RULES 
‘‘SUBCHAPTER M. RULES FOR ADMINISTRATION, CONSOLIDATED RETURNS 
‘‘SUBCHAPTER N. DEFINITIONS AND RULES OF APPLICATION 
‘‘Subchapter A—Imposition of Tax 
‘‘Sec. 201. Tax imposed. 
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440 
‘‘SEC. 201. TAX IMPOSED. 
‘‘(a) TAXABLE BUSINESS ACTIVITY.—A business 
consumption tax is imposed on the sale of goods and serv-
ices in the United States by a business entity. 
‘‘(b) BUSINESS
CONSUMPTION
TAX
IMPOSED.— 
‘Business consumption tax’ is 8.5 percent of the gross 
profits of the business entity for the taxable year. 
‘‘(c) IMPORT TAX.—For rules relating to the import 
tax imposed by this chapter, see subchapter K (sections 
281 through 283). 
‘‘Subchapter B—Basic Rules for Business 
Consumption Tax 
‘‘Sec. 202. Gross profits. 
‘‘Sec. 203. Taxable receipts. 
‘‘Sec. 204. Deductible amounts. 
‘‘Sec. 205. Cost of business purchases. 
‘‘Sec. 206. Business entity and business activity. 
‘‘Sec. 207. Loss carryover deduction. 
‘‘SEC. 202. GROSS PROFITS. 
‘‘ ‘Gross profits’ means for a taxable year of a busi-
ness entity the amount by which— 
‘‘(1) the taxable receipts of the business entity 
for the taxable year exceed, 
‘‘(2) the deductible amounts for the business 
entity for the taxable year. 
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‘‘SEC. 203. TAXABLE RECEIPTS. 
‘‘(a) IN GENERAL.—‘Taxable receipts’ means all re-
ceipts from the sale of property, use of property, and per-
formance of services in the United States. 
‘‘(b) GAMES
OF CHANCE.—Amounts received for 
playing games of chance by business entities engaging in 
the activity of providing such games shall be treated as 
receipts from the sale of property or services. 
‘‘(c) IN-KIND RECEIPTS.—The taxable receipts at-
tributable to the receipt of property, use of property or 
services in whole or partial exchange for property, use of 
property or services equal the fair market value of the 
services or property received. 
‘‘(d) TAXES.—Taxable receipts do not include any ex-
cise tax, sales tax, custom duty, or other separately stated 
levy imposed by a Federal, State, or local government re-
ceived by a business entity in connection with the sale of 
property or services or the use of property. 
‘‘(e) FINANCIAL RECEIPTS.— 
‘‘(1) IN GENERAL.—Taxable receipts do not in-
clude financial receipts. 
‘‘(2) FINANCIAL
RECEIPTS.—‘Financial re-
ceipts’ include— 
‘‘(A) interest, 
‘‘(B) dividends and other distributions by a 
business entity, 
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‘‘(C) proceeds from the sale of stock, other 
ownership interests in business entities, or 
other financial instruments, 
‘‘(D) proceeds from life insurance policies, 
‘‘(E) proceeds from annuities, 
‘‘(F) proceeds from currency hedging or 
exchanges, and 
‘‘(G) proceeds from other financial trans-
actions. 
‘‘(3) FINANCIAL INSTRUMENT.—‘Financial in-
strument’ means any— 
‘‘(A) share of stock in a corporation, 
‘‘(B) equity ownership in any widely held 
or publicly traded partnership, trust, or other 
business entity, 
‘‘(C) note, bond, debenture, or other evi-
dence of indebtedness, 
‘‘(D) interest rate, currency, or equity no-
tional principal contract, 
‘‘(E) evidence or interest in, or a derivative 
financial instrument in, any financial instru-
ment described in subparagraph (A), (B), (C), 
or (D), or any currency, including any option, 
forward contract, short position, and any simi-
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443 
lar financial instrument in such a financial in-
strument or currency, and 
‘‘(F) a position which— 
‘‘(i) is not a financial instrument de-
scribed in subparagraph (A), (B), (C), (D) 
or (E), 
‘‘(ii) is a hedge with respect to such 
a financial instrument, and 
‘‘(iii) is clearly identified in the deal-
er’s records as being described in this sub-
paragraph before the close of the day on 
which it was acquired or entered into. 
