I
105TH CONGRESS
1ST SESSION
H. R. 1325
To promote freedom, fairness, and economic opportunity for families by re-
pealing the income tax, abolishing the Internal Revenue Service, and
enacting a national retail sales tax to be administered primarily by
the States.
IN THE HOUSE OF REPRESENTATIVES
APRIL 15, 1997
Mr. DAN SCHAEFER of Colorado (for himself, Mr. TAUZIN, Mr. BONO, Mr.
HALL of Texas, Mr. HEFLEY, Mr. LINDER, Mrs. MYRICK, Mr. NOR-
WOOD, Mr. PACKARD, Mr. STUMP, and Mr. WICKER) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means
A BILL
To promote freedom, fairness, and economic opportunity for
families by repealing the income tax, abolishing the In-
ternal Revenue Service, and enacting a national retail
sales tax to be administered primarily by the States.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘National Retail Sales Tax Act of 1997’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. Repeal of the income tax, estate and gift taxes, and certain excise taxes.
Sec. 4. Sales tax.
‘‘CHAPTER 1—SALES TAX
‘‘SUBCHAPTER A—IMPOSITION OF TAX
‘‘Sec. 1. Imposition of tax.
‘‘Sec. 2. Exemptions.
‘‘Sec. 3. Rules relating to collection and remittance of tax.
‘‘SUBCHAPTER B—CREDITS; REFUNDS; INSTALLMENT PAYMENTS OF TAX ON
PURCHASES OF RESIDENCES
‘‘Sec. 11. Credits and refunds.
‘‘Sec. 12. Installment payments of tax on purchase of principal residences.
‘‘Sec. 13. Family consumption refund.
‘‘SUBCHAPTER C—DEFINITIONS AND SPECIAL RULES; FINANCIAL
INTERMEDIATION SERVICES
‘‘Sec. 21. Definitions.
‘‘Sec. 22. Special rules.
‘‘Sec. 23. Determination of financial intermediation services amount.
‘‘Sec. 24. Bad debts.
‘‘Sec. 25. Timing of tax on financial intermediation services.
‘‘Sec. 26. Alternative method for calculating tax due.
‘‘Sec. 27. Basic interest rate.
‘‘Sec. 28. Applicable interest rate.
‘‘SUBCHAPTER D—AUTHORITY FOR STATES TO COLLECT TAX
‘‘Sec. 31. Authority for States to collect tax.
‘‘Sec. 32. Federal administrative support for States.
‘‘Sec. 33. Federal administration option for multistate vendors.
‘‘Sec. 34. General administrative matters.
‘‘SUBCHAPTER E—OTHER ADMINISTRATIVE PROVISIONS
‘‘Sec. 41. Monthly reports and payments.
‘‘Sec. 42. Records.
‘‘Sec. 43. Registration.
‘‘Sec. 44. Certificate.
‘‘Sec. 45. Penalties.
‘‘Sec. 46. Burden of persuasion and burden of production.
‘‘Sec. 47. Attorneys and accountancy fees.
‘‘Sec. 48. Appeals.
‘‘Sec. 49. Taxpayer subject to subpoena on production.
‘‘Sec. 50. Tax Court jurisdiction.
‘‘Sec. 51. Power to levy.
‘‘Sec. 52. Problem resolution officers.
‘‘Sec. 53. Jurisdiction and interstate allocation.
‘‘Sec. 54. Tax to be stated and charged separately.
‘‘Sec. 55. Installment agreements; compromises.
‘‘Sec. 56. Accounting.
‘‘Sec. 57. Hobby activities.
Sec. 5. Phase-out of the Internal Revenue Service.
Sec. 6. Social Security Administration to collect payroll taxes.
Sec. 7. Self-employment tax.
Sec. 8. Social Security benefits indexed on sales tax inclusive basis.
Sec. 9. Compensating payments to certain persons on fixed income.
Sec. 10. Interest.
Sec. 11. Supermajority required to raise rate.
SEC. 2. CONGRESSIONAL FINDINGS.
(a) The Congress finds that the income tax—
(1) retards economic growth and has reduced
the standard of living of the American public;
(2) impedes the international competitiveness of
United States industry;
(3) reduces savings and investment in the Unit-
ed States;
(4) lowers productivity;
(5) imposes unacceptable administrative costs
on taxpayers, individuals and businesses alike;
(6) is unfair and inequitable; and
(7) unnecessarily intrudes upon the privacy and
civil rights of United States citizens.
(b) The Congress finds further that national sales,
services and use tax on final consumption of goods and
services—
(1) is similar in many respects to those in place
in 45 of the 50 States;
(2) will promote savings;
(3) will promote fairness;
(4) will promote economic growth;
(5) will raise the standard of living;
(6) will increase savings and investment;
(7) will enhance productivity and international
competitiveness;
(8) will reduce administrative burdens on the
taxpayer; and
(9) will respect the privacy interests and civil
rights of taxpayers.
(c) The Congress further finds that—
(1) most of the practical experience administer-
ing sales taxes is found at the State Governmental
level;
(2) it is desirable to harmonize Federal and
State collection and enforcement efforts to the maxi-
mum extent possible;
(3) it is sound tax administration policy to ad-
minister and collect the Federal sales and service tax
at the State level in return for a reasonable adminis-
tration fee to the States;
(4) businesses that must collect and remit taxes
should receive reasonable compensation for the cost
of doing so; and
(5) the sixteenth amendment to the Constitu-
tion should be repealed.
SEC. 4. SALES TAX.
Subtitle A of the Internal Revenue Code of 1986 is
amended by inserting at the beginning the following new
chapter:
‘‘CHAPTER 1—SALES TAX
‘‘SUBCHAPTER A. Imposition of tax.
‘‘SUBCHAPTER B. Credits; refunds; installment payments of tax
on purchases of residences.
‘‘SUBCHAPTER C. Definitions and special rules; financial inter-
mediation services.
‘‘SUBCHAPTER D. Authority for States to collect tax.
‘‘SUBCHAPTER E. Other administrative provisions.
‘‘Subchapter A—Imposition of Tax
‘‘Sec. 1. Imposition of tax.
‘‘Sec. 2. Exemptions.
‘‘Sec. 3. Special rules relating to collection and remittance of tax.
‘‘SECTION 1. IMPOSITION OF TAX.
‘‘(a) IN GENERAL.—There is hereby imposed a tax
of 15 percent on the gross payments for the use, consump-
tion or enjoyment in the United States of any taxable
property or service, whether produced or rendered within
or without the United States.
