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S. 347 (110th): Minimum Wage Act of 2007

The text of the bill below is as of Jan 22, 2007 (Introduced).


II

110th CONGRESS

1st Session

S. 347

IN THE SENATE OF THE UNITED STATES

January 22, 2007

(for himself and Mr. Warner) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Fair Labor Standards Act of 1938 to provide for an increase in the Federal minimum wage, and for other purposes.

1.

Short title

This Act may be cited as the Minimum Wage Act of 2007.

I

Minimum wage

101.

Minimum wage

(a)

In general

Section 6(a)(1) of the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a)(1)) is amended to read as follows:

(1)

except as otherwise provided in this section, not less than—

(A)

$5.85 an hour, beginning on the 60th day after the date of enactment of the Minimum Wage Act of 2007;

(B)

$6.55 an hour, beginning 12 months after that 60th day; and

(C)

$7.25 an hour, beginning 24 months after that 60th day;

.

(b)

Effective date

The amendment made by subsection (a) shall take effect 60 days after the date of enactment of this Act.

II

Tax provisions

200.

Amendment of Code

Except as otherwise expressly provided, whenever in this title an amendment 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 provision of the Internal Revenue Code of 1986.

A

Small business tax relief

201.

Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant property

(a)

In general

Clauses (iv) and (v) of section 168(e)(3)(E) (relating to 15-year property) are each amended by striking placed in service before January 1, 2008.

(b)

Effective date

The amendment made by this section shall apply to property placed in service after December 31, 2007.

202.

Clarification of cash accounting rules for small business

(a)

Cash accounting permitted

(1)

In general

Section 446 of the Internal Revenue Code of 1986 (relating to general rule for methods of accounting) 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

An eligible taxpayer shall not be required to use an accrual method of accounting for any taxable year.

(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, 2006, 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 (relating to entities with gross receipts of not more than $5,000,000) is amended by striking $5,000,000 in the text and in the heading and inserting $10,000,000.

(B)

Conforming amendments

Section 448(c) of such Code is amended—

(i)

by striking $5,000,000 each place it appears in the text and in the heading of paragraph (1) and inserting $10,000,000, and

(ii)

by adding at the end the following new paragraph:

(4)

Inflation adjustment

In the case of any taxable year beginning in a calendar year after 2007, the dollar amount contained in subsection (b)(3) and paragraph (1) of this subsection shall be increased by an amount equal to—

(A)

such dollar amount, multiplied by

(B)

the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2006 for calendar year 1992 in subparagraph (B) thereof.

If any amount as adjusted under this subparagraph is not a multiple of $100,000, such amount shall be rounded to the nearest multiple of $100,000.

.

(b)

Clarification of inventory rules for small business

(1)

In general

Section 471 of the Internal Revenue Code of 1986 (relating to general rule for inventories) 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

A qualified taxpayer shall not be required to use inventories under this section for a taxable year.

(2)

Treatment of taxpayers not using inventories

If a qualified taxpayer does not use inventories with respect to any property for any taxable year beginning after December 31, 2006, such property shall be treated as a material or supply which is not incidental.

(3)

Qualified taxpayer

For purposes of this subsection, the term qualified taxpayer means—

(A)

any eligible taxpayer (as defined in section 446(g)(2)), and

(B)

any taxpayer described in section 448(b)(3).

.

(2)

Conforming amendments

(A)

Subpart D of part II of subchapter E of chapter 1 of such Code is amended by striking section 474.

(B)

The table of sections for subpart D of part II of subchapter E of chapter 1 of such Code is amended by striking the item relating to section 474.

(c)

Effective date and special rules

(1)

In general

The amendments made by this section shall apply to taxable years beginning after December 31, 2006.

(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;

(B)

such change shall be treated as made with the consent of the Secretary of the Treasury; and

(C)

the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 shall be taken into account over a period (not greater than 4 taxable years) beginning with such taxable year.

203.

Extension of work opportunity tax credit to qualified restaurant employees

(a)

In general

Section 51(d)(1) is amended by striking or at the end of subparagraph (H), by striking the period at the end of subparagraph (I) and inserting , or, and by adding at the end the following new subparagraph:

(J)

a qualified restaurant employee.

