DESCRIPTION OF H.R. 3301,

THE “TAXPAYER CERTAINTY AND 

DISASTER TAX RELIEF ACT OF 2019”

Scheduled for Markup

by the

HOUSE COMMITTEE ON WAYS AND MEANS

on June 20, 2019

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

June 18, 2019

JCX-30-19
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

TITLE I ─ EXTENSION OF CERTAIN EXPIRING PROVISIONS ........................................... 2

A. Tax Relief and Support for Families and Individuals......................................................... 2

1. Exclusion from gross income of discharge of qualified principal residences 

indebtedness.................................................................................................................. 2

2. Treatment of mortgage insurance premiums as qualified residence interest................ 4

3. Reduction in medical expense deduction floor............................................................. 5

4. Deduction of qualified tuition and related expenses..................................................... 6

5. Black lung disability trust fund excise tax.................................................................... 7

B. Incentives for Employment, Economic Growth, and Community Development............... 8

1. Indian employment tax credit ....................................................................................... 8

2. Railroad track maintenance credit ................................................................................ 9

3. Mine rescue team training credit................................................................................. 13

4. Seven-year recovery period for motorsports entertainment complexes ..................... 14

5. Accelerated depreciation for business property on Indian reservations ..................... 17

6. Expensing rules for certain productions ..................................................................... 19

7. Empowerment zone tax incentives ............................................................................. 21

8. American Samoa economic development credit......................................................... 28

C. Incentives for Energy Production, Efficiency, and Green Economy Jobs........................ 31

1. Biodiesel and renewable diesel................................................................................... 31

2. Second generation biofuel producer credit ................................................................. 33

3. Nonbusiness energy property...................................................................................... 34

4. Qualified fuel cell motor vehicles............................................................................... 36

5. Alternative fuel refueling property credit ................................................................... 37

6. Extension of credit for electric motorcycles............................................................... 38

7. Credit for electricity produced from certain renewable resources.............................. 38

8. Production credit for Indian coal facilities.................................................................. 40

9. Energy-efficient homes credit..................................................................................... 40

10. Special allowance for second generation biofuel plant property................................ 41
ii

11. Energy-efficient commercial buildings deduction...................................................... 44

12. Special rule for sales or dispositions to implement FERC or State electric 

restructuring policy for qualified electric utilities ...................................................... 46

13. Extension and clarification of excise tax credits relating to alternative fuels............. 48

14. Oil spill liability trust fund rate................................................................................... 50

D. Certain Provisions Expiring at the End of 2019 ............................................................... 51

1. New markets tax credit ............................................................................................... 51

2. Employer credit for paid family and medical leave.................................................... 53

3. Work opportunity credit.............................................................................................. 55

4. Certain provisions related to beer, wine, and distilled spirits..................................... 61

5. Look-through rule for related controlled foreign corporations................................... 69

6. Credit for health insurance costs of eligible individuals............................................. 70

TITLE II ─ ESTATE AND GIFT TAX ...................................................................................... 74

1. Reduction of unified credit against estate tax............................................................. 74

TITLE III ─ DISASTER TAX RELIEF...................................................................................... 76

1. Special disaster-related rules for use of retirement funds........................................... 76

2. Disaster related employment relief............................................................................. 80

3. Temporary suspension of limitation on charitable contributions ............................... 81

4. Special rules for qualified disaster-related personal casualty losses .......................... 84

5. Special rule for determining earned income ............................................................... 84

6. Automatic extension of filing deadlines in case of certain taxpayers affected by 

federally declared disasters......................................................................................... 86

7. Modification of the tax rate for the excise tax on investment income of private 

foundations.................................................................................................................. 89

8. Additional low-income housing tax credit allocations for qualified 2017 and 2018 

California disaster areas.............................................................................................. 90

9. Treatment of certain possessions................................................................................ 92
1

INTRODUCTION

The House Committee on Ways and Means has scheduled a committee markup of 

H.R. 3301, the “Taxpayer Certainty and Disaster Tax Relief Act of 2019.” This document,1

prepared by the staff of the Joint Committee on Taxation, provides a description of the bill.

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 3301, the 

“Taxpayer Certainty and Disaster Tax Relief Act of 2019” (JCX-30-19), June 18, 2019. This document can also be 

found on the Joint Committee on Taxation website at www.jct.gov. All section references herein are to the Internal 

Revenue Code of 1986, as amended (herein “Code”), unless otherwise stated.
2

TITLE I ─ EXTENSION OF CERTAIN EXPIRING PROVISIONS

A. Tax Relief and Support for Families and Individuals

1. Exclusion from gross income of discharge of qualified principal residence indebtedness

Present Law

In general

Gross income includes income that is realized by a debtor from the discharge of 

indebtedness,2 subject to certain exceptions for debtors in Title 11 bankruptcy cases, insolvent 

debtors, certain student loans, certain farm indebtedness, and certain real property business 

indebtedness.3

 In cases involving discharges of indebtedness that are excluded from gross 

income under the exceptions to the general rule, taxpayers generally reduce certain tax attributes, 

including basis in property, by the amount of the discharge of indebtedness. 

The amount of discharge of indebtedness excluded from income by an insolvent debtor 

not in a Title 11 bankruptcy case cannot exceed the amount by which the debtor is insolvent. In 

the case of a discharge in bankruptcy or where the debtor is insolvent, any reduction in basis may 

not exceed the excess of the aggregate bases of properties held by the taxpayer immediately after 

the discharge over the aggregate of the liabilities of the taxpayer immediately after the 

discharge.4

For all taxpayers, the amount of discharge of indebtedness generally is equal to the 

difference between the adjusted issue price of the debt being cancelled and the amount used to 

satisfy the debt. These rules generally apply to the exchange of an old obligation for a new 

obligation, including a modification of indebtedness that is treated as an exchange (a debt-fordebt exchange).

Qualified principal residence indebtedness

An exclusion from gross income is provided for any discharge of indebtedness income by 

reason of a discharge (in whole or in part) of qualified principal residence indebtedness. 

Qualified principal residence indebtedness means acquisition indebtedness (within the meaning 

of section 163(h)(3)(B), except that the dollar limitation is $2 million) with respect to the 

taxpayer’s principal residence.5

 Acquisition indebtedness with respect to a principal residence 

generally means indebtedness which is incurred in the acquisition, construction, or substantial 

improvement of the principal residence of the individual and is secured by the residence. It also 

 2

 A debt cancellation that constitutes a gift or bequest is not treated as income to the donee debtor. 

Sec. 102.

3

 Secs. 61(a)(11) and 108.

4

 Sec. 1017.

5

 Sec. 108(h)(2).
3

includes refinancing of such indebtedness to the extent the amount of the indebtedness resulting 

from such refinancing does not exceed the amount of the refinanced indebtedness. For these 

purposes, the term “principal residence” has the same meaning as under section 121.

If, immediately before the discharge, only a portion of a discharged indebtedness is 

qualified principal residence indebtedness, the exclusion applies only to so much of the amount 

discharged as exceeds the portion of the debt which is not qualified principal residence 

indebtedness. Thus, assume that a principal residence is secured by an indebtedness of 

$1 million, of which $700,000 is qualified principal residence indebtedness. If the residence is 

sold for $600,000 and $400,000 debt is discharged, then only $100,000 of the amount discharged 

may be excluded from gross income under the qualified principal residence indebtedness 

exclusion.

The basis of the individual’s principal residence is reduced by the amount excluded from 

income under the provision.

The qualified principal residence indebtedness exclusion does not apply to a taxpayer in a 

Title 11 case; instead, the general exclusion rules apply. In the case of an insolvent taxpayer not 

in a Title 11 case, the qualified principal residence indebtedness exclusion applies unless the 

taxpayer elects to have the general exclusion rules apply instead.

The exclusion does not apply to the discharge of a loan if the discharge is on account of 

services performed for the lender or any other factor not directly related to a decline in the value 

of the residence or to the financial condition of the taxpayer.

The exclusion for qualified principal residence indebtedness is effective for discharges of 

indebtedness before January 1, 2018.

Description of Proposal

The proposal extends for three additional years (through December 31, 2020) the 

exclusion from gross income for discharges of qualified principal residence indebtedness. The 

proposal also provides for an exclusion from gross income in the case of those taxpayers’ whose 

qualified principal residence indebtedness was discharged on or after January 1, 2021, if the 

discharge was subject to a written arrangement entered into prior to January 1, 2021.

Effective Date

The proposal generally applies to discharges of indebtedness after December 31, 2017.
4

2. Treatment of mortgage insurance premiums as qualified residence interest

Present Law

In general

Qualified residence interest is deductible notwithstanding the general rule that personal 

interest is nondeductible.6

Acquisition indebtedness

Qualified residence interest is interest on acquisition indebtedness with respect to a 

principal and a second residence of the taxpayer. The maximum amount of acquisition 

indebtedness is $750,000 ($375,000 in the case of married taxpayers filing separately). 

Acquisition indebtedness means debt that is incurred in acquiring, constructing, or substantially 

improving a qualified residence of the taxpayer, and that is secured by the residence.

Qualified mortgage insurance

Certain premiums paid or accrued for qualified mortgage insurance by a taxpayer during 

the taxable year in connection with acquisition indebtedness on a qualified residence of the 

taxpayer are treated as interest that is qualified residence interest and thus deductible. The 

amount allowable as a deduction is phased out ratably by 10 percent for each $1,000 (or fraction 

thereof) by which the taxpayer’s adjusted gross income exceeds $100,000 ($500 and $50,000, 

respectively, in the case of a married individual filing a separate return). Thus, the deduction is 

not allowed if the taxpayer’s adjusted gross income exceeds $109,000 ($54,000 in the case of 

married individual filing a separate return).

For this purpose, qualified mortgage insurance means mortgage insurance provided by 

the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing 

Service, and private mortgage insurance (defined in section two of the Homeowners Protection 

Act of 1998 as in effect on the date of enactment of the provision).

Amounts paid for qualified mortgage insurance that are properly allocable to periods after 

the close of the taxable year are treated as paid in the period to which they are allocated. No 

deduction is allowed for the unamortized balance if the mortgage is paid before the end of its 

term (except in the case of qualified mortgage insurance provided by the Department of Veterans 

Affairs or Rural Housing Service). 

The deduction does not apply with respect to any mortgage insurance contract issued 

before January 1, 2007. The deduction is disallowed for any amount paid or accrued after 

December 31, 2017, or properly allocable to any period after that date.

 6

 Sec. 163(h).
5

Information reporting rules apply to mortgage insurance premiums for premiums paid or 

accrued during periods to which the deductibility provision applies.7

Description of Proposal

The proposal extends the deduction for qualified mortgage insurance premiums for three 

years (with respect to contracts entered into after December 31, 2006). Thus, the proposal 

applies to amounts paid or accrued in 2018, 2019, and 2020 (and not properly allocable to any 

period after December 31, 2020).

Effective Date

The proposal applies to amounts paid or accrued after December 31, 2017.

3. Reduction in medical expense deduction floor

Present Law

For taxable years ending before January 1, 2019, individuals may claim an itemized 

deduction for unreimbursed medical expenses paid during the taxable year, but only to the extent 

that the expenses exceed 7.5 percent of adjusted gross income (“AGI”) for purposes of regular 

tax and the alternative minimum tax (“AMT”).8 For taxable years ending after December 31, 

2018, the 7.5-percent threshold is increased to 10 percent. 

Description of Proposal

The proposal extends for two years the threshold for deducting medical expenses of 

7.5 percent of AGI. The 7.5-percent threshold applies for purposes of the AMT as well as the 

regular tax. The proposal applies for taxable years beginning before January 1, 2021.

Effective Date

The proposal applies to taxable years ending after December 31, 2018.

 7

 Sec. 6050H(h) and Treas. Reg. sec. 1.6050H-3.

8

 Sec. 213. The threshold was amended by the Patient Protection and Affordable Care Act (Pub. L. 

No. 111-148). For taxable years beginning after December 31, 2012, the threshold was 10 percent for regular tax 

purposes and AMT purposes. A temporary special rule applied in the case of a taxpayer who attained age 65 (or, in 

the case of a married taxpayer, if either the taxpayer or the taxpayer’s spouse attained age 65) before the close of the 

taxable year, in which case the threshold was 7.5 percent for regular tax purposes. The 2017 Tax Act (Pub. L. 

No. 115-97) reduced the floor to 7.5 percent for all taxpayers for taxable years beginning after December 31, 2016, 

and ending before January 1, 2019.
6

4. Deduction of qualified tuition and related expenses

Present Law

An individual is allowed a deduction for qualified tuition and related expenses for higher 

education paid by the individual during the taxable year.9 The deduction is allowed in 

computing adjusted gross income. The term qualified tuition and related expenses is defined in 

the same manner as for the American Opportunity and Lifetime Learning credits, and includes 

tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, 

or any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction for a 

personal exemption,10 at an eligible institution of higher education for courses of instruction of 

such individual at such institution.11 The expenses must be in connection with enrollment at an 

institution of higher education during the taxable year, or with an academic period beginning 

during the taxable year or during the first three months of the next taxable year. The deduction is 

not available for tuition and related expenses paid for elementary or secondary education.

The maximum deduction is $4,000 for an individual whose adjusted gross income for the 

taxable year does not exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for an 

individual whose adjusted gross income does not exceed $80,000 ($160,000 in the case of a joint 

return). No deduction is allowed for an individual whose adjusted gross income exceeds the 

relevant adjusted gross income limitations, for a married individual who does not file a joint 

return, or for an individual with respect to whom a personal exemption deduction is allowable to 

another taxpayer for the taxable year. 

The amount of qualified tuition and related expenses must be reduced by certain 

scholarships, educational assistance allowances, and other amounts paid for the benefit of such 

individual,12 and by the amount of such expenses taken into account for purposes of determining 

any exclusion from gross income of: (1) income from certain U.S. savings bonds used to pay 

higher education tuition and fees; and (2) income from a Coverdell education savings account.13 

Additionally, such expenses must be reduced by the earnings portion (but not the return of 

principal) of distributions from a qualified tuition program if an exclusion under section 529 is 

claimed with respect to expenses eligible for the qualified tuition deduction. No deduction is 

allowed for any expense for which a deduction is otherwise allowed or with respect to an 

 9

 Sec. 222.

10 Notwithstanding that the exemption amount is zero for taxable years beginning after December 31, 

2017, and before January 1, 2026, the reduction of the exemption amount to zero is not taken into account in 

determining whether a deduction for a personal exemption is still allowed or allowable. Sec. 151(d)(5)(B).

11 The deduction generally is not available for expenses with respect to a course or education involving 

sports, games, or hobbies, and is not available for student activity fees, athletic fees, insurance expenses, or other 

expenses unrelated to an individual’s academic course of instruction. Secs. 222(d)(1) and 25A(f).

12 Secs. 222(d)(1) and 25A(g)(2).

13 Sec. 222(c). These reductions are the same as those that apply to the American Opportunity and 

Lifetime Learning credits.
7

individual for whom an American Opportunity or Lifetime Learning credit is elected for such 

taxable year.

The deduction is not available for taxable years beginning after December 31, 2017.

Description of Proposal

The proposal extends the qualified tuition deduction for three years, through 2020.

Effective Date

The proposal applies to taxable years beginning after December 31, 2017.

5. Black lung disability trust fund excise tax

Present Law

Before January 1, 2019, coal extracted from mines was taxed at either $1.10 per ton if 

from an underground mine, or $0.55 per ton if from a surface mine.14 The total amount of tax 

was not to exceed 4.4 percent of the price at which such ton of coal was sold by the producer. 

After December 31, 2018, the “temporary increase termination date,” the tax rates 

declined to rates of $0.50 for underground mines, and $0.25 for surface mines. After the 

temporary increase termination date, the total amount of tax is not to exceed two percent of the 

price at which such ton of coal is sold by the producer. 

Description of Proposal

The proposal reinstates the increased rates on coal through December 31, 2020. Coal 

extracted will be taxed at $1.10 per ton if from an underground mine, or $0.55 per ton if from a 

surface mine. The total amount of tax cannot exceed 4.4 percent of the price at which such ton 

of coal is sold by the producer.

Effective Date

The proposal applies on and after the first day of the first calendar month beginning after 

the date of enactment.

 14 Sec. 4121.
8

B. Incentives for Employment, Economic Growth, and Community Development

1. Indian employment tax credit

Present Law

In general, a credit against income tax liability is allowed to employers for the first 

$20,000 of qualified wages and qualified employee health insurance costs paid or incurred by the 

employer with respect to certain employees.15 The credit is equal to 20 percent of the excess of 

eligible employee qualified wages and health insurance costs during the current year over the 

amount of such wages and costs incurred by the employer during 1993. The credit is an 

incremental credit, such that an employer’s current-year qualified wages and qualified employee 

health insurance costs (up to $20,000 per employee) are eligible for the credit only to the extent 

that the sum of such costs exceeds the sum of comparable costs paid during 1993. No deduction 

is allowed for the portion of the wages equal to the amount of the credit.16

Qualified wages means wages paid or incurred by an employer for services performed by 

a qualified employee. A qualified employee means any employee who is an enrolled member of 

an Indian tribe or the spouse of an enrolled member of an Indian tribe, who performs 

substantially all of the services within an Indian reservation, and whose principal place of abode 

while performing such services is on or near the reservation in which the services are performed. 

An “Indian reservation” is a reservation as defined in section 3(d) of the Indian Financing Act of 

197417 or section 4(10) of the Indian Child Welfare Act of 1978.18 For purposes of the 

preceding sentence, section 3(d) is applied by treating “former Indian reservations in Oklahoma” 

as including only lands that are (1) within the jurisdictional area of an Oklahoma Indian tribe as 

determined by the Secretary of the Interior, and (2) recognized by such Secretary as an area 

eligible for trust land status under 25 C.F.R. Part 151 (as in effect on August 5, 1997).

An employee is not treated as a qualified employee for any taxable year of the employer 

if the total amount of wages paid or incurred by the employer with respect to such employee 

during the taxable year exceeds an amount determined at an annual rate of $30,000 (which after 

adjustment for inflation is $45,000 for 2017).19 In addition, an employee will not be treated as a 

qualified employee under certain specific circumstances, such as where the employee is related 

to the employer (in the case of an individual employer) or to one of the employer’s specified 

shareholders, owners, partners, grantors, beneficiaries, or fiduciaries, or is a dependent thereof.20 

Similarly, an employee will not be treated as a qualified employee where the employee has more 

 15 Sec. 45A.

16 Sec. 280C(a).

17 Pub. L. No. 93-262.

18 Pub. L. No. 95-608.

19 See Instructions for Form 8845, Indian Employment Credit (2017).

20 Sec. 51(i)(1).
9

than a five percent ownership interest in the employer. Finally, an employee will not be 

considered a qualified employee to the extent the employee’s services relate to gaming activities 

or are performed in a building housing such activities. 

The wage credit is available for wages paid or incurred in taxable years beginning on or 

before December 31, 2017.

Description of Proposal

The proposal extends the Indian employment credit for three years (through taxable years 

beginning before January 1, 2021).

Effective Date

The proposal applies to taxable years beginning after December 31, 2017. 

2. Railroad track maintenance credit 

Present Law

In general

A business tax credit is allowed for 50 percent of qualified railroad track maintenance 

expenditures paid or incurred by an eligible taxpayer during taxable years beginning before 

January 1, 2018 (the “railroad track maintenance credit” or “credit”).21 For purposes of 

calculating the credit, all members of a controlled group of corporations or a group of businesses 

under common control are treated as a single taxpayer, and each member’s credit is determined 

on a proportionate basis to each member’s share of the aggregate qualified railroad track 

maintenance expenditures taken into account by the group for the credit.22 The credit may 

reduce a taxpayer’s tax liability below its tentative minimum tax.23

Limitation 

The railroad track maintenance credit is limited to the product of $3,500 times the 

number of miles of railroad track24 (1) owned or leased by an eligible taxpayer as of the close of 

 21 Sec. 45G(a) and (f). An eligible taxpayer generally claims the railroad track maintenance credit by filing 

Form 8900, Qualified Railroad Track Maintenance Credit. If a taxpayer’s only source of the credit is a partnership 

or S corporation, the taxpayer may report the credit directly on Form 3800, General Business Credit (see Part III, 

line 4g).

22 Sec. 45G(e)(2) and Treas. Reg. sec. 1.45G-1(f). See also Notice 2013-20, 2013-15 I.R.B. 902, April 8, 

2013; and Field Attorney Advice 20151601F, December 19, 2014.

23 Sec. 38(c)(4).

24 Double track is treated as multiple lines of railroad track, rather than as a single line of railroad track 

(i.e., one mile of single track is one mile, but one mile of double track is two miles). Treas. Reg. sec. 1.45G-1(b)(9).
10

its taxable year,25 and (2) assigned to the eligible taxpayer by a Class II or Class III railroad that 

owns or leases such track at the close of the taxable year.26 Amounts that exceed the limitation 

are not carried over to another taxable year.27

Assignments

Each mile of railroad track may be taken into account only once, either by the owner of 

such mile or by the owner’s assignee, in computing the per-mile limitation.28 Any assignment of 

a mile of railroad track may be made only once per taxable year of the Class II or Class III 

railroad, and is treated as made of the close of such taxable year.29 Such assignment is taken into 

account for the taxable year of the assignee that includes the date that such assignment is treated 

as effective. However, assignments, including related expenditures paid or incurred, for taxable 

years ending after January 1, 2017, and before January 1, 2018, are treated as effective as of the 

close of such taxable year if made pursuant to a written agreement entered into no later than 

May 10, 2018.30

 25 A Class II or Class III owns railroad track if the railroad track is subject to the allowance for 

depreciation under section 167 by such Class II or Class III railroad. Treas. Reg. sec. 1.45G-1(b)(2). Railroad track 

generally has a seven-year MACRS recovery period. Sec. 168(e)(3)(C)(i) and asset class 40.4 of Rev. Proc. 87-56, 

1987-2 C.B. 674. Alternatively, railroad structures and similar improvements (e.g., bridges, elevated structures, 

fences, etc.) generally have a 20-year MACRS recovery period (see asset class 40.2 of Rev. Proc. 87-56), while 

railroad grading and tunnel bores have a 50-year recovery period (see sec. 168(c)). The term “railroad grading or 

tunnel bore” means all improvements resulting from excavations (including tunneling), construction of 

embankments, clearings, diversions of roads and streams, sodding of slopes, and from similar work necessary to 

provide, construct, reconstruct, alter, protect, improve, replace, or restore a roadbed or right-of-way for railroad 

track. Sec. 168(e)(4).

26 Sec. 45G(b)(1).

27 Treas. Reg. sec. 1.45G-1(c)(2)(iii).

28 Sec. 45G(b)(2). See also Treas. Reg. sec. 1.45G-1(d). 

29 An assignor must file Form 8900 with its timely filed (including extensions) Federal income tax return 

for the taxable year for which it assigns any mile of eligible railroad track, even if it is not itself claiming the railroad

track maintenance credit for that taxable year. Treas. Reg. sec. 1.45G-1(d)(4). Both the assignor and the assignee 

must attach a statement to Form 8900 detailing the information required by Treas. Reg. sec. 1.45G-1(d)(4).

30 Bipartisan Budget Act of 2018, Pub. L. No. 115-123, Division D, Title I, Subtitle B, sec. 40302(b)(2), 

February 9, 2018.
11

Eligible taxpayer 

An eligible taxpayer means any Class II or Class III railroad, and any person (including a 

Class I railroad31) who transports property using the rail facilities32 of a Class II or Class III 

railroad or who furnishes railroad-related property33 or services34 to a Class II or Class III 

railroad, but only with respect to miles of railroad track assigned to such person by such railroad 

under the provision.35

The terms Class II or Class III railroad have the meanings given by the Surface 

Transportation Board without regard to the controlled group rules under section 45G(e)(2).36

Qualified railroad track maintenance expenditures

Qualified railroad track maintenance expenditures are defined as gross expenditures 

(whether or not otherwise chargeable to capital account37) for maintaining railroad track 

 31 The Surface Transportation Board currently classifies a Class I railroad as a carrier with annual 

operating revenue of $447,621,226 or more. The seven Class I railroads are BNSF Railway Company, Kansas City 

Southern Railway Company, Union Pacific Railway Company, Soo Line Railroad Company (Canadian Pacific’s 

U.S. operations), CSX Transportation Inc., Norfolk Southern Railway Company, and Grand Trunk Corporation 

(Canadian National’s U.S. operations). See the Surface Transportation Board FAQs - Economic and Industry 

Information, available at https://www.stb.gov/stb/faqs.html. 

32 Rail facilities of a Class II or Class III railroad are railroad yards, tracks, bridges, tunnels, wharves, 

docks, stations, and other related assets that are used in the transport of freight by a railroad and owned or leased by 

that railroad. Treas. Reg. sec. 1.45G-1(b)(6).

33 Railroad-related property is property that is unique to railroads and provided directly to a Class II or 

Class III railroad. See Treas. Reg. sec. 1.45G-1(b)(7) for a detailed description.

34 Railroad-related services are services that are provided directly to, and are unique to, a railroad and that 

relate to railroad shipping, loading and unloading of railroad freight, or repairs of rail facilities or railroad-related 

property. See Treas. Reg. sec. 1.45G-1(b)(8) for a detailed description.

35 Sec. 45G(c).

36 Sec. 45G(e)(1) and Treas. Reg. sec. 1.45G-1(b)(1). The Surface Transportation Board currently 

classifies a Class II railroad as a carrier with annual operating revenue of less than $447,621,226 but in excess of 

$35,809,698, and a Class III railroad as a carrier with annual operating revenue of $35,809,698 or less. See the 

Surface Transportation Board FAQs - Economic and Industry Information, available at 

https://www.stb.gov/stb/faqs.html.