‘‘(b) COORDINATION WITH IMPORT DUTIES.—The
taxes imposed by this section are in addition to any import
duties imposed by law. The Secretary shall provide by reg-
ulation that, to the maximum extent practicable, the taxes
imposed by this section on imported property and services
are collected and administered in conjunction with any ap-
plicable import duties.
‘‘(c) LIABILITY FOR COLLECTION AND REMITTANCE
OF THE TAX.—
‘‘(1) GENERAL
RULE.—The tax imposed by
subsection (a) shall be collected and remitted by the
seller, except as provided in subsection (2).
‘‘(2) TAX TO BE PAID BY PURCHASER IN CER-
TAIN CIRCUMSTANCES.—
‘‘(A) GENERAL RULE.—In the case of tax-
able property or services purchased outside of
the United States for use, consumption or en-
joyment in the United States, the purchaser
shall remit the tax imposed by subsection (a).
‘‘(B) In the case of a purchaser electing to
pay tax in installments pursuant to section 12,
the purchaser shall remit the tax imposed by
subsection (a).
‘‘(C) Employers that pay wages that are
taxable services within the meaning of section
21(n) shall be responsible for paying and remit-
ting the tax.
‘‘(D) The Secretary may provide by regula-
tion that the tax imposed by subsection (a) is
to be collected and remitted by the purchaser
rather than the seller.
‘‘SEC. 2. EXEMPTIONS.
‘‘(a) IN GENERAL.—Except as provided in section
3(b)(2), no tax shall be imposed under section 1 on any
taxable property or service purchased for—
‘‘(1) a business purpose in an active trade or
business, or
‘‘(2) export from the United States for use or
consumption outside the United States, provided
that the purchaser provided the seller with—
‘‘(A) an intermediate sales certificate, or
‘‘(B) an export sales certificate.
‘‘(b) BUSINESS PURPOSES.—For purposes of this
section, the term ‘purchased for a business purpose in an
active trade or business’ means purchased by a person en-
gaged in an active trade or business and used in that ac-
tive trade or business—
‘‘(1) for resale,
‘‘(2) to produce taxable property or services (as
defined in section 21(e)), or
‘‘(3) in furtherance of other bona fide business
purposes.
‘‘(c) DE MINIMIS PAYMENTS.—Up to $400 of gross
payments per calendar year—
‘‘(1) made by a person not engaged in an active
trade or business at any time during such calendar
year prior to making such gross payments, and
‘‘(2) made to purchase any taxable property or
service which is imported into the United States by
such person for use or consumption by such person
in the United States,
shall be exempt from the tax imposed by section 1.
‘‘(d) DE MINIMIS SALES.—Up to $2,500 per cal-
endar year of gross payments received—
‘‘(1) by a person not engaged in an active trade
or business during such calendar year prior to the
receipt of such gross payments, and
‘‘(2) in connection with a casual or isolated
sale,
shall be exempt from the tax imposed by section 1.
‘‘(e) AFFILIATED FIRMS.—Firms that make pur-
chases from or sell to affiliated firms which are exempt
pursuant to subsection (a) shall not need to comply with
the requirements of subsection (g) for such purchases to
remain exempt. For purposes of this section, a firm is af-
filiated with another if 1 firm owns 50 percent of the vot-
ing shares or interest in the other.
‘‘(f) DE MINIMIS SALE OF FINANCIAL INTERMEDI-
ATION SERVICES.—The first $10,000 per calendar year
of gross payments received by a person from the sale of
financial intermediation services shall be exempt from the
tax imposed by section 1. The exemption provided by this
subsection is in addition to other exemptions afforded by
this chapter.
‘‘(g) SELLER RELIEVED OF LIABILITY IN CERTAIN
CASES.—In the case of any property or service which is
sold exempt from tax pursuant to subsection (a), if the
seller—
‘‘(1) has on file a copy of an exemption certifi-
cate (whether an intermediate sale or export sale
certificate) from the purchaser, and
‘‘(2) did not have reasonable cause to believe
that an exemption from the tax imposed by section
1 was unavailable to the purchaser with respect to
such purchase, then the seller shall be relieved of li-
ability to collect and remit the tax imposed by sec-
tion 1 on such purchase.
‘‘SEC. 3. RULES RELATING TO COLLECTION AND REMIT-
TANCE OF TAX.
‘‘(a) OBLIGATION OF GOVERNMENTAL UNITS AND
NOT-FOR-PROFIT ORGANIZATIONS TO COLLECT, REMIT
AND PAY TAXES.—
‘‘(1) GOVERNMENTAL UNITS.—Nothing in this
subtitle shall be construed to exempt any Federal,
State, or local governmental unit or political subdivi-
sion from paying any tax imposed by this subtitle on
any sale, purchase, use, consumption or enjoyment
by such a unit.
‘‘(2) NOT-FOR-PROFIT ORGANIZATIONS.—
‘‘(A) IN
GENERAL.—Dues, contributions
and payments to qualified not-for-profit organi-
zations shall not be considered gross payments
for taxable property or services for purposes of
this subtitle.
‘‘(B) EXCEPTION.—Notwithstanding sub-
paragraph (2)(A), payments of any form to a
qualified not-for-profit organization shall be
considered gross payments for taxable property
or services unless said organization establishes
that the property or service provided in ex-
change is—
‘‘(i) substantially related to the pur-
poses of the qualified not-for-profit organi-
zation, or
‘‘(ii) is not commercially available.
‘‘(C) For purposes of this section, qualified
not-for-profit organization means a not-for-prof-
it organization organized and operated exclu-
sively—
‘‘(i) for religious, charitable, scientific,
testing for public safety, literary or edu-
cational purposes;
‘‘(ii) as civic leagues or social welfare
organizations;
‘‘(iii) as labor, agricultural or horti-
cultural organizations;
‘‘(iv) as chambers of commerce, busi-
ness leagues or trade associations; or
‘‘(v) as fraternal beneficiary societies,
orders or associations;
no part of the net earnings of which inures to
the benefit of any private shareholder or indi-
vidual.
‘‘(D) Upon application in a form pre-
scribed by the State Administrator, the State
Administrator shall provide qualification certifi-
cates to qualified not-for-profit organizations.
‘‘(E) If a not-for-profit organization pro-
vides taxable property or services in connection
with contributions or dues to the organizations,
then it shall be required to treat the provision
of said taxable property or services as a pur-
chase taxable pursuant to this subtitle at the
fair market value of said property or personal
services.
