I
104TH CONGRESS
2D SESSION
H. R. 4050
To amend the Internal Revenue Code of 1986 to replace the current individual
and corporate income taxes, and the Social Security and Medicare taxes,
with a value added tax.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 11, 1996
Mr. GIBBONS 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 replace
the current individual and corporate income taxes, and
the Social Security and Medicare taxes, with a value
added tax.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) IN GENERAL.—This Act may be cited as the
‘‘Revenue Restructuring Act of 1996’’.
(b) FUNDAMENTAL PRINCIPLES FOR TAX RESTRUC-
TURING.—The provisions of this Act are a substitute for
the current Federal income taxes and Social Security and
Medicare employment taxes and are designed to meet the
following principles which should govern all proposals for
fundamental tax reform:
(1) REVENUE NEUTRALITY.—The debate about
the best method by which the Government raises
revenue should not be confused with the issue of how
much revenue the Government should raise.
(2) FAIRNESS.—Equitable distribution of the
tax burden is of paramount importance. Tax reform
should not be used as an opportunity to alter the
current distribution of the burden of Federal taxes.
(3) SIMPLICITY.—Much of the unhappiness
with the current Federal tax system arises from its
perceived complexity. Tax reform should focus on
the creation of a truly simpler system, thereby avoid-
ing the ill will and skepticism generated by the cur-
rent Federal tax system.
(4) ECONOMIC EFFICIENCY.—A good revenue
system should minimize interference in economic
markets. It should result in the least amount of dis-
tortion and bias, should encourage economic growth,
and should promote the vigor and competitiveness of
American companies.
(5) INTERNATIONAL
COMPETITIVENESS.—The
current income tax is an impediment to maximum
competitiveness of American companies in inter-
national markets. Any reform proposal should be
border-adjustable and promote the competitiveness
of American companies.
(c) RESPONSIBILITIES OF DEPARTMENT OF TREAS-
URY.—The rate of the value added tax and the burden
adjustment provisions contained in this Act are tentative
and 
intended 
to 
be 
both 
revenue 
neutral 
and
distributionally neutral. The Secretary of the Treasury
shall, within 90 days after the date of the enactment of
this Act, submit to the Committee on Ways and Means
of the House of Representatives such adjustments to—
(1) the rate of the tax imposed by title II of
this Act, and
(2) the burden adjustments established by title
III of this Act,
to ensure that the provisions of this Act do not result in
a significant change in the amount of Federal revenues
or in the distribution of the Federal tax burden.
(d) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(e) TABLE OF CONTENTS.—
Sec. 1. Short title; amendment of 1986 Code.
TITLE I—REPEAL OF INDIVIDUAL AND CORPORATE INCOME
TAXES AND SOCIAL SECURITY AND MEDICARE TAXES
Sec. 101. Repeal of individual and corporate income taxes.
Sec. 102. Repeal of Social Security and Medicare taxes.
TITLE II—VALUE ADDED TAX
Sec. 201. Imposition of value added tax.
‘‘Subtitle L—Value Added Tax
‘‘CHAPTER 100—VALUE ADDED TAX
‘‘SUBCHAPTER A—IMPOSITION OF TAX
‘‘Sec. 10001. Tax imposed.
‘‘SUBCHAPTER B—COMPUTATION OF TAX
‘‘Sec. 10011. Taxable value added.
‘‘Sec. 10012. Business activity.
‘‘Sec. 10013. Gross receipts from business activities.
‘‘Sec. 10014. Business purchases.
‘‘Sec. 10015. Exemption for certain nontaxable exchanges.
‘‘SUBCHAPTER C—GENERAL RULES
‘‘Sec. 10021. Accounting methods.
‘‘Sec. 10022. Governmental entities and exempt organizations.
‘‘Sec. 10023. Post-sale price adjustments and refunds; bad debts.
‘‘Sec. 10024. Source rules.
‘‘Sec. 10025. Conversions.
‘‘SUBCHAPTER D—SPECIAL RULES
‘‘Sec. 10031. International transportation services.
‘‘Sec. 10032. Financial intermediation services.
‘‘Sec. 10033. Nonbusiness imports of property or services.
‘‘Sec. 10034. Refund for certain nonbusiness purchases.
‘‘SUBCHAPTER E—SMALL BUSINESS EXEMPTION
‘‘Sec. 10041. Small business exemption.
‘‘SUBCHAPTER F—DEFINITIONS
‘‘Sec. 10051. Definitions.
‘‘SUBCHAPTER G—ADMINISTRATION
‘‘Sec. 10061. Liability for tax.
‘‘Sec. 10062. Time for filing return; taxable period.
‘‘Sec. 10063. Treatment of related businesses.
‘‘Sec. 10064. Secretary to be notified of certain events.
‘‘Sec. 10065. Regulations.
Sec. 202. Refund authority.
Sec. 203. Dedication of portion of VAT revenues to Social Security Trust
Funds.
TITLE III—BURDEN ADJUSTMENTS
Sec. 301. Rebate of value added tax to low-income individuals; burden assess-
ment on high-income individuals.
‘‘CHAPTER 7—VALUE ADDED TAX BURDEN ADJUSTMENTS
‘‘SUBCHAPTER A—REBATE TO LOW-INCOME INDIVIDUALS
‘‘Sec. 1601. Rebate to low-income individuals.
‘‘Sec. 1602. Advance payment of rebate.
‘‘SUBCHAPTER B—BURDEN ASSESSMENT ON HIGH-INCOME INDIVIDUALS
‘‘Sec. 1611. Assessment on high-income individuals.
‘‘Sec. 1612. Inclusion of undistributed income of certain corporations.
TITLE I—REPEAL OF INDIVID-
UAL 
AND 
CORPORATE 
IN-
COME TAXES AND SOCIAL SE-
CURITY 
AND 
MEDICARE
TAXES
SEC. 101. REPEAL OF INDIVIDUAL AND CORPORATE IN-
COME TAXES.
(a) IN GENERAL.—Subchapter A of chapter 1 (relat-
ing to normal taxes and surtaxes) is hereby repealed.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1997.
SEC. 102. REPEAL OF SOCIAL SECURITY AND MEDICARE
TAXES.
(a) IN GENERAL.—
(1) Chapter 21 (relating to Federal Insurance
Contributions Act) is hereby repealed.
(2) Chapter 2 (relating to self-employment tax)
is hereby repealed.
(b) REPEAL
OF TIER 1 RAILROAD RETIREMENT
TAXES.—
(1) Subsection (a) of section 3201 (relating to
tax on employees) is hereby repealed.
