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‘‘(1) a certified professional employer organiza-
tion shall be treated as the employer of any indi-
vidual (other than a work site employee or a person 
described in subsection (f)) who is performing services 
covered by a contract meeting the requirements of sec-
tion 7705(e)(2), but only with respect to remunera-
tion remitted by such organization to such individual, 
and 
‘‘(2) exclusions, definitions, and other rules 
which are based on the type of employer and which 
would (but for paragraph (1)) apply shall apply with 
respect to such taxes imposed on such remuneration. 
‘‘(d) TREATMENT OF CREDITS.— 
‘‘(1) IN GENERAL.—For purposes of any credit 
specified in paragraph (2)— 
‘‘(A) such credit with respect to a work site 
employee performing services for the customer 
applies to the customer, not the certified profes-
sional employer organization, 
‘‘(B) the customer, and not the certified pro-
fessional employer organization, shall take into 
account wages and employment taxes— 
‘‘(i) paid by the certified professional 
employer organization with respect to the 
work site employee, and 
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HR 1591 PP 
‘‘(ii) for which the certified profes-
sional employer organization receives pay-
ment from the customer, and 
‘‘(C) the certified professional employer or-
ganization shall furnish the customer with any 
information necessary for the customer to claim 
such credit. 
‘‘(2) CREDITS SPECIFIED.—A credit is specified 
in this paragraph if such credit is allowed under— 
‘‘(A) section 41 (credit for increasing re-
search activity), 
‘‘(B) section 45A (Indian employment cred-
it), 
‘‘(C) section 45B (credit for portion of em-
ployer social security taxes paid with respect to 
employee cash tips), 
‘‘(D) section 45C (clinical testing expenses 
for certain drugs for rare diseases or conditions), 
‘‘(E) section 51 (work opportunity credit), 
‘‘(F) section 51A (temporary incentives for 
employing long-term family assistance recipi-
ents), 
‘‘(G) section 1396 (empowerment zone em-
ployment credit), 
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‘‘(H) 1400(d) (DC Zone employment cred-
it), 
‘‘(I) Section 1400H (renewal community 
employment credit), and 
‘‘(J) any other section as provided by the 
Secretary. 
‘‘(e) SPECIAL RULE FOR RELATED PARTY.—This sec-
tion shall not apply in the case of a customer which bears 
a relationship to a certified professional employer organiza-
tion described in section 267(b) or 707(b). For purposes of 
the preceding sentence, such sections shall be applied by sub-
stituting ‘10 percent’ for ‘50 percent’. 
‘‘(f) SPECIAL RULE FOR CERTAIN INDIVIDUALS.—For 
purposes of the taxes imposed under this subtitle, an indi-
vidual with net earnings from self-employment derived from 
the customer’s trade or business is not a work site employee 
with respect to remuneration paid by a certified profes-
sional employer organization. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) CERTIFIED PROFESSIONAL EMPLOYER ORGANIZA-
TION DEFINED.—Chapter 79 (relating to definitions) is 
amended by adding at the end the following new section: 
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HR 1591 PP 
‘‘SEC. 7705. CERTIFIED PROFESSIONAL EMPLOYER ORGANI-
ZATIONS DEFINED. 
‘‘(a) IN GENERAL.—For purposes of this title, the term 
‘certified professional employer organization’ means a per-
son who has been certified by the Secretary for purposes 
of section 3511 as meeting the requirements of subsection 
(b). 
‘‘(b) GENERAL REQUIREMENTS.—A person meets the 
requirements of this subsection if such person— 
‘‘(1) demonstrates that such person (and any 
owner, officer, and such other persons as may be spec-
ified in regulations) meets such requirements as the 
Secretary shall establish with respect to tax status, 
background, experience, business location, and annual 
financial audits, 
‘‘(2) computes its taxable income using an ac-
crual method of accounting unless the Secretary ap-
proves another method, 
‘‘(3) agrees that it will satisfy the bond and 
independent financial review requirements of sub-
section (c) on an ongoing basis, 
‘‘(4) agrees that it will satisfy such reporting ob-
ligations as may be imposed by the Secretary, 
‘‘(5) agrees to verify on such periodic basis as the 
Secretary may prescribe that it continues to meet the 
requirements of this subsection, and 
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‘‘(6) agrees to notify the Secretary in writing 
within such time as the Secretary may prescribe of 
any change that materially affects whether it con-
tinues to meet the requirements of this subsection. 