‘‘(F) Taxable property and services pur-
chased by not-for-profit organizations for resale
or for use in the production of taxable property
or services shall be eligible for the exemptions
provided in section 2.
‘‘(b) TAX COLLECTED ON CERTAIN EXEMPT PUR-
CHASES.—
‘‘(1) IN GENERAL.—In the case of a purchase
which would (but for this subsection (b)) be exempt
from the tax imposed by section 1 by reason of sec-
tion 2(a), such subsection shall not apply to such
purchase if the seller—
‘‘(A) elects the application of this sub-
section, and
‘‘(B) immediately provides the purchaser
with a receipt reflecting the information re-
quired by section 54. Seller may elect to exer-
cise the application of this section with respect
to some or all purchases or purchasers.
‘‘(2) The Secretary may by regulation provide
that certain industries or specific products are such
that the vendor must collect the tax on otherwise ex-
empt purchases if, in the Secretary’s judgment, said
industry or products are such that consumers buy
25 percent or more of the product sold by the indus-
try or the product. A registered vendor may by ap-
plication for good cause shown elect to opt out of the
application of this paragraph.
‘‘(3) CROSS REFERENCE.—
‘‘For credit to purchaser where seller collects tax
on exempt purchase, see section 11(a)(3).
‘‘For tax to be separately stated and charged, see
section 54.
‘‘(c) GOVERNMENT ENTERPRISES.—
‘‘(1) GOVERNMENT ENTERPRISES TO COLLECT
AND REMIT TAXES ON SALES.—Nothing in this sub-
title shall be construed to exempt any Federal,
State, or local governmental unit or political subdivi-
sion (whether or not the State is a conforming
State) operating a government enterprise from col-
lecting and remitting tax imposed by this subtitle on
any sale of taxable property or services. Government
enterprises shall comply with all duties imposed on
private enterprises by this subtitle and shall be liable
for penalties and subject to enforcement action in
the same manner as private enterprises.
‘‘(2) GOVERNMENT
ENTERPRISE.—Any entity
owned or operated by a Federal, State, or local gov-
ernmental unit or political subdivision that receives
gross payments from selling taxable property or
services to private persons is a government enter-
prise, provided, however, that a government-owned
entity shall not become a government enterprise for
purposes of this section unless in any quarter it has
revenues from the sale of taxable property or serv-
ices that exceed $2,500.
‘‘(3) GOVERNMENT ENTERPRISES’ INTERMEDI-
ATE AND EXPORT SALES.—
‘‘(A) Government enterprises shall not be
subject to tax on purchases that would not be
subject to tax pursuant to section 2 if the gov-
ernment enterprise were a private enterprise.
‘‘(B) Government enterprises may not use
the exemption afforded by section 2 to serve as
a conduit for tax-free purchases by government
units that would otherwise be subject to tax-
ation on purchases pursuant to section 1.
Transfers of taxable property or services pur-
chased exempt from tax by a government enter-
prise to such government unit shall be taxable.
‘‘(4) SEPARATE BOOKS OF ACCOUNT.—Any gov-
ernment enterprise must maintain books of account,
separate from the nonenterprise government ac-
counts, maintained in accordance with generally ac-
cepted accounting principles.
‘‘(5) ACTIVE TRADE OR BUSINESS.—A govern-
ment enterprise shall be treated as an active trade
or business.
‘‘(6) CROSS REFERENCE.—
‘‘For obligation of government units, see section
3(a)(1).
‘‘Subchapter 
B—Credits; 
Refunds; 
Install-
ment Payments of Tax on Purchases of
Residences
‘‘Sec. 11. Credits and refunds.
‘‘Sec. 12. Installment payments of tax on purchases of principal
residences.
‘‘Sec. 13. Family Consumption Refund.
‘‘SEC. 11. CREDITS AND REFUNDS.
‘‘(a) GENERAL CREDITS.—Each person shall be al-
lowed a credit against the taxes imposed by section 1 for
any month in an amount equal to the sum of—
‘‘(1) such person’s used property credit under
subsection (c) for such month,
‘‘(2) such person’s business use conversion
credit under subsection (d) for such month,
‘‘(3) the amount paid by such person with re-
spect to a purchase during such month by reason of
a tax collected on an exempt purchase pursuant to
section 3(b) (relating to election to collect tax on
certain nontaxable purchases),
‘‘(4) the administration credit under section (e),
‘‘(5) the compliance equipment cost credit
under section (f),
‘‘(6) the bad debt credit under subsection (g),
‘‘(7) the insurance proceeds credit under sub-
section (h),
‘‘(8) the transition inventory credit under sub-
section (i), and
‘‘(9) any amount paid in excess of amount due.
‘‘(b) REFUNDS.—
‘‘(1) FILERS.—If a person files two consecutive
monthly tax reports with a credit balance, then,
upon application in a form prescribed by the State
Administrator, then the credit balance shown on the
second monthly report shall be refunded to the tax-
payer within 60 days of said application.
‘‘(2) NONFILERS.—If a person other than a
monthly filer has an excess credit for any month,
then, upon application in a form prescribed by the
State Administrator, then the credit balance due
shall be refunded to the taxpayer within 60 days of
said application.
‘‘(3) INTEREST.—No interest shall be required
to be paid on any overpayment under this subsection
for any month if such overpayment is paid within 60
days after the close of such month.
‘‘(4) SUSPENSION OF PERIOD TO PAY REFUND
ONLY IF FEDERAL COURT RULING.—The 60-day pe-
riods under paragraphs (1) and (2) shall be sus-
pended with respect to a purported credit balance
(or portion thereof) only during any period that
there is in effect a preliminary ruling from a Federal
court that there is reasonable cause to believe that
such credit balance is not actually the amount due.
‘‘(5) FILER.—For purposes of this subsection,
the term ‘filer’ means, with respect to any month,
any person required to register under section 43 for
such month.
‘‘(c) USED PROPERTY CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), a seller shall receive credit for previous sales tax
paid on the resale of taxable property or services, as
provided in this subsection (c).
‘‘(2) DETERMINATION
OF
USED
PROPERTY
CREDIT AMOUNT.—The used property credit amount
determined under this paragraph with respect to any
property is the lesser of—
‘‘(A) the amount of tax due and paid by
virtue of the present transaction (without re-
gard to any credits), or
‘‘(B) the most recent prior tax imposed by
section 1 with respect to such property trans-
action (without regard to any credits).
