" ! COMMITTEE PRINT 113TH CONGRESS

2nd Session 

WMCP 

113–6 

TAX REFORM ACT OF 2014 

DISCUSSION DRAFT 

AS RELEASED ON FEBRUARY 26, 2014 

Statutory Text and Section-by-Section Summary 

Prepared by the Committee on Ways and Means 

Majority Tax Staff 

PRINTED FOR THE USE OF THE COMMITTEE ON 

WAYS AND MEANS BY ITS STAFF 


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U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office,

http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,

U.S. Government Printing Office. Phone 202–512–1800, or 866–512–1800 (toll-free). E-mail, gpo@custhelp.com.

1 

89–455 

" ! COMMITTEE PRINT 113TH CONGRESS

2nd Session 

WMCP 

2014

113–6 

TAX REFORM ACT OF 2014 

DISCUSSION DRAFT 

AS RELEASED ON FEBRUARY 26, 2014 

Statutory Text and Section-by-Section Summary 

Prepared by the Committee on Ways and Means 

Majority Tax Staff 

PRINTED FOR THE USE OF THE COMMITTEE ON 

WAYS AND MEANS BY ITS STAFF 


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dkrause on DSKHT7XVN1PROD with LOCATORS
COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 


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dkrause on DSKHT7XVN1PROD with LOCATORS
TAX REFORM ACT OF 2014 

DISCUSSION DRAFT 

AS RELEASED ON FEBRUARY 26, 2014 

Statutory Text 


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dkrause on DSKHT7XVN1PROD with LOCATORS
[DISCUSSION DRAFT] 

FEBRUARY 21, 2014

113TH CONGRESS 

2D SESSION H. R. ll To amend the Internal Revenue Code of 1986 to provide for comprehensive 

tax reform. 

IN THE HOUSE OF REPRESENTATIVES 

Mr. CAMP introduced the following bill; which was referred to the Committee 

on llllllllllllll

A BILL

To amend the Internal Revenue Code of 1986 to provide 

for comprehensive tax reform.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Tax Reform Act of 2014’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 


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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents of 

5 this Act is as follows:

Sec. 1. Short title; etc. 

TITLE I—TAX REFORM FOR INDIVIDUALS 

Subtitle A—Individual Income Tax Rate Reform 

Sec. 1001. Simplification of individual income tax rates. 

Sec. 1002. Deduction for adjusted net capital gain. 

Sec. 1003. Conforming amendments related to simplification of individual income tax rates. 

Subtitle B—Simplification of Tax Benefits for Families 

Sec. 1101. Standard deduction. 

Sec. 1102. Increase and expansion of child tax credit. 

Sec. 1103. Modification of earned income tax credit. 

Sec. 1104. Repeal of deduction for personal exemptions. 

Subtitle C—Simplification of Education Incentives 

Sec. 1201. American opportunity tax credit. 

Sec. 1202. Expansion of Pell Grant exclusion from gross income. 

Sec. 1203. Repeal of exclusion of income from United States savings bonds 

used to pay higher education tuition and fees. 

Sec. 1204. Repeal of deduction for interest on education loans. 

Sec. 1205. Repeal of deduction for qualified tuition and related expenses. 

Sec. 1206. No new contributions to Coverdell education savings accounts. 

Sec. 1207. Repeal of exclusion for discharge of student loan indebtedness. 

Sec. 1208. Repeal of exclusion for qualified tuition reductions. 

Sec. 1209. Repeal of exclusion for education assistance programs. 

Sec. 1210. Repeal of exception to 10-percent penalty for higher education expenses. 

Subtitle D—Repeal of Certain Credits for Individuals 

Sec. 1301. Repeal of dependent care credit. 

Sec. 1302. Repeal of credit for adoption expenses. 

Sec. 1303. Repeal of credit for nonbusiness energy property. 

Sec. 1304. Repeal of credit for residential energy efficient property. 

Sec. 1305. Repeal of credit for qualified electric vehicles. 

Sec. 1306. Repeal of alternative motor vehicle credit. 

Sec. 1307. Repeal of alternative fuel vehicle refueling property credit. 

Sec. 1308. Repeal of credit for new qualified plug-in electric drive motor vehicles. 

Sec. 1309. Repeal of credit for health insurance costs of eligible individuals. 

Sec. 1310. Repeal of first-time homebuyer credit. 


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Subtitle E—Deductions, Exclusions, and Certain Other Provisions 

Sec. 1401. Exclusion of gain from sale of a principal residence. 

Sec. 1402. Mortgage interest. 

Sec. 1403. Charitable contributions. 

Sec. 1404. Denial of deduction for expenses attributable to the trade or business of being an employee. 

Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade or business. 

Sec. 1406. Repeal of deduction for personal casualty losses. 

Sec. 1407. Limitation on wagering losses. 

Sec. 1408. Repeal of deduction for tax preparation expenses. 

Sec. 1409. Repeal of deduction for medical expenses. 

Sec. 1410. Repeal of disqualification of expenses for over-the-counter drugs 

under certain accounts and arrangements. 

Sec. 1411. Repeal of deduction for alimony payments and corresponding inclusion in gross income. 

Sec. 1412. Repeal of deduction for moving expenses. 

Sec. 1413. Termination of deduction and exclusions for contributions to medical 

savings accounts. 

Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized deductions. 

Sec. 1415. Repeal of overall limitation on itemized deductions. 

Sec. 1416. Deduction for amortizable bond premium allowed in determining adjusted gross income. 

Sec. 1417. Repeal of exclusion, etc., for employee achievement awards. 

Sec. 1418. Clarification of special rule for certain governmental plans. 

Sec. 1419. Limitation on exclusion for employer-provided housing. 

Sec. 1420. Fringe benefits. 

Sec. 1421. Repeal of exclusion of net unrealized appreciation in employer securities. 

Sec. 1422. Consistent basis reporting between estate and person acquiring 

property from decedent. 

Subtitle F—Employment Tax Modifications 

Sec. 1501. Modifications of deduction for Social Security taxes in computing 

net earnings from self-employment. 

Sec. 1502. Determination of net earnings from self-employment. 

Sec. 1503. Repeal of exemption from FICA taxes for certain foreign workers. 

Sec. 1504. Repeal of exemption from FICA taxes for certain students. 

Sec. 1505. Override of Treasury guidance providing that certain employer-provided supplemental unemployment benefits are not subject to 

employment taxes. 

Sec. 1506. Certified professional employer organizations. 

Subtitle G—Pensions and Retirement 

PART 1—INDIVIDUAL RETIREMENT PLANS

Sec. 1601. Elimination of income limits on contributions to Roth IRAs. 

Sec. 1602. No new contributions to traditional IRAs. 

Sec. 1603. Inflation adjustment for Roth IRA contributions. 

Sec. 1604. Repeal of special rule permitting recharacterization of Roth IRA 

contributions as traditional IRA contributions. 

Sec. 1605. Repeal of exception to 10-percent penalty for first home purchases. 

PART 2—EMPLOYER-PROVIDED PLANS


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Sec. 1611. Termination for new SEPs. 

Sec. 1612. Termination for new SIMPLE 401(k)s. 

Sec. 1613. Rules related to designated Roth contributions. 

Sec. 1614. Modifications of required distribution rules for pension plans. 

Sec. 1615. Reduction in minimum age for allowable in-service distributions. 

Sec. 1616. Modification of rules governing hardship distributions. 

Sec. 1617. Extended rollover period for the rollover of plan loan offset amounts 

in certain cases. 

Sec. 1618. Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans. 

Sec. 1619. Application of 10-percent early distribution tax to governmental 457 

plans. 

Sec. 1620. Inflation adjustments for qualified plan benefit and contribution limitations. 

Sec. 1621. Inflation adjustments for qualified plan elective deferral limitations. 

Sec. 1622. Inflation adjustments for SIMPLE retirement accounts. 

Sec. 1623. Inflation adjustments for catch-up contributions for certain employer plans. 

Sec. 1624. Inflation adjustments for governmental and tax-exempt organization 

plans. 

Subtitle H—Certain Provisions Related to Members of Indian Tribes 

Sec. 1701. Indian general welfare benefits. 

Sec. 1702. Tribal Advisory Committee. 

Sec. 1703. Other relief for Indian tribes. 

TITLE II—ALTERNATIVE MINIMUM TAX REPEAL 

Sec. 2001. Repeal of alternative minimum tax. 

TITLE III—BUSINESS TAX REFORM 

Subtitle A—Tax Rates 

Sec. 3001. 25-percent corporate tax rate. 

Subtitle B—Reform of Business-related Exclusions and Deductions 

Sec. 3101. Revision of treatment of contributions to capital. 

Sec. 3102. Repeal of deduction for local lobbying expenses. 

Sec. 3103. Expenditures for repairs in connection with casualty losses. 

Sec. 3104. Reform of accelerated cost recovery system. 

Sec. 3105. Repeal of amortization of pollution control facilities. 

Sec. 3106. Net operating loss deduction. 

Sec. 3107. Circulation expenditures. 

Sec. 3108. Amortization of research and experimental expenditures. 

Sec. 3109. Repeal of deductions for soil and water conservation expenditures 

and endangered species recovery expenditures. 

Sec. 3110. Amortization of certain advertising expenses. 

Sec. 3111. Expensing certain depreciable business assets for small business. 

Sec. 3112. Repeal of election to expense certain refineries. 

Sec. 3113. Repeal of deduction for energy efficient commercial buildings. 

Sec. 3114. Repeal of election to expense advanced mine safety equipment. 

Sec. 3115. Repeal of deduction for expenditures by farmers for fertilizer, etc. 

Sec. 3116. Repeal of special treatment of certain qualified film and television 

productions. 


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Sec. 3117. Repeal of special rules for recoveries of damages of antitrust violations, etc. 

Sec. 3118. Treatment of reforestation expenditures. 

Sec. 3119. 20-year amortization of goodwill and certain other intangibles. 

Sec. 3120. Treatment of environmental remediation costs. 

Sec. 3121. Repeal of expensing of qualified disaster expenses. 

Sec. 3122. Phaseout and repeal of deduction for income attributable to domestic production activities. 

Sec. 3123. Unification of deduction for organizational expenditures. 

Sec. 3124. Prevention of arbitrage of deductible interest expense and tax-exempt interest income. 

Sec. 3125. Prevention of transfer of certain losses from tax indifferent parties. 

Sec. 3126. Entertainment, etc. expenses. 

Sec. 3127. Repeal of limitation on corporate acquisition indebtedness. 

Sec. 3128. Denial of deductions and credits for expenditures in illegal businesses. 

Sec. 3129. Limitation on deduction for FDIC premiums. 

Sec. 3130. Repeal of percentage depletion. 

Sec. 3131. Repeal of passive activity exception for working interests in oil and 

gas property. 

Sec. 3132. Repeal of special rules for gain or loss on timber, coal, or domestic 

iron ore. 

Sec. 3133. Repeal of like-kind exchanges. 

Sec. 3134. Restriction on trade or business property treated as similar or related in service to involuntarily converted property in disaster 

areas. 

Sec. 3135. Repeal of rollover of publicly traded securities gain into specialized 

small business investment companies. 

Sec. 3136. Termination of special rules for gain from certain small business 

stock. 

Sec. 3137. Certain self-created property not treated as a capital asset. 

Sec. 3138. Repeal of special rule for sale or exchange of patents. 

Sec. 3139. Depreciation recapture on gain from disposition of certain depreciable realty. 

Sec. 3140. Common deduction conforming amendments. 

Subtitle C—Reform of Business Credits 

Sec. 3201. Repeal of credit for alcohol, etc., used as fuel. 

Sec. 3202. Repeal of credit for biodiesel and renewable diesel used as fuel. 

Sec. 3203. Research credit modified and made permanent. 

Sec. 3204. Low-income housing tax credit. 

Sec. 3205. Repeal of enhanced oil recovery credit. 

Sec. 3206. Phaseout and repeal of credit for electricity produced from certain 

renewable resources. 

Sec. 3207. Repeal of Indian employment credit. 

Sec. 3208. Repeal of credit for portion of employer Social Security taxes paid 

with respect to employee cash tips. 

Sec. 3209. Repeal of credit for clinical testing expenses for certain drugs for 

rare diseases or conditions. 

Sec. 3210. Repeal of credit for small employer pension plan startup costs. 

Sec. 3211. Repeal of employer-provided child care credit. 

Sec. 3212. Repeal of railroad track maintenance credit. 

Sec. 3213. Repeal of credit for production of low sulfur diesel fuel. 

Sec. 3214. Repeal of credit for producing oil and gas from marginal wells. 


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Sec. 3215. Repeal of credit for production from advanced nuclear power facilities. 

Sec. 3216. Repeal of credit for producing fuel from a nonconventional source. 

Sec. 3217. Repeal of new energy efficient home credit. 

Sec. 3218. Repeal of energy efficient appliance credit. 

Sec. 3219. Repeal of mine rescue team training credit. 

Sec. 3220. Repeal of agricultural chemicals security credit. 

Sec. 3221. Repeal of credit for carbon dioxide sequestration. 

Sec. 3222. Repeal of credit for employee health insurance expenses of small employers. 

Sec. 3223. Repeal of rehabilitation credit. 

Sec. 3224. Repeal of energy credit. 

Sec. 3225. Repeal of qualifying advanced coal project credit. 

Sec. 3226. Repeal of qualifying gasification project credit. 

Sec. 3227. Repeal of qualifying advanced energy project credit. 

Sec. 3228. Repeal of qualifying therapeutic discovery project credit. 

Sec. 3229. Repeal of work opportunity tax credit. 

Sec. 3230. Repeal of deduction for certain unused business credits. 

Subtitle D—Accounting Methods 

Sec. 3301. Limitation on use of cash method of accounting. 

Sec. 3302. Rules for determining whether taxpayer has adopted a method of accounting. 

Sec. 3303. Certain special rules for taxable year of inclusion. 

Sec. 3304. Installment sales. 

Sec. 3305. Repeal of special rule for prepaid subscription income. 

Sec. 3306. Repeal of special rule for prepaid dues income of certain membership organizations. 

Sec. 3307. Repeal of special rule for magazines, paperbacks, and records returned after close of the taxable year. 

Sec. 3308. Modification of rules for long-term contracts. 

Sec. 3309. Nuclear decommissioning reserve funds. 

Sec. 3310. Repeal of last-in, first-out method of inventory. 

Sec. 3311. Repeal of lower of cost or market method of inventory. 

Sec. 3312. Modification of rules for capitalization and inclusion in inventory 

costs of certain expenses. 

Sec. 3313. Modification of income forecast method. 

Sec. 3314. Repeal of averaging of farm income. 

Sec. 3315. Treatment of patent or trademark infringement awards. 

Sec. 3316. Repeal of redundant rules with respect to carrying charges. 

Sec. 3317. Repeal of recurring item exception for spudding of oil or gas wells. 

Subtitle E—Financial Instruments 

PART 1—DERIVATIVES AND HEDGES

Sec. 3401. Treatment of certain derivatives. 

Sec. 3402. Modification of certain rules related to hedges. 

PART 2—TREATMENT OF DEBT INSTRUMENTS

Sec. 3411. Current inclusion in income of market discount. 

Sec. 3412. Treatment of certain exchanges of debt instruments. 

Sec. 3413. Coordination with rules for inclusion not later than for financial accounting purposes. 

Sec. 3414. Rules regarding certain government debt. 


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PART 3—CERTAIN RULES FOR DETERMINING GAIN AND LOSS

Sec. 3421. Cost basis of specified securities determined without regard to identification. 

Sec. 3422. Wash sales by related parties. 

Sec. 3423. Nonrecognition for derivative transactions by a corporation with respect to its stock. 

PART 4—TAX FAVORED BONDS

Sec. 3431. Termination of private activity bonds. 

Sec. 3432. Termination of credit for interest on certain home mortgages. 

Sec. 3433. Repeal of advance refunding bonds. 

Sec. 3434. Repeal of tax credit bond rules. 

Subtitle F—Insurance Reforms 

Sec. 3501. Exception to pro rata interest expense disallowance for corporateowned life insurance restricted to 20-percent owners. 

Sec. 3502. Net operating losses of life insurance companies. 

Sec. 3503. Repeal of small life insurance company deduction. 

Sec. 3504. Computation of life insurance tax reserves. 

Sec. 3505. Adjustment for change in computing reserves. 

Sec. 3506. Modification of rules for life insurance proration for purposes of determining the dividends received deduction. 

Sec. 3507. Repeal of special rule for distributions to shareholders from pre1984 policyholders surplus account. 

Sec. 3508. Modification of proration rules for property and casualty insurance 

companies. 

Sec. 3509. Repeal of special treatment of Blue Cross and Blue Shield organizations, etc. 

Sec. 3510. Modification of discounting rules for property and casualty insurance companies. 

Sec. 3511. Repeal of special estimated tax payments. 

Sec. 3512. Capitalization of certain policy acquisition expenses. 

Sec. 3513. Tax reporting for life settlement transactions. 

Sec. 3514. Clarification of tax basis of life insurance contracts. 

Sec. 3515. Exception to transfer for valuable consideration rules. 

Subtitle G—Pass-Thru and Certain Other Entities 

PART 1—S CORPORATIONS

Sec. 3601. Reduced recognition period for built-in gains made permanent. 

Sec. 3602. Modifications to S corporation passive investment income rules. 

Sec. 3603. Expansion of qualifying beneficiaries of an electing small business 

trust. 

Sec. 3604. Charitable contribution deduction for electing small business trusts. 

Sec. 3605. Permanent rule regarding basis adjustment to stock of S corporations making charitable contributions of property. 

Sec. 3606. Extension of time for making S corporation elections. 

Sec. 3607. Relocation of C corporation definition. 

PART 2—PARTNERSHIPS

Sec. 3611. Repeal of rules relating to guaranteed payments and liquidating distributions. 


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Sec. 3612. Mandatory adjustments to basis of partnership property in case of 

transfer of partnership interests. 

Sec. 3613. Mandatory adjustments to basis of undistributed partnership property. 

Sec. 3614. Corresponding adjustments to basis of properties held by partnership where partnership basis adjusted. 

Sec. 3615. Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss. 

Sec. 3616. Revisions related to unrealized receivables and inventory items. 

Sec. 3617. Repeal of time limitation on taxing precontribution gain. 

Sec. 3618. Partnership interests created by gift. 

Sec. 3619. Repeal of technical termination. 

Sec. 3620. Publicly traded partnership exception restricted to mining and natural resources partnerships. 

Sec. 3621. Ordinary income treatment in the case of partnership interests held 

in connection with performance of services. 

Sec. 3622. Partnership audits and adjustments. 

PART 3—REITS AND RICS

Sec. 3631. Prevention of tax-free spinoffs involving REITs. 

Sec. 3632. Extension of period for prevention of REIT election following revocation or termination. 

Sec. 3633. Certain short-life property not treated as real property for purposes 

of REIT provisions. 

Sec. 3634. Repeal of special rules for timber held by REITs. 

Sec. 3635. Limitation on fixed percentage rent and interest exceptions for 

REIT income tests. 

Sec. 3636. Repeal of preferential dividend rule for publicly offered REITs. 

Sec. 3637. Authority for alternative remedies to address certain REIT distribution failures. 

Sec. 3638. Limitations on designation of dividends by REITs. 

Sec. 3639. Non-REIT earnings and profits required to be distributed by REIT 

in cash. 

Sec. 3640. Debt instruments of publicly offered REITs and mortgages treated 

as real estate assets. 

Sec. 3641. Asset and income test clarification regarding ancillary personal 

property. 

Sec. 3642. Hedging provisions. 

Sec. 3643. Modification of REIT earnings and profits calculation to avoid duplicate taxation. 

Sec. 3644. Reduction in percentage limitation on assets of REIT which may be 

taxable REIT subsidiaries. 

Sec. 3645. Treatment of certain services provided by taxable REIT subsidiaries. 

Sec. 3646. Study relating to taxable REIT subsidiaries. 

Sec. 3647. C corporation election to become, or transfer assets to, a RIC or 

REIT. 

Sec. 3648. Interests in RICs and REITs not excluded from definition of United 

States real property interests. 

Sec. 3649. Dividends derived from RICs and REITs ineligible for deduction for 

United States source portion of dividends from certain foreign 

corporations. 

PART 4—PERSONAL HOLDING COMPANIES


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Sec. 3661. Exclusion of dividends from controlled foreign corporations from the 

definition of personal holding company income for purposes of 

the personal holding company rules. 

Subtitle H—Taxation of Foreign Persons 

Sec. 3701. Prevention of avoidance of tax through reinsurance with non-taxed 

affiliates. 

Sec. 3702. Taxation of passenger cruise gross income of foreign corporations 

and nonresident alien individuals. 

Sec. 3703. Restriction on insurance business exception to passive foreign investment company rules. 

Sec. 3704. Modification of limitation on earnings stripping. 

Sec. 3705. Limitation on treaty benefits for certain deductible payments. 

Subtitle I—Provisions Related to Compensation 

PART 1—EXECUTIVE COMPENSATION

Sec. 3801. Nonqualified deferred compensation. 

Sec. 3802. Modification of limitation on excessive employee remuneration. 

Sec. 3803. Excise tax on excess tax-exempt organization executive compensation. 

Sec. 3804. Denial of deduction as research expenditure for stock transferred 

pursuant to an incentive stock option. 

PART 2—WORKER CLASSIFICATION

Sec. 3811. Determination of worker classification. 

Subtitle J—Zones and Short-Term Regional Benefits 

Sec. 3821. Repeal of provisions relating to Empowerment Zones and Enterprise 

Communities. 

Sec. 3822. Repeal of DC Zone provisions. 

Sec. 3823. Repeal of provisions relating to renewal communities. 

Sec. 3824. Repeal of various short-term regional benefits. 

TITLE IV—PARTICIPATION EXEMPTION SYSTEM FOR THE 

TAXATION OF FOREIGN INCOME 

Subtitle A—Establishment of Exemption System 

Sec. 4001. Deduction for dividends received by domestic corporations from certain foreign corporations. 

Sec. 4002. Limitation on losses with respect to specified 10-percent owned foreign corporations. 

Sec. 4003. Treatment of deferred foreign income upon transition to participation exemption system of taxation. 

Sec. 4004. Look-thru rule for related controlled foreign corporations made permanent. 

Subtitle B—Modifications Related to Foreign Tax Credit System 

Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of 

section 960 credit on current year basis. 

Sec. 4102. Foreign tax credit limitation applied by allocating only directly allocable deductions to foreign source income. 


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Sec. 4103. Passive category income expanded to include other mobile income. 

Sec. 4104. Source of income from sales of inventory determined solely on basis 

of production activities. 

Subtitle C—Rules Related to Passive and Mobile Income 

PART 1—MODIFICATION OF SUBPART F PROVISIONS

Sec. 4201. Subpart F income to only include low-taxed foreign income. 

Sec. 4202. Foreign base company sales income. 

Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income. 

Sec. 4204. Active financing exception extended with limitation for low-taxed 

foreign income. 

Sec. 4205. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment. 

PART 2—PREVENTION OF BASE EROSION

Sec. 4211. Foreign intangible income subject to taxation at reduced rate; intangible income treated as subpart F income. 

Sec. 4212. Denial of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with 

excess domestic indebtedness. 

TITLE V—TAX EXEMPT ENTITIES 

Subtitle A—Unrelated Business Income Tax 

Sec. 5001. Clarification of unrelated business income tax treatment of entities 

treated as exempt from taxation under section 501(a). 

Sec. 5002. Name and logo royalties treated as unrelated business taxable income. 

Sec. 5003. Unrelated business taxable income separately computed for each 

trade or business activity. 

Sec. 5004. Exclusion of research income limited to publicly available research. 

Sec. 5005. Parity of charitable contribution limitation between trusts and corporations. 

Sec. 5006. Increased specific deduction. 

Sec. 5007. Repeal of exclusion of gain or loss from disposition of distressed 

property. 

Sec. 5008. Qualified sponsorship payments. 

Subtitle B—Penalties 

Sec. 5101. Increase in information return penalties. 

Sec. 5102. Manager-level accuracy-related penalty on underpayment of unrelated business income tax. 

Subtitle C—Excise Taxes 

Sec. 5201. Modification of intermediate sanctions. 

Sec. 5202. Modification of taxes on self-dealing. 

Sec. 5203. Excise tax on failure to distribute within 5 years contribution to 

donor advised fund. 

Sec. 5204. Simplification of excise tax on private foundation investment income. 

Sec. 5205. Repeal of exception for private operating foundation failure to distribute income. 


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Sec. 5206. Excise tax based on investment income of private colleges and universities. 

Subtitle D—Requirements For Organizations Exempt From Tax 

Sec. 5301. Repeal of tax-exempt status for professional sports leagues. 

Sec. 5302. Repeal of exemption from tax for certain insurance companies and 

co-op health insurance issuers. 

Sec. 5303. In-State requirement for workmen’s compensation insurance organization. 

Sec. 5304. Repeal of Type II and Type III supporting organizations. 

TITLE VI—TAX ADMINISTRATION AND COMPLIANCE 

Subtitle A—IRS Investigation-Related Reforms 

Sec. 6001. Organizations required to notify Secretary of intent to operate as 

501(c)(4). 

Sec. 6002. Declaratory judgments for 501(c)(4) organizations. 

Sec. 6003. Restriction on donation reporting for certain 501(c)(4) organizations. 

Sec. 6004. Mandatory electronic filing for annual returns of exempt organizations. 

Sec. 6005. Duty to ensure that IRS employees are familiar with and act in accord with certain taxpayer rights. 

Sec. 6006. Termination of employment of IRS employees for taking official actions for political purposes. 

Sec. 6007. Release of information regarding the status of certain investigations. 

Sec. 6008. Review of IRS examination selection procedures. 

Sec. 6009. IRS employees prohibited from using personal email accounts for official business. 

Sec. 6010. Moratorium on IRS conferences. 

Sec. 6011. Applicable standard for determinations of whether an organization 

is operated exclusively for the promotion of social welfare. 

Subtitle B—Taxpayer Protection and Service Reforms 

Sec. 6101. Extension of IRS authority to require truncated Social Security 

numbers on Form W-2. 

Sec. 6102. Free electronic filing. 

Sec. 6103. Pre-populated returns prohibited. 

Sec. 6104. Form 1040SR for seniors. 

Sec. 6105. Increased refund and credit threshold for Joint Committee on Taxation review of C corporation return. 

Subtitle C—Tax Return Due Date Simplification 

Sec. 6201. Due dates for returns of partnerships, S corporations, and C corporations. 

Sec. 6202. Modification of due dates by regulation. 

Sec. 6203. Corporations permitted statutory automatic 6-month extension of income tax returns. 

Subtitle D—Compliance Reforms 

Sec. 6301. Penalty for failure to file. 

Sec. 6302. Penalty for failure to file correct information returns and provide 

payee statements. 


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Sec. 6303. Clarification of 6-year statute of limitations in case of overstatement 

of basis. 

Sec. 6304. Reform of rules related to qualified tax collection contracts. 

Sec. 6305. 100 percent continuous levy on payments to Medicare providers and 

suppliers. 

Sec. 6306. Treatment of refundable credits for purposes of certain penalties. 

TITLE VII—EXCISE TAXES 

Sec. 7001. Repeal of medical device excise tax. 

Sec. 7002. Modifications relating to oil spill liability trust fund. 

Sec. 7003. Modification relating to inland waterways trust fund financing rate. 

Sec. 7004. Excise tax on systemically important financial institutions. 

Sec. 7005. Clarification of orphan drug exception to annual fee on branded prescription pharmaceutical manufacturers and importers. 

TITLE VIII—DEADWOOD AND TECHNICAL PROVISIONS 

Subtitle A—Repeal of Deadwood 

Sec. 8001. Repeal of Puerto Rico economic activity credit. 

Sec. 8002. Repeal of making work pay credit. 

Sec. 8003. General business credit. 

Sec. 8004. Environmental tax. 

Sec. 8005. Annuities; certain proceeds of endowment and life insurance contracts. 

Sec. 8006. Unemployment compensation. 

Sec. 8007. Flexible spending arrangements. 

Sec. 8008. Certain combat zone compensation of members of the armed forces. 

Sec. 8009. Qualified group legal services plans. 

Sec. 8010. Certain reduced uniformed services retirement pay. 

Sec. 8011. Great plains conservation program. 

Sec. 8012. State legislators’ travel expenses away from home. 

Sec. 8013. Treble damage payments under the antitrust law. 

Sec. 8014. Phase-in of limitation on investment interest. 

Sec. 8015. Charitable, etc., contributions and gifts. 

Sec. 8016. Amortizable bond premium. 

Sec. 8017. Repeal of deduction for clean-fuel vehicles and certain refueling 

property. 

Sec. 8018. Repeal of deduction for capital costs incurred in complying with environmental protection agency sulfur regulations. 

Sec. 8019. Activities not engaged in for profit. 

Sec. 8020. Dividends received on certain preferred stock; and dividends paid on 

certain preferred stock of public utilities. 

Sec. 8021. Acquisitions made to evade or avoid income tax. 

Sec. 8022. Distributions of property. 

Sec. 8023. Effect on earnings and profits. 

Sec. 8024. Basis to corporations. 

Sec. 8025. Tax credit employee stock ownership plans. 

Sec. 8026. Employee stock purchase plans. 

Sec. 8027. Transition rules. 

Sec. 8028. Limitation on deductions for certain farming. 

Sec. 8029. Deductions limited to amount at risk. 

Sec. 8030. Passive activity losses and credits limited. 

Sec. 8031. Adjustments required by changes in method of accounting. 

Sec. 8032. Exemption from tax on corporations, certain trusts, etc. 


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Sec. 8033. Requirements for exemption. 

Sec. 8034. Repeal of special treatment for religious broadcasting company. 

Sec. 8035. Repeal of exclusion of gain or loss from disposition of brownfield 

property. 

Sec. 8036. Accumulated taxable income. 

Sec. 8037. Certain provisions related to depletion. 

Sec. 8038. Amounts received by surviving annuitant under joint and survivor 

annuity contract. 

Sec. 8039. Income taxes of members of armed forces on death. 

Sec. 8040. Special rules for computing reserves. 

Sec. 8041. Insurance company taxable income. 

Sec. 8042. Capitalization of certain policy acquisition expenses. 

Sec. 8043. Repeal of provision on expatriation to avoid tax. 

Sec. 8044. Repeal of certain transition rules on income from sources without 

United States. 

Sec. 8045. Repeal of Puerto Rico and possession tax credit. 

Sec. 8046. Basis of property acquired from decedent. 

Sec. 8047. Property on which lessee has made improvements. 

Sec. 8048. Involuntary conversion. 

Sec. 8049. Property acquired during affiliation. 

Sec. 8050. Repeal of special holding period rules for certain commodity futures 

transactions. 

Sec. 8051. Holding period of property. 

Sec. 8052. Property used in the trade or business and involuntary conversions. 

Sec. 8053. Sale of patents. 

Sec. 8054. Gain from disposition of farmland. 

Sec. 8055. Transition rules related to the treatment of amounts received on retirement or sale or exchange of debt instruments. 

Sec. 8056. Certain rules with respect to debt instruments issued before July 2, 

1982. 

Sec. 8057. Certain rules with respect to stripped bonds purchased before July 

2, 1982. 

Sec. 8058. Amount and method of adjustment. 

Sec. 8059. Old-age, survivors, and disability insurance. 

Sec. 8060. Hospital insurance. 

Sec. 8061. Ministers, members of religious orders, and christian science practitioners. 

Sec. 8062. Affiliated group defined. 

Sec. 8063. Credit for state death taxes. 

Sec. 8064. Family-owned business interest. 

Sec. 8065. Property within the united states. 

Sec. 8066. Repeal of deadwood provisions relating to employment taxes. 

Sec. 8067. Luxury passenger automobiles. 

Sec. 8068. Transportation by air. 

Sec. 8069. Taxes on failure to distribute income. 

Sec. 8070. Taxes on taxable expenditures. 

Sec. 8071. Definitions and special rules. 

Sec. 8072. Returns. 

Sec. 8073. Information returns. 

Sec. 8074. Abatements. 

Sec. 8075. Failure by corporation to pay estimated income tax. 

Sec. 8076. Repeal of 2008 recovery rebates. 

Sec. 8077. Repeal of advance payment of portion of increased child credit for 

2003. 

Sec. 8078. Repeal of provisions related to COBRA premium assistance. 


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Sec. 8079. Retirement. 

Sec. 8080. Annuities to surviving spouses and dependent children of judges. 

Sec. 8081. Merchant marine capital construction funds. 

Sec. 8082. Valuation tables. 

Sec. 8083. Definition of employee. 

Sec. 8084. Effective date. 

Subtitle B—Conforming Amendments Related to Multiple Sections 

Sec. 8101. Conforming amendments related to multiple sections.

1 TITLE I—TAX REFORM FOR 

2 INDIVIDUALS

3 Subtitle A—Individual Income Tax 

4 Rate Reform 

5 SEC. 1001. SIMPLIFICATION OF INDIVIDUAL INCOME TAX 

6 RATES.

7 (a) IN GENERAL.—Section 1 is amended to read as 

8 follows: 

9 ‘‘SEC. 1. TAX IMPOSED. 

10 ‘‘(a) IN GENERAL.—There is hereby imposed on the 

11 income of every individual a tax equal to the sum of—

12 ‘‘(1) 10 PERCENT BRACKET.—10 percent of so 

13 much of the taxable income as does not exceed the 

14 25-percent bracket threshold amount, 

15 ‘‘(2) 25 PERCENT BRACKET.—25 percent of so 

16 much of the taxable income as exceeds the 25-per17 cent bracket threshold amount, plus 

18 ‘‘(3) 35 PERCENT BRACKET.—10 percent of so 

19 much of the modified adjusted gross income (as de20 fined in section 2) as exceeds the 35-percent bracket 

21 threshold amount. 


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1 ‘‘(b) BRACKET THRESHOLD AMOUNTS.—For pur2 poses of this section—

3 ‘‘(1) 25-PERCENT BRACKET THRESHOLD

4 AMOUNT.—The term ‘25-percent bracket threshold 

5 amount’ means—

6 ‘‘(A) in the case of a joint return or sur7 viving spouse, $71,200, 

8 ‘‘(B) in the case of any other individual 

9 (other than an estate or trust), one-half of the 

10 dollar amount in effect under subparagraph 

11 (A), and 

12 ‘‘(C) in the case of an estate or trust, zero. 

13 ‘‘(2) 35-PERCENT BRACKET THRESHOLD

14 AMOUNT.—The term ‘35-percent bracket threshold 

15 amount’ means—

16 ‘‘(A) in the case of a joint return or sur17 viving spouse, $450,000, 

18 ‘‘(B) in the case of any other individual 

19 (other than an estate or trust), $400,000, and 

20 ‘‘(C) in the case of an estate or trust, 

21 $12,000. 

22 ‘‘(c) INFLATION ADJUSTMENT.—

23 ‘‘(1) IN GENERAL.—In the case of any taxable 

24 year beginning after 2014, each dollar amount in 

25 subsections (b)(1)(A), (b)(2)(A), (b)(2)(B), 


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1 (b)(2)(C), (e)(3)(A), and (e)(3)(B) shall be increased 

2 by an amount equal to—

3 ‘‘(A) such dollar amount, multiplied by 

4 ‘‘(B) the cost-of-living adjustment deter5 mined under this subsection for the calendar 

6 year in which the taxable year begins. 

7 If any increase determined under the preceding sen8 tence is not a multiple of $100, such increase shall 

9 be rounded to the next lowest multiple of $100. 

10 ‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur11 poses of this subsection—

12 ‘‘(A) IN GENERAL.—The cost-of-living ad13 justment for any calendar year is the percent14 age (if any) by which—

15 ‘‘(i) the C-CPI-U for the preceding 

16 calendar year, exceeds 

17 ‘‘(ii) the normalized CPI for calendar 

18 year 2012. 

19 ‘‘(B) SPECIAL RULE FOR ADJUSTMENTS

20 WITH A BASE YEAR AFTER 2012.—For purposes 

21 of any provision which provides for the substi22 tution of a year after 2012 for ‘2012’ in sub23 paragraph (A)(ii), subparagraph (A) shall be 

24 applied by substituting ‘C-CPI-U’ for ‘normal25 ized CPI’ in clause (ii). 


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1 ‘‘(3) NORMALIZED CPI.—For purposes of this 

2 subsection, the normalized CPI for any calendar 

3 year is the product of—

4 ‘‘(A) the CPI for such calendar year, mul5 tiplied by 

6 ‘‘(B) the C-CPI-U transition multiple. 

7 ‘‘(4) C-CPI-U TRANSITION MULTIPLE.—For 

8 purposes of this subsection, the term ‘C-CPI-U tran9 sition multiple’ means the amount obtained by divid10 ing—

11 ‘‘(A) the C-CPI-U for calendar year 2013, 

12 by 

13 ‘‘(B) the CPI for calendar year 2013. 

14 ‘‘(5) C-CPI-U.—For purposes of this sub15 section—

16 ‘‘(A) IN GENERAL.—The term ‘C-CPI-U’ 

17 means the Chained Consumer Price Index for 

18 All Urban Consumers (as published by the Bu19 reau of Labor Statistics of the Department of 

20 Labor). The values of the Chained Consumer 

21 Price Index for All Urban Consumers taken 

22 into account for purposes of determining the 

23 cost-of-living adjustment for any calendar year 

24 under this subsection shall be the latest values 

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1 reau publishes the initial value of the Chained 

2 Consumer Price Index for All Urban Con3 sumers for the month of August for the pre4 ceding calendar year. 

5 ‘‘(B) DETERMINATION FOR CALENDAR

6 YEAR.—The C-CPI-U for any calendar year is 

7 the average of the C-CPI-U as of the close of 

8 the 12-month period ending on August 31 of 

9 such calendar year. 

10 ‘‘(6) CPI.—For purposes of this subsection—

11 ‘‘(A) IN GENERAL.—The term ‘Consumer 

12 Price Index’ means the last Consumer Price 

13 Index for All Urban Consumers published by 

14 the Department of Labor. For purposes of the 

15 preceding sentence, the revision of the Con16 sumer Price Index which is most consistent 

17 with the Consumer Price Index for calendar 

18 year 1986 shall be used. 

19 ‘‘(B) DETERMINATION FOR CALENDAR

20 YEAR.—The CPI for any calendar year is the 

21 average of the Consumer Price Index as of the 

22 close of the 12-month period ending on August 

23 31 of such calendar year. 

24 ‘‘(d) SPECIAL RULES FOR CERTAIN CHILDREN WITH

25 UNEARNED INCOME.—


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1 ‘‘(1) IN GENERAL.—In the case of any child to 

2 whom this subsection applies for any taxable year—

3 ‘‘(A) the 25-percent bracket threshold 

4 amount shall not be more than the taxable in5 come of such child for the taxable year reduced 

6 by the net unearned income of such child, and 

7 ‘‘(B) the 35-percent bracket threshold 

8 amount shall not be more than the sum of—

9 ‘‘(i) the taxable income of such child 

10 for the taxable year reduced by the net un11 earned income of such child, plus 

12 ‘‘(ii) the dollar amount in effect under 

13 subsection (b)(2)(C) for the taxable year. 

14 ‘‘(2) CHILD TO WHOM SUBSECTION APPLIES.—

15 This subsection shall apply to any child for any tax16 able year if—

17 ‘‘(A) such child—

18 ‘‘(i) has not attained age 18 before 

19 the close of the taxable year, or 

20 ‘‘(ii) has attained age 18 before the 

21 close of the taxable year and is described 

22 in paragraph (3), 

23 ‘‘(B) either parent of such child is alive at 

24 the close of the taxable year, and 


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1 ‘‘(C) such child does not file a joint return 

2 for the taxable year. 

3 ‘‘(3) CERTAIN CHILDREN WHOSE EARNED IN4 COME DOES NOT EXCEED ONE-HALF OF INDI5 VIDUAL’S SUPPORT.—A child is described in this 

6 paragraph if—

7 ‘‘(A) such child—

8 ‘‘(i) has not attained age 19 before 

9 the close of the taxable year, or 

10 ‘‘(ii) is a student (within the meaning 

11 of section 7705(f)(2)) who has not attained 

12 age 24 before the close of the taxable year, 

13 and 

14 ‘‘(B) such child’s earned income (as de15 fined in section 911(d)(2)) for such taxable 

16 year does not exceed one-half of the amount of 

17 the individual’s support (within the meaning of 

18 section 7705(c)(1)(D) after the application of 

19 section 7705(f)(5) (without regard to subpara20 graph (A) thereof)) for such taxable year. 