.

(b)

Qualified restaurant employee

Section 51(d) is amended by redesignating paragraphs (11) through (13) as paragraphs (12) through (14), respectively, and by inserting after paragraph (10) the following new paragraph:

(11)

Qualified restaurant employee

(A)

In general

The term qualified restaurant employee means any individual—

(i)

who performs services in a restaurant where tipping is not customary,

(ii)

who is not exempt under the Fair Labor Standards Act and earns at least the Federal minimum wage, and

(iii)

who is certified by the employer during the hiring process as having attained age 16 but not 20 on the hiring date.

(B)

Special rule for determining amount of credit

For purposes of applying this subpart to wages paid or incurred to any qualified restaurant employee, subsection (b)(3) shall be applied by substituting $3,000 for $6,000.

.

(c)

Special rule for certifications

Subparagraph (A) of section 51(d)(14), as redesignated by subsection (b), is amended by inserting , other than an individual described in paragraph (11), after An individual.

(d)

Nonqualifying rehires

Paragraph (2) of section 51(i) is amended to read as follows:

(2)

Nonqualifying rehires

(A)

In general

No wages shall be taken into account under subsection (a) with respect to any individual, other than an individual described in subsection (d)(11), if, prior to the hiring date of such individual, such individual had been employed by the employer at any time.

(B)

Qualified restaurant employees

In the case of an individual described in subsection (d)(11), no wages shall be taken into account under subsection (a) if, prior to the hiring date of such individual, such individual had been employed by the employer within the prior 90 day period.

.

(e)

Minimum employment periods

Section 51(i)(3) is amended by adding at the end the following new subparagraph:

(C)

Nonapplication to qualified restaurant employees

Subparagraphs (A) and (B) shall not apply to an individual described in subsection (d)(11).

.

(f)

Effective date

The amendments made by this section shall apply to individuals who begin work for the employer after the date of the enactment of this Act.

B

Revenue offset provisions

211.

Clarification of economic substance doctrine

(a)

In General

Section 7701 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

(p)

Clarification of Economic Substance Doctrine; etc

(1)

General rules

(A)

In general

In any case in which a court determines that the economic substance doctrine is relevant for purposes of this title to a transaction (or series of transactions), such transaction (or series of transactions) shall have economic substance only if the requirements of this paragraph are met.

(B)

Definition of economic substance

For purposes of subparagraph (A)—

(i)

In general

A transaction has economic substance only if—

(I)

the transaction changes in a meaningful way (apart from Federal tax effects) the taxpayer’s economic position, and

(II)

the taxpayer has a substantial nontax purpose for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose.

In applying subclause (II), a purpose of achieving a financial accounting benefit shall not be taken into account in determining whether a transaction has a substantial nontax purpose if the origin of such financial accounting benefit is a reduction of income tax.
(ii)

Special rule where taxpayer relies on profit potential

A transaction shall not be treated as having economic substance by reason of having a potential for profit unless—

(I)

the present value of the reasonably expected pre-tax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected, and

(II)

the reasonably expected pre-tax profit from the transaction exceeds a risk-free rate of return.

(C)

Treatment of fees and foreign taxes

Fees and other transaction expenses and foreign taxes shall be taken into account as expenses in determining pre-tax profit under subparagraph (B)(ii).

(2)

Special rules for transactions with tax-indifferent parties

(A)

Special rules for financing transactions

The form of a transaction which is in substance the borrowing of money or the acquisition of financial capital directly or indirectly from a tax-indifferent party shall not be respected if the present value of the deductions to be claimed with respect to the transaction is substantially in excess of the present value of the anticipated economic returns of the person lending the money or providing the financial capital. A public offering shall be treated as a borrowing, or an acquisition of financial capital, from a tax-indifferent party if it is reasonably expected that at least 50 percent of the offering will be placed with tax-indifferent parties.

(B)

Artificial income shifting and basis adjustments

The form of a transaction with a tax-indifferent party shall not be respected if—

(i)

it results in an allocation of income or gain to the tax-indifferent party in excess of such party’s economic income or gain, or

(ii)

it results in a basis adjustment or shifting of basis on account of overstating the income or gain of the tax-indifferent party.