‘‘(3) TRANSITIONAL DEEMED PAID RULE FOR
PROPERTY OWNED ON EFFECTIVE DATE OF ACT.—
In the case of property which was acquired by the
seller before July 1, 1999, the amount under para-
graph (2)(B) shall be the amount which is the prod-
uct of—
‘‘(A) that which would be determined
under paragraph (2)(B) as if this subtitle had
been in effect at the time of such acquisition,
and
‘‘(B) the equity ratio (as defined in para-
graph (4)).
‘‘(4) The equity ratio is the quotient of—
‘‘(i) the income tax basis in the prop-
erty at the end of the taxable year 1999,
less the mortgage or debt secured by said
property at the end of said taxable year,
divided by
‘‘(ii) the income tax basis in the prop-
erty at the end of the taxable year 1999,
provided, however, that the quantity defined in sub-
paragraph (1) cannot be less than zero and further
providing that the equity ratio so calculated cannot
be less than zero or greater than one.
‘‘(d) BUSINESS USE CONVERSION CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), a person’s business use conversion credit for any
month is the aggregate of the amounts determined
under paragraph (2) with respect to property—
‘‘(A) on which a prior tax was imposed by
section 1 on the purchase by such person, and
‘‘(B) which commences to be exclusively
used during such month in the production by
such person of other taxable property or serv-
ices.
‘‘(2) AMOUNT OF CREDIT.—The amount deter-
mined under this paragraph with respect to any
property is lesser of—
‘‘(A) the product of the rate imposed by
section 1 and the fair market value of the prop-
erty when its use is converted, and
‘‘(B) the prior tax referred to in paragraph
(1)(A).
‘‘(3) Property converted from business use to
personal use shall be subject to tax pursuant to sec-
tion 1 on the book value of the converted property
as of the date of conversion, provided that the books
are kept in accordance with generally accepted ac-
counting principles.
‘‘(e) ADMINISTRATION CREDIT.—Every taxpayer fil-
ing a timely monthly report in compliance with section 41
shall be entitled to a taxpayer administrative credit equal
to the greater of—
‘‘(1) $200, or
‘‘(2) one-half of 1 percent of the tax remitted,
provided, however, that in no event will the credit af-
forded by this section exceed 20 percent of the tax
due to be remitted prior to the application of this
credit.
‘‘(f) COMPLIANCE EQUIPMENT COST CREDIT.—Ven-
dors required to purchase new equipment to comply with
the provisions of section 54 shall be entitled to a credit
in the amount of 50 percent of the cost of such equipment.
‘‘(g) BAD DEBT CREDIT.—
‘‘(1) FINANCIAL INTERMEDIATION SERVICES.—
Any person registered pursuant to section 43 who
has experienced a bad debt (other than unpaid in-
voices within the meaning of paragraph (2)) shall be
entitled to a credit equal to the product of—
‘‘(A) the rate imposed by section 1, and
‘‘(B) the quotient that is—
‘‘(i) the amount of the bad debt (as
defined in section 24), divided by
‘‘(ii) the quantity that is 1 minus the
rate imposed by section 1.
‘‘(2) UNPAID INVOICES.—Any person electing
the accrual method pursuant to section 56 that has
with respect to a transaction—
‘‘(A) invoiced the tax imposed by section 1,
‘‘(B) remitted the invoiced tax,
‘‘(C) actually delivered the taxable prop-
erty or performed the taxable services invoiced,
and
‘‘(D) not been paid 90 days after the date
the invoice was due to be paid,
shall be entitled to a credit equal to the amount of
tax remitted and unpaid by the purchaser.
‘‘(3) SUBSEQUENT PAYMENT.—Any payment
made with respect to a transaction subsequent to a
subsection (g) credit being taken with respect to
that transaction shall be subject to tax in the month
the payment was received as if a tax inclusive sale
of taxable property and services in the amount of
the payment had been made.
‘‘(4) PARTIAL
PAYMENTS.—Partial payments
shall be treated as pro rata payments of the underly-
ing obligation and shall be allocated proportionately
among payment for the taxable property and service,
tax and otherwise (in the case of partially non-
taxable payments).
‘‘(5) RELATED PARTIES.—The credit provided
by this section shall not be available with respect to
sales made to affiliated firms (within the meaning of
section 2(e)).
‘‘(h) INSURANCE PROCEEDS CREDIT.—
‘‘(1) IN GENERAL.—A person receiving a pay-
ment from an insurer by virtue of an insurance con-
tract shall be entitled to a credit in an amount de-
termined by paragraph (2), less any amount paid to
the insured by the insurer pursuant to paragraph
(3), if the entire premium (except that portion allo-
cable to the investment account of the underlying
policy) for the insurance contract giving rise to the
insurer’s obligation to make a payment to the in-
sured was subject to the tax imposed by section 1
and such tax was paid.
‘‘(2) CREDIT
AMOUNT.—The amount of the
credit shall be the product of—
‘‘(A) the rate imposed by section 1, and
‘‘(B) the quotient that is—
‘‘(i) the amount of the payment made
by the insurer to the insured, divided by
‘‘(ii) the quantity that is 1 minus the
rate imposed by section 1.
‘‘(3) ADMINISTRATIVE OPTION.—The credit de-
termined in accordance with paragraph (2) shall be
paid by the insurer to the insured and the insurer
shall be entitled to the credit in lieu of the insured
provided, however, the insurer may elect, in a form
prescribed by the Secretary, to not pay the credit
and require the insured to make application for the
credit. In the event of such election, the insurer shall
provide to the Secretary and the insured the name
and tax identification number of the insurer and of
the insured and indicate the proper amount of the
credit.
‘‘(4) COORDINATION WITH RESPECT TO EXEMP-
TION.—If taxable property or services purchased by
an insurer on behalf of an insured are purchased
free of tax by virtue of section 21(e)(3), then the
credit provided by this section shall not be available
with respect to that purchase.
‘‘(5) INSURANCE CONTRACT.—For purposes of
paragraph (1), the term ‘insurance contract’ in-
cludes a life insurance contract, a health insurance
‘‘(3) TIMING OF CREDIT.—The credit provided
under paragraph (1) shall be allowed on the sales
tax return where the taxable sale of the qualified in-
ventory is reported. The person claiming such credit
shall attach supporting schedules in the form that
the Secretary may prescribe.
‘‘SEC. 12. INSTALLMENT PAYMENTS OF TAX ON PURCHASE
OF PRINCIPAL RESIDENCES.
