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[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4377 Introduced in House (IH)]

<DOC>

114th CONGRESS
  2d Session
                                H. R. 4377

To amend the Internal Revenue Code of 1986 to tax business income on a 
                cash flow basis, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            January 13, 2016

  Mr. Nunes (for himself, Mr. Tiberi, Mr. Boustany, Mr. Marchant, Mr. 
   Holding, Mr. Pittenger, Mr. Palmer, Mr. Russell, Mr. Simpson, Mr. 
  Franks of Arizona, Mr. Stewart, Mr. Calvert, Mr. Knight, Mrs. Mimi 
Walters of California, Mr. Valadao, Mr. Issa, Mr. Amodei, Mr. Yoho, Mr. 
Hardy, Mr. Cole, Mr. Pompeo, Mr. Roe of Tennessee, Mr. Fleischmann, Mr. 
Emmer of Minnesota, Mr. Long, Mr. Brat, and Mr. Rouzer) 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 tax business income on a 
                cash flow basis, 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, ETC.

    (a) Short Title.--This Act may be cited as the ``American Business 
Competitiveness Act of 2015''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act 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.
    (c) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title, etc.
Sec. 2. Congressional findings.
Sec. 3. Maximum tax rate for net business income.
Sec. 4. Definition of net business income tax base.
Sec. 5. Allowance of transition basis deduction.
Sec. 6. Interest income of individuals taxed in same manner as dividend 
                            income; reduced by interest expense.
Sec. 7. Repeal of depreciation, international, and other tax 
                            provisions.
Sec. 8. Expanded relief for net operating losses.
Sec. 9. Repeal of corporate AMT and individual AMT preferences and 
                            adjustments that pertain to capital cost 
                            recovery.
Sec. 10. Repeal of business tax credits.
Sec. 11. Disallowance of interest expense deduction, except qualified 
                            residence interest.
Sec. 12. Cash method of accounting.

SEC. 2. CONGRESSIONAL FINDINGS.

    (a) Findings Relating to the Depreciation System of Federal 
Business Taxation.--Congress finds the depreciation system--
            (1) is rife with outdated asset classifications, inaccurate 
        depreciation schedules, targeted credits and deductions, and 
        targeted expensing provisions;
            (2) rewards some business activities over others;
            (3) reduces savings and investment in the United States by 
        increasing the rate of return that is required for investments 
        to be viable; and
            (4) creates complexity for both the Internal Revenue 
        Service and businesses.
    (b) Findings Relating to the Deduction of Business Interest.--
Congress finds that the business interest deduction--
            (1) encourages businesses to finance their operations with 
        debt;
            (2) results in negative effective tax rates for some 
        investments; and
            (3) heightens bankruptcy risk during periods of economic 
        distress.
    (c) Findings Relating to the Expensing of Investment.--Congress 
finds that allowing businesses to expense their investments--
            (1) will make more investment opportunities profitable for 
        businesses to undertake;
            (2) will promote investment in the United States;
            (3) will limit the Government's ability to reward specific 
        business activities through the tax code; and
            (4) will simplify business taxation.

SEC. 3. MAXIMUM TAX RATE FOR NET BUSINESS INCOME.

    (a) Individual Net Business Income.--
            (1) Maximum rate of 25 percent.--Paragraph (1) of section 
        1(h) is amended--
                    (A) in subparagraph (A)--
                            (i) by striking ``the net capital gain'' in 
                        clause (i) and inserting ``the sum of the net 
                        capital gain and the net business income''; and
                            (ii) by striking ``the adjusted net capital 
                        gain'' in clause (ii)(II) and inserting ``the 
                        sum of the adjusted net capital gain and the 
                        net business income''; and
                    (B) in subparagraph (E)(i) by striking 
                ``unrecaptured section 1250 gain'' and inserting ``25-
                percent rate gain''.
            (2) 25-percent rate gain.--Subsection (h) of section 1 is 
        amended by adding at the end the following:
            ``(12) 25-percent rate gain.--For purposes of this 
        subsection--
                    ``(A) unrecaptured section 1250 gain, plus
                    ``(B) net business income.''.
    (b) Corporate Income Tax Rate Reduction; Tax Imposed Only on 
Corporation's Net Business Income.--
            (1) In general.--Section 11 is amended to read as follows:

``SEC. 11. TAX IMPOSED.

    ``(a) Corporations in General.--A tax is hereby imposed for each 
taxable year on the net business income of every corporation.
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection 
(a) shall be the sum of--
            ``(1) 15 percent of so much of the net business income as 
        does not exceed $50,000, and
            ``(2) 25 percent of so much of the net business income as 
        exceeds $50,000.
In the case of a corporation which has net business income in excess of 
$100,000 for any taxable year, the amount of tax determined under the 
preceding sentence for such taxable year shall be increased by the 
lesser of (i) 5 percent of such excess, or (ii) $5,000.''.
            (2) Conforming amendment.--Paragraphs (1) and (2) of 
        section 1445(e) are each amended by striking ``35 percent'' and 
        inserting ``25 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after January 1, 2015.

SEC. 4. DEFINITION OF NET BUSINESS INCOME TAX BASE.

