Small Business Tax Fairness Act
Bill: S.2387 | Sponsor: Sen. Wyden, Ron (D-OR)
Policy area: Taxation

Summary:
Small Business Tax Fairness Act
This bill revises the tax deduction for qualified business income to limit eligibility for such deduction to individual taxpayers. It also modifies rules for calculating the amount of such deduction and limitations on it.

To amend the Internal Revenue Code of 1986 to improve the deduction for 
                       qualified business income.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Tax Fairness Act''.

SEC. 2. MODIFICATIONS TO DEDUCTION FOR QUALIFIED BUSINESS INCOME.

    (a) In General.--
            (1) Eligibility.--
                    (A) Deduction limited to individuals.--
                            (i) In general.--Section 199A(a) of the 
                        Internal Revenue Code of 1986 is amended by 
                        striking ``In the case of a taxpayer other than 
                        a corporation'' and inserting ``In the case of 
                        an individual''.
                            (ii) Application to trusts and estates.--
                        Section of such Code is amended by adding at 
                        the end the following new subsection:
    ``(j) Deduction for Qualified Business Income.--No deduction shall 
be allowed under section 199A to an estate or trust.''.
                    (B) Married taxpayers must file joint return.--
                Section 199A(f) of such Code is amended by 
                redesignating paragraph (4) as paragraph (5) and by 
                inserting after paragraph (3) the following new 
                paragraph:
            ``(4) No deduction for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.''.
            (2) Amount of deduction.--
                    (A) Determination of amount.--Subsection (a) of 
                section 199A of the Internal Revenue Code of 1986 is 
                amended by striking ``an amount equal to the lesser 
                of'' and all that follows and inserting ``an amount 
                equal to 20 percent of the least of--
            ``(1) the qualified business income of the taxpayer,
            ``(2) the threshold amount, or
            ``(3) the taxable income of the taxpayer for the taxable 
        year reduced by the net capital gain (as defined in section 
        1(h)) of the taxpayer for such taxable year.''.
                    (B) Modification of threshold amount.--
                            (i) In general.--Section 199A(e)(2) of the 
                        Internal Revenue Code of 1986 is amended to 
                        read as follows:
            ``(2) Threshold amount.--The term `threshold amount' means 
        $400,000.''.
                    (C) Limitations.--Subsection (b) of section 199A of 
                such Code is amended to read as follows:
    ``(b) Limitations.--
            ``(1) Limitation based on taxable income.--The amount of 
        the deduction allowed under subsection (a) (determined without 
        regard to this paragraph) shall be reduced (but not below zero) 
        by an amount which bears the same ratio to such amount as--
                    ``(A) the excess of the taxpayer's taxable income 
                over the threshold amount, bears to
                    ``(B) $100,000.
            ``(2) Special rules with respect to income received from 
        cooperatives.--In the case of any qualified trade or business 
        of a patron of a specified agricultural or horticultural 
        cooperative, the amount of qualified business income taken into 
        account under subsection (a)(1) with respect to such trade or 
        business shall be reduced by the lesser of--
                    ``(A) 9 percent of so much of the qualified 
                business income with respect to such trade or business 
                as is properly allocable to qualified payments received 
                from such cooperative, or
                    ``(B) 50 percent of so much of the W-2 wages (as 
                defined in subsection (g)(1)) with respect to such 
                trade or business as are so allocable.''.
            (3) Treatment of qualified reit dividends.--
                    (A) In general.--Section 199A(c) of such Code is 
                amended--
                            (i) by striking the last sentence in 
                        paragraph (1) and inserting ``Such term shall 
                        include qualified REIT dividends.'', and
                            (ii) by inserting ``(other than a qualified 
                        REIT dividend)'' after ``Any dividend'' in 
                        paragraph (3)(B)(ii).
                    (B) Technical amendment.--Section 199A(e)(3) of 
                such Code is amended by adding at the end the following 
                new flush sentence:
        ``Such term shall not include any dividend on any share of 
        stock with respect to which the holding period requirements of 
        section 246(c) are not met or to the extent that the taxpayer 
        is under an obligation (whether pursuant to a short sale or 
        otherwise) to make related payments with respect to positions 
        in substantially similar or related property.''.
            (4) Conforming amendments.--
                    (A) Section 199A(c)(1) of the Internal Revenue Code 
                of 1986 is amended by striking ``any qualified trade or 
                business'' and inserting ``all qualified trades or 
                businesses''.
                    (B) Section 199A(e) of such Code is amended by 
                striking paragraph (4).
                    (C) Section 199A(f) of such Code, as amended by 
                paragraph (1), is amended--
                            (i) by redesignating paragraphs (2) through 
                        (5) as paragraphs (3) through (6), 
                        respectively, and
                            (ii) by striking paragraph (1) and 
                        inserting the following:
            ``(1) Application to partnerships and s corporations.--In 
        the case of a partnership or S corporation--
                    ``(A) this section shall be applied at the partner 
                or shareholder level, and
                    ``(B) each partner or shareholder shall take into 
                account such person's allocable share of each qualified 
                item of income, gain, deduction, and loss.
        For purposes of this paragraph, in the case of an S 