‘‘(f) CROSS REFERENCES.— 
‘‘(1) 
EXPORTS, 
SALES
IN
THE
UNITED 
STATES.—See subchapter I for the exclusion from 
gross receipts for export sales and for rules on sales 
of property and services in the United States. 
‘‘(2) LAND.—See subchapter E for rules relat-
ing to certain sales of land. 
‘‘SEC. 204. DEDUCTIBLE AMOUNTS. 
‘‘ ‘Deductible amounts’ for a business entity in a tax-
able year include— 
‘‘(1) the cost of business purchases in the tax-
able year (as determined under section 205), 
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‘‘(2) the cost of employer-provided health insur-
ance for which the employee, members of his family, 
or persons designated by him or members of his 
family are the beneficiaries, 
‘‘(3) such entity’s loss carryover deduction (as 
determined under section 207), and 
‘‘(4) the transition basis deduction (as deter-
mined under section 290). 
‘‘SEC. 205. COST OF BUSINESS PURCHASES. 
‘‘(a) BUSINESS PURCHASES.— 
‘‘(1) IN GENERAL.—‘Business purchases’ means 
the acquisition of— 
‘‘(A) property, 
‘‘(B) the use of property, or 
‘‘(C) services 
in the United States for use in a business activity. 
‘‘(2) EXAMPLES.—Business purchases include 
(without limitation) the— 
‘‘(A) purchase or rental of real property, 
‘‘(B) purchase or rental of capital equip-
ment, 
‘‘(C) purchase of supplies and inventory, 
‘‘(D) purchase of services from inde-
pendent contractors, and 
‘‘(E) imports for use in a business activity. 
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‘‘(3) EXCLUSIONS.—Business purchases do not 
include— 
‘‘(A) payments for use of money or capital, 
such as interest or dividends (except to the ex-
tent that a portion so paid is a fee for financial 
intermediation services), 
‘‘(B) premiums for life insurance, 
‘‘(C) the acquisition of savings assets or 
other financial instruments (as defined in sec-
tion 203(e)(3)). 
‘‘(D) property acquired outside the United 
States (but such property shall be taken into 
account as an import if imported), 
‘‘(E) services performed outside the United 
States (unless treated as imported into the 
United States), 
‘‘(F) compensation expenses for an indi-
vidual (other than amounts paid to an indi-
vidual in his capacity as a business entity), or 
‘‘(G) taxes (except as provided in sub-
section (b)(2) relating to product taxes). 
‘‘(4) COMPENSATION
EXPENSES.—‘Compensa-
tion expenses’ means— 
‘‘(A) wages, salaries or other cash payable 
for services, 
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‘‘(B) any taxes imposed on the recipient 
that are withheld by the business entity, 
‘‘(C) the cost of property purchased to pro-
vide employees with compensation (other than 
property incidental to the provision of fringe 
benefits that are excluded from income under 
the individual tax), 
‘‘(D) the cost of fringe benefits which are 
includible in an employee’s, partner’s, or propri-
etor’s income under the business consumption 
tax (or are excluded solely because they con-
stitute employee savings), including (without 
limitation)— 
‘‘(i) contributions to retirement and 
severance benefit plans, 
‘‘(ii) premiums for the cost of life, ac-
cident, disability and other insurance poli-
cies for which the employee, members of 
his family, or persons designated by him or 
members of his family are the bene-
ficiaries, 
‘‘(iii) rental of parking spaces or park-
ing fees (unless the parking space is used 
for a vehicle that is regularly used in a 
business activity); 
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‘‘(iv) employer paid educational bene-
fits; 
‘‘(v) employer paid housing (other 
than housing provided for the convenience 
of the employer); and 
‘‘(vi) employer paid meals (other than 
meals provided for the convenience of the 
employer). 
‘‘(b) COST OF BUSINESS PURCHASES.— 
‘‘(1) IN
GENERAL.—The ‘cost of a business 
purchase’ is the amount paid or to be paid for the 
business purchase. 
‘‘(2) TAXES.— 
‘‘(A) IN GENERAL.—The ‘cost of business 
purchases’ includes any product taxes paid with 
respect to the property or services purchased. 
‘‘(B) PRODUCT TAX.—‘Product tax’ means 
any excise tax, sales or use tax, custom duty, or 
other separately stated levy imposed by a Fed-
eral, State, or local government on the produc-
tion, severance or consumption of property or 
on the provision of services, whether or not sep-
arately stated, and including any such taxes 
that are technically imposed on the seller of 
property or services. 