37 All or some of the qualified railroad track maintenance expenditures may be required to be capitalized 

under section 263(a) as a tangible or intangible asset. See, e.g., Treas. Reg. sec. 1.263(a)-4(d)(8), which requires the 

capitalization of amounts paid or incurred by a taxpayer to produce or improve real property owned by another 

(except to the extent the taxpayer is selling services at fair market value to produce or improve the real property) if 

the real property can reasonably be expected to produce significant economic benefits for the taxpayer. The basis of 

the tangible or intangible asset includes the capitalized amount of the qualified railroad track maintenance 

expenditures. Treas. Reg. sec. 1.45G-1(e)(1). Note that for purposes of Treas. Reg. sec. 1.263(a)-4(d)(8), real 

property includes property that is affixed to real property and that will ordinarily remain affixed for an indefinite 
12

(including roadbed, bridges, and related track structures) owned or leased as of January 1, 2015, 

by a Class II or Class III railroad, determined without regard to any consideration for such 

expenditure given by the Class II or Class III railroad which made the assignment of such 

track.38 However, consideration received directly or indirectly from persons other than the Class 

II or Class III railroad does reduce the amount of qualified railroad track maintenance 

expenditures.39 Any amount that an assignee pays an assignor in exchange for an assignment of 

one or more miles of eligible railroad is treated as qualified railroad track maintenance 

expenditures paid or incurred by the assignee at the time and to the extent the assignor pays or 

incurs qualified railroad track maintenance expenditures.40

Basis adjustment

Basis of the railroad track must be reduced (but not below zero) by an amount equal to 

100 percent of the taxpayer’s qualified railroad track maintenance tax credit determined for the 

taxable year.41 The basis reduction is taken into account before the depreciation deduction with 

respect to such railroad track is determined for the taxable year for which the railroad track 

maintenance credit is allowable.42 If all or some of the qualified railroad track maintenance 

expenditures paid or incurred by an eligible taxpayer during the taxable year is capitalized under 

section 263(a) to more than one asset, whether tangible or intangible, the reduction to the basis of 

these assets is allocated among each of the assets subject to the reduction in proportion to the 

unadjusted basis of each asset at the time the qualified railroad track maintenance expenditures 

are paid or incurred during that taxable year.43

Description of Proposal

The proposal extends the present law credit for three years, for qualified railroad track 

maintenance expenditures paid or incurred during taxable years beginning before January 1, 

2021.

 

period of time. Treas. Reg. sec. 1.263(a)-4(d)(8)(iii). Intangible assets described in Treas. Reg. sec. 1.263(a)-

4(d)(8) are generally depreciable ratably over 25 years. See Treas. Reg. sec. 1.167(a)-3.

38 Sec. 45G(d); Treas. Reg. sec. 1.45G-1(b)(5).

39 Treas. Reg. sec. 1.45G-1(c)(3)(ii).

40 Treas. Reg. sec. 1.45G-1(c)(3).

41 Sec. 45G(e)(3). See also sec. 1016(a)(29) and Treas. Reg. Sec. 1.45G-1(e).

42 Treas. Reg. sec. 1.45G-1(e)(2).

43 Ibid.
13

Effective Date

The proposal generally applies to expenditures paid or incurred during taxable years 

beginning after December 31, 2017. 

The proposal also provides a safe harbor that treats assignments, including related 

expenditures paid or incurred, for taxable years beginning on or after January 1, 2018, and before 

January 1, 2019, as effective as of the close of such taxable year if made pursuant to a written 

agreement entered into no later than 90 days following the date of enactment. 

3. Mine rescue team training credit 

Present Law

An eligible employer may claim a general business credit against income tax with respect 

to each qualified mine rescue team employee equal to the lesser of: (1) 20 percent of the amount 

paid or incurred by the taxpayer during the taxable year with respect to the training program 

costs of the qualified mine rescue team employee (including the wages of the employee while 

attending the program); or (2) $10,000.44 

A qualified mine rescue team employee is any full-time employee of the taxpayer who is 

a miner eligible for more than six months of a taxable year to serve as a mine rescue team 

member by virtue of either having completed the initial 20-hour course of instruction prescribed 

by the Mine Safety and Health Administration’s Office of Educational Policy and Development, 

or receiving at least 40 hours of refresher training in such instruction.45 

An eligible employer is any taxpayer which employs individuals as miners in 

underground mines in the United States.46 The term “wages” has the meaning given to such 

term by section 3306(b)47 (determined without regard to any dollar limitation contained in that 

section).48

No deduction is allowed for the portion of the expenses otherwise deductible that is equal 

to the amount of the credit.49 The credit does not apply to taxable years beginning after 

 44 Sec. 45N(a).

45 Sec. 45N(b).

46 Sec. 45N(c).

47 Section 3306(b) defines wages for purposes of Federal Unemployment Tax.

48 Sec. 45N(d).

49 Sec. 280C(e).
14

December 31, 2017.50 Additionally, the credit is not allowable for purposes of computing the 

alternative minimum tax.51

Description of Proposal

The proposal extends the credit for three years through taxable years beginning before 

January 1, 2021.

Effective Date

The proposal applies to taxable years beginning after December 31, 2017. 

4. Seven-year recovery period for motorsports entertainment complexes 

Present Law

In general

A taxpayer generally must capitalize the cost of property used in a trade or business or 

held for the production of income and recover such cost over time through annual deductions for 

depreciation or amortization.52 The period for depreciation or amortization generally begins 

when the asset is placed in service by the taxpayer.53 Tangible property generally is depreciated 

under the modified accelerated cost recovery system (“MACRS”), which determines 

depreciation for different types of property based on an assigned applicable depreciation method, 

recovery period, and convention.54 

The applicable recovery period for an asset is determined in part by statute and in part by 

historic Treasury guidance.55 The “type of property” of an asset is used to determine the “class 

life” of the asset, which in turn dictates the applicable recovery period for the asset. 

 50 Sec. 45N(e).

51 Sec. 38(c). Note that the corporate alternative minimum tax was repealed for taxable years beginning 

after December 31, 2017. See An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent 

Resolution on the Budget for Fiscal Year 2018, Pub. L. No. 115-97, sec. 12001, December 22, 2017.

52 See secs. 263(a) and 167. In general, only the tax owner of property (i.e., the taxpayer with the benefits 

and burdens of ownership) is entitled to claim tax benefits such as cost recovery deductions with respect to the 

property. In addition, where property is not used exclusively in a taxpayer’s business, the amount eligible for a 

deduction must be reduced by the amount related to personal use. See, e.g., sec. 280A.

53 See Treas. Reg. secs. 1.167(a)-10(b), -3, -14, and 1.197-2(f). See also Treas. Reg. sec. 1.167(a)-

11(e)(1)(i). 

54 Sec. 168.

55 Exercising authority granted by Congress, the Secretary issued Rev. Proc. 87-56, 1987-2 C.B. 674, 

laying out the framework of recovery periods for enumerated classes of assets. The Secretary clarified and modified 

the list of asset classes in Rev. Proc. 88-22, 1988-1 C.B. 785. In November 1988, Congress revoked the Secretary’s 
15

The MACRS recovery periods applicable to most tangible personal property range from 

three to 20 years. The depreciation methods generally applicable to tangible personal property 

are the 200-percent and 150-percent declining balance methods,56 switching to the straight line 

method for the first taxable year where using the straight line method with respect to the adjusted 

basis as of the beginning of that year yields a larger depreciation allowance. 

Real property

The recovery periods for most real property are 39 years for nonresidential real property 

and 27.5 years for residential rental property.57 The straight line depreciation method is required 

for the aforementioned real property.58 In addition, nonresidential real and residential rental 

property are both subject to the mid-month convention, which treats all property placed in 

service during any month (or disposed of during any month) as placed in service (or disposed of) 

on the mid-point of such month.59 All other property generally is subject to the half-year 

convention, which treats all property placed in service during any taxable year (or disposed of 

during any taxable year) as placed in service (or disposed of) on the mid-point of such taxable 

year.60 

 authority to modify the class lives of depreciable property. Rev. Proc. 87-56, as modified, remains in effect except 

to the extent that the Congress has, since 1988, statutorily modified the recovery period for certain depreciable 

assets, effectively superseding any administrative guidance with regard to such property.

56 Under the declining balance method the depreciation rate is determined by dividing the appropriate 

percentage (here 150 or 200) by the appropriate recovery period. This leads to accelerated depreciation when the 

declining balance percentage is greater than 100. The table below illustrates depreciation for an asset with a cost of 

$1,000 and a seven-year recovery period under the 200-percent declining balance method, the 150-percent declining 

balance method, and the straight line method. 

*Details may not add to totals due to rounding.

57 Sec. 168(c).

58 Sec. 168(b)(3).

59 Sec. 168(d)(2) and (d)(4)(B).

60 Sec. 168(d)(1) and (d)(4)(A). However, if substantial property is placed in service during the last three 

months of a taxable year, a special rule requires use of the mid-quarter convention, which treats all property placed 

in service (or disposed of) during any quarter as placed in service (or disposed of) on the mid-point of such quarter. 

Sec. 168(d)(3) and (d)(4)(C). Nonresidential real property, residential rental property, and railroad grading or tunnel 

bore are not taken into account for purposes of the mid-quarter convention.

Recovery method Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total

200-percent declining balance 285.71 204.08 145.77 104.12 86.77 86.77 86.77 1,000.00

150-percent declining balance 214.29 168.37 132.29 121.26 121.26 121.26 121.26 1,000.00

Straight-line 142.86 142.86 142.86 142.86 142.86 142.86 142.86 1,000.00
16

Land improvements (such as roads and fences) are generally recovered using the 150-

percent declining balance method, a recovery period of 15 years, and the half-year convention.61 

An exception exists for the theme and amusement park industry, whose assets are generally 

assigned a recovery period of seven years by asset class 80.0 of Rev. Proc. 87-56.62 Racetrack 

facilities are excluded from the definition of theme and amusement park facilities classified 

under asset class 80.0.63

Although racetrack facilities are excluded from asset class 80.0, the statute assigns a 

recovery period of seven years to motorsports entertainment complexes placed in service before 

January 1, 2018.64 For this purpose, a motorsports entertainment complex means a racing track 

facility which (i) is permanently situated on land, and (ii) during the 36-month period following 

its placed-in-service date hosts one or more racing events for automobiles (of any type), trucks, 

or motorcycles which are open to the public for the price of admission.65 

A motorsports entertainment complex also includes ancillary facilities, land 

improvements (e.g., parking lots, sidewalks, waterways, bridges, fences, and landscaping), 

support facilities (e.g., food and beverage retailing, souvenir vending, and other nonlodging 

accommodations), and appurtenances associated with such facilities and related attractions and 

amusements (e.g., ticket booths, race track surfaces, suites and hospitality facilities, grandstands 

and viewing structures, props, walls, facilities that support the delivery of entertainment services, 

other special purpose structures, facades, shop interiors, and buildings).66 Such ancillary and 

 61 Sec. 168(b)(2)(A) and asset class 00.3 of Rev. Proc. 87-56. Under the 150-percent declining balance 

method, the depreciation rate is determined by dividing 150 percent by the appropriate recovery period, switching to 

the straight-line method for the first taxable year where using the straight-line method with respect to the adjusted 

basis as of the beginning of that year will yield a larger depreciation allowance. Sec. 168(b)(2) and (b)(1)(B).

62 This asset class includes assets used in the provision of rides, attractions, and amusements in activities 

defined as theme and amusement parks, and includes appurtenances associated with a ride, attraction, amusement or 

theme setting within the park such as ticket booths, facades, shop interiors, and props, special purpose structures, 

and buildings other than warehouses, administration buildings, hotels, and motels. It also includes all land 

improvements for or in support of park activities (e.g., parking lots, sidewalks, waterways, bridges, fences, 

landscaping, etc.) and support functions (e.g., food and beverage retailing, souvenir vending and other nonlodging 

accommodations) if owned by the park and provided exclusively for the benefit of park patrons. Theme and 

amusement parks are defined as combinations of amusements, rides, and attractions which are permanently situated 

on park land and open to the public for the price of admission. This asset class is a composite of all assets used in 

this industry except transportation equipment (general purpose trucks, cars, airplanes, etc., which are included in 

asset classes with the prefix 00.2), assets used in the provision of administrative services (asset classes with the 

prefix 00.1), and warehouses, administration buildings, hotels and motels.

63 See Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 108th

Congress (JCS-5-05), May 2005, p. 328.

64 Sec. 168(e)(3)(C)(ii) and (i)(15)(D).

65 Sec. 168(i)(15)(A). 

66 Sec. 168(i)(15)(B).
17

support facilities must be (i) owned by the taxpayer who owns the motorsports entertainment 

complex, and (ii) provided for the benefit of patrons of the motorsports entertainment complex. 

A motorsports entertainment complex does not include any transportation equipment, 

administrative services assets, warehouses, administrative buildings, hotels, or motels.67

Description of Proposal

The proposal extends the seven-year recovery period for motorsports entertainment 

complexes for three years to apply to property placed in service before January 1, 2021.

Effective Date

The proposal applies to property placed in service after December 31, 2017. 

5. Accelerated depreciation for business property on Indian reservations

Present Law

With respect to certain property used in connection with the conduct of a trade or 

business within an Indian reservation, depreciation deductions under section 168(j) are 

determined using the following recovery periods:

3-year property 2 years

5-year property 3 years

7-year property 4 years

10-year property 6 years

15-year property 9 years

20-year property 12 years

Nonresidential real property 22 years68

“Qualified Indian reservation property” eligible for accelerated depreciation includes 

property described in the table above which is: (1) used by the taxpayer predominantly in the 

active conduct of a trade or business within an Indian reservation; (2) not used or located outside 

the reservation on a regular basis; (3) not acquired (directly or indirectly) by the taxpayer from a 

 67 Sec. 168(i)(15)(C).

68 Section 168(j)(2) does not provide shorter recovery periods for water utility property, residential rental 

property, or railroad grading and tunnel bores.
18

person who is related to the taxpayer;69 and (4) is not property placed in service for purposes of 

conducting or housing certain gaming activities.70 

Certain “qualified infrastructure property” may be eligible for the accelerated 

depreciation, even if located outside an Indian reservation, provided that the purpose of such 

property is to connect with qualified infrastructure property located within the reservation (e.g., 

roads, power lines, water systems, railroad spurs, and communications facilities).71 

An “Indian reservation” means a reservation as defined in section 3(d) of the Indian 

Financing Act of 1974 (25 U.S.C. 1452(d))72 or section 4(10) of the Indian Child Welfare Act of 

1978 (25 U.S.C. 1903(10)).73 For purposes of the preceding sentence, section 3(d) is applied by 

treating “former Indian reservations in Oklahoma” as including only lands that are (1) within the 

jurisdictional area of an Oklahoma Indian tribe as determined by the Secretary of the Interior, 

and (2) recognized by such Secretary as an area eligible for trust land status under 25 C.F.R. Part 

151 (as in effect on August 5, 1997).74

The depreciation deduction allowed for regular tax purposes is also allowed for purposes 

of the alternative minimum tax.75 

The accelerated depreciation for qualified Indian reservation property is available with 

respect to property placed in service before January 1, 2018.76 A taxpayer may annually make 

an irrevocable election out of section 168(j) on a class-by-class basis.77

Description of Proposal

The proposal extends for three years the accelerated depreciation for qualified Indian 

reservation property to apply to property placed in service before January 1, 2021.

 69 For these purposes, the term “related persons” is defined in section 465(b)(3)(C).

70 Sec. 168(j)(4)(A).

71 Sec. 168(j)(4)(C).

72 Pub. L. No. 93-262.

73 Pub. L. No. 95-608.

74 Sec. 168(j)(6).

75 Sec. 168(j)(3). Note that the corporate alternative minimum tax was repealed for taxable years 

beginning after December 31, 2017. See An Act to Provide for Reconciliation Pursuant to Titles II and V of the 

Concurrent Resolution on the Budget for Fiscal Year 2018, Pub. L. No. 115-97, sec. 12001, December 22, 2017.

76 Sec. 168(j)(9). 

77 Sec. 168(j)(8).
19

Effective Date

The proposal applies to property placed in service after December 31, 2017. 

6. Expensing rules for certain productions 

Present Law

Under section 181, a taxpayer may elect78 to deduct up to $15 million of the aggregate 

production costs of any qualified film, television or live theatrical production, commencing prior 

to January 1, 2018,79 in the year the costs are paid or incurred by the taxpayer, in lieu of 

capitalizing the costs and recovering them through depreciation allowances once the production 

is placed in service.80 The dollar limitation is increased to $20 million if a significant amount of 

the production costs are incurred in areas eligible for designation as a low-income community or 

eligible for designation by the Delta Regional Authority as a distressed county or isolated area of 

distress.81 

A section 181 election may only be made by an owner of the production.82 An owner of 

a production is any person that is required under section 263A to capitalize the costs of 

producing the production into the cost basis of the production, or that would be required to do so 

if section 263A applied to that person.83 In addition, the aggregate production costs of a 

qualified production that is co-produced include all production costs, regardless of funding 

source, in determining if the applicable dollar limit is exceeded. Thus, the term “aggregate 

production costs” means all production costs paid or incurred by any person, whether paid or 

 78 See Treas. Reg. sec. 1.181-2 for rules on making (and revoking) an election under section 181. 

79 For purposes of determining whether a production is eligible for section 181 expensing, a qualified film 

or television production is treated as commencing on the first date of principal photography. The date on which a 

qualified live theatrical production commences is the date of the first public performance of such production for a 

paying audience. 

80 Sec. 181(a)(2)(A). See Treas. Reg. sec. 1.181-1 for rules on determining eligible production costs. 

Eligible production costs under section 181 include participations and residuals paid or incurred. Treas. Reg. sec. 

1.181-1(a)(3)(i). The special rule in section 167(g)(7) that allows taxpayers using the income forecast method of 

depreciation to include participations and residuals that have not met the economic performance requirements in the 

adjusted basis of the property for the taxable year the property is placed in service does not apply for purposes of 

section 181. Treas. Reg. sec. 1.181-1(a)(8). Thus, under section 181, a taxpayer may only include participations 

and residuals actually paid or incurred in eligible production costs. Further, production costs do not include the cost 

of obtaining a production after its initial release or broadcast. See Treas. Reg. sec. 1.181-1(a)(3). For this purpose, 

“initial release or broadcast” means the first commercial exhibition or broadcast of a production to an audience. 

Treas. Reg. sec. 1.181-1(a)(7). Thus, e.g., a taxpayer may not expense the purchase of an existing film library under 

section 181. See T.D. 9551, 76 Fed. Reg. 64816, October 19, 2011.

81 Sec. 181(a)(2)(B).

82 Treas. Reg. sec. 1.181-1(a).

83 Treas. Reg. sec. 1.181-1(a)(2)(i). 
20

incurred directly by an owner or indirectly on behalf of an owner.84 The costs of the production 

in excess of the applicable dollar limitation are capitalized and recovered under the taxpayer’s 

method of accounting for the recovery of such property once placed in service.85

A qualified film, television, or live theatrical production means any production of a 

motion picture (whether released theatrically or directly to video cassette or any other format), 

television program, or live staged play if at least 75 percent of the total compensation expended 

on the production is for services performed in the United States by actors, directors, producers, 

and other relevant production personnel.86 Solely for purposes of this rule, the term 

“compensation” does not include participations and residuals (as defined in section 

167(g)(7)(B)).87 

Each episode of a television series is treated as a separate production, and only the first 

44 episodes of a particular series qualify under the provision.88 Qualified productions do not 

include sexually explicit productions as referenced by section 2257 of title 18 of the U.S. Code.89 

A qualified live theatrical production is defined as a live staged production of a play 

(with or without music) which is derived from a written book or script and is produced or 

presented by a commercial entity in any venue which has an audience capacity of not more than 

3,000, or a series of venues the majority of which have an audience capacity of not more than 

3,000.90 In addition, qualified live theatrical productions include any live staged production 

which is produced or presented by a taxable entity no more than 10 weeks annually in any venue 

 84 Treas. Reg. sec. 1.181-1(a)(4). See Treas. Reg. sec. 1.181-2(c)(3) for the information required to be 

provided to the Internal Revenue Service when more than one person will claim deductions under section 181 for a 

production (to ensure that the applicable deduction limitation is not exceeded).

85 See Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 110th

Congress (JCS-1-09), March 2009, p. 448; and Treas. Reg. sec. 1.181-1(c)(2). A production is generally considered 

to be placed in service at the time of initial release, broadcast, or live staged performance (i.e., at the time of the first 

commercial exhibition, broadcast, or live staged performance of a production to an audience). See, e.g., Rev. Rul. 

79-285, 1979-2 C.B. 91; and Priv. Ltr. Rul. 9010011, March 9, 1990. See also, Treas. Reg. sec. 1.181-1(a)(7). 

However, a production generally may not be considered to be placed in service if it is only exhibited, broadcasted or 

performed for a limited test audience in advance of the commercial exhibition, broadcast, or performance to general 

audiences. See Priv. Ltr. Rul. 9010011 and Treas. Reg. sec. 1.181-1(a)(7).

86 Sec. 181(d)(3)(A).

87 Sec. 181(d)(3)(B). Participations and residuals are defined as, with respect to any property, costs the 

amount of which by contract varies with the amount of income earned in connection with such property. See also 

Treas. Reg. sec. 1.181-3(c). 

88 Sec. 181(d)(2)(B).

89 Sec. 181(d)(2)(C).

90 Sec. 181(e)(2)(A).
21

which has an audience capacity of not more than 6,500.91 In general, in the case of multiple livestaged productions, each such live-staged production is treated as a separate production. Similar 

to the exclusion for sexually explicit productions from the definition of qualified film or 

television productions, qualified live theatrical productions do not include stage performances 

that would be excluded by section 2257(h)(1) of title 18 of the U.S. Code, if such provision were 

extended to live stage performances.92

For purposes of recapture under section 1245, any deduction allowed under section 181 is 

treated as if it were a deduction allowable for amortization.93 Thus, the deduction under section 

181 may be subject to recapture as ordinary income in the taxable year in which (i) the taxpayer 

revokes a section 181 election, (ii) the production fails to meet the requirements of section 181, 

or (iii) the taxpayer sells or otherwise disposes of the production.94

Description of Proposal

The proposal extends the special treatment for qualified film, television, and live 

theatrical productions under section 181 for three years to qualified productions commencing 

prior to January 1, 2021.

Effective Date

The proposal applies to productions commencing after December 31, 2017. 

7. Empowerment zone tax incentives 

Present Law

The Omnibus Budget Reconciliation Act of 1993 (“OBRA 93”)95 authorized the 

designation of nine empowerment zones (“Round I empowerment zones”) to provide tax 

incentives for businesses to locate within certain targeted areas96 designated by the Secretaries of 

the Department of Housing and Urban Development (“HUD”) and the U.S. Department of 

Agriculture (“USDA”). The first empowerment zones were established in large rural areas and 

 91 Sec. 181(e)(2)(D).

92 Sec. 181(e)(2)(E).

93 Sec. 1245(a)(2)(C). For a discussion of the recapture rules applicable to depreciation and amortization 

deductions, see Joint Committee on Taxation, Background and Present Law Relating to Cost Recovery and 

Domestic Production Activities, (JCX-19-12) February 27, 2012, pp. 45-46.

94 See Treas. Reg. sec. 1.181-4.

95 Pub. L. No. 103-66.

96 The targeted areas are those that have pervasive poverty, high unemployment, and general economic 

distress, and that satisfy certain eligibility criteria, including specified poverty rates and population and geographic 

size limitations. 
22

large cities. OBRA 93 also authorized the designation of 95 enterprise communities,97 which 

were located in smaller rural areas and cities.98

The Taxpayer Relief Act of 199799 authorized the designation of two additional urban 

Round I empowerment zones, and 20 additional empowerment zones (“Round II empowerment 

zones”). The Community Renewal Tax Relief Act of 2000 (“2000 Community Renewal Act”)100

authorized a total of 10 new empowerment zones (“Round III empowerment zones”), bringing 

the total number of authorized, and not relinquished, empowerment zones to 41.101 In addition, 

the 2000 Community Renewal Act conformed the tax incentives that are available to businesses 

in the Round I, Round II, and Round III empowerment zones, and extended the empowerment 

zone incentives through December 31, 2009. Subsequent legislation, most recently the 

Bipartisan Budget Act of 2018, extended the empowerment zone incentives through 

December 31, 2017.102

 97 Sec. 1391(b)(1).

98 Enterprise communities were eligible for only one tax benefit: tax-exempt bond financing. For tax 

purposes, the areas designated as enterprise communities continued as such for the ten-year period starting 1995 and 

ending at the end of 2004. However, after 2004 the enterprise communities may still be eligible for other Federal 

benefits (e.g., grants and preferences). 

99 Pub. L. No. 105-34.

100 Pub. L. No. 106-554. The 2000 Community Renewal Act also authorized the designation of 40 

“renewal communities” within which special tax incentives were available. The tax incentives were generally 

available through December 31, 2009 when the renewal community designation expired. One of the tax incentives 

involving the exclusion of capital gain from the sale or exchange of a qualified community asset continued through 

2014.

101 The urban part of the program is administered by HUD and the rural part of the program is administered 

by the USDA. The eight urban Round I empowerment zones are Atlanta, GA; Baltimore, MD; Chicago, IL; 

Cleveland, OH; Detroit, MI; Los Angeles, CA; New York, NY; and Philadelphia, PA/Camden, NJ. Atlanta 

relinquished its empowerment zone designation in Round III. The three rural Round I empowerment zones are 

Kentucky Highlands, KY; Mid-Delta, MI; and Rio Grande Valley, TX. The 15 urban Round II empowerment zones 

are Boston, MA; Cincinnati, OH; Columbia, SC; Columbus, OH; Cumberland County, NJ; El Paso, TX; 

Gary/Hammond/East Chicago, IN; Ironton, OH/Huntington, WV; Knoxville, TN; Miami/Dade County, FL; 

Minneapolis, MN; New Haven, CT; Norfolk/Portsmouth, VA; Santa Ana, CA; and St. Louis, Missouri/East St. 

Louis, IL. The five rural Round II empowerment zones are Desert Communities, CA; Griggs-Steele, ND; Oglala 

Sioux Tribe, SD; Southernmost Illinois Delta, IL; and Southwest Georgia United, GA. The eight urban Round III 

empowerment zones are Fresno, CA; Jacksonville, FL; Oklahoma City, OK; Pulaski County, AR; San Antonio, TX; 

Syracuse, NY; Tucson, AZ; and Yonkers, NY. The two rural Round III empowerment zones are Aroostook County, 

ME; and Futuro, TX.