(2) Subsection (a) of section 3211 (relating to
tax on employee representatives) is amended by
striking paragraph (1).
(3) Section 3221 (relating to tax on employers)
is amended by striking subsections (a) and (e).
(4) Paragraph (2) of section 3231(e) is amend-
ed—
(A) by striking clause (iii) of subparagraph
(A), and
(B) by striking subparagraph (B) and in-
serting the following new subparagraph:
‘‘(B) APPLICABLE BASE.—The term ‘appli-
cable base’ means for any calendar year the
contribution and benefit base determined under
section 230 of the Social Security Act for such
calendar year; except that—
‘‘(i) for purposes of this chapter, and
‘‘(ii) computing average monthly com-
pensation under section 3(j) of the Rail-
road Retirement Act of 1974 (except with
respect to annuity amounts determined
under subsection (a) or (f)(3) of section 3
of such Act),
clause (2) of the first sentence, and the second
sentence, of subsection (c) of section 230 of the
Social Security Act shall be disregarded.’’
(4) Subsection (e) of section 3231 is amended
by striking paragraph (4).
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by
this section (other than subsection (a)(2)) shall
apply to remuneration paid after December 31,
1997.
(2) SELF-EMPLOYMENT TAX.—The amendment
made by subsection (a)(2) shall apply to taxable
years beginning after December 31, 1997.
TITLE II—VALUE ADDED TAX
SEC. 201. IMPOSITION OF VALUE ADDED TAX.
The Internal Revenue Code of 1986 is amended by
adding at the end the following new subtitle:
‘‘Subtitle L—Value Added Tax
‘‘CHAPTER 100. Value added tax.
‘‘CHAPTER 100—VALUE ADDED TAX
‘‘SUBCHAPTER A. Imposition of tax.
‘‘SUBCHAPTER B. Computation of tax.
‘‘SUBCHAPTER C. General rules.
‘‘SUBCHAPTER D. Special rules.
‘‘SUBCHAPTER E. Small business exemption.
‘‘SUBCHAPTER F. Definitions.
‘‘SUBCHAPTER G. Administration.
‘‘Subchapter A—Imposition of Tax
‘‘Sec. 10001. Tax imposed.
‘‘SEC. 10001. TAX IMPOSED.
‘‘In the case of any person engaged in any business
activity, there is hereby imposed for each taxable period
a tax in an amount equal to 20 percent of the taxable
value added.
‘‘Subchapter B—Computation of Tax
‘‘Sec. 10011. Taxable value added.
‘‘Sec. 10012. Business activity.
‘‘Sec. 10013. Gross receipts from business activities.
‘‘Sec. 10014. Business purchases.
‘‘Sec. 10015. Exemption for certain nontaxable exchanges.
‘‘SEC. 10011. TAXABLE VALUE ADDED.
‘‘(a) IN GENERAL.—For purposes of this chapter, the
term ‘taxable value added’ means the amount by which—
‘‘(1) the gross receipts of any person from busi-
ness activities for a taxable period, exceed
‘‘(2) the business purchases of such person for
the taxable period.
‘‘(b) REFUND IF BUSINESS PURCHASES EXCEED
GROSS RECEIPTS.—If the business purchases described in
subsection (a)(2) exceeds the gross receipts described in
subsection (a)(1) for any taxable period, an amount equal
to 20 percent of such excess shall be treated as an over-
payment of the tax imposed by section 10001 for such pe-
riod.
‘‘SEC. 10012. BUSINESS ACTIVITY.
‘‘(a) IN GENERAL.—For purposes of this chapter, the
term ‘business activity’ means—
‘‘(1) any of the following transactions by any
person in connection with a business—
‘‘(A) any sale of property in the United
States,
‘‘(B) any grant of a right to use property
in the United States, and
‘‘(C) the performance of services in the
United States, and
‘‘(2) the export of property or services from the
United States in connection with a business.
For purposes of the preceding sentence, the term ‘prop-
erty’ does not include any financial instrument (as defined
in section 10051) or money.
‘‘(b) EXCEPTION FOR SERVICES PERFORMED AS EM-
PLOYEE.—For purposes of this chapter, the term ‘busi-
ness activity’ does not include the performance of services
by an employee for the employee’s employer.
‘‘SEC. 10013. GROSS RECEIPTS FROM BUSINESS ACTIVITIES.
‘‘(a) IN GENERAL.—For purposes of this chapter, the
term ‘gross receipts’ means all receipts from a business
activity.
‘‘(b) EXPORTS.—
‘‘(1) GENERAL
RULE.—For purposes of this
chapter, the term ‘gross receipts’ does not include
amounts received by the exporter for property or
services exported from the United States for use or
consumption outside the United States.
‘‘(2) EXPORT
THROUGH
NONBUSINESS
EN-
TITY.—For purposes of paragraph (1), if property or
services are sold to a governmental entity or exempt
organization for export and are exported other than
in a business activity of such entity or organization,
then the seller of such property or services is deemed
to be the exporter thereof.
‘‘(3) INTERNATIONAL TRANSPORTATION.—
‘‘For treatment of international transportation
services, see section 10031.
‘‘(c) EXCHANGES.—For purposes of this chapter, the
amount treated as gross receipts from an exchange is the
amount of money plus the fair market value of other con-
sideration received in the exchange.
‘‘(d) CERTAIN INSURANCE PROCEEDS.—For pur-
poses of this chapter, the term ‘gross receipts’ includes
the proceeds of property and casualty insurance for losses
in connection with a business activity.
‘‘(e) TAXES.—For purposes of this chapter, the term
‘gross receipts’ shall not include—
‘‘(1) any separately stated excise tax, sales tax,
customs duty, or other levy imposed by a Federal,
State, or local government which is imposed on a
business transaction and which is received or col-
lected by the seller in connection with the sale, and
‘‘(2) any tax imposed by chapter 31, 32, 33, 34,
35, 36, 39, 51, 52, or 53.
‘‘(f) TRANSFERS TO RELATED PERSONS.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, the amount treated as the gross receipts from
any transaction described in section 10012(a)(1) be-
tween related persons shall be the fair market value
of the property sold, right granted, or services per-
formed (as the case may be).
‘‘(2) RELATED PERSON.—For purposes of this
subsection, the term ‘related person’ means—
‘‘(A) in the case of an employment rela-
tionship, an employer and employee,
‘‘(B) in the case of any entity, an owner of
the entity,
‘‘(C) any person specified in regulations,
and
‘‘(D) any member of the family (within the
meaning of section 267(c)(4)) of any individual
described in subparagraph (A), (B), or (C).
