Title: Bring Small Businesses Back Tax Reform Act
Policy area: Taxation

Summary:
Bring Small Businesses Back Tax Reform Act
This bill amends the Internal Revenue Code to establish new maximum individual tax rates for qualified business income that does not exceed $1 million (i.e., small business income). The maximum rates are: (1) 12% of such income not exceeding $150,000, and (2) 25% for income that exceeds $150,000 and is not more than $1 million.
The rates apply to up to $1 million of qualified business income that is: (1) gross earnings derived by an individual from any active trade or business carried on by the individual, excluding deductions attributable to the trade or business; or (2) the taxpayer's distributive or pro rata share of pass-through income from entities such as a partnership or S corporation. Qualified business income does not include capital gains, interest, dividends, or royalties.
For taxpayers that are not a corporation or a partnership with a corporation as a partner, the bill repeals the annual limitation on the election to expense certain depreciable business assets.
The bill also permits certain small businesses whose average gross receipts do not exceed $25 million (currently, $5 million) to use the cash accounting method without limitations and exempts such businesses from inventory rules.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1425 Introduced in House (IH)]

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115th CONGRESS
  1st Session
                                H. R. 1425

 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

                             March 8, 2017

  Mr. Hultgren (for himself and Mr. Smith of Missouri) 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 Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Bring Small Businesses Back Tax 
Reform Act''.

SEC. 2. SPECIAL INDIVIDUAL RATES FOR QUALIFIED SMALL BUSINESS INCOME.

    (a) In General.--Section 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following:
    ``(j) Maximum Rate on Qualified Small Business Income.--
            ``(1) In general.--If a taxpayer has qualified business 
        income for any taxable year, the tax imposed 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) 12 percent of so much of the qualified 
                business income of the taxpayer as does not exceed 
                $150,000, plus
                    ``(C) 25 percent of so much of the qualified 
                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 following of the taxpayer 
                as does not exceed $1,000,000:
                            ``(i) Gross earnings derived by an 
                        individual from any active trade or business 
                        carried on by such individual, less the 
                        deductions allowed by the subtitle which are 
                        attributable to such trade or business.
                            ``(ii) The taxpayer's distributive or pro 
                        rata share qualified pass-through income.
                Such term shall not include any amounts, or any 
                distributive or pro rata share, attributable to capital 
                gains, interest, dividends, and royalties.
                    ``(B) Qualified pass-through income.--The term 
                `qualified pass-through income' means, in the case of a 
                partnership or S corporation, so much of the income of 
                the partnership 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 prescribe) 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, interest, dividends, or 
                royalties.
            ``(3) Special rules.--
                    ``(A) Material participation.--Paragraph (1) shall 
                not apply with respect to any income attributable to a 
                trade or business in which the taxpayer does not 
                materially participate.
                    ``(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, 2017.

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, 2017.

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 Permitted To Use Cash 
Accounting Method Without Limitation.--
            ``(1) In general.--With respect to an eligible taxpayer who 
        uses the cash receipts and disbursements 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 section 448(c), and
                    ``(B) the taxpayer is not subject to section 447 or 
                448.''.
            (2) Expansion of gross receipts test.--
                    (A) In general.--Paragraph (3) of section 448(b) of 
                such Code is amended by striking ``$5,000,000'' in the 
                text and in the heading and inserting ``$25,000,000''.
                    (B) Conforming amendments.--Section 448(c) of such 
                Code is amended by striking ``$5,000,000'' each place 
                it appears in the text and in the heading of paragraph 
                (1) and inserting ``$25,000,000''.
            (3) Farming.--
                    (A) In general.--Section 447(d)(1) of such Code is 
                amended by striking ``$1,000,000'' and inserting 
                ``$25,000,000''.
                    (B) Conforming amendment.--Section 447(d)(2) of 
                such Code is amended--
                            (i) by striking ``; and'' and all that 
                        follows through to the end and inserting a 
                        period, and
                            (ii) by striking ``shall be applied--'' and 
                        all that follows through ``(i) by 
                        substituting'' and inserting the following: 
                        ``shall be applied by substituting''.
    (b) Inventory Rules.--
            (1) In general.--Section 471 of the Internal Revenue Code 
        of 1986 is amended by redesignating 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 defined 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 defined) 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 taxpayer in 
        inventory costs shall be treated as an expense 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 pursuant to section 471(c).''.
    (c) Effective Date and Special Rules.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2017.
            (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 initiated by 
                the taxpayer; and
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury.
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