102 Pub. L. No. 111-312, sec. 753 (2010); Pub. L. No. 112-240, sec. 327(a) (2013); Pub. L. No. 113-295, 

sec. 139 (2014); Pub. L. No. 114-113, Div. Q, sec. 171(a) (2015); and Pub. L. No. 115-123, sec. 40311 (2018). The 

empowerment zone tax incentives may expire earlier than December 31, 2017 if a State or local government 

provided for an expiration date in the nomination of an empowerment zone, or the appropriate Secretary revokes an 

empowerment zone’s designation. The State or local government may, however, amend the nomination to provide 

for a new termination date.
23

The tax incentives available within the designated empowerment zones include a Federal 

income tax credit for employers who hire qualifying employees (the “wage credit”), increased 

expensing of qualifying depreciable property, tax-exempt bond financing, and deferral of capital 

gains tax on the sale of qualified assets sold and replaced. 

The following is a description of the empowerment zone tax incentives as in effect 

through 2017. 

Wage credit

A 20-percent wage credit is available to employers for the first $15,000 of qualified 

wages paid to each employee (i.e., a maximum credit of $3,000 with respect to each qualified 

employee) who (1) is a resident of the empowerment zone, and (2) performs substantially all 

employment services within the empowerment zone in a trade or business of the employer.103 

The wage credit rate applies to qualifying wages paid before January 1, 2018. Wages 

paid to a qualified employee who earns more than $15,000 are eligible for the wage credit 

(although only the first $15,000 of wages is eligible for the credit). The wage credit is available 

with respect to a qualified full-time or part-time employee (employed for at least 90 days), 

regardless of the number of other employees who work for the employer. In general, any taxable 

business carrying out activities in the empowerment zone may claim the wage credit.104

An employer’s deduction otherwise allowed for wages paid is reduced by the amount of 

wage credit claimed for that taxable year.105 Wages are not to be taken into account for purposes 

of the wage credit if taken into account in determining the employer’s work opportunity tax 

credit under section 51.106 In addition, the $15,000 cap is reduced by any wages taken into 

account in computing the work opportunity tax credit.107 The wage credit may be used to offset 

up to 25 percent of the employer’s alternative minimum tax liability.108

 103 Sec. 1396. The $15,000 limit is annual, not cumulative, such that the limit is the first $15,000 of wages 

paid in a calendar year which ends with or within the taxable year.

104 However, the wage credit is not available for wages paid in connection with certain business activities 

described in section 144(c)(6)(B), including a golf course, country club, massage parlor, hot tub facility, suntan 

facility, racetrack, liquor store, or certain farming activities. In addition, wages are not eligible for the wage credit if 

paid to: (1) a person who owns more than five percent of the stock (or capital or profits interests) of the employer, 

(2) certain relatives of the employer, or (3) if the employer is a corporation or partnership, certain relatives of a 

person who owns more than 50 percent of the business.

105 Sec. 280C(a). 

106 Sec. 1396(c)(3)(A). 

107 Sec. 1396(c)(3)(B) .

108 Sec. 38(c)(2). The corporate alternative minimum tax is repealed for taxable years beginning after 

December 31, 2017. However, the full amount of the minimum tax credit will be allowed in taxable years beginning 

before 2022.
24

Increased section 179 expensing limitation

An enterprise zone business109 is allowed up to an additional $35,000 of section 179 

expensing for qualified zone property placed in service before January 1, 2018.110 For taxable 

years beginning in 2017, the total amount that may be expensed is $545,000.111 The section 179 

expensing allowed to a taxpayer is reduced (but not below zero) by the amount by which the cost 

of qualifying property placed in service during the taxable year exceeds a specified dollar 

amount.112 However, only 50 percent of the cost of qualified zone property placed in service 

during the year by the taxpayer is taken into account in determining whether the cost of 

qualifying property placed in service during the taxable year exceeds the specified dollar 

amount.113 

The term “qualified zone property” is defined as depreciable tangible property (including 

buildings) provided that (i) the property is acquired by the taxpayer by purchase (from an 

unrelated party) after the date on which the designation of the empowerment zone took effect, 

(ii) the original use of the property in an empowerment zone commences with the taxpayer, and 

(iii) substantially all of the use of the property is in an empowerment zone in the active conduct 

 109 Sec. 1397C. The term “enterprise zone business” is separate and distinct from the term “enterprise 

community.” Enterprise community, for purposes of the Code, means the areas designated as such under section 

1391. Sec. 1393(b). Note, however, that for purposes of section 1394 relating to tax-exempt enterprise zone facility 

bonds, references to empowerment zones shall be treated as including references to enterprise communities. Sec. 

1394(b)(3).

110 Sec. 1397A. Note that an Act to Provide for Reconciliation Pursuant to Titles II and V of the 

Concurrent Resolution on the Budget for Fiscal Year 2018 provides 100-percent bonus depreciation for qualified 

property acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100-percent 

allowance is phased down by 20 percent per calendar year for qualified property placed in service after December 

31, 2022. Qualified property includes MACRS property with an applicable recovery period of 20 years or less, and 

therefore generally includes qualified zone property other than buildings.

111 $510,000 section 179(b)(1) limitation + $35,000 increase for qualified zone property = $545,000 

maximum dollar limitation. See sec. 179(b)(1) and Section 3.25 of Rev. Proc. 2016-55, 2016-45 I.R.B. 707. For 

taxable years beginning after 2017, the relevant dollar amount under section 179(b)(1) is $1,000,000 (indexed for 

inflation for taxable years beginning after 2018). See also Section 3.25 of Rev. Proc. 2018-18, 2018-10 I.R.B. 392.

112 For taxable years beginning in 2017, the relevant dollar amount is $2,030,000. Sec. 179(b)(2) and 

Section 3.25 of Rev. Proc. 2016-55, 2016-45 I.R.B. 707. For taxable years beginning after 2017, the relevant dollar 

amount under section 179(b)(2) is $2,500,000 (indexed for inflation for taxable years beginning after 2018). See 

also Section 3.25 of Rev. Proc. 2018-18, 2018-10 I.R.B. 392.

113 Sec. 1397A(a)(2). For example, assume that during 2017 a calendar year taxpayer in an enterprise zone 

business purchased and placed in service $4,500,000 of section 179 property that is qualified zone property. The 

$510,000 section 179(b)(1) dollar amount for 2017 is increased to $545,000 (by the lesser of $35,000 or 

$4,500,000). That amount is reduced by the excess section 179 property cost amount of $220,000 ((50 percent x 

$4,500,000) – $2,030,000)). The taxpayer’s expensing limitation is $325,000 ($545,000 – $220,000). If the 

taxpayer had not been an enterprise zone business, its expensing limitation would be zero because the taxpayer 

would have been fully phased out.
25

of a qualified trade or business by the taxpayer in such zone.114 Special rules are provided in the 

case of property that is substantially renovated by the taxpayer.115

An enterprise zone business means any qualified business entity and any qualified 

proprietorship. A qualified business entity means any corporation or partnership if for such year: 

(1) every trade or business of such entity is the active conduct of a qualified business within an 

empowerment zone; (2) at least 50 percent of the total gross income of such entity is derived 

from the active conduct of such business; (3) a substantial portion of the use of the tangible 

property of such entity (whether owned or leased) is within an empowerment zone; (4) a 

substantial portion of the intangible property of such entity is used in the active conduct of any 

such business; (5) a substantial portion of the services performed for such entity by its employees 

are performed in an empowerment zone; (6) at least 35 percent of its employees are residents of 

an empowerment zone; (7) less than five percent of the average of the aggregate unadjusted 

bases of the property of such entity is attributable to collectibles other than collectibles that are 

held primarily for sale to customers in the ordinary course of such business; and (8) less than five 

percent of the average of the aggregate unadjusted bases of the property of such entity is 

attributable to nonqualified financial property.116 

A qualified proprietorship is any qualified business carried on by an individual as a 

proprietorship if for such year: (1) at least 50 percent of the total gross income of such 

individual from such business is derived from the active conduct of such business in an 

empowerment zone; (2) a substantial portion of the use of the tangible property of such 

individual in such business (whether owned or leased) is within an empowerment zone; (3) a 

substantial portion of the intangible property of such business is used in the active conduct of 

such business; (4) a substantial portion of the services performed for such individual in such 

business by employees of such business are performed in an empowerment zone; (5) at least 

35 percent of such employees are residents of an empowerment zone; (6) less than five percent 

of the average of the aggregate unadjusted bases of the property of such individual which is used 

in such business is attributable to collectibles other than collectibles that are held primarily for 

sale to customers in the ordinary course of such business; and (7) less than five percent of the 

average of the aggregate unadjusted bases of the property of such individual which is used in 

such business is attributable to nonqualified financial property.117

A qualified business is defined as any trade or business other than a trade or business that 

consists predominantly of the development or holding of intangibles for sale or license or any 

 114 Sec. 1397D(a)(1). Note, however, that to be eligible for the increased section 179 expensing, the 

qualified zone property has to also meet the definition of section 179 property (e.g., building property would only 

qualify if it constitutes qualified real property under section 179(f)).

115 Sec. 1397D(a)(2).

116 Sec. 1397C(b).

117 Sec. 1397C(c). For these purposes, the term “employee” includes the proprietor.
26

business prohibited in connection with the empowerment zone employment credit.118 In 

addition, the leasing of real property that is located within the empowerment zone is treated as a 

qualified business only if (1) the leased property is not residential rental property, and (2) at least 

50 percent of the gross rental income from the real property is from enterprise zone businesses. 

The rental of tangible personal property is not a qualified business unless at least 50 percent of 

the rental of such property is by enterprise zone businesses or by residents of an empowerment 

zone.

Expanded tax-exempt financing for certain zone facilities

States or local governments can issue enterprise zone facility bonds to raise funds to 

provide an enterprise zone business with qualified zone property.119 These bonds can be used in 

areas designated enterprise communities as well as areas designated empowerment zones. To 

qualify, 95 percent (or more) of the net proceeds from the bond issue must be used to finance: 

(1) qualified zone property whose principal user is an enterprise zone business, and (2) certain 

land functionally related and subordinate to such property. 

The term enterprise zone business is the same as that used for purposes of the increased 

section 179 deduction limitation (discussed above) with certain modifications for start-up 

businesses. First, an employee is considered a resident of an empowerment zone for purposes of 

the 35-percent in-zone employment requirement if they are a resident of an empowerment zone, 

an enterprise community, or a qualified low-income community within an applicable nominating 

jurisdiction.120 The applicable nominating jurisdiction means, with respect to any empowerment 

zone or enterprise community, any local government that nominated such community for 

designation under section 1391. The definition of a qualified low-income community is similar 

to the definition of a low income community provided in section 45D(e) (concerning eligibility 

for the new markets tax credit). A “qualified low-income community” is a population census 

tract with either (1) a poverty rate of at least 20 percent, or (2) median family income which does 

not exceed 80 percent of the greater of metropolitan area median family income or statewide 

median family income (for a nonmetropolitan census tract, does not exceed 80 percent of 

statewide median family income). In the case of a population census tract located within a high 

migration rural county, low-income is defined by reference to 85 percent (as opposed to 

80 percent) of statewide median family income. For this purpose, a high migration rural county 

is any county that, during the 20-year period ending with the year in which the most recent 

census was conducted, has a net out-migration of inhabitants from the county of at least 

10 percent of the population of the county at the beginning of such period. 

The Secretary is authorized to designate “targeted populations” as qualified low-income 

communities. For this purpose, a “targeted population” is defined by reference to 

 118 Sec. 1397C(d). Excluded businesses include any private or commercial golf course, country club, 

massage parlor, hot tub facility, sun tan facility, racetrack or other facility used for gambling, or any store the 

principal business of which is the sale of alcoholic beverages for off-premises consumption. Sec. 144(c)(6). Also, a 

qualified business does not include certain large farms. Sec. 1397C(d)(5)(B).

119 Sec. 1394.

120 Pub. L. No. 114-113, Div. Q, sec. 171 (2015) (effective for bonds issued after 2015).
27

section 103(20) of the Riegle Community Development and Regulatory Improvement Act of 

1994 (the “Act”) to mean individuals, or an identifiable group of individuals, including an Indian 

tribe, who are low-income persons or otherwise lack adequate access to loans or equity 

investments. Section 103(17) of the Act provides that “low-income” means (1) for a targeted 

population within a metropolitan area, less than 80 percent of the area median family income; 

and (2) for a targeted population within a nonmetropolitan area, less than the greater of (a) 

80 percent of the area median family income, or (b) 80 percent of the statewide nonmetropolitan 

area median family income.

Second, a business will be treated as an enterprise zone business during a start-up period 

if (1) at the beginning of the period, it is reasonable to expect the business to be an enterprise 

zone business by the end of the start-up period, and (2) the business makes bona fide efforts to be 

an enterprise zone business. The start-up period is the period that ends with the start of the first 

tax year beginning more than two years after the later of (1) the issue date of the bond issue 

financing the qualified zone property, and (2) the date this property is first placed in service (or, 

if earlier, the date that is three years after the issue date).121 

Third, a business that qualifies as an enterprise zone business at the end of the start-up 

period must continue to qualify during a testing period that ends three tax years after the start-up 

period ends. After the three-year testing period, a business will continue to be treated as an 

enterprise zone business as long as 35 percent of its employees are residents of an empowerment

zone, enterprise community, or a qualified low-income community within an applicable 

nominating jurisdiction.

The face amount of the bonds may not exceed $60 million for an empowerment zone in a 

rural area, $130 million for an empowerment zone in an urban area with zone population of less 

than 100,000, and $230 million for an empowerment zone in an urban area with zone population 

of at least 100,000.

Elective rollover of capital gain from the sale or exchange of any qualified 

empowerment zone asset

Taxpayers can elect to defer recognition of gain on the sale of a qualified empowerment 

zone asset held for more than one year and replaced within 60 days by another qualified 

empowerment zone asset in the same zone.122 A qualified empowerment zone asset generally

means stock or a partnership interest acquired at original issue for cash in an enterprise zone 

business, or tangible property originally used in an enterprise zone business by the taxpayer. The 

deferral is accomplished by reducing the basis of the replacement asset by the amount of the gain 

recognized on the sale of the asset. 

 121 Sec. 1394(b)(3).

122 Sec. 1397B.
28

Description of Proposal

The proposal extends for three years, through December 31, 2020, the period for which 

the designation of an empowerment zone is in effect, thus extending for three years the 

empowerment zone tax incentives, including the wage credit, increased section 179 expensing 

for qualifying property, tax-exempt bond financing, and deferral of capital gains tax on the sale 

of qualified assets replaced with other qualified assets. In the case of a designation of an 

empowerment zone the nomination for which included a termination date which is December 31, 

2017, termination shall not apply with respect to such designation if the entity which made such 

nomination amends the nomination to provide for a new termination date in such manner as the 

Secretary may provide. 

Effective Date

The proposal applies to taxable years beginning after December 31, 2017. 

8. American Samoa economic development credit 

Present Law

Since 2006, certain domestic corporations have been entitled to an economic 

development credit with respect to operations in American Samoa. The credit is not part of the 

Code but is computed based on the rules of former sections 30A, 199, and 936. 

For taxable years beginning before January 1, 2011, as originally enacted, the credit was 

limited to domestic corporations that were existing credit claimants with respect to American 

Samoa who had elected the application of section 936 for its last taxable year beginning before 

January 1, 2006. The credit is based on the corporation’s economic activity-based limitation 

with respect to American Samoa. An existing claimant is a domestic corporation that (1) was 

engaged in the active conduct of a trade or business within American Samoa on October 13, 

1995, and (2) elected the benefits of the possession tax credit123 in an election in effect for its 

 123 For taxable years beginning before January 1, 2006, certain domestic corporations with business 

operations in the U.S. possessions were eligible for the possession tax credit. Secs. 27(b) and 936. This credit offset 

the U.S. tax imposed on certain income related to operations in the U.S. possessions. Subject to certain limitations, 

the amount of the possession tax credit allowed to any domestic corporation equaled the portion of that corporation’s 

U.S. tax that was attributable to the corporation’s non-U.S. source taxable income from (1) the active conduct of a 

trade or business within a U.S. possession, (2) the sale or exchange of substantially all of the assets that were used in 

such a trade or business, or (3) certain possessions investment. No deduction or foreign tax credit was allowed for 

any possessions or foreign tax paid or accrued with respect to taxable income that was taken into account in 

computing the credit under section 936. Under the economic activity-based limit, the amount of the credit could not 

exceed an amount equal to the sum of (1) 60 percent of the taxpayer’s qualified possession wages and allocable 

employee fringe benefit expenses, (2) 15 percent of depreciation allowances with respect to short-life qualified 

tangible property, plus 40 percent of depreciation allowances with respect to medium-life qualified tangible 

property, plus 65 percent of depreciation allowances with respect to long-life qualified tangible property, and (3) in 

certain cases, a portion of the taxpayer’s possession income taxes. A taxpayer could elect, instead of the economic 

activity-based limit, a limit equal to the applicable percentage of the credit that otherwise would have been 

allowable with respect to possession business income, beginning in 1998, the applicable percentage was 40 percent.
29

taxable year that included October 13, 1995.124 A corporation that added a substantial new line 

of business (other than in a qualifying acquisition of all the assets of a trade or business of an 

existing credit claimant) ceased to be an existing credit claimant as of the close of the taxable 

year ending before the date on which that new line of business was added.

The amount of the credit allowed to a qualifying domestic corporation under the 

provision is equal to the sum of the amounts used in computing the corporation’s economic 

activity-based limitation with respect to American Samoa, except that no credit is allowed for the 

amount of any American Samoa income taxes. Thus, for any qualifying corporation the amount 

of the credit equals the sum of (1) 60 percent of the corporation’s qualified American Samoa 

wages and allocable employee fringe benefit expenses and (2) 15 percent of the corporation’s 

depreciation allowances with respect to short-life qualified American Samoa tangible property, 

plus 40 percent of the corporation’s depreciation allowances with respect to medium-life 

qualified American Samoa tangible property, plus 65 percent of the corporation’s depreciation 

allowances with respect to long-life qualified American Samoa tangible property.

The section 936(c) rule denying a credit or deduction for any possessions or foreign tax 

paid with respect to taxable income taken into account in computing the credit under section 936 

does not apply with respect to the credit allowed by the provision. 

For taxable years beginning after December 31, 2011, the credit rules are modified in two 

ways. First, domestic corporations with operations in American Samoa are allowed the credit 

even if those corporations are not existing credit claimants. Second, the credit is available to a 

domestic corporation (either an existing credit claimant or a new credit claimant) only if the 

corporation has qualified production activities income (as defined in section 199(c) by 

substituting “American Samoa” for “the United States” in each place that the latter term 

appears).

In the case of a corporation that is an existing credit claimant with respect to American 

Samoa and that elected the application of section 936 for its last taxable year beginning before 

January 1, 2006, the credit applies to the first 12 taxable years of the corporation which begin 

after December 31, 2005, and before January 1, 2018. For any other corporation, the credit 

applies to the first six taxable years of that corporation which begin after December 31, 2011, 

and before January 1, 2018.

 

To qualify for the possession tax credit for a taxable year, a domestic corporation was required to satisfy 

two conditions. First, the corporation was required to derive at least 80 percent of its gross income for the three-year 

period immediately preceding the close of the taxable year from sources within a possession. Second, the 

corporation was required to derive at least 75 percent of its gross income for that same period from the active 

conduct of a possession business. Sec. 936(a)(2). The section 936 credit generally expired for taxable years 

beginning after December 31, 2005. 

124 A corporation will qualify as an existing credit claimant if it acquired all the assets of a trade or 

business of a corporation that (1) actively conducted that trade or business in a possession on October 13, 1995, and 

(2) had elected the benefits of the possession tax credit in an election in effect for the taxable year that included 

October 13, 1995.
30

Description of Proposal

The proposal extends the credit for three years to apply (a) in the case of a corporation 

that is an existing credit claimant with respect to American Samoa and that elected the 

application of section 936 for its last taxable year beginning before January 1, 2006, to the first 

15 taxable years of the corporation which begin after December 31, 2005, and before January 1, 

2021, and (b) in the case of any other corporation, to the first nine taxable years of the 

corporation which begin after December 31, 2011 and before January 1, 2021. 

For purposes of this credit, the Code is applied without regard to the repeal of 

sections 30A and 936 in 2018,125 or the repeal of section 199 in 2017.126

Effective Date

The proposal is effective for taxable years beginning after December 31, 2017.

 125 See, The Consolidated Appropriations Act 2018, Pub. L. No. 115-141, Division U, Title IV, at 

sec. 401(d)(1)(C) (the repeal of section 936) and sec. 401(d)(1)(D)(viii)(I) (definition of intangible property added to 

section 367(d)) (March 23, 2018). 

126 Pub. L. 115-97, section 13305(a).
31

C. Incentives for Energy Production, Efficiency, and Green Economy Jobs

1. Biodiesel and renewable diesel

Present Law

Biodiesel

Present law provides an income tax credit for biodiesel fuels (the “biodiesel fuels 

credit”). The biodiesel fuels credit is the sum of three credits: (1) the biodiesel mixture credit, 

(2) the biodiesel credit, and (3) the small agri-biodiesel producer credit. The biodiesel fuels 

credit is treated as a general business credit. The amount of the biodiesel fuels credit is 

includible in gross income. The biodiesel fuels credit is coordinated to take into account benefits 

from the biodiesel excise tax credit and payment provisions discussed below. The credit does 

not apply to fuel sold or used after December 31, 2017.

Biodiesel is monoalkyl esters of long chain fatty acids derived from plant or animal 

matter that meet (1) the registration requirements established by the EPA under section 211 of 

the Clean Air Act (42 U.S.C. sec. 7545) and (2) the requirements of the American Society of 

Testing and Materials (“ASTM”) D6751. Agri-biodiesel is biodiesel derived solely from virgin 

oils including oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, 

safflowers, flaxseeds, rice bran, mustard seeds, camelina, or animal fats.

Biodiesel may be taken into account for purposes of the credit only if the taxpayer 

obtains a certification (in such form and manner as prescribed by the Secretary) from the 

producer or importer of the biodiesel that identifies the product produced and the percentage of 

biodiesel and agri-biodiesel in the product.

Biodiesel mixture credit

The biodiesel mixture credit is $1.00 for each gallon of biodiesel (including agribiodiesel) used by the taxpayer in the production of a qualified biodiesel mixture. A qualified 

biodiesel mixture is a mixture of biodiesel and diesel fuel that is (1) sold by the taxpayer 

producing such mixture to any person for use as a fuel, or (2) used as a fuel by the taxpayer 

producing such mixture. The sale or use must be in the trade or business of the taxpayer and is 

to be taken into account for the taxable year in which such sale or use occurs. No credit is 

allowed with respect to any casual off-farm production of a qualified biodiesel mixture.

Per IRS guidance a mixture need only contain 1/10th of one percent of diesel fuel to be a 

qualified mixture. Thus, a qualified biodiesel mixture can contain 99.9 percent biodiesel and 0.1 

percent diesel fuel. 

Biodiesel credit (B-100)

The biodiesel credit is $1.00 for each gallon of biodiesel that is not in a mixture with 

diesel fuel (100 percent biodiesel or B-100) and which during the taxable year is (1) used by the 

taxpayer as a fuel in a trade or business or (2) sold by the taxpayer at retail to a person and 

placed in the fuel tank of such person’s vehicle. 
32

Small agri-biodiesel producer credit

The Code provides a small agri-biodiesel producer income tax credit, in addition to the 

biodiesel and biodiesel mixture credits. The credit is 10 cents per gallon for up to 15 million 

gallons of agri-biodiesel produced by small producers, defined generally as persons whose agribiodiesel production capacity does not exceed 60 million gallons per year. The agri-biodiesel 

must (1) be sold by such producer to another person (a) for use by such other person in the 

production of a qualified biodiesel mixture in such person’s trade or business (other than casual 

off-farm production), (b) for use by such other person as a fuel in a trade or business, or, (c) who 

sells such agri-biodiesel at retail to another person and places such agri-biodiesel in the fuel tank 

of such other person; or (2) used by the producer for any purpose described in (a), (b), or (c). 

Biodiesel mixture excise tax credit

The Code also provides an excise tax credit for biodiesel mixtures. The credit is $1.00 

for each gallon of biodiesel used by the taxpayer in producing a biodiesel mixture for sale or use 

in a trade or business of the taxpayer. A biodiesel mixture is a mixture of biodiesel and diesel 

fuel that (1) is sold by the taxpayer producing such mixture to any person for use as a fuel or (2) 

is used as a fuel by the taxpayer producing such mixture. No credit is allowed unless the 

taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from 

the producer of the biodiesel that identifies the product produced and the percentage of biodiesel 

and agri-biodiesel in the product. 

The credit is not available for any sale or use for any period after December 31, 2017. 

This excise tax credit is coordinated with the income tax credit for biodiesel such that credit for 

the same biodiesel cannot be claimed for both income and excise tax purposes.

Payments with respect to biodiesel fuel mixtures 

If any person produces a biodiesel fuel mixture in such person’s trade or business, the 

Secretary is to pay such person an amount equal to the biodiesel mixture credit. The biodiesel 

fuel mixture credit must first be taken against tax liability for taxable fuels. To the extent the 

biodiesel fuel mixture credit exceeds such tax liability, the excess may be received as a payment. 

Thus, if the person has no section 4081 liability, the credit is refundable. The Secretary is not 

required to make payments with respect to biodiesel fuel mixtures sold or used after December 

31, 2017.