‘‘(3) OWNER.—For purposes of paragraph (2),
the term ‘owner’ means—
‘‘(A) the proprietor of a sole proprietor-
ship, and
‘‘(B) any holder of a beneficial interest in
a corporation, partnership, trust, or other en-
tity.
‘‘SEC. 10014. BUSINESS PURCHASES.
‘‘(a) IN GENERAL.—For purposes of this chapter, the
term ‘business purchase’ means any amount paid or in-
curred to acquire property, a right to use property, or
services for use or sale in a business activity. For purposes
of the preceding sentence, the term ‘property’ does not in-
clude any financial instrument or money.
‘‘(b) EXCEPTIONS.—The term ‘business purchase’
does not include—
‘‘(1) any amount paid or incurred as current or
deferred compensation to employees or for employee
benefits,
‘‘(2) any payment which is unlawful under Fed-
eral, State, or local law, or
‘‘(3) except as provided in subsection (d)—
‘‘(A) any amount paid or incurred as a
premium for insurance other than property and
casualty insurance, or
‘‘(B) any other implicit intermediation
fees.
‘‘(c) IMPORTS.—The term ‘business purchase’ does
not include—
‘‘(1) any amount paid or incurred for the im-
port of property or services, and
‘‘(2) in the case of imported property, any
amounts paid or incurred for the transportation of
such property to the United States (if such costs are
not included in the amount paid for the property).
‘‘(d) FINANCIAL INTERMEDIATION SERVICES.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, business purchases include implicit financial
intermediation fees.
‘‘(2) IMPLICIT
FINANCIAL
INTERMEDIATION
FEES.—For purposes of paragraph (1), the term
‘implicit 
financial 
intermediation 
fees’ 
means
amounts allocable to the business activity for which
a person has received notice under section 10032(d)
(relating to implicit financial intermediation fees)
and which have otherwise not been taken into ac-
count.
‘‘(3) CROSS REFERENCE.—
For additional treatment of financial intermedi-
ation services, see section 10032.
‘‘(e) EXCHANGES.—For purposes of this chapter, the
amount treated as paid or incurred for business purchases
in connection with an exchange is the amount of money
plus the fair market value of other consideration trans-
ferred in the exchange.
‘‘(f) TAXES.—For purposes of this chapter, the term
‘business purchase’ does not include any excise tax, sales
tax, customs duty, or other separately stated levy imposed
by a Federal, State, or local government on business pur-
chases.
‘‘(g) GAMBLING PAYMENTS.—Except as provided in
subsection (a), in the case of a business activity involving
gambling, lotteries, or other games of chance, business
purchases include amounts paid to winners.
‘‘SEC. 10015. EXEMPTION FOR CERTAIN NONTAXABLE EX-
CHANGES.
‘‘(a) GENERAL RULE.—For purposes of this chapter,
gross receipts shall not include gross receipts from an ap-
plicable nontaxable transaction except to the extent attrib-
utable to money or other property received in the trans-
action.
‘‘(b) APPLICABLE NONTAXABLE TRANSACTIONS.—
For purposes of this section, the term ‘applicable non-
taxable transaction’ means any transaction—
‘‘(1) to which section 332, 351, 368, or 721 ap-
plies, or
‘‘(2) which is specified by the Secretary and
with respect to which gain is not recognized in whole
or in part under chapter 1.
‘‘Subchapter C—General Rules
‘‘Sec. 10021. Accounting methods.
‘‘Sec. 10022. Governmental entities and exempt organizations.
‘‘Sec. 10023. Post-sale price adjustments and refunds; bad debts.
‘‘Sec. 10024. Source rules.
‘‘Sec. 10025. Conversions.
‘‘SEC. 10021. ACCOUNTING METHODS.
‘‘(a) IN GENERAL.—Except as provided in this sec-
tion, a person subject to tax under this chapter may use
any of the following methods of accounting for purposes
of this chapter:
‘‘(1) The cash receipts and disbursements
method.
‘‘(2) An accrual method.
‘‘(3) Any other method permitted by the Sec-
retary.
The Secretary may require a person to modify any method
to clearly reflect gross receipts and business purchases.
‘‘(b) CONSISTENCY
REQUIREMENT.—All persons
which are members of a controlled group of corporations
which does not elect to be treated as one person for pur-
poses of this chapter under section 10063(a)(2) shall use
the same method of accounting for purposes of this chap-
ter.
‘‘(c) SPECIAL
RULES
FOR
LONG-TERM
CON-
TRACTS.—
‘‘(1) IN GENERAL.—In the case of any sale pur-
suant to a long-term contract (as defined in section
460(f))—
‘‘(A) the seller shall use the percentage of
completion method in computing gross receipts
from the contract, and
‘‘(B) the purchaser shall use the cash re-
ceipts and disbursements method in computing
business purchases from the contract.
‘‘(2) REPORTING.—The Secretary may require
taxpayers to file statements containing such infor-
mation with respect to long-term contracts as the
Secretary may prescribe.
‘‘(d) INSTALLMENT METHOD PROHIBITED.—Gross
receipts from the sale of property shall not be taken into
account for purposes of this chapter under the installment
method.
‘‘SEC. 10022. GOVERNMENTAL ENTITIES AND EXEMPT OR-
GANIZATIONS.
‘‘(a) IN GENERAL.—For purposes of this chapter, the
transfer of property, the grant of a right to use property,
or the furnishing of services by a governmental entity or
an exempt organization shall be treated as a business ac-
tivity if there is a separately stated charge for such trans-
fer, grant, or furnishing.
‘‘(b) SPECIAL RULES FOR GOVERNMENTAL ENTI-
TIES.—For purposes of this chapter—
‘‘(1) IN GENERAL.—The transfer of property,
the grant of a right to use property, or furnishing
of services by a governmental entity with respect to
any of the following activities shall be treated as a
business activity whether or not there is a separately
stated charge for such transfer or furnishing:
‘‘(A) Public utility services.
‘‘(B) Mass transit services.
‘‘(C) Postal services.
‘‘(D) Any activity not involving the exer-
cise of any essential governmental function
(within the meaning of section 115).
‘‘(2) GROSS RECEIPTS.—In the case of a trans-
fer of property, grant of a right to use property, or
furnishing of services which is treated as a business
activity solely by reason of paragraph (1), gross re-
ceipts shall be determined on the basis of the fair
market value of such property, right, or services.