21 ‘‘(4) NET UNEARNED INCOME.—For purposes 

22 of this subsection—

23 ‘‘(A) IN GENERAL.—The term ‘net un24 earned income’ means the excess of—


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1 ‘‘(i) the portion of the adjusted gross 

2 income for the taxable year which is not 

3 attributable to earned income (as defined 

4 in section 911(d)(2)), over 

5 ‘‘(ii) the sum of—

6 ‘‘(I) the amount in effect for the 

7 taxable year under section 63(c)(4)(A) 

8 (relating to limitation on standard de9 duction in the case of certain depend10 ents) , plus 

11 ‘‘(II) the greater of the amount 

12 described in subclause (I) or, if the 

13 child itemizes his deductions for the 

14 taxable year, the amount of the 

15 itemized deductions allowed by this 

16 chapter for the taxable year which are 

17 directly connected with the production 

18 of the portion of adjusted gross in19 come referred to in clause (i). 

20 ‘‘(B) LIMITATION BASED ON TAXABLE IN21 COME.—The amount of the net unearned in22 come for any taxable year shall not exceed the 

23 individual’s taxable income for such taxable 

24 year. 

25 ‘‘(e) PHASEOUT OF 10-PERCENT RATE.—


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1 ‘‘(1) IN GENERAL.—The amount of tax imposed 

2 by this section (determined without regard to this 

3 subsection) shall be increased by 5 percent of the ex4 cess (if any) of—

5 ‘‘(A) modified adjusted gross income, over 

6 ‘‘(B) the applicable dollar amount. 

7 ‘‘(2) LIMITATION.—The increase determined 

8 under paragraph (1) with respect to any taxpayer 

9 for any taxable year shall not exceed 15 percent of 

10 the lesser of—

11 ‘‘(A) the taxpayer’s taxable income for 

12 such taxable year, or 

13 ‘‘(B) the 25-percent bracket threshold 

14 amount in effect with respect to the taxpayer 

15 for such taxable year. 

16 ‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur17 poses of this subsection, the term ‘applicable dollar 

18 amount’ means—

19 ‘‘(A) in the case of a joint return or a sur20 viving spouse, $300,000, 

21 ‘‘(B) in the case of any other individual, 

22 $250,000. 

23 ‘‘(4) ESTATES AND TRUSTS.—Paragraph (1) 

24 shall not apply in the case of an estate or trust. 


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1 ‘‘(f) DETERMINATION OF HIGHEST RATE.—For pur2 poses of any provision of law which refers to the highest 

3 rate of tax specified in this section (or any subsection of 

4 this section), such highest rate shall be treated as being 

5 35 percent.’’. 

6 (b) MODIFIED ADJUSTED GROSS INCOME.—Section 

7 2 is amended by striking subsection (b), by redesignating 

8 subsections (c), (d), and (e), as subsections (d), (e), and 

9 (f), respectively, and by inserting after subsection (a) the 

10 following new subsections: 

11 ‘‘(b) MODIFIED ADJUSTED GROSS INCOME.—For 

12 purposes of section 1—

13 ‘‘(1) IN GENERAL.—The term ‘modified ad14 justed gross income’ means adjusted gross income—

15 ‘‘(A) increased by—

16 ‘‘(i) any amount excluded from gross 

17 income under sections 911, 931, and 933, 

18 ‘‘(ii) the excess (if any) of—

19 ‘‘(I) amounts of interest received 

20 or accrued by the taxpayer during the 

21 taxable year which are exempt from 

22 tax, over 

23 ‘‘(II) amounts disallowed as a de24 duction by reason of section 

25 163(d)(1)(A) or 171(a)(2), 


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1 ‘‘(iii) any exclusion from gross income 

2 with respect to the cost described in sec3 tion 6051(a)(14) (without regard to sub4 paragraphs (A) and (B) thereof), 

5 ‘‘(iv) any deduction allowable under 

6 section 162(l) (relating to special rules for 

7 health insurance costs of self-employed in8 dividuals), 

9 ‘‘(v) any annual addition (as defined 

10 in section 415(c)(2)) to a defined contribu11 tion plan which is not includible in, or 

12 which is deductible from, the gross income 

13 of the individual for the taxable year, 

14 ‘‘(vi) any deduction allowable under 

15 section 223, and 

16 ‘‘(vii) the excess (if any) of—

17 ‘‘(I) the social security benefits of 

18 the individual for the taxable year (as 

19 defined in section 86(d)), over 

20 ‘‘(II) the amount included in the 

21 gross income of such individual for 

22 such taxable year under section 86, 

23 and 

24 ‘‘(B) decreased by—


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1 ‘‘(i) any deduction allowed under sec2 tion 170 (and in the case of an estate or 

3 trust, any deduction allowed under section 

4 642(c)), and 

5 ‘‘(ii) qualified domestic manufacturing 

6 income. 

7 ‘‘(2) DETERMINATION OF ADJUSTED GROSS IN8 COME IN CASE OF ESTATES AND TRUSTS.—For pur9 poses of this subsection, the adjusted gross income 

10 of an estate or trust shall be computed in the same 

11 manner as in the case of an individual, except 

12 that—

13 ‘‘(A) the deductions for costs which are 

14 paid or incurred in connection with the admin15 istration of the estate or trust and which would 

16 not have been incurred if the property were not 

17 held in such trust or estate, and 

18 ‘‘(B) the deductions allowable under sec19 tions 642(b), 651, and 661, 

20 shall be treated as allowable in arriving at adjusted 

21 gross income. Under regulations, appropriate adjust22 ments shall be made in the application of part I of 

23 subchapter J of this chapter to take into account the 

24 application of this paragraph. 


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1 ‘‘(c) QUALIFIED DOMESTIC MANUFACTURING IN2 COME.—

3 ‘‘(1) IN GENERAL.—For purposes of subsection 

4 (b), the term ‘qualified domestic manufacturing in5 come’ for any taxable year means an amount equal 

6 to the excess (if any) of—

7 ‘‘(A) the taxpayer’s domestic manufac8 turing gross receipts for such taxable year, over 

9 ‘‘(B) the sum of—

10 ‘‘(i) the cost of goods sold that are al11 locable to such receipts, and 

12 ‘‘(ii) other expenses, losses, or deduc13 tions, which are properly allocable to such 

14 receipts. 

15 ‘‘(2) ALLOCATION METHOD.—The Secretary 

16 shall prescribe rules for the proper allocation of 

17 items described in paragraph (1) for purposes of de18 termining qualified domestic manufacturing income. 

19 Such rules shall provide for the proper allocation of 

20 items whether or not such items are directly allo21 cable to domestic manufacturing gross receipts. 

22 ‘‘(3) SPECIAL RULES FOR DETERMINING

23 COSTS.—

24 ‘‘(A) IN GENERAL.—For purposes of deter25 mining costs under clause (i) of paragraph 


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1 (1)(B), any item or service brought into the 

2 United States shall be treated as acquired by 

3 purchase, and its cost shall be treated as not 

4 less than its value immediately after it entered 

5 the United States. A similar rule shall apply in 

6 determining the adjusted basis of leased or 

7 rented property where the lease or rental gives 

8 rise to domestic manufacturing gross receipts. 

9 ‘‘(B) EXPORTS FOR FURTHER MANUFAC10 TURE.—In the case of any property described 

11 in subparagraph (A) that had been exported by 

12 the taxpayer for further manufacture, the in13 crease in cost or adjusted basis under subpara14 graph (A) shall not exceed the difference be15 tween the value of the property when exported 

16 and the value of the property when brought 

17 back into the United States after the further 

18 manufacture. 

19 ‘‘(4) DOMESTIC MANUFACTURING GROSS RE20 CEIPTS.—For purposes of this subsection—

21 ‘‘(A) IN GENERAL.—The term ‘domestic 

22 manufacturing gross receipts’ means the gross 

23 receipts of the taxpayer which are derived 

24 from—


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1 ‘‘(i) any lease, rental, license, sale, ex2 change, or other disposition of tangible 

3 personal property which was manufac4 tured, produced, grown, or extracted by 

5 the taxpayer in whole or in significant part 

6 within the United States, or 

7 ‘‘(ii) in the case of a taxpayer engaged 

8 in the active conduct of a construction 

9 trade or business, construction of real 

10 property performed in the United States 

11 by the taxpayer in the ordinary course of 

12 such trade or business if such real prop13 erty is placed in service after December 

14 31, 2014. 

15 ‘‘(B) EXCEPTIONS.—Such term shall not 

16 include gross receipts of the taxpayer which are 

17 derived from—

18 ‘‘(i) the sale of food and beverages 

19 prepared by the taxpayer at a retail estab20 lishment, 

21 ‘‘(ii) the transmission or distribution 

22 of electricity, natural gas, or potable water, 

23 and 

24 ‘‘(iii) the lease, rental, license, sale, 

25 exchange, or other disposition of land. 


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1 ‘‘(C) SPECIAL RULE FOR CERTAIN GOV2 ERNMENT CONTRACTS.—Gross receipts derived 

3 from the manufacture or production of any 

4 property described in subparagraph (A)(i) shall 

5 be treated as meeting the requirements of sub6 paragraph (A)(i) if—

7 ‘‘(i) such property is manufactured or 

8 produced by the taxpayer pursuant to a 

9 contract with the Federal Government, and 

10 ‘‘(ii) the Federal Acquisition Regula11 tion requires that title or risk of loss with 

12 respect to such property be transferred to 

13 the Federal Government before the manu14 facture or production of such property is 

15 complete. 

16 ‘‘(D) TREATMENT OF ACTIVITIES IN PUER17 TO RICO.—In the case of any taxpayer with 

18 gross receipts for any taxable year from sources 

19 within the Commonwealth of Puerto Rico, if all 

20 of such receipts are taxable under section 1 for 

21 such taxable year, then this paragraph shall be 

22 applied by treating each reference in subpara23 graph (A) to the United States as including the 

24 Commonwealth of Puerto Rico. 


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1 ‘‘(E) TANGIBLE PERSONAL PROPERTY.—

2 The term ‘tangible personal property’ shall not 

3 include computer software or any property de4 scribed in paragraph (3) or (4) of section 

5 168(f). 

6 ‘‘(F) RELATED PERSONS.—

7 ‘‘(i) IN GENERAL.—The term ‘domes8 tic manufacturing gross receipts’ shall not 

9 include any gross receipts of the taxpayer 

10 derived from property leased, licensed, or 

11 rented by the taxpayer for use by any re12 lated person. 

13 ‘‘(ii) RELATED PERSON.—For pur14 poses of clause (i), a person shall be treat15 ed as related to another person if such per16 sons are treated as a single employer 

17 under subsection (a) or (b) of section 52 or 

18 subsection (m) or (o) of section 414, ex19 cept that determinations under subsections 

20 (a) and (b) of section 52 shall be made 

21 without regard to section 1563(b). 

22 ‘‘(5) CERTAIN INCOME NOT QUALIFIED.—

23 ‘‘(A) NET EARNINGS FROM SELF EMPLOY24 MENT.—Domestic manufacturing gross receipts 

25 shall not include any amount which is properly 


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1 allocable to the taxpayer’s net earnings from 

2 self employment (determined after any reduc3 tion provided under section 1402(m)). 

4 ‘‘(B) CERTAIN ACCOUNTING METHOD AD5 JUSTMENTS.—Domestic manufacturing gross 

6 receipts shall not include any amount attrib7 utable to—

8 ‘‘(i) a qualified change in method of 

9 accounting (as defined in section 

10 3301(d)(2) of the Tax Reform Act of 

11 2014), or 

12 ‘‘(ii) any other change in method of 

13 accounting which is required by the 

14 amendments made by such Act. 

15 ‘‘(6) APPLICATION OF SECTION TO PASS16 THROUGH ENTITIES.—

17 ‘‘(A) PARTNERSHIPS AND S CORPORA18 TIONS.—Except as provided in subparagraph 

19 (B), in the case of a partnership or S corpora20 tion, each partner or shareholder shall take into 

21 account such person’s allocable share of each 

22 item described in subparagraph (A) or (B) of 

23 paragraph (1) (determined without regard to 

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1 graph (A) exceed the items described in such 

2 subparagraph (B)). 

3 ‘‘(B) PUBLICLY TRADED PARTNERSHIPS.—

4 In the case of a publicly traded partnership de5 scribed in section 7704(c), each partner shall 

6 not take into account any allocable share of any 

7 item referred to in subparagraph (A). 

8 ‘‘(C) TRUSTS AND ESTATES.—In the case 

9 of a trust or estate, the items referred to in 

10 subparagraph (A) (as determined therein) shall 

11 be apportioned between the beneficiaries and 

12 the fiduciary (and among the beneficiaries) 

13 under regulations prescribed by the Secretary. 

14 ‘‘(7) REGULATIONS.—The Secretary shall pre15 scribe such regulations or other guidance as may be 

16 necessary or appropriate to carry out the purposes 

17 of this section, including regulations or other guid18 ance—

19 ‘‘(A) which prevent more than 1 taxpayer 

20 from taking into account the same qualified do21 mestic manufacturing income, and 

22 ‘‘(B) which require or restrict the alloca23 tion of items under paragraph (6) and require 

24 such reporting for purposes of carrying out 


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1 such paragraph as the Secretary determines ap2 propriate. 

3 ‘‘(8) PHASE-IN OF EXCLUSION.—In the case of 

4 any taxable year beginning before January 1, 2017, 

5 the term ‘qualified domestic manufacturing income’ 

6 shall be an amount equal to the product of the quali7 fied domestic manufacturing income determined 

8 without regard to this paragraph, multiplied by—

9 ‘‘(A) in the case of any taxable year begin10 ning in 2015, 33 percent, and 

11 ‘‘(B) in the case of any taxable year begin12 ning in 2016, 67 percent.’’. 

13 (c) APPLICATION OF SECTION 15.—

14 (1) IN GENERAL.—Subsection (a) of section 15 

15 is amended by striking ‘‘this chapter’’ and inserting 

16 ‘‘section 11’’. 

17 (2) CONFORMING AMENDMENTS.—

18 (A) Section 15 is amended by striking sub19 sections (d) and (f) and by redesignating sub20 section (e) as subsection (d). 

21 (B) Section 15(d), as redesignated by sub22 paragraph (A), is amended by striking ‘‘section 

23 1 or 11(b)’’ and inserting ‘‘section 11(b)’’. 

24 (C) Subchapter A of chapter 1 is amend25 ed—


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1 (i) by redesignating section 12 as sec2 tion 13, 

3 (ii) by redesignating section 15 (as 

4 amended by this subsection) as section 12 

5 and moving such section from part III of 

6 such subchapter to after section 11 in part 

7 II of such subchapter, 

8 (iii) by striking part III, and 

9 (iv) by amending the table of sections 

10 for part II of such subchapter by redesig11 nating the item relating to section 12 as 

12 an item relating to section 13 and by in13 serting after the item relating to section 11 

14 the following new item:

‘‘Sec. 12. Effect of changes.’’.

15 (D) Section 6013(c) is amended by strik16 ing ‘‘sections 15, 443, and 7851(a)(1)(A)’’ and 

17 inserting ‘‘sections 443 and 7851(a)(1)(A)’’. 

18 (d) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2014. 

21 SEC. 1002. DEDUCTION FOR ADJUSTED NET CAPITAL GAIN. 

22 (a) IN GENERAL.—Part VI of subchapter B of chap23 ter 1, as amended by section 3105, is amended by insert24 ing after section 168 the following new section: 


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1 ‘‘SEC. 169. ADJUSTED NET CAPITAL GAIN. 

2 ‘‘(a) IN GENERAL.—If for any taxable year a tax3 payer other than a corporation has an adjusted net capital 

4 gain, 40 percent of the amount of the adjusted net capital 

5 gain shall be allowed as a deduction from gross income. 

6 ‘‘(b) ADJUSTED NET CAPITAL GAIN.—For purposes 

7 of this section, the term ‘adjusted net capital gain’ means 

8 the sum of—

9 ‘‘(1) net capital gain reduced (but not below 

10 zero) by the net collectibles gain, plus 

11 ‘‘(2) qualified dividend income. 

12 ‘‘(c) NET CAPITAL GAIN REDUCED BY AMOUNTS

13 TAKEN INTO ACCOUNT AS INVESTMENT INCOME.—For 

14 purposes of this section, the net capital gain for any tax15 able year shall be reduced (but not below zero) by the 

16 amount which the taxpayer takes into account as invest17 ment income under section 163(d)(4)(B)(iii). 

18 ‘‘(d) NET COLLECTIBLES GAIN.—For purposes of 

19 this section—

20 ‘‘(1) IN GENERAL.—The term ‘net collectibles 

21 gain’ means the excess (if any) of—

22 ‘‘(A) collectibles gain, over 

23 ‘‘(B) collectibles loss. 

24 ‘‘(2) COLLECTIBLES GAIN AND LOSS.—The 

25 terms ‘collectibles gain’ and ‘collectibles loss’ mean 

26 gain or loss (respectively) from the sale or exchange 


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1 of a collectible (as defined in section 408(m) without 

2 regard to paragraph (3) thereof) which is a capital 

3 asset held for more than 1 year but only to the ex4 tent such gain is taken into account in computing 

5 gross income and such loss is taken into account in 

6 computing taxable income. 

7 ‘‘(3) PARTNERSHIPS, ETC.—For purposes of 

8 paragraph (2), any gain from the sale of an interest 

9 in a partnership, S corporation, or trust which is at10 tributable to unrealized appreciation in the value of 

11 collectibles shall be treated as gain from the sale or 

12 exchange of a collectible. Rules similar to the rules 

13 of section 751 shall apply for purposes of the pre14 ceding sentence. 

15 ‘‘(e) QUALIFIED DIVIDEND INCOME.—For purposes 

16 of this section—

17 ‘‘(1) IN GENERAL.—The term ‘qualified divi18 dend income’ means dividends received during the 

19 taxable year from—

20 ‘‘(A) domestic corporations, and 

21 ‘‘(B) qualified foreign corporations. 

22 ‘‘(2) CERTAIN DIVIDENDS EXCLUDED.—Such 

23 term shall not include—

24 ‘‘(A) any dividend from a corporation 

25 which for the taxable year of the corporation in 


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1 which the distribution is made, or the preceding 

2 taxable year, is a corporation exempt from tax 

3 under section 501 or 521, 

4 ‘‘(B) any amount allowed as a deduction 

5 under section 591 (relating to deduction for 

6 dividends paid by mutual savings banks, etc.), 

7 and 

8 ‘‘(C) any dividend described in section 

9 404(k). 

10 ‘‘(3) COORDINATION WITH SECTION 246(c).—

11 Such term shall not include any dividend on any 

12 share of stock—

13 ‘‘(A) with respect to which the holding pe14 riod requirements of section 246(c) are not met 

15 (determined without regard to paragraph (5) of 

16 section 246(c) and by substituting in section 

17 246(c) ‘60 days’ for ‘45 days’ each place it ap18 pears and by substituting ‘121-day period’ for 

19 ‘91-day period’), or 

20 ‘‘(B) to the extent that the taxpayer is 

21 under an obligation (whether pursuant to a 

22 short sale or otherwise) to make related pay23 ments with respect to positions in substantially 

24 similar or related property. 

25 ‘‘(4) QUALIFIED FOREIGN CORPORATIONS.—


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1 ‘‘(A) IN GENERAL.—Except as otherwise 

2 provided in this subparagraph, the term ‘quali3 fied foreign corporation’ means any foreign cor4 poration if—

5 ‘‘(i) such corporation is incorporated 

6 in a possession of the United States, or 

7 ‘‘(ii) such corporation is eligible as a 

8 qualified resident for all of the benefits 

9 provided under a comprehensive income 

10 tax treaty with the United States which 

11 the Secretary determines is satisfactory for 

12 purposes of this paragraph and which in13 cludes an exchange of information pro14 gram. 

15 ‘‘(B) DIVIDENDS ON STOCK READILY

16 TRADABLE ON UNITED STATES SECURITIES

17 MARKET.—A foreign corporation not otherwise 

18 treated as a qualified foreign corporation under 

19 subparagraph (A) shall be so treated with re20 spect to any dividend paid by such corporation 

21 if the stock with respect to which such dividend 

22 is paid is readily tradable on an established se23 curities market in the United States. 

24 ‘‘(C) EXCLUSION OF DIVIDENDS OF CER25 TAIN FOREIGN CORPORATIONS.—The term 


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1 ‘qualified foreign corporation’ shall not include 

2 any foreign corporation which for the taxable 

3 year of the corporation in which the dividend 

4 was paid, or the preceding taxable year, is a 

5 passive foreign investment company (as defined 

6 in section 1297). 

7 ‘‘(5) TREATMENT OF DIVIDENDS FROM REGU8 LATED INVESTMENT COMPANIES AND REAL ESTATE

9 INVESTMENT TRUSTS.—A dividend received from a 

10 regulated investment company or a real estate in11 vestment trust shall be subject to the limitations 

12 prescribed in sections 854 and 857.’’. 

13 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI14 VIDUAL ITEMIZES DEDUCTIONS.—Section 62(a) is 

15 amended by inserting after paragraph (7) the following 

16 new paragraph: 

17 ‘‘(8) ADJUSTED NET CAPITAL GAIN.—The de18 duction allowed by section 169.’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2014. 


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1 SEC. 1003. CONFORMING AMENDMENTS RELATED TO SIM2 PLIFICATION OF INDIVIDUAL INCOME TAX 

3 RATES.

4 (a) AMENDMENTS RELATED TO MODIFICATION OF

5 INFLATION ADJUSTMENT.—

6 (1) Section 25B(b)(3)(B) is amended by strik7 ing ‘‘section 1(f)(3) for the calendar year in which 

8 the taxable year begins, determined by substituting 

9 ‘calendar year 2005’ for ‘calendar year 1992’ in sub10 paragraph (B) thereof’’ and inserting ‘‘section 

11 1(c)(2)(A) for the calendar year in which the taxable 

12 year begins, determined by substituting ‘calendar 

13 year 2005’ for ‘calendar year 2012’ in clause (ii) 

14 thereof’’. 

15 (2) Subclause (II) of section 36B(b)(3)(A)(ii) is 

16 amended by striking ‘‘consumer price index’’ and in17 serting ‘‘C-CPI-U (as defined in section 1(c))’’. 

18 (3) Section 41(e)(5)(C) is amended to read as 

19 follows: 

20 ‘‘(C) COST-OF-LIVING ADJUSTMENT DE21 FINED.—

22 ‘‘(i) IN GENERAL.—The cost-of-living 

23 adjustment for any calendar year is the 

24 cost-of-living adjustment for such calendar 

25 year determined under section 1(c)(2)(A), 


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1 by substituting ‘calendar year 1987’ for 

2 ‘calendar year 2012’ in clause (ii) thereof. 

3 ‘‘(ii) SPECIAL RULE WHERE BASE PE4 RIOD ENDS IN A CALENDAR YEAR OTHER

5 THAN 1983 OR 1984.—If the base period of 

6 any taxpayer does not end in 1983 or 

7 1984, clause (i) shall be applied by sub8 stituting the calendar year in which such 

9 base period ends for 1987.’’. 

10 (4) Section 125(i)(2) is amended—

11 (A) by striking ‘‘section 1(f)(3) for the cal12 endar year in which the taxable year begins by 

13 substituting ‘calendar year 2012’ for ‘calendar 

14 year 1992’ in subparagraph (B) thereof’’ in 

15 subparagraph (B) and inserting ‘‘section 

16 1(c)(2)(A) for the calendar year in which the 

17 taxable year begins’’, and 

18 (B) by striking ‘‘$50’’ both places it ap19 pears in the last sentence and inserting 

20 ‘‘$100’’. 

21 (5) Section 137(f) is amended—

22 (A) by striking ‘‘section 1(f)(3) for the cal23 endar year in which the taxable year begins, de24 termined by substituting ‘calendar year 2001’ 

25 for ‘calendar year 1992’ in subparagraph (B) 


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1 thereof’’ in paragraph (2) and inserting ‘‘sec2 tion 1(c)(2)(A) for the calendar year in which 

3 the taxable year begins, determined by sub4 stituting ‘calendar year 2001’ for ‘calendar year 

5 2012’ in clause (ii) thereof’’, and 

6 (B) in the last sentence thereof—

7 (i) by striking ‘‘$10’’ the first place it 

8 appears and inserting ‘‘$100’’, and 

9 (ii) by striking ‘‘nearest multiple of 

10 $10’’ and inserting ‘‘next lowest multiple 

11 of $100’’. 

12 (6) Section 162(o)(3) is amended by inserting 

13 ‘‘as in effect before enactment of the Tax Reform 

14 Act of 2014’’ after ‘‘section 1(f)(5)’’. 

15 (7) Section 220(g)(2) is amended by striking 

16 ‘‘section 1(f)(3) for the calendar year in which the 

17 taxable year begins by substituting ‘calendar year 

18 1997’ for ‘calendar year 1992’ in subparagraph (B) 

19 thereof’’ and inserting ‘‘section 1(c)(2)(A) for the 

20 calendar year in which the taxable year begins, de21 termined by substituting ‘calendar year 1997’ for 

22 ‘calendar year 2012’ in clause (ii) thereof’’. 

23 (8) Section 223(g)(1) is amended by striking all 

24 that follows subparagraph (A) and inserting the fol25 lowing: 


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1 ‘‘(B) the cost-of-living adjustment deter2 mined under section 1(c)(2)(A) for the calendar 

3 year in which the taxable year begins, deter4 mined—

5 ‘‘(i) by substituting for ‘calendar year 

6 2012’ in clause (ii) thereof—

7 ‘‘(I) except as provided in clause 

8 (ii), ‘calendar year 1997’, and 

9 ‘‘(II) in the case of each dollar 

10 amount in subsection (c)(2)(A), ‘cal11 endar year 2003’, and 

12 ‘‘(ii) by substituting ‘March 31’ for 

13 ‘August 31’ in paragraphs (5)(B) and 

14 (6)(B) of section 1(c). 

15 The Secretary shall publish the dollar amounts 

16 as adjusted under this subsection for taxable 

17 years beginning in any calendar year no later 

18 than June 1 of the preceding calendar year.’’. 

19 (9) Section 430(c)(7)(D)(vii)(II) is amended by 

20 striking ‘‘section 1(f)(3) for the calendar year, deter21 mined by substituting ‘calendar year 2009’ for ‘cal22 endar year 1992’ in subparagraph (B) thereof’’ and 

23 inserting ‘‘section 1(c)(2)(A) for the calendar year, 

24 determined by substituting ‘calendar year 2009’ for 

25 ‘calendar year 2012’ in clause (ii) thereof’’. 


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1 (10) Section 512(d)(2)(B) is amended by strik2 ing ‘‘section 1(f)(3) for the calendar year in which 

3 the taxable year begins, by substituting ‘calendar 

4 year 1994’ for ‘calendar year 1992’ in subparagraph 

5 (B) thereof’’and inserting ‘‘section 1(c)(2)(A) for the 

6 calendar year in which the taxable year begins, de7 termined by substituting ‘calendar year 1994’ for 

8 ‘calendar year 2012’ in clause (ii) thereof’’. 

9 (11) Section 513(h)(2)(C)(ii) is amended by 

10 striking ‘‘section 1(f)(3) for the calendar year in 

11 which the taxable year begins by substituting ‘cal12 endar year 1987’ for ‘calendar year 1992’ in sub13 paragraph (B) thereof’’ and inserting ‘‘section 

14 1(c)(2)(A) for the calendar year in which the taxable 

15 year begins, determined by substituting ‘calendar 

16 year 1987’ for ‘calendar year 2012’ in clause (ii) 

17 thereof’’. 

18 (12) Section 877A(a)(3)(B)(i)(II) is amended 

19 by striking ‘‘section 1(f)(3) for the calendar year in 

20 which the taxable year begins, by substituting ‘cal21 endar year 2007’ for ‘calendar year 1992’ in sub22 paragraph (B) thereof’’ and inserting ‘‘section 

23 1(c)(2)(A) for the calendar year in which the taxable 

24 year begins, determined by substituting ‘calendar 


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1 year 2007’ for ‘calendar year 2012’ in clause (ii) 

2 thereof’’. 

3 (13) Section 911(b)(2)(D)(ii)(II) is amended by 

4 striking ‘‘section 1(f)(3) for the calendar year in 

5 which the taxable year begins, determined by sub6 stituting ‘2004’ for ‘1992’ in subparagraph (B) 

7 thereof’’ and inserting ‘‘section 1(c)(2)(A) for the 

8 calendar year in which the taxable year begins, de9 termined by substituting ‘calendar year 2004’ for 

10 ‘calendar year 2012’ in clause (ii) thereof’’. 

11 (14) Section 1274A(d)(2) is amended to read 

12 as follows: 

13 ‘‘(2) INFLATION ADJUSTMENT.—

14 ‘‘(A) IN GENERAL.—In the case of any 

15 debt instrument arising out of a sale or ex16 change during any calendar year after 2014, 

17 each adjusted dollar amount shall be increased 

18 by an amount equal to—

19 ‘‘(i) such adjusted dollar amount, 

20 multiplied by 

21 ‘‘(ii) the cost-of-living adjustment de22 termined under section 1(c)(2)(A) for such 

23 calendar year, determined by substituting 

24 ‘calendar year 2013’ for ‘calendar year 

25 2012’ in clause (ii) thereof. 


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1 ‘‘(B) ADJUSTED DOLLAR AMOUNTS.—For 

2 purposes of this paragraph, the term ‘adjusted 

3 dollar amount’ means the dollar amounts in 

4 subsections (b) and (c), in each case as in effect 

5 for calendar year 2014. 

6 ‘‘(C) ROUNDING.—Any increase under sub7 paragraph (A) shall be rounded to the nearest 

8 multiple of $100.’’. 

9 (15) Section 2010(c)(3)(B)(ii) is amended by 

10 striking ‘‘section 1(f)(3) for such calendar year by 

11 substituting ‘calendar year 2010’ for ‘calendar year 

12 1992’ in subparagraph (B) thereof’’ and inserting 

13 ‘‘section 1(c)(2)(A) for such calendar year, deter14 mined by substituting ‘calendar year 2010’ for ‘cal15 endar year 2012’ in clause (ii) thereof’’. 

16 (16) Section 2032A(a)(3)(B) is amended by 

17 striking ‘‘section 1(f)(3) for such calendar year by 

18 substituting ‘calendar year 1997’ for ‘calendar year 

19 1992’ in subparagraph (B) thereof’’ and inserting 

20 ‘‘section 1(c)(2)(A) for such calendar year, deter21 mined by substituting ‘calendar year 1997’ for ‘cal22 endar year 2012’ in clause (ii) thereof’’. 

23 (17) Section 2503(b)(2)(B) is amended by 

24 striking ‘‘section 1(f)(3) for such calendar year by 

25 substituting ‘calendar year 1997’ for ‘calendar year 


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1 1992’ in subparagraph (B) thereof’’ and inserting 

2 ‘‘section 1(c)(2)(A) for the calendar year, deter3 mined by substituting ‘calendar year 1997’ for ‘cal4 endar year 2012’ in clause (ii) thereof’’. 

5 (18) Section 4161(b)(2)(C)(i)(II) is amended by 

6 striking ‘‘section 1(f)(3) for such calendar year, de7 termined by substituting ‘2004’ for ‘1992’ in sub8 paragraph (B) thereof’’ and inserting ‘‘section 

9 1(c)(2)(A) for such calendar year, determined by 

10 substituting ‘calendar year 2004’ for ‘calendar year 

11 2012’ in clause (ii) thereof’’. 

12 (19) Section 4261(e)(4)(A)(ii) is amended by 

13 striking ‘‘section 1(f)(3) for such calendar year by 

14 substituting the year before the last nonindexed year 

15 for ‘calendar year 1992’ in subparagraph (B) there16 of’’ and inserting ‘‘section 1(c)(2)(A) for such cal17 endar year, determined by substituting the year be18 fore the last nonindexed year for ‘calendar year 

19 2012’ in clause (ii) thereof’’. 

20 (20) Section 4980I(b)(3)(C)(v)(II) is amended 

21 (A) by striking ‘‘section 1(f)(3)’’ and in22 serting ‘‘section 1(c)(2)(A)’’, 

23 (B) by striking ‘‘subparagraph (B)’’ and 

24 inserting ‘‘clause (ii)’’, and 


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1 (C) by striking ‘‘1992’’ and inserting 

2 ‘‘2012’’. 

3 (21) Section 5000A(c)(3)(D)(ii) is amended—

4 (A) by striking ‘‘section 1(f)(3)’’ and in5 serting ‘‘section 1(c)(2)(A)’’, 

6 (B) by striking ‘‘subparagraph (B)’’ and 

7 inserting ‘‘clause (ii)’’, and 

8 (C) by striking ‘‘1992’’ and inserting 

9 ‘‘2012’’. 

10 (22) Section 6039F(d) is amended by striking 

11 ‘‘section 1(f)(3), except that subparagraph (B) 

12 thereof’’ and inserting ‘‘section 1(c)(2)(A), except 

13 that clause (ii) thereof’’. 

14 (23) Section 6323(i)(4)(B) is amended by strik15 ing ‘‘section 1(f)(3) for the calendar year, deter16 mined by substituting ‘calendar year 1996’ for ‘cal17 endar year 1992’ in subparagraph (B) thereof’’ and 

18 inserting ‘‘section 1(c)(2)(A) for the calendar year, 

19 determined by substituting ‘calendar year 1996’ for 

20 ‘calendar year 2012’ in clause (ii) thereof’’. 

21 (24) Section 6334(g)(1)(B) is amended by 

22 striking ‘‘section 1(f)(3) for such calendar year, by 

23 substituting ‘calendar year 1998’ for ‘calendar year 

24 1992’ in subparagraph (B) thereof’’ and inserting 

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1 mined by substituting ‘calendar year 1999’ for ‘cal2 endar year 2012’ in clause (ii) thereof’’. 

3 (25) Section 6721(f)(1) is amended—

4 (A) by striking ‘‘section 1(f)(3)’’ and in5 serting ‘‘section 1(c)(2)(A)’’, 

6 (B) by striking ‘‘subparagraph (B)’’ and 

7 inserting ‘‘clause (ii)’’, and 

8 (C) by striking ‘‘1992’’ and inserting 

9 ‘‘2012’’. 

10 (26) Section 6722(f)(1) is amended—

11 (A) by striking ‘‘section 1(f)(3)’’ and in12 serting ‘‘section 1(c)(2)(A)’’, 

13 (B) by striking ‘‘subparagraph (B)’’ and 

14 inserting ‘‘clause (ii)’’, and 

15 (C) by striking ‘‘1992’’ and inserting 

16 ‘‘2012’’. 

17 (27) Section 7430(c)(1) is amended by striking 

18 ‘‘section 1(f)(3) for such calendar year, by sub19 stituting ‘calendar year 1995’ for ‘calendar year 

20 1992’ in subparagraph (B) thereof’’ in the flush text 

21 at the end and inserting ‘‘section 1(c)(2)(A) for such 

22 calendar year, determined by substituting ‘calendar 

23 year 1995’ for ‘calendar year 2012’ in clause (ii) 

24 thereof’’. 


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1 (28) Section 7872(g)(5) is amended to read as 

2 follows: 

3 ‘‘(5) INFLATION ADJUSTMENT.—

4 ‘‘(A) IN GENERAL.—In the case of any 

5 loan made during any calendar year after 2014 

6 to which paragraph (1) applies, the adjusted 

7 dollar amount shall be increased by an amount 

8 equal to—

9 ‘‘(i) such adjusted dollar amount, 

10 multiplied by 

11 ‘‘(ii) the cost-of-living adjustment de12 termined under section 1(c)(2)(A) for such 

13 calendar year, determined by substituting 

14 ‘calendar year 2013’ for ‘calendar year 

15 2012’ in clause (ii) thereof. 

16 ‘‘(B) ADJUSTED DOLLAR AMOUNT.—For 

17 purposes of this paragraph, the term ‘adjusted 

18 dollar amount’ means the dollar amount in 

19 paragraph (2) as in effect for calendar year 

20 2014. 

21 ‘‘(C) ROUNDING.—Any increase under sub22 paragraph (A) shall be rounded to the nearest 

23 multiple of $100.’’. 

24 (b) AMENDMENTS RELATED TO DEDUCTION FOR

25 ADJUSTED NET CAPITAL GAIN.—


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1 (1) Section 163(d)(4)(B) is amended by strik2 ing ‘‘section 1(h)(11)(B)’’ and inserting ‘‘section 

3 169(e)’’. 

4 (2) Section 172(d)(2)(B) is amended by insert5 ing ‘‘the deduction allowable under section 169 and’’ 

6 before ‘‘the exclusion’’. 

7 (3) Section 301(f)(4) is amended by striking 

8 ‘‘section 1(h)(11)’’ and inserting ‘‘section 169(e)’’. 

9 (4) Section 306(a)(1)(D) is amended by strik10 ing ‘‘section 1(h)(11)’’ and inserting ‘‘section 

11 169(e)’’. 

12 (5) The last sentence of section 453A(c)(3) is 

13 amended by striking ‘‘capital gain’’ and all that fol14 lows and inserting ‘‘capital gain, the deduction 

15 under section 169 shall be taken into account.’’. 

16 (6) Sections 531 and 541 are each amended by 

17 striking ‘‘20 percent’’ and inserting ‘‘21 percent’’. 

18 (7) Section 584(c) is amended by striking ‘‘and 

19 to which section 1(h)(11) applies’’ in the last sen20 tence and inserting ‘‘which is qualified dividend in21 come (as defined in section 169(e)) in the hands of 

22 such common trust fund’’. 

23 (8) Section 641(c)(2)(C) (prior to redesignation 

24 by title II) is amended by adding at the end the fol25 lowing new clause: 


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1 ‘‘(v) The deduction allowed by section 

2 169.’’. 

3 (9) The first sentence of section 642(c)(4) is 

4 amended by striking ‘‘consists of’’ and all that fol5 lows and inserting ‘‘consists of long-term capital 

6 gain or gain described in section 1202(a), proper ad7 justments shall be made for any deduction allowable 

8 to the trust or estate under section 169 and for any 

9 exclusion allowable under section 1202.’’. 

10 (10) The last sentence of section 643(a)(3) is 

11 amended to read as follows: ‘‘The deduction under 

12 section 169 and the exclusion under section 1202 

13 shall not be taken into account.’’. 

14 (11) Section 691(c)(4) is amended by striking 

15 ‘‘1(h)’’ and inserting ‘‘169’’. 

16 (12) Section 702(a)(5) is amended by striking 

17 ‘‘section 1(h)(11)’’ and inserting ‘‘section 169’’. 

18 (13) Section 854 is amended—

19 (A) by striking ‘‘section 1(h)(11) (relating 

20 to maximum rate of tax on dividends)’’ in sub21 section (a) and inserting ‘‘section 169 (relating 

22 to adjusted net capital gain)’’, 

23 (B) by striking ‘‘MAXIMUM RATE UNDER

24 SECTION 1(h)’’ in the heading of subsection 


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1 (b)(1)(B) and inserting ‘‘DETERMINATION OF

2 ADJUSTED NET CAPITAL GAIN’’, and 

3 (C) by striking ‘‘section 1(h)(11)(B)’’ in 

4 subsection (b)(4) and inserting ‘‘section 

5 169(e)’’. 

6 (14) Section 857(c)(2) is amended—

7 (A) by striking ‘‘section 1(h)(11)(B)’’ in 

8 subparagraph (D) and inserting ‘‘section 

9 169(e)’’, and 

10 (B) by striking ‘‘SECTION 1(h)(11)’’ in the 

11 heading and inserting ‘‘SECTION 169(e)’’. 

12 (15) Section 904(b) is amended—

13 (A) by amending paragraph (2) to read as 

14 follows: 

15 ‘‘(2) CAPITAL GAINS.—For purposes of this sec16 tion, taxable income from sources outside the United 

17 States shall include gain from the sale or exchange 

18 of capital assets (including gain so treated under 

19 section 1231) only to the extent of the lesser of—

20 ‘‘(A) capital gain net income from sources 

21 without the United States, or 

22 ‘‘(B) capital gain net income.’’, and 

23 (B) by striking paragraph (3). 