Renewable diesel

Renewable diesel is liquid fuel that (1) is derived from biomass (as defined in section 

45K(c)(3)), (2) meets the registration requirements for fuels and fuel additives established by the 

EPA under section 211 of the Clean Air Act, and (3) meets the requirements of the ASTM D975 

or D396, or equivalent standard established by the Secretary. ASTM D975 provides standards 

for diesel fuel suitable for use in diesel engines. ASTM D396 provides standards for fuel oil 

intended for use in fuel-oil burning equipment, such as furnaces. Renewable diesel also includes 

fuel derived from biomass that meets the requirements of a Department of Defense specification 

for military jet fuel or an ASTM specification for aviation turbine fuel. 
33

For purposes of the Code, renewable diesel is generally treated the same as biodiesel. In 

the case of renewable diesel that is aviation fuel, kerosene is treated as though it were diesel fuel 

for purposes of a qualified renewable diesel mixture. Like biodiesel, the incentive may be taken 

as an income tax credit, an excise tax credit, or as a payment from the Secretary. The incentive 

for renewable diesel is $1.00 per gallon. There is no small producer credit for renewable diesel. 

The incentives for renewable diesel expired after December 31, 2017.

Description of Proposal

The proposal extends the present law income tax credit, excise tax credit and payment 

provisions for biodiesel and renewable diesel through December 31, 2020. The proposal creates 

a special rule to address claims regarding excise tax credits and claims for payment for fuel sold 

or used during the period beginning on January 1, 2018, through the close of the last calendar 

quarter beginning before the date of enactment. In particular, the proposal directs the Secretary 

to issue guidance within 30 days of the date of enactment. Such guidance is to provide for a onetime submission of claims covering those periods. The guidance is to provide for a 180-day 

period for the submission of such claims (in such manner as prescribed by the Secretary) to begin 

no later than 30 days after such guidance is issued. Such claims shall be paid by the Secretary of 

the Treasury not later than 60 days after receipt. If the claim is not paid within 60 days of the 

date of the filing, the claim shall be paid with interest from such date determined by using the 

overpayment rate and method under section 6621.

Effective Date

The proposal applies to fuel sold or used after December 31, 2017. 

2. Second generation biofuel producer credit

Present Law

The second generation biofuel producer credit is a nonrefundable income tax credit for 

each gallon of qualified second generation biofuel fuel production of the producer for the taxable 

year. The amount of the credit per gallon is $1.01. The provision does not apply to qualified 

second generation biofuel production after December 31, 2017. 

“Qualified second generation biofuel production” is any second generation biofuel which 

is produced by the taxpayer and which, during the taxable year, is: (1) sold by the taxpayer to 

another person (a) for use by such other person in the production of a qualified second generation 

biofuel mixture in such person’s trade or business (other than casual off-farm production), (b) for 

use by such other person as a fuel in a trade or business, or (c) who sells such second generation 

biofuel at retail to another person and places such cellulosic biofuel in the fuel tank of such other 

person; or (2) used by the producer for any purpose described in (1)(a), (b), or (c).127 Special 

rules apply for fuel derived from algae.

 127 In addition, for fuels derived from algae, cyanobacterial or lemna, a special rule provides that qualified 

second generation biofuel includes fuel that is sold by the taxpayer to another person for refining by such other 
34

“Second generation biofuel” means any liquid fuel that (1) is produced in the United 

States and used as fuel in the United States, (2) is derived by or from qualified feedstocks and (3) 

meets the registration requirements for fuels and fuel additives established by the Environmental 

Protection Agency (“EPA”) under section 211 of the Clean Air Act. “Qualified feedstock” means 

any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, 

and any cultivated algae, cyanobacteria or lemna. Second generation biofuel does not include 

fuels that (1) are more than four percent (determined by weight) water and sediment in any 

combination, (2) have an ash content of more than one percent (determined by weight), or (3) 

have an acid number greater than 25 (“unprocessed or excluded fuels”). It also does not include 

any alcohol with a proof of less than 150.

The second generation biofuel producer credit cannot be claimed unless the taxpayer is 

registered by the Internal Revenue Service (“IRS”) as a producer of second generation biofuel. 

Second generation biofuel eligible for the section 40 credit is precluded from qualifying as 

biodiesel, renewable diesel, or alternative fuel for purposes of the applicable income tax credit, 

excise tax credit, or payment provisions relating to those fuels. 

Because it is a credit under section 40(a), the second generation biofuel producer credit is 

part of the general business credits in section 38. However, the credit can only be carried 

forward three taxable years after the termination of the credit. The credit is also allowable 

against the alternative minimum tax. Under section 87, the credit is included in gross income. 

Description of Proposal

The proposal extends the credit for three years, through December 31, 2020.

Effective Date

The proposal applies to qualified second generation biofuel production after December 

31, 2017.

3. Nonbusiness energy property

Present Law

A 10-percent credit is available for the purchase of qualified energy efficiency 

improvements to existing homes.128 A qualified energy efficiency improvement is any energy 

efficient building envelope component (1) that is installed in or on a dwelling located in the 

United States and owned and used by the taxpayer as the taxpayer’s principal residence; (2) the 

original use of which commences with the taxpayer; and (3) that reasonably can be expected to 

remain in use for at least five years. The credit is nonrefundable.

 person into a fuel that meets the registration requirements for fuels and fuel additives under section 211 of the Clean 

Air Act.

128 Sec. 25C.
35

Energy efficient building envelope components are building envelope components that 

meet (1) the applicable Energy Star program requirements, in the case of a roof or roof products; 

(2) version 6.0 Energy Star program requirements, in the case of an exterior window, a skylights, 

or an exterior door, and (3) the prescriptive criteria for such components established by the 2009 

International Energy Conservation Code, as in effect on the date of enactment of the American 

Recovery and Reinvestment Tax Act of 2009, in the case of any other component.

Building envelope components are (1) insulation materials or systems which are 

specifically and primarily designed to reduce the heat loss or gain for a dwelling when installed 

in or on such dwelling unit, (2) exterior windows (including skylights); (3) exterior doors; and 

(4) metal or asphalt roofs installed on a dwelling unity, but only if such roof has appropriate 

pigmented coatings or cooling granules that are specifically and primarily designed to reduce the 

heat gain for a dwelling.

Additionally, credits are also available for the purchase of specific energy efficient 

property originally placed in service by the taxpayer during the taxable year. The allowable 

credit for the purchase of certain property is (1) $50 for each advanced main air circulating fan, 

(2) $150 for each qualified natural gas, propane, or oil furnace or hot water boiler, and (3) $300 

for each item of energy efficient building property.

An advanced main air circulating fan is a fan used in a natural gas, propane, or oil 

furnace and which has an annual electricity use of no more than two percent of the total annual 

energy use of the furnace (as determined in the standard Department of Energy test procedures).

A qualified natural gas, propane, or oil furnace or hot water boiler is a natural gas, 

propane, or oil furnace or hot water boiler with an annual fuel utilization efficiency rate of at 

least 95.

Energy-efficient building property is: (1) an electric heat pump water heater which yields 

an energy factor of at least 2.0 in the standard Department of Energy test procedure, (2) an 

electric heat pump which achieves the highest efficiency tier established by the Consortium for 

Energy Efficiency, as in effect on January 1, 2009,129 (3) a central air conditioner which achieves 

the highest efficiency tier established by the Consortium for Energy Efficiency as in effect on 

January 1, 2009,130 (4) a natural gas, propane, or oil water heater which has an energy factor of at 

least 0.82 or thermal efficiency of at least 90 percent, and (5) a stove which burns biomass fuel to 

heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to 

heat water for use in such dwelling unity, and which has a thermal efficiency rating of at least 75 

percent. Biomass fuel is any plant-derived fuel available on a renewable or recurring basis, 

 129 These standards are a seasonal energy efficiency ratio (“SEER”) greater than or equal to 15, an energy 

efficiency ratio (“EER”) greater than or equal to 12.5, and heating seasonal performance factor (“HSPF”) greater 

than or equal to 8.5 for split heat pumps, and SEER greater than or equal to 14, EER greater than or equal to 12, and 

HSPF greater than or equal to 8.0 for packaged heat pumps. 

130 These standards are a SEER greater than or equal to 16 and EER greater than or equal to 13 for split 

systems, and SEER greater than or equal to 14 and EER greater than or equal to 12 for packaged systems. 
36

including agricultural crops and trees, wood and wood waste and residues (including wood 

pellets), plants (including aquatic plants), grasses, residues, and fibers. 

Generally, the credit is available for property placed in service prior to January 1, 2018. 

The maximum credit for a taxpayer for all taxable years is $500, and no more than $200 of such 

credit may be attributable to expenditures on windows. 

The taxpayer’s basis in the property is reduced by the amount of the credit. Special 

proration rules apply in the case of jointly owned property, condominiums, and tenantstockholders in cooperative housing corporations. If less than 80 percent of the property is used 

for nonbusiness purposes, only that portion of expenditures that is used for nonbusiness purposes 

is taken into account.

For purposes of determining the amount of expenditures made by any individual with 

respect to any dwelling unit, expenditures which are made from subsidized energy financing are 

not taken into account. The term “subsidized energy financing” means financing provided under 

a Federal, State, or local program a principal purpose of which is to provide subsidized financing 

for projects designed to conserve or produce energy.

Description of Proposal

The proposal extends the nonbusiness energy property credit for three years, through 

December 31, 2020. The proposal also updates the credit’s requirements to reflect the fact that 

the Department of Energy has replaced the energy factor previously used to measure efficiency 

with a new standard called the uniform energy factor.

Effective Date

The proposal is effective for property placed in service after December 31, 2017.

4. Qualified fuel cell motor vehicles

Present Law

A credit is available through 2017 for vehicles propelled by chemically combining 

oxygen with hydrogen and creating electricity (“fuel cell vehicles”). The base credit is $4,000 

for vehicles weighing 8,500 pounds or less. Heavier vehicles can get up to a $40,000 credit, 

depending on their weight. An additional $1,000 to $4,000 credit is available to cars and light 

trucks to the extent their fuel economy exceeds the 2002 base fuel economy set forth in the Code.

Description of Proposal

The proposal extends the credit for fuel cell vehicles for three years, through December 

31, 2020.

Effective Date

The proposal applies to property purchased after December 31, 2017.
37

5. Alternative fuel refueling property credit

Present Law

Taxpayers may claim a 30-percent credit for the cost of installing qualified clean-fuel 

vehicle refueling property to be used in a trade or business of the taxpayer or installed at the 

principal residence of the taxpayer.131 The credit may not exceed $30,000 per taxable year per 

location, in the case of qualified refueling property used in a trade or business and $1,000 per 

taxable year per location, in the case of qualified refueling property installed on property which 

is used as a principal residence.

Qualified refueling property is property (not including a building or its structural 

components) for the storage or dispensing of a clean-burning fuel or electricity into the fuel tank 

or battery of a motor vehicle propelled by such fuel or electricity, but only if the storage or 

dispensing of the fuel or electricity is at the point of delivery into the fuel tank or battery of the 

motor vehicle. The original use of such property must begin with the taxpayer.

Clean-burning fuels are any fuel at least 85 percent of the volume of which consists of 

ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or 

hydrogen. In addition, any mixture of biodiesel and diesel fuel, determined without regard to 

any use of kerosene and containing at least 20 percent biodiesel, qualifies as a clean fuel.

Credits for qualified refueling property used in a trade or business are part of the general 

business credit and may be carried back for one year and forward for 20 years. Credits for 

residential qualified refueling property cannot exceed for any taxable year the difference between 

the taxpayer’s regular tax (reduced by certain other credits) and the taxpayer’s tentative 

minimum tax. Generally, in the case of qualified refueling property sold to a tax-exempt entity, 

the taxpayer selling the property may claim the credit.

A taxpayer’s basis in qualified refueling property is reduced by the amount of the credit. 

In addition, no credit is available for property used outside the United States or for which an 

election to expense has been made under section 179. 

The credit is available for property placed in service before January 1, 2018.

Description of Proposal

The proposal extends for three years the 30-percent credit for alternative fuel refueling 

property, through December 31, 2020.

Effective Date

The proposal applies to property placed in service after December 31, 2017.

 131 Sec. 30C.
38

6. Extension of credit for electric motorcycles

Present Law

In general, for vehicles acquired before 2018, a 10-percent credit is available for 

qualifying plug-in electric motorcycles.132 Qualifying electric motorcycles must have a battery 

capacity of at least 2.5 kilowatt-hours, be manufactured primarily for use on public streets, roads, 

and highways, and be capable of achieving speeds of at least 45 miles per hours. The maximum 

credit for any qualifying vehicle is $2,500.

Description of Proposal

The proposal extends the electric motorcycles credit for three years, through December 

31, 2020.

Effective Date

The proposal applies to vehicles acquired after December 31, 2017.

7. Credit for electricity produced from certain renewable resources

Present Law

Renewable electricity production credit

An income tax credit is allowed for the production of electricity from qualified energy 

resources at qualified facilities (the “renewable electricity production credit”).133 Qualified 

energy resources comprise wind, closed-loop biomass, open-loop biomass, geothermal energy, 

municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable 

energy. Qualified facilities are, generally, facilities that generate electricity using qualified 

energy resources. To be eligible for the credit, electricity produced from qualified energy 

resources at qualified facilities must be sold by the taxpayer to an unrelated person.

Summary of Credit for Electricity Produced from Certain Renewable Resources

Eligible electricity production activity (sec. 45) Credit amount for 20191

(cents per kilowatt-hour) Expiration2

Wind 2.5 December 31, 2019

Closed-loop biomass 2.5 December 31, 2017

 132 Sec. 30D(g). The credit lapsed and was not available for vehicles placed in service in calendar year 

2014. Before 2014, the credit was also available for qualified vehicles having 3-wheels.

133 Sec. 45. In addition to the renewable electricity production credit, section 45 also provides income tax 

credits for the production of Indian coal and refined coal at qualified facilities.
39

Summary of Credit for Electricity Produced from Certain Renewable Resources

Eligible electricity production activity (sec. 45) Credit amount for 20191

(cents per kilowatt-hour) Expiration2

Open-loop biomass

(including agricultural livestock waste nutrient 

facilities)

1.2 December 31, 2017

Geothermal 2.5 December 31, 2017

Municipal solid waste

(including landfill gas facilities and trash 

combustion facilities)

1.2 December 31, 2017

Qualified hydropower 1.2 December 31, 2017

Marine and hydrokinetic 1.2 December 31, 2017

1

 In general, the credit is available for electricity produced during the first 10 years after a facility has been placed in 

service. For wind facilities, the credit is reduced by 20 percent for facilities the construction of which begins in 

calendar year 2017, by 40 percent for facilities the construction of which begins in calendar year 2018, and by 60 

percent for facilities the construction of which begins in calendar year 2019. 

2

 Expires for property the construction of which begins after this date.

Election to claim energy credit in lieu of renewable electricity production credit

A taxpayer may make an irrevocable election to have certain property which is part of a 

qualified renewable electricity production facility be treated as energy property eligible for a 30 

percent investment credit under section 48. For wind facilities, the credit is reduced by 20 

percent for facilities the construction of which begins in calendar year 2017, by 40 percent for 

facilities the construction of which begins in calendar year 2018, and by 60 percent for facilities 

the construction of which begins in calendar year 2019. For purposes of the investment credit, 

qualified facilities are facilities otherwise eligible for the renewable electricity production credit 

with respect to which no credit under section 45 has been allowed. A taxpayer electing to treat a 

facility as energy property may not claim the renewable electricity production credit. The 

eligible basis for the investment credit for taxpayers making this election is the basis of the 

depreciable (or amortizable) property that is part of a facility capable of generating electricity 

eligible for the renewable electricity production credit.

Description of Proposal

For renewable power facilities, the proposal extends for three years (one year in the case 

of wind facilities), through December 31, 2020, the beginning of construction deadline for the 

renewable electricity production credit and the election to claim the energy credit in lieu of the 

electricity production credit. For wind facilities the construction of which begins in calendar 

year 2020, the credit is reduced by 60 percent.
40

Effective Date

The proposal takes effect January 1, 2018.

8. Production credit for Indian coal facilities

Present Law

In general, a credit is available for each ton of Indian coal produced from a qualified 

facility for during the 12-year period beginning January 1, 2006, and ending December 31, 

2017.134 Qualified Indian coal must be sold to an unrelated third party (either directly by the 

taxpayer or after sale or transfer to one or more related persons). The amount of the credit is 

$2.00 per ton (adjusted for inflation; $2.387 per ton for 2016). A qualified Indian coal facility is 

a facility that produces coal from reserves that on June 14, 2005, were owned by a Federally 

recognized tribe of Indians or were held in trust by the United States for a tribe or its members.

Description of Proposal

The proposal extends the credit for the production of Indian coal for three years, through 

December 31, 2020.

Effective Date

The extension of the credit applies to Indian coal produced after December 31, 2017. 

9. Energy-efficient homes credit

Present Law

A credit is available to an eligible contractor for each qualified new energy-efficient 

home that is constructed by the eligible contractor and acquired by a person from such eligible 

contractor for use as a residence during the taxable year. To qualify as a new energy-efficient 

home, the home must be: (1) a dwelling located in the United States, (2) substantially completed 

after August 8, 2005, and (3) certified in accordance with guidance prescribed by the Secretary 

to have a projected level of annual heating and cooling energy consumption that meets the 

standards for either a 30-percent or 50-percent reduction in energy usage, compared to a 

comparable dwelling constructed in accordance with the standards of chapter 4 of the 2006 

International Energy Conservation Code as in effect (including supplements) on January 1, 2006, 

and any applicable Federal minimum efficiency standards for equipment. With respect to homes 

that meet the 30-percent standard, one-third of such 30-percent savings must come from the 

building envelope, and with respect to homes that meet the 50-percent standard, one-fifth of such 

50-percent savings must come from the building envelope.

Manufactured homes that conform to Federal manufactured home construction and safety 

standards are eligible for the credit provided all the criteria for the credit are met. The eligible 

 134 Sec. 45.
41

contractor is the person who constructed the home, or in the case of a manufactured home, the 

producer of such home. 

The credit equals $1,000 in the case of a new home that meets the 30-percent standard 

and $2,000 in the case of a new home that meets the 50-percent standard. Only manufactured 

homes are eligible for the $1,000 credit.

In lieu of meeting the standards of chapter 4 of the 2006 International Energy 

Conservation Code, manufactured homes certified by a method prescribed by the Administrator 

of the Environmental Protection Agency under the Energy Star Labeled Homes program are 

eligible for the $1,000 credit provided criteria (1) and (2), above, are met. 

The credit applies to homes that are purchased prior to January 1, 2018.

Description of Proposal

The proposal extends the credit for three years, to homes that are acquired prior to 

January 1, 2021.

Effective Date

The proposal applies to homes acquired after December 31, 2017.

10. Special allowance for second generation biofuel plant property

Present Law

In general

A taxpayer generally must capitalize the cost of property used in a trade or business or 

held for the production of income and recover such cost over time through annual deductions for 

depreciation or amortization.135 The period for depreciation or amortization generally begins 

when the asset is placed in service by the taxpayer.136 Tangible property generally is depreciated 

under the modified accelerated cost recovery system (“MACRS”), which determines 

 135 See sections 263(a) and 167. In general, only the tax owner of property (i.e., the taxpayer with the 

benefits and burdens of ownership) is entitled to claim tax benefits such as cost recovery deductions with respect to 

the property. In addition, where property is not used exclusively in a taxpayer’s business, the amount eligible for a 

deduction must be reduced by the amount related to personal use. See, e.g., section 280A.

136 See Treas. Reg. secs. 1.167(a)-10(b), 1.167(a)-3, 1.167(a)-14, and 1.197-2(f). See also Treas. Reg.

sec. 1.167(a)-11(e)(1)(i).
42

depreciation for different types of property based on an assigned applicable depreciation method, 

recovery period,137 and convention.138

Special depreciation allowance for second generation biofuel plant property

An additional first-year depreciation deduction is allowed equal to 50 percent of the 

adjusted basis of qualified second generation biofuel plant property for the taxable year in which 

the property is placed in service.139 In order to qualify, the property generally must be placed in 

service before January 1, 2018.140

The additional first-year depreciation deduction is allowed for both regular tax and 

alternative minimum tax purposes,141 but is not allowed in computed earnings and profits.142 

The additional first-year depreciation deduction is subject to the general rules regarding whether 

a cost is subject to capitalization under section 263A. The basis of the property and the 

depreciation allowances in the year of purchase and later years are appropriately adjusted to 

reflect the additional first-year depreciation deduction.143 

Qualified property

Qualified second generation biofuel plant property means depreciable property used in 

the U.S. solely to produce any liquid fuel that (1) is derived by, or from, qualified feedstocks, 

and (2) meets the registration requirements for fuels and fuel additives established by the 

Environmental Protection Agency (“EPA”) under section 211 of the Clean Air Act. 144 Qualified 

feedstock means any lignocellulosic or hemicellulosic matter that is available on a renewable or 

 137 The applicable recovery period for an asset is determined in part by statute and in part by historic 

Treasury guidance. Exercising authority granted by Congress, the Secretary issued Rev. Proc. 87-56, 1987-2 C.B. 

674, laying out the framework of recovery periods for enumerated classes of assets. The Secretary clarified and 

modified the list of asset classes in Rev. Proc. 88-22, 1988-1 C.B. 785. In November 1988, Congress revoked the 

Secretary’s authority to modify the class lives of depreciable property. Rev. Proc. 87-56, as modified, remains in 

effect except to the extent that the Congress has, since 1988, statutorily modified the recovery period for certain 

depreciable assets, effectively superseding any administrative guidance with regard to such property.

138 Sec. 168.

139 Sec. 168(l).

140 Sec. 168(l)(2)(D).

141 Sec. 168(l)(5). Note that the corporate minimum tax was repealed for taxable years beginning after 

December 31, 2017. See an Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent 

Resolution on the Budget for Fiscal Year 2018, Pub. L. No. 115-97, sec. 2001, December 22, 2017.

142 Sec. 312(k)(3).

143 Sec. 168(l)(1)(B).

144 Secs. 168(l)(2)(A) and 40(b)(6)(E).
43

recurring basis,145 and any cultivated algae, cyanobacteria, or lemna.146 Second generation 

biofuel does not include any alcohol with a proof of less than 150 or certain unprocessed fuel.147

Unprocessed fuels are fuels that (1) are more than four percent (determined by weight) water and 

sediment in any combination, (2) have an ash content of more than one percent (determined by 

weight), or (3) have an acid number greater than 25.148

In order for such property to qualify for the additional first-year depreciation deduction, it 

must also meet the following requirements: (1) the original use of the property must commence 

with the taxpayer; and (2) the property must be (i) acquired by purchase (as defined under 

section 179(d)) by the taxpayer, and (ii) placed in service before January 1, 2018.149 Property 

that is manufactured, constructed, or produced by the taxpayer for use by the taxpayer qualifies if 

the taxpayer begins the manufacture, construction, or production of the property before 

January 1, 2018 (and all other requirements are met).150 Property that is manufactured, 

constructed, or produced for the taxpayer by another person under a contract that is entered into 

prior to the manufacture, construction, or production of the property is considered to be 

manufactured, constructed, or produced by the taxpayer.

Exceptions

Property not eligible for the additional first-year depreciation deduction under section 

168(l) includes (i) any property to which the additional first-year depreciation allowance under 

section 168(k) applies,151 (ii) any property required to be depreciated under the alternative 

depreciation system of section 168(g),152 (iii) any property any portion of which is financed with 

the proceeds of a tax-exempt obligation under section 103,153 and (iv) any property with respect 

 145 For example, lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis 

includes bagasse (from sugar cane), corn stalks, and switchgrass. See Joint Committee on Taxation, General 

Explanation of Tax Legislation Enacted in the 109th Congress (JCS-1-07), January 2007, p. 722.

146 Sec. 40(b)(6)(F).

147 Sec. 40(b)(6)(E)(ii) and (iii).

148 Sec. 40(b)(6)(E)(iii).

149 Sec. 168(l)(2). Requirements relating to actions taken before 2007 are not described herein since they 

have little (if any) remaining effect.

150 Sec. 168(l)(4) and (k)(2)(E).

151 Sec. 168(l)(3)(A).

152 Sec. 168(l)(3)(B).

153 Sec. 168(l)(3)(C).
44

to which the taxpayer has elected 50-percent expensing under section 179C (relating to election 

to expense certain refineries).154

A taxpayer may elect out of the additional first-year depreciation for any class of property 

for any taxable year.155

In addition, recapture rules apply if the property ceases to be qualified second generation 

biofuel plant property.156

Description of Proposal

The proposal extends the special depreciation allowance for three years, to qualified 

second generation biofuel plant property placed in service prior to January 1, 2021.

Effective Date

The proposal applies to property placed in service after December 31, 2017.

11. Energy-efficient commercial buildings deduction

Present Law

In general

Code section 179D provides an election under which a taxpayer may take an immediate 

deduction equal to energy-efficient commercial building property expenditures made by the 

taxpayer. Energy-efficient commercial building property is defined as property (1) which is 

installed on or in any building located in the United States that is within the scope of Standard 

90.1-2007 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers 

and the Illuminating Engineering Society of North America (“ASHRAE/IESNA”), (2) which is 

installed as part of (i) the interior lighting systems, (ii) the heating, cooling, ventilation, and hot 

water systems, or (iii) the building envelope, and (3) which is certified as being installed as part 

of a plan designed to reduce the total annual energy and power costs with respect to the interior 

lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 

percent or more in comparison to a reference building which meets the minimum requirements of 

Standard 90.1-2007 (as in effect before the date of the adoption of ASHRAE/IESNA Standard 

90.1-2010). The deduction is limited to an amount equal to $1.80 per square foot of the property 

for which such expenditures are made. The deduction is allowed in the year in which the 

property is placed in service.

Certain certification requirements must be met in order to qualify for the deduction. The 

Secretary, in consultation with the Secretary of Energy, will promulgate regulations that describe 

 154 Sec. 168(l)(7).

155 Sec. 168(l)(3)(D).

156 Sec. 168(l)(6).
45

methods of calculating and verifying energy and power costs using qualified computer software 

based on the provisions of the 2005 California Nonresidential Alternative Calculation Method 

Approval Manual. 

The Secretary is granted authority to prescribe procedures for the inspection and testing 

for compliance of buildings that are comparable, given the difference between commercial and 

residential buildings, to the requirements in the Mortgage Industry National Accreditation 

Procedures for Home Energy Rating Systems.157 Individuals qualified to determine compliance 

shall only be those recognized by one or more organizations certified by the Secretary for such 

purposes. 