‘‘(c) BUSINESS PURCHASES REDUCED BY SUB-
SIDIES.—
‘‘(1) IN GENERAL.—For purposes of this chap-
ter, in the case of a business activity of an exempt
organization or a governmental entity (other than an
activity which is treated as a business activity solely
by reason of subsection (b)(1)), the business pur-
chases for such activity shall be reduced by the
amount of any subsidy provided for that activity.
‘‘(2) SUBSIDY.—For purposes of paragraph (1),
the term ‘subsidy’ means the portion of the cost of
the transfer of property, the right to use property,
or the furnishing of services, which is not borne by
amounts charged therefor.
‘‘(d) ALLOCATION.—The Secretary shall by regula-
tion provide for the proper allocation of gross receipts and
business purchases between business activities and other
activities.
‘‘(e) SELF-CONSUMPTION OF PROPERTY OR SERV-
ICES.—Notwithstanding the provisions of this section, the
Secretary may by regulation provide that property pro-
duced, or services furnished, by a governmental entity or
an exempt organization for use by itself are to be treated
as sold in a business activity if such treatment is necessary
to carry out the purposes of this chapter. In any such case
the taxable value added shall be determined by reference
to the fair market value of the property or services.
‘‘SEC. 10023. POST-SALE PRICE ADJUSTMENTS AND RE-
FUNDS; BAD DEBTS.
‘‘(a) PRICE ADJUSTMENTS AND REFUNDS.—
‘‘(1) RECEIPT
TREATED
AS
REDUCTION
IN
BUSINESS PURCHASES.—If a person subject to tax
under this chapter receives a post-sale price adjust-
ment attributable to a business purchase which was
taken into account in computing the taxable value
added for a prior taxable period, then the amount of
such adjustment shall be treated as a reduction in
business purchases for the taxable period in which it
is received.
‘‘(2) ISSUANCE
TREATED
AS
REDUCTION
IN
GROSS RECEIPTS.—If a person subject to tax under
this chapter issues a post-sale price adjustment for
a sale the gross receipts from which were taken into
account in computing the taxable value added for a
prior taxable period, then the amount of such ad-
justment shall be treated as a reduction in gross re-
ceipts for the taxable period in which it is issued.
the purchaser at the purchaser’s last known ad-
dress within 10 days after close of the taxable
period in which the seller treats the amount as
wholly or partially uncollectible.
‘‘(C) RECOVERIES.—If a seller receives
payment for an amount that was treated as a
reduction in gross receipts under subparagraph
(A) in a prior taxable period, then the seller
shall treat the payment as a gross receipt for
the taxable period in which it is received.
‘‘(2) PURCHASER.—
‘‘(A) WRITEOFFS AND WRITEDOWNS.—If a
purchaser receives notice under paragraph
(1)(B) from a seller for all or a portion of the
amount owed for business property or services
that the purchaser treated as a business pur-
chase in a prior taxable period, then the pur-
chaser shall treat such amount as a reduction
in business purchases for the taxable period in
which the notice is received.
‘‘(B) REPAYMENTS.—If a purchaser pays
all or part of an amount treated as a reduction
in business purchases under subparagraph (A)
in a prior taxable period, then the purchaser
shall treat the amount paid as a business pur-
chase for the taxable period in which the pay-
ment is made.
‘‘SEC. 10024. SOURCE RULES.
‘‘(a) SALES OF PROPERTY.—For purposes of this
chapter, a sale of property shall be treated as occurring
in the United States if the property is located in the
United States at the time of the sale.
‘‘(b) RIGHT TO USE PROPERTY.—For purposes of
this chapter, the grant of a right to use property shall
be treated as occurring in the United States to the extent
such right involves the use of such property in the United
States.
‘‘(c) SALES OF SERVICES.—
‘‘(1) GENERAL
RULE.—For purposes of this
chapter, a sale of services shall be treated as occur-
ring in the United States to the extent that—
‘‘(A) the services are provided from a place
of business, or with respect to property, in the
United States, or
‘‘(B) the services are incidental to the pro-
vision of services within the United States.
‘‘(2) CROSS REFERENCE.—
‘‘For treatment of international transportation
services, see section 10031.
‘‘SEC. 10025. CONVERSIONS.
For purposes of this chapter, any conversion of prop-
erty or services from use in a business activity to use in
any other activity, or from use in any other activity to
use in a business activity, shall be treated as a sale of
the property or services for their fair market value.
‘‘Subchapter D—Special Rules
‘‘Sec. 10031. International transportation services.
‘‘Sec. 10032. Financial intermediation services.
‘‘Sec. 10033. Nonbusiness imports of property or services.
‘‘Sec. 10034. Refund for certain nonbusiness purchases.
‘‘SEC. 10031. INTERNATIONAL TRANSPORTATION SERVICES.
‘‘(a) EXPORTS.—For purposes of this chapter, in the
case of property exported from the United States—
‘‘(1) GROSS
RECEIPTS.—The term ‘gross re-
ceipts’ does not include receipts from transportation
of such property from the United States.
‘‘(2) BUSINESS PURCHASES.—The term ‘busi-
ness purchase’ does not include amounts paid or in-
curred for transportation of such property from the
United States.
‘‘(b) INTERNATIONAL TRANSPORTATION
OF PAS-
SENGERS.—For purposes of this chapter—
‘‘(1) GROSS RECEIPTS.—Gross receipts—
‘‘(A) do not include receipts from the
transportation of passengers from outside the
United States to a destination in the United
States, but
‘‘(B) include receipts from the transpor-
tation of passengers from the United States to
a destination outside the United States.
‘‘(2) BUSINESS
PURCHASES.—Business pur-
chases—
‘‘(A) do not include amounts paid or in-
curred in a business activity for the transpor-
tation of passengers from outside the United
States to a destination in the United States,
but
‘‘(B) include amounts paid or incurred in
a business activity for the transportation of
passengers from the United States to a destina-
tion outside the United States.
‘‘SEC. 10032. FINANCIAL INTERMEDIATION SERVICES.
‘‘(a) GENERAL RULE.—For purposes of this chap-
ter—
‘‘(1) the providing of financial intermediation
services shall be treated as a business activity, and
‘‘(2) this chapter shall be applied to such busi-
ness activity by substituting financial receipts and
adjusted business purchases properly allocable to
such business activity for gross receipts and business
purchases.