24 (16) Section 1260(a) is amended by striking 

25 ‘‘long-term capital gain’’ the first place such term 


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1 appears and all that follows and inserting ‘‘long2 term capital gain, such gain shall be treated as ordi3 nary income to the extent such gain exceeds the net 

4 underlying long-term capital gain.’’. 

5 (17) Section 1411(c)(1)(B) is amended by in6 serting ‘‘(other than section 169)’’ after ‘‘this sub7 title’’. 

8 (18) Section 4985(a)(1) is amended by striking 

9 ‘‘the rate of tax specified in section 1(h)(1)(C)’’ and 

10 inserting ‘‘21 percent’’. 

11 (19) Section 7518(g)(6)(A) is amended by 

12 striking all that follows clause (i) and inserting the 

13 following: 

14 ‘‘(ii) by increasing the tax imposed by 

15 chapter 1 by the product of the amount of 

16 such withdrawal, multiplied by—

17 ‘‘(I) in the case of a taxpayer 

18 other than a corporation, 60 percent 

19 of the highest rate of tax specified in 

20 section 1, and 

21 ‘‘(II) in the case of a corporation, 

22 the highest rate of tax specified in 

23 section 11.’’. 

24 (20) Section 53511(f) of title 46, United States 

25 Code, is amended by—


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1 (A) by amending paragraph (1)(B) to read 

2 as follows: 

3 ‘‘(B) increasing the tax imposed by chapter 

4 1 of such Code by the product of the amount 

5 of such withdrawal, multiplied by—

6 ‘‘(i) in the case of a taxpayer other 

7 than a corporation, the highest rate of tax 

8 specified in section 1 (60 percent of such 

9 highest rate in the case of so much of such 

10 withdrawal as is made from the capital 

11 gain account), and 

12 ‘‘(ii) in the case of a corporation, the 

13 highest rate of tax specified in section 

14 11.’’, and 

15 (B) by striking paragraph (2) and by re16 designating paragraphs (3) and (4) as para17 graphs (2) and (3), respectively. 

18 (21) The table of sections for part VI of sub19 chapter B of chapter 1 is amended by inserting after 

20 the item relating to section 168 the following new 

21 item:

‘‘Sec. 169. Adjusted net capital gain.’’.

22 (c) OTHER CONFORMING AMENDMENTS.—

23 (1) Section 25B(b)(2) is amended by striking 

24 ‘‘In the case of—’’ and all that follows through ‘‘any 

25 taxpayer not described in paragraph (1) or subparaVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00055 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 graph (A),’’ and inserting ‘‘In the case of any tax2 payer not described in paragraph (1),’’. 

3 (2) Section 36B(b)(3)(B)(ii)(I)(aa) is amended 

4 to read as follows: 

5 ‘‘(aa) who is described in 

6 section 1(b)(1)(B) and who does 

7 not have any dependents for the 

8 taxable year,’’. 

9 (3) Section 486B(b)(1) is amended—

10 (A) by striking ‘‘maximum rate in effect’’ 

11 and inserting ‘‘highest rate specified’’, and 

12 (B) by striking ‘‘section 1(e)’’ and insert13 ing ‘‘section 1’’. 

14 (4) Section 511(b)(1) is amended to read as fol15 lows: 

16 ‘‘(1) IMPOSITION OF TAX.—There is hereby im17 posed for each taxable year on the unrelated busi18 ness taxable income of every trust described in para19 graph (2) a tax computed as provided in section 1. 

20 In making such computation for purposes of this 

21 section, the terms ‘taxable income’ and ‘modified ad22 justed gross income’ as used in section 1 shall both 

23 be read as ‘unrelated business taxable income’ as de24 fined in section 512.’’. 


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1 (5) Section 641(a) is amended by striking ‘‘sec2 tion 1(e) shall apply to the taxable income’’ and in3 serting ‘‘section 1 shall apply to the income’’. 

4 (6) Section 641(c)(2)(A) is amended to read as 

5 follows: 

6 ‘‘(A) The dollar amount in effect under 

7 section 1(b)(2)(C) shall be treated as being 

8 zero.’’. 

9 (7) Section 646(b) is amended to read as fol10 lows: 

11 ‘‘(b) TAXATION OF INCOME OF TRUST.—Except as 

12 provided in subsection (f)(1)(B)(ii), there is hereby im13 posed on the taxable income of an electing Settlement 

14 Trust a tax at the rate specified in section 1(a)(1). Such 

15 tax shall be in lieu of the income tax otherwise imposed 

16 by this chapter on such income.’’. 

17 (8) Section 685(c) is amended by striking ‘‘Sec18 tion 1(e)’’ and inserting ‘‘Section 1’’. 

19 (9) Section 1398(c) is amended by striking 

20 paragraphs (1) and (2), by redesignating paragraph 

21 (3) as paragraph (2), and by inserting before para22 graph (2) as so redesignated the following new para23 graph: 

24 ‘‘(1) COMPUTATION AND PAYMENT OF TAX.—

25 Except as otherwise provided in this section or part 


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1 I of subchapter A, the taxable income and modified 

2 adjusted gross income of the estate shall be com3 puted in the same manner as for an individual. The 

4 tax shall be computed under section 1 and shall be 

5 paid by the trustee.’’. 

6 (10) Section 3402(p)(1)(B) is amended by 

7 striking ‘‘any percentage applicable to any of the 3 

8 lowest income brackets in the table under section 

9 1(c),’’ and inserting ‘‘10 percent, 25 percent, 35 

10 percent,’’. 

11 (11) Section 3402(q)(1) is amended by striking 

12 ‘‘the third lowest rate of tax applicable under section 

13 1(c)’’ and inserting ‘‘the highest rate of tax specified 

14 in section 1’’. 

15 (12) Section 3402(r)(3) is amended by striking 

16 ‘‘the amount of tax which would be imposed by sec17 tion 1(c) (determined without regard to any rate of 

18 tax in excess of the fourth lowest rate of tax applica19 ble under section 1(c)) on an amount of taxable in20 come equal to’’ and inserting ‘‘an amount equal to 

21 the product of the highest rate of tax specified in 

22 section 1 multiplied by’’. 

23 (13) Section 3406(a)(1) is amended by striking 

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1 tion 1(c)’’ and inserting ‘‘the highest rate of tax 

2 specified in section 1’’. 

3 (14) Section 6103(e)(1)(A)(iii) is amended by 

4 striking ‘‘section 1(g)’’ and inserting ‘‘section 1(d)’’. 

5 (d) WITHHOLDING FROM SUPPLEMENTAL WAGE

6 PAYMENTS.—

7 (1) IN GENERAL.—If an employer elects under 

8 Treasury Regulation section 31.3402(g)–1 to deter9 mine the amount to be deducted and withheld from 

10 any supplemental wage payment by using a flat per11 centage rate, the rate to be used in determining such 

12 amount shall not be less than 35 percent. 

13 (2) REPEAL OF SUPERCEDED PROVISION.—The 

14 American Jobs Creation Act of 2004 is amended by 

15 striking section 904. 

16 (e) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as otherwise pro18 vided in this subsection, the amendments made by 

19 this section shall apply to taxable years beginning 

20 after December 31, 2014. 

21 (2) WITHHOLDING FROM SUPPLEMENTAL WAGE

22 PAYMENTS.—The provisions of, and amendments 

23 made by, subsection (d) shall apply to payments 

24 made after December 31, 2014. 


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1 Subtitle B—Simplification of Tax 

2 Benefits for Families 

3 SEC. 1101. STANDARD DEDUCTION. 

4 (a) INCREASE IN STANDARD DEDUCTION.—Sub5 section (c) of section 63 is amended to read as follows: 

6 ‘‘(c) STANDARD DEDUCTION.—For purposes of this 

7 subtitle—

8 ‘‘(1) IN GENERAL.—Except as otherwise pro9 vided in this subsection, the term ‘standard deduc10 tion’ means—

11 ‘‘(A) $22,000, in the case of a joint return, 

12 and 

13 ‘‘(B) one-half of the amount in effect 

14 under subparagraph (A) for the taxable year, in 

15 any other case. 

16 ‘‘(2) PHASEOUT OF STANDARD DEDUCTION.—

17 The amount of the standard deduction determined 

18 under this subsection (without regard to this para19 graph and after the application of paragraph (4)) 

20 shall be reduced (but not below zero) by an amount 

21 equal to 20 percent of the excess (if any) of—

22 ‘‘(A) the taxpayer’s modified adjusted 

23 gross income (as defined in section 2(b)) for the 

24 taxable year, over 


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1 ‘‘(B)(i) the joint return standard deduction 

2 phaseout threshold for the taxable year, in the 

3 case of a taxpayer described in paragraph 

4 (1)(A), and 

5 ‘‘(ii) the non-joint return standard deduc6 tion phaseout threshold for the taxable year, in 

7 any other case. 

8 ‘‘(3) STANDARD DEDUCTION PHASEOUT

9 THRESHOLDS.—

10 ‘‘(A) JOINT RETURN STANDARD DEDUC11 TION PHASEOUT THRESHOLD.—The term ‘joint 

12 return standard deduction phaseout threshold’ 

13 means, with respect to any taxable year—

14 ‘‘(i) the dollar amount in effect under 

15 section 1(e)(3)(A) for such taxable year, 

16 plus 

17 ‘‘(ii) the product of—

18 ‘‘(I) the dollar amount in effect 

19 under section 1(b)(1)(A) for such tax20 able year, multiplied by 

21 ‘‘(II) 3. 

22 ‘‘(B) NON-JOINT RETURN STANDARD DE23 DUCTION PHASEOUT THRESHOLD.—The term 

24 ‘non-joint return standard deduction phaseout 


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1 threshold’ means, with respect to any taxable 

2 year—

3 ‘‘(i) the dollar amount in effect under 

4 section 1(e)(3)(B) for such taxable year, 

5 plus 

6 ‘‘(ii) the product of—

7 ‘‘(I) the dollar amount in effect 

8 under section 1(b)(1)(B) for such tax9 able year, multiplied by 

10 ‘‘(II) 3. 

11 ‘‘(4) LIMITATION ON STANDARD DEDUCTION IN

12 THE CASE OF CERTAIN DEPENDENTS.—In the case 

13 of an individual who is a dependent of another tax14 payer for a taxable year beginning in the calendar 

15 year in which the individual’s taxable year begins, 

16 the standard deduction applicable to such individual 

17 for such individual’s taxable year shall not exceed 

18 the greater of—

19 ‘‘(A) $500, or 

20 ‘‘(B) the sum of $250 and such individ21 ual’s earned income (as defined in section 

22 24(d)(2)). 

23 ‘‘(5) CERTAIN INDIVIDUALS, ETC., NOT ELIGI24 BLE FOR STANDARD DEDUCTION.—In the case of—


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1 ‘‘(A) a married individual filing a separate 

2 return where such individual’s spouse elects to 

3 itemize deductions, 

4 ‘‘(B) a nonresident alien individual, 

5 ‘‘(C) an individual making a return under 

6 section 443(a)(1) for a period of less than 12 

7 months on account of a change in his annual 

8 accounting period, or 

9 ‘‘(D) an estate or trust, common trust 

10 fund, or partnership, 

11 the standard deduction shall be zero. 

12 ‘‘(6) INFLATION ADJUSTMENTS.—In the case of 

13 any taxable year beginning after 2014, each of the 

14 dollar amounts in paragraphs (1)(A) and (4) shall 

15 be increased by an amount equal to—

16 ‘‘(A) such dollar amount, multiplied by 

17 ‘‘(B) the cost-of-living adjustment deter18 mined—

19 ‘‘(i) in the case of the dollar amount 

20 in paragraph (1)(A), under section 

21 1(c)(2)(A) for the calendar year in which 

22 the taxable year begins, 

23 ‘‘(ii) in the case of the dollar amount 

24 in paragraph (4)(A), under section 

25 1(c)(2)(A) for the calendar year in which 


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1 the taxable year begins determined by sub2 stituting ‘calendar year 1987’ for ‘calendar 

3 year 2012’ in clause (ii) thereof, and 

4 ‘‘(iii) in the case of the dollar amount 

5 in paragraph (4)(B), under section 

6 1(c)(2)(A) for the calendar year in which 

7 the taxable year begins determined by sub8 stituting ‘calendar year 1997’ for ‘calendar 

9 year 2012’ in clause (ii) thereof. 

10 If any increase determined under the preceding sen11 tence is not a multiple of $100, such increase shall 

12 be rounded to the next lowest multiple of $100.’’. 

13 (b) ADDITIONAL DEDUCTION FOR UNMARRIED INDI14 VIDUALS WITH AT LEAST ONE QUALIFYING CHILD.—

15 (1) IN GENERAL.—Part VII of subchapter B of 

16 chapter 1 is amended by redesignating section 224 

17 as section 225 and by inserting after section 223 the 

18 following new section: 

19 ‘‘SEC. 224. DEDUCTION FOR UNMARRIED INDIVIDUALS 

20 WITH AT LEAST ONE QUALIFYING CHILD. 

21 ‘‘(a) IN GENERAL.—In the case of an unmarried indi22 vidual with at least one qualifying child (within the mean23 ing of section 7705), there shall be allowed as a deduction 

24 an amount equal to $5,500. 


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1 ‘‘(b) PHASEOUT OF DEDUCTION.—The amount of the 

2 deduction determined under subsection (a) (without re3 gard to this subsection) shall be reduced (but not below 

4 zero) by an amount equal to the excess (if any) of—

5 ‘‘(1) the taxpayer’s adjusted gross income (de6 termined without regard to this section) for the tax7 able year, over 

8 ‘‘(2) $30,000. 

9 ‘‘(c) UNMARRIED INDIVIDUAL.—For purposes of this 

10 section, the term ‘unmarried individual’ means any indi11 vidual who—

12 ‘‘(1) is not married as of the close of the tax13 able year (as determined by applying section 7703), 

14 ‘‘(2) is not a surviving spouse (as defined in 

15 section 2(a)) for the taxable year, and 

16 ‘‘(3) is not a dependent of another taxpayer for 

17 a taxable year beginning in the calendar year in 

18 which the individual’s taxable year begins. 

19 ‘‘(d) INFLATION ADJUSTMENTS.—

20 ‘‘(1) DEDUCTION AMOUNT.—In the case of any 

21 taxable year beginning after 2014, the dollar amount 

22 in subsection (a) shall be increased by an amount 

23 equal to—

24 ‘‘(A) such dollar amount, multiplied by 


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1 ‘‘(B) the cost-of-living adjustment deter2 mined under section 1(c)(2)(A) for the calendar 

3 year in which the taxable year begins. 

4 ‘‘(2) PHASEOUT THRESHOLD.—In the case of 

5 any taxable year beginning after 2015, the dollar 

6 amount in subsection (b)(2) shall be increased by an 

7 amount equal to—

8 ‘‘(A) such dollar amount, multiplied by 

9 ‘‘(B) the cost-of-living adjustment deter10 mined under section 1(c)(2)(A) for the calendar 

11 year in which the taxable year begins deter12 mined by substituting ‘calendar year 2014’ for 

13 ‘calendar year 2012’ in clause (ii) thereof. 

14 ‘‘(3) ROUNDING.—If any increase determined 

15 under paragraph (1) or (2) is not a multiple of 

16 $100, such increase shall be rounded to the next 

17 lowest multiple of $100.’’. 

18 (2) DEDUCTION ALLOWED WHETHER OR NOT

19 TAXPAYER ITEMIZES DEDUCTIONS.—Section 62(a) is 

20 amended by adding at the end the following new 

21 paragraph: 

22 ‘‘(22) DEDUCTION FOR UNMARRIED INDIVID23 UALS WITH AT LEAST ONE QUALIFYING CHILD.—

24 The deduction allowed by section 224.’’. 


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1 (c) APPLICATION OF STANDARD DEDUCTION PHASE2 OUT TO ITEMIZED DEDUCTIONS.—Subsection (f) of sec3 tion 63 is amended to read as follows: 

4 ‘‘(f) APPLICATION OF PHASEOUT OF STANDARD DE5 DUCTION TO ITEMIZED DEDUCTIONS.—

6 ‘‘(1) IN GENERAL.—In the case of an individual 

7 whose modified adjusted gross income (as defined in 

8 section 2(b)) exceeds the amount in effect under 

9 subsection (c)(2)(B) with respect to the taxpayer for 

10 the taxable year, the amount of the itemized deduc11 tions otherwise allowable for the taxable year shall 

12 be reduced by the lesser of—

13 ‘‘(A) 20 percent of the excess described in 

14 subsection (c)(2) with respect to such taxpayer 

15 for such taxable year, or 

16 ‘‘(B) the amount of the taxpayer’s stand17 ard deduction for such taxable year (determined 

18 without regard to subsection (c)(2) and without 

19 regard to any election to itemize deductions). 

20 ‘‘(2) COORDINATION WITH OTHER LIMITA21 TIONS.—This subsection shall be applied after the 

22 application of any other limitation on the allowance 

23 of any itemized deduction. 


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1 ‘‘(3) EXCEPTION FOR ESTATES AND TRUSTS.—

2 This subsection shall not apply to any estate or 

3 trust.’’. 

4 (d) CONFORMING AMENDMENTS.—

5 (1) Sections 86(b)(2)(A) and 137(b)(3)(A) are 

6 each amended by inserting ‘‘224,’’ before ‘‘911,’’. 

7 (2) Section 199(d)(2)(B) is amended by insert8 ing ‘‘section 224 and’’ before ‘‘this section’’. 

9 (3) Section 469(i)(3)(F)(iii) is amended by in10 serting ‘‘and 224’’ after ‘‘219,’’. 

11 (4) Section 1398(c), as amended by section 

12 1003(c), is amended—

13 (A) by striking ‘‘BASIC’’ in the heading 

14 thereof, 

15 (B) by striking ‘‘BASIC STANDARD’’ in the 

16 heading of paragraph (2) and inserting 

17 ‘‘STANDARD’’, and 

18 (C) by striking ‘‘basic’’ in paragraph (2). 

19 (5) Section 3402(m)(3) is amended by striking 

20 ‘‘(including the additional standard deduction under 

21 section 63(c)(3) for the aged and blind)’’. 

22 (6) Section 6014(b)(4) is amended by striking 

23 ‘‘section 63(c)(5)’’ and inserting ‘‘section 63(c)(4)’’. 

24 (7) The table of sections for part VII of sub25 chapter B of chapter 1 is amended by redesignating 


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1 the item relating to section 224 as an item relating 

2 to section 225 and by inserting after the item relat3 ing to section 223 the following new item:

‘‘Sec. 224. Deduction for unmarried individuals with at least one qualifying 

child.’’.

4 (e) EFFECTIVE DATE.—The amendment made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2014. 

7 SEC. 1102. INCREASE AND EXPANSION OF CHILD TAX CRED8 IT.

9 (a) IN GENERAL.—Section 24 is amended to read as 

10 follows: 

11 ‘‘SEC. 24. CHILD AND DEPENDENT TAX CREDIT. 

12 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be al13 lowed as a credit against the tax imposed by this chapter 

14 for the taxable year with respect to each dependent of the 

15 taxpayer an amount equal to $500 ($1,500 in the case 

16 of a qualifying child). 

17 ‘‘(b) PHASEOUT OF CREDIT.—

18 ‘‘(1) IN GENERAL.—The credit allowed under 

19 subsection (a) (determined without regard to this 

20 subsection) shall be reduced (but not below zero) by 

21 5 percent of the excess (if any) of—

22 ‘‘(A) the taxpayer’s modified adjusted 

23 gross income (as defined in section 2(b)), over 


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1 ‘‘(B)(i) the joint return child credit phase2 out threshold, in the case of a joint return or 

3 a surviving spouse (as defined in section 2(a)), 

4 or 

5 ‘‘(ii) the non-joint return child credit 

6 phaseout threshold, in any other case. 

7 ‘‘(2) JOINT RETURN CHILD CREDIT PHASEOUT

8 THRESHOLD.—For purposes of this section, the 

9 term ‘joint return child credit phaseout threshold’ 

10 means, with respect to any taxable year, the sum 

11 of—

12 ‘‘(A) the joint return standard deduction 

13 phaseout threshold (as defined in section 

14 63(c)(3)(A)), plus 

15 ‘‘(B) an amount equal to—

16 ‘‘(i) the dollar amount in effect under 

17 section 63(c)(1)(A) for such taxable year, 

18 divided by 

19 ‘‘(ii) 0.2. 

20 ‘‘(3) NON-JOINT RETURN CHILD CREDIT

21 PHASEOUT THRESHOLD.—For purposes of this sec22 tion, the term ‘non-joint return child credit phaseout 

23 threshold’ means, with respect to any taxable year, 

24 the sum of—


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1 ‘‘(A) the non-joint return standard deduc2 tion phaseout threshold (as defined in section 

3 63(c)(3)(B)), plus 

4 ‘‘(B) an amount equal to—

5 ‘‘(i) the dollar amount in effect under 

6 section 63(c)(1)(B) for such taxable year, 

7 divided by 

8 ‘‘(ii) 0.2. 

9 ‘‘(c) QUALIFYING CHILD.—For purposes of this sec10 tion—

11 ‘‘(1) IN GENERAL.—Except as provided in para12 graph (2), the term ‘qualifying child’ has the mean13 ing given such term by section 7705. 

14 ‘‘(2) EXCEPTION FOR CERTAIN NONCITIZENS.—

15 The term ‘qualifying child’ shall not include any in16 dividual who would not be a dependent if subpara17 graph (A) of section 7705(b)(3) were applied with18 out regard to all that follows ‘resident of the United 

19 States’. 

20 ‘‘(d) PORTION OF CREDIT REFUNDABLE.—

21 ‘‘(1) IN GENERAL.—The aggregate credits al22 lowed under subpart C shall be increased by the 

23 lesser of—

24 ‘‘(A) the credit which would be allowed 

25 under this section without regard to this subVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00071 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 section and the limitation under section 26(a), 

2 or 

3 ‘‘(B) the amount by which the aggregate 

4 amount of credits allowed under the subpart 

5 (determined without regard to this subsection) 

6 would increase if the limitation under section 

7 26(a) were increased by 25 percent of the tax8 payer’s earned income for the taxable year. 

9 The amount of the credit allowed under this sub10 section shall not be treated as a credit allowed under 

11 this subpart and shall reduce the amount of credit 

12 otherwise allowable under subsection (a) without re13 gard to section 26(a). 

14 ‘‘(2) EARNED INCOME.—For purposes of this 

15 subsection—

16 ‘‘(A) IN GENERAL.—The term ‘earned in17 come’ means—

18 ‘‘(i) the taxpayer’s wages, salaries, 

19 tips, and other employee compensation, but 

20 only if such amounts are includible in 

21 gross income for the taxable year, plus 

22 ‘‘(ii) the taxpayer’s net earnings from 

23 self-employment for the taxable year (with24 in the meaning of section 1402(a)) deterVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00072 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 mined with regard to the deduction allowed 

2 to the taxpayer by section 164(f). 

3 ‘‘(B) SPECIAL RULES.—For purposes of 

4 subparagraph (A)—

5 ‘‘(i) the earned income of an indi6 vidual shall be computed without regard to 

7 any community property laws, 

8 ‘‘(ii) no amount received as a pension 

9 or annuity shall be taken into account, 

10 ‘‘(iii) no amount to which section 

11 871(a) applies (relating to income of non12 resident alien individuals not connected 

13 with United States business) shall be taken 

14 into account, 

15 ‘‘(iv) no amount received for services 

16 provided by an individual while the indi17 vidual is an inmate at a penal institution 

18 shall be taken into account, 

19 ‘‘(v) no amount described in subpara20 graph (A) received for service performed in 

21 work activities as defined in paragraph (4) 

22 or (7) of section 407(d) of the Social Secu23 rity Act to which the taxpayer is assigned 

24 under any State program under part A of 

25 title IV of such Act shall be taken into acVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00073 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 count, but only to the extent such amount 

2 is subsidized under such State program, 

3 and 

4 ‘‘(vi) amounts excluded from gross in5 come by reason of section 112 shall be 

6 taken into account as earned income. 

7 ‘‘(C) SPECIAL RULE FOR TAXABLE YEARS

8 BEGINNING BEFORE 2018.—In the case of any 

9 taxable year beginning before January 1, 2018, 

10 the earned income of the taxpayer taken into 

11 account under paragraph (1) shall be reduced 

12 (but not below zero) by $3,000. 

13 ‘‘(3) EXCEPTION FOR TAXPAYERS EXCLUDING

14 FOREIGN EARNED INCOME.—Paragraph (1) shall not 

15 apply to any taxpayer for any taxable year if such 

16 taxpayer elects to exclude any amount from gross in17 come under section 911 for such taxable year. 

18 ‘‘(e) INFLATION ADJUSTMENT.—In the case of any 

19 taxable year beginning after 2014, each dollar amount in 

20 subsection (a) shall be increased by an amount equal to—

21 ‘‘(1) such dollar amount, multiplied by 

22 ‘‘(2) the cost-of-living adjustment determined 

23 under section 1(c)(2)(A) for the calendar year in 

24 which the taxable year begins. 


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1 If any increase determined under the preceding sentence 

2 is not a multiple of $100, such increase shall be rounded 

3 to the next lowest multiple of $100. 

4 ‘‘(f) IDENTIFICATION REQUIREMENTS.—

5 ‘‘(1) IN GENERAL.—No credit shall be allowed 

6 under this section to a taxpayer with respect to any 

7 dependent unless the taxpayer includes the name 

8 and taxpayer identification number of such depend9 ent on the return of tax for the taxable year. 

10 ‘‘(2) ADDITIONAL IDENTIFICATION REQUIRE11 MENT WITH RESPECT TO REFUNDABLE CREDIT.—

12 ‘‘(A) IN GENERAL.—Subsection (d) shall 

13 not apply to any taxpayer for any taxable year 

14 unless the taxpayer includes the taxpayer’s So15 cial Security number on the return of tax for 

16 such taxable year. 

17 ‘‘(B) JOINT RETURNS.—In the case of a 

18 joint return, the requirement of subparagraph 

19 (A) shall be treated as met if the Social Secu20 rity number of either spouse is included on such 

21 return. 

22 ‘‘(g) TAXABLE YEAR MUST BE FULL TAXABLE

23 YEAR.—Except in the case of a taxable year closed by rea24 son of the death of the taxpayer, no credit shall be allowVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00075 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 able under this section in the case of a taxable year cov2 ering a period of less than 12 months.’’. 

3 (b) OMISSION OF IDENTIFICATION INFORMATION

4 TREATED AS MATHEMATICAL OR CLERICAL ERROR.—

5 Subparagraph (I) of section 6213(g)(2) of such Code is 

6 amended to read as follows: 

7 ‘‘(I) an omission of a correct TIN under 

8 section 24(f)(1) (relating to the child and de9 pendent tax credit), or a correct Social Security 

10 number under section 24(f)(2) (relating to the 

11 refundable portion of child and dependent tax 

12 credit), to be included on a return,’’. 

13 (c) APPLICATION OF RULE FOR SHORT TAXABLE

14 YEARS.—Section 443(c) is amended to read as follows: 

15 ‘‘(c) ADJUSTMENT IN CHILD AND DEPENDENT TAX

16 CREDIT.—If a return is made for a short period by reason 

17 of subsection (a)(1) and if the tax is not computed under 

18 subsection (b)(2), then the credit allowed under section 

19 24 shall be reduced to an amount which bears the same 

20 ratio to the full amount of such credit as the number of 

21 months in the short period bears to 12.’’. 

22 (d) CLERICAL AMENDMENT.—The table of sections 

23 for subpart A of part IV of subchapter A of chapter 1 

24 is amended by striking the item relating to section 24 and 

25 inserting the following new item:

‘‘Sec. 24. Child and dependent tax credit.’’.


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1 (e) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 1103. MODIFICATION OF EARNED INCOME TAX CRED5 IT.

6 (a) IN GENERAL.—Section 32 is amended to read as 

7 follows: 

8 ‘‘SEC. 32. EARNED INCOME. 

9 ‘‘(a) IN GENERAL.—In the case of an individual who 

10 is an eligible individual for any taxable year, there shall 

11 be allowed as a credit against the tax imposed by this sub12 title for such taxable year an amount equal to the tax13 payer’s employment-related taxes for such taxable year. 

14 ‘‘(b) LIMITATIONS.—

15 ‘‘(1) DOLLAR LIMITATION.—The credit allowed 

16 under subsection (a) shall not exceed—

17 ‘‘(A) in the case of a taxpayer with 2 or 

18 more qualifying children, $3,000 ($4,000 in the 

19 case of a joint return), and 

20 ‘‘(B) in the case of a taxpayer with 1 

21 qualifying child, $2,400. 

22 ‘‘(2) PHASE-OUT OF CREDIT.—The credit al23 lowed under subsection (a) (determined after appli24 cation of paragraph (1)) shall be reduced (but not 

25 below zero) by the sum of—


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1 ‘‘(A) 19 percent of so much of the tax2 payer’s adjusted gross income (reduced by the 

3 amount of any excess described in subpara4 graph (B)) as exceeds $20,000 ($27,000 in the 

5 case of a joint return), plus 

6 ‘‘(B) so much of the taxpayer’s investment 

7 income for the taxable year as exceeds $3,300. 

8 ‘‘(c) DEFINITIONS.—For purposes of this section—

9 ‘‘(1) ELIGIBLE INDIVIDUAL.—

10 ‘‘(A) IN GENERAL.—The term ‘eligible in11 dividual’ means any individual who has a quali12 fying child for the taxable year. 

13 ‘‘(B) QUALIFYING CHILD INELIGIBLE.—If 

14 an individual is the qualifying child of a tax15 payer for any taxable year of such taxpayer be16 ginning in a calendar year, such individual shall 

17 not be treated as an eligible individual for any 

18 taxable year of such individual beginning in 

19 such calendar year. 

20 ‘‘(C) EXCEPTION FOR INDIVIDUAL CLAIM21 ING BENEFITS UNDER SECTION 911.—The term 

22 ‘eligible individual’ does not include any indi23 vidual who claims the benefits of section 911 

24 (relating to citizens or residents living abroad) 

25 for the taxable year. 


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1 ‘‘(D) LIMITATION ON ELIGIBILITY OF NON2 RESIDENT ALIENS.—The term ‘eligible indi3 vidual’ shall not include any individual who is 

4 a nonresident alien individual for any portion of 

5 the taxable year unless such individual is treat6 ed for such taxable year as a resident of the 

7 United States for purposes of this chapter by 

8 reason of an election under subsection (g) or 

9 (h) of section 6013. 

10 ‘‘(2) EMPLOYMENT-RELATED TAXES.—The 

11 term ‘employment-related taxes’ means, with respect 

12 to any taxpayer for any taxable year, the sum of—

13 ‘‘(A) any tax imposed under sections 3101 

14 or 3111 on the wages (as defined in section 

15 3121(a)) received by the taxpayer during the 

16 calendar year in which the taxable year begins, 

17 ‘‘(B) any tax imposed under sections 

18 3201(a), 3211(a), or 3221(a) on the compensa19 tion (as defined in section 3231(e)) received by 

20 the taxpayer during the calendar year in which 

21 the taxable year begins, and 

22 ‘‘(C) any tax imposed under section 1401 

23 on the self-employment income of the taxpayer 

24 for the taxable year. 

25 ‘‘(3) QUALIFYING CHILD.—


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1 ‘‘(A) IN GENERAL.—The term ‘qualifying 

2 child’ means a qualifying child of the taxpayer 

3 (within the meaning of section 7705, deter4 mined without regard to subsections (c)(1)(D) 

5 and (e) thereof). 

6 ‘‘(B) PLACE OF ABODE.—For purposes of 

7 subparagraph (A), the requirements of section 

8 7705(c)(1)(B) shall be met only if the principal 

9 place of abode is in the United States. 

10 ‘‘(C) TREATMENT OF MILITARY PER11 SONNEL STATIONED OUTSIDE THE UNITED

12 STATES.—For purposes of subparagraph (B), 

13 the principal place of abode of a member of the 

14 Armed Forces of the United States shall be 

15 treated as in the United States during any pe16 riod during which such member is stationed 

17 outside the United States while serving on ex18 tended active duty with the Armed Forces of 

19 the United States. For purposes of the pre20 ceding sentence, the term ‘extended active duty’ 

21 means any period of active duty pursuant to a 

22 call or order to such duty for a period in excess 

23 of 90 days or for an indefinite period. 


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1 ‘‘(4) INVESTMENT INCOME.—For purposes of 

2 paragraph (1), the term ‘investment income’ 

3 means—

4 ‘‘(A) interest or dividends to the extent in5 cludible in gross income for the taxable year, 

6 ‘‘(B) interest received or accrued during 

7 the taxable year which is exempt from tax im8 posed by this chapter, 

9 ‘‘(C) the excess (if any) of—

10 ‘‘(i) gross income from rents or royal11 ties not derived in the ordinary course of 

12 a trade or business, over 

13 ‘‘(ii) the sum of—

14 ‘‘(I) the deductions (other than 

15 interest) which are clearly and directly 

16 allocable to such gross income, plus 

17 ‘‘(II) interest deductions properly 

18 allocable to such gross income, 

19 ‘‘(D) the capital gain net income (as de20 fined in section 1222) of the taxpayer for such 

21 taxable year, and 

22 ‘‘(E) the excess (if any) of—

23 ‘‘(i) the aggregate income from all 

24 passive activities for the taxable year (de25 termined without regard to any amount 


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1 with respect to which a tax described in 

2 subsection (c)(2) is imposed or an amount 

3 described in a preceding subparagraph), 

4 over 

5 ‘‘(ii) the aggregate losses from all pas6 sive activities for the taxable year (as so 

7 determined). 

8 For purposes of subparagraph (E), the term 

9 ‘passive activity’ has the meaning given such 

10 term by section 469. 

11 ‘‘(d) IDENTIFICATION REQUIREMENTS.—

12 ‘‘(1) IN GENERAL.—No credit shall be allowed 

13 under this section unless the taxpayer includes on 

14 the return of tax for the taxable year—

15 ‘‘(A) the taxpayer’s Social Security num16 ber, and 

17 ‘‘(B) the name, age, and Social Security 

18 number of each qualifying child taken into ac19 count under subsection (b)(1). 

20 ‘‘(2) JOINT RETURNS.—In the case of a joint 

21 return, the requirement of paragraph (1)(A) shall be 

22 treated as met if the Social Security number of ei23 ther spouse is included on such return. 

24 ‘‘(3) OTHER METHODS OF PROVIDING CHIL25 DREN’S INFORMATION.—The Secretary may preVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00082 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 scribe other methods for providing the information 

2 described in paragraph (1)(B). 

3 ‘‘(e) RESTRICTIONS ON TAXPAYERS WHO IMPROP4 ERLY CLAIMED CREDIT IN PRIOR YEAR.—

5 ‘‘(1) TAXPAYERS MAKING PRIOR FRAUDULENT

6 OR RECKLESS CLAIMS.—

7 ‘‘(A) IN GENERAL.—No credit shall be al8 lowed under this section for any taxable year in 

9 the disallowance period. 

10 ‘‘(B) DISALLOWANCE PERIOD.—For pur11 poses of paragraph (1), the disallowance period 

12 is—

13 ‘‘(i) the period of 10 taxable years 

14 after the most recent taxable year for 

15 which there was a final determination that 

16 the taxpayer’s claim of credit under this 

17 section was due to fraud, and 

18 ‘‘(ii) the period of 2 taxable years 

19 after the most recent taxable year for 

20 which there was a final determination that 

21 the taxpayer’s claim of credit under this 

22 section was due to reckless or intentional 

23 disregard of rules and regulations (but not 

24 due to fraud). 


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1 ‘‘(2) TAXPAYERS MAKING IMPROPER PRIOR

2 CLAIMS.—In the case of a taxpayer who is denied 

3 credit under this section for any taxable year as a 

4 result of the deficiency procedures under subchapter 

5 B of chapter 63, no credit shall be allowed under 

6 this section for any subsequent taxable year unless 

7 the taxpayer provides such information as the Sec8 retary may require to demonstrate eligibility for 

9 such credit. 

10 ‘‘(f) OTHER SPECIAL RULES.—For purposes of this 

11 section—

12 ‘‘(1) MARRIED INDIVIDUALS.—In the case of an 

13 individual who is married (within the meaning of 

14 section 7703), this section shall apply only if a joint 

15 return is filed for the taxable year under section 

16 6013. 

17 ‘‘(2) TAXABLE YEAR MUST BE FULL TAXABLE

18 YEAR.—Except in the case of a taxable year closed 

19 by reason of the death of the taxpayer, no credit 

20 shall be allowable under this section in the case of 

21 a taxable year covering a period of less than 12 

22 months. 

23 ‘‘(3) COORDINATION WITH CERTAIN MEANS24 TESTED PROGRAMS.—For purposes of—


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1 ‘‘(A) the United States Housing Act of 

2 1937, 

3 ‘‘(B) title V of the Housing Act of 1949, 

4 ‘‘(C) section 101 of the Housing and 

5 Urban Development Act of 1965, 

6 ‘‘(D) sections 221(d)(3), 235, and 236 of 

7 the National Housing Act, and 

8 ‘‘(E) the Food and Nutrition Act of 2008, 

9 any refund made to an individual (or the spouse of 

10 an individual) by reason of this section, and any 

11 payment made to such individual (or such spouse) 

12 by an employer under section 3507, shall not be 

13 treated as income (and shall not be taken into ac14 count in determining resources for the month of its 

15 receipt and the following month). 

16 ‘‘(4) COORDINATION WITH PAYROLL TAX CRED17 ITS.—The credit allowed under subsection (a) with 

18 respect to any taxpayer for any taxable year shall be 

19 reduced by the sum of the credits allowed under sec20 tions 3103 and 3203 with respect to such taxpayer 

21 for such taxable year. 

22 ‘‘(g) APPLICATION TO CERTAIN INDIVIDUALS WITH23 OUT QUALIFYING CHILDREN.—For purposes of this sec24 tion and sections 3103 and 3203—


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1 ‘‘(1) IN GENERAL.—In the case of an individual 

2 described in paragraph (2)—

3 ‘‘(A) such individual shall be treated as an 

4 eligible individual, 

5 ‘‘(B) notwithstanding subsection (i), the 

6 dollar limitation applicable to such individual 

7 under subsection (b)(1) shall be $100 (twice 

8 such amount in the case of a joint return), 

9 ‘‘(C) subsection (b)(2)(A) shall be applied 

10 by substituting ‘$8,000 ($13,000’ for ‘$20,000 

11 ($27,000’, and 

12 ‘‘(D) subsection (i)(1) shall not apply and 

13 the employment-related taxes with respect to 

14 such individual for any taxable year shall not 

15 exceed the sum of—

16 ‘‘(i) any tax imposed under section 

17 3101 on the wages (as defined in section 

18 3121(a)) received by the taxpayer during 

19 the calendar year in which the taxable year 

20 begins, 

21 ‘‘(ii) any tax imposed under sections 

22 3201(a) (and so much of the tax imposed 

23 by section 3211(a) as is attributable to the 

24 rates of tax under subsections (a) and (b) 

25 of section 3101) on the compensation (as 


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1 defined in section 3231(e)) received by the 

2 taxpayer during the calendar year in which 

3 the taxable year begins, and 

4 ‘‘(iii) 50 percent of any tax imposed 

5 under section 1401 on the self-employment 

6 income of the taxpayer for the taxable 

7 year. 

8 ‘‘(2) INDIVIDUAL TO WHOM SUBSECTION AP9 PLIES.—An individual is described in this paragraph 

10 for any taxable year if—

11 ‘‘(A) such individual does not have a quali12 fying child for the taxable year, 

13 ‘‘(B) such individual’s principal place of 

14 abode is in the United States for more than 

15 one-half of such taxable year, 

16 ‘‘(C) such individual (or, if the individual 

17 is married (within the meaning of section 

18 7703), either the individual or the individual’s 

19 spouse) has attained age 25 but not attained 

20 age 65 before the close of the taxable year, and 

21 ‘‘(D) such individual is not a dependent of 

22 another taxpayer for any taxable year beginning 

23 in the same calendar year as such taxable year. 