For energy-efficient commercial building property expenditures made by a public entity, 

such as public schools, the deduction may be allocated to the person primarily responsible for 

designing the property in lieu of the public entity.

If a deduction is allowed under this section, the basis of the property is reduced by the 

amount of the deduction. 

The deduction applies to property placed in service prior to January 1, 2018.

Partial allowance of deduction

(1) System-specific deductions

In the case of a building that does not meet the overall building requirement of 50-

percent energy savings, a partial deduction is allowed with respect to each separate building 

system that comprises energy efficient property and which is certified by a qualified professional 

as meeting or exceeding the applicable system-specific savings targets established by the 

Secretary. The applicable system-specific savings targets to be established by the Secretary are 

those that would result in a total annual energy savings with respect to the whole building of 50 

percent, if each of the separate systems met the system specific target. The separate building 

systems are (1) the interior lighting system, (2) the heating, cooling, ventilation and hot water 

systems, and (3) the building envelope. The maximum allowable deduction is $0.60 per square 

foot for each separate system.

(2) Interim rules for lighting systems

In general, in the case of system-specific partial deductions, no deduction is allowed until 

the Secretary establishes system-specific targets.158 However, in the case of lighting system 

 157 See IRS Notice 2006-52, 2006-1 C.B. 1175, June 2, 2006; IRS Notice 2008-40, 2008-14 I.R.B. 725 

March 11, 2008.

158 IRS Notice 2008-40, supra, set a target of a 10-percent reduction in total energy and power costs with 

respect to the building envelope, and 20 percent each with respect to the interior lighting system and the heating, 

cooling, ventilation and hot water systems. IRS Notice 2012-26 (2012-17 I.R.B. 847 April 23, 2012) established 

new targets of 10-percent reduction in total energy and power costs with respect to the building envelope, 25 

percent with respect to the interior lighting system and 15 percent with respect to the heating, cooling, ventilation 
46

retrofits, until such time as the Secretary issues final regulations, the system-specific energy 

savings target for the lighting system is deemed to be met by a reduction in lighting power 

density of 40 percent (50 percent in the case of a warehouse) of the minimum requirements in 

Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2007. Also, in the case of a 

lighting system that reduces lighting power density by 25 percent, a partial deduction of 30 cents 

per square foot is allowed. A pro-rated partial deduction is allowed in the case of a lighting 

system that reduces lighting power density between 25 percent and 40 percent. Certain lighting 

level and lighting control requirements must also be met in order to qualify for the partial 

lighting deductions under the interim rule.

Description of Proposal

The proposal extends the deduction for three years, through December 31, 2020. 

Effective Date

The proposal applies to property placed in service after December 31, 2017.

12. Special rule for sales or dispositions to implement FERC or State electric restructuring 

policy for qualified electric utilities

Present Law

A taxpayer selling property generally realizes gain to the extent the sales price (and any 

other consideration received) exceeds the taxpayer’s basis in the property.159 The realized gain is 

subject to current income tax160 unless the recognition of the gain is deferred or excluded from 

income under a special tax provision.161

One such special tax provision permits taxpayers to elect to recognize gain from 

qualifying electric transmission transactions ratably over an eight-year period beginning in the 

year of sale if the amount realized from such sale is used to purchase exempt utility property 

within the applicable period162 (the “reinvestment property”).163 If the amount realized exceeds 

 

and hot water systems, effective beginning March 12, 2012. The targets from Notice 2008-40 may be used until 

December 31, 2013, but the targets of Notice 2012-26 apply thereafter. 

159 See sec. 1001.

160 See secs. 61 and 451.

161 See, e.g., secs. 453, 1031, and 1033.

162 The applicable period for a taxpayer to reinvest the proceeds is four years after the close of the taxable 

year in which the qualifying electric transmission transaction occurs.

163 Sec. 451(k).
47

the amount used to purchase reinvestment property, any realized gain is recognized to the extent 

of such excess in the year of the qualifying electric transmission transaction. 

A qualifying electric transmission transaction is the sale or other disposition of property 

used by a qualified electric utility to an independent transmission company prior to January 1, 

2018.164 A qualified electric utility is defined as an electric utility, which as of the date of the 

qualifying electric transmission transaction, is vertically integrated in that it is both (1) a 

transmitting utility (as defined in the Federal Power Act165) with respect to the transmission 

facilities to which the election applies, and (2) an electric utility (as defined in the Federal Power 

Act166).167

In general, an independent transmission company is defined as: (1) an independent 

transmission provider168 approved by the Federal Energy Regulatory Commission (“FERC”); 

(2) a person (i) who the FERC determines under section 203 of the Federal Power Act169 (or by 

declaratory order) is not a “market participant” and (ii) whose transmission facilities are placed 

under the operational control of a FERC-approved independent transmission provider no later 

than four years after the close of the taxable year in which the transaction occurs; or (3) in the 

case of facilities subject to the jurisdiction of the Public Utility Commission of Texas, (i) a 

person which is approved by that Commission as consistent with Texas State law regarding an 

independent transmission organization, or (ii) a political subdivision, or affiliate thereof, whose 

transmission facilities are under the operational control of an organization described in (i).170

Exempt utility property is defined as: (1) property used in the trade or business of (i) 

generating, transmitting, distributing, or selling electricity or (ii) producing, transmitting, 

distributing, or selling natural gas; or (2) stock in a controlled corporation whose principal trade 

 164 Sec. 451(k)(3).

165 Sec. 3(23), 16 U.S.C. sec. 796, defines “transmitting utility” as any electric utility, qualifying 

cogeneration facility, qualifying small power production facility, or Federal power marketing agency that owns or 

operates electric power transmission facilities that are used for the sale of electric energy at wholesale.

166 Sec. 3(22), 16 U.S.C. sec. 796, defines “electric utility” as any person or State agency (including any 

municipality) that sells electric energy; such term includes the Tennessee Valley Authority, but does not include any 

Federal power marketing agency.

167 Sec. 451(k)(6).

168 For example, a regional transmission organization, an independent system operator, or an independent 

transmission company.

169 16 U.S.C. sec. 824b.

170 Sec. 451(k)(4).
48

or business consists of the activities described in (1).171 Exempt utility property does not include 

any property that is located outside of the United States.172

If a taxpayer is a member of an affiliated group of corporations filing a consolidated 

return, the reinvestment property may be purchased by any member of the affiliated group (in 

lieu of the taxpayer).173 

Description of Proposal

The proposal extends for three years, through December 31, 2020, the deferral provision 

for qualifying electric transmission transactions.

Effective Date

The proposal applies to dispositions after December 31, 2017.

13. Extension and clarification of excise tax credits relating to alternative fuels

Present Law

The Code provides two per-gallon excise tax credits with respect to alternative fuel: the 

alternative fuel credit, and the alternative fuel mixture credit. For this purpose, the term 

“alternative fuel” means liquefied petroleum gas, P Series fuels (as defined by the Secretary of 

Energy under 42 U.S.C. sec. 13211(2)), compressed or liquefied natural gas, liquefied hydrogen, 

liquid fuel derived from coal through the Fischer-Tropsch process (“coal-to-liquids”), 

compressed or liquefied gas derived from biomass, or liquid fuel derived from biomass. Such 

term does not include ethanol, methanol, or biodiesel. “Alternative fuel” also does not include 

fuel (including lignin, wood residues, or spent pulping liquors) derived from the production of 

paper or pulp.

For coal-to-liquids produced after December 30, 2009, the fuel must be certified as 

having been derived from coal produced at a gasification facility that separates and sequesters 75

percent of such facility’s total carbon dioxide emissions.

The alternative fuel credit is allowed against section 4041 liability, and the alternative 

fuel mixture credit is allowed against section 4081 liability. Neither credit is allowed unless the 

taxpayer is registered with the Secretary. The alternative fuel credit is 50 cents per gallon of 

 171 Sec. 451(k)(5).

172 Sec. 451(k)(5)(C).

173 Sec. 451(k)(7).
49

alternative fuel or gasoline gallon equivalents174 of nonliquid alternative fuel sold by the 

taxpayer for use as a motor fuel in a motor vehicle or motorboat, sold for use in aviation or so 

used by the taxpayer. 

The alternative fuel mixture credit is 50 cents per gallon of alternative fuel used in 

producing an alternative fuel mixture for sale or use in a trade or business of the taxpayer. An 

“alternative fuel mixture” is a mixture of alternative fuel and taxable fuel (gasoline, diesel fuel or 

kerosene) that contains at least 1/10 of one percent taxable fuel.175 The mixture must be sold by 

the taxpayer producing such mixture to any person for use as a fuel, or used by the taxpayer 

producing the mixture as a fuel. The credits expired after December 31, 2017.

A person may file a claim for payment equal to the amount of the alternative fuel credit 

(but not the alternative fuel mixture credit). The alternative fuel credit must first be applied to 

the applicable excise tax liability under section 4041 or 4081, and any excess credit may be taken 

as a payment. The payment provision for alternative fuel expired after December 31, 2017.

Description of Proposal 

The proposal extends the alternative fuel credit and related payment provisions, and the 

alternative fuel mixture credit through December 31, 2020.

The proposal creates a special rule to address claims regarding excise tax credits and 

claims for payment for alternative fuel sold or used during the period beginning on January 1, 

2018, through the close of the last calendar quarter beginning before the date of enactment. In 

particular, the proposal directs the Secretary to issue guidance within 30 days of the date of 

enactment. Such guidance is to provide for a one-time submission of claims covering those 

periods. The guidance is to provide for a 180-day period for the submission of such claims (in 

such manner as prescribed by the Secretary) to begin no later than 30 days after such guidance is 

issued. Such claims shall be paid by the Secretary of the Treasury not later than 60 days after 

receipt. If the claim is not paid within 60 days of the date of the filing, the claim shall be paid 

with interest from such date determined by using the overpayment rate and method under section 

6621.

 174 “Gasoline gallon equivalent” means, with respect to any nonliquid alternative fuel (for example, 

compressed natural gas), the amount of such fuel having a Btu (British thermal unit) content of 124,800 (higher 

heating value).

175 It has been argued that for purposes of the alternative fuel mixture credit, butane is liquefied petroleum 

gas. The term “liquefied petroleum gas” is not defined for purposes of section 6426. Butane is a gasoline 

blendstock under section 48.4081-1(c)(3)(i) of the Treasury regulations and, therefore, is gasoline for purposes of 

section 4083. In Revenue Ruling 2018-2, the Internal Revenue Service determined that butane is not an alternative 

fuel but is a gasoline blendstock as defined in the regulations. As a result, a mixture of butane and gasoline is a 

mixture of two taxable fuels. The IRS held that it is not an alternative fuel mixture and does not qualify for the 

alternative fuel mixture credit.
50

The proposal also makes it clear that for purposes of the alternative fuel mixtures credit, 

an alternative fuel mixture is not a mixture that includes liquefied petroleum gas, compressed or 

liquefied natural gas, or compressed or liquefied gas derived from biomass.

Effective Date

The proposal generally applies to fuel sold or used after December 31, 2017. The 

clarification applies to fuel sold or used on or after the date of enactment and fuel sold or used 

before such date of enactment, but only to the extent that credits and claims of credit under 

section 6426(e) (relating to the alternative fuel mixture credit) with respect to such sale or use 

have not been paid or allowed as of such date.

14. Oil spill liability trust fund rate 

Present Law

The Oil Spill Liability Trust Fund financing rate (“oil spill tax”) was nine cents per 

barrel. It generally applies to crude oil received at a U.S. refinery and to petroleum products 

entered into the United States for consumption, use, or warehousing.176 The oil spill tax also 

applies to certain uses and the exportation of domestic crude oil.177 If any domestic crude oil is 

used in or exported from the United States, and before such use or exportation no oil spill tax 

was imposed on such crude oil, then the oil spill tax is imposed on such crude oil. The tax does 

not apply to any use of crude oil for extracting oil or natural gas on the premises where such 

crude oil was produced.

For crude oil received at a refinery, the operator of the U.S. refinery is liable for the tax. 

For imported petroleum products, the person entering the product for consumption, use, or 

warehousing is liable for the tax. For certain uses and exports, the person using or exporting the 

crude oil is liable for the tax. No tax is imposed with respect to any petroleum product if the 

person who would be liable for such tax establishes that a prior oil spill tax has been imposed 

with respect to such product.

The tax does not apply to any periods after December 31, 2018.

Description of Proposal

The proposal extends the oil spill tax through December 31, 2020.

Effective Date

The proposal applies beginning on the first day of the first calendar month beginning 

after the date of enactment of this Act. 

 176 The term “crude oil” includes crude oil condensates and natural gasoline. The term “petroleum 

product” includes crude oil. 

177 The term “domestic crude oil” means any crude oil produced from a well located in the United States.
51

D. Certain Provisions Expiring at the End of 2019

1. New markets tax credit

Present Law

Section 45D provides a new markets tax credit for qualified equity investments made to 

acquire stock in a corporation, or a capital interest in a partnership, that is a qualified community 

development entity (“CDE”).178 The amount of the credit allowable to the investor (either the 

original purchaser or a subsequent holder) is (1) a five-percent credit for the year in which the 

equity interest is purchased from the CDE and for each of the following two years, and (2) a sixpercent credit for each of the following four years.179 The credit is determined by applying the 

applicable percentage (five or six percent) to the amount paid to the CDE for the investment at 

its original issue, and is available to the taxpayer who holds the qualified equity investment on 

the date of the initial investment or on the respective anniversary date that occurs during the 

taxable year.180 The credit is recaptured if at any time during the seven-year period that begins 

on the date of the original issue of the investment the entity (1) ceases to be a qualified CDE, 

(2) the proceeds of the investment cease to be used as required, or (3) the equity investment is 

redeemed.181 

A qualified CDE is any domestic corporation or partnership: (1) whose primary mission 

is serving or providing investment capital for low-income communities or low-income persons; 

(2) that maintains accountability to residents of low-income communities by their representation 

on any governing board of or any advisory board to the CDE; and (3) that is certified by the 

Secretary as being a qualified CDE.182 A qualified equity investment means stock (other than

nonqualified preferred stock) in a corporation or a capital interest in a partnership that is acquired

at its original issue directly (or through an underwriter) from a CDE for cash, and includes an 

investment of a subsequent purchaser if such investment was a qualified equity investment in the

hands of the prior holder.

183 Substantially all of the investment proceeds must be used by the 

CDE to make qualified low-income community investments and the investment must be 

designated as a qualified equity investment by the CDE. For this purpose, qualified low-income 

community investments include: (1) capital or equity investments in, or loans to, qualified active 

low-income community businesses; (2) certain financial counseling and other services to 

businesses and residents in low-income communities; (3) the purchase from another CDE of any 

 178 Section 45D was added by section 121(a) of the Community Renewal Tax Relief Act of 2000, Pub. L. 

No. 106-554.

179 Sec. 45D(a)(2).

180 Sec. 45D(a)(3).

181 Sec. 45D(g).

182 Sec. 45D(c).

183 Sec. 45D(b).
52

loan made by such entity that is a qualified low-income community investment; or (4) an equity 

investment in, or loan to, another CDE.184 

A “low-income community” is a population census tract with either (1) a poverty rate of 

at least 20 percent or (2) median family income which does not exceed 80 percent of the greater 

of metropolitan area median family income or statewide median family income (for a nonmetropolitan census tract, does not exceed 80 percent of statewide median family income). In 

the case of a population census tract located within a high migration rural county, low-income is 

defined by reference to 85 percent (as opposed to 80 percent) of statewide median family 

income.185 For this purpose, a high migration rural county is any county that, during the 20-year 

period ending with the year in which the most recent census was conducted, has a net outmigration of inhabitants from the county of at least 10 percent of the population of the county at 

the beginning of such period. 

The Secretary is authorized to designate “targeted populations” as low-income 

communities for purposes of the new markets tax credit.186 For this purpose, a “targeted 

population” is defined by reference to section 103(20) of the Riegle Community Development 

and Regulatory Improvement Act of 1994187 (the “Act”) to mean individuals, or an identifiable 

group of individuals, including an Indian tribe, who are low-income persons or otherwise lack 

adequate access to loans or equity investments. Section 103(17) of the Act provides that “lowincome” means (1) for a targeted population within a metropolitan area, less than 80 percent of 

the area median family income; and (2) for a targeted population within a non-metropolitan area, 

less than the greater of 80 percent of the area median family income or 80 percent of the 

statewide non-metropolitan area median family income. A targeted population is not required to 

be within any census tract. In addition, a population census tract with a population of less than 

2,000 is treated as a low-income community for purposes of the credit if such tract is within an 

empowerment zone, the designation of which is in effect under section 1391, and is contiguous 

to one or more low-income communities.

A qualified active low-income community business is defined as a business that satisfies, 

with respect to a taxable year, the following requirements: (1) at least 50 percent of the total 

gross income of the business is derived from the active conduct of trade or business activities in 

any low-income community; (2) a substantial portion of the tangible property of the business is 

used in a low-income community; (3) a substantial portion of the services performed for the 

business by its employees is performed in a low-income community; and (4) less than five 

percent of the average of the aggregate unadjusted bases of the property of the business is 

attributable to certain financial property or to certain collectibles.188

 184 Sec. 45D(d).

185 Sec. 45D(e).

186 Sec. 45D(e)(2).

187 Pub. L. No. 103-325.

188 Sec. 45D(d)(2).
53

The maximum annual amount of qualified equity investments is $3.5 billion for calendar 

years 2010 through 2019. No amount of unused allocation limitation may be carried to any 

calendar year after 2024.

Description of Proposal

This proposal extends the new markets tax credit for one year, through 2020, permitting 

up to $5 billion in qualified equity investments for the 2020 calendar year. The proposal also 

extends for one year, through 2025, the carryover period for unused new markets tax credits. 

Effective Date

The proposal applies to calendar years beginning after December 31, 2019.

2. Employer credit for paid family and medical leave 

Present Law

For wages paid in taxable years beginning after December 31, 2017, and before 

January 1, 2020, “eligible employers” may claim a general business credit equal to 12.5 percent 

of the amount of eligible wages (based on the normal hourly wage rate) paid to “qualifying 

employees” during any period in which such employees are on “family and medical leave” if the 

rate of payment under the program is 50 percent of the wages normally paid to an employee for 

actual services performed for the employer.189 The credit is increased by 0.25 percentage points 

(but not above 25 percent) for each percentage point by which the rate of payment exceeds 50 

percent. The maximum amount of family and medical leave that may be taken into account with 

respect to any qualifying employee for any taxable year is 12 weeks. 

An “eligible employer” is one which has in place a written policy that allows all 

qualifying full-time employees not less than two weeks of annual paid family and medical leave, 

and which allows all less-than-full-time qualifying employees a commensurate amount of leave 

(on a pro rata basis) compared to the leave provided to full-time employees. The policy must 

also provide that the rate of payment under the program is not less than 50 percent of the wages 

normally paid to any such employee for services performed for the employer. 

In addition, in order to be an eligible employer, the employer is prohibited from certain 

practices or acts which are also prohibited under the FMLA, regardless of whether the employer 

is subject to the FMLA. Specifically, the employer must provide paid family and medical leave 

in compliance with a written policy that ensures that the employer will not interfere with, 

restrain, or deny the exercise of or the attempt to exercise, any right provided under the policy 

 189 Wages for this purpose are Federal Unemployment Tax Act wages defined in section 3306(b), without 

regard to the dollar limitation, but do not include amounts taken into account for purposes of determining any other 

credit under subpart D of the Code. 
54

and will not discharge or in any other manner discriminate against any individual for opposing 

any practice prohibited by the policy. 

A “qualifying employee” means any individual who is an employee under tax rules and 

principles and is defined in section 3(e) of the Fair Labor Standards Act of 1938,190 as amended, 

who has been employed by the employer for one year or more, and who for the preceding year, 

had compensation not in excess of 60 percent of the compensation threshold in such year for 

highly compensated employees.191 For 2019, this 60 percent amount is $72,000. 

“Family and medical leave” for purposes of new section 45S is generally defined as leave 

described under sections 102(a)(1)(A)-(E) or 102(a)(3) of the FMLA.192 If an employer provides 

paid leave as vacation leave, personal leave, or other medical or sick leave193 (unless the medical 

or sick leave is specifically for one or more of the “family and medical leave” purposes defined 

above), such paid leave would not be considered to be family and medical leave. In addition, 

leave paid for by a State or local government or required by State or local law (including such 

leave required to be paid by the employer) is not taken into account in determining the amount of 

paid family and medical leave provided by the employer that is eligible for the credit.

The Secretary will make determinations as to whether an employer or an employee 

satisfies the applicable requirements for an eligible employer or qualifying employee, based on 

information provided by the employer that the Secretary determines to be necessary or 

appropriate. 

Description of Proposal

The proposal extends the paid family and medical leave credit for one year (for wages 

paid in taxable years beginning after December 31, 2019, and before January 1, 2021). 

Effective Date

The proposal applies to wages paid in taxable years beginning after December 31, 2019. 

 190 Pub. L. No. 75-718 (June 25, 1938); 29 U.S.C. sec. 201, et seq.

191 Sec. 414(q)(1)(B) ($120,000 for 2018).

192 FMLA section 102(a)(1) provides leave for FMLA purposes due to (A) the birth of a son or daughter of 

the employee and in order to care for such son or daughter; (B) the placement of a son or daughter with the 

employee for adoption or foster care; (C) caring for the spouse, or a son, daughter, or parent, of the employee, if 

such spouse, son, daughter, or parent has a serious health condition; (D) a serious health condition that makes the 

employee unable to perform the functions of the employee’s position; (E) any qualifying exigency (as the Secretary 

of Labor shall, by regulation, determine) arising out of the fact that the spouse, or a son, daughter, or parent of the 

employee is on covered active duty (or has been notified of an impending call or order to covered active duty) in the 

Armed Forces. In addition, FMLA section 102(a)(3) provides leave for FMLA purposes due to the need of an 

employee who is a spouse, son, daughter, parent, or next-of-kin of an eligible service member to care for such 

service member. 

193 These terms mean these types of leave within the meaning of FMLA section 102(d)(2).
55

3. Work opportunity credit

Present Law

In general

The work opportunity tax credit is available on an elective basis for employers hiring 

individuals from one or more of ten targeted groups. The amount of the credit available to an 

employer is determined by the amount of qualified wages paid by the employer. Generally, 

qualified wages consist of wages attributable to service rendered by a member of a targeted 

group during the one-year period beginning with the day the individual begins work for the 

employer (two years in the case of an individual in the long-term family assistance recipient 

category).

Targeted groups eligible for the credit

Generally, an employer is eligible for the credit only for qualified wages paid to members 

of a targeted group. 

(1) Families receiving TANF

An eligible recipient is an individual certified by the designated local agency (e.g., a State 

employment security agency) as being a member of a family eligible to receive benefits under 

the Temporary Assistance for Needy Families Program (“TANF”) for a period of at least nine 

months part of which is during the 18-month period ending on the hiring date. For these 

purposes, members of the family are defined to include only those individuals taken into account 

for purposes of determining eligibility for the TANF.

(2) Qualified veteran

A qualified veteran is a veteran in one of five categories, certified by the designated local 

agency as: (1) a member of a family eligible to receive assistance under a supplemental 

nutritional assistance program (for at least a three month period during the year prior to the 

hiring date); (2) entitled to compensation for a service connected disability and hired within one 

year of discharge; (3) entitled to compensation for a service connected disability and 

unemployed for an aggregate of at least six months during the one year period ending on the 

hiring date; (4) unemployed for at least four weeks but less than six months (whether or not 

consecutive) during the one-year period ending on the date of hiring; or (5) unemployed for at 

least six months (whether or not consecutive) during the one-year period ending on the date of 

hiring.

A veteran is an individual who has served on active duty (other than for training) in the 

Armed Forces for more than 180 days or who has been discharged or released from active duty 

in the Armed Forces for a service-connected disability. However, any individual who has served 

for a period of more than 90 days during which the individual was on active duty (other than for 

training) is not a qualified veteran if any of this active duty occurred during the 60-day period 

ending on the date the individual was hired by the employer. This latter rule is intended to 
56

prevent employers who hire current members of the armed services (or those departed from 

service within the last 60 days) from receiving the credit.

(3) Qualified ex-felon

A qualified ex-felon is an individual certified by the designated local agency as: 

(1) having been convicted of a felony under any State or Federal law; and (2) having a hiring 

date within one year of release from prison or the date of conviction.

(4) Designated community resident

A designated community resident is an individual certified by the designated local agency 

as being at least age 18 but not yet age 40 on the hiring date and as having a principal place of 

abode within an empowerment zone, enterprise community, renewal community or a rural 

renewal community. For these purposes, a rural renewal county is a county outside a 

metropolitan statistical area (as defined by the Office of Management and Budget) which had a 

net population loss during the five-year periods 1990-1994 and 1995-1999. Qualified wages do 

not include wages paid or incurred for services performed while the individual’s principal place 

of abode is outside an empowerment zone, enterprise community, renewal community or a rural 

renewal community.

(5) Vocational rehabilitation referral

A vocational rehabilitation referral is an individual who is certified by the designated 

local agency as an individual who has a physical or mental disability that constitutes a substantial 

handicap to employment and who has been referred to the employer while receiving, or after 

completing vocational rehabilitation services: (1) under an individualized, written plan for 

employment under a State plan approved under the Rehabilitation Act of 1973; (2) under a 

rehabilitation plan for veterans carried out under Chapter 31 of Title 38, U.S. Code; or (3) under 

an individual work plan developed and implemented by an employment network pursuant to 

subsection (g) of section 1148 of the Social Security Act. Certification is provided by the 

designated local agency upon assurances from the vocational rehabilitation agency that the 

employee has met the above conditions.