    (a) In General.--Subtitle A is amended by inserting after chapter 
2A the following new chapter:

                     ``CHAPTER 2B--BUSINESS INCOME

                      ``subchapter a. basic rules

   ``subchapter b. capital contributions, mergers, acquisitions, and 
                             distributions

                ``subchapter c. international provisions

                 ``subchapter d. financial institutions

                   ``subchapter e. other definitions

                      ``Subchapter A--Basic Rules

``Sec. 1421. Net business income.

``SEC. 1421. NET BUSINESS INCOME.

    ``(a) In General.--For purposes of this title, the term `net 
business income' means, for a taxable year with respect to a business 
entity, the amount by which the taxable receipts of the business entity 
for the taxable year exceed the deductible amounts for the business 
entity for the taxable year.
    ``(b) Taxable Receipts.--
            ``(1) In general.--The term `taxable receipts' means all 
        receipts from the sale of property, use of property, and 
        performance of services.
            ``(2) Games of chance.--Amounts received for playing games 
        of chance by business entities engaging in the activity of 
        providing such games shall be treated as receipts from the sale 
        of property or services.
            ``(3) In-kind receipts.--The taxable receipts attributable 
        to the receipt of property, use of property or services in 
        whole or partial exchange for property, use of property or 
        services equal the fair market value of the services or 
        property received.
            ``(4) Taxes.--The term `taxable receipts' does not include 
        any excise tax, sales tax, custom duty, or other separately 
        stated levy imposed by a Federal, State, or local government 
        received by a business entity in connection with the sale of 
        property or services or the use of property.
            ``(5) Financial receipts.--
                    ``(A) In general.--The term `taxable receipts' does 
                not include financial receipts.
                    ``(B) Financial receipts.--The term `financial 
                receipts' includes--
                            ``(i) interest,
                            ``(ii) dividends and other distributions by 
                        a business entity,
                            ``(iii) proceeds from the sale of stock, 
                        other ownership interests in business entities, 
                        or other financial instruments,
                            ``(iv) proceeds from life insurance 
                        policies,
                            ``(v) proceeds from annuities,
                            ``(vi) proceeds from currency hedging or 
                        exchanges, and
                            ``(vii) proceeds from other financial 
                        transactions.
                    ``(C) Financial instrument.--The term `financial 
                instrument' means any--
                            ``(i) share of stock in a corporation,
                            ``(ii) equity ownership in any widely held 
                        or publicly traded partnership, trust, or other 
                        business entity,
                            ``(iii) note, bond, debenture, or other 
                        evidence of indebtedness,
                            ``(iv) interest rate, currency, or equity 
                        notional principal contract,
                            ``(v) evidence or interest in, or a 
                        derivative financial instrument in, any 
                        financial instrument described in clause (i), 
                        (ii), (iii), or (iv), or any currency, 
                        including any option, forward contract, short 
                        position, and any similar financial instrument 
                        in such a financial instrument or currency, and
                            ``(vi) a position which--
                                    ``(I) is not a financial instrument 
                                described in clause (i), (ii), (iii), 
                                or (iv),
                                    ``(II) is a hedge with respect to 
                                such a financial instrument, and
                                    ``(III) is clearly identified in 
                                the dealer's records as being described 
                                in this subparagraph before the close 
                                of the day on which it was acquired or 
                                entered into.
    ``(c) Deductible Amounts.--
            ``(1) In general.--The term `deductible amounts' includes 
        for a taxable year with respect to a business entity--
                    ``(A) the cost of business purchases in the taxable 
                year (as determined under subsection (d)),
                    ``(B) compensation expenses for an individual 
                (other than amounts paid to an individual in his 
                capacity as a business entity), or
                    ``(C) the cost of employer-provided health 
                insurance for which the employee, members of his 
                family, or persons designated by him or members of his 
                family are the beneficiaries,
                    ``(D) such entity's loss carryover deduction 
                (determined under section 172),
                    ``(E) in the case of an entity which is a real 
                estate investment trust, the amount of any dividend 
                payment made to a shareholder of such trust, and
                    ``(F) the transition basis deduction (as determined 
                under section 5 of the American Business 
                Competitiveness Act of 2015).
            ``(2) Compensation expenses.--For purposes of subsection 
        (a), the term `compensation expenses' means--
                    ``(A) wages, salaries or other cash payable for 
                services,
                    ``(B) any taxes imposed on the recipient that are 
                withheld by the business entity,
                    ``(C) the cost of property purchased to provide 
                employees with compensation (other than property 
                incidental to the provision of fringe benefits that are 
                excluded from income under the individual tax), and
                    ``(D) the cost of fringe benefits other than health 
                insurance deductible under paragraph (1)(C).
            ``(3) Pass-thru wages must be reasonable.--For purposes of 
        paragraph (2)(A), amounts payable as wages, salaries or other 
        cash payable for services by a S corporation, partnership, or 
        other pass-thru entity shall not be treated as wages, salaries 
        or other cash payable for services unless such amounts are 
        reasonable for the service rendered.
    ``(d) Cost of Business Purchases.--
            ``(1) Business purchases.--
                    ``(A) In general.--The term `business purchases' 
                means the acquisition of--
                            ``(i) property,
                            ``(ii) the use of property, or
                            ``(iii) services,
                for use in a business activity.
                    ``(B) Examples.--Business purchases include 
                (without limitation) the--
                            ``(i) purchase or rental of real property,
                            ``(ii) purchase or rental of capital 
                        equipment,
                            ``(iii) purchase of supplies and inventory,
                            ``(iv) purchase of services from 
                        independent contractors, and
                            ``(v) imports for use in a business 
                        activity.
                    ``(C) Exclusions.--Business purchases do not 
                include--
                            ``(i) payments for use of money or capital, 
                        such as interest or dividends (except to the 
                        extent that a portion so paid is a fee for 
                        financial intermediation services),
                            ``(ii) premiums for life insurance,
                            ``(iii) the acquisition of savings assets 
                        or other financial instruments (as defined in 
                        subsection (b)(5)(C)),
                            ``(iv) taxes (except as provided in 
                        subsection (b)(2) relating to product taxes), 
                        and
                            ``(v) the cost of financial instruments (as 
                        defined in subsection (b)(5)(C)).
            ``(2) Cost of business purchases.--
                    ``(A) In general.--The term `cost of a business 
                purchase' is the amount paid or to be paid for the 
                business purchase.
                    ``(B) Property and services acquired for 
                property.--If a business entity receives property or 
                services from a business entity in whole or partial 
                exchange for property or services, the property or 
                services acquired shall be treated as if they were 
                purchased for an amount equal to the fair market value 
                of the services or property received. For purposes of 
                this section, property includes stock and other equity 
                interests in business other than stock or an equity 
                interest in the business entity acquiring the property 
                or services. See section 1422 for rules on property or 
                services received in exchange for an equity interest in 
                the recipient.
                    ``(C) Gambling payments.--In the case of a business 
                involving gambling, lotteries, or other games of 
                chance, business purchases include amounts paid to 
                winners.
    ``(e) Business Entity and Business Activity.--
            ``(1) Business entity.--For purposes of determining 
        business income, the term `business entity' means any 
        corporation (including any S corporation), unincorporated 
        association, partnership, limited liability company, 
        proprietorship, independent contractor, individual, or any 
        other person, engaging in business activity in the United 
        States. An individual shall be considered a business entity 
        only with respect to the individual's business activities.
            ``(2) Business activity.--The term `business activity' 
        means the sale of property or services, the leasing of 
        property, the development of property or services for 
        subsequent sale or use in producing property or services for 
        subsequent sale. The term `business activity' does not include 
        casual or occasional sales of property used by an individual 
        (other than in a business activity), such as the sale by an 
        individual of a vehicle used by the individual.
            ``(3) Exception for certain employees.--
                    ``(A) In general.--The term `business activity' 
                does not include--
                            ``(i) the performance of services by an 
                        employee for an employer that is a business 
                        entity with respect to the activity in which 
                        the employee is engaged, or
                            ``(ii) the performance of regular domestic 
                        household services (including babysitting, 
                        housecleaning, and lawn cutting) by an employee 
                        of an employer that is an individual or family.
                    ``(B) Employee defined.--For purposes of this 
                subsection, the term `employee' includes an individual 
                partner who provides services to a partnership or an 
                individual member who provides services to a limited 
                liability company, or a proprietor with respect to 
                compensation for services from his proprietorship.
    ``(f) Savings Assets.--The term `savings assets' means stocks, 
bonds, securities, certificates of deposits, investments in 
partnerships and limited liability companies, shares of mutual funds, 
life insurance policies, annuities, and other similar savings or 
investment assets.