24 ‘‘(h) INFLATION ADJUSTMENT.—In the case of any 

25 taxable year beginning after 2014, both dollar amounts 


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1 in subsection (b)(1)(A), the dollar amount in subsection 

2 (b)(1)(B), both dollar amounts in subsection (b)(2)(A), 

3 the dollar amount in subsection (b)(2)(B), the $100 

4 amount in subsection (g)(1)(B), the $8,000 and $13,000 

5 amounts in subsection (g)(1)(C), the $4,000 amount in 

6 subsection (i)(2), and the $3,000 amount in subsection 

7 (i)(3), shall each be increased by an amount equal to—

8 ‘‘(1) such dollar amount, multiplied by 

9 ‘‘(2) the cost-of-living adjustment determined 

10 under section 1(c)(2)(A) for the calendar year in 

11 which the taxable year begins. 

12 If any increase determined under the preceding sentence 

13 is not a multiple of $100 ($10 in the case of the $100 

14 amount in subsection (g)(1)(B)), such increase shall be 

15 rounded to the next lowest multiple of $100 ($10 in the 

16 case of the $100 amount in subsection (g)(1)(B)). 

17 ‘‘(i) SPECIAL RULES FOR TAXABLE YEARS BEGIN18 NING BEFORE 2018.—In the case of any taxable year be19 ginning before January 1, 2018—

20 ‘‘(1) subsection (a) shall be applied by sub21 stituting ‘200 percent of the taxpayer’s employment22 related taxes’ for ‘the taxpayer’s employment-related 

23 taxes’, 


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1 ‘‘(2) subsection (b)(1)(A) shall be applied by 

2 substituting ‘$4,000’ for ‘$3,000 ($4,000 in the case 

3 of a joint return)’, and 

4 ‘‘(3) subsection (b)(1)(B) shall be applied by 

5 substituting ‘$3,000’ for ‘$2,400’.’’. 

6 (b) CREDIT ALLOWED AGAINST PAYROLL TAXES.—

7 (1) FICA TAX.—Subchapter A of chapter 21 is 

8 amended by adding at the end the following new sec9 tion: 

10 ‘‘SEC. 3103. CREDIT AGAINST TAX. 

11 ‘‘(a) IN GENERAL.—In the case of an individual who 

12 is allowed a credit under section 32 (determined without 

13 regard to subsection (f)(4) thereof) for a taxable year, 

14 there shall be allowed as a credit against the tax imposed 

15 by section 3101 with respect to wages received by such 

16 individual during the calendar year ending with or within 

17 such taxable year the lesser of—

18 ‘‘(1) the amount of tax so imposed, or 

19 ‘‘(2) the amount of the credit allowed under 

20 section 32 (as so determined) for such taxable year. 

21 ‘‘(b) APPLICATION OF CREDIT.—The credit deter22 mined under subsection (a) shall be taken into account 

23 under this title in the same manner as a credit or refund 

24 to which the taxpayer is entitled under section 6413(c)(1). 

25 Such credit shall not be taken into account for purposes 


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1 of determining any amount deducted and withheld under 

2 section 3102.’’. 

3 (2) RAILROAD RETIREMENT TAX.—Subchapter 

4 A of chapter 22 is amended by adding at the end 

5 the following new section: 

6 ‘‘SEC. 3203. CREDIT AGAINST TAX. 

7 ‘‘(a) IN GENERAL.—In the case of an individual who 

8 is allowed a credit under section 32 (determined without 

9 regard to subsection (f)(4) thereof) for a taxable year, 

10 there shall be allowed as a credit against the tax imposed 

11 by section 3201(a) (and so much of the tax imposed by 

12 section 3211(a) as is attributable to the rates of tax under 

13 subsections (a) and (b) of section 3101) with respect to 

14 compensation received by such individual during the cal15 endar year ending with or within such taxable year the 

16 lesser of—

17 ‘‘(1) the amount of tax so imposed, or 

18 ‘‘(2) the excess of—

19 ‘‘(A) the amount of the credit allowed 

20 under section 32 (as so determined) for such 

21 taxable year, over 

22 ‘‘(B) the amount of the credit allowed 

23 under section 3103. 

24 ‘‘(b) APPLICATION OF CREDIT.—The credit deter25 mined under subsection (a) shall be taken into account 


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1 under this title in the same manner as a credit or refund 

2 to which the taxpayer is entitled under section 6413(c)(1). 

3 Such credit shall not be taken into account for purposes 

4 of determining any amount deducted and withheld under 

5 section 3202.’’. 

6 (c) CONFORMING AMENDMENTS.—

7 (1) Section 86(f)(2) is amended by striking 

8 ‘‘section 32(c)(2)’’ and inserting ‘‘section 24(d)(2)’’. 

9 (2) Section 129(e)(2) is amended by striking 

10 ‘‘section 32(c)(2)’’ and inserting ‘‘section 24(d)(2)’’

11 (3) Section 6051(a)(10) is amended by striking 

12 ‘‘for purposes of section 32 (relating to earned in13 come credit)’’ and inserting ‘‘under section 

14 24(d)(2)’’. 

15 (4) Section 6211(b)(4)(A) is amended by insert16 ing ‘‘(determined without regard to subsection (f)(4) 

17 thereof)’’ after ‘‘32’’. 

18 (5) Section 6213(g)(2)(F) is amended by strik19 ing ‘‘taxpayer identification number’’ and inserting 

20 ‘‘Social Security number’’. 

21 (6) Section 6213(g)(2)(G) is amended by strik22 ing ‘‘with respect to’’ and all that follows and insert23 ing ‘‘with respect to the tax imposed under section 

24 1401 (relating to self-employment tax) to the extent 

25 such tax has not been paid,’’. 


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1 (7) Section 6213(g)(2)(K) is amended by strik2 ing ‘‘section 32(k)(2)’’ and inserting ‘‘section 

3 32(e)(2)’’. 

4 (8) Section 7705(f)(6)(B), as redesignated by 

5 this Act, is amended by striking clause (iv), by strik6 ing ‘‘, and’’ at the end of clause (iii) and inserting 

7 a period, and by inserting ‘‘and’’ at the end of 

8 clause (ii). 

9 (9) The table of sections for subchapter A of 

10 chapter 21 is amended by adding at the end the fol11 lowing new item:

‘‘Sec. 3103. Credit against tax.’’.

12 (10) The table of sections for subchapter A of 

13 chapter 22 is amended by adding at the end the fol14 lowing new item:

‘‘Sec. 3203. Credit against tax.’’.

15 (d) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2014. 

18 (e) TREATMENT OF TAXPAYERS WHO IMPROPERLY

19 CLAIMED CREDIT IN PRIOR YEARS.—A claim of credit 

20 under section 32 of the Internal Revenue Code of 1986 

21 (as in effect before the amendments made by this section) 

22 shall not fail to be taken into account under subsection 

23 (e) of such section (as amended by this section) merely 


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1 because such claim is for a taxable year beginning before 

2 January 1, 2015. 

3 (f) TREASURY REPORT ON MAKING CREDIT

4 ADVANCEABLE.—Not later than the date which is 180 

5 days after the date of the enactment of this Act, the Sec6 retary of the Treasury (or the Secretary’s designee) shall 

7 submit a report to Congress making recommendations re8 garding the best method for providing for advance pay9 ment of the credits established by the amendments made 

10 by this section. The recommendations in such report shall 

11 seek to—

12 (1) provide for the payment of such credits to 

13 taxpayers as promptly as is feasible, including on a 

14 weekly, biweekly, or monthly basis, and 

15 (2) minimize any administrative burdens on em16 ployers and the Internal Revenue Service. 

17 SEC. 1104. REPEAL OF DEDUCTION FOR PERSONAL EXEMP18 TIONS.

19 (a) IN GENERAL.—Part V of subchapter B of chapter 

20 1 is hereby repealed. 

21 (b) DEFINITION OF DEPENDENT RETAINED.—

22 (1) IN GENERAL.—Section 152, prior to repeal 

23 by subsection (a), is hereby redesignated as section 

24 7705 and moved to the end of chapter 79. 


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1 (2) MODIFICATION OF AGE REQUIREMENTS.—

2 Section 7705(c)(3)(A), as redesignated by paragraph 

3 (1), is amended by striking ‘‘as a qualifying child 

4 and—’’ and all that follows and inserting ‘‘is a 

5 qualifying child and has not attained the age of 18 

6 as of the close of the calendar year in which the tax7 able year of the taxpayer begins.’’. 

8 (c) APPLICATION TO ESTATES AND TRUSTS.—Sub9 section (b) of section 642 is amended—

10 (1) by striking paragraph (2)(C), 

11 (2) by striking paragraph (3), and 

12 (3) by striking ‘‘DEDUCTION FOR PERSONAL

13 EXEMPTION’’ in the heading thereof and inserting 

14 ‘‘BASIC DEDUCTION’’. 

15 (d) APPLICATION TO NONRESIDENT ALIENS.—Sec16 tion 873(b) is amended by striking paragraph (3). 

17 (e) MODIFICATION OF WAGE WITHHOLDING

18 RULES.—

19 (1) IN GENERAL.—Section 3402(a)(2) is 

20 amended by striking ‘‘the amount of one personal 

21 exemption provided in section 151(b)’’ and inserting 

22 ‘‘$3,900’’. 

23 (2) INFLATION ADJUSTMENT.—Section 3402(a) 

24 is amended by adding at the end the following new 

25 paragraph: 


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1 ‘‘(3) INFLATION ADJUSTMENT.—In the case of 

2 any calendar year beginning after 2014, the $3,900 

3 amount in paragraph (2) shall be increased by an 

4 amount equal to—

5 ‘‘(A) such dollar amount, multiplied by 

6 ‘‘(B) the cost-of-living adjustment deter7 mined under section 1(c)(2)(A) for such cal8 endar year. 

9 If any increase determined under the preceding sen10 tence is not a multiple of $100, such increase shall 

11 be rounded to the next lowest multiple of $100.’’. 

12 (3) NUMBER OF EXEMPTIONS.—Section 

13 3402(f)(1) is amended—

14 (A) in subparagraph (A), by striking ‘‘an 

15 individual described in section 151(d)(2)’’ and 

16 inserting ‘‘a dependent of any other taxpayer’’, 

17 and 

18 (B) in subparagraph (C), by striking ‘‘with 

19 respect to whom, on the basis of facts existing 

20 at the beginning of such day, there may reason21 ably be expected to be allowable an exemption 

22 under section 151(c)’’ and inserting ‘‘who, on 

23 the basis of facts existing at the beginning of 

24 such day, is reasonably expected to be a de25 pendent of the employee’’. 


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1 (f) MODIFICATION OF RETURN REQUIREMENT.—

2 (1) IN GENERAL.—Paragraph (1) of section 

3 6012(a) is amended to read as follows: 

4 ‘‘(1) Every individual who has gross income for 

5 the taxable year, except that a return shall not be 

6 required of—

7 ‘‘(A) an individual who is not married (de8 termined by applying section 7703) and who 

9 has gross income for the taxable year which 

10 does not exceed the standard deduction applica11 ble to such individual for such taxable year 

12 under section 63, or 

13 ‘‘(B) an individual entitled to make a joint 

14 return if—

15 ‘‘(i) the gross income of such indi16 vidual, when combined with the gross in17 come of such individual’s spouse, for the 

18 taxable year does not exceed the standard 

19 deduction which would be applicable to the 

20 taxpayer for such taxable year under sec21 tion 63 if such individual and such individ22 ual’s spouse made a joint return, 

23 ‘‘(ii) such individual and such individ24 ual’s spouse have the same household as 

25 their home at the close of the taxable year, 


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1 ‘‘(iii) such individual’s spouse does not 

2 make a separate return, and 

3 ‘‘(iv) neither such individual nor such 

4 individual’s spouse is an individual de5 scribed in section 63(c)(4) who has income 

6 (other than earned income) in excess of the 

7 amount in effect under section 

8 63(c)(4)(A).’’. 

9 (2) BANKRUPTCY ESTATES.—Paragraph (8) of 

10 section 6012(a) is amended by striking ‘‘the sum of 

11 the exemption amount plus the basic standard de12 duction under section 63(c)(2)(D)’’ and inserting 

13 ‘‘the standard deduction in effect under section 

14 63(c)(1)(B)’’. 

15 (g) CONFORMING AMENDMENTS.—

16 (1) Section 2(a)(1)(B) is amended by striking 

17 ‘‘a dependent’’ and all that follows through ‘‘section 

18 151’’ and inserting ‘‘a dependent who (within the 

19 meaning of section 7705, determined without regard 

20 to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) 

21 is a son, stepson, daughter, or stepdaughter of the 

22 taxpayer’’. 

23 (2) Section 36B(b)(2)(A) is amended by strik24 ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 


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1 (3) Section 36B(b)(3)(B) is amended by strik2 ing ‘‘unless a deduction is allowed under section 151 

3 for the taxable year with respect to a dependent’’ in 

4 the flush matter at the end and inserting ‘‘unless 

5 the taxpayer has a dependent for the taxable year’’. 

6 (4) Section 36B(c)(1)(D) is amended by strik7 ing ‘‘with respect to whom a deduction under section 

8 151 is allowable to another taxpayer’’ and inserting 

9 ‘‘who is a dependent of another taxpayer’’. 

10 (5) Section 36B(d)(1) is amended by striking 

11 ‘‘equal to the number of individuals for whom the 

12 taxpayer is allowed a deduction under section 151 

13 (relating to allowance of deduction for personal ex14 emptions) for the taxable year’’ and inserting ‘‘the 

15 sum of 1 (2 in the case of a joint return) plus the 

16 number of the taxpayer’s dependents for the taxable 

17 year’’. 

18 (6) Section 36B(e)(1) is amended by striking 

19 ‘‘1 or more individuals for whom a taxpayer is al20 lowed a deduction under section 151 (relating to al21 lowance of deduction for personal exemptions) for 

22 the taxable year (including the taxpayer or his 

23 spouse)’’ and inserting ‘‘1 or more of the taxpayer, 

24 the taxpayer’s spouse, or any dependent of the tax25 payer’’. 


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1 (7) Section 42(i)(3)(D)(ii)(I) is amended—

2 (A) by striking ‘‘section 152’’ and insert3 ing ‘‘section 7705’’, and 

4 (B) by striking the period at the end and 

5 inserting a comma. 

6 (8) Section 63(b) is amended by striking 

7 ‘‘minus—’’ and all that follows and inserting ‘‘minus 

8 the standard deduction.’’. 

9 (9) Section 63(d) is amended by striking ‘‘other 

10 than—’’ and all that follows and inserting ‘‘other 

11 than the deductions allowable in arriving at adjusted 

12 gross income.’’. 

13 (10) Section 72(t)(2)(D)(i)(III) is amended by 

14 striking ‘‘section 152’’ and inserting ‘‘section 7705’’. 

15 (11) Section 72(t)(7)(A)(iii) is amended by 

16 striking ‘‘section 152(f)(1)’’ and inserting ‘‘section 

17 7705(f)(1)’’. 

18 (12) Section 105(b) is amended—

19 (A) by striking ‘‘as defined in section 152’’ 

20 and inserting ‘‘as defined in section 7705’’, 

21 (B) by striking ‘‘section 152(f)(1)’’ and in22 serting ‘‘section 7705(f)(1)’’ and 

23 (C) by striking ‘‘section 152(e)’’ and in24 serting ‘‘section 7705(e)’’. 


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1 (13) Section 105(c)(1) is amended by striking 

2 ‘‘section 152’’ and inserting ‘‘section 7705’’. 

3 (14) Section 125(e)(1)(D) is amended by strik4 ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 

5 (15) Section 129(c) is amended—

6 (A) by striking ‘‘with respect to whom, for 

7 such taxable year, a deduction is allowable 

8 under section 151(c) (relating to personal ex9 emptions for dependents) to’’ in paragraph (1) 

10 and inserting ‘‘who is a dependent of’’, and 

11 (B) by striking ‘‘section 152(f)(1)’’ in 

12 paragraph (2) and inserting ‘‘section 

13 7705(f)(1)’’. 

14 (16) Section 132(h)(2)(B) is amended—

15 (A) by striking ‘‘section 152(f)(1)’’ and in16 serting ‘‘section 7705(f)(1)’’, and 

17 (B) by striking ‘‘section 152(e)’’ and in18 serting ‘‘section 7705(e)’’. 

19 (17) Section 139D(c)(5) is amended by striking 

20 ‘‘section 152’’ and inserting ‘‘section 7705’’. 

21 (18) Section 162(l)(1)(D) is amended by strik22 ing ‘‘section 152(f)(1)’’ and inserting ‘‘section 

23 7705(f)(1)’’. 

24 (19) Section 170(g)(1) is amended by striking 

25 ‘‘section 152’’ and inserting ‘‘section 7705’’. 


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1 (20) Section 170(g)(3) is amended by striking 

2 ‘‘section 152(d)(2)’’ and inserting ‘‘section 

3 7705(d)(2)’’. 

4 (21) Section 172(d) is amended by striking 

5 paragraph (3). 

6 (22) Section 220(b)(6) is amended by striking 

7 ‘‘with respect to whom a deduction under section 

8 151 is allowable to’’ and inserting ‘‘who is a depend9 ent of’’. 

10 (23) Section 220(d)(2)(A) is amended by strik11 ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 

12 (24) Section 223(b)(6) is amended by striking 

13 ‘‘with respect to whom a deduction under section 

14 151 is allowable to’’ and inserting ‘‘who is a depend15 ent of’’. 

16 (25) Section 223(d)(2)(A) is amended by strik17 ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 

18 (26) Section 401(h) is amended by striking 

19 ‘‘section 152(f)(1)’’ in the last sentence and insert20 ing ‘‘section 7705(f)(1)’’. 

21 (27) Section 402(l)(4)(D) is amended by strik22 ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 

23 (28) Section 409A(a)(2)(B)(ii)(I) is amended 

24 by striking ‘‘section 152(a)’’ and inserting ‘‘section 

25 7705(a)’’. 


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1 (29) Section 501(c)(9) is amended by striking 

2 ‘‘section 152(f)(1)’’ and inserting ‘‘section 

3 7705(f)(1)’’. 

4 (30) Section 529(e)(2)(B) is amended by strik5 ing ‘‘section 152(d)(2)’’ and inserting ‘‘section 

6 7705(d)(2)’’. 

7 (31) Section 703(a)(2) is amended by striking 

8 subparagraph (A) and by redesignating subpara9 graphs (B) through (F) as subparagraphs (A) 

10 through (E), respectively. 

11 (32) Section 874 is amended by striking sub12 section (b) and by redesignating subsection (c) as 

13 subsection (b). 

14 (33) Section 891 is amended by striking ‘‘under 

15 section 151 and’’. 

16 (34) Section 904(b) is amended by striking 

17 paragraph (1). 

18 (35) Section 931(b)(1) is amended by striking 

19 ‘‘(other than the deduction under section 151, relat20 ing to personal exemptions)’’. 

21 (36) Section 933 is amended—

22 (A) by striking ‘‘(other than the deduction 

23 under section 151, relating to personal exemp24 tions)’’ in paragraph (1), and 


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1 (B) by striking ‘‘(other than the deduction 

2 for personal exemptions under section 151)’’ in 

3 paragraph (2). 

4 (37) Section 1212(b)(2)(B)(ii) is amended to 

5 read as follows: 

6 ‘‘(ii) in the case of an estate or trust, 

7 the deduction allowed for such year under 

8 section 642(b).’’. 

9 (38) Section 1361(c)(1)(C) is amended by strik10 ing ‘‘section 152(f)(1)(C)’’ and inserting ‘‘section 

11 7705(f)(1)(C)’’. 

12 (39) Section 1402(a) is amended by striking 

13 paragraph (7). 

14 (40) Section 2032A(c)(7)(D) is amended by 

15 striking ‘‘section 152(f)(2)’’ and inserting ‘‘section 

16 7705(f)(2)’’. 

17 (41) Section 3402(m)(1) is amended by striking 

18 ‘‘other than the deductions referred to in section 

19 151 and’’. 

20 (42) Section 3402(r)(2) is amended by striking 

21 ‘‘the sum of—’’ and all that follows and inserting 

22 ‘‘the standard deduction in effect under section 

23 63(c)(1)(B).’’. 

24 (43) Section 5000A(b)(3)(A) is amended by 

25 striking ‘‘section 152’’ and inserting ‘‘section 7705’’. 


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1 (44) Section 5000A(c)(4)(A) is amended by 

2 striking ‘‘the number of individuals for whom the 

3 taxpayer is allowed a deduction under section 151 

4 (relating to allowance of deduction for personal ex5 emptions) for the taxable year’’ and inserting ‘‘the 

6 sum of 1 (2 in the case of a joint return) plus the 

7 number of the taxpayer’s dependents for the taxable 

8 year’’. 

9 (45) Section 6013(b)(3)(A) is amended—

10 (A) by striking ‘‘had less than the exemp11 tion amount of gross income’’ in clause (ii) and 

12 inserting ‘‘had no gross income’’, 

13 (B) by striking ‘‘had gross income of the 

14 exemption amount or more’’ in clause (iii) and 

15 inserting ‘‘had any gross income’’, and 

16 (C) by striking the flush language fol17 lowing clause (iii). 

18 (46) Section 6103(l)(21)(A)(iii) is amended to 

19 read as follows: 

20 ‘‘(iii) the number of the taxpayer’s de21 pendents,’’. 

22 (47) Section 6213(g)(2) is amended by striking 

23 subparagraph (H). 

24 (48) Section 6334(d)(2) is amended to read as 

25 follows: 


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1 ‘‘(2) EXEMPT AMOUNT.—

2 ‘‘(A) IN GENERAL.—For purposes of para3 graph (1), the term ‘exempt amount’ means an 

4 amount equal to—

5 ‘‘(i) the sum of the standard deduc6 tion and the personal exemption amount, 

7 divided by 

8 ‘‘(ii) 52. 

9 ‘‘(B) PERSONAL EXEMPTION AMOUNT.—

10 For purposes of subparagraph (A), the personal 

11 exemption amount is $3,900 multiplied by the 

12 number of the taxpayer’s dependents for the 

13 taxable year in which the levy occurs. 

14 ‘‘(C) INFLATION ADJUSTMENT.—In the 

15 case of any taxable year beginning after 2014, 

16 the $3,900 amount in subparagraph (B) shall 

17 be increased by an amount equal to—

18 ‘‘(i) such dollar amount, multiplied by 

19 ‘‘(ii) the cost-of-living adjustment de20 termined under section 1(c)(2)(A) for the 

21 calendar year in which the taxable year be22 gins. 

23 If any increase determined under the preceding 

24 sentence is not a multiple of $100, such inVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00105 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 crease shall be rounded to the next lowest mul2 tiple of $100. 

3 ‘‘(D) VERIFIED STATEMENT.—Unless the 

4 taxpayer submits to the Secretary a written and 

5 properly verified statement specifying the facts 

6 necessary to determine the proper amount 

7 under subparagraph (A), subparagraph (A) 

8 shall be applied as if the taxpayer were a mar9 ried individual filing a separate return with no 

10 dependents.’’. 

11 (49) Section 7702B(f)(2)(C)(iii) is amended by 

12 striking ‘‘section 152(d)(2)’’ and inserting ‘‘section 

13 7705(d)(2)’’. 

14 (50) Section 7703(a) is amended by striking 

15 ‘‘part V of subchapter B of chapter 1 and’’. 

16 (51) Section 7703(b)(1) is amended by striking 

17 ‘‘section 152(f)(1)’’ and all that follows and insert18 ing ‘‘section 7705(f)(1),’’. 

19 (52) Section 7705(a), as redesignated by this 

20 section, is amended by striking ‘‘this subtitle’’ and 

21 inserting ‘‘subtitle A’’. 

22 (53)(A) Section 7705(d)(1)(B), as redesignated 

23 by this section, is amended by striking ‘‘the exemp24 tion amount (as defined in section 151(d))’’ and in25 serting ‘‘$3,900’’. 


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1 (B) Section 7705(d), as redesignated by this 

2 section, is amended by adding at the end the fol3 lowing new paragraph: 

4 ‘‘(6) INFLATION ADJUSTMENT.—In the case of 

5 any calendar year beginning after 2014, the $3,900 

6 amount in paragraph (1)(B) shall be increased by an 

7 amount equal to—

8 ‘‘(A) such dollar amount, multiplied by 

9 ‘‘(B) the cost-of-living adjustment deter10 mined under section 1(c)(2)(A) for such cal11 endar year. 

12 If any increase determined under the preceding sen13 tence is not a multiple of $100, such increase shall 

14 be rounded to the next lowest multiple of $100.’’. 

15 (54) The table of sections for chapter 79 is 

16 amended by adding at the end the following new 

17 item:

‘‘Sec. 7705. Dependent defined.’’.

18 (h) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2014. 

21 Subtitle C—Simplification of 

22 Education Incentives 

23 SEC. 1201. AMERICAN OPPORTUNITY TAX CREDIT. 

24 (a) IN GENERAL.—Section 25A is amended to read 

25 as follows: 


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1 ‘‘SEC. 25A. AMERICAN OPPORTUNITY TAX CREDIT. 

2 ‘‘(a) IN GENERAL.—In the case of an individual, 

3 there shall be allowed as a credit against the tax imposed 

4 by this chapter for the taxable year an amount equal to 

5 the sum of—

6 ‘‘(1) 100 percent of so much of the qualified 

7 tuition and related expenses paid by the taxpayer 

8 during the taxable year (for education furnished to 

9 any eligible student for whom an election is in effect 

10 under this section for such taxable year during any 

11 academic period beginning in such taxable year) as 

12 does not exceed $2,000, plus 

13 ‘‘(2) 25 percent of so much of such expenses so 

14 paid as exceeds the dollar amount in effect under 

15 paragraph (1) but does not exceed twice such dollar 

16 amount. 

17 ‘‘(b) PORTION OF CREDIT REFUNDABLE.—So much 

18 of the credit allowable under subsection (a) (determined 

19 without regard to this subsection and section 26(a) and 

20 after application of all other provisions of this section) as 

21 does not exceed $1,500 shall be treated as a credit allow22 able under subpart C (and not under this part). The pre23 ceding sentence shall not apply to any taxpayer for any 

24 taxable year if such taxpayer is a child to whom section 

25 1(d) applies for such taxable year. 


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1 ‘‘(c) LIMITATION BASED ON MODIFIED ADJUSTED

2 GROSS INCOME.—

3 ‘‘(1) IN GENERAL.—The amount allowable as a 

4 credit under subsection (a) for any taxable year shall 

5 be reduced (but not below zero) by an amount which 

6 bears the same ratio to the amount so allowable (de7 termined without regard to this subsection and sub8 section (b) but after application of all other provi9 sions of this section) as—

10 ‘‘(A) the excess of—

11 ‘‘(i) the taxpayer’s modified adjusted 

12 gross income for such taxable year, over 

13 ‘‘(ii) $43,000 (twice such amount in 

14 the case of a joint return), bears to 

15 ‘‘(B) $20,000 (twice such amount in the 

16 case of a joint return). 

17 ‘‘(2) MODIFIED ADJUSTED GROSS INCOME.—

18 For purposes of this subsection, the term ‘modified 

19 adjusted gross income’ means the adjusted gross in20 come of the taxpayer for the taxable year increased 

21 by any amount excluded from gross income under 

22 section 911, 931, or 933. 

23 ‘‘(d) OTHER LIMITATIONS.—

24 ‘‘(1) CREDIT ALLOWED ONLY FOR 4 TAXABLE

25 YEARS.—An election to have this section apply may 


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1 not be made for any taxable year if such an election 

2 (by the taxpayer or any other individual) is in effect 

3 with respect to such student for any 4 prior taxable 

4 years. 

5 ‘‘(2) CREDIT ALLOWED ONLY FOR FIRST 4

6 YEARS OF POSTSECONDARY EDUCATION.—No credit 

7 shall be allowed under subsection (a) for a taxable 

8 year with respect to the qualified tuition and related 

9 expenses of an eligible student if the student has 

10 completed (before the beginning of such taxable 

11 year) the first 4 years of postsecondary education at 

12 an eligible educational institution. 

13 ‘‘(e) DEFINITIONS.—For purposes of this section—

14 ‘‘(1) ELIGIBLE STUDENT.— The term ‘eligible 

15 student’ means, with respect to any academic period, 

16 a student who—

17 ‘‘(A) meets the requirements of section 

18 484(a)(1) of the Higher Education Act of 1965 

19 (20 U.S.C. 1091(a)(1)), as in effect on August 

20 5, 1997, and 

21 ‘‘(B) is carrying at least 1/2 the normal 

22 full-time work load for the course of study the 

23 student is pursuing. 

24 ‘‘(2) QUALIFIED TUITION AND RELATED EX25 PENSES.—


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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 tuition and related expenses’ means tuition, 

3 fees, and course materials, required for enroll4 ment or attendance of—

5 ‘‘(i) the taxpayer, 

6 ‘‘(ii) the taxpayer’s spouse, or 

7 ‘‘(iii) any dependent of the taxpayer, 

8 at an eligible educational institution for courses 

9 of instruction of such individual at such institu10 tion. 

11 ‘‘(B) EXCEPTION FOR EDUCATION INVOLV12 ING SPORTS, ETC.—Such term does not include 

13 expenses with respect to any course or other 

14 education involving sports, games, or hobbies, 

15 unless such course or other education is part of 

16 the individual’s degree program. 

17 ‘‘(C) EXCEPTION FOR NONACADEMIC

18 FEES.—Such term does not include student ac19 tivity fees, athletic fees, insurance expenses, or 

20 other expenses unrelated to an individual’s aca21 demic course of instruction. 

22 ‘‘(3) ELIGIBLE EDUCATIONAL INSTITUTION.—

23 The term ‘eligible educational institution’ means an 

24 institution—


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1 ‘‘(A) which is described in section 481 of 

2 the Higher Education Act of 1965 (20 U.S.C. 

3 1088), as in effect on August 5, 1997, and 

4 ‘‘(B) which is eligible to participate in a 

5 program under title IV of such Act. 

6 ‘‘(f) SPECIAL RULES.—

7 ‘‘(1) IDENTIFICATION REQUIREMENT.—No 

8 credit shall be allowed under subsection (a) to a tax9 payer with respect to the qualified tuition and re10 lated expenses of an individual unless the taxpayer 

11 includes the name and taxpayer identification num12 ber of such individual, and the employer identifica13 tion number of any institution to which such ex14 penses were paid, on the return of tax for the tax15 able year. 

16 ‘‘(2) ADJUSTMENT FOR CERTAIN SCHOLAR17 SHIPS, ETC.—

18 ‘‘(A) IN GENERAL.—The amount of quali19 fied tuition and related expenses otherwise 

20 taken into account under subsection (a) with re21 spect to an individual for an academic period 

22 shall be reduced (before the application of sub23 section (c)) by the sum of any amounts paid for 

24 the benefit of such individual which are allo25 cable to such period as—


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1 ‘‘(i) a qualified scholarship which is 

2 excludable from gross income under section 

3 117, 

4 ‘‘(ii) an educational assistance allow5 ance under chapter 30, 31, 32, 34, or 35 

6 of title 38, United States Code, or under 

7 chapter 1606 of title 10, United States 

8 Code, and 

9 ‘‘(iii) a payment (other than a gift, 

10 bequest, devise, or inheritance within the 

11 meaning of section 102(a)) for such indi12 vidual’s educational expenses, or attrib13 utable to such individual’s enrollment at an 

14 eligible educational institution, which is ex15 cludable from gross income under any law 

16 of the United States. 

17 ‘‘(B) COORDINATION WITH PELL GRANTS

18 NOT USED FOR QUALIFIED TUITION AND RE19 LATED EXPENSES.—For purposes of subpara20 graph (A), the amount of any Federal Pell 

21 Grant under section 401 of the Higher Edu22 cation Act of 1965 (20 U.S.C. 1070a) shall be 

23 reduced (but not below zero) by the amount of 

24 expenses (other than qualified tuition and re25 lated expenses) which are taken into account in 


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1 determining the cost of attendance (as defined 

2 in section 472 of the Higher Education Act of 

3 1965, as in effect on the date of the enactment 

4 of this paragraph) of such individual at an eligi5 ble educational institution for the academic pe6 riod for which the credit under this section is 

7 being determined. 

8 ‘‘(3) TREATMENT OF EXPENSES PAID BY DE9 PENDENT.—If an individual is a dependent of an10 other taxpayer for a taxable year beginning in the 

11 calendar year in which such individuals taxable year 

12 begins—

13 ‘‘(A) no credit shall be allowed under sub14 section (a) to such individual for such individ15 ual’s taxable year, and 

16 ‘‘(B) qualified tuition and related expenses 

17 paid by such individual during such individual’s 

18 taxable year shall be treated for purposes of 

19 this section as paid by such other taxpayer. 

20 ‘‘(4) TREATMENT OF CERTAIN PREPAY21 MENTS.—If qualified tuition and related expenses 

22 are paid by the taxpayer during a taxable year for 

23 an academic period which begins during the first 3 

24 months following such taxable year, such academic 


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1 period shall be treated for purposes of this section 

2 as beginning during such taxable year. 

3 ‘‘(5) DENIAL OF DOUBLE BENEFIT.—No credit 

4 shall be allowed under this section for any amount 

5 for which a deduction is allowed under any other 

6 provision of this chapter. 

7 ‘‘(6) NO CREDIT FOR MARRIED INDIVIDUALS

8 FILING SEPARATE RETURNS.—If the taxpayer is a 

9 married individual (within the meaning of section 

10 7703), this section shall apply only if the taxpayer 

11 and the taxpayer’s spouse file a joint return for the 

12 taxable year. 

13 ‘‘(7) NONRESIDENT ALIENS.—If the taxpayer is 

14 a nonresident alien individual for any portion of the 

15 taxable year, this section shall apply only if such in16 dividual is treated as a resident alien of the United 

17 States for purposes of this chapter by reason of an 

18 election under subsection (g) or (h) of section 6013. 

19 ‘‘(g) INFLATION ADJUSTMENT.—

20 ‘‘(1) IN GENERAL.—In the case of a taxable 

21 year beginning after 2018, the $2,000 amount in 

22 subsection (a)(1), the $1,500 amount in subsection 

23 (b), and the $43,000 amount in subsection 

24 (c)(1)(A)(ii) shall each be increased by an amount 

25 equal to—


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1 ‘‘(A) such dollar amount, multiplied by 

2 ‘‘(B) the cost-of-living adjustment deter3 mined under section 1(c)(2)(A) for the calendar 

4 year in which the taxable year begins, deter5 mined by substituting ‘calendar year 2017’ for 

6 ‘calendar year 2012’ in clause (ii) thereof. 

7 ‘‘(2) ROUNDING.—If any amount as adjusted 

8 under paragraph (1) is not a multiple of $100 

9 ($1,000 in the case of the amount in subsection 

10 (c)(1)(A)(ii)), such amount shall be rounded to the 

11 next lowest multiple of $100 ($1,000 in the case of 

12 the amount in subsection (c)(1)(A)(ii)). 

13 ‘‘(h) REGULATIONS.—The Secretary may prescribe 

14 such regulations or other guidance as may be necessary 

15 or appropriate to carry out this section, including regula16 tions providing for a recapture of the credit allowed under 

17 this section in cases where there is a refund in a subse18 quent taxable year of any amount which was taken into 

19 account in determining the amount of such credit.’’. 

20 (b) REQUIREMENT TO REPORT TUITION PAID RATH21 ER THAN TUITION BILLED.—Section 6050S(b)(2)(B)(i) 

22 is amended by striking ‘‘or the aggregate amount billed’’. 

23 (c) CONFORMING AMENDMENTS.—


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1 (1) Section 72(t)(7)(B) of such Code is amend2 ed by striking ‘‘section 25A(g)(2)’’ and inserting 

3 ‘‘section 25A(f)(2)’’. 

4 (2) Section 529(c)(3)(B)(v)(I) of such Code is 

5 amended by striking ‘‘section 25A(g)(2)’’ and insert6 ing ‘‘section 25A(f)(2)’’. 

7 (3) Section 529(e)(3)(B)(i) of such Code is 

8 amended by striking ‘‘section 25A(b)(3)’’ and insert9 ing ‘‘section 25A(d)’’. 

10 (4) Section 530(d)(2)(C) of such Code is 

11 amended—

12 (A) by striking ‘‘section 25A(g)(2)’’ in 

13 clause (i)(I) and inserting ‘‘section 25A(f)(2)’’, 

14 and 

15 (B) by striking ‘‘HOPE AND LIFETIME

16 LEARNING CREDITS’’ in the heading and insert17 ing ‘‘AMERICAN OPPORTUNITY TAX CREDIT’’. 

18 (5) Section 530(d)(4)(B)(iii) of such Code is 

19 amended by striking ‘‘section 25A(g)(2)’’ and insert20 ing ‘‘section 25A(d)(4)(B)’’. 

21 (6) Section 6050S(e) of such Code is amended 

22 by striking ‘‘subsection (g)(2)’’ and inserting ‘‘sub23 section (f)(2)’’. 


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1 (7) Section 6211(b)(4)(A) of such Code is 

2 amended by striking ‘‘subsection (i)(6)’’ and insert3 ing ‘‘subsection (b)’’. 

4 (8) Section 6213(g)(2)(J) of such Code is 

5 amended by striking ‘‘TIN required under section 

6 25A(g)(1)’’ and inserting ‘‘TIN, and employer iden7 tification number, required under section 

8 25A(f)(1)’’. 

9 (9) Section 1004(c) of division B of the Amer10 ican Recovery and Reinvestment Tax Act of 2009 is 

11 amended—

12 (A) in paragraph (1)—

13 (i) by striking ‘‘section 25A(i)(6)’’ 

14 each place it appears and inserting ‘‘sec15 tion 25A(b)’’, and 

16 (ii) by striking ‘‘with respect to tax17 able years beginning after 2008 and before 

18 2018’’ each place it appears and inserting 

19 ‘‘with respect to each taxable year’’, 

20 (B) in paragraph (2), by striking ‘‘Section 

21 25A(i)(6)’’ and inserting ‘‘Section 25A(b)’’, and 

22 (C) in paragraph (3)(C), by striking ‘‘sub23 section (i)(6)’’ and inserting ‘‘subsection (b)’’. 

24 (10) The table of sections for subpart A of part 

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1 enue Code of 1986 is amended by striking the item 

2 relating to section 25A and inserting the following 

3 new item:

‘‘Sec. 25A. American opportunity tax credit.’’.

4 (d) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2014. 

7 SEC. 1202. EXPANSION OF PELL GRANT EXCLUSION FROM 

8 GROSS INCOME. 

9 (a) IN GENERAL.—Paragraph (1) of section 117(b) 

10 of the Internal Revenue Code of 1986 is amended—

11 (1) by striking the period at the end and insert12 ing ‘‘, or’’, 

13 (2) by striking ‘‘received by an individual as a 

14 scholarship’’ and inserting the following: ‘‘received 

15 by an individual—

16 ‘‘(A) as a scholarship’’, and 

17 (3) by adding at the end the following new sub18 paragraph: 

19 ‘‘(B) as a Federal Pell Grant under section 

20 401 of the Higher Education Act of 1965 (20 

21 U.S.C. 1070a).’’. 

22 (b) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2014. 


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1 SEC. 1203. REPEAL OF EXCLUSION OF INCOME FROM 

2 UNITED STATES SAVINGS BONDS USED TO 

3 PAY HIGHER EDUCATION TUITION AND FEES. 

4 (a) IN GENERAL.—Part III of subchapter B of chap5 ter 1 is amended by striking section 135 (and by striking 

6 the item relating to such section in the table of sections 

7 for such part). 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 1204. REPEAL OF DEDUCTION FOR INTEREST ON EDU12 CATION LOANS. 

13 (a) IN GENERAL.—Part VII of subchapter B of chap14 ter 1 is amended by striking section 221 (and by striking 

15 the item relating to such section in the table of sections 

16 for such part). 

17 (b) CONFORMING AMENDMENT.—Section 62(a) is 

18 amended by striking paragraph (17). 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2014. 

22 SEC. 1205. REPEAL OF DEDUCTION FOR QUALIFIED TUI23 TION AND RELATED EXPENSES. 

24 (a) IN GENERAL.—Part VII of subchapter B of chap25 ter 1 is amended by striking section 222 (and by striking 


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1 the item relating to such section in the table of sections 

2 for such part). 

