I 
114TH CONGRESS 
2D SESSION 
H. R. 5374 
To amend the Internal Revenue Code of 1986 to provide a lower rate of 
tax on a portion of pass-through business income, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 27, 2016 
Mr. HULTGREN introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to provide 
a lower rate of tax on a portion of pass-through business 
income, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Bring Small Busi-
nesses Back Tax Reform Act’’. 
SEC. 2. SPECIAL INDIVIDUAL RATES FOR QUALIFIED 
SMALL BUSINESS INCOME. 
(a) IN GENERAL.—Section 1 of such Code is amend-
ed by adding at the end the following: 
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‘‘(j) MAXIMUM RATE ON QUALIFIED SMALL BUSI-
NESS INCOME.— 
‘‘(1) IN GENERAL.—If a taxpayer has qualified 
business income for any taxable year, the tax im-
posed by this section for such taxable year shall not 
exceed the sum of— 
‘‘(A) a tax computed at the rates and in 
the same manner as if this subsection had not 
been enacted on taxable income reduced by 
qualified business income, 
‘‘(B) 10 percent of so much of the quali-
fied business income of the taxpayer as does not 
exceed $150,000, plus 
‘‘(C) 20 percent of so much of the quali-
fied business income of the taxpayer as exceeds 
the amount on which tax is determined under 
subparagraph (B). 
‘‘(2) QUALIFIED BUSINESS INCOME.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
business income’ means so much of the fol-
lowing of the taxpayer as does not exceed 
$1,000,000: 
‘‘(i) Gross earnings derived by an in-
dividual from any active trade or business 
carried on by such individual, less the de-
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ductions allowed by the subtitle which are 
attributable to such trade or business. 
‘‘(ii) The taxpayer’s distributive or 
pro rata share qualified pass-through in-
come. 
Such term shall not include any amounts, or 
any distributive or pro rata share, attributable 
to capital gains, interest, dividends, and royal-
ties. 
‘‘(B) 
QUALIFIED
PASS-THROUGH
IN-
COME.—The term ‘qualified pass-through in-
come’ means, in the case of a partnership or S 
corporation, so much of the income of the part-
nership computed under section 703, or income 
of the S corporation computed under section 
1363, as does not exceed $1,000,000 and is 
designated as such (at such time and in such 
form and manner as the Secretary shall pre-
scribe) and allocated by the partnership or S 
corporation. Any income so designated shall be 
allocated amongst partners or shareholders in 
the same proportion as distributive or pro rata 
shares of income or loss are allocated. Such 
term shall not include any capital gains, inter-
est, dividends, or royalties. 
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‘‘(3) SPECIAL RULES.— 
‘‘(A) MATERIAL
PARTICIPATION.—Para-
graph (1) shall not apply with respect to any 
income attributable to a trade or business in 
which the taxpayer does not materially partici-
pate. 
‘‘(B) 
COORDINATION
WITH
CAPITAL 
GAINS.—This subsection shall be applied before 
the application of subsection (h).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2016. 
SEC. 3. REPEAL OF LIMITATION ON ELECTION TO EXPENSE 
CERTAIN DEPRECIABLE ASSET IN CASE OF 
NON-C CORP TAXPAYERS. 
(a) IN GENERAL.—Paragraphs (1) and (2) of section 
179(b) of the Internal Revenue Code of 1986 are each 
amended by striking ‘‘The’’ and inserting ‘‘In the case of 
a corporation (or any partnership with a corporation as 
a partner), the’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2016. 
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SEC. 4. EXPANDED AVAILABILITY OF CASH ACCOUNTING 
RULES 
AND 
EXCEPTION 
TO 
INVENTORY 
RULES FOR CERTAIN SMALL BUSINESSES. 
(a) CASH ACCOUNTING PERMITTED.— 
(1) IN GENERAL.—Section 446 of the Internal 
Revenue Code of 1986 is amended by adding at the 
end the following new subsection: 
‘‘(g) CERTAIN SMALL BUSINESS TAXPAYERS PER-
MITTED TO USE CASH ACCOUNTING METHOD WITHOUT 
LIMITATION.— 
‘‘(1) IN GENERAL.—With respect to an eligible 
taxpayer who uses the cash receipts and disburse-
ments method for any taxable year, such method 
shall be deemed to clearly reflect income and the 
taxpayer shall not be required to use an accrual 
method. 
‘‘(2) ELIGIBLE
TAXPAYER.—For purposes of 
this subsection, a taxpayer is an eligible taxpayer 
with respect to any taxable year if— 
‘‘(A) for all prior taxable years beginning 
after December 31, 2016, the taxpayer (or any 
predecessor) met the gross receipts test of sec-
tion 448(c), and 
‘‘(B) the taxpayer is not subject to section 
447 or 448.’’. 
(2) EXPANSION OF GROSS RECEIPTS TEST.— 
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subsection (c) as subsection (d) and by inserting 
after subsection (b) the following new subsection: 
‘‘(c) SMALL BUSINESS TAXPAYERS NOT REQUIRED 
TO USE INVENTORIES.— 
‘‘(1) IN GENERAL.—An eligible taxpayer (as de-
fined in section 446(g)(2)) shall not be required to 
use inventories under this section for a taxable year. 
‘‘(2) TREATMENT OF TAXPAYERS NOT USING 
INVENTORIES.—If an eligible taxpayer (as so de-
fined) does not use inventories with respect to any 
property for a taxable year, any cost which (but for 
paragraph (1)) would have been included by the tax-
payer in inventory costs shall be treated as an ex-
pense which is deductible for the taxable year in 
which the property is purchased.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
263A(c) of such Code is amended by adding at the 
end the following new paragraph: 
‘‘(7) EXCLUSION FROM INVENTORY RULES.— 
This section shall not apply to property with respect 
to which a taxpayer does not use inventories pursu-
ant to section 471(c).’’. 
(c) EFFECTIVE DATE AND SPECIAL RULES.— 
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(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2016. 
(2) CHANGE IN METHOD OF ACCOUNTING.—In 
the case of any taxpayer changing the taxpayer’s 
method of accounting for any taxable year under the 
amendments made by this section— 
(A) such change shall be treated as initi-
ated by the taxpayer; and 
(B) such change shall be treated as made 
with the consent of the Secretary of the Treas-
ury. 
Æ 
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