‘‘(a) IN GENERAL.—If—
‘‘(1) property is purchased and used as the
principal residence of any purchaser of such prop-
erty, and
‘‘(2) such purchaser elects the application of
this section, then the tax imposed by section 1 with
respect to such purchase shall be paid in equal an-
nual installments over the 30-year period beginning
on the date of such sale together with simple inter-
est at the rate imposed by section 6621.
‘‘(b) TERMINATION OF INSTALLMENTS IF PROPERTY
IS SOLD OR OTHERWISE CEASES TO BE PRINCIPAL RESI-
DENCE.—
‘‘(1) IN GENERAL.—If, before the close of the
30-year period referred to in subsection (a), any
property to which an election under subsection (a)
applies—
‘‘(A) is sold, or
‘‘(B) otherwise ceases to be used as the
principal residence of any purchaser making
such election,
then the unpaid installments shall be due no later
than two years after the time of such sale or ces-
sation. To the extent that such sale or cessation is
only of a portion of such residential property, the
preceding sentence shall apply only to a like portion
(based on value) of such unpaid installments.
‘‘(2) SPECIAL RULE.—In a case to which para-
graph (1)(B) applies with respect to any pur-
chaser—
‘‘(A) if such purchaser purchases within
two years another property which property is
purchased and used as the principal residence
of such purchaser, the remaining unpaid install-
ments shall be due at the time of such pur-
chase,
‘‘(B) if subparagraph (A) does not apply to
such purchaser, the remaining unpaid install-
ments shall be due at the close of the two-year
period beginning on the date of the cessation
referred to in paragraph (1); and
‘‘(C) the two-year period referred to in
subparagraph (B) shall be suspended during
any period that such purchaser uses such prop-
erty as his principal residence.
‘‘(3) If any purchaser exercises the right to in-
stallment payments under this section, then the re-
sponsibility to remit the tax due is the purchaser’s
rather than the seller’s provided that the seller has
on file a copy of the election form prescribed by the
Secretary.
‘‘SEC. 13. FAMILY CONSUMPTION REFUND.
‘‘(a) GENERAL RULE.—Each qualified family unit
(as defined in subsection (b)) shall be eligible to receive
a sales tax rebate in an amount no greater than the prod-
uct of—
‘‘(1) the rate of tax imposed by section 1, and
‘‘(2) the lesser of—
‘‘(A) the poverty level (as defined in sub-
section (c)), or
‘‘(B) the wage income of the family unit,
in the manner prescribed and subject to the limitations
set forth by this section.
‘‘(b) QUALIFIED FAMILY UNIT DEFINED.—For pur-
poses of this section, the term qualified family unit shall
mean any family sharing a common residence. Any family
members (as defined in subsection (e)) sharing a common
residence shall be considered part of one integrated family
unit.
‘‘(c) POVERTY LEVEL DEFINED.—The poverty level
shall be the quotient that is—
‘‘(1) the level determined by the Department of
Health and Human Services poverty guidelines re-
quired by sections 652 and 673(2) of the Omnibus
Reconciliation Act of 1981 (all States and the Dis-
trict of Columbia) for family units of a particular
size, divided by
‘‘(2) the quantity that is one minus the tax rate
imposed by section 1.
‘‘(d) REBATE MECHANISM.—
‘‘(1) GENERAL RULE.—The rebate provided by
section (a) shall be provided to each qualified family
unit by including the pay period rebate amount in
each paycheck.
‘‘(2) PAY PERIOD REBATE AMOUNT.—The pay
period rebate amount shall be the lesser of product
of the rate of tax imposed by the section 1 and—
‘‘(A) the wages paid during the pay period,
or
‘‘(B) the quotient that is the poverty level
for the family unit (determined in accordance
with subsection (c)) divided by the number of
pay periods in a year.
‘‘(3) ADJUSTED WITHHOLDING TABLES TO BE
PROVIDED
TO
EMPLOYERS.—The Social Security
Administration shall publish revised withholding ta-
bles for use by employers.
‘‘(4) COORDINATION.—The family member re-
ceiving the family consumption rebate shall set
forth, in a form prescribed by the Social Security
Administration, the names and Social Security num-
bers of all members of the family unit for which a
rebate is claimed. Employers shall provide this infor-
mation in the form prescribed to the Social Security
Administration.
‘‘(e) FAMILY MEMBERS DEFINED.—For purposes of
determining the size of the family unit, family members
shall include each spouse or the head of household, chil-
dren, grandchildren, parents and grandparents.
‘‘(f) DISQUALIFIED FAMILY MEMBERS.—In order for
a family member to be counted for purposes of determin-
ing family unit size, said family member must—
‘‘(1) if over the age of two years, have a bona
fide Social Security number; and
‘‘(2) be a lawful resident of the United States.
‘‘(g) STUDENTS LIVING AWAY FROM HOME.—A stu-
dent during each of five months in a calendar year living
away from the common residence of a family unit but who
receives over 50 percent of his support from the family
unit shall be included as part of that family unit for pur-
poses of this section.
‘‘(h) CHANGE
IN FAMILY CIRCUMSTANCES.—The
residence of family members, marital status and number
of persons in a family unit on the first day of the calendar
year shall govern determinations required to be made
under this section for purposes of said calendar year.
‘‘(i) TWO OR MORE FAMILY MEMBERS WORKING.—
The family unit may elect to divide the rebate between
two family members. Family members shall make this
election in a form prescribed by the Social Security Ad-
ministration and shall when making said election disclose
the name and Social Security number of the other family
members. Creditable wages for families making this elec-
tion shall not exceed one half of the poverty level for that
family unit.
‘‘(j) EMPLOYERS TO ADJUST REMITTANCES.—Em-
ployers shall reduce their payroll tax remittances to the
Social Security Administration by the amount of Family
Consumption Rebate provided in employee paychecks.
‘‘(k) NO DOUBLE COUNTING.—In no event shall any
person be considered part of more than one family unit.
‘‘(l) SOCIAL SECURITY ADMINISTRATION.—The So-
cial Security Administration shall provide to multiple
wage-earner family units who received a lower rebate
amount than that to which that were entitled under sub-
section (a) due to the application of the limitations in sub-
section (d)(2) and subsection (i) any payment due within
30 days of the close of the calendar year.
‘‘Subchapter C—Definitions and Special
Rules; Financial Intermediation Services
‘‘Sec. 21. Definitions.
‘‘Sec. 22. Special rules.
‘‘Sec. 23. Determination of financial intermediation services
amount.
‘‘Sec. 24. Bad debts.
