317 
‘‘(b) ISSUANCE OF PRICE ADJUSTMENT.—In the case 
of a post-sale price adjustment attributable to a sale the 
receipts from which were taken into account in deter-
mining taxable receipts for a prior taxable year, the 
amount of such adjustment shall be treated as a reduction 
or increase, as the case may be, in taxable receipts for 
the taxable year in which the adjustment is made or in-
curred. 
‘‘(c) POST-SALE PRICE ADJUSTMENT.—‘Post-sale 
price adjustment’ means a refund, rebate, or other price 
allowance attributable to a sale of property or services or 
an upward adjustment in price that was not previously 
taken into account under the business entity’s method of 
accounting. 
‘‘SEC. 225. BAD DEBTS. 
‘‘(a) SELLER.—If an amount owed to an accrual 
basis business entity for property or services sold— 
‘‘(1) was taken into account as a taxable receipt 
in a prior taxable year, and 
‘‘(2) becomes wholly or partially uncollectible 
during the taxable year, then the seller shall treat 
the amount as a reduction in taxable receipts for the 
taxable year in which it becomes wholly or partially 
uncollectible.
318 
‘‘(b) NOTICE REQUIREMENT.—No reduction shall be 
allowed under subsection (a) unless the seller notifies the 
purchaser of the amount which the seller has treated as 
wholly or partially uncollectible. 
‘‘(c) SUBSEQUENT
COLLECTION.—If an amount 
which was treated as uncollectible under subsection (a) is 
subsequently collected, it shall be treated as a taxable re-
ceipt when collected. 
‘‘(d) PURCHASER.—If a purchaser receives notice 
under subsection (b) from a seller and the purchaser has 
treated the amount labeled uncollectible as a business pur-
chase in a prior taxable year, then the purchaser shall 
treat such amount as a reduction in the cost of business 
purchases in the taxable year to which the notice relates. 
If the purchaser subsequently repays such amount, the re-
payment shall constitute the cost of a business purchase. 
‘‘SEC. 226. TRANSITION RULES. 
‘‘(a) NO DOUBLE DEDUCTIONS.—A business entity 
shall not be entitled to treat as a ‘cost of business pur-
chase’ any amount that the business entity deducted in 
computing taxable income under the income tax in effect 
prior the effective date of the business tax. 
‘‘(b) NO DOUBLE INCLUSION.—A business entity 
shall not be required to include in taxable receipts any 
receipt that the business entity took into account in com-
319 
puting taxable income under the income tax in effect prior 
to the effect date of the business tax. 
‘‘(c) NO LOSS OF DEDUCTION.—An expense which— 
‘‘(1) a business entity would have been able to 
deduct as a cost of a business purchase in an ac-
counting period before the effective date of the busi-
ness tax if the business tax had been in effect in 
such period, and 
‘‘(2) the business entity would have been able to 
deduct as an expense in computing taxable income 
in a period after the business tax is effective if the 
income tax had continued in effect, shall be treated 
as a cost of a business purchase incurred or paid at 
the time that it would have been paid or incurred 
under the income tax if the income tax had contin-
ued in effect. This subsection shall not apply to any 
amount which is to be taken into account under sub-
chapter N (relating to amortization of transition 
basis, inventory costs, and safe harbor leases), any 
amounts which would have been deducted under the 
income tax through loss carryover deductions, or any 
deductions deferred by the uniform capitalization 
rules under section 263A of the Internal Revenue 
Code of 1986.
320 
‘‘(d) ALL TAXABLE RECEIPTS TAXED.—A receipt 
which— 
‘‘(1) a business entity would have been required 
to treat as a taxable receipt in an accounting period 
before the effective date of the business tax if the 
business tax had been in effect in such period, and 
‘‘(2) the business entity would have been re-
quired to include in gross income in a period after 
the business tax is effective if the income tax had 
continued in effect 
shall be treated as a taxable receipt at the time that it 
would have been included in income if the income tax had 
continued in effect. 
‘‘Subchapter E—Land and Rental Property 
‘‘Sec. 230. No deduction for land purchased for nonbusiness use. 
‘‘Sec. 231. Taxable receipts for land held for nonbusiness use. 
‘‘Sec. 232. Certain rental property. 
‘‘SEC. 230. NO DEDUCTION FOR LAND PURCHASED FOR 
NONBUSINESS USE. 
‘‘(a) IN GENERAL.—The acquisition of unimproved 
land shall not constitute a business purchase if the unim-
proved land is not acquired to be used in a business activ-
ity or if the land is acquired for— 
‘‘(1) speculation, 
‘‘(2) development (including subdivision), or 
‘‘(3) temporary leasing or other use not com-
mensurate with the value of the land,
321 
‘‘(4) indefinite future use in a business activity, 
or 
‘‘(5) use in compensating employees. 