‘‘(c) BOND AND INDEPENDENT FINANCIAL REVIEW RE-
QUIREMENTS.— 
‘‘(1) IN GENERAL.—An organization meets the 
requirements of this paragraph if such organization— 
‘‘(A) meets the bond requirements of para-
graph (2), and 
‘‘(B) meets the independent financial review 
requirements of paragraph (3). 
‘‘(2) BOND.— 
‘‘(A) IN GENERAL.—A certified professional 
employer organization meets the requirements of 
this paragraph if the organization has posted a 
bond for the payment of taxes under subtitle C 
(in a form acceptable to the Secretary) in an 
amount at least equal to the amount specified in 
subparagraph (B). 
‘‘(B) AMOUNT
OF
BOND.—For the period 
April 1 of any calendar year through March 31 
of the following calendar year, the amount of the 
bond required is equal to the greater of— 
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‘‘(i) 5 percent of the organization’s li-
ability under section 3511 for taxes imposed 
by subtitle C during the preceding calendar 
year (but not to exceed $1,000,000), or 
‘‘(ii) $50,000. 
‘‘(3) INDEPENDENT FINANCIAL REVIEW REQUIRE-
MENTS.—A certified professional employer organiza-
tion meets the requirements of this paragraph if such 
organization— 
‘‘(A) has, as of the most recent review date, 
caused to be prepared and provided to the Sec-
retary (in such manner as the Secretary may 
prescribe) an opinion of an independent certified 
public accountant that the certified professional 
employer organization’s financial statements are 
presented fairly in accordance with generally ac-
cepted accounting principles, and 
‘‘(B) provides, not later than the last day of 
the second month beginning after the end of each 
calendar quarter, to the Secretary from an inde-
pendent certified public accountant an assertion 
regarding Federal employment tax payments 
and an examination level attestation on such as-
sertion. 
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Such assertion shall state that the organization has 
withheld and made deposits of all taxes imposed by 
chapters 21, 22, and 24 of the Internal Revenue Code 
in accordance with regulations imposed by the Sec-
retary for such calendar quarter and such examina-
tion level attestation shall state that such assertion is 
fairly stated, in all material respects. 
‘‘(4) CONTROLLED GROUP RULES.—For purposes 
of the requirements of paragraphs (2) and (3), all 
professional employer organizations that are members 
of a controlled group within the meaning of sections 
414(b) and (c) shall be treated as a single organiza-
tion. 
‘‘(5) FAILURE TO FILE ASSERTION AND ATTESTA-
TION.—If the certified professional employer organi-
zation fails to file the assertion and attestation re-
quired by paragraph (3) with respect to any calendar 
quarter, then the requirements of paragraph (3) with 
respect to such failure shall be treated as not satisfied 
for the period beginning on the due date for such at-
testation. 
‘‘(6) REVIEW DATE.—For purposes of paragraph 
(3)(A), the review date shall be 6 months after the 
completion of the organization’s fiscal year. 
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‘‘(d) SUSPENSION AND REVOCATION AUTHORITY.—The 
Secretary may suspend or revoke a certification of any per-
son under subsection (b) for purposes of section 3511 if the 
Secretary determines that such person is not satisfying the 
representations or requirements of subsections (b) or (c), or 
fails to satisfy applicable accounting, reporting, payment, 
or deposit requirements. 
‘‘(e) WORK SITE EMPLOYEE.—For purposes of this 
title— 
‘‘(1) IN
GENERAL.—The term ‘work site em-
ployee’ means, with respect to a certified professional 
employer organization, an individual who— 
‘‘(A) performs services for a customer pur-
suant to a contract which is between such cus-
tomer and the certified professional employer or-
ganization and which meets the requirements of 
paragraph (2), and 
‘‘(B) performs services at a work site meet-
ing the requirements of paragraph (3). 