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‘‘(C) TAXES NOT PRODUCT TAXES.—Prod-
uct taxes do not include— 
‘‘(i) the import tax, 
‘‘(ii) state and local property taxes, 
‘‘(iii) franchise or income taxes, 
‘‘(iv) payroll taxes and self-employ-
ment taxes, or 
‘‘(v) the business consumption tax. 
‘‘(3) IMPORTS.—In the case of an import by a 
business entity, the cost of the import is the import 
price for purposes of the import tax. The import tax 
is not part of the cost of the import. 
‘‘(c) PROPERTY
AND
SERVICES
ACQUIRED
FOR 
PROPERTY.—If a business entity receives property or serv-
ices from a business entity in whole or partial exchange 
for property or services, the property or services acquired 
shall be treated as if they were purchased for an amount 
equal to the fair market value of the services or property 
received. For purposes of this section, property includes 
stock and other equity interests in business other than 
stock or an equity interest in the business entity acquiring 
the property or services. See section 210(b) for rules on 
property or services received in exchange for an equity in-
terest in the recipient. 
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‘‘(d) GAMBLING PAYMENTS.—In the case of a busi-
ness involving gambling, lotteries, or other games of 
chance, business purchases include amounts paid to win-
ners. 
‘‘(e) SAVINGS
ASSETS.—‘Savings assets’ means 
stocks, bonds, securities, certificates of deposits, invest-
ments in partnerships and limited liability companies, 
shares of mutual funds, life insurance policies, annuities, 
and other similar savings or investment assets. 
‘‘(f) CROSS REFERENCES.— 
‘‘(1) LAND.—For special rules relating to the 
acquisition of land, see subchapter E. 
‘‘(2) RENTAL REAL ESTATE.—For special rules 
relating to the rental of real estate previously occu-
pied by an owner of the real estate, see section 232. 
‘‘(3) OUTSIDE THE UNITED STATES.—For spe-
cial rules relating to services performed outside the 
United States but used inside the United States and 
international services, see subchapter I. 
‘‘SEC. 206. BUSINESS ENTITY AND BUSINESS ACTIVITY. 
‘‘(a) BUSINESS ENTITY.—For purposes of the busi-
ness consumption tax, ‘business entity’ means any cor-
poration, unincorporated association, partnership, limited 
liability company, proprietorship, independent contractor, 
individual, or any other person engaging in business activ-
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450 
ity in the United States. An individual shall be considered 
a business entity only with respect to the individual’s busi-
ness activities. 
‘‘(b) BUSINESS ACTIVITY.—‘Business activity’ means 
the sale of property or services, the leasing of property, 
the development of property or services for subsequent 
sale or use in producing property or services for subse-
quent sale. ‘Business activity’ does not include casual or 
occasional sales of property used by an individual (other 
than in a business activity), such as the sale by an indi-
vidual of a vehicle used by the individual. 
‘‘(c) EXCEPTION FOR CERTAIN EMPLOYEES.— 
‘‘(1) IN GENERAL.—‘Business activity’ does not 
include— 
‘‘(A) the performance of services by an em-
ployee for an employer that is a business entity 
with respect to the activity in which the em-
ployee is engaged, or 
‘‘(B) the performance of regular domestic 
household 
services 
(including 
babysitting, 
housecleaning, and lawn cutting) by an em-
ployee of an employer that is an individual or 
family. 
‘‘(2) EMPLOYEE
DEFINED.—For purposes of 
this subsection, ‘employee’ includes an individual 
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451 
partner who provides services to a partnership or an 
individual member who provides services to a limited 
liability company, or a proprietor with respect to 
compensation for services from his proprietorship. 
‘‘SEC. 207. LOSS CARRYOVER DEDUCTION. 
‘‘(a) DEDUCTION.—The ‘loss carryover deduction’ for 
a taxable year is the lesser of— 
‘‘(1) the business entity’s gross profits for the 
taxable year (determined without the loss carryover 
deduction), or 
‘‘(2) the amount of the loss carryover to the 
taxable year. 
‘‘(b) LOSS CARRYOVER.— 
‘‘(1) GENERAL RULE.—A loss for any taxable 
year shall be a loss carryover to each of the 15 tax-
able years following the taxable year of the loss. 