3 (b) CONFORMING AMENDMENT.—Section 62(a) is 

4 amended by striking paragraph (18). 

5 (c) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to taxable years beginning after 

7 December 31, 2013. 

8 SEC. 1206. NO NEW CONTRIBUTIONS TO COVERDELL EDU9 CATION SAVINGS ACCOUNTS. 

10 (a) IN GENERAL.—Section 530(b)(1)(A) is amended 

11 to read as follows: 

12 ‘‘(A) Except in the case of rollover con13 tributions, no contribution will be accepted after 

14 December 31, 2014.’’. 

15 (b) ROLLOVERS TO QUALIFIED TUITION PROGRAMS

16 PERMITTED.—Section 530(d)(5) is amended by inserting 

17 ‘‘, or into (by purchase or contribution) a qualified tuition 

18 program (as defined in section 529),’’ after ‘‘into another 

19 Coverdell education savings account’’. 

20 (c) EFFECTIVE DATES.—

21 (1) IN GENERAL.—Except as otherwise pro22 vided in this subsection, the amendments made by 

23 this section shall apply to contributions made after 

24 December 31, 2014. 


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1 (2) ROLLOVERS TO QUALIFIED TUITION PRO2 GRAMS.—The amendments made by subsection (b) 

3 shall apply to distributions after December 31, 

4 2014. 

5 SEC. 1207. REPEAL OF EXCLUSION FOR DISCHARGE OF 

6 STUDENT LOAN INDEBTEDNESS. 

7 (a) IN GENERAL.—Section 108 is amended by strik8 ing subsection (f). 

9 (b) CONFORMING AMENDMENTS.—

10 (1) Section 3121(a)(20) is amended by striking 

11 ‘‘108(f)(4),’’. 

12 (2) Section 209(a)(17) of the Social Security 

13 Act is amended by striking ‘‘108(f)(4),’’. 

14 (3) Section 3231(e)(5) is amended by striking 

15 ‘‘108(f)(4),’’. 

16 (4) Section 3306(b)(16) is amended by striking 

17 ‘‘108(f)(4),’’. 

18 (5) Section 3401(a)(19) is amended by striking 

19 ‘‘108(f)(4),’’. 

20 (c) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to amounts discharged after De22 cember 31, 2014. 


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1 SEC. 1208. REPEAL OF EXCLUSION FOR QUALIFIED TUI2 TION REDUCTIONS. 

3 (a) IN GENERAL.—Section 117 is amended by strik4 ing subsection (d). 

5 (b) CONFORMING AMENDMENTS.—

6 (1) Section 117(c)(1) is amended—

7 (A) by striking ‘‘subsections (a) and (d)’’ 

8 and inserting ‘‘subsection (a)’’, and 

9 (B) by striking ‘‘or qualified tuition reduc10 tion’’. 

11 (2) Section 414(n)(3)(C) is amended by strik12 ing ‘‘117(d),’’. 

13 (3) Section 414(t)(2) is amended by striking 

14 ‘‘117(d),’’. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2014. 

18 SEC. 1209. REPEAL OF EXCLUSION FOR EDUCATION ASSIST19 ANCE PROGRAMS. 

20 (a) IN GENERAL.—Part III of subchapter B of chap21 ter 1 is amended by striking section 127 (and by striking 

22 the item relating to such section in the table of sections 

23 for such part). 

24 (b) CONFORMING AMENDMENTS.—

25 (1) Section 125(f)(1) is amended by striking 

26 ‘‘127,’’. 


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1 (2) Section 132(j)(8) is amended by striking 

2 ‘‘which are not excludable from gross income under 

3 section 127’’. 

4 (3) Section 137(c) is amended to read as fol5 lows: 

6 ‘‘(c) ADOPTION ASSISTANCE PROGRAM.—

7 ‘‘(1) IN GENERAL.—For purposes of this sec8 tion, an adoption assistance program is a separate 

9 written plan of an employer for the exclusive benefit 

10 of such employer’s employees under which the em11 ployer provides such employees with adoption assist12 ance. Except as provided in paragraph (6), such pro13 gram must meet the requirements of paragraphs (2), 

14 (3), and (4). 

15 ‘‘(2) ELIGIBILITY.—The program shall benefit 

16 employees who qualify under a classification set up 

17 by the employer and found by the Secretary not to 

18 be discriminatory in favor of employees who are 

19 highly compensated employees (within the meaning 

20 of section 414(q)) or their dependents. For purposes 

21 of this paragraph, there shall be excluded from con22 sideration employees not included in the program 

23 who are included in a unit of employees covered by 

24 an agreement which the Secretary of Labor finds to 

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1 ployee representatives and one or more employers, if 

2 there is evidence that adoption assistance benefits 

3 were the subject of good faith bargaining between 

4 such employee representatives and such employer or 

5 employers. 

6 ‘‘(3) PRINCIPAL SHAREHOLDERS OR OWNERS.—

7 Not more than 5 percent of the amounts paid or in8 curred by the employer for adoption assistance dur9 ing the year may be provided for the class of individ10 uals who are shareholders or owners (or their 

11 spouses or dependents), each of whom (on any day 

12 of the year) owns more than 5 percent of the stock 

13 or of the capital or profits interest in the employer. 

14 ‘‘(4) NOTIFICATION OF EMPLOYEES.—Reason15 able notification of the availability and terms of the 

16 program must be provided to eligible employees. 

17 ‘‘(5) NO FUNDING REQUIRED.—A program re18 ferred to in paragraph (1) is not required to be 

19 funded. 

20 ‘‘(6) CERTAIN FEDERAL PROGRAMS.—An adop21 tion reimbursement program operated under section 

22 1052 of title 10, United States Code (relating to 

23 armed forces) or section 514 of title 14, United 

24 States Code (relating to members of the Coast 


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1 Guard) shall be treated as an adoption assistance 

2 program for purposes of this section.’’. 

3 (4) Section 414(n)(3)(C) is amended by strik4 ing ‘‘127,’’. 

5 (5) Section 414(t)(2) is amended by striking 

6 ‘‘127,’’. 

7 (6) Section 3121(a)(18) is amended by striking 

8 ‘‘127,’’. 

9 (7) Section 209(a)(15) of the Social Security 

10 Act is amended by striking ‘‘127 or’’. 

11 (8) Section 3231(e) is amended by striking 

12 paragraph (6). 

13 (9) Section 3306(b)(13) is amended by striking 

14 ‘‘127,’’. 

15 (10) Section 3401(a)(18) is amended by strik16 ing ‘‘127,’’. 

17 (11) Section 6039D(d)(1) is amended by strik18 ing ‘‘127,’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to amounts paid or incurred after 

21 December 31, 2014. 

22 SEC. 1210. REPEAL OF EXCEPTION TO 10-PERCENT PEN23 ALTY FOR HIGHER EDUCATION EXPENSES. 

24 (a) IN GENERAL.—Section 72(t)(2) is amended by 

25 striking subparagraph (E). 


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1 (b) CONFORMING AMENDMENT.—Section 72(t) is 

2 amended by striking paragraph (7). 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to distributions after December 31, 

5 2014. 

6 Subtitle D—Repeal of Certain 

7 Credits for Individuals 

8 SEC. 1301. REPEAL OF DEPENDENT CARE CREDIT. 

9 (a) IN GENERAL.—Subpart A of part IV of sub10 chapter A of chapter 1 is amended by striking section 21 

11 (and by striking the item relating to such section in the 

12 table of sections for such subpart). 

13 (b) CONFORMING AMENDMENTS.—

14 (1)(A) Section 129(a)(2) is amended by striking 

15 subparagraph (C). 

16 (B) Section 129(e) is amended by adding at the 

17 end the following new paragraph: 

18 ‘‘(10) MARITAL STATUS.—Rules similar to the 

19 rules of subsections (a) and (b) of section 7703 shall 

20 apply for purposes of this section.’’. 

21 (2) Section 129(e)(1) is amended to read as fol22 lows: 

23 ‘‘(1) DEPENDENT CARE ASSISTANCE.—

24 ‘‘(A) IN GENERAL.—The term ‘dependent 

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1 penses and the provision of services which con2 stitute employment-related expenses. 

3 ‘‘(B) EMPLOYMENT-RELATED EX4 PENSES.—The term ‘employment-related ex5 penses’ means amounts paid for the following 

6 expenses, but only if such expenses are incurred 

7 to enable the employee to be gainfully employed 

8 for any period for which there are 1 or more 

9 qualifying individuals with respect to the em10 ployee: 

11 ‘‘(i) expenses for household services, 

12 and 

13 ‘‘(ii) expenses for the care of a quali14 fying individual. 

15 Such term shall not include any amount paid 

16 for services outside the employee’s household at 

17 a camp where the qualifying individual stays 

18 overnight. 

19 ‘‘(C) EXCEPTION.—Employment-related 

20 expenses described in subparagraph (A) which 

21 are incurred for services outside the employee’s 

22 household shall be taken into account only if in23 curred for the care of—

24 ‘‘(i) a qualifying individual described 

25 in subparagraph (D)(i), or 


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1 ‘‘(ii) a qualifying individual (not de2 scribed in subparagraph (D)(i)) who regu3 larly spends at least 8 hours each day in 

4 the employee’s household. 

5 ‘‘(D) QUALIFYING INDIVIDUAL.—The term 

6 ‘qualifying individual’ means—

7 ‘‘(i) a dependent of the taxpayer (as 

8 defined in section 7705(a)(1)) who has not 

9 attained age 13, 

10 ‘‘(ii) a dependent of the taxpayer (as 

11 defined in section 7705, determined with12 out regard to subsections (b)(1), (b)(2), 

13 and (d)(1)(B)) who is physically or men14 tally incapable of caring for himself or her15 self and who has the same principal place 

16 of abode as the taxpayer for more than 

17 one-half of such taxable year, or 

18 ‘‘(iii) the spouse of the taxpayer, if 

19 the spouse is physically or mentally incapa20 ble of caring for himself or herself and who 

21 has the same principal place of abode as 

22 the taxpayer for more than one-half of 

23 such taxable year. 

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1 graph (A) which are incurred for services pro2 vided outside the employee’s household by a de3 pendent care center shall be taken into account 

4 only if—

5 ‘‘(i) such center complies with all ap6 plicable laws and regulations of a State or 

7 unit of local government, and 

8 ‘‘(ii) the requirements of subpara9 graph (B) are met. 

10 ‘‘(F) DEPENDENT CARE CENTER DE11 FINED.—For purposes of this paragraph, the 

12 term ‘dependent care center’ means any facility 

13 which—

14 ‘‘(i) provides care for more than six 

15 individuals (other than individuals who re16 side at the facility), and 

17 ‘‘(ii) receives a fee, payment, or grant 

18 for providing services for any of the indi19 viduals (regardless of whether such facility 

20 is operated for profit). 

21 ‘‘(G) PLACE OF ABODE.—For purposes of 

22 this paragraph, an individual shall not be treat23 ed as having the same principal place of abode 

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1 tween the individual and the taxpayer is in vio2 lation of local law. 

3 ‘‘(H) SPECIAL DEPENDENCY TEST IN CASE

4 OF DIVORCED PARENTS, ETC..—If—

5 ‘‘(i) section 7705(e) applies to any 

6 child with respect to any calendar year, 

7 and 

8 ‘‘(ii) such child is under the age of 13 

9 or is physically or mentally incapable of 

10 caring for himself, in the case of any tax11 able year beginning in such calendar year, 

12 such child shall be treated as a qualifying indi13 vidual described in clause (i) or (ii) of subpara14 graph (D) (whichever is appropriate) with re15 spect to the custodial parent (as defined in sec16 tion 7705(e)(4)(A)), and shall not be treated as 

17 a qualifying individual with respect to the non18 custodial parent.’’. 

19 (3) Section 6213(g)(2)(L) is amended by strik20 ing ‘‘21,’’. 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years beginning after 

23 December 31, 2014. 


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1 SEC. 1302. REPEAL OF CREDIT FOR ADOPTION EXPENSES. 

2 (a) IN GENERAL.—Subpart A of part IV of sub3 chapter A of chapter 1 is amended by striking section 23 

4 (and by striking the item relating to such section in the 

5 table of sections for such subpart). 

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 137 is amended by striking sub8 sections (d) and (e). 

9 (2) Subsections (d) and (e) of section 23 (prior 

10 to being stricken by subsection (a)) are each moved 

11 to section 137 (after amendment by paragraph (1)) 

12 and inserted after subsection (c) as new subsections 

13 (d) and (e), respectively. 

14 (3) Section 137(d)(1)(D), as amended by para15 graphs (1) and (2), is amended by inserting ‘‘(deter16 mined without regard to reimbursements under this 

17 section)’’ before the period at the end. 

18 (4) Section 137(e), as amended by paragraphs 

19 (1) and (2), is amended by striking ‘‘(as defined in 

20 section 217(h)(3))’’ and inserting ‘‘(or any posses21 sion of the United States)’’. 

22 (5) Section 137 is amended by redesignating 

23 subsection (f) as subsection (h), and by inserting be24 fore subsection (h) (as so redesignated) the following 

25 new subsections: 

26 ‘‘(f) FILING REQUIREMENTS.—


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1 ‘‘(1) MARRIED COUPLES MUST FILE JOINT RE2 TURN.—

3 ‘‘(A) IN GENERAL.—If the taxpayer is 

4 married at the close of the taxable year, sub5 section (a) shall apply to the taxpayer only if 

6 the taxpayer and the taxpayer’s spouse file a 

7 joint return for the taxable year. 

8 ‘‘(B) MARITAL STATUS.—Rules similar to 

9 the rules of subsections (a) and (b) of section 

10 7703 shall apply for purposes of this section. 

11 ‘‘(2) TAXPAYER MUST INCLUDE TIN.—

12 ‘‘(A) IN GENERAL.—Subsection (a) shall 

13 apply with respect to any child only if the tax14 payer includes (if known) the name, age, and 

15 TIN of such child on the return of tax for the 

16 taxable year. 

17 ‘‘(B) OTHER METHODS.—The Secretary 

18 may, in lieu of the information referred to in 

19 subparagraph (A), require other information 

20 meeting the purposes of subparagraph (A), in21 cluding identification of an agent assisting with 

22 the adoption. 

23 ‘‘(g) BASIS ADJUSTMENTS.—For purposes of this 

24 subtitle, if the amount of any expenditure with respect to 

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1 tion, the increase in the basis of such property which 

2 would (but for this subsection) result from such expendi3 ture shall be reduced by the amount of such expenditure 

4 which is so excluded.’’. 

5 (6) Section 1016(a)(26) is amended by striking 

6 ‘‘sections 23(g) and 137(e)’’ and inserting ‘‘section 

7 137(g)’’. 

8 (c) EFFECTIVE DATE.—

9 (1) IN GENERAL.—The amendments made by 

10 this section shall apply to amounts paid or incurred 

11 after December 31, 2014. 

12 (2) SPECIAL NEEDS ADOPTIONS.—For purposes 

13 of paragraph (1), any amount treated as paid by the 

14 taxpayer under section 23(a)(3) of the Internal Rev15 enue Code of 1986 (as in effect before its repeal by 

16 subsection (a)) shall be treated as paid on the date 

17 that the adoption referred to in such section be18 comes final. 

19 SEC. 1303. REPEAL OF CREDIT FOR NONBUSINESS ENERGY 

20 PROPERTY.

21 (a) IN GENERAL.—Subpart A of part IV of sub22 chapter A of chapter 1 is amended by striking section 25C 

23 (and by striking the item relating to such section in the 

24 table of sections of such subpart). 


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1 (b) CONFORMING AMENDMENT.—Section 1016(a) is 

2 amended by striking paragraph (33). 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to property placed in service after 

5 December 31, 2013. 

6 SEC. 1304. REPEAL OF CREDIT FOR RESIDENTIAL ENERGY 

7 EFFICIENT PROPERTY. 

8 (a) IN GENERAL.—Subpart A of part IV of sub9 chapter A of chapter 1 is amended by striking section 25D 

10 (and by striking the item relating to such section in the 

11 table of sections for such subpart). 

12 (b) CONFORMING AMENDMENT.—Section 1016(a) is 

13 amended by striking paragraph (34). 

14 (c) EFFECTIVE DATE.—The amendment made by 

15 this section shall apply to property placed in service after 

16 December 31, 2014. 

17 SEC. 1305. REPEAL OF CREDIT FOR QUALIFIED ELECTRIC 

18 VEHICLES.

19 (a) IN GENERAL.—Subpart B of part IV of sub20 chapter A of chapter 1 is amended by striking section 30 

21 (and by striking the item relating to such section in the 

22 table of sections of such subpart). 

23 (b) CONFORMING AMENDMENTS.—

24 (1) Section 1016(a) is amended by striking 

25 paragraph (25). 


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1 (2) Section 6501(m) is amended by striking 

2 ‘‘section 30(e)(6),’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to vehicles acquired after Decem5 ber 31, 2011. 

6 SEC. 1306. REPEAL OF ALTERNATIVE MOTOR VEHICLE 

7 CREDIT.

8 (a) IN GENERAL.—Subpart B of part IV of sub9 chapter A of chapter 1 is amended by striking section 30B 

10 (and by striking the item relating to such section in the 

11 table of sections for such subpart). 

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 38(b) is amended by striking para14 graph (25). 

15 (2) Section 1016(a) is amended by striking 

16 paragraph (35). 

17 (3) Section 6501(m) is amended by striking 

18 ‘‘30B(h)(9),’’. 

19 (c) EFFECTIVE DATE.—The amendment made by 

20 this section shall apply to property purchased after De21 cember 31, 2014. 

22 SEC. 1307. REPEAL OF ALTERNATIVE FUEL VEHICLE RE23 FUELING PROPERTY CREDIT. 

24 (a) IN GENERAL.—Subpart B of part IV of sub25 chapter A of chapter 1 is amended by striking section 30C 


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1 (and by striking the item relating to such section in the 

2 table of sections for such subpart). 

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 38(b) is amended by striking para5 graph (26). 

6 (2) Section 1016(a) is amended by striking 

7 paragraph (36). 

8 (3) Section 6501(m) is amended by striking 

9 ‘‘30C(e)(5),’’. 

10 (c) EFFECTIVE DATE.—The amendment made by 

11 this section shall apply to property placed in service after 

12 December 31, 2014. 

13 SEC. 1308. REPEAL OF CREDIT FOR NEW QUALIFIED PLUG14 IN ELECTRIC DRIVE MOTOR VEHICLES. 

15 (a) IN GENERAL.—Subpart B of part IV of sub16 chapter A of chapter 1 is amended by striking section 30D 

17 (and by striking the item relating to such section in the 

18 table of sections for such subpart). 

19 (b) CONFORMING AMENDMENTS.—

20 (1) Section 38(b) is amended by striking para21 graph (35). 

22 (2) Section 1016(a) is amended by striking 

23 paragraph (37). 

24 (3) Section 6501(m) is amended by striking 

25 ‘‘30D(e)(4),’’. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to vehicles acquired after Decem3 ber 31, 2014. 

4 SEC. 1309. REPEAL OF CREDIT FOR HEALTH INSURANCE 

5 COSTS OF ELIGIBLE INDIVIDUALS. 

6 (a) IN GENERAL.—Subpart C of part IV of sub7 chapter A of chapter 1 is amended by striking section 35 

8 (and by striking the item relating to such section in the 

9 table of sections of such subpart). 

10 (b) CONFORMING AMENDMENTS.—

11 (1) Chapter 77 is amended by striking section 

12 7527 (and by striking the item relating to such sec13 tion in the table of sections of such chapter). 

14 (2) Section 4980B(f)(5)(C)(iv)(II) is amended 

15 by inserting ‘‘as in effect before its repeal’’ after 

16 ‘‘section 35(c)’’. 

17 (3) Section 6211(b)(4)(A) is amended by strik18 ing ‘‘35,’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to months beginning after Decem21 ber 31, 2013. 

22 SEC. 1310. REPEAL OF FIRST-TIME HOMEBUYER CREDIT. 

23 (a) IN GENERAL.—Subpart C of part IV of sub24 chapter A of chapter 1 is amended by striking section 36 


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1 (and by striking the item relating to such section in the 

2 table of sections of such subpart). 

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 26(b)(2) is amended by striking 

5 subparagraph (W). 

6 (2) Section 1400C(e) is amended by striking 

7 paragraph (4). 

8 (3) Section 6211(b)(4)(A) is amended by strik9 ing ‘‘36,’’. 

10 (4) Section 6213(g)(2) is amended by striking 

11 subparagraphs (O) and (P). 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to residences purchased after June 

14 30, 2011. 

15 Subtitle E—Deductions, Exclusions, 

16 and Certain Other Provisions 

17 SEC. 1401. EXCLUSION OF GAIN FROM SALE OF A PRIN18 CIPAL RESIDENCE. 

19 (a) REQUIREMENT THAT RESIDENCE BE PRINCIPAL

20 RESIDENCE FOR 5 YEARS DURING 8-YEAR PERIOD.—

21 Subsection (a) of section 121 is amended—

22 (1) by striking ‘‘5-year period’’ and inserting 

23 ‘‘8-year period’’, and 

24 (2) by striking ‘‘2 years’’ and inserting ‘‘5 

25 years’’. 


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1 (b) APPLICATION TO ONLY 1 SALE OR EXCHANGE

2 EVERY 5 YEARS.—Paragraph (3) of section 121(b) is 

3 amended to read as follows: 

4 ‘‘(3) APPLICATION TO ONLY 1 SALE OR EX5 CHANGE EVERY 5 YEARS.—Subsection (a) shall not 

6 apply to any sale or exchange by the taxpayer if, 

7 during the 5-year period ending on the date of such 

8 sale or exchange, there was any other sale or ex9 change by the taxpayer to which subsection (a) ap10 plied.’’. 

11 (c) PHASEOUT BASED ON MODIFIED ADJUSTED

12 GROSS INCOME.—Section 121 is amended by adding at 

13 the end the following new subsection: 

14 ‘‘(h) PHASEOUT BASED ON MODIFIED ADJUSTED

15 GROSS INCOME.—

16 ‘‘(1) IN GENERAL.—If the modified adjusted 

17 gross income of the taxpayer for the taxable year ex18 ceeds $250,000 (twice such amount in the case of a 

19 joint return), the amount which would (but for this 

20 subsection) be excluded from gross income under 

21 subsection (a) for such taxable year shall be reduced 

22 (but not below zero) by the amount of such excess. 

23 ‘‘(2) MODIFIED ADJUSTED GROSS INCOME.—

24 For purposes of this subsection, the term ‘modified 

25 adjusted gross income’ has the meaning given such 


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1 term by section 2 determined after the application of 

2 this section but without regard to this subsection.’’. 

3 (d) CONFORMING AMENDMENTS.—

4 (1) The last paragraph of section 121(b) (relat5 ing to exclusion of gain allocated to nonqualified 

6 use) is redesignated as paragraph (5). 

7 (2) The following provisions of section 121 are 

8 each amended by striking ‘‘5-year period’’ each place 

9 it appears therein and inserting ‘‘8-year period’’: 

10 (A) Subsection (b)(5)(C)(ii)(I) (as redesig11 nated by paragraph (1)). 

12 (B) Subsection (c)(1)(B)(i)(I). 

13 (C) Subsection (d)(7)(B). 

14 (D) Subparagraphs (A) and (B) of sub15 section (d)(9). 

16 (E) Subsection (d)(10) 

17 (F) Subsection (d)(12)(A). 

18 (3) Section 121(c)(1)(B)(ii) is amended by 

19 striking ‘‘2 years’’ and inserting ‘‘5 years’’: 

20 (e) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to sales and exchanges after De22 cember 31, 2014. 

23 SEC. 1402. MORTGAGE INTEREST. 

24 (a) MODIFICATION OF LIMITATIONS.—


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1 (1) IN GENERAL.—Paragraph (3) of section 

2 163(h) is amended to read as follows: 

3 ‘‘(3) QUALIFIED RESIDENCE INTEREST.—For 

4 purposes of this subsection—

5 ‘‘(A) IN GENERAL.—The term ‘qualified 

6 residence interest’ means any interest which is 

7 paid or accrued during the taxable year on in8 debtedness which—

9 ‘‘(i) is incurred in acquiring, con10 structing, or substantially improving any 

11 qualified residence (determined as of the 

12 time the interest is accrued) of the tax13 payer, and 

14 ‘‘(ii) is secured by such residence. 

15 Such term also includes interest on any indebt16 edness secured by such residence resulting from 

17 the refinancing of indebtedness meeting the re18 quirements of the preceding sentence (or this 

19 sentence); but only to the extent the amount of 

20 the indebtedness resulting from such refi21 nancing does not exceed the amount of the refi22 nanced indebtedness. 

23 ‘‘(B) LIMITATION.—

24 ‘‘(i) IN GENERAL.—The aggregate 

25 amount of indebtedness taken into account 


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1 under subparagraph (A) for any period 

2 shall not exceed $500,000 (half of such 

3 amount in the case of a married individual 

4 filing a separate return). 

5 ‘‘(ii) PHASE-IN OF DECREASED LIMI6 TATION.—For purposes of applying clause 

7 (i) with respect to any indebtedness in8 curred during a calendar year after 2014 

9 and before 2018, the $500,000 amount in 

10 clause (i) shall be increased by the phase11 in amount determined in accordance with 

12 the following table:

‘‘In the case of indebtedness incurred during: The phase-in amount is: 

2015 .......................................................................... $375,000

2016 .......................................................................... $250,000

2017 .......................................................................... $125,000

13 ‘‘(iii) TREATMENT OF REFINANCINGS

14 OF INDEBTEDNESS INCURRED DURING

15 PHASE-IN PERIOD.—In the case of any in16 debtedness which is incurred to refinance 

17 indebtedness to which clause (ii) applies 

18 (or to which this clause applies), such refi19 nanced indebtedness shall be treated for 

20 purposes of clause (ii) as incurred on the 

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1 debtedness resulting from such refinancing 

2 does not exceed the amount of the refi3 nanced indebtedness. 

4 ‘‘(C) TREATMENT OF INDEBTEDNESS IN5 CURRED BEFORE JANUARY 1, 2015.—

6 ‘‘(i) IN GENERAL.—In the case of any 

7 pre-January 1, 2015, indebtedness, this 

8 paragraph shall apply as in effect imme9 diately before the enactment of the Tax 

10 Reform Act of 2014. 

11 ‘‘(ii) REDUCTION IN DOLLAR LIMITA12 TION.—The limitation of subparagraph (B) 

13 (after application of clause (ii) thereof) 

14 shall be reduced (but not below zero) by 

15 the aggregate amount of outstanding pre16 January 1, 2015, indebtedness of the tax17 payer with respect to which interest is al18 lowable as a deduction by reason of this 

19 subparagraph. 

20 ‘‘(iii) PRE-JANUARY 1, 2015, INDEBT21 EDNESS.—For purposes of this subpara22 graph, the term ‘pre-January 1, 2015, in23 debtedness’ means—

24 ‘‘(I) any indebtedness incurred 

25 before January 1, 2015, and 


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1 ‘‘(II) any indebtedness incurred 

2 on or after such date to refinance in3 debtedness described in subclause (I) 

4 (or refinanced indebtedness meeting 

5 the requirements of this subclause) to 

6 the extent the amount of the indebt7 edness resulting from such refinancing 

8 does not exceed the amount of the re9 financed indebtedness. 

10 ‘‘(D) LIMITATION ON PERIOD OF REFI11 NANCING.—Subparagraphs (B)(iii) and 

12 (C)(iii)(II) shall not apply to any indebtedness 

13 after—

14 ‘‘(i) the expiration of the term of the 

15 original indebtedness, or 

16 ‘‘(ii) if the principal of such original 

17 indebtedness is not amortized over its 

18 term, the expiration of the term of the 1st 

19 refinancing of such indebtedness (or if ear20 lier, the date which is 30 years after the 

21 date of such 1st refinancing). 

22 ‘‘(E) COORDINATION WITH CERTAIN EX23 CLUSIONS.—The amount otherwise treated as 

24 qualified residence interest (determined without 

25 regard to this subparagraph) with respect to 


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1 any residence of the taxpayer for any taxable 

2 year shall be reduced by the sum of the 

3 amounts excludable from the gross income of 

4 such taxpayer under sections 107 and 119 with 

5 respect to such residence.’’. 

6 (2) CONFORMING AMENDMENTS.—

7 (A) Section 108(h)(2) is amended to read 

8 as follows: 

9 ‘‘(2) QUALIFIED PRINCIPAL RESIDENCE IN10 DEBTEDNESS.—For purposes of this section, the 

11 term ‘qualified principal residence indebtedness’ 

12 means indebtedness described in section 163(h)(3) 

13 applied without regard to clauses (ii) and (iii) of 

14 subparagraph (B) thereof and by substituting 

15 ‘$2,000,000’ for ‘$500,000’ in subparagraph (B)(i) 

16 thereof.’’. 

17 (B) Section 163(h) is amended—

18 (i) by striking subparagraph (E) in 

19 paragraph (3), 

20 (ii) by striking subparagraphs (E) and 

21 (F) in paragraph (4), and 

22 (iii) by striking paragraph (5). 

23 (C) Section 265(a)(6) is amended—


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1 (i) by striking ‘‘an amount as—’’ and 

2 all that follows and inserting ‘‘an amount 

3 as a military housing allowance.’’, and 

4 (ii) by striking ‘‘PARSONAGE AND’’ in 

5 the heading thereof. 

6 (b) MODIFICATION OF REPORTING REQUIRE7 MENTS.—

8 (1) INFORMATION RETURN REQUIREMENTS.—

9 Paragraph (2) of section 6050H(b) is amended by 

10 striking ‘‘and’’ at the end of subparagraph (C), by 

11 redesignating subparagraph (D) as subparagraph 

12 (F) and by inserting after subparagraph (C) the fol13 lowing new subparagraphs: 

14 ‘‘(D) the amount of outstanding principal 

15 on the mortgage as of the beginning of such 

16 calendar year, 

17 ‘‘(E) the date of the origination of the 

18 mortgage, and’’. 

19 (2) STATEMENTS TO INDIVIDUALS.—Paragraph 

20 (2) of section 6050H(d) is amended by striking 

21 ‘‘subsection (b)(2)(C)’’ and inserting ‘‘subpara22 graphs (C), (D), and (E) of subsection (b)(2)’’. 

23 (c) EFFECTIVE DATES.—

24 (1) MODIFICATION OF LIMITATIONS.—


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1 (A) IN GENERAL.—The amendments made 

2 by subsection (a) shall apply to interest paid or 

3 accrued in taxable years beginning after De4 cember 31, 2014, with respect to indebtedness 

5 incurred before, on, or after such date. 

6 (B) TREATMENT OF GRANDFATHERED IN7 DEBTEDNESS.—For application of the amend8 ments made by subsection (a) to grandfathered 

9 indebtedness, see section 163(h)(3)(C) of the 

10 Internal Revenue Code of 1986 as amended by 

11 this section. 

12 (2) MODIFICATION OF REPORTING REQUIRE13 MENTS.—The amendments made by subsection (b) 

14 shall apply to returns and statements for calendar 

15 years after December 31, 2014. 

16 SEC. 1403. CHARITABLE CONTRIBUTIONS. 

17 (a) 2 PERCENT FLOOR ON CHARITABLE DEDUCTION

18 FOR INDIVIDUALS.—Paragraph (3) of section 170(b) is 

19 amended to read as follows: 

20 ‘‘(3) 2 PERCENT FLOOR ON CHARITABLE DE21 DUCTION FOR INDIVIDUALS.—The amount of chari22 table contributions taken into account under this 

23 section as made by any individual during a taxable 

24 year (determined without regard to subsection (d)) 

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1 tribution base for such taxable year. Such reduction 

2 shall apply—

3 ‘‘(A) first, to charitable contributions to 

4 which paragraph (1)(B) applies to the extent 

5 thereof, 

6 ‘‘(B) second, to charitable contributions to 

7 which paragraph (1)(C) applies to the extent 

8 thereof, and 

9 ‘‘(C) third, to charitable contributions to 

10 which paragraph (1)(A) applies to the extent 

11 thereof.’’. 

12 (b) EXTENSION OF TIME FOR MAKING CHARITABLE

13 CONTRIBUTIONS.—Subsection (a) of section 170 is 

14 amended by redesignating paragraphs (2) and (3) as para15 graphs (3) and (4), respectively, and by inserting after 

16 paragraph (1) the following new paragraph: 

17 ‘‘(2) TREATMENT OF CHARITABLE CONTRIBU18 TIONS MADE BY INDIVIDUALS BEFORE DUE DATE OF

19 RETURN.—If any charitable contribution is made by 

20 an individual after the close of a taxable year but 

21 not later than the due date (determined without re22 gard to extensions) for the return of tax for such 

23 taxable year, then the taxpayer may elect to treat 

24 such charitable contribution as made in such taxable 

25 year. Such election may be made only at the time of 


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1 the filing of such return of tax and shall be signified 

2 in such manner as the Secretary may provide.’’. 

3 (c) DEDUCTION FOR CONTRIBUTIONS OF PROPERTY

4 GENERALLY LIMITED TO ADJUSTED BASIS.—

5 (1) IN GENERAL.—Subsection (e) of section 

6 170 is amended—

7 (A) by striking paragraphs (1) and (6), 

8 (B) by redesignating paragraphs (2), (3), 

9 (4), and (5) as paragraphs (3), (4), (5), and 

10 (6), respectively, and 

11 (C) by inserting before paragraph (3) (as 

12 so redesignated) the following new paragraphs: 

13 ‘‘(1) IN GENERAL.—Except in the case of prop14 erty to which paragraph (2) applies, the amount of 

15 any charitable contribution of property otherwise 

16 taken into account under this section shall be re17 duced by the amount of gain which would have been 

18 realized if the property contributed had been sold by 

19 the taxpayer for its fair market value (determined at 

20 the time of such contribution). 

21 ‘‘(2) SPECIAL RULE FOR CERTAIN PROPERTY.—

22 ‘‘(A) IN GENERAL.—In the case of prop23 erty to which this paragraph applies, the 

24 amount of any charitable contribution of prop25 erty otherwise taken into account under this 


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1 section shall be reduced by the amount of gain 

2 which would not have been long-term capital 

3 gain if the property contributed had been sold 

4 by the taxpayer at its fair market value (deter5 mined at the time of such contribution). 

6 ‘‘(B) PROPERTY TO WHICH THIS PARA7 GRAPH APPLIES.—This paragraph shall apply 

8 to—

9 ‘‘(i) any contribution of tangible per10 sonal property if the use of such property 

11 by the donee is related to the purpose or 

12 function constituting the basis for its ex13 emption under section 501 (or, in the case 

14 of a governmental unit, to any purpose or 

15 function described in subsection (c)), 

16 ‘‘(ii) any qualified conservation con17 tribution (as defined in subsection (h)(1)), 

18 ‘‘(iii) any qualified contribution (as 

19 defined in paragraph (4)(A)), 

20 ‘‘(iv) any qualified research contribu21 tion (as defined in paragraph (5)(B)), and 

22 ‘‘(v) any qualified appreciated stock 

23 (as defined in subsection (e)(6)). 

24 ‘‘(C) SPECIAL RULES FOR DETERMINING

25 LONG-TERM CAPITAL GAIN.—


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1 ‘‘(i) IN GENERAL.—For purposes of 

2 applying this paragraph (other than in the 

3 case of gain to which section 1245(a), 

4 1250(a), 1252(a), or 1254(a) applies), 

5 property which is property used in the 

6 trade or business (as defined in section 

7 1231(b)) shall be treated as a capital 

8 asset. 

9 ‘‘(ii) CONTRIBUTIONS OF STOCK IN S

10 CORPORATIONS.—For purposes of applying 

11 this paragraph in the case of a charitable 

12 contribution of stock in an S corporation, 

13 rules similar to the rules of section 751 

14 shall apply in determining whether gain on 

15 such stock would have been long-term cap16 ital gain if such stock were sold by the tax17 payer.’’. 

18 (2) REPEAL OF SPECIAL RULES FOR FOOD AND

19 BOOK INVENTORY.—Paragraph (4) of section 

20 170(e), as redesignated by paragraph (1), is amend21 ed by striking subparagraphs (C) and (D) and by re22 designating subparagraph (E) as subparagraph (C). 

23 (3) CONFORMING AMENDMENTS.—

24 (A) Section 170(e)(3), as redesignated by 

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1 graph (1)’’ and inserting ‘‘paragraphs (1) and 

2 (2)’’. 

3 (B) Paragraphs (4) and (5) of section 

4 170(e), as redesignated by paragraph (1), are 

5 each amended by striking ‘‘paragraph (1)(A)’’ 

6 each place it appears and inserting ‘‘paragraph 

7 (2)(A)’’. 

8 (C) Section 170(e)(6), as redesignated by 

9 paragraph (1), is amended—

10 (i) by striking all that precedes ‘‘for 

11 purposes of this paragraph’’ in subpara12 graph (B) and inserting the following: 

13 ‘‘(6) QUALIFIED APPRECIATED STOCK.—

14 ‘‘(A) IN GENERAL.—Except as provided in 

15 subparagraph (B),’’, 

16 (ii) by redesignating subparagraph 

17 (C) as subparagraph (B), and 

18 (iii) by striking ‘‘in a contribution to 

19 which paragraph (1)(B)(ii) applies (deter20 mined without regard to this paragraph)’’ 

21 in subparagraph (B) as so redesignated. 

22 (d) MODIFICATION OF INCOME BASED CONTRIBU23 TION LIMITATIONS.—

24 (1) IN GENERAL.—Section 170(b)(1) is amend25 ed—


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1 (A) by striking ‘‘30 percent’’ in subpara2 graph (B)(i) and inserting ‘‘25 percent’’, and 

3 (B) by striking ‘‘50 percent’’ and inserting 

4 ‘‘40 percent’’ in—

5 (i) the flush matter at the end of sub6 paragraph (A), 

7 (ii) subparagraph (B)(ii), and 

8 (iii) clauses (i), (iv)(I), and (v) of sub9 paragraph (C) (as redesignated by para10 graph (2)). 

11 (2) REPEAL OF SPECIAL LIMITATIONS FOR CER12 TAIN CAPITAL GAIN PROPERTY.—

13 (A) IN GENERAL.—Paragraph (1) of sec14 tion 170(b) is amended by striking subpara15 graphs (C) and (D) and by redesignating sub16 paragraphs (E), (F), and (G) as subparagraphs 

17 (C), (D), and (E), respectively. 

18 (B) CONFORMING AMENDMENTS.—

19 (i) Section 170(b)(1)(A)(vii) is 

20 amended by striking ‘‘subparagraph (F)’’ 

21 and inserting ‘‘subparagraph (D)’’

22 (ii) Section 170(b)(1)(B)(ii) is amend23 ed by striking ‘‘(determined without regard 

24 to subparagraph (C))’’. 


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1 (iii) Section 170(b)(1)(C)(iii), as re2 designated by paragraph (1), is amended 

3 by striking ‘‘subparagraph (A), (B), (C) or 

4 (D)’’ and inserting ‘‘subparagraph (A) or 

5 (B)’’. 

6 (iv) Section 170(b)(2)(B)(i)(I) is 

7 amended by striking ‘‘paragraph 

8 (1)(E)(v)’’ and inserting ‘‘paragraph 

9 (1)(C)(v)’’. 

10 (v) Section 545(b)(2) is amended by 

11 striking ‘‘(D), and (E)’’ and inserting ‘‘and 

12 (C)’’. 

13 (e) QUALIFIED CONSERVATION CONTRIBUTIONS.—

14 (1) RULES MADE PERMANENT.—

15 (A) IN GENERAL.—Subparagraph (C) of 

16 section 170(b)(1), as redesignated by subsection 

17 (d), is amended by striking clause (vi). 

18 (B) CORPORATE FARMERS AND RANCH19 ERS.—Subparagraph (B) of section 170(b)(2) is 

20 amended by striking clause (iii). 

21 (2) TREATMENT OF GOLF COURSE EASE22 MENTS.—Subsection (h) of section 170 is amended 

23 by adding at the end the following new paragraph: 

24 ‘‘(7) SPECIAL RULE WITH RESPECT TO GOLF

25 COURSES.—An interest in real property shall not be 


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1 treated as a qualified real property interest for pur2 poses of this subsection if (at the time of the con3 tribution of such interest) such property is, or is 

4 reasonably expected to be, used as a golf course.’’. 