‘‘(2) SERVICE
CONTRACT
REQUIREMENTS.—A 
contract meets the requirements of this paragraph 
with respect to an individual performing services for 
a customer if such contract is in writing and provides 
that the certified professional employer organization 
shall— 
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HR 1591 PP 
‘‘(A) assume responsibility for payment of 
wages to such individual, without regard to the 
receipt or adequacy of payment from the cus-
tomer for such services, 
‘‘(B) assume responsibility for reporting, 
withholding, and paying any applicable taxes 
under subtitle C, with respect to such individ-
ual’s wages, without regard to the receipt or ade-
quacy of payment from the customer for such 
services, 
‘‘(C) assume responsibility for any employee 
benefits which the service contract may require 
the organization to provide, without regard to 
the receipt or adequacy of payment from the cus-
tomer for such services, 
‘‘(D) assume responsibility for hiring, fir-
ing, and recruiting workers in addition to the 
customer’s responsibility for hiring, firing and 
recruiting workers, 
‘‘(E) maintain employee records relating to 
such individual, and 
‘‘(F) agree to be treated as a certified pro-
fessional employer organization for purposes of 
section 3511 with respect to such individual. 
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HR 1591 PP 
‘‘(3) WORK SITE COVERAGE REQUIREMENT.—The 
requirements of this paragraph are met with respect 
to an individual if at least 85 percent of the individ-
uals performing services for the customer at the work 
site where such individual performs services are sub-
ject to 1 or more contracts with the certified profes-
sional employer organization which meet the require-
ments of paragraph (2) (but not taking into account 
those individuals who are excluded employees within 
the meaning of section 414(q)(5)). 
‘‘(f) DETERMINATION OF EMPLOYMENT STATUS.—Ex-
cept to the extent necessary for purposes of section 3511, 
nothing in this section shall be construed to affect the deter-
mination of who is an employee or employer for purposes 
of this title. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 3302 is amended by adding at the 
end the following new subsection: 
‘‘(h) TREATMENT OF CERTIFIED PROFESSIONAL EM-
PLOYER ORGANIZATIONS.—If a certified professional em-
ployer organization (as defined in section 7705), or a cus-
tomer of such organization, makes a contribution to the 
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HR 1591 PP 
State’s unemployment fund with respect to a work site em-
ployee, such organization shall be eligible for the credits 
available under this section with respect to such contribu-
tion.’’. 
(2) Section 3303(a) is amended— 
(A) by striking the period at the end of 
paragraph (3) and inserting ‘‘; and’’ and by in-
serting after paragraph (3) the following new 
paragraph: 
‘‘(4) if the taxpayer is a certified professional 
employer organization (as defined in section 7705) 
that is treated as the employer under section 3511, 
such certified professional employer organization is 
permitted to collect and remit, in accordance with 
paragraphs (1), (2), and (3), contributions during the 
taxable year to the State unemployment fund with re-
spect to a work site employee.’’, and 
(B) in the last sentence— 
(i) by striking ‘‘paragraphs (1), (2), 
and (3)’’ and inserting ‘‘paragraphs (1), 
(2), (3), and (4)’’, and 
(ii) by striking ‘‘paragraph (1), (2), or 
(3)’’ and inserting ‘‘paragraph (1), (2), (3), 
or (4)’’. 
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HR 1591 PP 
(3) Section 6053(c) (relating to reporting of tips) 
is amended by adding at the end the following new 
paragraph: 
‘‘(8) CERTIFIED PROFESSIONAL EMPLOYER OR-
GANIZATIONS.—For purposes of any report required 
by this subsection, in the case of a certified profes-
sional employer organization that is treated under 
section 3511 as the employer of a work site employee, 
the customer with respect to whom a work site em-
ployee performs services shall be the employer for pur-
poses of reporting under this section and the certified 
professional employer organization shall furnish to 
the customer any information necessary to complete 
such reporting no later than such time as the Sec-
retary shall prescribe.’’. 