‘‘(b) FUTURE USE IN BUSINESS ACTIVITY.—Unim-
proved land will not be considered held for ‘indefinite fu-
ture use in a business activity’ if promptly upon acquisi-
tion, the purchaser or the lessee begins construction of im-
provements on the land (other than improvements, such 
as paving or sewage lines, intended for indefinite future 
development) that will be used in a business activity. Such 
improvement must be commensurate with the value of the 
land. 
‘‘(c) 
UNIMPROVED
LAND.—‘Unimproved 
land’ 
means— 
‘‘(1) land with no buildings on it, 
‘‘(2) land with improvements if the value of the 
improvements is relatively small in comparison to 
the value of the land and it is anticipated that the 
improvements will be demolished and not used, 
‘‘(3) land in excess of the amount reasonably 
needed for the buildings located on it. 
‘‘(d) CONVERSION TO BUSINESS USE.—If the acqui-
sition of land is not treated as a business purchase by rea-
son of subsection (a) and the land is subsequently used 
in a manner for which it could have been treated as a
322 
business purchase, the cost of the land will be treated as 
a business purchase when the improvements on the land 
are placed in service (or in the case of construction for 
sale, substantially completed and advertised for sale). 
‘‘SEC. 231. TAXABLE RECEIPTS FROM SALE OF LAND HELD 
FOR NONBUSINESS USE. 
‘‘(a) TAX BASIS.—A business entity shall have a tax 
basis in land equal to the cost of the land if such cost 
is not deductible by reason of section 230(a) and the land 
has not been converted to business use for purposes of 
section 230(d). 
‘‘(b) TAXABLE RECEIPTS OF A LAND SALE.—The 
taxable receipts from the sale of land (or portion thereof) 
in which a business entity has a tax basis by reason of 
subsection (a) shall be the amount by which the proceeds 
exceed the basis of such land (or portion thereof). 
‘‘SEC. 232. CERTAIN RENTAL PROPERTY. 
‘‘(a) IN GENERAL.—Except as provided in subsection 
(b), the activity of rental of real estate is a business activ-
ity to which the business tax applies. 
‘‘(b) NOT RENTAL PROPERTY.—Subsection (a) shall 
not apply to property described in section 111(b)(1) (relat-
ing to property owned by individuals and used for at least 
14 days for a nonbusiness purpose and rented for no more 
than 14 days during the taxable year).
323 
‘‘(c) RENTAL
PROPERTY
BECOMES
NONRENTAL 
PROPERTY.—If property which is considered rental prop-
erty for purposes of subsection (a) in one taxable year 
ceases to be rental property (by reason of subsection (b)) 
in the following taxable year, the property (and any associ-
ated debt) shall be treated as distributed by the business 
entity to its owners. Section 211(a) shall apply to such 
distribution. 
‘‘Subchapter F—Insurance and Financial 
Products 
‘‘Sec. 235. General rules. 
‘‘Sec. 236. Fees for financial intermediation services. 
‘‘Sec. 237. Deductible insurance premiums. 
‘‘Sec. 238. Nondeductible insurance premiums. 
‘‘Sec. 239. Certain implicit fees for financial intermediate services. 
‘‘SEC. 235. GENERAL RULES. 
‘‘(a) TAXABLE RECEIPTS.—Except in the case of a 
financial intermediation business, taxable receipts do not 
include financial receipts (as defined in section 203(e)(2)). 
‘‘(b) BUSINESS PURCHASES.—Except in the case of 
a financial intermediation business, business purchases do 
not include the cost of financial instruments (as defined 
in section 242(b)(3)) or payments for use of money or cap-
ital, other than fees for financial intermediation services. 
‘‘SEC. 236. FEES FOR FINANCIAL INTERMEDIATION SERV-
ICES. 
‘‘(a) BUSINESS PURCHASE.—Business purchases in-
clude explicit fees and implicit fees for financial intermedi-
324 
ation services (except to the extent that such fees are for 
services treated as performed outside the United States 
and not imported into the United States or for services 
treated as exported.). 
‘‘(b) FINANCIAL INTERMEDIATION SERVICES.—The 
definition of ‘financial intermediation service’ in section 
241 applies for purposes of this section. 
‘‘(c) EXPLICIT FEES.— 
‘‘(1) IN GENERAL.—‘Explicit fees for financial 
intermediation services’ means separately stated fees 
for services provided by a business entity in the fi-
nancial intermediation business. Explicit fees do not 
include fees for use of money or capital. 
‘‘(2) EXAMPLES.—Explicit fees for financial 
intermediation services include (without limita-
tion)— 
‘‘(A) separately listed maintenance and 
service charges of providers of financial inter-
mediation services, 
‘‘(B) loan documentation fees, 
‘‘(C) brokerage fees, 
‘‘(D) loan origination fees, 
‘‘(E) underwriting fees, 
‘‘(F) trustees’ fees, and 
‘‘(G) fees for credit checks.