        corporation, an allocable share shall be the shareholder's pro 
        rata share of an item.
            ``(2) Treatment of trades or businesses in puerto rico.--In 
        the case of any taxpayer with qualified business income from 
        sources within the commonwealth of Puerto Rico, if all such 
        income is taxable under section 1 for such taxable year, then 
        for purposes of determining the qualified business income of 
        such taxpayer for such taxable year, the term `United States' 
        shall include the Commonwealth of Puerto Rico.''.
                    (D) Section 199A(f)(6)(A) of such Code, as 
                redesignated by paragraph (1) and subparagraph (C), is 
                amended by striking ``and wages''.
                    (E) Section 199A(g)(1)(B)(ii) of such Code is 
                amended to read as follows:
                            ``(ii) W-2 wages.--For purposes of this 
                        subparagraph--
                                    ``(I) In general.--The term `W-2 
                                wages' means, with respect to any 
                                person for any taxable year of such 
                                person, the amounts described in 
                                paragraphs (3) and (8) of section 
                                6051(a) paid by such person with 
                                respect to employment of employees by 
                                such person during the calendar year 
                                ending during such taxable year. Such 
                                amounts shall be determined after 
                                application of subsection (b).
                                    ``(II) Return requirement.--Such 
                                term shall not include any amount which 
                                is not properly included in a return 
                                filed with the Social Security 
                                Administration on or before the 60th 
                                day after the due date (including 
                                extensions) for such return.
                                    ``(III) Wages must be allocable to 
                                domestic production gross receipts.--
                                Such term shall not include any amount 
                                which is not properly allocable to 
                                domestic production gross receipts for 
                                purposes of paragraph (3)(A).''.
                    (F) Section 199A(g)(5)(B) of such Code is amended 
                by inserting ``and the determination of W-2 wages with 
                respect to any qualified trade or business conduced in 
                Puerto Rico shall be made without regard to any 
                exclusion under section 3401(a)(8) for remuneration 
                paid for services in Puerto Rico'' after ``this 
                subsection''.
                    (G) Section 199A of such Code is amended by 
                striking subsection (h) and by redesignating subsection 
                (i) as subsection (h).
    (b) Modification of Definition of Qualified Trade or Business.--
Section 199A(d) of the Internal Revenue Code of 1986 is amended to read 
as follows:
    ``(d) Qualified Trade or Business.--For purposes of this section, 
the term `qualified trade or business' means any trade or business 
other than the trade or business of performing services as an 
employee.''.
    (c) Exclusion of Mark to Market Gain or Loss of Traders in 
Securities and Commodities From Qualified Business Income.--Section 
199A(c)(3)(B) of the Internal Revenue Code of 1986 is amended by 
redesignating clause (vii) as clause (viii) and by inserting after 
clause (vi) the following new clause:
                            ``(vii) Any gain or loss taken into account 
                        under section 475(f).''.
    (d) Treatment of Qualified Business Income Distributed by RICs.--
            (1) In general.--Section 852(b) of the Internal Revenue 
        Code of 1986 is amended by adding at the end the following new 
        paragraph:
            ``(10) Treatment by shareholders of qualified business 
        income.--
                    ``(A) In general.--In any case in which--
                            ``(i) a dividend is received from a 
                        regulated investment company, and
                            ``(ii) such company meets the requirements 
                        of subsection (a) for the taxable year during 
                        which it paid such dividend,
                then every shareholder of such company shall treat as 
                qualified business income under section 199A(c) that 
                portion of such dividend reported by such company as 
                eligible for such treatment in written statements 
                furnished to its shareholders.
                    ``(B) Limitation.--For purposes of subparagraph 
                (A), the aggregate amount which may be reported as 
                dividends eligible to be treated as qualified business 
                income under section 199A(c) shall not exceed the sum 
                of--
                            ``(i) the qualified REIT dividends (as 
                        defined in section 199A(e)) received by the 
                        company for the taxable year, plus
                            ``(ii) the net amount of the company's 
                        allocable share for the taxable year of each 
                        qualified item of income, gain, deduction, and 
                        loss (as defined in subsection (c)(3) of 
                        section 199A, determined after the application 
                        of subsection (c)(4) thereof) from a publicly 
                        traded partnership (as defined in section 
                        7704(b)) which is not treated as a corporation 
                        under section 7704(a).''.
            (2) Conforming amendment.--Section 199A(c) of such Code is 
        amended by adding at the end the following new paragraph:
            ``(5) Treatment of certain dividends received from 
        regulated investment companies.--For the treatment under 
        paragraph (1) of certain dividends received from regulated 
        investment companies, see section 852(b)(10).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
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