‘‘(b) FINANCIAL RECEIPTS.—For purposes of this
section, the term ‘financial receipts’ means all receipts
other than amounts received as contributions to capital.
‘‘(c) ADJUSTED BUSINESS PURCHASES.—For pur-
poses of this section, the term ‘adjusted business pur-
chases’ means business purchases, adjusted as follows:
‘‘(1) PRINCIPAL
AND
INTEREST.—Business
purchases include any principal or interest payments
properly allocable to the business activity described
in subsection (a).
‘‘(2) FINANCIAL INSTRUMENTS.—Notwithstand-
ing any other provision of this chapter, business pur-
chases include the cost of, and payments under, fi-
nancial instruments (other than financial instru-
ments representing equity interests in the person
subject to the tax imposed by this chapter).
‘‘(3) INSURANCE CLAIMS.—Business purchases
include claims and cash surrender values paid in
connection with insurance or reinsurance services.
‘‘(4) REINSURANCE.—Business purchases in-
clude amounts paid for reinsurance.
‘‘(d) REPORTING TO CUSTOMERS.—
‘‘(1) ALLOCATION AND REPORTING.—
‘‘(A) IN GENERAL.—A person engaged in
the business activity of providing financial
intermediation services shall—
‘‘(i) allocate fees received for such
services (other than services for which sep-
arately stated fees are charged) among re-
cipients of such services on a reasonable
and consistent basis, and
‘‘(ii) report to each recipient the fees
so allocated.
‘‘(B) TIMING.—The report under subpara-
graph (A)(ii) shall be furnished to the recipient
no later than the 45th day after the close of a
taxable period.
‘‘(2) EXCEPTION.—The Secretary shall estab-
lish procedures under which notice need not be given
under this subsection to persons with respect to
whom services are not provided in connection with a
business activity.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) FINANCIAL INTERMEDIATION SERVICE.—
The term ‘financial intermediation service’ means—
‘‘(A) lending services,
‘‘(B) insurance services,
‘‘(C) market-making and dealer services,
and
‘‘(D) any other service provided as a busi-
ness activity in which a person acts as an
intermediary 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 other per-
sons, 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.—The term ‘lending
services’ means the regular making of loans and pro-
viding credit to, or taking deposits from, customers,
but does not include an installment or delayed pay-
ment arrangement provided by a seller of property
or services under which additional charges or fees
are imposed by the seller for late payment and for
which no interest is charged.
‘‘(3) MARKET-MAKING OR DEALER SERVICES.—
The term ‘market-making or dealer services’ means
services provided by a person who—
‘‘(A) regularly purchases financial instru-
ments from or sells financial instruments to
customers in the ordinary course of a trade or
business, or
‘‘(B) regularly offers to enter into, assume,
offset, assign, or otherwise terminate positions
in financial instruments with customers in the
ordinary course of a trade or business.
‘‘SEC. 10033. NONBUSINESS IMPORTS OF PROPERTY OR
SERVICES.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
on the taxable nonbusiness import of any property or serv-
ices a tax equal to 20 percent of the sum of—
‘‘(1) the amount paid or incurred for the prop-
erty or services, plus
‘‘(2) in the case of property, any amounts paid
or incurred for transportation costs (if such costs
are not included in the amount paid for the prop-
erty).
‘‘(b) TAXABLE NONBUSINESS IMPORT.—For pur-
poses of subsection (a), the term ‘taxable nonbusiness im-
port’ means any import of any property or services for
use or consumption within the United States unless—
‘‘(1) such property or services is imported for
use or sale in a business activity of the importer, or
‘‘(2) such property is imported free of duty
under chapter 98 of the Harmonized Tariff Schedule
of the United States.
‘‘SEC. 10034. REFUND FOR CERTAIN NONBUSINESS PUR-
CHASES.
‘‘(a) REFUND ALLOWED.—If the tax imposed by sec-
tion 10001 was paid on any qualified nonbusiness pur-
chase, the Secretary shall pay (without interest) to the
purchaser an amount equal to such tax.
‘‘(b) QUALIFIED
NONBUSINESS
PURCHASE.—For
purposes of this section, the term ‘qualified nonbusiness
purchase’ means any purchase of property or services if—
‘‘(1) such purchase is not in connection with a
business,
‘‘(2) the purchaser establishes to the satisfac-
tion of the Secretary that substantially all of the use
of such property or services is outside the United
States, and
‘‘(3) the amount of the tax imposed by section
10001 on such purchase is separately stated.
‘‘(c) PERIOD FOR FILING CLAIMS.—No claim shall
be allowed under this section with respect to any purchase
unless filed by the purchaser not later than 180 days after
the date of such purchase.
‘‘Subchapter E—Small Business Exemption
‘‘Sec. 10041. Small business exemption.
‘‘SEC. 10041. SMALL BUSINESS EXEMPTION.
‘‘(a) EXEMPTION.—Except as provided in subsection
(b), if the aggregate amount of gross receipts of any per-
son for any taxable period and the 3 preceding taxable
periods does not exceed the exemption amount, no tax
shall be imposed under section 10001 (and no credit or
refund shall be allowed under section 10011) for the tax-
able period.
‘‘(b) EXCEPTIONS.—
‘‘(1) PERSON MUST ALWAYS BE EXEMPT.—Sub-
section (a) shall not apply to any person for a tax-
able period unless the person was exempt from the
tax imposed by section 10001 for all preceding tax-
able periods.
‘‘(2) ELECTION.—Subsection (a) shall not apply
to any person for a taxable period if the person
elects not to have subsection (a) apply for the tax-
able period.
‘‘(c) STATEMENTS.—A person to which this section
applies for any taxable period shall file a statement con-
taining such information as the Secretary may prescribe.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) EXEMPTION AMOUNT.—The term ‘exemp-
tion amount’ means $12,000 (or an equivalent
amount if the taxable period is not a calendar quar-
ter).
‘‘(2) PERSONS NOT ENGAGED IN BUSINESS FOR
ENTIRE PERIOD.—If a person was not engaged in a
business activity for the entire period referred to in
subsection (a), such subsection shall be applied on
the basis of the period the person was so engaged.
‘‘(3) PREDECESSORS.—Any reference in this
section to a person shall include a reference to any
predecessor of the person.
‘‘Subchapter F—Definitions
‘‘Sec. 10051. Definitions.
‘‘SEC. 10051. DEFINITIONS.