5 (3) CONFORMING AMENDMENTS.—

6 (A) Section 170(b)(1)(C)(iv)(II), as redes7 ignated by subsection (d), is amended by strik8 ing ‘‘made after the date of the enactment of 

9 this subparagraph’’. 

10 (B) Section 170(b)(2)(B)(i)(II) is amended 

11 by striking ‘‘, in the case of contributions made 

12 after the date of the enactment of this subpara13 graph,’’. 

14 (f) REPEAL OF SPECIAL RULE FOR COLLEGE ATH15 LETIC EVENT SEATING RIGHTS.—Section 170 is amended 

16 by striking subsection (l). 

17 (g) REPEAL OF SPECIAL RULE TREATING DONEE

18 INCOME FROM INTELLECTUAL PROPERTY AS AN ADDI19 TIONAL CHARITABLE CONTRIBUTIONS.—

20 (1) IN GENERAL.—Section 170 is amended by 

21 striking subsection (m). 

22 (2) CONFORMING AMENDMENTS.—Section 

23 6050L is amended—

24 (A) by striking subsection (b) and redesig25 nating subsection (c) as subsection (b), and 


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1 (B) by striking ‘‘or (b)’’ in subsection (b) 

2 (as redesignated by subparagraph (A)). 

3 (h) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as otherwise pro5 vided in this subsection, the amendments made by 

6 this section shall apply to contributions made in tax7 able years beginning after December 31, 2014. 

8 (2) QUALIFIED CONSERVATION CONTRIBU9 TIONS.—The amendments made by subsection (e) 

10 shall apply to contributions made in taxable years 

11 beginning after December 31, 2013. 

12 SEC. 1404. DENIAL OF DEDUCTION FOR EXPENSES ATTRIB13 UTABLE TO THE TRADE OR BUSINESS OF 

14 BEING AN EMPLOYEE. 

15 (a) IN GENERAL.—Part IX of subchapter B of chap16 ter 1 is amended by inserting after the item relating to 

17 section 262 the following new item: 

18 ‘‘SEC. 262A. EXPENSES ATTRIBUTABLE TO BEING AN EM19 PLOYEE.

20 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

21 this section, no deduction shall be allowed with respect to 

22 any trade or business of the taxpayer which consists of 

23 the performance of services by the taxpayer as an em24 ployee. 


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1 ‘‘(b) EXCEPTION FOR ABOVE-THE-LINE DEDUC2 TIONS.—Subsection (a) shall not apply to any deduction 

3 allowable (determined without regard to subsection (a)) in 

4 determining adjusted gross income.’’. 

5 (b) REPEAL OF CERTAIN ABOVE-THE-LINE TRADE

6 AND BUSINESS DEDUCTIONS OF EMPLOYEES.—

7 (1) IN GENERAL.—Paragraph (2) of section 

8 62(a) is amended—

9 (A) by striking subparagraphs (B), (C), 

10 and (D), and 

11 (B) by redesignating subparagraph (E) as 

12 subparagraph (B). 

13 (2) CONFORMING AMENDMENTS.—

14 (A) Section 62 is amended by striking sub15 sections (b) and (d) and by redesignating sub16 sections (c) and (e) as subsections (b) and (c), 

17 respectively. 

18 (B) Section 62(a)(20) is amended by strik19 ing ‘‘subsection (e)’’ and inserting ‘‘subsection 

20 (c)’’. 

21 (c) CONTINUED EXCLUSION OF WORKING CONDI22 TION FRINGE BENEFITS.—Section 132(d) is amended by 

23 inserting ‘‘(determined without regard to section 262A)’’ 

24 after ‘‘section 162’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 1405. REPEAL OF DEDUCTION FOR TAXES NOT PAID 

5 OR ACCRUED IN A TRADE OR BUSINESS. 

6 (a) IN GENERAL.—Subsection (b) of section 164 is 

7 amended by striking paragraphs (5) and (6) and inserting 

8 the following new paragraph: 

9 ‘‘(5) LIMITATION IN CASE OF INDIVIDUALS.—In 

10 the case of a taxpayer other than a corporation—

11 ‘‘(A) paragraphs (1) and (2) of subsection 

12 (a) shall only apply to taxes which are paid or 

13 accrued in carrying on a trade or business or 

14 an activity described in section 212, and 

15 ‘‘(B) paragraph (3) of subsection (a) shall 

16 not apply to State and local taxes.’’. 

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 164(a) is amended by striking para19 graph (6). 

20 (2)(A) Section 216(a) is amended by striking 

21 ‘‘proportionate share of—’’ and all that follows and 

22 inserting ‘‘proportionate share of the interest allow23 able as a deduction to the corporation under section 

24 163 which is paid or incurred by the corporation on 

25 its indebtedness contracted—


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1 ‘‘(1) in the acquisition, construction, alteration, 

2 rehabilitation, or maintenance of the houses or 

3 apartment building, or 

4 ‘‘(2) in the acquisition of the land on which the 

5 houses (or apartment building) are situated.’’. 

6 (B) Section 216(b)(3)(B)(i) is amended—

7 (i) by striking ‘‘a share of such corpora8 tion’s real estate taxes described in subsection 

9 (a)(1) or’’ in subclause (I), and 

10 (ii) by striking ‘‘of such taxes, or of such 

11 interest,’’ in subclause (II) and inserting ‘‘of 

12 such interest’’. 

13 (C) Section 216(d) is amended by striking 

14 ‘‘subsections (a)(1) and (a)(2)’’ and inserting ‘‘sub15 section (a)’’. 

16 (3) Section 274(f) is amended by striking 

17 ‘‘TAXES,’’ in the heading thereof. 

18 (4) Section 280A(b) is amended by striking 

19 ‘‘TAXES,’’ in the heading thereof. 

20 (5) Section 911(c)(3)(A)(ii) is amended—

21 (A) by striking ‘‘and taxes’’, and 

22 (B) by striking ‘‘or 164’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to taxable years beginning after 

25 December 31, 2014. 


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1 SEC. 1406. REPEAL OF DEDUCTION FOR PERSONAL CAS2 UALTY LOSSES. 

3 (a) IN GENERAL.—Subsection (c) of section 165 is 

4 amended by inserting ‘‘and’’ at the end of paragraph (1), 

5 by striking ‘‘; and’’ at the end of paragraph (2) and insert6 ing a period, and by striking paragraph (3). 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 165 is amended by striking sub9 sections (h) and (k). 

10 (2) Subsection (i) of section 165 is amended—

11 (A) in paragraph (1)—

12 (i) by striking ‘‘(as defined by clause 

13 (ii) of subsection (h)(3)(C))’’, and 

14 (ii) by striking ‘‘(as defined by clause 

15 (i) of such subsection)’’, 

16 (B) by striking ‘‘(as defined by subsection 

17 (h)(3)(C)(i)’’ in paragraph (4), and 

18 (C) by adding at the end the following new 

19 paragraph: 

20 ‘‘(5) FEDERALLY DECLARED DISASTER.—For 

21 purposes of this subsection—

22 ‘‘(A) FEDERALLY DECLARED DISASTER.—

23 The term ‘federally declared disaster’ means 

24 any disaster subsequently determined by the 

25 President of the United States to warrant as26 sistance by the Federal Government under the 


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1 Robert T. Stafford Disaster Relief and Emer2 gency Assistance Act. 

3 ‘‘(B) DISASTER AREA.—The term ‘disaster 

4 area’ means the area so determined to warrant 

5 such assistance.’’. 

6 (3)(A) Section 165(l)(1) is amended by striking 

7 ‘‘a loss described in subsection (c)(3)’’ and inserting 

8 ‘‘an ordinary loss described in subsection (c)(2)’’. 

9 (B) Section 165(l) is amended—

10 (i) by striking paragraph (5), 

11 (ii) by redesignating paragraphs (2), (3), 

12 and (4) as paragraphs (3), (4), and (5), respec13 tively, and 

14 (iii) by inserting after paragraph (1) the 

15 following new paragraph: 

16 ‘‘(2) LIMITATIONS.—

17 ‘‘(A) DEPOSIT MAY NOT BE FEDERALLY

18 INSURED.—No election may be made under 

19 paragraph (1) with respect to any loss on a de20 posit in a qualified financial institution if part 

21 or all of such deposit is insured under Federal 

22 law. 

23 ‘‘(B) DOLLAR LIMITATION.—With respect 

24 to each financial institution, the aggregate 

25 amount of losses attributable to deposits in 


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1 such financial institution to which an election 

2 under paragraph (1) may be made by the tax3 payer for any taxable year shall not exceed 

4 $20,000 ($10,000 in the case of a separate re5 turn by a married individual). The limitation of 

6 the preceding sentence shall be reduced by the 

7 amount of any insurance proceeds under any 

8 State law which can reasonably be expected to 

9 be received with respect to losses on deposits in 

10 such institution.’’. 

11 (4) Section 172(b)(1)(F)(ii), prior to redesigna12 tion under title III, is amended—

13 (A) by striking subclause (I) and by redes14 ignating subclauses (II) and (III) as subclauses 

15 (I) and (II), respectively, and 

16 (B) by striking ‘‘subsection (h)(3)(C)(i)’’ 

17 and inserting ‘‘section 165(i)(5)’’. 

18 (5) Section 172(d)(4)(C) is amended by strik19 ing ‘‘paragraph (2) or (3) of section 165(c)’’ and in20 serting ‘‘section 165(c)(2)’’. 

21 (6) Section 274(f) is amended by striking 

22 ‘‘CASUALTY LOSSES,’’ in the heading thereof. 

23 (7) Section 280A(b) is amended by striking 

24 ‘‘CASUALTY LOSSES,’’ in the heading thereof. 


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1 (8) Section 873(b), as amended by the pre2 ceding provisions of this Act, is amended by striking 

3 paragraph (1) and by redesignating paragraphs (2) 

4 and (3) as paragraphs (1) and (2), respectively. 

5 (c) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to taxable years beginning after 

7 December 31, 2014. 

8 SEC. 1407. LIMITATION ON WAGERING LOSSES. 

9 (a) IN GENERAL.—Section 165(d) is amended by 

10 adding at the end the following: ‘‘For purposes of the pre11 ceding sentence, the term ‘losses from wagering trans12 actions’ includes any deduction otherwise allowable under 

13 this chapter incurred in carrying on any wagering trans14 action.’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2014. 

18 SEC. 1408. REPEAL OF DEDUCTION FOR TAX PREPARATION 

19 EXPENSES.

20 (a) IN GENERAL.—Section 212 is amended by adding 

21 ‘‘or’’ at the end of paragraph (1), by striking ‘‘; or’’ at 

22 the end of paragraph (2) and inserting a period, and by 

23 striking paragraph (3). 


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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 1409. REPEAL OF DEDUCTION FOR MEDICAL EX5 PENSES.

6 (a) IN GENERAL.—Part VII of subchapter B of chap7 ter 1 is amended by striking section 213 (and by striking 

8 the item relating to such section in the table of sections 

9 for such part). 

10 (b) CONFORMING AMENDMENTS.—

11 (1)(A) Section 223 is amended by redesignating 

12 subsections (e), (f), (g), and (h) as subsections (f), 

13 (g), (h), and (i), respectively, and by inserting after 

14 subsection (d) the following new subsection: 

15 ‘‘(e) MEDICAL CARE.—For purposes of this section—

16 ‘‘(1) IN GENERAL.—The term ‘medical care’ 

17 means amounts paid—

18 ‘‘(A) for the diagnosis, cure, mitigation, 

19 treatment, or prevention of disease, or for the 

20 purpose of affecting any structure or function 

21 of the body, 

22 ‘‘(B) for transportation primarily for and 

23 essential to medical care referred to in subpara24 graph (A), 


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1 ‘‘(C) for qualified long-term care services 

2 (as defined in section 7702B(c)), or 

3 ‘‘(D) for insurance (including amounts 

4 paid as premiums under part B of title XVIII 

5 of the Social Security Act, relating to supple6 mentary medical insurance for the aged) cov7 ering medical care referred to in subparagraphs 

8 (A) and (B) or for any qualified long-term care 

9 insurance contract (as defined in section 

10 7702B(b)). 

11 In the case of a qualified long-term care insurance 

12 contract (as defined in section 7702B(b)), only eligi13 ble long-term care premiums (as defined in para14 graph (7)) shall be taken into account under sub15 paragraph (D). 

16 ‘‘(2) AMOUNTS PAID FOR CERTAIN LODGING

17 AWAY FROM HOME TREATED AS PAID FOR MEDICAL

18 CARE.—Amounts paid for lodging (not lavish or ex19 travagant under the circumstances) while away from 

20 home primarily for and essential to medical care re21 ferred to in paragraph (1)(A) shall be treated as 

22 amounts paid for medical care if—

23 ‘‘(A) the medical care referred to in para24 graph (1)(A) is provided by a physician in a li25 censed hospital (or in a medical care facility 


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1 which is related to, or the equivalent of, a li2 censed hospital), and 

3 ‘‘(B) there is no significant element of per4 sonal pleasure, recreation, or vacation in the 

5 travel away from home. 

6 The amount taken into account under the preceding 

7 sentence shall not exceed $50 for each night for each 

8 individual. 

9 ‘‘(3) PHYSICIAN.—The term ‘physician’ has the 

10 meaning given to such term by section 1861(r) of 

11 the Social Security Act (42 U.S.C. 1395x(r)). 

12 ‘‘(4) CONTRACTS COVERING OTHER THAN MED13 ICAL CARE.—In the case of an insurance contract 

14 under which amounts are payable for other than 

15 medical care referred to in subparagraphs (A), (B) 

16 and (C) of paragraph (1)—

17 ‘‘(A) no amount shall be treated as paid 

18 for insurance to which paragraph (1)(D) applies 

19 unless the charge for such insurance is either 

20 separately stated in the contract, or furnished 

21 to the policyholder by the insurance company in 

22 a separate statement, 

23 ‘‘(B) the amount taken into account as the 

24 amount paid for such insurance shall not exceed 

25 such charge, and 


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1 ‘‘(C) no amount shall be treated as paid 

2 for such insurance if the amount specified in 

3 the contract (or furnished to the policyholder by 

4 the insurance company in a separate statement) 

5 as the charge for such insurance is unreason6 ably large in relation to the total charges under 

7 the contract. 

8 ‘‘(5) CERTAIN PRE-PAID CONTRACTS.— Subject 

9 to the limitations of paragraph (4), premiums paid 

10 during the taxable year by a taxpayer before he at11 tains the age of 65 for insurance covering medical 

12 care (within the meaning of subparagraphs (A), (B), 

13 and (C) of paragraph (1)) for the taxpayer, his 

14 spouse, or a dependent after the taxpayer attains the 

15 age of 65 shall be treated as expenses paid during 

16 the taxable year for insurance which constitutes 

17 medical care if premiums for such insurance are 

18 payable (on a level payment basis) under the con19 tract for a period of 10 years or more or until the 

20 year in which the taxpayer attains the age of 65 

21 (but in no case for a period of less than 5 years). 

22 ‘‘(6) COSMETIC SURGERY.—

23 ‘‘(A) IN GENERAL.—The term ‘medical 

24 care’ does not include cosmetic surgery or other 

25 similar procedures, unless the surgery or proceVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00168 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 dure is necessary to ameliorate a deformity 

2 arising from, or directly related to, a congenital 

3 abnormality, a personal injury resulting from 

4 an accident or trauma, or disfiguring disease. 

5 ‘‘(B) COSMETIC SURGERY DEFINED .—For 

6 purposes of this paragraph, the term ‘cosmetic 

7 surgery’ means any procedure which is directed 

8 at improving the patient’s appearance and does 

9 not meaningfully promote the proper function 

10 of the body or prevent or treat illness or dis11 ease. 

12 ‘‘(7) ELIGIBLE LONG-TERM CARE PREMIUMS.—

13 ‘‘(A) IN GENERAL.—For purposes of this 

14 section, the term ‘eligible long-term care pre15 miums’ means the amount paid during a tax16 able year for any qualified long-term care insur17 ance contract (as defined in section 7702B(b)) 

18 covering an individual, to the extent such 

19 amount does not exceed the limitation deter20 mined under the following table:

‘‘In the case of an individual with an 

attained age before the close of the 

taxable year of: 

The limitation is: 

40 or less $200

More than 40 but not more than 50 $375

More than 50 but not more than 60 $750

More than 60 but not more than 70 $2,000

More than 70 $2,500

21 ‘‘(B) INDEXING.—


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1 ‘‘(i) IN GENERAL.—In the case of any 

2 taxable year beginning after 1997, each 

3 dollar amount in subparagraph (A) shall 

4 be increased by the medical care cost ad5 justment of such amount for such calendar 

6 year. Any increase determined under the 

7 preceding sentence shall be rounded to the 

8 nearest multiple of $10. 

9 ‘‘(ii) MEDICAL CARE COST ADJUST10 MENT.—For purposes of clause (i), the 

11 medical care cost adjustment for any cal12 endar year is the adjustment prescribed by 

13 the Secretary, in consultation with the Sec14 retary of Health and Human Services, for 

15 purposes of such clause. To the extent that 

16 CPI (as defined section 1(c)), or any com17 ponent thereof, is taken into account in de18 termining such adjustment, such adjust19 ment shall be determined by taking into 

20 account C-CPI-U (as so defined), or the 

21 corresponding component thereof, in lieu of 

22 such CPI (or component thereof), but only 

23 with respect to the portion of such adjust24 ment which relates to periods after Decem25 ber 31, 2014. 


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1 ‘‘(8) CERTAIN PAYMENTS TO RELATIVES

2 TREATED AS NOT PAID FOR MEDICAL CARE.—An 

3 amount paid for a qualified long-term care service 

4 (as defined in section 7702B(c)) provided to an indi5 vidual shall be treated as not paid for medical care 

6 if such service is provided—

7 ‘‘(A) by the spouse of the individual or by 

8 a relative (directly or through a partnership, 

9 corporation, or other entity) unless the service 

10 is provided by a licensed professional with re11 spect to such service, or 

12 ‘‘(B) by a corporation or partnership which 

13 is related (within the meaning of section 267(b) 

14 or 707(b)) to the individual. 

15 For purposes of this paragraph, the term ‘relative’ 

16 means an individual bearing a relationship to the in17 dividual which is described in any of subparagraphs 

18 (A) through (G) of section 7705(d)(2). This para19 graph shall not apply for purposes of section 105(b) 

20 with respect to reimbursements through insurance.’’. 

21 (B) Section 72(t)(2)(D)(i)(III) is amended by 

22 striking ‘‘section 213(d)(1)(D)’’ and inserting ‘‘sec23 tion 223(e)(1)(D)’’. 


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1 (C) Section 104(a) is amended by striking ‘‘sec2 tion 213(d)(1)’’ in the last sentence and inserting 

3 ‘‘section 223(e)(1)’’. 

4 (D) Section 105(b) is amended by striking 

5 ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

6 (E) Section 139D is amended by striking ‘‘sec7 tion 213’’ and inserting ‘‘section 223’’. 

8 (F) Section 162(l)(2) is amended by striking 

9 ‘‘section 213(d)(10)’’ and inserting ‘‘section 

10 223(e)(7)’’. 

11 (G) Section 220(d)(2)(A) is amended by strik12 ing ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

13 (H) Section 223(d)(2)(A) is amended by strik14 ing ‘‘section 213(d)’’ and inserting ‘‘subsection 

15 (e))’’. 

16 (I) Section 419A(f)(2) is amended by striking 

17 ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

18 (J) Section 501(c)(26)(A) is amended by strik19 ing ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

20 (K) Section 2503(e) is amended by striking 

21 ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

22 (L) Section 4980B(c)(4)(B)(i)(I) is amended by 

23 striking ‘‘section 213(d)’’ and inserting ‘‘section 

24 223(e)’’. 


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1 (M) Section 6041(f) is amended by striking 

2 ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

3 (N) Section 7702B(a)(2) is amended by strik4 ing ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

5 (O) Section 7702B(a)(4) is amended by strik6 ing ‘‘section 213(d)(1)(D)’’ and inserting ‘‘section 

7 223(e)(1)(D)’’. 

8 (P) Section 7702B(d)(5) is amended by striking 

9 ‘‘section 213(d)(10)’’ and inserting ‘‘section 

10 223(e)(7)’’. 

11 (Q) Section 9832(d)(3) is amended by striking 

12 ‘‘section 213(d)’’ and inserting ‘‘section 223(e)’’. 

13 (2) Section 72(t)(2)(B) is amended to read as 

14 follows: 

15 ‘‘(B) MEDICAL EXPENSES.—Distributions 

16 made to an individual (other than distributions 

17 described in subparagraph (A), (C), or (D) to 

18 the extent such distributions do not exceed the 

19 excess of—

20 ‘‘(i) the expenses paid by the taxpayer 

21 during the taxable year, not compensated 

22 for by insurance or otherwise, for medical 

23 care (as defined in 223(e)) of the taxpayer, 

24 his spouse, or a dependent (as defined in 

25 section 7705, determined without regard to 


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1 subsections (b)(1), (b)(2), and (d)(1)(B) 

2 thereof), over 

3 ‘‘(ii) 10 percent of the taxpayer’s ad4 justed gross income.’’. 

5 (3) Section 105 is amended by striking sub6 section (f). 

7 (4) Section 162(l) is amended by striking para8 graph (3). 

9 (5) Section 402(l) is amended by striking para10 graph (7) and redesignating paragraph (8) as para11 graph (7). 

12 (6) Section 220(f) is amended by striking para13 graph (6). 

14 (7) Section 223(f) is amended by striking para15 graph (6). 

16 (8) Section 7702B(e) is amended by striking 

17 paragraph (2). 

18 (9) Section 7705(f)(7), as redesignated by this 

19 Act, is amended by striking ‘‘sections 105(b), 

20 132(h)(2)(B), and 213(d)(5)’’ and inserting ‘‘sec21 tions 105(b) and 132(h)(2)(B)’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2014. 


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1 SEC. 1410. REPEAL OF DISQUALIFICATION OF EXPENSES 

2 FOR OVER-THE-COUNTER DRUGS UNDER 

3 CERTAIN ACCOUNTS AND ARRANGEMENTS. 

4 (a) HSAS.—Subparagraph (A) of section 223(d)(2) 

5 is amended by striking the last sentence. 

6 (b) ARCHER MSAS.—Subparagraph (A) of section 

7 220(d)(2) is amended by striking the last sentence. 

8 (c) HEALTH FLEXIBLE SPENDING ARRANGEMENTS

9 AND HEALTH REIMBURSEMENT ARRANGEMENTS.—Sec10 tion 106 is amended by striking subsection (f). 

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to expenses incurred after Decem13 ber 31, 2014. 

14 SEC. 1411. REPEAL OF DEDUCTION FOR ALIMONY PAY15 MENTS AND CORRESPONDING INCLUSION IN 

16 GROSS INCOME. 

17 (a) IN GENERAL.—Part VII of subchapter B of chap18 ter 1 is amended by striking section 215 (and by striking 

19 the item relating to such section in the table of sections 

20 for such part). 

21 (b) CORRESPONDING REPEAL OF PROVISIONS PRO22 VIDING FOR INCLUSION OF ALIMONY IN GROSS IN23 COME.—

24 (1) Subsection (a) of section 61 is amended by 

25 striking paragraph (8) and by redesignating paraVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00175 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 graphs (9) through (15) as paragraphs (8) through 

2 (14), respectively. 

3 (2) Part II of subchapter B of chapter 1 is 

4 amended by striking section 71 (and by striking the 

5 item relating to such section in the table of sections 

6 for such part). 

7 (3) Subpart F of part I of subchapter J of 

8 chapter 1 is amended by striking section 682 (and 

9 by striking the item relating to such section in the 

10 table of sections for such subpart). 

11 (c) CONFORMING AMENDMENTS.—

12 (1) RELATED TO REPEAL OF SECTION 215.—

13 (A) Section 62(a) is amended by striking 

14 paragraph (10). 

15 (B) Section 3402(m)(1) is amended by 

16 striking ‘‘(other than paragraph (10) thereof)’’. 

17 (2) RELATED TO REPEAL OF SECTION 71.—

18 (A) Section 121(d)(3) is amended—

19 (i) by striking ‘‘(as defined in section 

20 71(b)(2))’’ in subparagraph (B), and 

21 (ii) by adding at the end the following 

22 new subparagraph: 

23 ‘‘(C) DIVORCE OR SEPARATION INSTRU24 MENT.—For purposes of this paragraph, the 


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1 term ‘divorce or separation instrument’ 

2 means—

3 ‘‘(i) a decree of divorce or separate 

4 maintenance or a written instrument inci5 dent to such a decree, 

6 ‘‘(ii) a written separation agreement, 

7 or 

8 ‘‘(iii) a decree (not described in clause 

9 (i)) requiring a spouse to make payments 

10 for the support or maintenance of the 

11 other spouse.’’. 

12 (B) Section 220(f)(7) is amended by strik13 ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 

14 inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 

15 (C) Section 223(f)(7) is amended by strik16 ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 

17 inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 

18 (D) Section 382(l)(3)(B)(iii) is amended 

19 by striking ‘‘section 71(b)(2)’’ and inserting 

20 ‘‘section 121(d)(3)(C)’’. 

21 (E) Section 408(d)(6) is amended by strik22 ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 

23 inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 

24 (d) EFFECTIVE DATE.—The amendments made by 

25 this section shall apply to—


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1 (1) any divorce or separation instrument (as de2 fined in section 71(b)(2) of the Internal Revenue 

3 Code of 1986 as in effect before the date of the en4 actment of this Act) executed after December 31, 

5 2014, and 

6 (2) any divorce or separation instrument (as so 

7 defined) executed on or before such date and modi8 fied after such date if the modification expressly 

9 provides that the amendments made by this section 

10 apply to such modification. 

11 SEC. 1412. REPEAL OF DEDUCTION FOR MOVING EX12 PENSES.

13 (a) IN GENERAL.—Part VII of subchapter B of chap14 ter 1 is amended by striking section 217 (and by striking 

15 the item relating to such section in the table of sections 

16 for such part). 

17 (b) CONFORMING AMENDMENTS.—

18 (1) Section 62(a) is amended by striking para19 graph (15). 

20 (2)(A) Section 132(a) is amended by striking 

21 paragraph (6). 

22 (B) Section 82 is amended by striking ‘‘Except 

23 as provided in section 132(a)(6), there’’ and insert24 ing ‘‘There’’. 


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1 (3)(A) Section 132 is amended by striking sub2 section (g). 

3 (B) Section 132(l) is amended by striking by 

4 striking ‘‘subsections (e) and (g)’’ and inserting 

5 ‘‘subsection (e)’’. 

6 (4) Section 274(m)(3) is amended by striking 

7 ‘‘(other than section 217)’’. 

8 (5) Section 3121(a) is amended by striking 

9 paragraph (11). 

10 (6) Section 209(a) of the Social Security Act is 

11 amended by striking paragraph (9). 

12 (7) Section 3306(b) is amended by striking 

13 paragraph (9). 

14 (8) Section 3401(a) is amended by striking 

15 paragraph (15). 

16 (9) Section 7872(f) is amended by striking 

17 paragraph (11). 

18 (c) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2014. 


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1 SEC. 1413. TERMINATION OF DEDUCTION AND EXCLUSIONS 

2 FOR CONTRIBUTIONS TO MEDICAL SAVINGS 

3 ACCOUNTS.

4 (a) TERMINATION OF INCOME TAX DEDUCTION.—

5 Section 220 is amended by adding at the end the following 

6 new subsection: 

7 ‘‘(k) TERMINATION.—No deduction shall be allowed 

8 under subsection (a) with respect to any taxable year be9 ginning after December 31, 2014.’’. 

10 (b) TERMINATION OF EXCLUSION FOR EMPLOYER11 PROVIDED CONTRIBUTIONS.—Section 106 is amended by 

12 striking subsection (b). 

13 (c) CONFORMING AMENDMENTS.—

14 (1) Section 62(a) is amended by striking para15 graph (16). 

16 (2) Section 106(d) is amended by striking para17 graph (2), by redesignating paragraph (3) as para18 graph (6), and by inserting after paragraph (1) the 

19 following new paragraphs: 

20 ‘‘(2) NO CONSTRUCTIVE RECEIPT.—No amount 

21 shall be included in the gross income of any em22 ployee solely because the employee may choose be23 tween the contributions referred to in paragraph (1) 

24 and employer contributions to another health plan of 

25 the employer. 


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1 ‘‘(3) SPECIAL RULE FOR DEDUCTION OF EM2 PLOYER CONTRIBUTIONS.—Any employer contribu3 tion to a health savings account (as so defined), if 

4 otherwise allowable as a deduction under this chap5 ter, shall be allowed only for the taxable year in 

6 which paid. 

7 ‘‘(4) EMPLOYER HEALTH SAVINGS ACCOUNT

8 CONTRIBUTION REQUIRED TO BE SHOWN ON RE9 TURN.— Every individual required to file a return 

10 under section 6012 for the taxable year shall include 

11 on such return the aggregate amount contributed by 

12 employers to the health savings accounts (as so de13 fined) of such individual or such individual’s spouse 

14 for such taxable year. 

15 ‘‘(5) HEALTH SAVINGS ACCOUNT CONTRIBU16 TIONS NOT PART OF COBRA COVERAGE.— Paragraph 

17 (1) shall not apply for purposes of section 4980B.’’. 

18 (3) Section 223(b)(4) is amended by striking 

19 subparagraph (A) and by redesignating subpara20 graphs (B) and (C) as subparagraphs (A) and (B), 

21 respectively. 

22 (4) Section 3231(e) is amended by striking 

23 paragraph (10) and by redesignating paragraphs 

24 (11) and (12) as paragraphs (10) and (11), respec25 tively. 


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1 (5) Section 3306(b) is amended by striking 

2 paragraph (17). 

3 (6) Section 3401(a) is amended by striking 

4 paragraph (21). 

5 (7) Chapter 43 is amended by striking section 

6 4980E (and by striking the item relating to such 

7 section in the table of sections for such chapter). 

8 (8) Section 4980G is amended to read as fol9 lows: 

10 ‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COM11 PARABLE HEALTH SAVINGS ACCOUNT CON12 TRIBUTIONS.

13 ‘‘(a) IN GENERAL.—In the case of an employer who 

14 makes a contribution to the health savings account of any 

15 employee during a calendar year, there is hereby imposed 

16 a tax on the failure of such employer to meet the require17 ments of subsection (d) for such calendar year. 

18 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im19 posed by subsection (a) on any failure for any calendar 

20 year is the amount equal to 35 percent of the aggregate 

21 amount contributed by the employer to health savings ac22 counts of employees for taxable years of such employees 

23 ending with or within such calendar year. 

24 ‘‘(c) WAIVER BY SECRETARY.—In the case of a fail25 ure which is due to reasonable cause and not to willful 


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1 neglect, the Secretary may waive part or all of the tax 

2 imposed by subsection (a) to the extent that the payment 

3 of such tax would be excessive relative to the failure in4 volved. 

5 ‘‘(d) EMPLOYER REQUIRED TO MAKE COMPARABLE

6 HEALTH SAVINGS ACCOUNT CONTRIBUTIONS FOR ALL

7 PARTICIPATING EMPLOYEES.—

8 ‘‘(1) IN GENERAL.—An employer meets the re9 quirements of this subsection for any calendar year 

10 if the employer makes available comparable con11 tributions to the health savings accounts of all com12 parable participating employees for each coverage 

13 period during such calendar year. 

14 ‘‘(2) COMPARABLE CONTRIBUTIONS.—

15 ‘‘(A) IN GENERAL.—For purposes of para16 graph (1), the term ‘comparable contributions’ 

17 means contributions—

18 ‘‘(i) which are the same amount, or 

19 ‘‘(ii) which are the same percentage of 

20 the annual deductible limit under the high 

21 deductible health plan covering the employ22 ees. 

23 ‘‘(B) PART-YEAR EMPLOYEES.—In the 

24 case of an employee who is employed by the em25 ployer for only a portion of the calendar year, 


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1 a contribution to the health savings account of 

2 such employee shall be treated as comparable if 

3 it is an amount which bears the same ratio to 

4 the comparable amount (determined without re5 gard to this subparagraph) as such portion 

6 bears to the entire calendar year. 

7 ‘‘(3) COMPARABLE PARTICIPATING EMPLOY8 EES.—

9 ‘‘(A) IN GENERAL.—For purposes of para10 graph (1), the term ‘comparable participating 

11 employees’ means all employees—

12 ‘‘(i) who are eligible individuals cov13 ered under any high deductible health plan 

14 of the employer, and 

15 ‘‘(ii) who have the same category of 

16 coverage. 

17 ‘‘(B) CATEGORIES OF COVERAGE.—For 

18 purposes of subparagraph (B), the categories of 

19 coverage are self-only and family coverage. 

20 ‘‘(4) PART-TIME EMPLOYEES.—

21 ‘‘(A) IN GENERAL .—Paragraph (3) shall 

22 be applied separately with respect to part-time 

23 employees and other employees. 

24 ‘‘(B) PART-TIME EMPLOYEE.—For pur25 poses of subparagraph (A), the term ‘part-time 


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1 employee’ means any employee who is custom2 arily employed for fewer than 30 hours per 

3 week. 

4 ‘‘(5) SPECIAL RULE FOR NON-HIGHLY COM5 PENSATED EMPLOYEES.—For purposes of applying 

6 this section to a contribution to a health savings ac7 count of an employee who is not a highly com8 pensated employee (as defined in section 414(q)), 

9 highly compensated employees shall not be treated 

10 as comparable participating employees. 

11 ‘‘(e) CONTROLLED GROUPS.—For purposes of this 

12 section, all persons treated as a single employer under sub13 section (b), (c), (m), or (o) of section 414 shall be treated 

14 as 1 employer. 

15 ‘‘(f) DEFINITIONS.—Terms used in this section which 

16 are also used in section 223 have the respective meanings 

17 given such terms in section 223. 

18 ‘‘(g) REGULATIONS.—The Secretary shall issue regu19 lations to carry out the purposes of this section.’’. 

20 (9) Section 6051(a) is amended by striking 

21 paragraph (11). 

22 (10) Section 6051(a)(14)(A) is amended by 

23 striking ‘‘paragraphs (11) and (12)’’ and inserting 

24 ‘‘paragraph (12)’’. 


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1 (d) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 1414. REPEAL OF 2-PERCENT FLOOR ON MISCELLA5 NEOUS ITEMIZED DEDUCTIONS. 

6 (a) IN GENERAL.—Part 1 of subchapter B of chapter 

7 1 is amended by striking section 67 (and the item relating 

8 to such section in the table of sections for such part). 

9 (b) CONFORMING AMENDMENTS.—

10 (1) Section 642(b)(2)(C)(i)(II) is amended to 

11 read as follows: 

12 ‘‘(II) by determining the adjusted 

13 gross income of the trust under the 

14 rules of section 2(b)(2) (without the 

15 reference to section 642(b)).’’. 

16 (2) Section 162(o) is amended by striking para17 graph (2). 

18 (3) Section 302(b)(5) is amended by striking 

19 ‘‘section 67(c)(2)(B)’’ and inserting ‘‘section 

20 562(c)(2)’’. 

21 (4) Section 562(c) is amended—

22 (A) by striking ‘‘(as defined in section 

23 67(c)(2)(B))’’, 

24 (B) by striking ‘‘(as so defined)’’, 


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1 (C) by striking ‘‘Except in the case of’’ 

2 and inserting the following: 

3 ‘‘(1) IN GENERAL.—Except in the case of’’, and 

4 (D) by adding at the end the following new 

5 paragraph: 

6 ‘‘(2) PUBLICLY OFFERED REGULATED INVEST7 MENT COMPANY.—For purposes of this subsection—

8 ‘‘(A) IN GENERAL.—The term ‘publicly of9 fered regulated investment company’ means a 

10 regulated investment company the shares of 

11 which are—

12 ‘‘(i) continuously offered pursuant to 

13 a public offering (within the meaning of 

14 section 4 of the Securities Act of 1933, as 

15 amended (15 U.S.C. 77a to 77aa)), 

16 ‘‘(ii) regularly traded on an estab17 lished securities market, or 

18 ‘‘(iii) held by or for no fewer than 500 

19 persons at all times during the taxable 

20 year. 

21 ‘‘(B) SECRETARY MAY REDUCE 500 PER22 SON REQUIREMENT.—The Secretary may by 

23 regulation decrease the minimum shareholder 

24 requirement of clause (i)(III) in the case of reg25 ulated investment companies which experience a 


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1 loss of shareholders through net redemptions of 

2 their shares.’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2014. 

6 SEC. 1415. REPEAL OF OVERALL LIMITATION ON ITEMIZED 

7 DEDUCTIONS.

8 (a) IN GENERAL.—Part 1 of subchapter B of chapter 

9 1 is amended by striking section 68 (and the item relating 

10 to such section in the table of sections for such part). 

11 (b) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2014. 

14 SEC. 1416. DEDUCTION FOR AMORTIZABLE BOND PREMIUM 

15 ALLOWED IN DETERMINING ADJUSTED 

16 GROSS INCOME. 

17 (a) IN GENERAL.—Subsection (a) of section 62, as 

18 amended by section 1411, is amended by inserting after 

19 paragraph (9) the following new paragraph: 

20 ‘‘(10) AMORTIZABLE BOND PREMIUM.—The de21 duction allowed under section 171(a)(1).’’. 

22 (b) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2014. 


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1 SEC. 1417. REPEAL OF EXCLUSION, ETC., FOR EMPLOYEE 

2 ACHIEVEMENT AWARDS. 

3 (a) IN GENERAL.—Section 74 is amended by striking 

4 subsection (c). 

5 (b) REPEAL OF LIMITATION ON DEDUCTION.—Sec6 tion 274 is amended by striking subsection (j). 

7 (c) CONFORMING AMENDMENTS.—

8 (1) Section 102(c)(2) is amended by striking 

9 the first sentence. 

10 (2) Section 414(n)(3)(C) is amended by strik11 ing ‘‘274(j),’’. 

12 (3) Section 414(t)(2) is amended by striking 

13 ‘‘274(j),’’. 

14 (4) Section 3121(a)(20) is amended by striking 

15 ‘‘74(c),’’. 

16 (5) Section 209(a)(17) of the Social Security 

17 Act is amended by striking ‘‘74(c),’’. 

18 (6) Section 3231(e)(5) is amended by striking 

19 ‘‘74(c),’’. 

20 (7) Section 3306(b)(16) is amended by striking 

21 ‘‘74(c),’’. 

22 (8) Section 3401(a)(19) is amended by striking 

23 ‘‘74(c),’’. 

24 (d) EFFECTIVE DATE.—The amendments made by 

25 this section shall apply to taxable years beginning after 

26 December 31, 2014. 


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1 SEC. 1418. CLARIFICATION OF SPECIAL RULE FOR CERTAIN 

2 GOVERNMENTAL PLANS. 

3 (a) TREATMENT OF BENEFICIARIES.—Section 

4 105(j)(1) is amended—

5 (1) by striking ‘‘the taxpayer’’ and inserting 

6 ‘‘an employee, spouse, dependent (as defined for 

7 purposes of subsection (b)), or child (as so de8 fined)’’, and 

9 (2) by striking ‘‘deceased plan participant’s 

10 beneficiary’’ and inserting ‘‘deceased employee’s ben11 eficiary who is not a surviving spouse, dependent (as 

12 so defined), or child (as so defined)’’. 

13 (b) APPLICATION TO POLITICAL SUBDIVISIONS OF

14 STATES.—Section 105(j)(2) is amended—

15 (1) by inserting ‘‘or established by or on behalf 

16 of a State or political subdivision thereof’’ after 

17 ‘‘public retirement system’’, and 

18 (2) by inserting ‘‘or 501(c)(9)’’ after ‘‘section 

19 115’’ in subparagraph (B) thereof. 

20 (c) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to payments after the date of the 

22 enactment of this Act. 