‘‘(2) LOSS CARRYOVERS TO A TAXABLE YEAR.— 
The loss carryover to a taxable year is the sum of 
the loss carryovers from all prior taxable years be-
ginning on or after January 1, 2011, that can be 
carried over to the taxable year. 
‘‘(3) REDUCTION OF LOSS CARRYOVERS AS A 
RESULT OF THE DEDUCTION.—A business entity’s 
loss carryovers shall be reduced each year by the 
amount of the loss carryover deduction for the year. 
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Loss carryovers shall be reduced in the order that 
they arose. 
‘‘(c) LOSS FOR TAXABLE YEAR.—A business entity’s 
loss (if any) for the taxable year equals the excess (if any) 
of— 
‘‘(1) the sum of— 
‘‘(A) the cost of business purchases for the 
taxable year, and 
‘‘(B) the transition basis adjustment for 
the taxable year, over 
‘‘(2) taxable receipts for the taxable year. 
‘‘(d) SPECIAL RULES.— 
‘‘(1) CONSOLIDATED RETURNS.—In the case of 
a consolidated return, the loss for a taxable year 
shall be determined on a consolidated group basis. 
In the case of a deconsolidation, the loss carryovers 
from the consolidated group shall be allocated in ac-
cordance with rules to be prescribed by the Sec-
retary. 
‘‘(2) LOSS
CARRYOVERS
OF
ACQUIRED
BUSI-
NESS ENTITY.— 
‘‘(A) IN GENERAL.—If a business entity 
acquires another business entity in a trans-
action that is considered the acquisition of a 
business entity and the two entities file a con-
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453 
solidated return or if two business entities 
merge, the loss carryovers will survive and can 
be applied against the taxable receipts attrib-
utable to the business activities carried on (or 
in the case of a merger formerly carried on) by 
either entity. 
‘‘(B) ASSET ACQUISITION.—If a business 
entity acquires all or substantially all of the as-
sets of another entity in a transaction that is 
considered an asset acquisition rather than the 
acquisition of a business entity, the acquirer 
will be treated as if it acquired the loss 
carryovers of the selling entity. For purposes of 
this rule, the assets of a business entity include 
ownership interests in other business entities. 
‘‘(C) SUBSTANTIALLY ALL.—For purposes 
of this paragraph ‘substantially all’ means more 
than 80 percent of the fair market value of a 
business entity’s net assets. Under rules pre-
scribed by the Secretary, the parties to a trans-
action may elect to treat acquisitions in excess 
of 70 percent of the fair market value of a busi-
ness entity’s net assets as acquisitions of ‘sub-
stantially all’ of a business entity’s net assets. 
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‘‘Subchapter C—Capital Contributions, 
Mergers, Acquisitions, and Distributions 
‘‘Sec. 210. Contributions to a business entity. 
‘‘Sec. 211. Distributions of property. 
‘‘Sec. 212. Asset acquisitions. 
‘‘Sec. 213. Mergers and stock acquisitions. 
‘‘Sec. 214. Spin-offs, split-off, etc. 
‘‘Sec. 215. Allocation of certain tax attributes. 
‘‘SEC. 210. CONTRIBUTIONS TO A BUSINESS ENTITY. 
‘‘(a) BY BUSINESS ENTITY.— 
‘‘(1) CASH.—If a business entity contributes 
cash to a business entity of which it is or becomes 
a partial or full owner, the amount contributed is 
not a deductible amount to the contributor or a tax-
able receipt to the recipient. 
‘‘(2) PROPERTY OR SERVICES.—If a business 
entity contributes property or services to a business 
entity of which it is or becomes a partial or full 
owner, the transaction will not result in taxable re-
ceipts to the contributor or a deduction for a busi-
ness purchase for the recipient and will not con-
stitute a sale resulting in taxable receipts to the con-
tributor. 
‘‘(b) BY INDIVIDUAL.— 
‘‘(1) CASH.—If an individual contributes cash 
to a business entity, the cash received is not a tax-
able receipt. 
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‘‘(2) NEW PROPERTY.—If an individual contrib-
utes to a business entity property that the individual 
purchased for the business entity but which was not 
used by any person after its purchase, the property 
shall be considered purchased by such business enti-
ty from the person from which the individual pur-
chased the property. 
