To amend the Internal Revenue Code of 1986 and the Social Security Act to provide for employment tax treatment of professional service businesses.
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 ``Narrowing Exceptions for Withholding Taxes Act of 2012''.
SEC. 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)...