(3)

Definitions and special rules

For purposes of this subsection—

(A)

Economic substance doctrine

The term economic substance doctrine means the common law doctrine under which tax benefits under subtitle A with respect to a transaction are not allowable if the transaction does not have economic substance or lacks a business purpose.

(B)

Tax-indifferent party

The term tax-indifferent party means any person or entity not subject to tax imposed by subtitle A. A person shall be treated as a tax-indifferent party with respect to a transaction if the items taken into account with respect to the transaction have no substantial impact on such person’s liability under subtitle A.

(C)

Exception for personal transactions of individuals

In the case of an individual, this subsection shall apply only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income.

(D)

Treatment of lessors

In applying paragraph (1)(B)(ii) to the lessor of tangible property subject to a lease—

(i)

the expected net tax benefits with respect to the leased property shall not include the benefits of—

(I)

depreciation,

(II)

any tax credit, or

(III)

any other deduction as provided in guidance by the Secretary, and

(ii)

subclause (II) of paragraph (1)(B)(ii) shall be disregarded in determining whether any of such benefits are allowable.

(4)

Other common law doctrines not affected

Except as specifically provided in this subsection, the provisions of this subsection shall not be construed as altering or supplanting any other rule of law, and the requirements of this subsection shall be construed as being in addition to any such other rule of law.

(5)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations may include exemptions from the application of this subsection.

.

(b)

Effective Date

The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.

212.

Penalty for understatements attributable to transactions lacking economic substance, etc

(a)

In General

Subchapter A of chapter 68 is amended by inserting after section 6662A the following new section:

6662B.

Penalty for understatements attributable to transactions lacking economic substance, etc

(a)

Imposition of Penalty

If a taxpayer has an noneconomic substance transaction understatement for any taxable year, there shall be added to the tax an amount equal to 40 percent of the amount of such understatement.

(b)

Reduction of Penalty for Disclosed Transactions

Subsection (a) shall be applied by substituting 20 percent for 40 percent with respect to the portion of any noneconomic substance transaction understatement with respect to which the relevant facts affecting the tax treatment of the item are adequately disclosed in the return or a statement attached to the return.

(c)

Noneconomic Substance Transaction Understatement

For purposes of this section—

(1)

In general

The term noneconomic substance transaction understatement means any amount which would be an understatement under section 6662A(b)(1) if section 6662A were applied by taking into account items attributable to noneconomic substance transactions rather than items to which section 6662A would apply without regard to this paragraph.

(2)

Noneconomic substance transaction

The term noneconomic substance transaction means any transaction if—

(A)

there is a lack of economic substance (within the meaning of section 7701(p)(1)) for the transaction giving rise to the claimed benefit or the transaction was not respected under section 7701(p)(2), or

(B)

the transaction fails to meet the requirements of any similar rule of law.

(d)

Rules Applicable to Compromise of Penalty

(1)

In general

If the 1st letter of proposed deficiency which allows the taxpayer an opportunity for administrative review in the Internal Revenue Service Office of Appeals has been sent with respect to a penalty to which this section applies, only the Commissioner of Internal Revenue may compromise all or any portion of such penalty.

(2)

Applicable rules

The rules of paragraphs (2) and (3) of section 6707A(d) shall apply for purposes of paragraph (1).

(e)

Coordination With Other Penalties

Except as otherwise provided in this part, the penalty imposed by this section shall be in addition to any other penalty imposed by this title.

(f)

Cross References

(1) For coordination of penalty with understatements under section 6662 and other special rules, see section 6662A(e).

(2) For reporting of penalty imposed under this section to the Securities and Exchange Commission, see section 6707A(e).

.

(b)

Coordination With Other Understatements and Penalties

(1)

The second sentence of section 6662(d)(2)(A) is amended by inserting and without regard to items with respect to which a penalty is imposed by section 6662B before the period at the end.