   ``Subchapter B--Capital Contributions, Mergers, Acquisitions, and 
                             Distributions

``Sec. 1422. Contributions to a business entity.
``Sec. 1422A. Distributions of property.
``Sec. 1422B. Asset acquisitions.
``Sec. 1422C. Mergers, stock acquisitions, and spin-offs, split-offs, 
                            etc.

``SEC. 1422. CONTRIBUTIONS TO A BUSINESS ENTITY.

    ``(a) By Business Entity.--
            ``(1) Cash.--If a business entity contributes cash to a 
        business entity of which it is or becomes a partial or full 
        owner, the amount contributed is not a deductible amount to the 
        contributor or a taxable receipt to the recipient.
            ``(2) Property or services.--If a business entity 
        contributes property or services to a business entity of which 
        it is or becomes a partial or full owner, the transaction will 
        not result in taxable receipts to the contributor or a 
        deduction for a business purchase for the recipient and will 
        not constitute a sale resulting in taxable receipts to the 
        contributor.
    ``(b) By Individual.--
            ``(1) Cash.--If an individual contributes cash to a 
        business entity, the amount contributed is not a deductible 
        amount to the contributor and the cash received by the business 
        entity is not a taxable receipt.
            ``(2) New property.--If an individual contributes to a 
        business entity property that the individual purchased for the 
        business entity but which was not used by any person after its 
        purchase, the property shall be considered purchased by such 
        business entity from the person from which the individual 
        purchased the property and the transaction will not result in a 
        deductible amount to the contributor.
            ``(3) Personal use property.--
                    ``(A) In general.--If an individual contributes 
                personal use property to a business entity in which the 
                individual has an ownership interest or for which the 
                individual receives an ownership interest, the business 
                entity shall not be permitted to deduct the value of 
                the property received as a business expense. The 
                business entity will have a tax basis in the 
                contributed property equal to the contributor's basis.
                    ``(B) Personal use property.--The term `personal 
                use property' means any property used by an individual 
                at any time other than in a business activity.
            ``(4) Services.--If an individual contributes services to a 
        business entity in which the individual has an ownership 
        interest or receives an ownership interest, the business entity 
        shall not be permitted to deduct the value of the services 
        received (or the value of the equity interest provided to the 
        services provider).