(6) Qualified summer youth employee

A qualified summer youth employee is an individual: (1) who performs services during 

any 90-day period between May 1 and September 15; (2) who is certified by the designated local 

agency as being 16 or 17 years of age on the hiring date; (3) who has not been an employee of 

that employer before; and (4) who is certified by the designated local agency as having a 

principal place of abode within an empowerment zone, enterprise community, or renewal 

community. As with designated community residents, no credit is available on wages paid or 

incurred for service performed while the individual’s principal place abode is outside an 

empowerment zone, enterprise community, or renewal community. If, after the end of the 90-

day period, the employer continues to employ a youth who was certified during the 90-day 

period as a member of another targeted group, the limit on qualified first-year wages will take 

into account wages paid to the youth while a qualified summer youth employee.
57

(7) Qualified supplemental nutrition assistance program benefits recipient

A qualified supplemental nutrition assistance program benefits recipient is an individual 

at least age 18 but not yet age 40 certified by the designated local agency as being a member of a 

family receiving assistance under a food and nutrition program under the Food and Nutrition Act 

of 2008 for a period of at least six months ending on the hiring date. In the case of families that 

cease to be eligible for food and nutrition assistance under section 6(o) of the Food and Nutrition 

Act of 2008, the six-month requirement is replaced with a requirement that the family has been 

receiving food and nutrition assistance for at least three of the five months ending on the date of 

hire. For these purposes, members of the family are defined to include only those individuals 

taken into account for purposes of determining eligibility for a food and nutrition assistance 

program under the Food and Nutrition Act of 2008.

(8) Qualified SSI recipient

A qualified SSI recipient is an individual designated by the designated local agency as 

receiving supplemental security income (“SSI”) benefits under Title XVI of the Social Security 

Act for any month ending within the 60-day period ending on the hiring date.

(9) Long-term family assistance recipient

A qualified long-term family assistance recipient is an individual certified by the

designated local agency as being: (1) a member of a family that has received family assistance 

for at least 18 consecutive months ending on the hiring date; (2) a member of a family that has 

received such family assistance for a total of at least 18 months (whether or not consecutive) 

after August 5, 1997 (the date of enactment of the welfare-to-work tax credit) if the individual is 

hired within two years after the date that the 18-month total is reached; or (3) a member of a 

family who is no longer eligible for family assistance because of either Federal or State time 

limits, if the individual is hired within two years after the Federal or State time limits made the 

family ineligible for family assistance. 

(10) Long-term unemployment recipient

A qualified long-term unemployment recipient is an individual certified by the designated 

local agency as being in a period of unemployment which: (1) is 27 consecutive weeks or more; 

and (2) includes a period in which the individual was receiving unemployment compensation 

under State or Federal law.

Qualified wages

Generally, qualified wages are defined as cash wages paid by the employer to a member 

of a targeted group. The employer’s deduction for wages is reduced by the amount of the 

credit.194

 194 Sec. 280C(a).
58

For purposes of the credit, generally, wages are defined by reference to the FUTA 

definition of wages contained in sec. 3306(b) (without regard to the dollar limitation therein 

contained). Special rules apply in the case of certain agricultural labor and certain railroad labor.

Calculation of the credit

The credit available to an employer for qualified wages paid to members of all targeted 

groups except for long-term family assistance recipients equals 40 percent (25 percent for 

employment of 400 hours or less) of qualified first-year wages. Generally, qualified first-year 

wages are qualified wages (not in excess of $6,000) attributable to service rendered by a member 

of a targeted group during the one-year period beginning with the day the individual began work 

for the employer. Therefore, the maximum credit per employee is $2,400 (40 percent of the first 

$6,000 of qualified first-year wages). 

The general $6,000 limitation on qualified first-year wages is different for certain 

targeted groups: (1) qualified summer youth employees; (2) qualified veterans who are entitled 

to compensation for a service connected disability, and who are hired within one year of 

discharge; (3) qualified veterans who are entitled to compensation for a service connected 

disability, and who have been unemployed for an aggregate of at least six months during the one 

year period ending on the hiring date; (4) qualified veterans unemployed for at least six months 

(whether or not consecutive) during the one-year period ending on the date of hiring; and (5) 

long-term family assistance recipients. The maximum credit (and limitation on qualified wages) 

per employee for members of these the first four of these groups are, respectively: (1) $1,200 (40 

percent of the first $3,000 of qualified first-year wages); (2) $4,800 (40 percent of the first 

$12,000 of qualified first-year wages); (3) $9,600 (40 percent of the first $24,000 of qualified 

first-year wages); and (4) $5,600 (40 percent of the first $14,000 of qualified first-year wages);

In the case of long-term family assistance recipients, the credit equals 40 percent (25 

percent for employment of 400 hours or less) of $10,000 for qualified first-year wages and 50 

percent of the first $10,000 of qualified second-year wages. Generally, qualified second-year

wages are qualified wages (not in excess of $10,000) attributable to service rendered by a 

member of the long-term family assistance category during the one-year period beginning on the 

day after the one-year period beginning with the day the individual began work for the employer. 

Therefore, the maximum credit per employee is $9,000 (40 percent of the first $10,000 of 

qualified first-year wages plus 50 percent of the first $10,000 of qualified second-year wages). 

Except for long-term family assistance recipients, no credit is allowed for second-year wages.

Certification rules

Generally, an individual is not treated as a member of a targeted group unless: (1) on or 

before the day on which an individual begins work for an employer, the employer has received a 

certification from a designated local agency that such individual is a member of a targeted group; 

or (2) on or before the day an individual is offered employment with the employer, a prescreening notice is completed by the employer with respect to such individual, and not later than 

the 28th day after the individual begins work for the employer, the employer submits such 

notice, signed by the employer and the individual under penalties of perjury, to the designated 

local agency as part of a written request for certification. For these purposes, a pre-screening 
59

notice is a document (in such form as the Secretary may prescribe) which contains information 

provided by the individual on the basis of which the employer believes that the individual is a 

member of a targeted group.

An otherwise qualified unemployed veteran is treated as certified by the designated local 

agency as having aggregate periods of unemployment (whichever is applicable under the 

qualified veterans rules described above) if such veteran is certified by such agency as being in 

receipt of unemployment compensation under a State or Federal law for such applicable periods. 

The Secretary of the Treasury is authorized to provide alternative methods of certification for 

unemployed veterans.

Minimum employment period

No credit is allowed for qualified wages paid to employees who work less than 120 hours 

in the first year of employment.

Qualified tax-exempt organizations employing qualified veterans

The credit is not available to qualified tax-exempt organizations other than those 

employing qualified veterans. If a qualified tax-exempt organization employs a qualified veteran 

(as described above) a tax credit against the FICA taxes of the organization is allowed on the 

wages of the qualified veteran which are paid for the veteran’s services in furtherance of the 

activities related to the function or purpose constituting the basis of the organization’s exemption 

under section 501.195

The credit available to such tax-exempt employer for qualified wages paid to a qualified 

veteran equals 26 percent (16.25 percent for employment of 400 hours or less) of qualified firstyear wages. The amount of qualified first-year wages eligible for the credit is the same as those 

for non-tax-exempt employers (i.e., $6,000, $12,000, $14,000 or $24,000, depending on the 

category of qualified veteran).

A qualified tax-exempt organization means an employer that is described in 

section 501(c) and exempt from tax under section 501(a).

The Social Security Trust Funds are held harmless from the effects of this provision by a 

transfer from the Treasury General Fund.

Treatment of possessions

The “VOW to Hire Heroes Act of 2011” (the “VOW Act”) 196 provided a reimbursement 

mechanism for the U.S. possessions (American Samoa, Guam, the Commonwealth of the 

Northern Mariana Islands, the Commonwealth of Puerto Rico, and the United States Virgin 

 195 Sec. 3111(e).

196 Pub. L. No. 112-56.
60

Islands). The Secretary of the Treasury is to pay to each mirror code possession (Guam, the 

Commonwealth of the Northern Mariana Islands, and the United States Virgin Islands) an 

amount equal to the loss to that possession as a result of the VOW Act changes to the qualified 

veterans rules.197 Similarly, the Secretary of the Treasury is to pay to each non-mirror Code 

possession (American Samoa and the Commonwealth of Puerto Rico) the amount that the 

Secretary estimates as being equal to the loss to that possession that would have occurred as a 

result of the VOW Act changes if a mirror code tax system had been in effect in that possession. 

The Secretary will make this payment to a non-mirror Code possession only if that possession 

establishes to the satisfaction of the Secretary that the possession has implemented (or, at the 

discretion of the Secretary, will implement) an income tax benefit that is substantially equivalent 

to the qualified veterans credit allowed under the VOW Act modifications.

An employer that is allowed a credit against U.S. tax under the VOW Act with respect to 

a qualified veteran must reduce the amount of the credit claimed by the amount of any credit (or, 

in the case of a non-mirror Code possession, another tax benefit) that the employer claims 

against its possession income tax.

Other rules

The work opportunity tax credit is not allowed for wages paid to a relative or dependent 

of the taxpayer. No credit is allowed for wages paid to an individual who is a more than 50-

percent owner of the entity. Similarly, wages paid to replacement workers during a strike or 

lockout are not eligible for the work opportunity tax credit. Wages paid to any employee during 

any period for which the employer received on-the-job training program payments with respect 

to that employee are not eligible for the work opportunity tax credit. The work opportunity tax 

credit generally is not allowed for wages paid to individuals who had previously been employed 

by the employer. In addition, many other technical rules apply.

Expiration

The work opportunity tax credit is not available for individuals who begin work for an 

employer after December 31, 2019.

Description of Proposal

The proposal extends for one year the work opportunity tax credit making it available 

with respect to individuals who begin work for an employer on or before December 31, 2020. 

 197 Prior to enactment of the VOW Act there were two categories of qualified veterans to whom wages 

paid by an employer were eligible for the credit. Employers who hired veterans who were eligible to receive 

assistance under a supplemental nutritional assistance program were entitled to a maximum credit of 40 percent of 

$6,000 of qualified first-year wages paid to such individual. Employers who hired veterans who were entitled to 

compensation for a service-connected disability were entitled to a maximum wage credit of 40 percent of $12,000 of 

qualified first-year wages paid to such individual. The VOW Act expanded the work opportunity credit with respect 

to qualified veterans resulting in the present-law treatment of qualified veterans described above.
61

Effective Date

The proposal generally applies to individuals who begin work for the employer after 

December 31, 2019.

4. Certain provisions related to beer, wine, and distilled spirits

Exemption for aging process of beer, wine, and distilled spirits

Present Law

The uniform capitalization (“UNICAP”) rules require certain direct and indirect costs 

allocable to real property or tangible personal property produced by the taxpayer to be included 

in either inventory or capitalized into the basis of such property, as applicable.198 For real or 

personal property acquired by the taxpayer for resale, section 263A generally requires certain 

direct and indirect costs allocable to such property to be included in inventory.

In the case of interest expense, the uniform capitalization rules apply only to interest paid 

or incurred during the property’s production period199 and that is allocable to property produced 

by the taxpayer or acquired for resale which (1) is either real property or property with a class 

life of at least 20 years, (2) has an estimated production period exceeding two years, or (3) has an 

estimated production period exceeding one year and a cost exceeding $1,000,000.200 The 

production period with respect to any property is the period beginning on the date on which 

production of the property begins,201 and, except as described below, ending on the date on 

which the property is ready to be placed in service or held for sale.202

 198 Sec. 263A.

199 See Treas. Reg. sec. 1.263A–12.

200 Sec. 263A(f).

201 In the case of tangible personal property, the production period begins on the first date the taxpayer’s 

accumulated production expenditures, including planning and design expenditures, are at least five percent of the 

taxpayer’s total estimated accumulated production expenditures for the property unit. Treas. Reg. sec. 1.263A12(c)(3). Thus, the production period may begin before physical production activity has commenced. See Treas. 

Reg. sec. 1.263A-12(c)(3). For example, in the case of the beer, wine, and distilled spirits industry, the production 

period may include time spent planning and designing ingredients, production space, or production personnel.

202 Sec. 263A(f)(5)(B). The production period for a unit of property produced for sale ends on the date that 

the unit is ready to be held for sale and all production activities reasonably expected to be undertaken by, or for, the 

taxpayer or a related person are complete. Treas. Reg. sec. 1.263A-12(d)(1).
62

For interest costs paid or accrued after December 31, 2017, and before January 1, 2020, 

the aging period for beer,203 wine,204 or distilled spirits205 is excluded from the production period 

as determined for purposes of the UNICAP interest capitalization rules. Thus, producers of beer, 

wine, or distilled spirits (other than spirits unfit for beverage purposes) are able to deduct interest 

expenses (subject to any other applicable limitation) attributable to a shorter production period 

that does not include the aging period of the beer, wine, or distilled spirits. In the case of interest 

costs paid or accrued after December 31, 2019, the production period as determined for purposes 

of the UNICAP interest capitalization rules will include the aging period for beer, wine, or 

distilled spirits.

Description of Proposal

The proposal extends for one year (i.e., through December 31, 2020) the exclusion of the 

aging period for beer, wine, or distilled spirits from the production period as determined for 

purposes of the UNICAP interest capitalization rules.

Effective Date

The proposal applies to interest costs paid or accrued after December 31, 2019 and before 

January 1, 2021. 

Reduced rate of excise tax on beer and transfer of beer between bonded facilities

Present Law

In general

Federal excise taxes are imposed at different rates on distilled spirits, wine, and beer and 

are imposed on these products when produced or imported. Generally, these excise taxes are 

administered and enforced by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), except 

the taxes on imported bottled distilled spirits, wine, and beer are collected by the Customs and 

Border Protection Bureau (the “CBP”) of the Department of Homeland Security (under 

delegation by the Secretary of the Treasury). 

Liability for the excise tax on beer arises when the alcohol is produced or imported but is 

not payable until the beer is removed from the brewery or customs custody for consumption or 

sale. Generally, beer may be transferred between commonly owned breweries without payment 

of tax; however, tax liability follows these products. Imported bulk beer may be released from 

customs custody without payment of tax and transferred in bond to a brewery, which becomes 

liable for the tax on such beer. Beer may be exported without payment of tax and may be 

 203 As defined in section 5052(a).

204 As defined in section 5041(a).

205 As defined in section 5002(a)(8), except such spirits that are unfit for use for beverage purposes.
63

withdrawn from a brewery without payment of tax or free of tax for certain authorized uses, 

including industrial uses and non-beverage uses.206

Notwithstanding the current, temporary rates described below, the rate of tax on beer is 

$18 per barrel (31 gallons).207 Small brewers are eligible for a reduced tax rate of $7 per barrel 

on the first 60,000 barrels of beer domestically produced and removed each year.208 Small 

brewers are defined as brewers producing fewer than two million barrels of beer during a 

calendar year. The lower rates for small producers reduce the effective per-gallon tax rate from 

approximately 58 cents per gallon to approximately 22.6 cents per gallon for this beer.

In the case of a controlled group, the two million barrel limitation for small brewers is 

applied to the controlled group, and the 60,000 barrels eligible for the reduced rate of tax, are 

apportioned among the brewers who are component members of such group. The term 

“controlled group” has the meaning assigned to it by section 1563(a), except that the phrase 

“more than 50 percent” is substituted for the phrase “at least 80 percent” in each place it appears 

in section 1563(a).

Individuals may produce limited quantities of beer for personal or family use without 

payment of tax during each calendar year. The limit is 200 gallons per calendar year for 

households of two or more adults and 100 gallons per calendar year for single-adult households.

For calendar years 2018 and 2019, the rate of tax on beer is temporarily lowered to $16 

per barrel on the first six million barrels brewed by the brewer or imported by the importer. In 

general, in the case of a controlled group of brewers, the six million barrel limitation is applied 

and apportioned at the level of the controlled group. Beer brewed or imported in excess of the 

six million barrel limit continues to be taxed at $18 per barrel. In the case of small brewers, such 

brewers are taxed at a rate of $3.50 per barrel on the first 60,000 barrels domestically produced, 

and $16 per barrel on any further barrels produced. 

Transfer rules and removals without tax

Certain removals or transfers of beer are exempt from tax. Beer may be transferred 

without payment of the tax between bonded premises under certain conditions specified in the 

regulations.209 The tax liability accompanies the beer that is transferred in bond. However, beer 

may only be transferred without payment of tax between breweries if both breweries are owned 

by the same brewer. 

The shared ownership requirement of section 5414 is temporarily relaxed for calendar 

years 2018 and 2019. Thus, a brewer may transfer beer from one brewery to another without 

payment of tax, provided that: (i) the breweries are owned by the same person; (ii) one brewery 

 206 Sec. 5053.

207 Sec. 5051.

208 Sec. 5051(a)(2).

209 Sec. 5414.
64

owns a controlling interest in the other; (iii) the same person or persons have a controlling 

interest in both breweries; or (iv) the proprietors of the transferring and receiving premises are 

independent of each other, and the transferor has divested itself of all interest in the beer so 

transferred, and the transferee has accepted responsibility for payment of the tax.

For purposes of transferring the tax liability pursuant to (iv) above, such relief from 

liability shall be effective from the time of removal from the transferor’s bonded premises, or 

from the time of divestment, whichever is later.

Description of Proposal

The proposal extends for one year the temporary rate schedule on beer. 

The proposal extends for one year the temporary rules regarding shared ownership. 

Effective Date

The proposal to extend the temporary rate schedule applies to beer removed after 

December 31, 2019 and before January 1, 2021.

The proposal to extend the temporary rules regarding shared ownership applies to 

calendar quarters beginning after December 31, 2019, and before January 1, 2021.

Effective Date

Reduced rate of excise tax on certain wine, adjustment of alcohol content level for 

application of excise taxes, and definition of mead and low alcohol by volume wine

Present Law

In general

Excise taxes are imposed on the wine, according to the wine’s alcohol content and 

carbonation levels. Notwithstanding temporary changes to alcohol content allowances described 

below, the following table outlines the rates of tax on wine.
65

Tax (and Code Section) Tax Rates

Wines (sec. 5041)

“Still wines”210 not more than 14 percent 

alcohol

$1.07 per wine gallon211

“Still wines” more than 14 percent, but not more 

than 21 percent, alcohol

$1.57 per wine gallon

“Still wines” more than 21 percent, but not more 

than 24 percent, alcohol

$3.15 per wine gallon

“Still wines” more than 24 percent alcohol $13.50 per proof gallon

(taxed as distilled spirits)

Champagne and other sparkling wines $3.40 per wine gallon

Artificially carbonated wines $3.30 per wine gallon

Liability for the excise taxes on wine arises when the wine is produced or imported but is 

not payable until the wine is removed from the bonded wine cellar or winery, or from customs 

control, for consumption or sale. Generally, bulk and bottled wine may be transferred between 

bonded premises; however, the tax liability on such wine becomes the responsibility of the 

transferee. Bulk natural wine may be released from customs custody without payment of tax and 

transferred in bond to a winery. Wine may be exported without payment of tax and may be 

withdrawn from a wine cellar or winery without payment of tax or free of tax for certain 

authorized uses, including industrial uses and non-beverage uses.212 

Credits and exemptions for certain wine producers

Notwithstanding the current, temporary credits described below, domestic wine 

producers having aggregate annual production not exceeding 250,000 gallons (“small domestic 

producers”) receive a credit against the wine excise tax equal to 90 cents per gallon (the amount 

of a wine tax increase enacted in 1990) on the first 100,000 gallons of wine domestically 

produced and removed during a calendar year.213 The credit is reduced (but not below zero) by 

one percent for each 1,000 gallons produced in excess of 150,000 gallons; the credit may not be 

applied to the tax liability on sparkling wines. In the case of a controlled group, the 250,000 

gallon limitation for wineries is applied to the controlled group, and the 100,000 gallons eligible 

for the credit, are apportioned among the wineries who are component members of such group. 

The term “controlled group” has the meaning assigned to it by sec. 1563(a), except that the 

 210 A “still wine” is a non-effervescent or minimally effervescent wine containing no more than 

0.392 grams of carbon dioxide per hundred milliliters of wine. Champagne wine typically contains more than twice 

that amount. 

211 A wine gallon is a U.S. liquid gallon.

212 Sec. 5042.

213 Sec. 5041(c).
66

phrase “more than 50 percent” is substituted for the phrase “at least 80 percent” in each place it 

appears in sec 1563(a).

The credit against the wine excise tax for small domestic producers is temporarily 

modified for calendar year 2018 and 2019 in several ways. First, the 250,000 wine gallon 

domestic production limitation is removed (thus making the credit available for all wine 

producers and importers). Second, under the modifications, the credit may be applied to the tax 

liability on sparkling wine. Third, with respect to wine produced in, or imported into, the United 

States during a calendar year, the credit amount is modified to (1) $1.00 per wine gallon for the 

first 30,000 wine gallons of wine, plus; (2) 90 cents per wine gallon on the next 100,000 wine 

gallons of wine, plus; (3) 53.5 cents per wine gallon on the next 620,000 wine gallons of wine.214 

Finally, there is no phaseout of the credit with additional production.

Other temporary changes

Alcohol-by-volume levels of the first two tiers of the excise tax on wine are temporarily 

modified for calendar years 2018 and 2019, by changing 14 percent to 16 percent. Thus, a wine 

producer or importer may temporarily produce or import “still wine” that has an alcohol-byvolume level of up to 16 percent and remain subject to the lowest rate of $1.07 per wine gallon.

Mead and certain sparkling, low alcohol-by-volume wines are temporarily designated to 

be taxed at the lowest rate applicable to “still wine,” $1.07 per wine gallon of wine for calendar 

years 2018 and 2019. Mead is defined as a wine that contains not more than 0.64 grams of 

carbon dioxide per hundred milliliters of wine,215 which is derived solely from honey and water, 

contains no fruit product or fruit flavoring, and contains less than 8.5 percent alcohol-by-volume. 

The sparkling wines eligible to be taxed at the lowest rate are those wines that contain not more 

than 0.64 grams of carbon dioxide per hundred milliliters of wine,216 which are derived primarily 

from grapes or grape juice concentrate and water, which contain no fruit flavoring other than 

grape, and which contain less than 8.5 percent alcohol by volume. 

Description of Proposal

The proposal extends for one year the temporary modifications to the credit against the 

wine excise tax. 

The proposal extends for one year the temporary modification to the alcohol-by-volume 

levels for purposes of the excise tax.

 214 The credit rate for hard cider is tiered at the same level of production or importation, but is equal to 

6.2 cents, 5.6 cents, and 3.3 cents, respectively.

215 The Secretary is authorized to prescribe tolerances to this limitation as may be reasonably necessary in 

good commercial practice.

216 The Secretary is authorized to prescribe tolerances to this limitation as may be reasonably necessary in 

good commercial practice.
67

The proposal extends for one year the temporary rates on mead and certain sparkling, low 

alcohol-by-volume wines.

Effective Date

The proposals apply to wine removed after December 31, 2019 and before January 1, 

2021.

Reduced rate of excise tax on certain distilled spirits and bulk distilled spirits

Present Law

Notwithstanding the current, temporary rates described below, distilled spirits are taxed 

at a rate of $13.50 per proof gallon.217 Liability for the excise tax on distilled spirits arises when 

the alcohol is produced or imported but is not determined and payable until bottled distilled 

spirits are removed from the bonded premises of the distilled spirits plant where they are 

produced, or customs custody. Generally, bulk distilled spirits may be transferred in bond 

between bonded premises; however, tax liability follows these products. Imported bulk distilled 

spirits may be released from customs custody without payment of tax and transferred in bond to 

a distillery. Distilled spirits be exported without payment of tax and may be withdrawn from a 

distillery without payment of tax or free of tax for certain authorized uses, including industrial 

uses and non-beverage uses. 

For calendar years 2018 and 2019, there is a temporary tax rate schedule for distilled 

spirits based on annual quantity produced or imported. The rate of tax is lowered to $2.70 per 

proof gallon on the first 100,000 proof gallons of distilled spirits produced, $13.34 for all proof 

gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 for amounts 

thereafter. Rules prevent members of the same controlled group from receiving the lower rate on 

more than 100,000 proof gallons of distilled spirits. Additionally, importers of distilled spirits 

are eligible for the temporary lower rates subject to documentation of the annual total production 

of the producer. 

Additionally, for calendar years 2018 and 2019, distillers may transfer spirits in bond in 

containers other than bulk containers without payment of tax.

Description of Proposal

The proposal extends for one year the temporary rate schedule on distilled spirits and the 

eligibility of that rate schedule for importers. 

The proposal extends for one year the allowance for distillers to transfer spirits in bond in 

containers other than bulk containers without payment of tax.

 217 Secs. 5001, 5006, 5043, and 5054. 
68

Effective Date

The proposal to extend the temporary rate schedule applies to distilled spirits removed 

after December 31, 2019 and before January 1, 2021.

The proposal to extend the allowance for distillers to transfer spirits in bond in containers 

other than bulk containers without payment of tax applies to distilled spirits transferred in bond 

after December 31, 2019 and before January 1, 2021.

Simplification of Rules Regarding Records, Statements, and Returns for Craft Beverage 

Modernization and Tax Reform

Present Law

The Code requires those liable for taxation on alcoholic beverages to keep such records, 

render such statements, make such returns, and comply with such rules and regulations as 

prescribed by the Secretary.218 For calendar quarters beginning after February 9, 2018, and 

before January 1, 2020, the Secretary shall permit a unified system for any records, statements, 

and returns required to be kept, rendered, or made for any beer produced in a brewery for which 

tax is imposed, including any beer which has been removed for consumption on the premises of 

the brewery. 

Description of Proposal

The proposal extends for one year the Secretary's permission of a unified system for any 

records, statements, and returns required to be kept, rendered, or made for any beer produced in a 

brewery for which tax is imposed, including any beer which has been removed for consumption 

on the premises of the brewery. 

Effective Date

The proposal applies to calendar quarters beginning December 31, 2019 and before 

January 1, 2021.

 218 Sec. 5555(a).
69

5. Look-through rule for related controlled foreign corporations 

Present Law

In general

The rules of subpart F219 require U.S. shareholders with a 10-percent or greater interest in 

a controlled foreign corporation (“CFC”) to include certain income of the CFC (referred to as 

“subpart F income”) on a current basis for U.S. tax purposes.220

Subpart F income includes foreign base company income.221 One category of foreign 

base company income is foreign personal holding company income, which includes passive 

income such as dividends, interest, rents, and royalties, among other types of income.222 There 

are several exceptions to these rules. For example, foreign personal holding company income 

does not include dividends and interest received by a CFC from a related corporation organized 

and operating in the same foreign country in which the CFC is organized, or rents and royalties 

received by a CFC from a related corporation for the use of property within the country in which 

the CFC is organized.223 Interest, rent, and royalty payments do not qualify for this exclusion to 

the extent that such payments reduce the subpart F income of the payor. 