23 SEC. 1419. LIMITATION ON EXCLUSION FOR EMPLOYER24 PROVIDED HOUSING. 

25 (a) IN GENERAL.—Section 119 is amended by adding 

26 at the end the following new subsection: 


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1 ‘‘(e) LIMITATION ON EXCLUSION OF LODGING.—

2 ‘‘(1) IN GENERAL.—The aggregate amount ex3 cluded from gross income of the taxpayer under sub4 sections (a) and (d) with respect to lodging for any 

5 taxable year shall not exceed $50,000 (half such 

6 amount in the case of a married individual filing a 

7 separate return). 

8 ‘‘(2) LIMITATION TO 1 HOME.—Subsections (a) 

9 and (d) (separately and in combination) shall not 

10 apply with respect to more than 1 residence of the 

11 taxpayer at any given time. In the case of a joint re12 turn, the preceding sentence shall apply separately 

13 to each spouse for any period during which each 

14 spouse resides separate from the other spouse in a 

15 residence which is provided in connection with the 

16 employment of each spouse, respectively.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2014. 

20 SEC. 1420. FRINGE BENEFITS. 

21 (a) REPEAL OF SPECIAL RULE FOR AIR TRANSPOR22 TATION BY PARENT OF EMPLOYEE.—Subsection (h) of 

23 section 132 is amended by striking paragraph (3). 

24 (b) TRANSPORTATION AND PARKING.—

25 (1) FREEZE AT CURRENT LEVELS.—


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1 (A) IN GENERAL.—Paragraph (2) of sec2 tion 132(f) is amended—

3 (i) in subparagraph (A) by striking 

4 ‘‘$100’’ and inserting ‘‘$130’’, and 

5 (ii) in subparagraph (B) by striking 

6 ‘‘$175’’ and inserting ‘‘$250’’. 

7 (B) INFLATION ADJUSTMENT.—Subsection 

8 (f) of such section is amended by striking para9 graph (6) and redesignating paragraph (7) as 

10 paragraph (6). 

11 (2) REPEAL OF BICYCLE BENEFIT.—

12 (A) IN GENERAL.—Paragraph (1) of sec13 tion 132(f) is amended by striking subpara14 graph (D). 

15 (B) CONFORMING AMENDMENTS.—

16 (i) Section 132(f)(2) is amended by 

17 inserting ‘‘and’’ at the end of subpara18 graph (A), by striking ‘‘and’’ at the end of 

19 subparagraph (B) and inserting a period, 

20 and by striking subparagraph (C). 

21 (ii) Section 132(f)(4) is amended by 

22 striking ‘‘(other than a qualified bicycle 

23 commuting reimbursement)’’. 

24 (iii) Section 132(f)(5) is amended by 

25 striking subparagraph (F). 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 1421. REPEAL OF EXCLUSION OF NET UNREALIZED AP5 PRECIATION IN EMPLOYER SECURITIES. 

6 (a) IN GENERAL.—Section 402(e) is amended by 

7 striking paragraph (4). 

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 401(k)(10) is amended by striking 

10 subparagraph (B) and inserting the following new 

11 subparagraphs: 

12 ‘‘(B) DISTRIBUTIONS MUST BE LUMP SUM

13 DISTRIBUTIONS.—A termination shall not be 

14 treated as described in subparagraph (A) with 

15 respect to any employee unless the employee re16 ceives a lump sum distribution by reason of the 

17 termination. 

18 ‘‘(C) LUMP-SUM DISTRIBUTION DE19 FINED.—For purposes of this paragraph—

20 ‘‘(i) IN GENERAL.—The term ‘lump 

21 sum distribution’ means the distribution or 

22 payment within one taxable year of the re23 cipient of the balance to the credit of an 

24 employee which becomes payable to the re25 cipient from a trust which forms a part of 


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1 a plan described in section 401(a) and 

2 which is exempt from tax under section 

3 501 or from a plan described in section 

4 403(a). Such term includes a distribution 

5 of an annuity contract from—

6 ‘‘(I) a trust which forms a part 

7 of a plan described in section 401(a) 

8 and which is exempt from tax under 

9 section 501(a), or 

10 ‘‘(II) an annuity plan described 

11 in section 403(a). 

12 For purposes of this clause, a distribution 

13 to two or more trusts shall be treated as 

14 a distribution to one recipient. 

15 ‘‘(ii) AGGREGATION OF CERTAIN

16 TRUSTS AND PLANS.—For purposes of de17 termining the balance to the credit of an 

18 employee under clause (i)—

19 ‘‘(I) all trusts which are part of 

20 a plan shall be treated as a single 

21 trust, all pension plans maintained by 

22 the employer shall be treated as a sin23 gle plan, all profit-sharing plans main24 tained by the employer shall be treat25 ed as a single plan, and all stock 


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1 bonus plans maintained by the em2 ployer shall be treated as a single 

3 plan, and 

4 ‘‘(II) trusts which are not quali5 fied trusts under section 401(a) and 

6 annuity contracts which do not satisfy 

7 the requirements of section 404(a)(2) 

8 shall not be taken into account. 

9 ‘‘(iii) COMMUNITY PROPERTY LAWS.—

10 The provisions of this subparagraph shall 

11 be applied without regard to community 

12 property laws. 

13 ‘‘(iv) BALANCE TO CREDIT OF EM14 PLOYEE NOT TO INCLUDE AMOUNTS PAY15 ABLE UNDER QUALIFIED DOMESTIC RELA16 TIONS ORDER.—The balance to the credit 

17 of an employee shall not include any 

18 amount payable to an alternate payee 

19 under a qualified domestic relations order 

20 (within the meaning of section 414(p)). 

21 ‘‘(v) TRANSFERS TO COST-OF-LIVING

22 ARRANGEMENT NOT TREATED AS DIS23 TRIBUTION.—The balance to the credit of 

24 an employee under a defined contribution 

25 plan shall not include any amount transVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00195 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ferred from such defined contribution plan 

2 to a qualified cost-of-living arrangement 

3 (within the meaning of section 415(k)(2)) 

4 under a defined benefit plan. (vii) 

5 ‘‘(vi) LUMP-SUM DISTRIBUTIONS OF

6 ALTERNATE PAYEES.—If any distribution 

7 or payment of the balance to the credit of 

8 an employee would be treated as a lump9 sum distribution, then, for purposes of this 

10 paragraph, the payment under a qualified 

11 domestic relations order (within the mean12 ing of section 414(p)) of the balance to the 

13 credit of an alternate payee who is the 

14 spouse or former spouse of the employee 

15 shall be treated as a lump-sum distribu16 tion. For purposes of this clause, the bal17 ance to the credit of the alternate payee 

18 shall not include any amount payable to 

19 the employee. 

20 ‘‘(vii) EXCLUSION OF ACCUMULATE

21 DEDUCTIBLE EMPLOYEE CONTRIBU22 TIONS.— For purposes of this subpara23 graph, the balance to the credit of the em24 ployee does not include the accumulated 

25 deductible employee contributions under 


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1 the plan (within the meaning of section 

2 72(o)(5)).’’. 

3 (2) Section 3405(e) is amended by striking 

4 paragraph (8). 

5 (c) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to distributions after December 31, 

7 2014. 

8 SEC. 1422. CONSISTENT BASIS REPORTING BETWEEN ES9 TATE AND PERSON ACQUIRING PROPERTY 

10 FROM DECEDENT. 

11 (a) PROPERTY ACQUIRED FROM A DECEDENT.—Sec12 tion 1014 is amended by adding at the end the following 

13 new subsection: 

14 ‘‘(f) BASIS MUST BE CONSISTENT WITH ESTATE

15 TAX RETURN.—For purposes of this section—

16 ‘‘(1) IN GENERAL.—The basis of any property 

17 to which subsection (a) applies shall not exceed—

18 ‘‘(A) in the case of property the final value 

19 of which has been determined for purposes of 

20 the tax imposed by chapter 11 on the estate of 

21 such decedent, such value, and 

22 ‘‘(B) in the case of property not described 

23 in subparagraph (A) and with respect to which 

24 a statement has been furnished under section 


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1 6035(a) identifying the value of such property, 

2 such value. 

3 ‘‘(2) EXCEPTION.—Paragraph (1) shall only 

4 apply to any property whose inclusion in the dece5 dent’s estate increased the liability for the tax im6 posed by chapter 11 (reduced by credits allowable 

7 against such tax) on such estate. 

8 ‘‘(3) REGULATIONS.—The Secretary may by 

9 regulations provide exceptions to the application of 

10 this subsection.’’. 

11 (b) INFORMATION REPORTING.—

12 (1) IN GENERAL.—Subpart A of part III of 

13 subchapter A of chapter 61 is amended by inserting 

14 after section 6034A the following new section: 

15 ‘‘SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING 

16 PROPERTY FROM DECEDENT. 

17 ‘‘(a) INFORMATION WITH RESPECT TO PROPERTY

18 ACQUIRED FROM DECEDENTS.—

19 ‘‘(1) IN GENERAL.—The executor of any estate 

20 required to file a return under section 6018(a) shall 

21 furnish to the Secretary and to each person acquir22 ing any interest in property included in the dece23 dent’s gross estate for Federal estate tax purposes 

24 a statement identifying the value of each interest in 

25 such property as reported on such return and such 


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1 other information with respect to such interest as 

2 the Secretary may prescribe. 

3 ‘‘(2) STATEMENTS BY BENEFICIARIES.—Each 

4 person required to file a return under section 

5 6018(b) shall furnish to the Secretary and to each 

6 other person who holds a legal or beneficial interest 

7 in the property to which such return relates a state8 ment identifying the information described in para9 graph (1). 

10 ‘‘(3) TIME FOR FURNISHING STATEMENT.—

11 ‘‘(A) IN GENERAL.—Each statement re12 quired to be furnished under paragraph (1) or 

13 (2) shall be furnished at such time as the Sec14 retary may prescribe, but in no case at a time 

15 later than the earlier of—

16 ‘‘(i) the date which is 30 days after 

17 the date on which the return under section 

18 6018 was required to be filed (including 

19 extensions, if any), or 

20 ‘‘(ii) the date which is 30 days after 

21 the date such return is filed. 

22 ‘‘(B) ADJUSTMENTS.—In any case in 

23 which there is an adjustment to the information 

24 required to be included on a statement filed 

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1 ment has been filed, a supplemental statement 

2 under such paragraph shall be filed not later 

3 than the date which is 30 days after such ad4 justment is made. 

5 ‘‘(b) REGULATIONS.—The Secretary shall prescribe 

6 such regulations as necessary to carry out this section, in7 cluding regulations relating to—

8 ‘‘(1) the application of this section to property 

9 with regard to which no estate tax return is required 

10 to be filed, and 

11 ‘‘(2) situations in which the surviving joint ten12 ant or other recipient may have better information 

13 than the executor regarding the basis or fair market 

14 value of the property.’’. 

15 (2) PENALTY FOR FAILURE TO FILE.—

16 (A) RETURN.—Section 6724(d)(1) is 

17 amended by striking ‘‘and’’ at the end of sub18 paragraph (B), by striking the period at the 

19 end of subparagraph (C) and inserting ‘‘, and’’, 

20 and by adding at the end the following new sub21 paragraph: 

22 ‘‘(D) any statement required to be filed 

23 with the Secretary under section 6035.’’. 

24 (B) STATEMENT.—Section 6724(d)(2) is 

25 amended by striking ‘‘or’’ at the end of subVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00200 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 paragraph (GG), by striking the period at the 

2 end of subparagraph (HH) and inserting ‘‘, 

3 or’’, and by adding at the end the following new 

4 subparagraph: 

5 ‘‘(II) section 6035 (other than a statement 

6 described in paragraph (1)(D)).’’. 

7 (3) CLERICAL AMENDMENT.—The table of sec8 tions for subpart A of part III of subchapter A of 

9 chapter 61 is amended by inserting after the item 

10 relating to section 6034A the following new item:

‘‘Sec. 6035. Basis information to persons acquiring property from decedent.’’.

11 (c) PENALTY FOR INCONSISTENT REPORTING.—

12 (1) IN GENERAL.—Subsection (b) of section 

13 6662 is amended by inserting after paragraph (7) 

14 the following new paragraph: 

15 ‘‘(8) Any inconsistent estate basis.’’. 

16 (2) INCONSISTENT BASIS REPORTING.—Section 

17 6662 is amended by adding at the end the following 

18 new subsection: 

19 ‘‘(k) INCONSISTENT ESTATE BASIS REPORTING.—

20 For purposes of this section, the term ‘inconsistent estate 

21 basis’ means the portion of the understatement which is 

22 attributable to in the case of property acquired from a 

23 decedent, a basis determination with respect to such prop24 erty which is not consistent with the value of such prop25 erty as determined under section 1014(f).’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to transfers for which an estate 

3 tax return is filed after the date of the enactment of this 

4 Act. 

5 Subtitle F—Employment Tax 

6 Modifications

7 SEC. 1501. MODIFICATIONS OF DEDUCTION FOR SOCIAL SE8 CURITY TAXES IN COMPUTING NET EARN9 INGS FROM SELF-EMPLOYMENT. 

10 (a) IN GENERAL.—Paragraph (12) of section 

11 1402(a) is amended to read as follows: 

12 ‘‘(12) in lieu of the deduction allowable under 

13 section 164(f) (relating to deduction for one-half of 

14 self-employment taxes), there shall be allowed as a 

15 deduction an amount equal to the sum of—

16 ‘‘(A) 7.1064 percent of so much of the in17 dividual’s net earnings from self-employment 

18 for the taxable year (determined without regard 

19 to this paragraph) as does not exceed an 

20 amount equal to the product of 1.0765 and the 

21 excess (if any) of—

22 ‘‘(i) the contribution and benefit base 

23 (as determined under section 230 of the 

24 Social Security Act) in effect for the calVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00202 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 endar year in which the taxable year be2 gins, over 

3 ‘‘(ii) the wages (within the meaning of 

4 subsection (b)(1)) paid to the individual 

5 during such taxable year, plus 

6 ‘‘(B) 1.4293 percent of the excess (if any) 

7 of the individual’s net earnings from self-em8 ployment for the taxable year (determined with9 out regard to this paragraph) over the amount 

10 of such net earnings taken into account under 

11 subparagraph (A);’’. 

12 (b) COORDINATION WITH BENEFITS.—Paragraph 

13 (11) of section 211(a) of the Social Security Act is amend14 ed to read as follows: 

15 ‘‘(11) in lieu of the deduction allowable under 

16 section 164(f) of the Internal Revenue Code of 1986 

17 (relating to deduction for one-half of self-employ18 ment taxes), there shall be allowed as a deduction an 

19 amount equal to the sum of—

20 ‘‘(A) 7.1064 percent of so much of the in21 dividual’s net-earnings from self-employment 

22 for the taxable year (determined without regard 

23 to this paragraph) as does not exceed an 

24 amount equal to the product of 1.0765 and the 

25 excess (if any) of—


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1 ‘‘(i) the contribution and benefit base 

2 (as determined under section 230) in effect 

3 for the calendar year in which the taxable 

4 year begins, 

5 ‘‘(ii) the wages (within the meaning of 

6 section 1402(b)(1) of the Internal Revenue 

7 Code of 1986) paid to the individual dur8 ing such taxable year, plus 

9 ‘‘(B) 1.4293 percent of the excess (if any) 

10 of such net earnings over the amount of such 

11 net earnings taken into account under subpara12 graph (A);’’. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to taxable years beginning after 

15 December 31, 2014. 

16 SEC. 1502. DETERMINATION OF NET EARNINGS FROM SELF17 EMPLOYMENT.

18 (a) PRO RATA SHARE OF S CORPORATION ITEMS IN19 CLUDED AS NET EARNINGS FROM SELF-EMPLOYMENT.—

20 (1) IN GENERAL.—Section 1402(a) is amended 

21 by inserting ‘‘, plus (notwithstanding subsection 

22 (c)(2)) his pro rata share of nonseparately computed 

23 income or loss (as defined in section 1366(a)(2)) 

24 from any trade or business carried on by an S corVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00204 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 poration in which he is a shareholder’’ before ‘‘; ex2 cept that’’ in the matter preceding paragraph (1). 

3 (2) APPLICATION OF ADJUSTMENTS.—Section 

4 1402(a) is amended by inserting ‘‘and such pro rata 

5 share of S corporation nonseparately computed in6 come or loss’’ after ‘‘such distributive share of part7 nership ordinary income or loss’’ in the matter pre8 ceding paragraph (1). 

9 (3) CONFORMING AMENDMENTS.—Section 

10 211(a) of the Social Security Act is amended in the 

11 matter preceding paragraph (1)—

12 (A) by inserting ‘‘, plus (notwithstanding 

13 subsection (c)(2)) his pro rata share of non14 separately computed income or loss (as defined 

15 in section 1366(a)(2) of the Internal Revenue 

16 Code of 1986)from any trade or business car17 ried on by an S corporation in which he is a 

18 shareholder’’ before ‘‘; except that’’, and 

19 (B) by inserting ‘‘and such pro rata share 

20 of S corporation nonseparately computed in21 come or loss’’ after ‘‘such distributive share of 

22 partnership ordinary income or loss’’. 

23 (b) REPEAL OF EXCEPTION FOR LIMITED PART24 NERS.—


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1 (1) IN GENERAL.—Section 1402(a) is amended 

2 by striking paragraph (13). 

3 (2) CONFORMING AMENDMENT.—Section 

4 211(a) of the Social Security Act is amended by 

5 striking paragraph (12). 

6 (c) DEDUCTION FOR RETURN ON INVESTED CAP7 ITAL.—

8 (1) IN GENERAL.—Section 1402 is amended by 

9 adding at the end the following new subsection: 

10 ‘‘(m) DEDUCTION FOR RETURN ON INVESTED CAP11 ITAL.—

12 ‘‘(1) IN GENERAL.—An individual’s net earn13 ings from self-employment shall be reduced (but not 

14 below zero) by the lesser of—

15 ‘‘(A) 30 percent of the sum of—

16 ‘‘(i) such individual’s pass-through net 

17 earnings from self-employment, and 

18 ‘‘(ii) such individual’s wages (as de19 fined in section 3121) paid with respect to 

20 any trade or business carried on by an S 

21 corporation in which he is a shareholder, 

22 or 

23 ‘‘(B) such individual’s pass-through net 

24 earnings from self-employment. 


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1 ‘‘(2) PASS-THROUGH NET EARNINGS FROM

2 SELF-EMPLOYMENT.—For purposes of this sub3 section, the term ‘pass-through net earnings from 

4 self-employment’ means net earnings from self-em5 ployment (as computed under subsection (a) without 

6 regard to this subsection) determined without regard 

7 to any trade or business carried on by the individual. 

8 ‘‘(3) 100 PERCENT DEDUCTION WHERE NO MA9 TERIAL PARTICIPATION.—

10 ‘‘(A) IN GENERAL.—If an individual does 

11 not have material participation with respect to 

12 an entity (as determined under subparagraph 

13 (B)), in lieu of the reduction provided under 

14 paragraph (1) such individual’s net earnings 

15 from self-employment shall be reduced (but not 

16 below zero) by the sum of—

17 ‘‘(i) the reduction determined under 

18 paragraph (1) applied—

19 ‘‘(I) by substituting ‘100 percent’ 

20 for ‘30 percent’ in subparagraph (A) 

21 thereof, and 

22 ‘‘(II) by determining pass23 through net earnings from self-em24 ployment by only taking into account 


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1 distributive and pro rata shares from 

2 non-participation entities, and 

3 ‘‘(III) by only taking into ac4 count under subparagraph (A)(ii) 

5 thereof wages paid with respect to 

6 trades or businesses carried on by S 

7 corporations which are non-participa8 tion entities, plus 

9 ‘‘(ii) the reduction determined under 

10 paragraph (1) applied—

11 ‘‘(I) by determining pass-through 

12 net earnings from self-employment by 

13 not taking into account any distribu14 tive or pro rata share from a non-par15 ticipation entity, and 

16 ‘‘(II) by not taking into account 

17 under subparagraph (A)(ii) thereof 

18 any wages paid with respect to trades 

19 or businesses carried on by an S cor20 poration which is a non-participation 

21 entity. 

22 ‘‘(B) MATERIAL PARTICIPATION.—For 

23 purposes of this paragraph—

24 ‘‘(i) IN GENERAL.—An individual does 

25 not have material participation with reVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00208 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 spect to an entity (hereafter referred to as 

2 the top-tier entity) if such individual dem3 onstrates to the satisfaction of the Sec4 retary that such individual—

5 ‘‘(I) does not materially partici6 pate (as determined under section 

7 469(h) without regard to paragraph 

8 (2) thereof) in any activity carried on 

9 by such top-tier entity, and 

10 ‘‘(II) does not materially partici11 pate (as so determined) in any activity 

12 carried on by any entity in which such 

13 top-tier entity holds (directly or indi14 rectly) any interest. 

15 ‘‘(ii) FAMILY ATTRIBUTION.—For 

16 purposes of applying clause (i), the partici17 pation of any individual in any activity 

18 shall also be treated as performed by such 

19 individual’s spouse and the lineal descend20 ants of such individual and such individ21 ual’s spouse. 

22 ‘‘(C) NON-PARTICIPATION ENTITY.—For 

23 purposes of this paragraph, the term ‘non-par24 ticipation entity’ means, with respect to any in25 dividual, any entity with respect to which such 


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1 individual does not have material participation 

2 (as determined under subparagraph (B)).’’. 

3 (2) CONFORMING AMENDMENT.—Section 211 

4 of the Social Security Act is amended by adding at 

5 the end the following new subsection: 

6 ‘‘(l) DEDUCTION FOR RETURN ON INVESTED CAP7 ITAL.—

8 ‘‘(1) IN GENERAL.—An individual’s net earn9 ings from self-employment shall be reduced (but not 

10 below zero) by the lesser of—

11 ‘‘(A) 30 percent of the sum of—

12 ‘‘(i) such individual’s pass-through net 

13 earnings from self-employment, and 

14 ‘‘(ii) such individual’s wages (as de15 fined in section 209) paid with respect to 

16 any trade or business carried on by an S 

17 corporation in which he is a shareholder, 

18 or 

19 ‘‘(B) such individual’s pass-through net 

20 earnings from self-employment. 

21 ‘‘(2) PASS-THROUGH NET EARNINGS FROM

22 SELF-EMPLOYMENT.—For purposes of this sub23 section, the term ‘pass-through net earnings from 

24 self-employment’ means net earnings from self-em25 ployment (as computed under subsection (a) without 


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1 regard to this subsection) determined without regard 

2 to any trade or business carried on by the individual. 

3 ‘‘(3) 100 PERCENT DEDUCTION WHERE NO MA4 TERIAL PARTICIPATION.—

5 ‘‘(A) IN GENERAL.—If an individual does 

6 not have material participation with respect to 

7 an entity (as determined under subparagraph 

8 (B)), in lieu of the reduction provided under 

9 paragraph (1) such individual’s net earnings 

10 from self-employment shall be reduced (but not 

11 below zero) by the sum of—

12 ‘‘(i) the reduction determined under 

13 paragraph (1) applied—

14 ‘‘(I) by substituting ‘100 percent’ 

15 for ‘30 percent’ in subparagraph (A) 

16 thereof, and 

17 ‘‘(II) by determining pass18 through net earnings from self-em19 ployment by only taking into account 

20 distributive and pro rata shares from 

21 non-participation entities, and 

22 ‘‘(III) by only taking into ac23 count under subparagraph (A)(ii) 

24 thereof wages paid with respect to 

25 trades or businesses carried on by S 


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1 corporations which are non-participa2 tion entities, plus 

3 ‘‘(ii) the reduction determined under 

4 paragraph (1) applied—

5 ‘‘(I) by determining pass-through 

6 net earnings from self-employment by 

7 not taking into account any distribu8 tive or pro rata share from a non9 participation entity, and 

10 ‘‘(II) by not taking into account 

11 under subparagraph (A)(ii) thereof 

12 any wages paid with respect to trades 

13 or businesses carried on by an S cor14 poration which is a nonparticipation 

15 entity. 

16 ‘‘(B) MATERIAL PARTICIPATION.—For 

17 purposes of this paragraph—

18 ‘‘(i) IN GENERAL.—An individual does 

19 not have material participation with re20 spect to an entity (hereafter referred to as 

21 the top-tier entity) if such individual dem22 onstrates to the satisfaction of the Sec23 retary of the Treasury under section 

24 1402(m) of the Internal Revenue Code of 

25 1986 that such individual—


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1 ‘‘(I) does not materially partici2 pate (as determined under section 

3 469(h) of the Internal Revenue Code 

4 of 1986 without regard to paragraph 

5 (2) thereof) in any activity carried on 

6 by such top-tier entity, and 

7 ‘‘(II) does not materially partici8 pate (as so determined) in any activity 

9 carried on by any entity in which such 

10 top-tier entity holds (directly or indi11 rectly) any interest. 

12 ‘‘(ii) FAMILY ATTRIBUTION.—For 

13 purposes of applying clause (i), the partici14 pation of any individual in any activity 

15 shall also be treated as performed by such 

16 individual’s spouse and the lineal descend17 ants of such individual and such individ18 ual’s spouse. 

19 ‘‘(C) NONPARTICIPATION ENTITY.—For 

20 purposes of this paragraph, the term ‘non21 participation entity’ means, with respect to any 

22 individual, any entity with respect to which 

23 such individual does not have material partici24 pation (as determined under subparagraph 

25 (B)).’’. 


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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 1503. REPEAL OF EXEMPTION FROM FICA TAXES FOR 

5 CERTAIN FOREIGN WORKERS. 

6 (a) IN GENERAL.—Subsection (b) of section 3121 is 

7 amended by striking paragraphs (1) and (19). 

8 (b) COORDINATION WITH BENEFITS.—Subsection 

9 (a) of section 210 of the Social Security Act is amended 

10 by striking paragraphs (1) and (19). 

11 (c) RAILROAD RETIREMENT TAX.—Paragraph (1) of 

12 section 3231(e) is amended by striking the third sentence. 

13 (d) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to remuneration received for serv15 ices performed after December 31, 2014. 

16 SEC. 1504. REPEAL OF EXEMPTION FROM FICA TAXES FOR 

17 CERTAIN STUDENTS. 

18 (a) IN GENERAL.—Paragraph (10) of section 

19 3121(b) is amended—

20 (1) by inserting ‘‘during any calendar year’’ 

21 after ‘‘service performed’’ in the matter preceding 

22 subparagraph (A), and 

23 (2) by inserting ‘‘, and the remuneration paid 

24 by the employer with respect to such service during 

25 such calendar year is less than the dollar amount in 


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1 effect under section 213(d) of the Social Security 

2 Act (relating to amount required for a quarter of 

3 coverage) with respect to such year’’ before the 

4 semicolon at the end. 

5 (b) COLLEGE CLUBS, FRATERNITIES, AND SORORI6 TIES.—Paragraph (2) of section 3121(b) is amended—

7 (1) by inserting ‘‘during any calendar year’’ 

8 after ‘‘domestic service performed’’, and 

9 (2) by inserting ‘‘, if the remuneration paid by 

10 the employer with respect to such service during 

11 such calendar year is less than the dollar amount in 

12 effect under section 213(d) of the Social Security 

13 Act (relating to amount required for a quarter of 

14 coverage) with respect to such year’’ before the 

15 semicolon at the end. 

16 (c) DEDUCTION OF TAX FROM WAGES.—Subsection 

17 (a) of section 3102 is amended by inserting ‘‘; and an em18 ployer who in any calendar year pays to an employee re19 muneration to which paragraph (2) or (10) of section 

20 3121(b) is applicable may deduct an amount equivalent 

21 to such tax from any such payment of remuneration, even 

22 though at the time of payment the total amount of such 

23 remuneration paid to the employee by the employer in the 

24 calendar year is less than the dollar amount in effect 


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1 under section 213(d) of the Social Security Act with re2 spect to such year’’ before the period at the end. 

3 (d) COORDINATION WITH BENEFITS.—

4 (1) Paragraph (10) of section 210(a) of the So5 cial Security Act is amended—

6 (A) by inserting ‘‘during any calendar 

7 year’’ after ‘‘Service performed’’ in the matter 

8 preceding subparagraph (A), and 

9 (B) by inserting ‘‘, and the remuneration 

10 paid by the employer with respect to such serv11 ice during such calendar year is less than the 

12 dollar amount in effect under section 213(d) 

13 (relating to amount required for a quarter of 

14 coverage) with respect to such year’’ before the 

15 semicolon at the end. 

16 (2) Paragraph (2) of section 210(a) of the So17 cial Security Act is amended—

18 (A) by inserting ‘‘during any calendar 

19 year’’ after ‘‘Domestic service performed’’, and 

20 (B) by inserting ‘‘, if the remuneration 

21 paid by the employer with respect to such serv22 ice during such calendar year is less than the 

23 dollar amount in effect under section 213(d) 

24 (relating to amount required for a quarter of 


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1 coverage) with respect to such year’’ before the 

2 semicolon at the end. 

3 (e) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to remuneration received for serv5 ices performed after December 31, 2014. 

6 SEC. 1505. OVERRIDE OF TREASURY GUIDANCE PROVIDING 

7 THAT CERTAIN EMPLOYER-PROVIDED SUP8 PLEMENTAL UNEMPLOYMENT BENEFITS ARE 

9 NOT SUBJECT TO EMPLOYMENT TAXES. 

10 (a) IN GENERAL.—Effective with respect to amounts 

11 paid after December 31, 2014—

12 (1) Revenue Ruling 56-249, 

13 (2) Revenue Ruling 58-128, 

14 (3) Revenue Ruling 60-330, 

15 (4) so much of the holding of Revenue Ruling 

16 77-347 as relates to Plan (1) and Plan (2), 

17 (5) Revenue Ruling 90-72, and 

18 (6) any other ruling, regulation, or other guid19 ance provided by the Secretary of the Treasury, or 

20 his designee, to the extent that such ruling, regula21 tion, or guidance provides that any payment made 

22 by an employer by reason of involuntary termination 

23 of employment shall not be treated as wages or com24 pensation for purposes of any provision of the Inter25 nal Revenue Code of 1986, 


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1 shall be null and void. The preceding sentence shall not 

2 apply to the extent a ruling, regulation, or other guidance 

3 implements a statutory exception to wages or compensa4 tion. 

5 (b) REPEAL OF WITHHOLDING REQUIREMENT.—

6 (1) IN GENERAL.—Section 3402(o)(1) is 

7 amended by striking subparagraph (A) and by redes8 ignating subparagraphs (B) and (C) as subpara9 graphs (A) and (B), respectively. 

10 (2) CONFORMING AMENDMENTS.—

11 (A) Section 3402(o)(2) is amended by 

12 striking subparagraph (A) and by redesignating 

13 subparagraphs (B) and (C) as subparagraphs 

14 (A) and (B), respectively. 

15 (B) Section 3402(o)(5)(A) is amended by 

16 striking ‘‘paragraph (1)(C)’’ and inserting 

17 ‘‘paragraph (1)(B)’’. 

18 (3) EFFECTIVE DATE.—

19 (A) IN GENERAL.—The amendments made 

20 by this subsection shall apply to amounts paid 

21 after December 31, 2013. 

22 (B) NO INFERENCE.—No amendment 

23 made by this subsection shall be construed to 

24 create any inference with respect to any 

25 amounts paid before January 1, 2014. 


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1 SEC. 1506. CERTIFIED PROFESSIONAL EMPLOYER ORGANI2 ZATIONS.

3 (a) EMPLOYMENT TAXES.—Chapter 25 is amended 

4 by adding at the end the following new section: 

5 ‘‘SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANI6 ZATIONS.

7 ‘‘(a) GENERAL RULES.—For purposes of the taxes 

8 and other obligations imposed by this subtitle—

9 ‘‘(1) a certified professional employer organiza10 tion shall be treated as the employer (and no other 

11 person shall be treated as the employer) of any work 

12 site employee performing services for any customer 

13 of such organization, but only with respect to remu14 neration remitted by such organization to such work 

15 site employee, and 

16 ‘‘(2) the exemptions, exclusions, definitions, and 

17 other rules which are based on type of employer and 

18 which would (but for paragraph (1)) apply shall 

19 apply with respect to such taxes imposed on such re20 muneration. 

21 ‘‘(b) SUCCESSOR EMPLOYER STATUS.—For purposes 

22 of sections 3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)—

23 ‘‘(1) a certified professional employer organiza24 tion entering into a service contract with a customer 

25 with respect to a work site employee shall be treated 

26 as a successor employer and the customer shall be 


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1 treated as a predecessor employer during the term 

2 of such service contract, and 

3 ‘‘(2) a customer whose service contract with a 

4 certified professional employer organization is termi5 nated with respect to a work site employee shall be 

6 treated as a successor employer and the certified 

7 professional employer organization shall be treated 

8 as a predecessor employer. 

9 ‘‘(c) LIABILITY OF CERTIFIED PROFESSIONAL EM10 PLOYER ORGANIZATION.—Solely for purposes of its liabil11 ity for the taxes and other obligations imposed by this sub12 title—

13 ‘‘(1) a certified professional employer organiza14 tion shall be treated as the employer of any work 

15 site employee (other than a person described in sub16 section (e)) who is performing services covered by a 

17 contract meeting the requirements of section 

18 7706(e)(2), but only with respect to remuneration 

19 remitted by such organization to such individual, 

20 and 

21 ‘‘(2) exemptions, exclusions, definitions, and 

22 other rules which are based on type of employer and 

23 which would (but for paragraph (1)) apply shall 

24 apply with respect to such taxes imposed on such re25 muneration. 


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1 ‘‘(d) SPECIAL RULE FOR RELATED PARTY.—This 

2 section shall not apply in the case of a customer which 

3 bears a relationship to a certified professional employer 

4 organization described in section 267(b) or 707(b). For 

5 purposes of the preceding sentence, such sections shall be 

6 applied by substituting ‘10 percent’ for ‘50 percent’. 

7 ‘‘(e) SPECIAL RULE FOR CERTAIN INDIVIDUALS.—

8 For purposes of the taxes imposed under this subtitle, an 

9 individual with net earnings from self-employment derived 

10 from the customer’s trade or business (including a partner 

11 in a partnership that is a customer), is not a work site 

12 employee with respect to remuneration paid by a certified 

13 professional employer organization. 

14 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

15 such regulations as may be necessary or appropriate to 

16 carry out the purposes of this section.’’. 

17 (b) CERTIFIED PROFESSIONAL EMPLOYER ORGANI18 ZATION DEFINED.—Chapter 79, as amended by the pre19 ceding provisions of this Act, is amended by adding at the 

20 end the following new section: 

21 ‘‘SEC. 7706. CERTIFIED PROFESSIONAL EMPLOYER ORGANI22 ZATIONS.

23 ‘‘(a) IN GENERAL.—For purposes of this title, the 

24 term ‘certified professional employer organization’ means 

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1 sional employer organization for purposes of section 3511 

2 and who has been certified by the Secretary as meeting 

3 the requirements of subsection (b). 

4 ‘‘(b) CERTIFICATION REQUIREMENTS.—A person 

5 meets the requirements of this subsection if such person—

6 ‘‘(1) demonstrates that such person (and any 

7 owner, officer, and such other persons as may be 

8 specified in regulations) meets such requirements as 

9 the Secretary shall establish with respect to tax sta10 tus, background, experience, business location, and 

11 annual financial audits, 

12 ‘‘(2) agrees that it will satisfy the bond and 

13 independent financial review requirements of sub14 sections (c) on an ongoing basis, 

15 ‘‘(3) agrees that it will satisfy such reporting 

16 obligations as may be imposed by the Secretary, 

17 ‘‘(4) computes its taxable income using an ac18 crual method of accounting unless the Secretary ap19 proves another method, 

20 ‘‘(5) agrees to verify on such periodic basis as 

21 the Secretary may prescribe that it continues to 

22 meet the requirements of this subsection, and 

23 ‘‘(6) agrees to notify the Secretary in writing, 

24 within such time as the of Secretary may prescribe, 

25 of any change that materially affects the continuing 


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1 accuracy of any agreement or information which was 

2 previously made or provided. 

3 ‘‘(c) BOND AND INDEPENDENT FINANCIAL RE4 VIEW.—

5 ‘‘(1) IN GENERAL.—An organization meets the 

6 requirements of this paragraph if such organiza7 tion—

8 ‘‘(A) meets the bond requirements of para9 graph (2), and 

10 ‘‘(B) meets the independent financial re11 view requirements of paragraph (3). 

12 ‘‘(2) BOND.—

13 ‘‘(A) IN GENERAL.—A certified profes14 sional employer organization meets the require15 ments of this paragraph if the organization has 

16 posted a bond for the payment of taxes under 

17 subtitle C (in a form acceptable to the Sec18 retary) that is in an amount at least equal to 

19 the amount specified in subparagraph (B). 

20 ‘‘(B) AMOUNT OF BOND.—

21 ‘‘(i) IN GENERAL.—For the period 

22 April 1 of any calendar year through 

23 March 31 of the following calendar year, 

24 the amount of the bond required is equal 

25 to the greater of—


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1 ‘‘(I) 5 percent of the organiza2 tion’s liability under section 3511 for 

3 taxes imposed by subtitle C during the 

4 preceding calendar year (but not to 

5 exceed $1,000,000), or 

6 ‘‘(II) $50,000. 

7 ‘‘(ii) SPECIAL RULE FOR NEWLY CRE8 ATED PROFESSIONAL EMPLOYER ORGANI9 ZATIONS.—During the first three full cal10 endar years that an organization is in ex11 istence, subclause (I) of clause (i) shall not 

12 apply. For this purpose—

13 ‘‘(I) under rules provided by the 

14 Secretary, an organization is treated 

15 as in existence as of the date that 

16 such organization began providing 

17 services to any customer which were 

18 comparable to the services being pro19 vided with respect to work site em20 ployees, regardless of whether such 

21 date occurred before or after the orga22 nization is certified under subsection 

23 (b), and 

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1 posed by subtitle C during the pre2 ceding calendar year in excess of 

3 $5,000,000 shall no longer be de4 scribed in this clause (ii) as of April 

5 1 of the year following such calendar 

6 year. 

7 ‘‘(3) INDEPENDENT FINANCIAL REVIEW RE8 QUIREMENTS.—A certified professional employer or9 ganization meets the requirements of this paragraph 

10 if such organization—

11 ‘‘(A) has, as of the most recent audit date, 

12 caused to be prepared and provided to the Sec13 retary (in such manner as the Secretary may 

14 prescribe) an opinion of an independent cer15 tified public accountant as to whether the cer16 tified professional employer organization’s fi17 nancial statements are presented fairly in ac18 cordance with generally accepted accounting 

19 principles, and 

20 ‘‘(B) provides to the Secretary an assertion 

21 regarding Federal employment tax payments 

22 and an examination level attestation on such 

23 assertion from an independent certified public 

24 accountant not later than the last day of the 

25 second month beginning after the end of each 


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1 calendar quarter. Such assertion shall state 

2 that the organization has withheld and made 

3 deposits of all taxes imposed by chapters 21, 

4 22, and 24 of the Internal Revenue Code in ac5 cordance with regulations imposed by the Sec6 retary for such calendar quarter and such ex7 amination level attestation shall state that such 

8 assertion is fairly stated, in all material re9 spects. 

10 ‘‘(4) CONTROLLED GROUP RULES.—For pur11 poses of the requirements of paragraphs (2) and (3), 

12 all professional employer organizations that are 

13 members of a controlled group within the meaning 

14 of sections 414(b) and (c) shall be treated as a sin15 gle organization. 

16 ‘‘(5) FAILURE TO FILE ASSERTION AND ATTES17 TATION.—If the certified professional employer orga18 nization fails to file the assertion and attestation re19 quired by paragraph (3) with respect to any cal20 endar quarter, then the requirements of paragraph 

21 (3) with respect to such failure shall be treated as 

22 not satisfied for the period beginning on the due 

23 date for such attestation. 


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1 ‘‘(6) AUDIT DATE.—For purposes of paragraph 

2 (3)(A), the audit date shall be six months after the 

3 completion of the organization’s fiscal year. 

4 ‘‘(d) SUSPENSION AND REVOCATION AUTHORITY.—

5 The Secretary may suspend or revoke a certification of 

6 any person under subsection (b) for purposes of section 

7 3511 if the Secretary determines that such person is not 

8 satisfying the agreements or requirements of subsections 

9 (b) or (c), or fails to satisfy applicable accounting, report10 ing, payment, or deposit requirements. 