``SEC. 1422A. DISTRIBUTIONS OF PROPERTY.

    ``(a) Distributions Other Than to Controlling Business.--If a 
business entity distributes all or a portion of its assets to its 
owners (other than a controlling business entity), the business entity 
will be treated as if it sold the assets to its owners at fair market 
value. The fair market value will be determined by the distributing 
business entity and those determinations, unless unreasonable, will be 
binding on the recipients.
    ``(b) Distributions to a Controlling Business.--If a business 
entity distributes all or a portion of its assets to a controlling 
business entity, the controlling business entity will assume the 
distributing entity's tax attributes with respect to the assets and 
neither entity will have taxable receipts or a deduction as a result of 
the transaction.
    ``(c) Distribution of Personal Use Property.--If personal use 
property is distributed to the individual who contributed the personal 
use property to a business entity, the fair market value of the 
property for purposes of subsection (a) shall equal the basis of the 
property plus any enhancement in value of the property attributable to 
business purchases with respect to the property.
    ``(d) Controlling Business Entity.--A business entity is a 
`controlling business entity' with respect to another business entity 
if it, or any person to which it is related, owns directly or 
indirectly more than 50 percent of the profits or capital interest in 
the other business entity. For purposes of the preceding sentence, a 
person is related to a business entity if such person owns directly or 
indirectly more than 50 percent of the profits or capital interest in 
the business entity.
    ``(e) Application of This Section.--This section applies to both 
liquidating and nonliquidating distributions.

``SEC. 1422B. ASSET ACQUISITIONS.

    ``(a) In General.--If a business entity transfers some or all of 
its assets, the consideration received for such assets shall be 
allocated among the assets transferred in the same manner as was 
required by section 1060 of the Internal Revenue Code of 1986. If the 
transferee and transferor agree in writing on the allocation of any 
consideration, or as to the fair market value of any of the assets, 
such agreement shall be binding on both the transferor and transferee 
unless the Secretary determines that such allocation (or fair market 
value) is not appropriate.
    ``(b) Tax Consequences.--The tax consequences of an asset 
acquisition shall be determined in accordance with the rules of this 
chapter and shall be dependent upon allocations made under subsection 
(a). In general, consideration allocable to savings assets, such as 
stock in another business entity, would not be included in taxable 
receipts of the transferor and would not be a business purchase of the 
purchaser, but consideration allocable to the sale of tangible property 
and intangible property (other than savings assets) will constitute 
taxable receipts of the seller and a business purchase of the 
purchaser.
    ``(c) Election To Treat Asset Acquisition as a Stock Acquisition.--
In the case of the sale of substantially all of the assets of a 
business entity or substantially all of the assets of a line of 
business or a separately standing business of a business entity, the 
transferee and transferor can jointly elect to treat the acquisition as 
if it were an acquisition of the stock of a business entity holding the 
assets so transferred. In such case, the rules of section 1422C shall 
apply.
    ``(d) Authority To Require Allocation Agreement and Notice to the 
Secretary.--If the Secretary determines that certain types of asset 
acquisitions have significant possibilities of tax avoidance, the 
Secretary may require--
            ``(1) parties to such types of acquisitions to enter into 
        agreements allocating consideration,
            ``(2) parties to acquisitions involving certain kinds of 
        assets to enter into agreements allocating part of the 
        consideration to those assets, or
            ``(3) parties to certain acquisitions to report information 
        to the Secretary.
    ``(e) Asset Acquisition Rules Do Not Apply if Consideration 
Includes Equity in Purchaser.--
            ``(1) In general.--If a business entity issues its own 
        equity or equity in a subsidiary or other controlled entity as 
        part of the consideration for the transfer of assets to it, the 
        transaction shall be treated as a business purchase and not as 
        an asset acquisition, and the taxpayer shall not be entitled to 
        a loss carryover for any unused deduction attributable to the 
        equity portion of such transfer.
            ``(2) Equity.--For purposes of this subsection, equity 
        means--
                    ``(A) stock, in the case of a corporation,
                    ``(B) partnership or similar interest, in the case 
                of a partnership or limited liability company, and
                    ``(C) an ownership interest or interest in profits 
                in the case of any other business entity.

``SEC. 1422C. MERGERS, STOCK ACQUISITIONS, AND SPIN-OFFS, SPLIT-OFFS, 
              ETC.

    ``(a) Mergers.--A merger of one business entity into another or two 
businesses entities into a third business entity or any other similar 
transaction shall have no direct consequences under the business cash 
flow tax. The surviving entity shall assume the tax attributes of the 
merged business entities, including any loss carryovers and credit 
carryovers.
    ``(b) Stock Acquisition.--The acquisition of all or substantially 
all of the ownership interest in one business entity either for cash or 
in exchange for ownership in the acquiring entity or an entity 
controlled by the acquired entity shall have no direct consequences 
under the business cash flow tax.
    ``(c) Spin-Offs, Split-Offs, Etc.--A spin-off, split-off or split-
up of a business entity shall have no direct tax consequences under 
this chapter.

                ``Subchapter C--International Provisions

``Sec. 1423. No tax imposed on income derived from trade or business 
                            outside the United States.
``Sec. 1423A. No credit allowed for foreign taxes on income derived 
                            from trade or business outside the United 
                            States.
``Sec. 1423B. 5-percent toll charge on undistributed foreign earnings.