(d) CLERICAL AMENDMENTS.— 
(1) The table of sections for chapter 25 is amend-
ed by adding at the end the following new item: 
‘‘Sec. 3511. Certified professional employer organizations’’. 
(2) The table of sections for chapter 79 is amend-
ed by inserting after the item relating to section 7704 
the following new item: 
‘‘Sec. 7705. Certified professional employer organizations defined’’. 
(e) REPORTING REQUIREMENTS AND OBLIGATIONS.— 
The Secretary of the Treasury shall develop such reporting 
and recordkeeping rules, regulations, and procedures as the 
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Secretary determines necessary or appropriate to ensure 
compliance with the amendments made by this section with 
respect to entities applying for certification as certified pro-
fessional employer organizations or entities that have been 
so certified. Such rules shall be designed in a manner which 
streamlines, to the extent possible, the application of re-
quirements of such amendments, the exchange of informa-
tion between a certified professional employer organization 
and its customers, and the reporting and recordkeeping ob-
ligations of the certified professional employer organization. 
(f) USER FEES.—Subsection (b) of section 7528 (relat-
ing to Internal Revenue Service user fees) is amended by 
adding at the end the following new paragraph: 
‘‘(4) CERTIFIED PROFESSIONAL EMPLOYER OR-
GANIZATIONS.—The fee charged under the program in 
connection with the certification by the Secretary of 
a professional employer organization under section 
7705 shall not exceed $500.’’. 
(g) EFFECTIVE DATES.— 
(1) IN
GENERAL.—The amendments made by 
this section shall apply with respect to wages for serv-
ices performed on or after January 1 of the first cal-
endar year beginning more than 12 months after the 
date of the enactment of this Act. 
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HR 1591 PP 
(2) CERTIFICATION PROGRAM.—The Secretary of 
the Treasury shall establish the certification program 
described in section 7705(b) of the Internal Revenue 
Code of 1986, as added by subsection (b), not later 
than 6 months before the effective date determined 
under paragraph (1). 
(h) NO INFERENCE.—Nothing contained in this section 
or the amendments made by this section shall be construed 
to create any inference with respect to the determination 
of who is an employee or employer— 
(1) for Federal tax purposes (other than the pur-
poses set forth in the amendments made by this sec-
tion), or 
(2) for purposes of any other provision of law. 
SEC. 516. ACCELERATED DEPRECIATION FOR INVESTMENT 
IN HIGH OUT-MIGRATION COUNTIES. 
(a) IN GENERAL.—Section 168 (relating to accelerated 
cost recovery system) is amended by adding at the end the 
following new subsection: 
‘‘(m) RURAL INVESTMENT PROPERTY.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the applicable recovery period for qualified rural 
investment property shall be determined in accord-
ance with the table contained in paragraph (2) in 
lieu of the table contained in subsection (c). 
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HR 1591 PP 
‘‘(2) APPLICABLE RECOVERY PERIOD FOR RURAL 
INVESTMENT PROPERTY.—For purposes of paragraph 
(1)— 
The applicable 
‘‘
‘‘In the case of: 
recovery period is: 
3-year property ......................................................................
2 years
5-year property ......................................................................
3 years
7-year property ......................................................................
4 years
10-year property ....................................................................
6 years
15-year property ....................................................................
9 years
20-year property ....................................................................
12 years
Nonresidential real property ................................................
22 years.
‘‘(3) QUALIFIED RURAL INVESTMENT PROPERTY 
DEFINED.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
rural investment property’ means property 
which is property described in the table in para-
graph (2) and which is— 
‘‘(i) used by the taxpayer predomi-
nantly in the active conduct of a trade or 
business within a high out-migration coun-
ty, 
‘‘(ii) not used or located outside such 
county on a regular basis, 
‘‘(iii) not acquired (directly or indi-
rectly) by the taxpayer from a person who 
is related to the taxpayer (within the mean-
ing of section 465(b)(3)(C)), and 
‘‘(iv) not property (or any portion 
thereof) placed in service for purposes of op-
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HR 1591 PP 
erating any racetrack or other facility used 
for gambling. 