‘‘Sec. 25. Timing of tax on financial intermediation services.
‘‘Sec. 26. Alternative method for calculating tax due.
‘‘Sec. 27. Basic interest rate.
‘‘Sec. 28. Applicable interest rate.
‘‘SEC. 21. DEFINITIONS.
‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—The
term ‘financial intermediation services’ means financial
intermediation services determined in accordance with sec-
tion 23.
‘‘(b) GROSS PAYMENTS.—For purposes of this sub-
title, the term ‘gross payments’ shall mean gross payments
inclusive of Federal tax imposed by, and State taxes im-
posed in conformity with, this chapter but exclusive of cus-
toms duties. Gross payment shall be the product of the
pre-tax factor and the payments for the taxable property
or service exclusive of State and Federal taxes imposed
by, and State taxes imposed in conformity with, this sub-
title. For purposes of this section, the pre-tax factor shall
be one divided by the quantity that is one minus the sum
of—
‘‘(1) the Federal tax rate imposed by section 1,
and
‘‘(2) the State tax rate imposed in conformity
with this subtitle.
‘‘(c) Primary residence shall mean residential real
property used predominantly as the place of abode for a
person or persons. A person shall have only one primary
residence for purposes of this section. A married couple
shall have only one primary residence.
‘‘(d) PURCHASED FOR RESALE.—For purposes of
section 2(b)(1), a property or service is purchased for re-
sale if such property or service is purchased by a person
in an active trade or business for the purpose of reselling
the taxable property or service in the ordinary course of
that active trade or business.
‘‘(e) PURCHASED TO PRODUCE TAXABLE PROPERTY
OR SERVICES.—For purposes of section 2(b)(2)—
‘‘(1) IN
GENERAL.—A property or service is
purchased to produce a taxable property or service
if such property or service is purchased by a person
in an active trade or business for the purpose of em-
ploying or using such property or service in the pro-
duction or sale of other taxable property or services
in the ordinary course of that active trade or busi-
ness.
‘‘(2) RESEARCH
EXPERIMENTATION
AND
DE-
VELOPMENT.—Taxable property or services used in
an active trade or business for the purpose of re-
search, experimentation and development shall be
treated as purchased to produce taxable property or
services.
‘‘(3) INSURANCE PAYMENTS.—Taxable property
or services purchased by an insurance company on
behalf of an insured shall be treated as a property
or service purchased to produce a taxable property
or service if the entire premium for the insurance
contract giving rise to the insurer’s obligation was
subject to tax in accordance with subsection (a) (re-
lating to financial intermediation services).
‘‘(4) EDUCATION
AND
TRAINING.—Education
and training shall be treated as purchased to
produce taxable property or services. For purposes
of this section, education and training shall mean
tuition for general primary, secondary, or university
level education, and tuition for job-related training
courses. Tuition shall not include amounts attrib-
utable to room or board for the student.
‘‘(f) Qualified fixtures shall include only those fix-
tures that are a permanent, integral, incorporated and
irremovable part of the structure and shall exclude fur-
niture, furnishings, appliances or similar tangible personal
property.
‘‘(g) REAL PROPERTY.—For purposes of this chap-
ter, the term real property shall have the meaning ascribed
to it at common law. The Secretary shall by regulation
establish uniform national rules for purposes of admin-
istering this chapter to the extent that jurisdictions within
the United States may provide different holdings as to the
scope of the term real property.
‘‘(h) RESIDENCE.—Whenever this chapter requires
that the State of ‘residence’ need be determined, it shall
be determined in descending order of priority as the State
of permanent abode, the center of vital interests, or the
habitual abode. If the State of residence is still undeter-
mined, if the person is a resident of the United States,
the determination will be made by the Federal Office of
Revenue Allocation.
‘‘(i) Residential real property is real property, includ-
ing structures, land, and qualified fixtures and appur-
tenances thereto that—
‘‘(1) is held in fee simple and
‘‘(2) is predominantly used as a residence or
dwelling.
‘‘(j) SECRETARY.—For purposes of this chapter, the
term ‘Secretary’ means the United States Secretary of
Treasury.
‘‘(k) STATE ADMINISTRATOR.—For purposes of this
chapter, the term ‘State Administrator’ shall mean the
highest State official responsible for administering the
taxes imposed by this subtitle in the conforming State. In
States that are not conforming States, the ‘State Adminis-
trator’ shall mean the person designated by the Secretary
as the Federal official responsible for administering the
taxes imposed by this chapter in a non-conforming State.
State Administrator shall also mean, when the context so
requires, the Federal official responsible for administering
the multi-State vendor program.
‘‘(l) Structures, for purposes of subsection (i) shall
include homes that are manufactured housing but not self-
propelled and not on wheels.
‘‘(m) TANGIBLE PERSONAL PROPERTY.—For pur-
poses of this chapter, the term tangible personal property
shall have the meaning ascribed to it at common law. The
Secretary shall by regulation establish uniform national
rules for purposes of administering this chapter to the ex-
tent that jurisdictions within the United States may pro-
vide different holdings as to the scope of the term tangible
personal property.
‘‘(n) TAXABLE PROPERTY OR SERVICES.—
‘‘(1) GENERAL
RULE.—For purposes of this
chapter, the term ‘taxable property or service’
means—
‘‘(A) any property (including leaseholds of
any term or rents with respect to such prop-
erty) other than intangible property, and
‘‘(B) any service (including any financial
intermediation services).
‘‘(2) WAGES.—For purposes of the preceding
sentence, services shall not include wages paid by an
employer engaged in an active trade or business that
is registered pursuant to section 43. Services shall
include wages paid by an employer (including gov-
ernment employers) not engaged in an active trade
or business unless those wages are paid by a quali-
fied not-for-profit organization (as defined in section
3(a)(2)(C).
‘‘(3) INTANGIBLE PROPERTY.—
‘‘(A) IN GENERAL.—For purposes of this
subtitle, intangible property shall include copy-
rights, trademarks, patents, goodwill, financial
instruments, and other property deemed intan-
gible at common law.
‘‘(B) CERTAIN TYPES OF PROPERTY.—For
purposes of this subtitle, intangible property
shall not include tangible personal property (or
rents or leaseholds of any term thereon), real
property (or rents or leaseholds of any term
thereon), and computer software.
‘‘(C) ANTI-AVOIDANCE
RULE.—Notwith-
standing subparagraph (A), the sale of a copy-
right or trademark shall be treated as the sale
of taxable services (within the meaning of sec-
tion 1) if the substance of the transaction sell-
ing said copyright or trademark constituted the
sale of the services that produced the copy-
righted material or the trademark.