``SEC. 1423. NO TAX IMPOSED ON INCOME DERIVED FROM TRADE OR BUSINESS 
              OUTSIDE THE UNITED STATES.

    ``(a) In General.--Only taxable receipts and deductible amounts 
which are effectively connected with the conduct of a trade or business 
within the United States shall be included or deducted in the 
computation of net business income.
    ``(b) No tax shall be imposed under this title on income 
effectively connected with the conduct of a trade or business that is 
not a trade or business within the United States.

``SEC. 1423A. NO CREDIT ALLOWED FOR FOREIGN TAXES ON INCOME DERIVED 
              FROM TRADE OR BUSINESS OUTSIDE THE UNITED STATES.

    ``(a) In General.--No credit shall be allowed under this title for 
any income, war profits, or excess profits taxes paid or accrued with 
respect to income effectively connected with the conduct of a trade or 
business that is not a trade or business within the United States.
    ``(b) Unused Foreign Tax Credits.--Under regulations prescribed by 
the Secretary, any taxpayer that is a corporation may elect to treat 
foreign tax credit carryovers from taxable years beginning prior to 
January 1, 2015, as general business credit carryovers.

``SEC. 1423B. 5-PERCENT TOLL CHARGE ON UNDISTRIBUTED FOREIGN EARNINGS.

    ``There is hereby imposed on any domestic corporation which owns 10 
percent or more of the voting stock of a foreign corporation a tax 
equal to 5 percent of the corporation's post-1986 undistributed 
earnings for the corporation's last taxable year beginning prior to 
January 1, 2015. For purposes of this subsection, post-1986 
undistributed earnings shall be computed as provided in section 
902(c)(1) of the Internal Revenue Code of 1986 (as in effect prior to 
the enactment of the American Business Competitiveness Act of 2015), 
except that such undistributed earnings shall be diminished by the 
dividends distributed during such taxable year. Except as provided in 
regulations prescribed by the Secretary, the tax imposed by this 
subsection shall be paid at the same time and in the same manner as the 
tax imposed by section 11 for the corporation's first taxable year 
beginning on or after January 1, 2015.

                 ``Subchapter D--Financial Institutions

``Sec. 1424. Real-plus-financial treatment of certain transactions 
                            involving financial institutions.

``SEC. 1424. REAL-PLUS-FINANCIAL TREATMENT OF CERTAIN TRANSACTIONS 
              INVOLVING FINANCIAL INSTITUTIONS.

    ``(a) Taxation of Transactions Between Financial Institutions and 
Businesses.--
            ``(1) General rule.--In the case of a taxpayer that is a 
        financial institution, taxable receipts shall include all 
        amounts received in covered financial transactions and 
        deductible amounts and shall include all amounts paid in 
        covered financial transactions.
            ``(2) Financial institutions.--For purposes of this 
        section, `financial institution' shall mean, under regulations 
        prescribed by the Secretary, any business entity that is 
        regulated by any Federal or State agency as a financial 
        institution. Such term includes regulated banks, insurance 
        companies, investment banks, securities brokers, and mutual 
        funds. Such term does not include credit unions.
            ``(3) Covered financial transactions.--For purposes of this 
        section, `covered financial transactions' shall mean 
        transactions between a financial institution and a party that 
        is not a business entity as defined in section 1421(e)(1). 
        Under regulations prescribed by the Secretary, transactions 
        that do not involve any significant provision of financial 
        services (other than services for which explicit fees are 
        charged) shall be treated as not being covered financial 
        transactions.
    ``(b) Transition Rule.--Under regulations prescribed by the 
Secretary, a tax is imposed on any financial institution equal to 25 
percent of the institution's net claims against parties that are not 
business entities, as defined in section 1421(e)(1). Such claims shall 
be valued at the end of the financial institution's last taxable year 
beginning before January 1, 2015, with value measured by the 
institution's basis in such claims. Except as provided in regulations 
prescribed by the Secretary, the tax imposed by this subsection shall 
be paid at the same time and in the same manner as the net business 
income tax for the financial institution's first taxable year beginning 
on or after January 1, 2015.

                   ``Subchapter E--Other Definitions

``Sec. 1425. Other definitions.

``SEC. 1425. OTHER DEFINITIONS.

    ``(a) In General.--When used in this chapter, where not otherwise 
distinctly expressed or manifestly incompatible with the intent 
thereof--
            ``(1) United states.--The term `United States' includes the 
        States and the District of Columbia.
            ``(2) Treatment of possessions.--
                    ``(A) In general.--For purposes of this chapter, 
                the United States possessions shall not be treated as 
                part of the United States.
                    ``(B) Possession.--For purposes of paragraph (1), 
                `United States possession' or `possession' means a 
                possession of the United States and includes the 
                Commonwealth of Puerto Rico, the Commonwealth of the 
                Northern Marianas Islands, Guam, American Samoa, and 
                the United States Virgin Islands.
            ``(3) Definitions generally.--Any definition included in 
        this chapter shall apply for all purposes of this chapter 
        unless--
                    ``(A) such definition is limited to the purposes of 
                a particular chapter, section, or subsection, or
                    ``(B) the definition clearly would not be 
                applicable in a particular context.
    ``(b) Interpretations Consistent With Rest of Internal Revenue Code 
of 1986.--Terms not defined in this chapter, but defined elsewhere in 
this title, shall be interpreted in a manner consistent with this 
title, except to the extent such interpretation would be inconsistent 
with the principles and purposes of this chapter.''.
    (b) Exempt Organizations and Unrelated Business Income.--Sections 
512 and 514 are both amended by striking ``gross income'' each place it 
appears and inserting ``net business income''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning on or after January 1, 2015, except to 
the extent otherwise specifically provided in the text of such 
amendments.