325 
‘‘(3) EXCLUSIONS.—Explicit fees for financial 
intermediation services do not include prepaid inter-
est and other fees for use of money or capital even 
if such fees are separately stated or are labeled as 
service fees. 
‘‘(d) IMPLICIT FEES.— 
‘‘(1) IMPLICIT FEES ATTRIBUTABLE TO BOR-
ROWING.— 
‘‘(A) IN
GENERAL.—Implicit fees attrib-
utable to borrowing from banks and other fi-
nancial institutions shall include the portion of 
interest payments that the Secretary designates 
as constituting service fees. 
‘‘(B) TIMING.—Implicit fees determined 
under this paragraph shall not be deductible in 
any taxable year prior to the taxable year in 
which the interest is paid. If the amount of the 
interest to which implicit fees relate was de-
ducted as original issue discount under the In-
ternal Revenue Code of 1986, the implicit fees 
with respect to such interest shall not constitute 
a deductible business purchase. 
‘‘(C) DESIGNATION BY SECRETARY.— 
‘‘(i) ESTIMATE OF DIFFERENTIAL.— 
The Secretary shall estimate for each cal-
326 
endar year the difference between the cost 
of funds for banks and the rates of interest 
(including discount points) charged to the 
most credit-worthy depositors of banks. 
The determinations shall be made sepa-
rately for— 
‘‘(I) loans with terms of not more 
than 3 years, 
‘‘(II) loans with terms of over 3 
but not over 9 years, and 
‘‘(III) loans with terms of over 9 
years. 
‘‘(ii) 
DESIGNATION
OF
IMPLICIT 
FEES.—The Secretary shall designate the 
differences determined under clause (i) as 
the portion of interest expense on loans 
from banks and other financial institutions 
that constitutes an implicit fee for term 
loans originated during the following cal-
endar year for the respective periods listed 
in subclauses (I) through (III) of clause 
(i). The difference determined for loans de-
scribed in subclause (I) of clause (i) shall 
apply to determine the implicit fee portion
327 
of interest on demand loans outstanding 
during the following calendar year. 
‘‘(iii) HISTORICAL DETERMINATION.— 
The Secretary shall make an historical de-
termination in accordance with the prin-
ciples of this subparagraph to designate 
the portion of interest on term loans made 
before January 1, 2006, that will con-
stitute implicit fees. 
‘‘(2) IMPLICIT
FEES
FOR
OTHER
FINANCIAL 
INTERMEDIATION ACTIVITY.—Implicit fees for finan-
cial intermediation services include the portion of the 
fees or other charges paid to a provider of financial 
intermediation services (other than lending) as such 
provider designates in accordance with section 39. 
‘‘SEC. 237. DEDUCTIBLE INSURANCE PREMIUMS. 
‘‘(a) IN GENERAL.—The cost of insurance premiums 
on business loss policies that insure risks in the United 
States constitute costs of business purchases. Proceeds 
from such policies constitute taxable receipts. 
‘‘(b) BUSINESS LOSS POLICY.—A ‘business loss pol-
icy’ is an insurance policy— 
‘‘(1) owned by a business entity,
328 
‘‘(2) the beneficiary of which is the business en-
tity or another business entity doing business with 
the owner of the policy, 
‘‘(3) that has no inside buildup or other savings 
component, 
‘‘(4) that covers losses on a loss incurred or 
claims made basis during the term of the policy, 
‘‘(5) that has a term of not more than 2 years, 
‘‘(6) that is not a direct or indirect form of 
compensation, and 
‘‘(7) that covers direct losses of the business, 
such as— 
‘‘(A) damage to or theft of property used 
in business activity, 
‘‘(B) tort claims against the business, 
‘‘(C) loss of use of business premises or 
services, 
‘‘(D) malpractice, or 
‘‘(E) alleged or actual breach of fiduciary 
obligations. 
‘‘SEC. 238. NONDEDUCTIBLE INSURANCE PREMIUMS. 
‘‘(a) NONDEDUCTIBILITY.—The cost of insurance 
policies that are not business loss policies are not deduct-
ible costs of business purchases.
329 
‘‘(b) PROCEEDS OF NONDEDUCTIBLE POLICIES.—In-
surance proceeds from policies described in subsection (a) 
do not constitute taxable receipts. 
‘‘(c) APPLICATION OF THIS SECTION TO CERTAIN 
INSURANCE.—This section shall apply to life insurance 
policies. 
‘‘SEC. 239. CERTAIN IMPLICIT FEES FOR FINANCIAL INTER-
MEDIATION SERVICES. 