‘‘For purposes of this chapter—
‘‘(1) SALE OF SERVICES.—The term ‘sale of
services’ means the performance of services for con-
sideration, and includes the granting of a right to
the performance of services or to reimbursement (in-
cluding the granting of warranties, insurance, and
similar items) for consideration.
‘‘(2) GRANT OF RIGHT TO USE PROPERTY.—
The term ‘grant of a right to use property’ means
the granting of a right to use property for consider-
ation.
‘‘(3) SALE OF PROPERTY.—The term ‘sale of
property’ means the transfer of ownership of prop-
erty from a seller to a purchaser for consideration.
‘‘(4) PROPERTY.—The term ‘property’ means
any tangible or intangible property.
‘‘(5) BUSINESS.—The term ‘business’ includes
any activity carried on continuously or regularly,
whether or not for profit, that involves or is intended
to involve the sale of property, the grant of a right
to use property, or the sale of services.
‘‘(6) BUSINESS PROPERTY OR SERVICE.—The
term ‘business property or service’ means any prop-
erty or service the sale of which by the owner or pro-
vider thereof would be a business activity or which
is used by the owner or provider in a business activ-
ity.
‘‘(7) EMPLOYEE.—The term ‘employee’ has the
same meaning as when such term is used for pur-
poses of chapter 24 (relating to withholding).
‘‘(8) PERSON.—The term ‘person’ has the
meaning given such term by section 7701(a)(1), but
also includes any governmental entity.
‘‘(9) UNITED
STATES.—The term ‘United
States’, when used in a geographic sense, includes
the customs territory of the United States (as de-
fined in General Headnote 2 of the Harmonized
Tariff Schedules of the United States) and any area
seaward of the States lying within the outer bound-
aries of the outer continental shelf (as defined in
section 1331 of title 43, United States Code).
‘‘(10) GOVERNMENTAL
ENTITY.—The term
‘governmental entity’ means the United States, any
State or political subdivision thereof, the District of
Columbia, a Commonwealth or possession of the
United States, or any agency or instrumentality of
any of the foregoing.
‘‘(11) EXEMPT ORGANIZATION.—The term ‘ex-
empt organization’ means any organization exempt
from taxation under chapter 1.
‘‘(12) FINANCIAL INSTRUMENT DEFINED.—The
term ‘financial instrument’ means any—
‘‘(A) share of stock in a corporation,
‘‘(B) partnership or beneficial ownership
interest in a widely held or publicly traded part-
nership or trust,
‘‘(C) note, bond, debenture, or other evi-
dence of indebtedness,
‘‘(D) interest rate, currency, or equity no-
tional principal contract,
‘‘(E) evidence of an interest in, or a deriv-
ative financial instrument in, any financial in-
strument described in subparagraph (A), (B),
(C), or (D), or any currency, including any op-
tion, forward contract, short position, and any
similar financial instrument in such a financial
instrument or currency, and
‘‘(F) position which—
‘‘(i) is not a financial instrument de-
scribed in subparagraph (A), (B), (C), (D),
or (E),
‘‘(ii) is a hedge with respect to such
a financial instrument, and
‘‘(iii) is clearly identified in the deal-
er’s records as being described in this sub-
paragraph before the close of the day on
which it was acquired or entered into (or
such other time as the Secretary may by
regulations prescribe).
‘‘(13) USE INCLUDES HELD FOR USE.—Prop-
erty or services held for use by any person shall be
treated as used by that person.
‘‘(14) EXCHANGES
TREATED
AS
SALES.—An
exchange shall be treated as a sale.
‘‘Subchapter G—Administration
‘‘Sec. 10061. Liability for tax.
‘‘Sec. 10062. Time for filing return; taxable period.
‘‘Sec. 10063. Treatment of related businesses.
‘‘Sec. 10064. Secretary to be notified of certain events.
‘‘Sec. 10065. Regulations.
‘‘SEC. 10061. LIABILITY FOR TAX.
‘‘The person selling property, granting the right to
use property, or selling services shall be liable for the tax
imposed by section 10001.
‘‘SEC. 10062. TIME FOR FILING RETURN; TAXABLE PERIOD.
‘‘(a) FILING RETURN.—Before the 16th day of the
second calendar month beginning after the close of each
taxable period, each person subject to tax under this chap-
ter shall file a return of the tax imposed by section 10001
for such taxable period.
‘‘(b) TAXABLE PERIOD.—For purposes of this chap-
ter—
‘‘(1) IN GENERAL.—The term ‘taxable period’
means a calendar quarter, except that if a taxpayer
has a taxable year under chapter 1 other than the
calendar year, then such term means a quarter of
that taxable year.
‘‘(2) OTHER PERIODS.—To the extent provided
in regulations, the term ‘taxable period’ includes a
period selected by a person other than a calendar
quarter.
‘‘(3) AUTHORITY TO SHORTEN LENGTH OF TAX
PERIOD.—The Secretary may shorten the length of
a person’s taxable period under this subsection to
the extent the Secretary deems such action nec-
essary to protect the revenue.
‘‘SEC. 10063. TREATMENT OF RELATED BUSINESSES.
‘‘(a) GENERAL RULE.—For purposes of this chap-
ter—
‘‘(1) AFFILIATED
GROUPS
AND
BUSINESSES
UNDER COMMON CONTROL.—Except to the extent
otherwise provided in regulations—
‘‘(A) an affiliated group of corporations (as
defined in section 1504(a) without regard to
paragraphs (2), (4), and (7) of section
1504(b)), or
‘‘(B) two or more businesses (whether or
not incorporated) under common control within
the meaning of section 52(b) and the regula-
tions thereunder,
shall be treated as one person.
‘‘(2) CONTROLLED GROUP.—A controlled group
of corporations, as defined in section 1563(a) (deter-
mined without regard to the second sentence of
paragraph (4) of such section and without regard to
section 1563(e)(3)(C)), may elect to be treated as
one person.
‘‘(b) RELATED PARTY TRANSACTIONS.—For pur-
poses of this chapter, transactions in the United States
between corporations or other businesses that are treated,
or that may elect to be treated, as one person under sub-
section (a) shall not be taken into account in computing
the gross receipts or business purchases of any such cor-
poration or business.
‘‘SEC. 10064. SECRETARY TO BE NOTIFIED OF CERTAIN
EVENTS.
‘‘To the extent provided in regulations, each person
engaged in a business shall notify the Secretary (at such
time or times as may be prescribed by regulation) of—
‘‘(1) any change in the form in which the busi-
ness is conducted, and
‘‘(2) any other change that might affect—
‘‘(A) the liability for the tax imposed by
section 10001,
‘‘(B) the amount of such tax or any credit
against such tax, or
‘‘(C) the administration of such tax in the
case of such person.