SEC. 5. ALLOWANCE OF TRANSITION BASIS DEDUCTION.

    In the case of any property held by the taxpayer on December 31, 
2014, and used in a trade or business of the taxpayer on such date, the 
following rules shall apply:
            (1) Basis.--The basis of such property shall be zero.
            (2) Deduction.--
                    (A) In general.--There shall be allowed to the 
                taxpayer a deduction with respect to such property, 
                other than land.
                    (B) Amount of deduction.--Except as provided in 
                subparagraph (D), such deduction shall be determined 
                for a taxable year by amortizing the basis of such 
                property on the same schedule and method that applied 
                to such property before the enactment of this Act.
                    (C) Disposal of property.--Subparagraph (A) shall 
                apply with respect to property held by the taxpayer on 
                December 31, 2014, whether or not the taxpayer disposes 
                of such property after December 31, 2014.
                    (D) Inventory.--In the case of inventory, the 
                deduction allowed by subparagraph (A) shall be allowed 
                in the taxable year of the taxpayer which includes 
                January 1, 2015.

SEC. 6. INTEREST INCOME OF INDIVIDUALS TAXED IN SAME MANNER AS DIVIDEND 
              INCOME; REDUCED BY INTEREST EXPENSE.

    (a) In General.--Subparagraph (A) of section 1(h)(11) is amended by 
striking ``qualified dividend income'' and inserting ``the sum of 
qualified dividend income and qualified interest income and reduced by 
interest expense''.
    (b) Qualified Interest Income.--Paragraph (11) of section 1(h) is 
amended by adding at the end the following:
                    ``(E) Qualified interest income.--For purposes of 
                this paragraph, the term `qualified interest income' 
                means--
                            ``(i) interest on deposits with a bank (as 
                        defined in section 581),
                            ``(ii) amounts (whether or not designated 
                        as interest) paid, in respect of deposits, 
                        investment certificates, or withdrawable or 
                        repurchasable shares, by--
                                    ``(I) a mutual savings bank, 
                                cooperative bank, domestic building and 
                                loan association, industrial loan 
                                association or bank, or credit union, 
                                or
                                    ``(II) any other savings or thrift 
                                institution which is chartered and 
                                supervised under Federal or State law, 
                                the deposits or accounts in which are 
                                insured under Federal or State law or 
                                which are protected and guaranteed 
                                under State law,
                            ``(iii) interest on--
                                    ``(I) evidences of indebtedness 
                                (including bonds, debentures, notes, 
                                and certificates) issued by a domestic 
                                corporation in registered form, and
                                    ``(II) to the extent provided in 
                                regulations prescribed by the 
                                Secretary, other evidences of 
                                indebtedness issued by a domestic 
                                corporation of a type offered by 
                                corporations to the public,
                            ``(iv) interest on obligations of the 
                        United States, a State, or a political 
                        subdivision of a State (not excluded from gross 
                        income of the taxpayer under any other 
                        provision of law), and
                            ``(v) interest attributable to 
                        participation shares in a trust established and 
                        maintained by a corporation established 
                        pursuant to Federal law.''.
    (c) Interest Expense.--Paragraph (11) of section 1(h), as amended 
by subsection (b), is amended by inserting at the end the following:
                    ``(F) Interest expense.--The term `interest 
                expense' means interest paid by the taxpayer other than 
                qualified residence interest.''.
    (d) Conforming Amendment.--The heading for section 1(h)(11) is 
amended by inserting ``and interest'' after ``dividends''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2014.

SEC. 7. REPEAL OF DEPRECIATION, INTERNATIONAL, AND OTHER TAX 
              PROVISIONS.