‘‘(o) UNITED STATES.—For purposes of this chapter,
the term ‘United States’, when used in the geographical
sense, means the 50 States, the District of Columbia, and
any commonwealth, territory or possession of the United
States.
‘‘SEC. 22. SPECIAL RULES.
‘‘(a) FOREIGN FINANCIAL INTERMEDIATION SERV-
ICES.—
‘‘(1) SPECIAL
RULES
RELATING
TO
INTER-
NATIONAL FINANCIAL INTERMEDIATION SERVICES.—
Financial intermediation services shall be deemed as
used or consumed within the United States if the
person (or any related party within the meaning of
section 2(e)) purchasing the services is a resident of
the United States.
‘‘(2) Any person that provides financial inter-
mediation services to United States residents must,
as a condition of lawfully providing such services,
designate, in a form prescribed by the Secretary, a
United States tax representative. This United States
tax representative shall be responsible for ensuring
that the taxes imposed by this chapter are collected
and remitted and shall be jointly and severally liable
for collecting and remitting these taxes. The Sec-
retary may require reasonable bond of the United
States tax representative.
‘‘(b) FINANCING LEASES.—
‘‘(1) DEFINED.—For purposes of this section, a
financing lease shall be any lease under which the
lessee shall have the right to acquire the property
for 50 percent or less of its fair market value at
the end of the lease term.
‘‘(2) TAX.—Financing leases shall be taxed in
the method set forth in this section.
‘‘(3) DETERMINATION OF PRINCIPLE AND IN-
TEREST COMPONENTS OF FINANCING LEASE.—The
Secretary shall promulgate rules for disaggregating
the principle and interest components of a financing
lease. The principle amount shall be determined to
the extent possible by examination of the contem-
poraneous sales price or prices of the same or simi-
lar property as the leased property.
‘‘(4) ALTERNATIVE
METHOD.—In the event
that contemporaneous sales prices of the same or
similar property as the lease property are not avail-
able, the principle and interest components of a fi-
nancing lease shall be disaggregating using the ap-
plicable interest rate (as defined in section 28), plus
4 percent.
‘‘(5) PRINCIPAL
COMPONENT.—The principal
component of the financing lease shall be subject to
tax as if a purchase in the amount of the principal
component had been made on the day the lease was
entered into.
‘‘(6) INTEREST
COMPONENT.—The financial
intermediation services amount with respect to the
interest component of the financing lease shall be
subject to tax.
‘‘(7) COORDINATION.—If the principal compo-
nent and financial intermediation services amount
with respect to the interest component of a lease
have been taxed pursuant to this section, then the
gross lease or rental payments shall not be subject
to additional tax.
‘‘(c) 
INSTALLMENT
SALES, 
ACCOUNTING, 
RE-
TURNS.—
‘‘(1) GENERAL RULE.—Tax will be due when
payment for the taxable property and services sold,
consumed, used or enjoyed is actually received.
‘‘(2) ALTERNATIVE RULE.—A vendor may elect
to adopt the accrual method of accounting for pur-
poses of determining when the tax will be due. Said
election must apply to all sales made by vendor in
a particular calendar year.
‘‘(3) INSTALLMENT SALES.—Tax will be due on
taxable property and services sold under the install-
ment method when payment for the taxable property
and services sold is actually received.
‘‘(4) RETURNS.—A credit shall be provided to
the vendor for returned taxable property and serv-
ices when actual payment for the returned taxable
property and services is made by the vendor to the
person returning the taxable property and services.
‘‘(d) MIXED USE PROPERTY OR SERVICES.—
‘‘(1) MIXED USE PROPERTY OR SERVICE DE-
FINED.—Mixed Use Property or Service is taxable
property or services purchased both for a purpose
that would give rise to an exemption pursuant to
section 2 and for taxable use, consumption or enjoy-
ment.
‘‘(2) EXEMPTION
THRESHOLD.—Mixed Use
Property or Service shall not be exempt pursuant to
section 2 unless said property is used more than 95
percent for purposes that would give rise to an ex-
emption pursuant to section 2.
‘‘(3) MIXED
USE
PROPERTY
OR
SERVICES
CREDIT.—A business registered pursuant to section
43 is entitled to a business use conversion credit
(pursuant to section 11(d)) equal to product of—
‘‘(A) the mixed use property amount,
‘‘(B) the business use ratio, and
‘‘(C) the rate of tax imposed by section 1.
‘‘(4) MIXED
USE
PROPERTY
AMOUNT.—The
mixed use property amount for each year shall be—
‘‘(A) one-thirtieth of the purchase price for
real property for thirty years or until the prop-
erty is sold,
‘‘(B) one-seventh of the purchase price for
tangible personal property for seven years or
until the property is sold,
‘‘(C) one-fifth of the purchase price for ve-
hicles for five years or until the property is
sold, and
‘‘(D) a reasonable amount for other types
of taxable property or services or in accordance
with regulations.
‘‘(5) BUSINESS USE RATIO.—The business use
ratio is the ratio of business use to total use for a
particular year. For vehicles, the business use ratio
will be the ratio of business purpose miles to total
miles. For real property, the business use ratio is
the ratio of floor space used for business purposes
to total floor space. For tangible personal property
(except for vehicles), the business use ratio is the
ratio of total time used for business purposes to
total time used. For other property or services, the
business ratio shall be calculated using a reasonable
method. Reasonable records must be maintained to
support a taxpayer’s business use of the mixed use
property or service.
‘‘(e) GAMING.—There is hereby imposed a 15-percent
tax on taxable gaming services. Taxable gaming services
shall be the gross gaming receipts less total gaming pay-
offs. This tax shall be paid and remitted by the person
offering the gaming services.
‘‘SEC. 23. DETERMINATION OF FINANCIAL INTERMEDI-
ATION SERVICES AMOUNT.
‘‘(a) FINANCIAL INTERMEDIATION SERVICES.—For
purposes of this subtitle—
‘‘(1) IN GENERAL.—The term ‘financial inter-
mediation services’ means the sum of—
‘‘(A) explicitly charged financial intermedi-
ation services, and
‘‘(B) implicitly charged financial intermedi-
ation services.