‘‘(3) PERSONAL USE PROPERTY.— 
‘‘(A) IN GENERAL.—If an individual con-
tributes personal use property to a business en-
tity in which the individual has an ownership 
interest or for which the individual receives an 
ownership interest, the business entity shall not 
be permitted to deduct the value of the property 
received as a business expense. The business 
entity will have a tax basis in the contributed 
property equal to the contributor’s basis. 
‘‘(B) PERSONAL
USE
PROPERTY.—‘Per-
sonal use property’ means any property used by 
an individual at any time other than in a busi-
ness activity. 
‘‘(4) SERVICES.—If an individual contributes 
services to a business entity in which the individual 
has an ownership interest or receives an ownership 
interest, the business entity shall not be permitted to 
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456 
deduct the value of the services received (or the 
value of the equity interest provided to the services 
provider). 
‘‘SEC. 211. DISTRIBUTIONS OF PROPERTY. 
‘‘(a) DISTRIBUTIONS OTHER THAN TO CONTROL-
LING BUSINESS.—If a business entity distributes all or a 
portion of its assets to its owners (other than a controlling 
business entity), the business entity will be treated as if 
it sold the assets to its owners at fair market value. The 
fair market value will be determined by the distributing 
corporation and those determinations, unless unreason-
able, will be binding on the recipients. 
‘‘(b) DISTRIBUTIONS
TO
A CONTROLLING BUSI-
NESS.—If a business entity distributes all or a portion of 
its assets to a controlling business, the controlling busi-
ness will assume the distributing entity’s tax attributes 
with respect to the assets and neither entity will have tax-
able receipts or a deduction as a result of the transaction. 
‘‘(c) DISTRIBUTION
OF
PERSONAL
USE
PROP-
ERTY.—If personal use property is distributed to the indi-
vidual who contributed the personal use property to a busi-
ness entity, the fair market value of the property for pur-
poses of paragraph (a) shall equal the basis of the prop-
erty plus any enhancement in value of the property attrib-
utable to business purchases with respect to the property. 
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‘‘(d) CONTROLLING BUSINESS ENTITY.—A business 
entity is a ‘controlling business entity’ with respect to an-
other business entity if it owns directly or indirectly more 
than 50 percent of the profits or capital interest in the 
other business entity. 
‘‘(e) APPLICATION OF THIS SECTION.—This section 
applies to both liquidating and nonliquidating distribu-
tions. Property shall be treated as distributed if the prop-
erty is used for a nonbusiness purpose or used as non rent-
al property (as defined in section 232) for more than an 
insubstantial period of time during a taxable year. See sec-
tion 232 for rules relating to certain rental property. 
‘‘SEC. 212. ASSET ACQUISITIONS. 
‘‘(a) IN GENERAL.—If a business entity transfers 
some or all of its assets, the consideration received for 
such assets shall be allocated among the assets transferred 
in the same manner as was required by section 1060 of 
the Internal Revenue Code of 1986. If the transferee and 
transferor agree in writing on the allocation of any consid-
eration, or as to the fair market value of any of the assets, 
such agreement shall be binding on both the transferor 
and transferee unless the Secretary determines that such 
allocation (or fair market value) is not appropriate. 
‘‘(b) TAX CONSEQUENCES.—The tax consequences of 
an asset acquisition shall be determined in accordance 
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496 
ficiary has provided 90 days notice to 
such corporation or trust. 
‘‘(E)(i) For purposes of this paragraph— 
‘‘(I) a corporation which is a qualified 
subsidiary shall not be treated as a sepa-
rate corporation, and 
‘‘(II) all assets, liabilities, and items 
of income, deduction, and credit of a quali-
fied subsidiary shall be treated as assets, 
liabilities, and such items (as the case may 
be) of the corporation or trust described in 
subparagraph (A). 
‘‘(ii) For purposes of this subparagraph, 
the term ‘qualified subsidiary’ means any cor-
poration if, at all times during the period such 
corporation was in existence, 100 percent of the 
stock of such corporation is held by the cor-
poration or trust described in subparagraph 
(A). 
‘‘(iii) For purposes of this subtitle, if any 
corporation which was a qualified subsidiary 
ceases to meet the requirements of clause (ii), 
such corporation shall be treated as a new cor-
poration acquiring all of its assets (and assum-
ing all of its liabilities) immediately before such 
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