    (a) Depreciation and Cost Recovery Provisions.--The following 
sections of the Internal Revenue Code of 1986 are hereby repealed:
            (1) Section 167 (relating to depreciation).
            (2) Section 168 (relating to accelerated cost recovery 
        system).
            (3) Section 169 (relating to amortization of pollution 
        control facilities).
            (4) Section 173 (relating to circulation expenditures).
            (5) Section 174 (relating to research and experimental 
        expenditures).
            (6) Section 175 (relating to soil and water conservation 
        expenditures; endangered species recovery expenditures).
            (7) Section 176 (relating to payments with respect to 
        employees of certain foreign corporations).
            (8) Section 178 (relating to amortization of cost of 
        acquiring a lease).
            (9) Section 179 (relating to election to expense certain 
        depreciable business assets).
            (10) Section 179A (relating to deduction for clean-fuel 
        vehicles and certain refueling property).
            (11) Section 179B (relating to deduction for capital costs 
        incurred in complying with Environmental Protection Agency 
        sulfur regulations).
            (12) Section 179C (relating to election to expense certain 
        refineries).
            (13) Section 179D (relating to energy efficient commercial 
        buildings deduction).
            (14) Section 179E (relating to election to expense advanced 
        mine safety equipment).
            (15) Section 180 (relating to expenditures by farmers for 
        fertilizer, etc.).
            (16) Section 181 (relating to treatment of certain 
        qualified film and television productions).
            (17) Section 190 (relating to expenditures to remove 
        architectural and transportation barriers to the handicapped 
        and elderly).
            (18) Section 192 (relating to contributions to black lung 
        benefit trust).
            (19) Section 193 (relating to tertiary injectants).
            (20) Section 194 (relating to treatment of reforestation 
        expenditures).
            (21) Section 195 (relating to start-up expenditures).
            (22) Section 196 (relating to deduction for certain unused 
        business credits).
            (23) Section 197 (relating to amortization of goodwill and 
        certain other intangibles).
            (24) Section 198 (relating to expensing of environmental 
        remediation costs).
            (25) Section 198A (relating to expensing of qualified 
        disaster expenses).
            (26) Section 199 (relating to income attributable to 
        domestic production activities).
            (27) Section 263 (relating to capital expenditures).
            (28) Section 263A (relating to capitalization and inclusion 
        in inventory costs of certain expenses).
            (29) Section 471 (relating to general rule for 
        inventories).
            (30) Section 472 (relating to last-in, first-out 
        inventories).
            (31) Section 473 (relating to qualified liquidations of 
        LIFO inventories).
            (32) Section 474 (relating to simplified dollar-value LIFO 
        method for certain small businesses).
            (33) Section 611 (relating to allowance of deduction for 
        depletion).
            (34) Section 612 (relating to basis for cost depletion).
            (35) Section 613 (relating to percentage depletion).
            (36) Section 613A (relating to limitations on percentage 
        depletion in case of oil and gas wells).
            (37) Section 614 (relating to definition of property).
            (38) Section 616 (relating to development expenditures).
            (39) Section 617 (relating to deduction and recapture of 
        certain mining exploration expenditures).
    (b) Special Deductions for Corporations.--The following sections of 
the Internal Revenue Code of 1986 are hereby repealed:
            (1) Section 241 (relating to allowance of special 
        deductions).
            (2) Section 243 (relating to dividends received by 
        corporations).
            (3) Section 244 (relating to dividends received on certain 
        preferred stock).
            (4) Section 245 (relating to dividends received from 
        certain foreign corporations).
            (5) Section 246 (relating to rules applying to deductions 
        for dividends received).
            (6) Section 246A (relating to dividends received deduction 
        reduced where portfolio stock is debt financed).
            (7) Section 247 (relating to dividends paid on certain 
        preferred stock of public utilities).
            (8) Section 248 (relating to organizational expenditures).
            (9) Section 249 (relating to limitation on deduction of 
        bond premium on repurchase).
    (c) Recognition of Revenue and Timing of Deduction Provisions.--The 
following provisions of the Internal Revenue Code of 1986 are hereby 
repealed:
            (1) Part X of subchapter B of chapter 1 of the Internal 
        Revenue Code of 1986 (relating to terminal railroad 
        corporations and their shareholders).
            (2) Section 456 (relating to prepaid dues income of certain 
        membership organizations).
            (3) Section 458 (relating to magazines, paperbacks, and 
        records returned after the close of the taxable year).
            (4) Section 460 (relating to special rules for long-term 
        contracts).
            (5) Section 467 (relating to certain payments for the use 
        of property or services).
            (6) Section 468 (relating to special rules for mining and 
        solid waste reclamation and closing costs).
    (d) International Provisions.--The following provisions of the 
Internal Revenue Code of 1986 are hereby repealed:
            (1) Section 902 (relating to deemed paid credit where 
        domestic corporation owns 10 percent or more of voting stock of 
        foreign corporation).
            (2) Section 907 (relating to special rules in case of 
        foreign oil and gas income).
            (3) Subpart F of part III of subchapter N of chapter 1 
        (relating to controlled foreign corporations) other than 
        section 965.
            (4) Subpart G of part III of subchapter N of chapter 1 
        (relating to export trade corporations).
            (5) Part IV of part III of subchapter N of chapter 1 
        (relating to domestic international sales corporations).
    (e) Effective Date.--
            (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to property placed in service after December 31, 
        2014, in taxable years ending after that date.
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply with respect to dividends received or accrued after 
        December 31, 2014, in taxable years ending after such date.
            (3) Subsections (c) and (d).--The amendments made by 
        subsections (c) and (d) shall apply to taxable years beginning 
        on or after January 1, 2015.

SEC. 8. EXPANDED RELIEF FOR NET OPERATING LOSSES.

