H.R. 348: Narrowing Exceptions for Withholding Taxes Act of 2013

113th Congress, 2013–2015. Text as of Jan 22, 2013 (Introduced).

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113th CONGRESS

1st Session

H. R. 348

IN THE HOUSE OF REPRESENTATIVES

January 22, 2013

(for himself, Mr. Van Hollen, Mr. Blumenauer, and Mr. McDermott) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 and the Social Security Act to provide for employment tax treatment of professional service businesses.

1.

Short title

This Act may be cited as the Narrowing Exceptions for Withholding Taxes Act of 2013 .

2.

Employment tax treatment of professional service businesses

(a)

In general

Section 1402 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(m)

Special rules for professional service businesses

(1)

Shareholders providing services to disqualified S corporations

(A)

In general

In the case of any disqualified S corporation, each shareholder of such disqualified S corporation who provides substantial services with respect to the professional service business referred to in subparagraph (C) shall take into account such shareholder’s pro rata share of all items of income or loss described in section 1366 which are attributable to such business in determining the shareholder’s net earnings from self-employment.

(B)

Treatment of family members

Except as otherwise provided by the Secretary, the shareholder’s pro rata share of items referred to in subparagraph (A) shall be increased by the pro rata share of such items of each member of such shareholder’s family (within the meaning of section 318(a)(1)) who does not provide substantial services with respect to such professional service business.

(C)

Disqualified S corporation

For purposes of this subsection, the term disqualified S corporation means—

(i)

any S corporation which is a partner in a partnership which is engaged in a professional service business if substantially all of the activities of such S corporation are performed in connection with such partnership, and

(ii)

any other S corporation which is engaged in a professional service business if the principal asset of such business is the reputation and skill of 3 or fewer employees.

(2)

Partners

In the case of any partnership which is engaged in a professional service business, subsection (a)(13) shall not apply to any partner who provides substantial services with respect to such professional service business.

(3)

Professional service business

For purposes of this subsection, the term professional service business means any trade or business if substantially all of the activities of such trade or business involve providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.

(4)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations which prevent the avoidance of the purposes of this subsection through tiered entities or otherwise.

(5)

Cross reference

For employment tax treatment of wages paid to shareholders of S corporations, see subtitle C.

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(b)

Conforming amendment

Section 211 of the Social Security Act is amended by adding at the end the following new subsection:

(l)

Special rules for professional service businesses

(1)

Shareholders providing services to disqualified S corporations

(A)

In general

In the case of any disqualified S corporation, each shareholder of such disqualified S corporation who provides substantial services with respect to the professional service business referred to in subparagraph (C) shall take into account such shareholder’s pro rata share of all items of income or loss described in section 1366 of the Internal Revenue Code of 1986 which are attributable to such business in determining the shareholder’s net earnings from self-employment.

(B)

Treatment of family members

Except as otherwise provided by the Secretary of the Treasury, the shareholder’s pro rata share of items referred to in subparagraph (A) shall be increased by the pro rata share of such items of each member of such shareholder’s family (within the meaning of section 318(a)(1) of the Internal Revenue Code of 1986) who does not provide substantial services with respect to such professional service business.

(C)

Disqualified S corporation

For purposes of this subsection, the term disqualified S corporation means—

(i)

any S corporation which is a partner in a partnership which is engaged in a professional service business if substantially all of the activities of such S corporation are performed in connection with such partnership, and

(ii)

any other S corporation which is engaged in a professional service business if the principal asset of such business is the reputation and skill of 3 or fewer employees.

(2)

Partners

In the case of any partnership which is engaged in a professional service business, subsection (a)(12) shall not apply to any partner who provides substantial services with respect to such professional service business.

(3)

Professional service business

For purposes of this subsection, the term professional service business means any trade or business if substantially all of the activities of such trade or business involve providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.

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(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2012.