‘‘SEC. 10065. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as
may be necessary to carry out the provisions of this chap-
ter.’’
SEC. 202. REFUND AUTHORITY.
Section 6402 (relating to authority to make credits
or refunds) is amended by designating subsection (h) as
subsection (j) and by inserting after subsection (g) the fol-
lowing new subsection:
‘‘(h) REPAYMENT OF VALUE ADDED TAX.—Within
45 days after the date on which a value added tax return
is filed pursuant to section 10062 showing an overpay-
ment, the Secretary shall make, to the extent the Sec-
retary deems practical, a limited examination of the return
to discover omissions and errors of computation, and shall
determine the amount of the overpayment, if any, for the
taxable period to which the return relates and refund the
amount of such overpayment to the person who filed the
return.’’
SEC. 203. DEDICATION OF PORTION OF VAT REVENUES TO
SOCIAL SECURITY TRUST FUNDS.
(a) IN GENERAL.—The Secretary of the Treasury
shall deposit in each Social Security Trust Fund for peri-
ods after 1997 that portion of the revenues from the tax
imposed by chapter 100 of the Internal Revenue Code of
1986 which is necessary to maintain each such Fund in
the same position it would be in but for the amendments
made by section 102 of this Act.
(b) SOCIAL SECURITY TRUST FUNDS.—For purposes
of subsection (a), the Social Security Trust Funds are—
(1) the Federal Old-Age and Survivors Insur-
ance Trust Fund established by section 201(a) of
the Social Security Act,
(2) the Federal Disability Insurance Trust
Fund established by section 201(b) of such Act, and
(3) the Federal Hospital Insurance Trust Fund
established by section 1817(a) of such Act.
TITLE III—BURDEN
ADJUSTMENTS
SEC. 301. REBATE OF VALUE ADDED TAX TO LOW-INCOME
INDIVIDUALS; 
BURDEN 
ASSESSMENT 
ON
HIGH-INCOME INDIVIDUALS.
(a) IN GENERAL.—Subtitle A is amended by adding
at the end the following new chapter:
‘‘CHAPTER 7—VALUE ADDED TAX BURDEN
ADJUSTMENTS
‘‘Subchapter A. Rebate to low-income individuals.
‘‘Subchapter B. Burden assessment on high-income individuals.
‘‘Subchapter A—Rebate to Low-Income
Individuals
‘‘Sec. 1601. Rebate to low-income individuals.
‘‘Sec. 1602. Advance payment of rebate.
‘‘SEC. 1601. REBATE TO LOW-INCOME INDIVIDUALS.
‘‘(a) GENERAL RULE.—The Secretary shall, for each
taxable year, pay to each eligible individual an amount
equal to the VAT rebate for such year.
‘‘(b) VAT REBATE.—For purposes of this section—
‘‘(1) IN GENERAL.—The VAT rebate for any
taxable year is an amount equal to the applicable
percentage of so much of the adjusted net income of
the eligible individual for such year as does not ex-
ceed $30,000.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the applicable percentage is 20
percent reduced (but not below zero) by 2⁄3 of 1 per-
centage point for each whole $1,000 of the individ-
ual’s adjusted net income.
‘‘(3) ADJUSTED NET INCOME.—The term ‘ad-
justed net income’ means the sum of—
‘‘(A) the net income (as defined in section
1611(c)) for the taxable year, plus
‘‘(B) the value of specified Federal trans-
fer payments received during the taxable year.
‘‘(4) SPECIFIED
FEDERAL
TRANSFER
PAY-
MENTS.—The term ‘specified Federal transfer pay-
ments’ means—
‘‘(A) aid provided under a State plan ap-
proved under part A of title IV of the Social
Security Act (relating to aid to families with de-
pendent children),
‘‘(B) assistance provided under—
‘‘(i) the food stamp program (as de-
fined in section 3(h) of the Food Stamp
Act of 1977), or
‘‘(ii) the portion of the program under
sections 21 and 22 of such Act which pro-
vides food assistance, and
‘‘(C) any other Federal assistance which
consists of money payments or script and which
is not adjusted for changes in the cost-of-living.
‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this
section, the term ‘eligible individual’ means any individual
if—
‘‘(1) such individual is a citizen or resident of
the United States for the entire taxable year,
‘‘(2) such individual’s principal place of abode
is in the United States for more than one-half of
such taxable year,
‘‘(3) such individual is not a dependent of an-
other taxpayer for any taxable year beginning in the
same calendar year as such taxable year, and
‘‘(4) such individual’s adjusted net income for
the taxable year does not exceed $30,000.
‘‘(d) AMOUNT
OF REBATE TO BE DETERMINED
UNDER TABLES.—
‘‘(1) IN GENERAL.—The amount of the rebate
allowed by this section shall be determined under ta-
bles prescribed by the Secretary.
‘‘(2) REQUIREMENTS FOR TABLES.—The tables
prescribed under paragraph (1) shall reflect the pro-
visions of subsection (b) and shall have income
brackets of not greater than $50 each.
‘‘(e) MARRIED INDIVIDUALS MUST FILE JOINT
CLAIM.—In the case of an individual who is married
(within the meaning of section 7703), this section shall
apply only if a joint claim is filed by such individual and
such individual’s spouse, and such joint claim shows the
combined adjusted net incomes of such individual and
spouse.
‘‘(f) COORDINATION WITH PERIODIC PAYMENTS OF
REBATE.—If any payment is made to the individual under
section 1602 during any calendar year or if periodic pay-
ments have been made to the individual under this section
during any calendar year, then such individual shall pay
to the Secretary an amount equal to the excess (if any)
of—
‘‘(1) the aggregate amount of such payments,
over
‘‘(2) the maximum amount which would be pay-
able to such individual under this section (for such
individual’s last taxable year beginning in such cal-
endar year) without regard to such payments and on
the basis of the actual adjusted net income of such
individual for such taxable year.
Any amount required to be paid under this subsection
shall be assessed and collected in the same manner as tax
imposed by chapter 1.
‘‘(g) CLAIM REQUIRED TO BE FILED, ETC.—
‘‘(1) IN GENERAL.—No payment shall be made
under this section unless claim therefor is filed with
the Secretary.