    (a) Extended Carryback; Unlimited Carryforward With Interest.--
Paragraph (1) of section 172(b) is amended to read as follows:
            ``(1) Years to which loss may be carried.--
                    ``(A) In general.--A net operating loss for any 
                taxable year--
                            ``(i) shall be a net operating loss 
                        carryback to each of the 5 taxable years 
                        preceding the taxable year of such loss, and
                            ``(ii) shall be a net operating loss 
                        carryover to the succeeding taxable year and 
                        added to the deduction allowable under 
                        subsection (a) for such taxable year.
                    ``(B) Limitation.--A net operating loss may not be 
                carried back to any taxable year ending before January 
                1, 2015, except that a loss arising in a taxable year 
                beginning in calendar year 2015 or calendar year 2016 
                may be carried back to the two preceding taxable 
                years.''.
    (b) Interest on Carryforward.--Section 172(b) is amended by adding 
at the end the following new paragraph:
            ``(4) Interest on carryforward.--The amount of any net 
        operating loss carryover shall, prior to being carried to a 
        succeeding taxable year, be increased by an amount equal to 
        such carryover multiplied by the Federal short-term rate (as 
        defined in section 1274(d)) for the month in which or with 
        which the taxable year ends.''.
    (c) Conforming Amendments.--
            (1) Section 172(d)(1) is amended by inserting ``(other than 
        by reason of subsection (b)(1)(B))'' after ``deduction''.
            (2) Section 172 is amended by striking subsections (f), 
        (i), and (j) and redesignating subsections (g), (h), and (k) as 
        subsections (f), (g), and (h), respectively.
    (d) Effective Date.--The amendments made by this section shall 
apply to net operating losses arising in taxable years beginning after 
December 31, 2014.

SEC. 9. REPEAL OF CORPORATE AMT AND INDIVIDUAL AMT PREFERENCES AND 
              ADJUSTMENTS THAT PERTAIN TO CAPITAL COST RECOVERY.

    (a) Corporate AMT.--Section 55(a)(1)(B) is amended by adding at the 
end the following flush sentence:
                ``For purposes of this title, the tentative minimum tax 
                of any corporation for any taxable year ending after 
                December 31, 2014, shall be zero.''.
    (b) Individual AMT.--
            (1) Section 56 is amended--
                    (A) by striking paragraphs (1), (2), (3), (5), and 
                (6) of subsection (a); and
                    (B) by striking subsection (b)(2).
            (2) Section 57 is amended--
                    (A) by striking paragraphs (1), (2), (6), and (7) 
                of subsection (a); and
                    (B) by striking subsection (b).
    (c) Effective Date.--
            (1) Corporate amt.--The amendments made by subsection (a) 
        shall apply to taxable years ending after December 31, 2014.
            (2) Individual amt.--The amendments made by subsection (b) 
        shall apply to amounts paid or incurred after December 31, 
        2014.

SEC. 10. REPEAL OF BUSINESS TAX CREDITS.

    (a) In General.--Subparts D and E of part IV of subchapter A of 
chapter 1 are hereby repealed.
    (b) Special Rule for Carryback and Carryforward of Unused 
Credits.--Any carryback or carryforward that arose under section 39 of 
the Internal Revenue Code of 1986 (as in effect before the repeal of 
such section by subsection (a)) shall be allowed under section 38 of 
such Code (as in effect before the repeal of such section by subsection 
(a)), in accordance with the terms of such sections (as so in effect).
    (c) Effective Date.--The repeals made by this section shall apply 
with respect to amounts paid or incurred, and property placed in 
service, in taxable years beginning after December 31, 2014.

SEC. 11. DISALLOWANCE OF INTEREST EXPENSE DEDUCTION, EXCEPT QUALIFIED 
              RESIDENCE INTEREST.

    (a) In General.--Section 163 is amended by adding at the end the 
following:
            (1) in subsection (a) by striking ``There'' and inserting 
        ``Except as provided by subsection (n), there'',
            (2) by redesignating subsection (n) as subsection (o), and
            (3) by inserting after subsection (m) the following new 
        subsection:
    ``(n) Termination.--
            ``(1) In general.--Except as provided by subsection 
        (h)(2)(D) and paragraph (2), this section shall not apply to 
        interest paid or accrued after December 31, 2014.
            ``(2) Transition interest deduction.--
                    ``(A) In general.--In the case of a taxpayer who is 
                a corporation, there shall be allowed as a deduction 
                for a taxable year the sum of the monthly transition 
                interest deductions for the taxable year.
                    ``(B) Monthly transition interest deduction.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--The monthly transition 
                        interest deduction for any month is the 
                        transition interest amount multiplied by the 
                        applicable percentage for such month.
                            ``(ii) Applicable percentage defined.--The 
                        term `applicable percentage' means, with 
                        respect to a month, 100 percent reduced (but 
                        not below zero) by .833 for each month of the 
                        transition period occurring before the month 
                        for which such percentage is determined.
                            ``(iii) Transition interest amount.--The 
                        transition interest amount is the deduction 
                        allowed to the taxpayer under this section for 
                        the last full taxable year ending before 
                        January 1, 2015.
                            ``(iv) Transition period.--The term 
                        `transition period' means the 120-month period 
                        beginning with January 2015.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to interest paid or accrued on or after January 1, 2015.

SEC. 12. CASH METHOD OF ACCOUNTING.

    (a) In General.--Subsection (a) of section 446 is amended to read 
as follows:
    ``(a) General Rule.--Taxable income shall be computed under the 
cash receipts and disbursements method of accounting.''.
    (b) Conforming Amendments.--
            (1) Section 446 is amended by striking subsections (b), 
        (c), and (e).
            (2) The following sections of the Internal Revenue Code of 
        1986 are repealed:
                    (A) Section 447 (relating to method of accounting 
                for corporations engaged in farming).
                    (B) Section 448 (relating to limitation on use of 
                cash method of accounting).
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2014.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by an amendment made by this section to 
        change its method of accounting for its first taxable year 
        beginning after the date of the enactment of this Act--
                    (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 ratably over a period (not greater than 8 
                taxable years) beginning with such first taxable year.
                                 <all>
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