‘‘(B) HIGH OUT-MIGRATION COUNTY.—The 
term ‘high out-migration county’ means any 
county which— 
‘‘(i) is outside a metropolitan statis-
tical area (defined as such by the Office of 
Management and Budget), and 
‘‘(ii) during the 5-year periods 1990 
through 1994 and 1995 through 1999 had a 
net population loss. 
‘‘(4) TERMINATION.—This subsection shall not 
apply to property placed in service after March 31, 
2008.’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall apply to property placed in service after the 
date of the enactment of this Act, the original use of which 
begins with the taxpayer after such date. 
SEC. 517. EXTENSION OF INCREASED EXPENSING FOR 
QUALIFIED SECTION 179 GULF OPPORTUNITY 
ZONE PROPERTY. 
Paragraph (2) of section 1400N(e) (relating to quali-
fied section 179 Gulf Opportunity Zone property) is 
amended— 
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HR 1591 PP 
(1) by striking ‘‘this subsection, the term’’ and 
inserting ‘‘this subsection— 
‘‘(A) IN GENERAL.—The term’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(B) EXTENSION
FOR
CERTAIN
PROP-
ERTY.—In the case of property substantially all 
of the use of which is in one or more specified 
portions of the GO Zone (as defined by sub-
section (d)(6)), such term shall include section 
179 property (as so defined) which is described 
in subsection (d)(2), determined— 
‘‘(i) without regard to subsection 
(d)(6), and 
‘‘(ii) by substituting ‘2008’ for ‘2007’ 
in subparagraph (A)(v) thereof.’’. 
Subpart B—Subchapter S Provisions 
SEC. 521. CAPITAL GAIN OF S CORPORATION NOT TREATED 
AS PASSIVE INVESTMENT INCOME. 
(a) IN GENERAL.—Section 1362(d)(3) is amended by 
striking subparagraphs (B), (C), (D), (E), and (F) and in-
serting the following new subparagraph: 
‘‘(B) PASSIVE
INVESTMENT
INCOME
DE-
FINED.— 
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‘‘(i) IN GENERAL.—Except as otherwise 
provided in this subparagraph, the term 
‘passive investment income’ means gross re-
ceipts derived from royalties, rents, divi-
dends, interest, and annuities. 
‘‘(ii) EXCEPTION
FOR
INTEREST
ON 
NOTES
FROM
SALES
OF
INVENTORY.—The 
term ‘passive investment income’ shall not 
include interest on any obligation acquired 
in the ordinary course of the corporation’s 
trade or business from its sale of property 
described in section 1221(a)(1). 
‘‘(iii) TREATMENT OF CERTAIN LEND-
ING OR FINANCE COMPANIES.—If the S cor-
poration meets the requirements of section 
542(c)(6) for the taxable year, the term 
‘passive investment income’ shall not in-
clude gross receipts for the taxable year 
which are derived directly from the active 
and regular conduct of a lending or finance 
business (as defined in section 542(d)(1)). 
‘‘(iv) TREATMENT
OF
CERTAIN
DIVI-
DENDS.—If an S corporation holds stock in 
a C corporation meeting the requirements of 
section 1504(a)(2), the term ‘passive invest-
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HR 1591 PP 
ment income’ shall not include dividends 
from such C corporation to the extent such 
dividends are attributable to the earnings 
and profits of such C corporation derived 
from the active conduct of a trade or busi-
ness. 
‘‘(v) EXCEPTION FOR BANKS, ETC.—In 
the case of a bank (as defined in section 
581) or a depository institution holding 
company (as defined in section 3(w)(1) of 
the Federal Deposit Insurance Act (12 
U.S.C. 1813(w)(1)), the term ‘passive in-
vestment income’ shall not include— 
‘‘(I) interest income earned by 
such bank or company, or 
‘‘(II) dividends on assets required 
to be held by such bank or company, 
including stock in the Federal Reserve 
Bank, the Federal Home Loan Bank, 
or the Federal Agricultural Mortgage 
Bank 
or 
participation 
certificates 
issued by a Federal Intermediate Cred-
it Bank.’’. 
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