‘‘(2) REBATE PAYABLE WITH FEDERAL TRANS-
FER
PAYMENTS, ETC.—To the maximum extent
practical, the Secretary shall arrange for the pay-
for the calendar year with respect to the pay-
ment of wages by another employer, and
‘‘(B) that the spouse of the employee does
not have a VAT rebate eligibility certificate in
effect.
For purposes of this section, a certificate shall be treated
as being in effect with respect to a spouse if such a certifi-
cate will be in effect on the first status determination date
following the date on which the employee furnishes the
statement in question.
‘‘(c) VAT REBATE ADVANCE AMOUNT.—–For pur-
poses of this title, the term ‘VAT rebate advance amount’
means, with respect to any payroll period, the amount de-
termined—
‘‘(1) on the basis of the employee’s wages from
the employer for such period and the employee’s es-
timate under subsection (b)(2) of his adjusted net
income (as defined in section 1601(b)) for the tax-
able year other than from such wages, and
‘‘(2) in accordance with tables prescribed by the
Secretary.
‘‘(d) PAYMENTS TO BE TREATED AS PAYMENTS
VALUE ADDED TAX.—
‘‘(1) IN GENERAL.—For purposes of this title,
payments made by an employer under subsection (a)
to his employees for any payroll period—
‘‘(A) shall not be treated as the payment
of compensation, and
‘‘(B) shall be treated as made out of
amounts of the taxes imposed for the payroll
period under chapter 100 (relating to value
added tax), as if the employer had paid to the
Secretary, on the day on which the wages are
paid to the employees, an amount equal to such
payments.
‘‘(2) ADVANCE
PAYMENTS
EXCEED
TAXES
DUE.—In the case of any employer, if for any pay-
roll period the aggregate amount of VAT rebate ad-
vance payments exceeds the sum of the amounts re-
ferred to in paragraph (1)(B), each such advance
payment shall be reduced by an amount which bears
the same ratio to such excess as such advance pay-
ment bears to the aggregate amount of all such ad-
vance payments.
‘‘(3) EMPLOYER
MAY
MAKE
FULL
ADVANCE
PAYMENTS.—The Secretary shall prescribe regula-
tions under which an employer may elect (in lieu of
any application of paragraph (2))—
‘‘(A) to pay in full all VAT rebate advance
amounts, and
‘‘(B) to have additional amounts paid by
reason of this paragraph treated as the advance
payment of taxes imposed by this title.
‘‘(e) FURNISHING AND TAKING EFFECT OF CERTIFI-
CATES.—Rules similar to the rules of section 3507(e) shall
apply for purposes of this section.
‘‘Subchapter B—Burden Assessment on High-
Income Individuals
‘‘Sec. 1611. Assessment on high-income individuals.
‘‘Sec. 1612. Inclusion of undistributed income of certain corpora-
tions.
‘‘SEC. 1611. ASSESSMENT ON HIGH-INCOME INDIVIDUALS.
‘‘(a) GENERAL
RULE.—Each assessable person
whose net income for the taxable year exceeds the thresh-
old amount shall pay an assessment for such year equal
to 17 percent of the excess (if any) of such income over
the threshold amount.
‘‘(b) ASSESSABLE PERSON.—For purposes of this
subchapter, the term ‘assessable person’ means any indi-
vidual, estate, or trust other than a trust exempt from
taxation under chapter 1.
‘‘(c) NET INCOME.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘net income’ means adjusted gross in-
come determined with the modifications described in
the following paragraphs.
‘‘(2) CERTAIN
EXCLUSIONS
DISREGARDED.—
Net income shall be determined without regard to—
‘‘(A) sections 911, 931, and 933,
‘‘(B) section 457, and
‘‘(C) any exclusion from gross income for
any elective deferral (as defined in section
402(g)(3)).
‘‘(3) CERTAIN AMOUNTS INCLUDED.—
‘‘(A) TAX
EXEMPT
INTEREST.—Net in-
come shall be increased by the amount of inter-
est received or accrued by the taxpayer during
the taxable year which is exempt from tax.
‘‘(B) NONQUALIFIED
DEFERRED
COM-
PENSATION.—Deferred compensation shall be
included in gross income for the 1st taxable
year in which there is no substantial risk of for-
feiture of the rights to such compensation
(within the meaning of section 457(f)(3)). The
preceding sentence shall not apply to any plan
or contract described in section 457(f)(2).
‘‘(4) ESTATES
AND
TRUSTS.—The adjusted
gross income of an estate or trust shall be deter-
mined in accordance with section 67(e).
‘‘(d) THRESHOLD AMOUNT.—For purposes of this
section—
‘‘(1) 
IN
GENERAL.—The 
term 
‘threshold
amount’ means—
‘‘(A) except as provided in subparagraph
(B), $75,000, and
‘‘(B) zero in the case of a taxpayer who—
‘‘(i) is married as of the close of the
taxable year (within the meaning of section
7703) but does not file a joint return for
such year, and
‘‘(ii) does not live apart from his
spouse at all times during the taxable year.
‘‘(2) SPECIAL RULES FOR TRUSTS.—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the threshold
amount for any trust shall be zero.
‘‘(B) EXCEPTION FOR CURRENT DISTRIBU-
TION
TRUSTS.—Subparagraph (A) shall not
apply to any trust to which section 651 applies
for the taxable year.
‘‘(C) 
BENEFICIARY
MAY
ALLOCATE
THRESHOLD.—Any beneficiary of a trust to
which subparagraph (A) applies may elect to al-
locate any portion of such beneficiary’s thresh-
old amount under paragraph (1) for any tax-
able year to such trust. Such allocation shall
apply for such trust’s taxable year beginning in
the taxable year from which made and shall re-
duce the threshold amount otherwise available
to such beneficiary.
‘‘(d) ASSESSMENT COLLECTED AS TAX.—For pur-
poses of subtitle F, the assessment imposed by this section
shall be treated as if it were a tax imposed by chapter
1.
‘‘SEC. 1612. INCLUSION OF UNDISTRIBUTED INCOME OF
CERTAIN CORPORATIONS.
‘‘(a) GENERAL RULE.—Each assessable person who
owns (within the meaning of section 542(a)) stock in a
corporation on the last day in the taxable year of such
corporation on which such corporation was an applicable
corporation shall include in gross income (for such per-
son’s taxable year in which or with which such taxable
year of the corporation ends) as a dividend the amount
such person would have received as a dividend if on such
last day such corporation had distributed pro rata to its
shareholders an amount which bears the same ratio to the
undistributed income of the corporation for the taxable
year as the portion of such taxable year during which such