IIB 
112TH CONGRESS 
2D SESSION 
H. R. 9 
IN THE SENATE OF THE UNITED STATES 
APRIL 23, 2012 
Received; read twice and referred to the Committee on Finance 
AN ACT 
To amend the Internal Revenue Code of 1986 to provide 
a deduction for domestic business income of qualified 
small businesses. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Small Business Tax 
Cut Act’’. 
SEC. 2. DEDUCTION FOR DOMESTIC BUSINESS INCOME OF 
QUALIFIED SMALL BUSINESSES. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by adding at the end the following new section: 
‘‘SEC. 200. DOMESTIC BUSINESS INCOME OF QUALIFIED 
SMALL BUSINESSES. 
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a 
qualified small business, there shall be allowed as a deduc-
tion an amount equal to 20 percent of the lesser of— 
‘‘(1) the qualified domestic business income of 
the taxpayer for the taxable year, or 
‘‘(2) taxable income (determined without regard 
to this section) for the taxable year. 
‘‘(b) DEDUCTION
LIMITED
BASED
ON
WAGES 
PAID.— 
‘‘(1) IN GENERAL.—The amount of the deduc-
tion allowable under subsection (a) for any taxable 
year shall not exceed 50 percent of the greater of— 
‘‘(A) the W–2 wages of the taxpayer paid 
to non-owners, or 
‘‘(B) the sum of— 
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‘‘(i) the W–2 wages of the taxpayer 
paid to individuals who are non-owner fam-
ily members of direct owners, plus 
‘‘(ii) any W–2 wages of the taxpayer 
paid to 10-percent-or-less direct owners. 
‘‘(2) DEFINITIONS RELATED TO OWNERSHIP.— 
For purposes of this section— 
‘‘(A) NON-OWNER.—The term ‘non-owner’ 
means, with respect to any qualified small busi-
ness, any person who does not own (and is not 
considered as owning within the meaning of 
subsection (c) or (e)(3) of section 267, as the 
case may be) any stock of such business (or, if 
such business is other than a corporation, any 
capital or profits interest of such business). 
‘‘(B) NON-OWNER FAMILY MEMBERS.—An 
individual is a non-owner family member of a 
direct owner if— 
‘‘(i) such individual is family (within 
the meaning of section 267(c)(4)) of a di-
rect owner, and 
‘‘(ii) such individual would be a non- 
owner if subsections (c) and (e)(3) of sec-
tion 267 were applied without regard to 
section 267(c)(2). 
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‘‘(C) DIRECT
OWNER.—The term ‘direct 
owner’ means, with respect to any qualified 
small business, any person who owns (or is con-
sidered as owning under the applicable non- 
family attribution rules) any stock of such busi-
ness (or, if such business is other than a cor-
poration, any capital or profits interest of such 
business). 
‘‘(D) 10-PERCENT-OR-LESS
DIRECT
OWN-
ERS.—The 
term 
‘10-percent-or-less 
direct 
owner’ means, with respect to any qualified 
small business, any direct owner of such busi-
ness who owns (or is considered as owning 
under the applicable non-family attribution 
rules)— 
‘‘(i) in the case of a qualified small 
business which is a corporation, not more 
than 10 percent of the outstanding stock 
of the corporation or stock possessing more 
than 10 percent of the total combined vot-
ing power of all stock of the corporation, 
or 
‘‘(ii) in the case of a qualified small 
business which is not a corporation, not 
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more than 10 percent of the capital or 
profits interest of such business. 
‘‘(E) APPLICABLE NON-FAMILY ATTRIBU-
TION RULES.—The term ‘applicable non-family 
attribution rules’ means the attribution rules of 
subsection (c) or (e)(3) of section 267, as the 
case may be, but in each case applied without 
regard to section 267(c)(2). 
‘‘(3) W–2 WAGES.—For purposes of this sec-
tion— 
‘‘(A) 
IN
GENERAL.—The 
term 
‘W–2 
wages’ means, with respect to any person for 
any taxable year of such person, the sum of the 
amounts described in paragraphs (3) and (8) of 
section 6051(a) paid by such person with re-
spect to employment of employees by such per-
son during the calendar year ending during 
such taxable year. 
‘‘(B) LIMITATION
TO
WAGES
ATTRIB-
UTABLE TO QUALIFIED DOMESTIC BUSINESS IN-
COME.—Such term shall not include any 
amount which is not properly allocable to do-
mestic business gross receipts for purposes of 
subsection (c)(1). 
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‘‘(C) OTHER REQUIREMENTS.—Except in 
the case of amounts treated as W–2 wages 
under paragraph (4)— 
‘‘(i) such term shall not include any 
amount which is not allowed as a deduc-
tion under section 162 for the taxable 
year, and 
‘‘(ii) such term shall not include any 
amount which is not properly included in a 
return filed with the Social Security Ad-
ministration on or before the 60th day 
after the due date (including extensions) 
for such return. 
‘‘(4) CERTAIN
PARTNERSHIP
DISTRIBUTIONS 
TREATED AS W–2 WAGES.— 
‘‘(A) IN GENERAL.—In the case of a quali-
fied small business which is a partnership and 
elects the application of this paragraph for the 
taxable year— 
‘‘(i) the qualified domestic business 
taxable income of such partnership for 
such taxable year (determined after the ap-
plication of clause (ii)) which is allocable 
under rules similar to the rules of section 
199(d)(1)(A)(ii) to each qualified service- 
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providing partner shall be treated for pur-
poses of this section as W–2 wages paid 
during such taxable year to such partner 
as an employee, and 
‘‘(ii) the domestic business gross re-
ceipts of such partnership for such taxable 
year shall be reduced by the amount so 
treated. 
‘‘(B) 
QUALIFIED
SERVICE-PROVIDING 
PARTNER.—For purposes of this paragraph, the 
term 
‘qualified 
service-providing 
partner’ 
means, with respect to any qualified domestic 
business taxable income, any partner who is a 
10-percent-or-less direct owner and who materi-
ally participates in the trade or business to 
which such income relates. 
‘‘(5) ACQUISITIONS
AND
DISPOSITIONS.—The 
Secretary shall provide for the application of this 
subsection in cases where the taxpayer acquires, or 
disposes of, the major portion of a trade or business 
or the major portion of a separate unit of a trade 
or business during the taxable year. 
‘‘(c) QUALIFIED DOMESTIC BUSINESS INCOME.—For 
purposes of this section— 
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