‘‘(2) EXPLICITLY CHARGED FINANCIAL INTER-
MEDIATION SERVICES.—The term ‘explicitly charged
financial intermediation services’ includes—
‘‘(A) brokerage fees,
‘‘(B) explicitly stated banking, loan origi-
nation, processing, documentation, credit check
fees or other similar fees,
‘‘(C) safe-deposit box fees,
‘‘(D) insurance premiums, to the extent
such premiums are not allocable to the invest-
ment account of the underlying insurance pol-
icy,
‘‘(E) trustees’ fees, and
‘‘(F) other financial service fees (including,
but not limited to, mutual fund management,
sales, and exit fees).
‘‘(3) IMPLICITLY CHARGED FINANCIAL INTER-
MEDIATION SERVICES.—
‘‘(A) IN GENERAL.—The term ‘implicitly
charged financial intermediation services’ in-
cludes the gross imputed amount in relation to
any underlying interest bearing investment, ac-
count, or debt.
‘‘(B) GROSS IMPUTED AMOUNT.—For pur-
poses of subparagraph (A), the term ‘gross im-
puted amount’ means—
‘‘(i) with respect to any underlying in-
terest bearing investment or account, the
product of—
‘‘(I) the excess (if any) of the
basic interest rate (as defined in sec-
tion 27) over the rate paid on such in-
vestment, and
‘‘(II) such account balance, and
‘‘(ii) with respect to any underlying
interest bearing debt, the product of—
‘‘(I) the excess (if any) of the
rate paid on such debt over the basic
interest rate (as defined in section
27), and
‘‘(II) such debt balance.
‘‘(b) For purposes of section 1(c), the seller of finan-
cial intermediation services shall be—
‘‘(1) in the case of explicitly charged financial
intermediation services (as defined in subsection
(a)(2)), the person who receives the gross payments
for the charged financial intermediation services,
‘‘(2) in the case of implicit financial intermedi-
ation services (as defined in subsection (a)(3)) with
respect to any underlying interest bearing invest-
ment or account, the person making the interest
payments on the interest bearing investment or ac-
count, and
‘‘(3) in the case of implicit financial intermedi-
ation services (as defined in subsection (a)(2)) with
respect to any interest bearing debt, the person re-
ceiving the interest payments on the interest bearing
debt.
‘‘SEC. 24. BAD DEBTS.
‘‘(a) For purposes of section 11, a bad debt shall be
a business loan or debt that becomes wholly or partially
worthless.
‘‘(b) For purposes of subsection (a), a business loan
or debt is a bona fide loan or debt made for a business
purpose that both parties intended be repaid.
‘‘(c) No loan or debt shall be considered wholly or
partially worthless unless it has been in arrears for 90
days or more, provided, however, that if a debt is dis-
charged wholly or partially in bankruptcy before 90 days
has elapsed, then it shall be deemed wholly or partially
worthless on the date of discharge.
‘‘(d) A loan or debt that has been in arrears for 90
days or more may be deemed wholly or partially worthless
by the holder unless a payment schedule has been entered
into between the debtor and the lender.
‘‘(e) CROSS REFERENCE.—
‘‘For tax on subsequent payments, see section
11(g)(3).
‘‘SEC. 25. TIMING OF TAX ON FINANCIAL INTERMEDIATION
SERVICES.
‘‘The tax on financial intermediation services pro-
vided in connection to an underlying investment account
or debt shall be calculated and collected with the same
frequency that statements are rendered by the financial
institution in connection with the investment account or
debt but not less frequently than quarterly.
‘‘SEC. 26. ALTERNATIVE METHOD FOR CALCULATING TAX
DUE.
‘‘(a) ALTERNATIVE METHOD PERMISSIBLE.—A pro-
vider of financial intermediation services need not cal-
culate its liability on a transaction-by-transaction or ac-
count-by-account basis provided that the method used by
the financial intermediation services provider—
‘‘(1) is reasonable, and
‘‘(2) will lead to a tax liability that is substan-
tially similar to that projected under ordinary sales
tax principles. The provider of financial intermedi-
ation services shall set forth his proposed method
and the reasons why it meets the criteria set forth
in the preceding sentence in a petition to the Sec-
retary.
‘‘(b) SECRETARY TO RULE.—An alternative method
proposed in a petition pursuant to subsection (a) shall be
accepted by the Secretary unless the Secretary rules that
the proposed alternative method—
‘‘(1) is unreasonable, or
‘‘(2) will lead to a tax liability that is substan-
tially different from that projected under ordinary
sales tax principles.
The Secretary shall set froth the reasons for his ruling
in a finding. The Secretary must make his ruling within
120 days of receiving the petition and notify the petitioner
of his decision. In the event the Secretary fails to render
a ruling within 120 days, then the proposed method shall
be permissible. He must provide the petitioner with a copy
of the finding within 30 days of a ruling. He must publish
the permissible method (including those methods that be-
come permissible by virtue of the Secretary’s failure to
rule).
‘‘(c) EFFECTIVE DATES OF ALTERNATIVE METH-
OD.—An alternative method ruled permissible or permis-
sible by virtue of the Secretary’s failure to rule shall be
effective indefinitely and may take effect as early as the
month after the alternative method becomes permissible.
The Secretary may, however, after an investigation, audit,
or otherwise, subsequently rule on his own initiative that
the method is not permissible. Such subsequent ruling
shall be prospective in effect and not take effect until the
latter of—
‘‘(1) the first day of the calendar year following
the ruling, or
‘‘(2) 120 days after the ruling.
If judicial review is sought pursuant to subsection (d), said
subsequent ruling shall not take effect until a final judg-
ment is rendered by the court.
‘‘(d) JUDICIAL REVIEW.—A ruling by the Secretary
with respect to a petition for use of an alternative method
pursuant to subsection (a) shall be subject to judicial re-
view in any court of competent jurisdiction, provided, how-
ever, that the standard of review shall be whether the peti-
tioner establishes by clear and convincing evidence that
the decision of the Secretary should be reversed.
‘‘(e) REGULATIONS.—The Secretary may provide by
regulation permissible alternative methods for calculating
tax due including methods based on annual flows of reve-
nue and expense.
‘‘SEC. 27. BASIC INTEREST RATE.
‘‘For purposes of this subchapter, the basic interest
rate with respect to a debt instrument, investment, financ-
ing lease, or account shall be the applicable interest rate
(as determined in section 28). For debt instruments, in-
vestments, or accounts of contractually fixed interest, the
applicable interest rate of the month of issuance shall
apply. For debt instruments, investments, or accounts of
variable interest rates and which have no reference inter-
est rate, the applicable interest rate shall be the Federal