(2)

Subsection (e) of section 6662A is amended—

(A)

in paragraph (1), by inserting and noneconomic substance transaction understatements after reportable transaction understatements both places it appears,

(B)

in paragraph (2)(A), by inserting and a noneconomic substance transaction understatement after reportable transaction understatement,

(C)

in paragraph (2)(B), by inserting 6662B or before 6663,

(D)

in paragraph (2)(C)(i), by inserting or section 6662B before the period at the end,

(E)

in paragraph (2)(C)(ii), by inserting and section 6662B after This section,

(F)

in paragraph (3), by inserting or noneconomic substance transaction understatement after reportable transaction understatement, and

(G)

by adding at the end the following new paragraph:

(4)

Noneconomic substance transaction understatement

For purposes of this subsection, the term noneconomic substance transaction understatement has the meaning given such term by section 6662B(c).

.

(3)

Subsection (e) of section 6707A is amended—

(A)

by striking or at the end of subparagraph (B), and

(B)

by striking subparagraph (C) and inserting the following new subparagraphs:

(C)

is required to pay a penalty under section 6662B with respect to any noneconomic substance transaction, or

(D)

is required to pay a penalty under section 6662(h) with respect to any transaction and would (but for section 6662A(e)(2)(C)) have been subject to penalty under section 6662A at a rate prescribed under section 6662A(c) or under section 6662B,

.

(c)

Clerical Amendment

The table of sections for part II of subchapter A of chapter 68 is amended by inserting after the item relating to section 6662A the following new item:

Sec. 6662B. Penalty for understatements attributable to transactions lacking economic substance, etc.

.

(d)

Effective Date

The amendments made by this section shall apply to transactions entered into after the date of the enactment of this Act.

213.

Application of rules treating inverted corporations as domestic corporations to certain transactions occurring after March 20, 2002

(a)

In general

Section 7874(b) (relating to inverted corporations treated as domestic corporations) is amended to read as follows:

(b)

Inverted corporations treated as domestic corporations

(1)

In general

Notwithstanding section 7701(a)(4), a foreign corporation shall be treated for purposes of this title as a domestic corporation if such corporation would be a surrogate foreign corporation if subsection (a)(2) were applied by substituting 80 percent for 60 percent.

(2)

Special rule for certain transactions occurring after March 20, 2002

(A)

In general

If—

(i)

paragraph (1) does not apply to a foreign corporation, but

(ii)

paragraph (1) would apply to such corporation if, in addition to the substitution under paragraph (1), subsection (a)(2) were applied by substituting March 20, 2002 for March 4, 2003 each place it appears,

then paragraph (1) shall apply to such corporation but only with respect to taxable years of such corporation beginning after December 31, 2006.
(B)

Special rules

Subject to such rules as the Secretary may prescribe, in the case of a corporation to which paragraph (1) applies by reason of this paragraph—

(i)

the corporation shall be treated, as of the close of its last taxable year beginning before January 1, 2007, as having transferred all of its assets, liabilities, and earnings and profits to a domestic corporation in a transaction with respect to which no tax is imposed under this title,

(ii)

the bases of the assets transferred in the transaction to the domestic corporation shall be the same as the bases of the assets in the hands of the foreign corporation, subject to any adjustments under this title for built-in losses,

(iii)

the basis of the stock of any shareholder in the domestic corporation shall be the same as the basis of the stock of the shareholder in the foreign corporation for which it is treated as exchanged, and

(iv)

the transfer of any earnings and profits by reason of clause (i) shall be disregarded in determining any deemed dividend or foreign tax creditable to the domestic corporation with respect to such transfer.

(C)

Regulations

The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including regulations to prevent the avoidance of the purposes of this paragraph.

.

(b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2006.

214.

Modification of collection due process procedures for employment tax liabilities

(a)

In general

Section 6330(f) (relating to jeopardy and State refund collection) is amended—

(1)

by striking ; or at the end of paragraph (1) and inserting a comma,

(2)

by adding or at the end of paragraph (2), and

(3)

by inserting after paragraph (2) the following new paragraph:

(3)

the Secretary has served a levy in connection with the collection of taxes under chapter 21, 22, 23, or 24,

.

(b)

Effective date

The amendments made by this section shall apply to levies issued after December 31, 2006.