‘‘(a) DEDUCTIBILITY OF FEES.—If a financial inter-
mediation business (as defined in section 241(b)) elects 
to determine implicit fees for financial intermediation 
services pursuant to this section and notify its business 
customers of their share of the implicit fees in accordance 
with this section, a business entity which receives such no-
tice may treat the amount reported in the notice as an 
implicit fee for financial intermediation services in the cal-
endar year to which such notice relates. 
‘‘(b) ALLOCATION AND REPORTING.— 
‘‘(1) IN GENERAL.—A financial intermediation 
business may— 
‘‘(A) allocate fees received for services for 
which no separately stated fees (or implicit fees 
for 
borrowing 
determined 
under 
section 
236(d)(1)) are charged among recipients of
330 
such services on a reasonable and consistent 
basis, and 
‘‘(B) report to each recipient not later 
than February 15th of each year the amount so 
allocated to it with respect to the immediately 
preceding calendar year. 
‘‘(2) MAXIMUM FEES ALLOCATED.—The max-
imum amount that may be allocated by a financial 
intermediation business for a calendar is the excess 
of— 
‘‘(A) the gross profits of the financial 
intermediation business for the calendar year 
(as reasonably estimated by the financial inter-
mediation business), over 
‘‘(B) the explicit fees for financial inter-
mediation services received by the financial 
intermediation business. 
‘‘(3) REASONABLE ALLOCATION.—An allocation 
will not be considered reasonable unless it takes into 
account and allocates fees to— 
‘‘(A) both services provided to business en-
tities and services provided to individuals (other 
than in a business capacity), and 
‘‘(B) both persons who receive money from 
the financial intermediation business and per-
331 
sons who pay money to the financial intermedi-
ation business (even though amounts allocated 
to the former do not constitute implicit fees). 
‘‘(4) REGULATIONS.—The Secretary shall pre-
scribe regulations relating to the allocations under 
this subsection, including regulations addressing— 
‘‘(A) rules for timing of deductions of im-
plicit fees paid by fiscal year recipients, 
‘‘(B) subsequent year adjustments if a fi-
nancial intermediation business allocates too 
much in a calendar year, 
‘‘(C) rules for advance approval from the 
Secretary for allocation procedures, and 
‘‘(D) safe-harbor alternatives to the alloca-
tion procedures described in this subsection. 
‘‘(c) NOT APPLICABLE TO LENDING SERVICES.— 
This section shall not apply to lending services. 
‘‘Subchapter G—Financial Intermediation 
and Financial Institutions 
‘‘Sec. 241. Activities constituting a financial intermediation business. 
‘‘Sec. 242. General rule for taxation. 
‘‘Sec. 243. Special rule for banks. 
‘‘Sec. 244. Insurance companies. 
‘‘Sec. 245. Financial pass-through entities. 
‘‘Sec. 246. Financial intermediation by other businesses.
332 
‘‘SEC. 241. ACTIVITIES CONSTITUTING A FINANCIAL INTER-
MEDIATION BUSINESS. 
‘‘(a) FINANCIAL INTERMEDIATION BUSINESS.—The 
providing of financial intermediation services shall be con-
sidered a business activity. The gross profit of a business 
entity providing financial intermediation services shall be 
determined by taking into account the rules of this sub-
chapter. 
‘‘(b) SEPARATE BUSINESS ACTIVITY.—The provision 
of financial intermediation services for unrelated persons 
shall be considered a separate business activity and a busi-
ness shall be considered a separate entity with respect to 
such activity. An entity engaging in such business is re-
ferred to in this chapter as a ‘financial intermediation 
business’. 
‘‘(c) FINANCIAL INTERMEDIATION BY A BUSINESS.— 
Section 246 shall apply to a business that provides finan-
cial intermediation services for itself and related parties 
but generally does not provide such services for unrelated 
parties. 
‘‘(d) DEFINITIONS.— 
‘‘(1) FINANCIAL INTERMEDIATION SERVICES.— 
‘Financial intermediation services’ include— 
‘‘(A) lending services, 
‘‘(B) insurance services,
333 
‘‘(C) market-making and dealer services, 
and 
‘‘(D) any other service provided as busi-
ness activity in which a person acts as an inter-
mediary in— 
‘‘(i) the transfer of property, services, 
or financial assets, liabilities, risks or in-
struments (or income or expense derived 
therefrom) between two or more persons, 
or 
‘‘(ii) the pooling of economic risk 
among other persons 
and derives all or a portion of such person’s 
gross receipts from streams of income or ex-
pense, discounts, or other financial flows associ-
ated with the matter with respect to which such 
person is acting as an intermediary. 
‘‘(2) LENDING
SERVICES.—‘Lending services’ 
means the regular making of loans and providing 
credit to, or taking deposits from customers, but 
does not include an installment or delayed payment 
arrangement provided by a seller of property or serv-
ices under which additional charges or fees are im-
posed by the seller for the late payment.