In addition, subpart F income of a CFC does not include any item of income from sources 

within the United States that is effectively connected with the conduct by such CFC of a trade or 

business within the United States (“ECI”) unless such item is exempt from taxation (or is subject 

to a reduced rate of tax) pursuant to a tax treaty.224 

The “CFC look-through” rule

Section 954(c)(6), colloquially referred to as the “CFC look-through” rule, provides that 

dividends, interest (including factoring income that is treated as equivalent to interest under 

section 954(c)(1)(E)), rents, and royalties received or accrued by one CFC from a related CFC 

are not treated as foreign personal holding company income to the extent attributable or properly 

allocable to income of the payor that is neither subpart F income nor treated as ECI. For this 

purpose, a related CFC is a CFC that controls or is controlled by the other CFC, or a CFC that is 

 219 Secs. 951-964.

220 Sec. 951(a).

221 Secs. 952(a)(2) and 954.

222 Sec. 954(c)(1).

223 Sec. 954(c)(3).

224 Sec. 952(b).
70

controlled by the same person or persons that control the other CFC. Ownership of more than 

50 percent of the CFC’s stock (by vote or value) constitutes control for these purposes.

The Secretary is authorized to prescribe regulations that are necessary or appropriate to 

carry out the look-through rule, including such regulations as may be necessary or appropriate to 

prevent the abuse of the purposes of such rule.

The look-through rule applies to taxable years of foreign corporations beginning after 

December 31, 2005, and before January 1, 2020, and to taxable years of U.S. shareholders with 

or within which such taxable years of foreign corporations end.225 

Description of Proposal

The proposal extends for one year the application of the look-through rule, to taxable 

years of foreign corporations beginning before January 1, 2021, and to taxable years of 

U.S. shareholders with or within which such taxable years of foreign corporations end. 

Effective Date

The proposal applies to taxable years of foreign corporations beginning after 

December 31, 2019, and to taxable years of U.S. shareholders with or within which such taxable 

years of foreign corporations end. 

6. Credit for health insurance costs of eligible individuals

Present Law

Eligible coverage months

For months beginning before January 1, 2020, in the case of an eligible individual, a 

refundable tax credit is provided for 72.5 percent of the individual’s premiums for qualified 

health insurance of the individual and qualifying family members for each eligible coverage 

month beginning in the taxable year.226 The credit is commonly referred to as the health 

coverage tax credit (“HCTC”). The credit is available only with respect to amounts paid by the 

 225 See section 144 of the Protecting Americans from Tax Hikes Act of 2015 (Division Q of Pub. L. 

No. 114-113), H.R. 2029 (the “PATH Act of 2015”), which extended section 954(c)(6) for five years. Congress has 

previously extended the application of section 954(c)(6) several times, most recently in the Tax Increase Prevention 

Act of 2014, Pub. L. No. 113-295; Pub. L. No. 107-147, sec. 614, 2002; Pub. L. No. 106-170, sec. 503, 1999; Pub. 

L. No. 105-277, 1998.

226 Qualifying family members are the individual’s spouse and any dependent for whom the individual is 

entitled to claim a dependency exemption. Any individual who has certain specified coverage is not a qualifying 

family member.
71

individual for qualified health insurance. Advance monthly payments paid directly to the health 

plan administrator are available.227

Eligibility for the credit is determined on a monthly basis. In general, an eligible 

coverage month is any month if (1) the month begins before January 1, 2020, and (2) as of the 

first day of the month, the individual is an eligible individual, is covered by qualified health 

insurance, the premium for which is paid by the individual, does not have other specified 

coverage, and is not imprisoned under Federal, State, or local authority. In the case of a joint 

return, the eligibility requirements are met if at least one spouse satisfies the requirements. 

Eligible individuals

An eligible individual is an individual who is (1) an eligible Trade Adjustment Assistance 

(“TAA”) recipient, (2) an eligible alternative TAA recipient or an eligible reemployment TAA 

recipient, or (3) an eligible Pension Benefit Guaranty Corporation (“PBGC”) pension recipient. 

In general, an individual is an eligible TAA recipient for a month if the individual (1) receives 

for any day of the month a trade readjustment allowance under the Trade Act of 1974 or would 

be eligible to receive such an allowance but for the requirement that the individual exhaust 

unemployment benefits before being eligible to receive an allowance and (2) with respect to such 

allowance, is covered under a required certification. An individual is an eligible alternative TAA 

recipient or an eligible reemployment TAA recipient for a month if the individual participates in 

a certain program under the Trade Act of 1974 and receives a related benefit for the month. 

Generally, an individual is an eligible PBGC pension recipient for any month if the individual 

(1) is age 55 or over as of the first day of the month and (2) receives a benefit for the month, any 

portion of which is paid by the PBGC. A person who may be claimed as a dependent on another 

person’s tax return is not an eligible individual. In addition, an otherwise eligible individual is 

not eligible for the credit for a month if, as of the first day of the month, the individual has 

certain specified coverage, such as certain employer-provided coverage or coverage under 

certain governmental health programs.

 227 Sec. 7527. In order to coordinate eligibility for the premium assistance credit under section 36B with 

eligibility for the HCTC, an eligible individual must elect the HCTC no later than the due date, with any extension, 

for filing his or her income tax return for that year, and such election is irrevocable. The election applies for that 

coverage month and all subsequent eligible coverage months during the taxable year, and the taxpayer is not entitled 

to the premium assistance credit for any coverage month for which the individual elects the HCTC. In addition, if 

an eligible individual receives advance HCTC payment or advance premium assistance payment for months 

occurring during a taxable year and subsequently elects HCTC for any eligible months, the individual’s income tax 

liability is increased by the amount of the advance payment, but then offset by the amount of the HCTC allowed to 

the individual. If an individual receiving advance HCTC payment does not elect HCTC but instead claims the 

premium assistance credit for any coverage months, the increase in tax liability equal to the advance payment is 

offset by the amount of the allowable premium assistance credit, and any remaining tax liability attributable to the 

advance payment (and the advance premium assistance payment, if any) is limited in the same way as if the advance

HCTC payment had instead been an advance premium assistance payment. Sec. 35(g)(11) and (12).
72

Qualified health insurance

Qualified health insurance eligible for the credit is: (1) coverage under a COBRA 

continuation provision;228 (2) State-based continuation coverage provided by the State under a 

State law that requires such coverage; (3) coverage offered through a qualified State high risk 

pool; (4) coverage under a health insurance program offered to State employees or a comparable 

program; (5) coverage through an arrangement entered into by a State and a group health plan, 

an issuer of health insurance coverage, an administrator, or an employer; (6) coverage offered 

through a State arrangement with a private sector health care coverage purchasing pool; (7) 

coverage under a State-operated health plan that does not receive any Federal financial 

participation; (8) coverage under a group health plan that is available through the employment of 

the eligible individual’s spouse; (9) coverage under individual health insurance229 (other than 

coverage purchased through an American Health Benefit Exchange);230 and (10) coverage under 

an employee benefit plan funded by a voluntary employee beneficiary association (“VEBA”)231

established pursuant to an order of a bankruptcy court (or by agreement with an authorized 

representative).232 

Qualified health insurance does not include any State-based coverage (i.e., coverage 

described in (2)-(7) in the preceding paragraph) unless the State has elected to have such 

coverage treated as qualified health insurance and such coverage meets certain consumerprotection requirements.233 Such State coverage must provide that each qualifying individual is 

guaranteed enrollment if the individual pays the premium for enrollment or provides a qualified 

health insurance costs eligibility certificate and pays the remainder of the premium. In addition, 

the State-based coverage cannot impose any pre-existing condition limitation with respect to 

qualifying individuals. State-based coverage cannot require a qualifying individual to pay a 

premium or contribution that is greater than the premium or contribution for a similarly situated 

individual who is not a qualified individual. Finally, benefits under the State-based coverage 

must be the same as (or substantially similar to) benefits provided to similarly situated 

individuals who are not qualifying individuals. 

 228 COBRA continuation provision is defined by section 9832(d)(1).

229 For this purpose, “individual health insurance” means any insurance that constitutes medical care 

offered to individuals other than in connection with a group health plan. Such term does not include Federal- or 

State-based health insurance coverage.

230 The premium assistance credit is provided for eligible individuals and families who purchase health 

insurance through an American Health Benefit Exchange. See sec. 36B.

231 See section 501(c)(9) for the definition of a VEBA.

232 See 11 U.S.C. sec. 1114.

233 For guidance on how a State elects a health program to be qualified health insurance for purposes of the 

credit, see Rev. Proc. 2004-12, 2004-1 C.B. 528.
73

A qualifying individual for this purpose is an eligible individual who seeks to enroll in 

the State-based coverage and who has aggregate periods of creditable coverage234 of three 

months or longer, does not have other specified coverage, and is not imprisoned. However, 

State-based coverage that satisfies any or all of the consumer-protection requirements for Statebased coverage with respect to all eligible individuals is also qualified health insurance for 

purposes of HCTC.235

Qualified health insurance does not include coverage under a flexible spending or similar 

arrangement or any insurance if substantially all of the coverage is for excepted benefits.

Description of Proposal

The proposal extends the availability of the HCTC credit for 12 months, by amending the 

definition of eligible coverage month to include months beginning before January 1, 2021, if the 

requirements for an eligible coverage month are otherwise met.

Effective Date

The proposal is effective for months beginning after December 31, 2019. 

 234 Creditable coverage is determined under section 9801(c).

235 See Q&A-10 of Notice 2005-50, 2005-2 C.B. 14.
74

TITLE II ─ ESTATE AND GIFT TAX 

1. Reduction of unified credit against estate tax 

Present Law

In general

A gift tax is imposed on certain lifetime transfers, and an estate tax is imposed on certain 

transfers at death. A generation-skipping transfer tax generally is imposed on transfers, either 

directly or in trust or similar arrangement, to a “skip person” (i.e., a beneficiary in a generation 

more than one generation younger than that of the transferor). Transfers subject to the 

generation-skipping transfer tax include direct skips, taxable terminations, and taxable 

distributions. 

Income tax rules determine the recipient’s tax basis in property acquired from a decedent 

or by gift. Gifts and bequests generally are excluded from the recipient’s gross income.236

Unified credit (exemption) and tax rates

Unified credit

A unified credit is available with respect to taxable transfers by gift and at death.237 The 

unified credit offsets tax, computed using the applicable estate and gift tax rates, on a specified 

amount of transfers, referred to as the applicable exclusion amount, or exemption amount. 

Exemption used during life to offset taxable gifts reduces the amount of exemption that remains 

at death to offset the value of a decedent’s estate. An election is available under which 

exemption that is not used by a decedent may be used by the decedent’s surviving spouse 

(exemption portability).

For decedents dying and gifts made before January 1, 2018, the basic exclusion amount 

that is used to determine the unified credit is $5 million, indexed for inflation occurring after 

2011. Public Law 115-97, however, temporarily increases the basic exclusion amount for estates 

of decedents dying and gifts made after December 31, 2017 and before January 1, 2026. This is 

accomplished by doubling the basic exclusion amount provided in section 2010(c)(3) of the 

Code from $5 million to $10 million. The $10 million amount is indexed for inflation occurring 

after 2011. For 2019, the basic exclusion amount is $11,400,000.238 

 236 Sec. 102.

237 Sec. 2010.

238 Rev. Proc. 2018-57, 2018-49 I.R.B. 827, p. 835 (December 3, 2018). As a conforming amendment to 

the increase in the basic exclusion amount, Public Law 115-97 also amends section 2001(g) (regarding computation 

of estate tax). This conforming amendment, which was enacted as a permanent provision, provides that the 

Secretary shall prescribe regulations as may be necessary or appropriate to carry out the purposes of section 2001 

with respect to differences between the basic exclusion amount in effect at the time of the decedent’s death and at 
75

The temporary increase in the basic exclusion amount expires for decedents dying and 

gifts made after December 31, 2025. At that time, the basic exclusion amount returns to $5 

million, indexed for inflation occurring after 2011.

Common tax rate table

A common tax-rate table with a top marginal tax rate of 40 percent is used to compute 

gift tax and estate tax. The 40-percent rate applies to transfers in excess of $1 million (to the 

extent not exempt). Because the 2019 exemption amount shields the first $11.4 million in gifts 

and bequests from tax, transfers in excess of the exemption amount generally are subject to tax at 

the highest marginal rate (40 percent).

Generation-skipping transfer tax exemption and rate

The generation-skipping transfer tax is a separate tax that can apply in addition to either 

the gift tax or the estate tax. The tax rate and exemption amount for generation-skipping transfer 

tax purposes, however, are set by reference to the estate tax rules. Generation-skipping transfer 

tax is imposed using a flat rate equal to the highest estate tax rate (40 percent). Tax is imposed 

on cumulative generation-skipping transfers in excess of the generation-skipping transfer tax 

exemption amount in effect for the year of the transfer. The generation-skipping transfer tax 

exemption for a given year is equal to the estate tax exemption amount in effect for that year 

($11.4 million for 2019). 

Description of Proposal

The proposal accelerates by three years the expiration of the increase in the estate and gift 

tax exemption. As a result, the basic exclusion amount returns to $5 million (indexed for 

inflation occurring after 2011) for decedents dying and gifts made after December 31, 2022.

Effective Date

The proposal is effective for estates of decedents dying and gifts made after 

December 31, 2022.

 

the time of any gifts made by the decedent. The purpose of the regulatory authority is to address the computation of 

the estate tax where (1) a decedent dies in a year in which the basic exclusion amount is lower than the basic 

exclusion amount that was in effect when the decedent made taxable gifts during his or her life, and (2) such taxable 

gifts exceeded the basic exclusion amount in effect at the time of the decedent’s death. Because the temporary 

increase in the basic exclusion amount under Public Law 115-97 does not apply for estates of decedents dying after 

December 31, 2025, it was expected that such guidance would prevent the estate tax computation under section 

2001(g) from recapturing, or “clawing back,” all or a portion of the benefit of the increased basic exclusion amount 

used to offset gift tax for certain decedents who make large taxable gifts between January 1, 2018, and December 

31, 2025, and die after December 31, 2025. In November 2018, the IRS issued proposed regulations pursuant to this 

regulatory authority. See REG-106706-18, 26 C.F.R. Part 20 (November 23, 2018).
76

TITLE III ─ DISASTER TAX RELIEF

Definitions

The proposals below provide temporary tax relief to those areas affected by certain major 

disasters declared in 2018 and some portion of 2019. The proposals use the terms “qualified 

disaster area,” “qualified disaster zone,” “qualified disaster,” and “incident period.” As used in 

the bill, “qualified disaster area” refers to an area with respect to which a major disaster has been 

declared by the President during the period beginning on January 1, 2018, and ending on the date 

which is 60 days after the date of enactment of the bill, under section 401 of the Robert T. 

Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”), if the incident 

period of the disaster with respect to which such declaration is made begins on or before the date 

of the enactment of the bill. However, the “California wildfire disaster area,” as defined in the 

Bipartisan Budget Act of 2018,239 is not a qualified disaster area. A “qualified disaster zone” 

refers to that portion of the applicable “qualified disaster area,” as described above, which has 

been determined by the President to warrant individual or individual and public assistance from 

the Federal government under the Stafford Act by reason of the applicable qualified disaster. A 

“qualified disaster” means, with respect to the applicable qualified disaster area, the disaster by 

reason of which a major disaster was declared with respect to such area. “Incident period” 

means, with respect to the applicable qualified disaster, the period specified by the Federal 

Emergency Management Agency as the period during which such disaster occurred, except that 

such period shall not be treated as beginning before January 1, 2018, or ending after the date 

which is 30 days after the date of enactment of this bill.

1. Special disaster-related rules for use of retirement funds 

Present Law

Distributions from tax-favored retirement plans

A distribution from a qualified retirement plan, a tax-sheltered annuity plan (a 

“section 403(b) plan”), an eligible deferred compensation plan of a State or local government 

employer (a “governmental section 457(b) plan”), or an individual retirement arrangement (an 

“IRA”) generally is included in income for the year distributed.240 These plans are referred to 

collectively as “eligible retirement plans.” In addition, unless an exception applies, a distribution 

from a qualified retirement plan, a section 403(b) plan, or an IRA received before age 591⁄2 is 

 239 Pub. L. No. 115-123, sec. 20102.

240 Secs. 401(a), 403(a), 403(b), 457(b) and 408. Under section 3405, distributions from these plans are 

generally subject to income tax withholding unless the recipient elects otherwise. In addition, certain distributions 

from a qualified retirement plan, a section 403(b) plan, or a governmental section 457(b) plan are subject to 

mandatory income tax withholding at a 20-percent rate unless the distribution is rolled over.
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subject to a 10-percent additional tax (referred to as the “early withdrawal tax”) on the amount 

includible in income.241

In general, a distribution from an eligible retirement plan may be rolled over to another 

eligible retirement plan within 60 days, in which case the amount rolled over generally is not 

includible in income. The IRS has the authority to waive the 60-day requirement if failure to 

waive the requirement would be against equity or good conscience, including cases of casualty, 

disaster, or other events beyond the reasonable control of the individual.

The terms of a qualified retirement plan, section 403(b) plan, or governmental 

section 457(b) plan generally determine when distributions are permitted. However, in some 

cases, restrictions may apply to distributions before an employee’s termination of employment, 

referred to as “in-service” distributions. Despite such restrictions, an in-service distribution may 

be permitted in the case of financial hardship or an unforeseeable emergency.

Loans from tax-favored retirement plans

Employer-sponsored retirement plans may provide loans to participants. Unless the loan 

satisfies certain requirements in both form and operation, the amount of a retirement plan loan is 

a deemed distribution from the retirement plan. Among the requirements that the loan must 

satisfy are that the loan amount must not exceed the lesser of 50 percent of the participant’s 

account balance or $50,000 (generally taking into account outstanding balances of previous 

loans), and the loan’s terms must provide for a repayment period of not more than five years 

(except for a loan specifically to purchase a home) and for level amortization of loan payments to 

be made not less frequently than quarterly.242 Thus, if an employee stops making payments on a 

loan before the loan is repaid, a deemed distribution of the outstanding loan balance generally 

occurs. A deemed distribution of an unpaid loan balance is generally taxed as though an actual 

distribution occurred, including being subject to a 10-percent early distribution tax, if applicable. 

A deemed distribution is not eligible for rollover to another eligible retirement plan. Subject to 

the limit on the amount of loans, which precludes any additional loan that would cause the limit 

to be exceeded, the rules relating to loans do not limit the number of loans an employee may 

obtain from a plan. 

Tax-favored retirement plan compliance

Tax-favored retirement plans are generally required to be operated in accordance with the 

terms of the plan document, and amendments to reflect changes to the plan generally must be 

adopted within a limited period.

 241 Sec. 72(t). Under present law, the 10-percent early withdrawal tax does not apply to distributions from 

a governmental section 457(b) plan.

242 Sec. 72(p).
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Description of Proposal 

Distributions and recontributions 

Under the proposal, an exception to the 10-percent early withdrawal tax applies in the 

case of “qualified disaster distributions” from a qualified retirement plan, a section 403(b) plan, 

or an IRA. In addition, as discussed further, income attributable to a qualified disaster 

distribution may be included in income ratably over three years, and the amount of a qualified 

disaster distribution may be recontributed to an eligible retirement plan within three years.

A “qualified disaster distribution” is any distribution from a qualified retirement plan, 

section 403(b) plan, or governmental section 457(b) plan, made on or after the first day of the 

incident period of a qualified disaster and before the date which is 180 days after the date of 

enactment, to an individual whose principal place of abode at any time during the incident period 

is located in the qualified disaster area and who has sustained an economic loss by reason of such 

disaster, regardless of whether a distribution otherwise would be permissible.243 

A plan is not treated as violating any Code requirement merely because it treats a 

distribution as a qualified disaster distribution, provided that the aggregate amount of such 

distributions from plans maintained by the employer and members of the employer’s controlled 

group or affiliated service group does not exceed $100,000 for each qualified disaster. The total 

amount of distributions to an individual from all eligible retirement plans that may be treated as 

qualified disaster distributions with respect to each qualified disaster is $100,000. Thus, a plan is 

not treated as violating any Code requirement merely because an individual might receive total 

distributions in excess of $100,000, taking into account distributions from plans of other 

employers or IRAs, or because an individual may have been affected by more than one qualified 

disaster.

Any amount required to be included in income as a result of a qualified disaster 

distribution is included in income ratably over the three-year period beginning with the year of 

distribution unless the individual elects not to have ratable inclusion apply.

Any portion of a qualified disaster distribution may, at any time during the three-year 

period beginning the day after the date on which the distribution was received, be recontributed 

to an eligible retirement plan to which a rollover can be made. Any amount recontributed within 

the three-year period is treated as a rollover and thus is not includible in income. For example, if 

an individual receives a qualified disaster distribution in 2019, that amount is included in 

income, generally ratably over the year of the distribution and the following two years, but is not 

subject to the 10-percent early withdrawal tax. If, in 2021, the amount of the qualified disaster 

distribution is recontributed to an eligible retirement plan, the individual may file an amended 

return to claim a refund of the tax attributable to the amount previously included in income. In 

addition, if, under the ratable inclusion proposal, a portion of the distribution has not yet been 

 243 A qualified disaster distribution is subject to income tax withholding unless the recipient elects 

otherwise. Mandatory 20-percent withholding does not apply.
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included in income at the time of the contribution, the remaining amount is not includible in 

income.

Recontributions of withdrawals for purchase of a home

Any individual who received a qualified disaster distribution244 during the period 

beginning on the date which is 180 days before the first day of the incident period of the 

qualified disaster and ending on the date which is 30 days after the last day of such incident 

period, which was to be used to purchase or construct a principal residence in a qualified disaster 

area, but which was not so purchased or constructed on account of the qualified disaster, may, 

during the “applicable period,” make one or more contributions in an aggregate amount not to 

exceed the amount of such qualified distribution to an eligible retirement plan of which such 

individual is a beneficiary and to which a rollover contribution of such distribution could be 

made.245 The “applicable period” is, in the case of a principal residence in a qualified disaster 

area with respect to any qualified disaster, the period beginning on the first day of the incident 

period of such qualified disaster and ending on the date which is 180 days after the date of 

enactment. A plan is not treated as violating any Code requirement merely because it repays 

such distributions as provided above, provided that the aggregate amount of such repayments 

from plans maintained by the employer and members of the employer’s controlled group or 

affiliated service group does not exceed $100,000.

Loans

In the case of a “qualified individual” who obtained a loan from a qualified employer 

plan246 made during the 180-day period beginning on the date of enactment, in lieu of the 

permitted maximum loan amount as the lesser of 50 percent of the participant’s account balance 

or $50,000, the permitted maximum loan amount is the lesser of “the present value of the 

nonforfeitable accrued benefit of the employee under the plan” (rather than “one-half of the 

present value of the nonforfeitable accrued benefit of the employee under the plan”) or $100,000, 

and the loan is not treated as a distribution.247 For this purpose, a “qualified individual” is an 

individual whose principal place of abode, during any portion of the incident period of any 

qualified disaster, was located in the qualified disaster area and who sustained an economic loss 

by reason of the qualified disaster.

In the case of such a qualified individual (with respect to a qualified disaster) with an 

outstanding loan (on or after the first day of the incident period of such qualified disaster), from a 

 244 As described in sections 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii)(but only to the extent such distribution 

relates to financial hardship), 403(b)(11)(B), or 72(t)(2)(F).

245 Under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as the case may be.

246 As defined under section 72(p)(4).

247 See sec. 72(p)(2)(A).
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qualified employer plan, if the due date for any repayment with respect to such a loan248 occurs 

during the period beginning on the first day of the incident period of such qualified disaster and 

ending on the date which is 180 days after the last day of such incident period, the due date is 

delayed for one year (or, if later, until the date which is 180 days after the date of enactment) and 

any subsequent repayments will be appropriately adjusted to reflect the delay in any repayment 

date noted above and any interest accruing during such delay, but the repayment delay is 

disregarded in determining the 5-year period and the term of the loan.249

Plan amendments

A plan amendment made pursuant to the proposal (or a regulation issued thereunder) may 

be retroactively effective if, in addition to the requirements described below, the amendment is 

made on or before the last day of the first plan year beginning after January 1, 2020 (or in the 

case of a governmental plan, January 1, 2022), or a later date prescribed by the Secretary. In 

addition, the plan is treated as operated in accordance with plan terms during the period 

beginning with the date the proposal or regulation takes effect (or the date specified by the plan 

if the amendment is not required by the proposal or regulation) and ending on the last 

permissible date for the amendment (or, if earlier, the date the amendment is adopted). For an 

amendment to be retroactively effective, it must apply retroactively for that period, and the plan 

must be operated in accordance with the amendment during that period.

Effective Date

The proposal is effective on the date of enactment. 

2. Disaster related employment relief 

Present Law

Under present law, there is an employer credit for employers affected by Hurricane 

Katrina, Hurricane Rita, and Hurricane Wilma,250 for employers affected by Hurricane Harvey, 

Hurricane Irma, and Hurricane Maria,251 and for employers affected by certain California 

wildfires for which a major disaster had been declared by the President between January 1, 2017, 

through January 18, 2018. There is not a generally applicable employer tax credit for wages paid 

in connection with other disaster areas.

 248 See section 72(p)(2).

249 Under section 72(p)(2)(B) or (C).

250 Sec. 1400R. This provision was repealed by the Consolidated Appropriations Act, Pub L. No. 115-141, 

Sec. 401(d)(6)(A).

251 Section 503 of the Disaster Tax Relief and Airport and Airway Extension Act of 2017, Pub. L. No. 115-

63. 
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Description of Proposal

The proposal provides a credit of 40 percent of the qualified wages (up to a maximum of 

$6,000 in qualified wages per employee) paid by an eligible employer to an eligible employee.

An eligible employer is any employer that (1) conducted an active trade or business in a 

qualified disaster zone at any time during the applicable incident period of the applicable 

qualified disaster with respect to such qualified disaster zone and (2) with respect to which the 

trade or business described in (1) is inoperable on any day during the period beginning on the 

first day of the applicable incident period of the applicable qualified disaster and ending on the 

date of the enactment of this bill, as a result of damage sustained by reason of the applicable 

qualified disaster. 

An eligible employee is, with respect to an eligible employer, an employee whose 

principal place of employment, determined immediately before the applicable qualified disaster, 

with such eligible employer was in the applicable qualified disaster zone. An employee may not 

be treated as an eligible employee for any period with respect to an employer if such employer is 

allowed a credit under section 51, the work opportunity credit, with respect to the employee for 

the period.

Qualified wages are wages (as defined in section 51(c)(1) of the Code, but without regard 

to section 3306(b)(2)(B) of the Code) paid or incurred by an eligible employer with respect to an 

eligible employee during the period (1) beginning on the date on which the trade or business first 

became inoperable at the principal place of employment of the employee immediately before the 

applicable qualified disaster and (2) ending on the earlier of (i) the date on which such trade or 

business has resumed significant operations at such principal place of employment or (ii) the date 

which is 150 days after the last day of the applicable incident period. Qualified wages include 

wages paid without regard to whether the employee performs no services, performs services at a 

different place of employment than such principal place of employment, or performs services at 

such principal place of employment before significant operations have resumed.

The credit is treated as a current year business credit under section 38(b) and therefore is 

subject to the tax liability limitations of section 38(c). Rules similar to sections 51(i)(1), 52, and 

280C(a) apply to the credit.

Effective Date

The proposal is effective on the date of enactment. 

3. Temporary suspension of limitation on charitable contributions 

Present Law

In general

In general, an income tax deduction is permitted for charitable contributions, subject to 

certain limitations that depend on the type of taxpayer, the property contributed, and the donee 

organization (sec. 170). 
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Charitable contributions of cash are deductible in the amount contributed. In general, 

contributions of capital gain property to a qualified charity are deductible at fair market value 

with certain exceptions. Capital gain property means any capital asset or property used in the 

taxpayer’s trade or business the sale of which at its fair market value, at the time of contribution, 

would have resulted in gain that would have been long-term capital gain. Contributions of other 

appreciated property generally are deductible at the donor’s basis in the property. Contributions 

of depreciated property generally are deductible at the fair market value of the property.

Percentage limitations

Contributions by individuals

For individuals, in any taxable year, the amount deductible as a charitable contribution is 

limited to a percentage of the taxpayer’s contribution base. The applicable percentage of the 

contribution base varies depending on the type of donee organization and property contributed. 

The contribution base is defined as the taxpayer’s adjusted gross income computed without 

regard to any net operating loss carryback.

Contributions by an individual taxpayer of property (other than appreciated capital gain 

property) to a charitable organization described in section 170(b)(1)(A) (e.g., public charities, 

private foundations other than private non-operating foundations, and certain governmental 

units) may not exceed 50 percent of the taxpayer’s contribution base. Contributions of this type 

of property to nonoperating private foundations and certain other organizations generally may be 

deducted up to 30 percent of the taxpayer’s contribution base. 

For contributions taken into account for taxable years beginning after December 31, 2017 

and before January 1, 2026, section 170(b)(1)(G) increases the percentage limit for contributions 

by an individual taxpayer of cash to an organization described in section 170(b)(1)(A) to 60 

percent. The 60-percent limit does not apply to noncash contributions. The 60-percent limit is 

intended to be applied after, and reduced by, the amount of noncash contributions to 

organizations described in section 170(b)(1)(A).

Contributions of appreciated capital gain property to charitable organizations described in 

section 170(b)(1)(A) generally are deductible up to 30 percent of the taxpayer’s contribution 

base. An individual may elect, however, to bring all these contributions of appreciated capital 

gain property for a taxable year within the 50-percent limitation category by reducing the amount 

of the contribution deduction by the amount of the appreciation in the capital gain property. 

Contributions of appreciated capital gain property to charitable organizations described in 

section 170(b)(1)(B) (e.g., private nonoperating foundations) are deductible up to 20 percent of 

the taxpayer’s contribution base.

Contributions by corporations

For corporations, in any taxable year, charitable contributions are not deductible to the 

extent the aggregate contributions exceed 10 percent of the corporation’s taxable income 

computed without regard to net operating loss or capital loss carrybacks. 
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For purposes of determining whether a corporation’s aggregate charitable contributions in 

a taxable year exceed the applicable percentage limitation, contributions of capital gain property 

are taken into account after other charitable contributions. 

Carryforward of excess contributions

Charitable contributions that exceed the applicable percentage limitation may be carried 

forward for up to five years (sec. 170(d)). The amount that may be carried forward from a 

taxable year (“contribution year”) to a succeeding taxable year may not exceed the applicable 

percentage of the contribution base for the succeeding taxable year less the sum of contributions 

made in the succeeding taxable year plus contributions made in taxable years prior to the 

contribution year and treated as paid in the succeeding taxable year under this provision.

Description of Proposal

Under the proposal, in the case of an individual, the deduction for qualified contributions 

is allowed up to the amount by which the taxpayer’s contribution base exceeds the deduction for 

other charitable contributions. Contributions in excess of this amount are carried over to 

succeeding taxable years as contributions described in section 170(b)(1)(G)(ii) (generally 

relating to cash contributions to public charities). 

In the case of a corporation, the deduction for qualified contributions is allowed up to the 

amount by which the corporation’s taxable income (as computed under section 170(b)(2)) 

exceeds the deduction for other charitable contributions. Contributions in excess of this amount 

are carried over to succeeding taxable years, subject to the limitations of section 170(d)(2). 

In applying subsections (b) and (d) of section 170 to determine the deduction for other 

contributions, qualified contributions are not taken into account (except to the extent qualified 

contributions are carried over to succeeding taxable years under the rules described above).

Qualified contributions are cash contributions paid during the period beginning on 

January 1, 2018, and ending on the date which is 60 days after the date of enactment, to a 

charitable organization described in section 170(b)(1)(A), other than contributions to (i) a 

supporting organization described in section 509(a)(3) or (ii) for the establishment of a new, or 

maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)). Contributions 

of noncash property, such as securities, are not qualified contributions. Under the proposal, 

qualified contributions must be to an organization described in section 170(b)(1)(A); thus, 

contributions to, for example, a charitable remainder trust generally are not qualified 

contributions, unless the charitable remainder interest is paid in cash to an eligible charity during 

the applicable time period. Qualified contributions must be made for relief efforts in one or 

more qualified disaster areas. Taxpayers must substantiate that the contribution is made for this 

purpose. A taxpayer must elect to have the contributions treated as qualified contributions.

Effective Date

The proposal is effective on the date of enactment. 
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4. Special rules for qualified disaster-related personal casualty losses 

Present Law

An individual taxpayer my claim an itemized deduction for a personal casualty loss only 

if such loss was attributable to a disaster declared by the President under section 401 of the 

Stafford Act.

252 All other personal casualty losses are deductible only to the extent that such 

losses do not exceed the individual’s personal casualty gains. Personal casualty losses are

deductible only if they exceed $100 per casualty. In addition, aggregate net losses are deductible 

only to the extent they exceed 10 percent of the individual taxpayer’s adjusted gross income.

Description of Proposal

Under the proposal, in the case of a personal casualty loss which arose in a qualified 

disaster area on or after the first day of the incident period of the applicable qualified disaster and 

which were attributable to such qualified disaster, such losses are deductible without regard to 

whether aggregate net losses exceed 10 percent of a taxpayer’s adjusted gross income. In order 

to be deductible, however, such losses must exceed $500 per casualty. Finally, such losses may 

be claimed in addition to the standard deduction and may be claimed by taxpayers subject to the 

alternative minimum tax.

Effective Date

The proposal is effective on the date of enactment. 

5. Special rule for determining earned income 

Present Law

Present law provides eligible taxpayers with an earned income tax credit and a child 

credit. In general, the earned income tax credit is a refundable credit for low-income workers.253 

The amount of the credit depends on the earned income of the taxpayer and whether the taxpayer 

has one, more than one, or no qualifying children. Earned income generally includes wages, 

salaries, tips, and other employee compensation, plus net earnings from self-employment. 

Taxpayers with incomes below certain threshold amounts are eligible for a $2,000 credit 

for each qualifying child.254 In some circumstances, all or a portion of the otherwise allowable 

credit is treated as a refundable credit (the “additional child tax credit”). Generally, the amount 

of the additional child tax credit equals 15 percent of the taxpayer’s earned income in excess of 

$2,500, capped at $1,400 (indexed for inflation).

 252 165(h)(5).

253 Sec. 32.

254 Sec. 24.
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Description of Proposal

In general

The proposal permits qualified individuals to elect to calculate their earned income tax 

credit and additional child tax credit for an applicable taxable year using their earned income 

from the prior taxable year. Qualified individuals are permitted to make the election with respect 

to an applicable taxable year only if their earned income for such taxable year is less than their 

earned income for the preceding taxable year. 

Qualified individuals are (1) individuals who, at any time during the incident period of a 

qualified disaster, had their principal place of abode in the applicable qualified disaster zone or 

(2) individuals who during any portion of such incident period were not in the applicable 

qualified disaster zone but whose principal place of abode was in the applicable qualified disaster 

area and were displaced from such principal place of abode by reason of the qualified disaster. 

An applicable taxable year is any taxable year which includes any portion of the incident period 

of a qualified disaster.

For purposes of the proposal, in the case of a joint return for a taxable year which 

includes an applicable taxable year, the proposal applies if either spouse is a qualified individual. 

In such cases, the earned income which is attributable to the taxpayer for the preceding taxable 

year is the sum of the earned income which is attributable to each spouse for such preceding 

taxable year. 

Any election to use the prior year’s earned income under the proposal applies with 

respect to both the earned income credit and additional child tax credit. For administrative 

purposes, the incorrect use on a return of earned income pursuant to an election under this 

proposal is treated as a mathematical or clerical error. An election under the proposal is 

disregarded for purposes of calculating gross income in the election year. 

Hurricane Sandy 

The proposal provides a similar rule for individuals affected by Hurricane Sandy. Such 

individuals can elect to calculate their earned income tax credit and additional child tax credit for 

the taxable year that includes the dates of Hurricane Sandy (October 29, 2012 through November 

3, 2012, hereinafter “Hurricane Sandy period”) using their earned income for the prior taxable 

year if it is greater than their earned income for the year that includes Hurricane Sandy. 

Qualified individuals affected by Hurricane Sandy are those individuals whose principal 

place of abode during the Hurricane Sandy period, was located in (i) the portion of the area 

determined by the President to warrant individual or individual and public assistance under the 

Stafford Act by reason of Hurricane Sandy or (ii) in the area for which a major disaster was 

declared by the President under section 401 of the Stafford Act by reason of Hurricane Sandy 

and such individual was displaced from the individual’s principal place of abode.

The proposal extends the statute of limitations for individuals affected by Hurricane 

Sandy to make any claims for credit or refund relating to a change in the earned income of such 

individuals.
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Effective Date

The proposal is effective on the date of enactment. 

6. Automatic extension of filing deadlines in case of certain taxpayers affected by Federally 

declared disasters

Present Law

General time limits for filing tax returns

Individuals generally must file their Federal income tax returns by April 15 of the year 

following the close of a taxable year.255 Present law also provides that the Secretary may grant 

reasonable extensions of time for filing such returns.256 Treasury regulations provide, upon 

application on the proper form, an automatic six-month extension (until October 15 for calendaryear individuals) for any individual timely filing that form and paying the amount of tax 

estimated to be due.257 In general, individuals must make quarterly estimated tax payments by 

April 15, June 15, September 15, and January 15 of the following taxable year. Wage 

withholding is considered to be a payment of estimated taxes.

Suspension of time periods

In general, the Secretary may specify a period of up to one year that may be disregarded 

for performing various acts under the Internal Revenue Code, such as filing tax returns, paying 

taxes, or filing a claim for credit or refund of tax, for any taxpayer determined by the Secretary to 

be affected by a Federally declared disaster or a terroristic or military action with respect to any 

tax liability of the taxpayer.258 In addition, the period specified by the Secretary may be 

disregarded in determining the amount of any interest, penalty, additional amount, or addition to 

tax, and the amount of any credit or refund.

There are special rules provided for pensions and other employee benefit plans. The 

Secretary may prescribe a period of up to one year which may be disregarded in determining the 

date by which any action by a pension or other employee benefit plan, or by any sponsor, 

administrator, participant, beneficiary, or other person with respect to such plan, affected by a 

Federally declared disaster or a terroristic or military action would be required or permitted to be 

completed. A plan is not treated as operating in a manner inconsistent with its terms or in 

violation of its terms merely due to disregarding any such periods.

The suspension of time may apply to the following acts:

 255 Sec. 6072.

256 Sec. 6081.

257 Treas. Reg. sec. 1.6081-4.

258 Sec. 7508A.
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1. Filing any return of income, estate, gift, employment, or excise tax;

2. Payment of any income, estate, or gift, employment, or excise tax or any installment 

thereof or of any other liability to the United States in respect thereof;

3. Filing a petition with the Tax Court for redetermination of a deficiency, or for review 

of a decision rendered by the Tax Court;

4. Allowance of a credit or refund of any tax;

5. Filing a claim for credit or refund of any tax;

6. Bringing suit upon any such claim for credit or refund;

7. Assessment of any tax;

8. Giving or making any notice or demand for the payment of any tax, or with respect to 

any liability to the United States in respect of any tax;

9. Collection of the amount of any liability in respect of any tax;

10. Bringing suit by the United States in respect of any liability in respect of any tax; and

11. Any other act required or permitted under the internal revenue laws specified in 

regulations prescribed by the Secretary of the Treasury.259

Description of Proposal

The proposal provides to qualified taxpayers in the case of a Federally declared disaster a 

mandatory 60-day period that is disregarded in determining whether the acts listed above were 

performed in the time prescribed; the amount of interest, penalty, additional amount, or addition 

to tax; and the amount of credit or refund. The 60-day period begins on the earliest incident date 

specified in the declaration of the relevant disaster and ends on the date which is 60 days after 

the latest incident date so specified. A disaster area is the geographic area of a Federally 

declared disaster, which is any disaster subsequently determined by the President to warrant 

assistance by the Federal government under the Stafford Act.

260

Qualified taxpayers are (1) any individual whose principal residence is located in a 

disaster area, (2) any taxpayer if the taxpayer's principal place of business (other than the 

 259 Sec. 7508(a)(1). Under Treasury regulations, an additional act was added to this list with respect to 

affected pension plans and affected taxpayers with respect to such plans: Making contributions to a qualified 

retirement plan (within the meaning of section 4974(c)) under section 219(f)(3), 404(a)(6), 404(h)(1)(B), or 

404(m)(2); making distributions under section 408(d)(4); recharacterizing contributions under section 408A(d)(6); 

or making a rollover under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3). Treas. Reg. sec. 301.7508A1(c)(1)(iii).

260 Sec. 165(i)(5).
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business of performing services as an employee) is located in a disaster area, (3) any individual 

who is a relief worker affiliated with a recognized government or philanthropic organization and 

who is assisting in a disaster area, (4) any taxpayer whose records necessary to meet a deadline 

for the acts listed above are maintained in a disaster area, (5) any individual visiting a disaster 

area who was killed or injured as a result of the disaster, and (6) solely with respect to a joint 

return, any spouse of an individual who is a qualified taxpayer.

In the case of a pension or other employee benefit plan, or any sponsor, administrator, 

participant, beneficiary or other person with respect to such a plan,261 the proposal provides that 

a rule similar to the mandatory 60-day period rule described above applies with respect to any of 

the following actions: 

1. Making contributions to a section 401(a) qualified retirement plan, a section 403(a) 

annuity, a section 403(b) tax-sheltered annuity, or a section 408 individual retirement 

account or annuity (IRA); 

2. Making distributions of contributions to an IRA prior to the due date for filing the 

individual's tax return for the year in which the contribution was made; 

3. Recharacterizing IRA contributions by making a trustee-to-trustee transfer from a 

traditional IRA to a Roth IRA, or vice versa, before the due date (including 

extensions) for the individual's income tax return for that year;262 or 

4. Making a rollover.263

The mandatory 60-day period provided under the proposal is in addition to, or concurrent 

with as the case may be, any period of suspension provided by the Secretary.

Effective Date

The proposal applies to Federally declared disasters declared after the date of enactment.

 261 For this purpose, a definition similar to the definition of “qualified taxpayer” is intended to generally 

apply.

262 In the case of a recharacterization, the contribution will be treated as having been made to the transferee 

IRA (and not the original, transferor IRA) as of the date of the original contribution. Pursuant to section 13611 of 

Pub. L. No. 115-97, this rule does not apply to a conversion contribution to a Roth IRA effective for taxable years 

beginning after December 31, 2017.

263 Such actions are those provided under Treas. Reg. sec. 301.7508A-1(c)(1)(iii), described above.
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7. Modification of the tax rate for the excise tax on investment income of private 

foundations 

Present Law

Excise tax on the net investment income of private foundations

Under section 4940(a), private foundations that are recognized as exempt from Federal 

income tax under section 501(a) (other than exempt operating foundations264) are subject to a 

two-percent excise tax on their net investment income. Net investment income generally 

includes interest, dividends, rents, royalties (and income from similar sources), and capital gain 

net income, and is reduced by expenses incurred to earn this income. The two-percent rate of tax 

is reduced to one-percent in any year in which a foundation exceeds the average historical level 

of its charitable distributions. Specifically, the excise tax rate is reduced if the foundation’s 

qualifying distributions (generally, amounts paid to accomplish exempt purposes)265 equal or 

exceed the sum of (1) the amount of the foundation’s assets for the taxable year multiplied by the 

average percentage of the foundation’s qualifying distributions over the five taxable years 

immediately preceding the taxable year in question, and (2) one percent of the net investment 

income of the foundation for the taxable year.266 In addition, the foundation cannot have been 

subject to tax in any of the five preceding years for failure to meet minimum qualifying 

distribution requirements in section 4942.

Private foundations that are not exempt from tax under section 501(a), such as certain 

charitable trusts, are subject to an excise tax under section 4940(b). The tax is equal to the 

excess of the sum of the excise tax that would have been imposed under section 4940(a) if the 

foundation were tax exempt and the amount of the tax on unrelated business income that would 

have been imposed if the foundation were tax exempt, over the income tax imposed on the 

foundation under subtitle A of the Code.

Private foundations are required to make a minimum amount of qualifying distributions 

each year to avoid tax under section 4942. The minimum amount of qualifying distributions a 

foundation has to make to avoid tax under section 4942 is reduced by the amount of section 4940 

excise taxes paid.267

 264 Sec. 4940(d)(1). Exempt operating foundations generally include organizations such as museums or 

libraries that devote their assets to operating charitable programs but have difficulty meeting the “public support” 

tests necessary not to be classified as a private foundation. To be an exempt operating foundation, an organization 

must: (1) be an operating foundation (as defined in section 4942(j)(3)); (2) be publicly supported for at least 10 

taxable years; (3) have a governing body no more than 25 percent of whom are disqualified persons and that is 

broadly representative of the general public; and (4) have no officers who are disqualified persons. Sec. 4940(d)(2).

265 Sec. 4942(g).

266 Sec. 4940(e).

267 Sec. 4942(d)(2).
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Description of Proposal

The proposal replaces the two rates of excise tax on tax-exempt private foundations with 

a single rate of tax of 1.39 percent. Thus, under the proposal, a tax-exempt private foundation 

generally is subject to an excise tax of 1.39 percent on its net investment income. A taxable 

private foundation is subject to an excise tax equal to the excess (if any) of the sum of the 1.39-

percent net investment income excise tax and the amount of the tax on unrelated business income 

(both calculated as if the foundation were tax-exempt), over the income tax imposed on the 

foundation. The proposal repeals the special reduced excise tax rate for private foundations that 

exceed their historical level of qualifying distributions.

Effective Date

The proposal is effective for taxable years beginning after the date of enactment.

8. Additional low-income housing tax credit allocations for qualified 2017 and 2018 

California disaster areas

Present Law

In general

The low-income housing tax credit may be claimed over a 10-year period for the cost of 

building rental housing occupied by tenants having incomes below specified levels. The amount 

of the credit for any taxable year in the credit period is the applicable percentage of the qualified 

basis of each qualified low-income building. The qualified basis of any qualified low-income 

building for any taxable year equals the applicable fraction of the eligible basis of the building. 

The credit percentage for newly constructed or substantially rehabilitated housing that is 

not Federally subsidized is adjusted monthly by the IRS so that the 10 annual installments of the 

credit have a present value of 70 percent of the total qualified basis. The credit percentage for 

newly constructed or substantially rehabilitated housing that is Federally subsidized and for 

existing housing that is substantially rehabilitated is calculated to have a present value of 30 

percent of qualified basis. These are referred to as the 70-percent credit and 30-percent credit, 

respectively.

Credit ceiling

Credits are first allocated from the Federal government to each State according to 

population, then allocated by each State to developers according to State determined Qualified 

Allocation Plans (“QAPs”). QAPs must set forth selection criterion to be used to determine 

housing priorities; give preference to projects serving the lowest income tenants for the longest 

periods of time, and which are located in qualified census tracts that contribute to a concerted 
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community revitalization plan; and provide a procedure for monitoring noncompliance and 

notifying the IRS of any noncompliance.268

In addition to other requirements, a low-income housing credit is allowable only if the 

owner of a qualified building receives a housing credit allocation from the State or local housing 

credit agency. The total amount of housing credits available for allocation by each State is 

limited by a ceiling. For determining the current-year State dollar amount of the ceiling in any 

calendar year, the greater of (i) $1.75 multiplied by the State population, or (ii) $2,000,000 is 

taken into account, indexed for inflation. For 2019, the indexed amount is $2.76 per resident 

with a minimum annual cap of $3,166,875 for certain States with small populations.269 These 

limits do not apply in the case of projects that also receive financing with proceeds of tax-exempt 

bonds issued subject to the private activity bond volume limit.

Carryover allocation rule

A low-income housing credit is allowable only if the owner of a qualified building 

receives a housing credit allocation from the State or local housing credit agency. In general, the 

allocation must be made not later than the close of the calendar year in which the building is 

placed in service. One exception to this rule is a carryover allocation. In the case of a carryover 

allocation, an allocation may be made to a building that has not yet been placed in service, 

provided that: (1) more than 10 percent of the taxpayer's reasonably expected basis in the project 

(as of the close of the second calendar year following the calendar year of the allocation) is 

incurred as of the later of six months after the allocation is made or the end of the calendar year 

in which the allocation is made; and (2) the building is placed in service not later than the close 

of the second calendar year following the calendar year of the allocation.

Description of Proposal

Under the proposal, in calendar year 2019, the State housing credit ceiling is increased 

for California. The California credit ceiling is increased by the amount of the aggregate housing 

credits allocated by the State housing credit agencies of California for 2019 to buildings located 

in qualified 2017 and 2018 California disaster areas,270 up to the average amount of the State’s 

housing credit ceiling in 2017 and 2018.271 

 268 Sec. 42(m).

269 These amounts include a temporary increase enacted in the Consolidated Appropriations Act of 2018, 

Pub. L. No. 115-141. 

270 Qualified 2017 and 2018 California disaster areas are those which are determined by the President to 

warrant assistance from the Federal government under the Stafford Act by reason of a disaster which begins or ends 

in calendar year 2017 or 2018, as specified by the Federal Emergency Management Agency. 

271 This average amount is 50% of the sum of the State housing credit ceiling for California for calendar 

years 2017 and 2018.
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The proposal also specifies that allocations are treated as made first from these additional 

amounts for purposes of determining the unused State housing credit ceiling to be carried over in 

a calendar year. 

Effective Date

The proposal is effective upon enactment.

9. Treatment of certain possessions

Present Law

Citizens of the United States are generally subject to Federal income tax on their 

worldwide income, including those citizens in the U.S. possessions or territories. Residents of 

the U.S. possessions are generally subject to the Federal income tax system based on their status 

as U.S. citizens or residence in the possessions, with certain special rules for determining 

residence and source of income specific to the possession. Broadly, a bona fide individual 

resident of a possessions is exempt from U.S. tax on income derived from sources within that 

possessions but is subject U.S. tax on U.S.-source and non-possession-source income.272

The application of the Federal tax rules to the possessions varies from one possession to 

another. Three possessions, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands, 

are referred to as mirror Code possessions because the Code serves as the internal tax law of 

those possessions (substituting the particular possessions for the United States wherever the 

Code refers to the United States). A resident of one of those possessions generally files a single 

tax return only with the possession of which the individual is a resident, and not with the United 

States. American Samoa and Puerto Rico, by contrast, are non-mirror Code possessions. These 

two possessions have their own internal tax laws, and a resident of either American Samoa or 

Puerto Rico may be required to file income tax returns with both the possessions of residence 

and the United States.

Description of Proposal

The Secretary shall make a payment to the mirror Code possessions in an amount equal 

to the loss in revenue by reason of the temporary disaster-related tax relief allowable by reason 

of Title III of the bill to residents of such possessions against their income tax. This amount will 

be determined by the Secretary based on information provided by the governments of the 

respective possessions. 

The Secretary shall make a payment to the non-mirror Code possessions in an amount 

estimated by the Secretary as the aggregate benefits (if any) of the temporary disaster-related tax 

relief that would have been provided to residents of such possessions if a mirror code tax system 

had been in effect in such possession. Accordingly, the amount of each payment to a non-mirror 

Code possession will be an estimate of the aggregate benefit that would be allowed to the 

possession’s residents if the temporary tax relief provided by Title III of the bill to U.S. residents 

 272 See secs. 932, 933, and 937.
93

were provided by the possession to its residents. This payment will not be made unless the 

possession has a plan that has been approved by the Secretary under which the possession will 

promptly distribute the payments to its residents.

Effective Date

The proposal is effective on the date of enactment.