11 ‘‘(e) WORK SITE EMPLOYEE.—For purposes of this 

12 title—

13 ‘‘(1) IN GENERAL.—The term ‘work site em14 ployee’ means, with respect to a certified profes15 sional employer organization, an individual who—

16 ‘‘(A) performs services for a customer pur17 suant to a contract which is between such cus18 tomer and the certified professional employer 

19 organization and which meets the requirements 

20 of paragraph (2), and 

21 ‘‘(B) performs services at a work site 

22 meeting the requirements of paragraph (3). 

23 ‘‘(2) SERVICE CONTRACT REQUIREMENTS.—A 

24 contract meets the requirements of this paragraph 

25 with respect to an individual performing services for 


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1 a customer if such contract is in writing and pro2 vides that the certified professional employer organi3 zation shall—

4 ‘‘(A) assume responsibility for payment of 

5 wages to the individual, without regard to the 

6 receipt or adequacy of payment from the cus7 tomer for such services, 

8 ‘‘(B) assume responsibility for reporting, 

9 withholding, and paying any applicable taxes 

10 under subtitle C, with respect to the individ11 ual’s wages, without regard to the receipt or 

12 adequacy of payment from the customer for 

13 such services, 

14 ‘‘(C) assume responsibility for any em15 ployee benefits which the service contract may 

16 require the certified professional employer orga17 nization to provide, without regard to the re18 ceipt or adequacy of payment from the cus19 tomer for such services, 

20 ‘‘(D) assume responsibility for hiring, fir21 ing and for recruiting workers in addition to 

22 the customer’s responsibility for recruiting, hir23 ing, and firing workers, 

24 ‘‘(E) maintain employee records relating to 

25 the individual, and 


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1 ‘‘(F) agree to be treated as a certified pro2 fessional employer organization for purposes of 

3 section 3511 with respect to such individual. 

4 ‘‘(3) WORK SITE COVERAGE REQUIREMENT.—

5 The requirements of this paragraph are met with re6 spect to an individual if at least 85 percent of the 

7 individuals performing services for the customer at 

8 the work site where such individual performs serv9 ices are subject to 1 or more contracts with the cer10 tified professional employer organization which meet 

11 the requirements of paragraph (2) (but not taking 

12 into account those individuals who are excluded em13 ployees within the meaning of section 414(q)(5)). 

14 ‘‘(f) DETERMINATION OF EMPLOYMENT STATUS.—

15 Except to the extent necessary for purposes of section 

16 3511, nothing in this section shall be construed to affect 

17 the determination of who is an employee or employer for 

18 purposes of this title. 

19 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

20 such regulations as may be necessary or appropriate to 

21 carry out the purposes of this section.’’. 

22 (c) CONFORMING AMENDMENTS.—

23 (1) Section 3302 is amended by adding at the 

24 end the following new subsection: 


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1 ‘‘(h) TREATMENT OF CERTIFIED PROFESSIONAL EM2 PLOYER ORGANIZATIONS.—If a certified professional em3 ployer organization (as defined in section 7706), or a cus4 tomer of such organization, makes a contribution to the 

5 State’s unemployment fund with respect to a work site 

6 employee, such organization shall be eligible for the credits 

7 available under this section with respect to such contribu8 tion.’’. 

9 (2) Section 3303(a) is amended—

10 (A) by striking the period at the end of 

11 paragraph (3) and inserting ‘‘; and’’ and by in12 serting after paragraph (3) the following new 

13 paragraph: 

14 ‘‘(4) if the taxpayer is a certified professional 

15 employer organization (as defined in section 7706) 

16 that is treated as the employer under section 3511, 

17 such certified professional employer organization is 

18 permitted to collect and remit, in accordance with 

19 paragraphs (1), (2), and (3), contributions during 

20 the taxable year to the State unemployment fund 

21 with respect to a work site employee.’’, and 

22 (B) in the last sentence—

23 (i) by striking ‘‘paragraphs (1), (2), and 

24 (3)’’ and inserting ‘‘paragraphs (1), (2), (3), 

25 and (4)’’, and 


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1 (ii) by striking ‘‘paragraph (1), (2), or 

2 (3)’’ and inserting ‘‘paragraph (1), (2), (3), or 

3 (4)’’. 

4 (3) Section 6053(c) is amended by adding at 

5 the end the following new paragraph: 

6 ‘‘(8) CERTIFIED PROFESSIONAL EMPLOYER OR7 GANIZATIONS.—For purposes of any report required 

8 by this subsection, in the case of a certified profes9 sional employer organization that is treated, under 

10 section 3511, as the employer of a work site em11 ployee, the customer with respect to whom a work 

12 site employee performs services shall be the employer 

13 for purposes of reporting under this section and the 

14 certified professional employer organization shall 

15 furnish to the customer any information necessary 

16 to complete such reporting no later than such time 

17 as the Secretary shall prescribe.’’. 

18 (d) CLERICAL AMENDMENTS.—

19 (1) The table of sections for chapter 25 is 

20 amended by adding at the end the following new 

21 item:

‘‘Sec. 3511. Certified professional employer organizations.’’.

22 (2) The table of sections for chapter 79, as 

23 amended by the preceding provisions of this Act, is 


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1 amended by adding at the end the following new 

2 item:

‘‘Sec. 7706. Certified professional employer organizations.’’.

3 (e) REPORTING REQUIREMENTS AND OBLIGA4 TIONS.—The Secretary of the Treasury shall develop such 

5 reporting and recordkeeping rules, regulations, and proce6 dures as the Secretary determines necessary or appro7 priate to ensure compliance with the amendments made 

8 by this section with respect to entities applying for certifi9 cation as certified professional employer organizations or 

10 entities that have been so certified. Such rules shall be 

11 designed in a manner which streamlines, to the extent pos12 sible, the application of requirements of such amendments, 

13 the exchange of information between a certified profes14 sional employer organization and its customers, and the 

15 reporting and recordkeeping obligations of the certified 

16 professional employer organization. 

17 (f) USER FEES.—Subsection (b) of section 7528 is 

18 amended by adding at the end thereof the following new 

19 paragraph: 

20 ‘‘(4) CERTIFIED PROFESSIONAL EMPLOYER OR21 GANIZATIONS.—The fee charged under the program 

22 in connection with the certification by the Secretary 

23 of a professional employer organization under sec24 tion 7706 shall be an annual fee not to exceed 

25 $1,000 per year.’’. 


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1 (g) EFFECTIVE DATES.—

2 (1) IN GENERAL.—The amendments made by 

3 this section shall apply with respect to wages for 

4 services performed on or after January 1 of the first 

5 calendar year beginning more than 12 months after 

6 the date of the enactment of this Act. 

7 (2) CERTIFICATION PROGRAM.—The Secretary 

8 of the Treasury shall establish the certification pro9 gram described in section 7706(b) of the Internal 

10 Revenue Code of 1986, as added by this section, not 

11 later than 6 months before the effective date deter12 mined under paragraph (1). 

13 (h) NO INFERENCE.—Nothing contained in this sec14 tion or the amendments made by this section shall be con15 strued to create any inference with respect to the deter16 mination of who is an employee or employer—

17 (1) for Federal tax purposes (other than the 

18 purposes set forth in the amendments made by this 

19 section), or 

20 (2) for purposes of any other provision of law. 


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1 Subtitle G—Pensions and 

2 Retirement

3 PART 1—INDIVIDUAL RETIREMENT PLANS 

4 SEC. 1601. ELIMINATION OF INCOME LIMITS ON CONTRIBU5 TIONS TO ROTH IRAs. 

6 (a) IN GENERAL.—Subsection (c) of section 408A is 

7 amended by striking paragraph (3). 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 1602. NO NEW CONTRIBUTIONS TO TRADITIONAL IRAs. 

12 (a) IN GENERAL.—

13 (1) INDIVIDUAL RETIREMENT ACCOUNTS.—

14 Paragraph (1) of section 408(a) is amended by 

15 striking ‘‘in excess of the amount’’ and all that fol16 lows through the end and inserting the following: 

17 ‘‘unless it is a contribution under a simplified em18 ployee pension described in subsection (k) not in ex19 cess of the amount of the limitation in effect for 

20 such taxable year under section 415(c)(1)(A), a con21 tribution to a simple retirement account described in 

22 subsection (p) not in excess of the amount described 

23 in section 408(p)(8) for such taxable year, or a con24 tribution to a Roth IRA described in section 408A 

25 not in excess of the amount in effect for the taxable 


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1 year with respect to such individual under section 

2 408A(c)(1)(A)(i).’’. 

3 (2) INDIVIDUAL RETIREMENT ANNUITIES.—

4 (A) IN GENERAL.—Subparagraph (B) of 

5 section 408(b)(2) is amended to read as follows: 

6 ‘‘(B) any amount paid as a premium on 

7 behalf of any individual for a taxable year 

8 would meet the requirements of subsection 

9 (a)(1) if it were paid as a contribution to an in10 dividual retirement account, and’’. 

11 (B) ENDOWMENT CONTRACT REQUIRE12 MENT.—The last sentence of section 408(b) is 

13 amended by striking ‘‘the dollar amount in ef14 fect under section 219(b)(1)(A)’’ and inserting 

15 ‘‘the amounts described in paragraph (2)(B)’’. 

16 (b) CONFORMING AMENDMENTS.—

17 (1) AMENDMENTS RELATING TO DEDUCT18 IBILITY.—

19 (A) Section 219(a) is amended by striking 

20 ‘‘equal to the qualified retirement contributions 

21 of the individual’’ and inserting ‘‘equal to the 

22 amounts contributed on behalf of the individual 

23 to a plan described in section 501(c)(18)’’. 

24 (B) Section 219(b) is amended—


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1 (i) by striking ‘‘MAXIMUM AMOUNT

2 OF DEDUCTION’’ and all that follows 

3 through ‘‘Notwithstanding paragraph (1), 

4 the amount allowable as a deduction’’ and 

5 inserting ‘‘MAXIMUM AMOUNT OF DEDUC6 TION.—The amount allowable as a deduc7 tion’’, and 

8 (ii) by striking paragraphs (4) and 

9 (5). 

10 (C) Section 219 is amended by striking 

11 subsections (c), (d), (e), (g), and (h) and by re12 designating subsection (f) as subsection (c). 

13 (D) Section 219(c), as so redesignated, is 

14 amended—

15 (i) by striking ‘‘OTHER DEFINITIONS

16 AND SPECIAL RULES’’ and inserting ‘‘SPE17 CIAL RULES’’, 

18 (ii) by striking paragraphs (1), (3), 

19 (4), (5), (6), (7), and (8), and 

20 (iii) by inserting before paragraph (2) 

21 the following new paragraph: 

22 ‘‘(1) BENEFICIARY MUST BE UNDER AGE

701 23 ⁄2.—No deduction shall be allowed under this sec24 tion with respect to any amount contributed on be25 half of an individual to a plan described in section 


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501(c)(18) if such individual has attained age 701 1 ⁄2

2 before the close of such individual’s taxable year for 

3 which the contribution was made.’’. 

4 (E) Section 4973(b)(2)(C) is amended by 

5 striking ‘‘(determined without regard to section 

6 219(f)(6))’’. 

7 (2) AMENDMENTS RELATING TO ROTH IRA CON8 TRIBUTION LIMITS.—

9 (A) Section 408A(c), as amended by this 

10 Act, is amended—

11 (i) by striking paragraphs (1) and (2) 

12 and inserting the following new para13 graphs: 

14 ‘‘(1) MAXIMUM CONTRIBUTION.—

15 ‘‘(A) IN GENERAL.—The aggregate 

16 amount of contributions for any taxable year to 

17 all Roth IRAs maintained for the benefit of an 

18 individual shall not exceed the lesser of—

19 ‘‘(i) $5,500, or 

20 ‘‘(ii) an amount equal to the com21 pensation includible in the individual’s 

22 gross income for such taxable year. 

23 ‘‘(B) CATCH-UP CONTRIBUTIONS FOR INDI24 VIDUALS 50 OR OLDER.—In the case of an indi25 vidual who has attained the age of 50 before 


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1 the close of the taxable year, the amount in ef2 fect under subparagraph (A)(i) for such taxable 

3 year shall be increased by $1,000. 

4 ‘‘(2) SPECIAL RULE FOR CERTAIN MARRIED IN5 DIVIDUALS.—In the case of an individual to whom 

6 this paragraph applies for the taxable year, the limi7 tation of paragraph (1) shall be equal to the lesser 

8 of—

9 ‘‘(A) the dollar amount in effect under 

10 paragraph (1)(A)(i) for the taxable year, or 

11 ‘‘(B) the sum of—

12 ‘‘(i) the compensation includible in 

13 such individual’s gross income for the tax14 able year, plus 

15 ‘‘(ii) the compensation includible in 

16 the gross income of such individual’s 

17 spouse for the taxable year reduced by—

18 ‘‘(I) the amount allowed as a de19 duction under section 219(a) to such 

20 spouse for such taxable year, 

21 ‘‘(II) the amount of any contribu22 tion on behalf of such spouse to a 

23 Roth IRA for such taxable year. 


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1 ‘‘(3) INDIVIDUALS TO WHOM PARAGRAPH (2) 

2 APPLIES.—Paragraph (2) shall apply to any indi3 vidual if—

4 ‘‘(A) such individual files a joint return for 

5 the taxable year, and 

6 ‘‘(B) the amount of compensation (if any) 

7 includible in such individual’s gross income for 

8 the taxable year is less than the compensation 

9 includible in the gross income of such individ10 ual’s spouse for the taxable year.’’. 

11 (ii) by striking ‘‘paragraph (2)’’ in 

12 paragraph (6) and inserting ‘‘paragraph 

13 (1)’’, 

14 (iii) by striking ‘‘the rule of section 

15 219(f)(3) shall apply’’ in paragraph (7) 

16 and inserting the following: ‘‘a taxpayer 

17 shall be deemed to have made a contribu18 tion to a Roth IRA on the last day of the 

19 preceding taxable year if the contribution 

20 is made on account of such taxable year 

21 and is made not later than the time pre22 scribed by law for filing the return for 

23 such taxable year (not including extensions 

24 thereof)’’, and 


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1 (iv) by adding at the end the following 

2 new paragraphs: 

3 ‘‘(8) COMPENSATION.—For purposes of this 

4 section, the term ‘compensation’ includes earned in5 come (as defined in section 401(c)(2)). The term 

6 ‘compensation’ does not include any amount received 

7 as a pension or annuity and does not include any 

8 amount received as deferred compensation. For pur9 poses of this paragraph, section 401(c)(2) shall be 

10 applied as if the term trade or business for purposes 

11 of section 1402 included service described in sub12 section (c)(6) thereof. The term compensation in13 cludes any differential wage payment (as defined in 

14 section 3401(h)(2)). 

15 ‘‘(9) MARRIED INDIVIDUALS.—The limitation 

16 under this subsection shall be computed separately 

17 for each individual, and this section shall be applied 

18 without regard to any community property laws. 

19 ‘‘(10) SPECIAL RULE FOR COMPENSATION

20 EARNED BY MEMBERS OF ARMED FORCES FOR

21 SERVICES IN COMBAT ZONE.—For purposes of para22 graphs (1)(A)(ii) and (2), the amount of compensa23 tion includible in an individual’s gross income shall 

24 be determined without regard to section 112.’’. 

25 (B) Section 408A(d)(3)(A) is amended—


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1 (i) by inserting ‘‘and’’ at the end of 

2 clause (i), 

3 (ii) by striking ‘‘, and’’ at the end of 

4 clause (ii) and inserting a period, 

5 (iii) by striking clause (iii), and 

6 (iv) by striking the last sentence. 

7 (3) AMENDMENTS RELATING TO TRADITIONAL

8 IRAS.—

9 (A) Section 408(d)(4) is amended—

10 (i) by striking subparagraph (B) and 

11 inserting the following: 

12 ‘‘(B) in the case of simplified employee 

13 pension, such contribution is not excluded from 

14 gross income under section 402(h),’’. 

15 (ii) by adding at the end the fol16 lowing: ‘‘This paragraph shall not apply to 

17 any contribution to a simple retirement ac18 count.’’. 

19 (B) Section 408(d)(5)(A) is amended—

20 (i) by striking ‘‘in effect under section 

21 219(b)(1)(A)’’ and inserting ‘‘in effect with 

22 respect to the taxpayer for the taxable year 

23 under section 408A(c)(1)(A)(i)’’, 

24 (ii) by striking ‘‘the amount allowable 

25 as a deduction’’ and all that follows 


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1 through ‘‘such excess contribution.’’ and 

2 inserting ‘‘the amount that may be contrib3 uted under section 408A(c)(1) for the tax4 able year for which the contribution was 

5 made if such distribution is received after 

6 the date described in paragraph (4).’’, 

7 (iii) by adding at the end of subpara8 graph (A) the following: ‘‘This paragraph 

9 shall not apply to any contribution to a 

10 simple retirement account.’’, and 

11 (iv) by striking the last sentence. 

12 (C) Section 408 is amended by striking 

13 subsection (o). 

14 (4) AMENDMENTS RELATING TO SIMPLE RE15 TIREMENT ACCOUNTS.—

16 (A) Section 408(p)(2)(D)(ii) is amended by 

17 striking ‘‘means a plan, contract’’ and all that 

18 follows through the period at the end and in19 serting the following: ‘‘means—

20 ‘‘(I) a plan described in section 

21 401(a) which includes a trust exempt 

22 from tax under section 501(a), 

23 ‘‘(II) an annuity plan described 

24 in section 403(a), 


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1 ‘‘(III) an eligible deferred com2 pensation plan (as defined in section 

3 457(b)) of an eligible employer de4 scribed in section 457(e)(1)(A)), 

5 ‘‘(IV) an annuity contract de6 scribed in section 403(b), 

7 ‘‘(V) a simplified employee pen8 sion (within the meaning of section 

9 408(k)), 

10 ‘‘(VI) any simple retirement ac11 count (within the meaning of section 

12 408(p)), or 

13 ‘‘(VII) a trust described in sec14 tion 501(c)(18).’’. 

15 (B) Section 408(p)(8) is amended to read 

16 as follows: 

17 ‘‘(8) COORDINATION WITH MAXIMUM LIMITA18 TION UNDER SUBSECTION (a).—In the case of a 

19 simple retirement account, for purposes of sub20 sections (a)(1) and (b)(2), contributions may not ex21 ceed the sum of—

22 ‘‘(A) the dollar amount in effect under 

23 paragraph (2)(A)(ii), and 


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1 ‘‘(B) the employer contribution required 

2 under subparagraph (A)(iii) or (B)(i) of para3 graph (2), whichever is applicable.’’. 

4 (5) AMENDMENTS RELATING TO SEPS.—Section 

5 408 is amended by striking subsection (j). 

6 (6) AMENDMENTS RELATING TO EXCISE TAX

7 ON EXCESS CONTRIBUTIONS.—

8 (A) TRADITIONAL IRAS.—Subsection (b) of 

9 section 4973 is amended—

10 (i) by striking paragraph (1) and in11 serting the following: 

12 ‘‘(1) the amounts contributed for the taxable 

13 year to the accounts or for the annuities or bonds 

14 (other than any contributions to a Roth IRA) which 

15 are not permitted contributions under subsection 

16 (a)(1) or (b)(2) of section 408, and’’. 

17 (ii) in paragraph (2)(C), by striking 

18 ‘‘the maximum amount allowable’’ and all 

19 that follows through ‘‘without regard to 

20 section 219(f)(6))’’ and inserting ‘‘the per21 mitted contributions under subsection 

22 (a)(1) or (b)(2) of section 408 for the tax23 able year over the amount contributed’’, 

24 and 


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1 (iii) by striking the last sentence and 

2 inserting the following: ‘‘Paragraph (2) 

3 shall be determined separately with respect 

4 to any simplified employee pension (within 

5 the meaning of section 408(k)) and any 

6 simple retirement account (within the 

7 meaning of section 408(p)).’’. 

8 (B) ROTH IRAS.—Section 4973(f) is 

9 amended by striking ‘‘sections 408A(c)(2) and 

10 (c)(3)’’ each place it appears and inserting 

11 ‘‘section 408A(c)(1)’’. 

12 (7) AMENDMENTS RELATING TO SAVER’S CRED13 IT.—Section 25B(d)(1)(A) is amended to read as 

14 follows: 

15 ‘‘(A) the amounts—

16 ‘‘(i) paid in cash for the taxable year 

17 by or on behalf of an individual to all Roth 

18 IRAs maintained for such individual’s ben19 efit, and 

20 ‘‘(ii) contributed on behalf of the indi21 vidual to a plan described in section 

22 501(c)(18),’’. 

23 (8) OTHER CONFORMING AMENDMENTS.—


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1 (A) Section 86(f)(3) is amended by strik2 ing ‘‘219(f)(1)’’ and inserting ‘‘section 

3 408A(c)(8)’’. 

4 (B) Section 132(m)(3) is amended by 

5 striking ‘‘section 219(g)(5)’’ and inserting ‘‘sec6 tion 408(p)(2)(D)(ii)’’. 

7 (C)(i) Section 223(d) is amended—

8 (I) by redesignating paragraph (4) as 

9 paragraph (7), 

10 (II) by inserting after paragraph (3) 

11 the following new paragraphs: 

12 ‘‘(4) RECONTRIBUTED AMOUNTS.—No deduc13 tion shall be allowed under this section with respect 

14 to a rollover contribution described in subsection 

15 (f)(5). 

16 ‘‘(5) TIME WHEN CONTRIBUTIONS DEEMED

17 MADE.—For purposes of this section, a taxpayer 

18 shall be deemed to have made a contribution to a 

19 health savings account on the last day of the pre20 ceding taxable year if the contribution is made on 

21 account of such taxable year and is made not later 

22 than the time prescribed by law for filing the return 

23 for such taxable year (not including extensions 

24 thereof). 


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1 ‘‘(6) EMPLOYER PAYMENTS.—Except as pro2 vided in section 106(d), for purposes of this title, 

3 any amount paid by an employer to a health savings 

4 account shall be treated as payment of compensation 

5 to the employee (other than a self-employed indi6 vidual who is an employee within the meaning of 

7 section 401(c)(1)) includible in his gross income in 

8 the taxable year for which the amount was contrib9 uted, whether or not a deduction for such payment 

10 is allowable under this section to the employee.’’. 

11 (ii) Section 223(d)(7), as so redesignated, 

12 is amended by striking subparagraphs (A), (B), 

13 and (C), and redesignating subparagraphs (D) 

14 and (E) as subparagraphs (A) and (B), respec15 tively. 

16 (D) Section 409A(d)(2)(A) is amended by 

17 striking ‘‘subparagraph (A) or (B) of section 

18 219(g)(5) (without regard to subparagraph 

19 (A)(iii))’’ and inserting ‘‘section 

20 408(p)(2)(D)(ii) (without regard to subclause 

21 (III) thereof)’’. 

22 (E) Section 501(c)(18)(D)(i) is amended 

23 by striking ‘‘section 219(b)(3)’’ and inserting 

24 ‘‘section 219(a)’’. 


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1 (F) Section 877A(d)(4)(A) is amended by 

2 striking ‘‘section 219(g)(5)’’ and inserting 

3 ‘‘408(p)(2)(D)(ii)’’. 

4 (G) Section 6652 is amended by striking 

5 subsection (g). 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2014. 

9 SEC. 1603. INFLATION ADJUSTMENT FOR ROTH IRA CON10 TRIBUTIONS.

11 (a) IN GENERAL.—Subsection (c) of section 408A, 

12 as amended by this Act, is amended by adding at the end 

13 the following new paragraph: 

14 ‘‘(11) COST-OF-LIVING ADJUSTMENT.—In the 

15 case of any taxable year beginning after 2023, the 

16 dollar amount in paragraph (1)(A)(i) shall be in17 creased by an amount equal to—

18 ‘‘(A) such dollar amount, multiplied by 

19 ‘‘(B) the cost-of-living adjustment deter20 mined under section 1(c)(2)(A) for the calendar 

21 year in which the taxable year begins, deter22 mined by substituting ‘calendar year 2022’ for 

23 ‘calendar year 2012’ in clause (ii) thereof. 


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1 If any increase determined under the preceding sen2 tence is not a multiple of $500, such increase shall 

3 be rounded to the next lowest multiple of $500.’’. 

4 (b) EFFECTIVE DATE.—The amendment made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2014. 

7 SEC. 1604. REPEAL OF SPECIAL RULE PERMITTING RE8 CHARACTERIZATION OF ROTH IRA CON9 TRIBUTIONS AS TRADITIONAL IRA CON10 TRIBUTIONS.

11 (a) IN GENERAL.—Section 408A(d) is amended by 

12 striking paragraph (6) and by redesignating paragraph 

13 (7) as paragraph (6). 

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2014. 

17 SEC. 1605. REPEAL OF EXCEPTION TO 10-PERCENT PEN18 ALTY FOR FIRST HOME PURCHASES. 

19 (a) IN GENERAL.—Section 72(t)(2) is amended by 

20 striking subparagraph (F). 

21 (b) ROTH IRAs.—Subparagraph (A) of section 

22 408A(d)(2) is amended by inserting ‘‘or’’ at the end of 

23 clause (ii), and by striking ‘‘, or’’ at the end of clause 

24 (iii) and inserting a period, and by striking clause (iv). 

25 (c) CONFORMING AMENDMENT.—


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1 (1) Section 72(t) is amended by striking para2 graph (8). 

3 (2) Section 408A(d), as amended by this Act, 

4 is amended by striking paragraph (5) and by redes5 ignating paragraph (6) as paragraph (5). 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to distributions after December 31, 

8 2014. 

9 PART 2—EMPLOYER-PROVIDED PLANS 

10 SEC. 1611. TERMINATION FOR NEW SEPs. 

11 (a) IN GENERAL.—

12 (1) Section 408(k) is amended by redesignating 

13 paragraph (9) as paragraph (10) and by inserting 

14 after paragraph (8) the following new paragraph: 

15 ‘‘(9) TERMINATION.—This subsection shall not 

16 apply to years beginning after December 31, 2014. 

17 The preceding sentence shall not apply to any sim18 plified employee pension of an employer if such sim19 plified employee pension, and the terms thereof, 

20 meet the requirements of this subsection on and 

21 after such date.’’. 

22 (2) Section 402(h) is amended by adding at the 

23 end the following new paragraph: 

24 ‘‘(4) TERMINATION.—This subsection shall not 

25 apply to any simplified employee pension the arVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00250 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 rangement for which is established after December 

2 31, 2014.’’. 

3 (b) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2014. 

6 SEC. 1612. TERMINATION FOR NEW SIMPLE 401(k)s. 

7 (a) AMENDMENTS RELATING TO SIMPLE 

8 401(k)s.—Section 401(k)(11) is amended by adding at the 

9 end the following new subparagraph: 

10 ‘‘(E) TERMINATION.—This paragraph 

11 shall apply to a cash or deferred arrangement 

12 for any plan year beginning after December 31, 

13 2014, only if such arrangement meets the re14 quirements of this paragraph for the last plan 

15 year beginning before January 1, 2015, and for 

16 each plan year thereafter.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to plan years beginning after De19 cember 31, 2014. 

20 SEC. 1613. RULES RELATED TO DESIGNATED ROTH CON21 TRIBUTIONS.

22 (a) APPLICABLE RETIREMENT PLANS WHICH PER23 MIT ELECTIVE DEFERRALS REQUIRED TO ACCEPT DES24 IGNATED ROTH CONTRIBUTIONS.—


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1 (1) IN GENERAL.—Paragraph (30) of section 

2 401(a) is amended—

3 (A) by striking ‘‘DEFERRALS.—’’ and all 

4 that follows through ‘‘In the case of a trust’’ 

5 and inserting the following: ‘‘DEFERRALS.— 

6 ‘‘(A) IN GENERAL.—In the case of a 

7 trust’’, 

8 (B) by striking ‘‘unless the plan provides 

9 that’’ and inserting the following: ‘‘unless the 

10 plan—

11 ‘‘(i) provides that’’, 

12 (C) by striking the period at the end and 

13 inserting ‘‘, and’’, and 

14 (D) by adding at the end the following: 

15 ‘‘(ii) except as provided in subpara16 graph (B), includes a qualified Roth con17 tribution program (as defined in section 

18 402A(b)). 

19 ‘‘(B) EXCEPTION FOR CERTAIN SMALL

20 PLANS.—Subparagraph (A)(ii) shall not apply 

21 to any plan of an eligible employer (as defined 

22 in section 408(p)(2)(C)).’’. 

23 (2) CONFORMING AMENDMENTS.—


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1 (A) Section 402A(b)(1) is amended by 

2 striking all that follows ‘‘designated Roth con3 tributions’’ and inserting a period. 

4 (B) The heading of section 402A (and the 

5 item relating to such section in the table of sec6 tions for part I of subchapter D of chapter 1) 

7 is amended by striking ‘‘OPTIONAL TREAT8 MENT OF ELECTIVE DEFERRALS AS ROTH

9 CONTRIBUTIONS’’ and inserting ‘‘DES10 IGNATED ROTH CONTRIBUTIONS’’. 

11 (b) RESTRICTION ON PORTION OF ELECTIVE DEFER12 RAL LIMITATION WHICH MAY APPLY TO TRADITIONAL

13 ELECTIVE DEFERRALS.—

14 (1) IN GENERAL.—Subparagraph (A) of section 

15 402(g)(1) is amended by striking ‘‘the applicable 

16 dollar amount’’ and inserting ‘‘50 percent (100 per17 cent in the case of elective deferrals with respect to 

18 any plan of an eligible employer (as defined in sec19 tion 408(p)(2)(C)) of the applicable dollar amount’’. 

20 (2) GOVERNMENT 457(b) PLANS.—

21 (A) IN GENERAL.—Subsection (b) of sec22 tion 457 is amended by striking ‘‘and’’ at the 

23 end of paragraph (5), by redesignating para24 graph (6) as paragraph (7), and by inserting 


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1 after paragraph (5) the following new para2 graph: 

3 ‘‘(6) which, in the case of a plan maintained by 

4 an employer described in subsection (e)(1)(A), meets 

5 requirements similar to the requirements of section 

6 401(a)(30), and’’. 

7 (B) CONFORMING AMENDMENT.—Section 

8 402(g)(1)(A) is amended by inserting ‘‘and sec9 tion 457(a)(1)’’ after ‘‘(h)(1)(B)’’. 

10 (C) CROSS-REFERENCE.—For treatment of 

11 amounts deferred under an eligible compensa12 tion plan of a governmental employer as elective 

13 deferrals, see section 1618(b)(1) of this Act. 

14 (3) ROTH ELECTIVE DEFERRALS PERMITTED

15 TO EXTENT OF FULL LIMITATION AMOUNT.—

16 (A) IN GENERAL.—Section 402A(c)(2)(A) 

17 is amended to read as follows: 

18 ‘‘(A) the applicable dollar amount in effect 

19 under section 402(g)(1)(B) with respect to the 

20 employee for the taxable year, over’’. 

21 (B) CONFORMING AMENDMENTS.—

22 (i) Section 401(a)(30) is amended—

23 (I) by inserting ‘‘(including con24 tributions treated as elective deferrals 


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1 under section 402A(a)(1))’’ after 

2 ‘‘section 402(g)(3)’’, and 

3 (II) by striking ‘‘section 

4 402(g)(1)(A)’’ and inserting ‘‘section 

5 402(g)(1)(B), and that the amount of 

6 elective deferrals not included in gross 

7 income may not exceed the amount of 

8 the limitation in effect under section 

9 402(g)(1)(A),’’. 

10 (ii) Section 402(g)(1)(C) is amend11 ed—

12 (I) by striking ‘‘In addition to 

13 subparagraph (A)’’ and inserting 

14 ‘‘For purposes of subparagraph (A)’’. 

15 (II) by striking ‘‘gross income 

16 shall not include’’ and all that follows 

17 through ‘‘does not exceed’’ and insert18 ing ‘‘the applicable dollar amount in 

19 effect for the taxable year under sub20 paragraph (B) shall be increased by’’. 

21 (iii)(I) So much of section 

22 402(g)(2)(A) as precedes clause (i) is 

23 amended to read as follows: 

24 ‘‘(A) IN GENERAL.—If an individual’s ag25 gregate elective deferrals for a taxable year exVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00255 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ceed the applicable dollar amount under para2 graph (1) (hereinafter in this paragraph re3 ferred to as ‘excess total deferrals’) or if an in4 dividual’s aggregate elective deferrals (dis5 regarding designated Roth contributions and 

6 simple Roth contributions) exceed the amount 

7 excludable under paragraph (1)(A) (hereinafter 

8 in this paragraph referred to as ‘excess non9 Roth deferrals’)—’’. 

10 (II) Section 402(g)(2)(A)(i) is amend11 ed by striking ‘‘such excess deferrals’’ and 

12 inserting ‘‘such excess total deferrals or ex13 cess non-Roth deferrals’’. 

14 (III) Section 402(g)(2)(C)(ii) is 

15 amended by striking ‘‘the excess deferral’’ 

16 and inserting ‘‘the excess total deferral or 

17 excess non-Roth deferral’’. 

18 (IV) Section 402A(d)(2)(C) is amend19 ed by striking ‘‘excess deferral’’ and insert20 ing ‘‘excess total deferral’’. 

21 (V) Section 402A(d)(3) is amended by 

22 striking ‘‘excess deferral’’ each place it ap23 pears and inserting ‘‘excess total deferral’’. 

24 (VI) Section 402(g)(1)(A) is amended 

25 by striking the second sentence. 


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1 (iv) Section 402A(c)(1)(A) is amended 

2 by striking ‘‘without regard to this sec3 tion’’ and inserting ‘‘(determined without 

4 regard to this section and section 

5 402(g))’’. 

6 (4) REPORTING BY EMPLOYERS.—Section 

7 6051(a)(8) is amended by inserting after ‘‘(as de8 fined in section 402A)’’ the following: ‘‘, and the 

9 type of plan under which amounts are deferred or 

10 contributed’’. 

11 (c) SIMPLE ROTH RETIREMENT ACCOUNTS PER12 MITTED.—

13 (1) IN GENERAL.—Subsection (p) of section 

14 408 is amended by adding at the end the following 

15 new paragraph: 

16 ‘‘(11) ROTH CONTRIBUTIONS.—For purposes of 

17 this section—

18 ‘‘(A) IN GENERAL.—If a qualified salary 

19 reduction arrangement with respect to a simple 

20 retirement account includes a simple Roth con21 tribution program, any simple Roth contribu22 tion made by an employer pursuant to such 

23 program shall be treated as an elective em24 ployer contribution, except that such contribuVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00257 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 tion shall be paid to a Roth IRA and shall not 

2 be excludable from gross income. 

3 ‘‘(B) SIMPLE ROTH CONTRIBUTION PRO4 GRAM.—The term ‘simple Roth contribution 

5 program’ means a program under which an em6 ployee may elect to make simple Roth contribu7 tions. 

8 ‘‘(C) SIMPLE ROTH CONTRIBUTION.—The 

9 term ‘simple Roth contribution’ means any elec10 tive employer contribution which—

11 ‘‘(i) is excludable from gross income 

12 of an employee without regard to this 

13 paragraph, and 

14 ‘‘(ii) the employee designates (at such 

15 time and in such manner as the Secretary 

16 may prescribe) as not being so excludable. 

17 ‘‘(D) LIMITATION.—In the case of an eligi18 ble employer which elects the application of this 

19 subparagraph with respect to the simple retire20 ment accounts established pursuant to a quali21 fied salary reduction arrangement of such em22 ployer, notwithstanding paragraph (2)(E), the 

23 applicable dollar amount for purposes of para24 graph (2)(A)(ii), shall be equal to—


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1 ‘‘(i) in the case of any such account 

2 which is not designated as a Roth IRA, 50 

3 percent of the applicable dollar amount in 

4 effect under section 402(g)(1)(B) for the 

5 taxable year, and 

6 ‘‘(ii) in the case of any such account 

7 which is designated as a Roth IRA, the ex8 cess (if any) of—

9 ‘‘(I) the applicable dollar amount 

10 in effect under section 402(g)(1)(B) 

11 for the taxable year, over 

12 ‘‘(II) the aggregate amount of 

13 elective employer contributions to any 

14 account described in clause (i). 

15 In the case of a simple retirement account with 

16 respect to which the application of this subpara17 graph is elected, the employer shall not be 

18 treated as an eligible employer for purposes of 

19 section 402(g)(1)(A), and the applicable dollar 

20 amount with respect to any eligible participant 

21 (as defined in section 414(v)) shall, notwith22 standing section 414(v)(2)(B)(ii), be deter23 mined by reference to section 402(g)(1)(C).’’. 

24 (2) COORDINATION WITH MAXIMUM ROTH LIMI25 TATION.—Subsection (c) of section 408A, as amendVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00259 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ed by this Act, is amended by adding at the end the 

2 following new paragraph: 

3 ‘‘(12) INCREASE IN MAXIMUM LIMITATION FOR

4 SIMPLE ROTH.—In the case of any simple retirement 

5 account, subparagraphs (A)(i) and (B) of paragraph 

6 (1) shall be applied by disregarding any contribu7 tions made to a simple retirement account and any 

8 qualified rollover contributions.’’. 

9 (3) CONFORMING AMENDMENTS.—

10 (A) Section 408A(f)(1) is amended by 

11 striking ‘‘or a simple retirement account’’. 

12 (B) Section 6051(a)(8), as amended by 

13 this Act, is amended by inserting after ‘‘(as de14 fined in section 402A)’’ the following: ‘‘and 

15 simple Roth contributions (as defined in section 

16 408(p)(11)(C))’’. 

17 (d) EFFECTIVE DATE.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), the amendments made by this section 

20 shall apply to plan years and taxable years begin21 ning after December 31, 2014. 

22 (2) SUBSECTION (c).—The amendments made 

23 by subsection (c) shall apply to calendar years begin24 ning after December 31, 2014. 


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1 SEC. 1614. MODIFICATIONS OF REQUIRED DISTRIBUTION 

2 RULES FOR PENSION PLANS. 

3 (a) IN GENERAL.—Section 401(a)(9)(B) of the Inter4 nal Revenue Code of 1986 is amended to read as follows: 

5 ‘‘(B) REQUIRED DISTRIBUTIONS WHERE

6 EMPLOYEE DIES BEFORE ENTIRE INTEREST IS

7 DISTRIBUTED.—

8 ‘‘(i) 5-YEAR GENERAL RULE.—A trust 

9 shall not constitute a qualified trust under 

10 this section unless the plan provides that, 

11 if an employee dies before the distribution 

12 of the employee’s interest (whether or not 

13 such distribution has begun in accordance 

14 with subparagraph (A)), the entire interest 

15 of the employee will be distributed within 

16 5 years after the death of such employee. 

17 ‘‘(ii) EXCEPTION FOR ELIGIBLE DES18 IGNATED BENEFICIARIES.—If—

19 ‘‘(I) any portion of the employ20 ee’s interest is payable to (or for the 

21 benefit of) an eligible designated bene22 ficiary, 

23 ‘‘(II) such portion will be distrib24 uted (in accordance with regulations) 

25 over the life of such eligible des26 ignated beneficiary (or over a period 


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1 not extending beyond the life expect2 ancy of such beneficiary), and 

3 ‘‘(III) such distributions begin 

4 not later than 1 year after the date of 

5 the employee’s death or such later 

6 date as the Secretary may by regula7 tions prescribe, 

8 then, for purposes of clause (i) and except 

9 as provided in clause (iv) or subparagraph 

10 (E)(iii), the portion referred to in sub11 clause (I) shall be treated as distributed on 

12 the date on which such distributions begin. 

13 ‘‘(iii) SPECIAL RULE FOR SURVIVING

14 SPOUSE OF EMPLOYEE.—If the eligible 

15 designated beneficiary referred to in clause 

16 (ii)(I) is the surviving spouse of the em17 ployee—

18 ‘‘(I) the date on which the dis19 tributions are required to begin under 

20 clause (ii)(III) shall not be earlier 

21 than the date on which the employee 

would have attained age 70 1 22 ⁄2, and 

23 ‘‘(II) if the surviving spouse dies 

24 before the distributions to such spouse 

25 begin, this subparagraph shall be apVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00262 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 plied as if the surviving spouse were 

2 the employee. 

3 ‘‘(iv) RULES UPON DEATH OF ELIGI4 BLE DESIGNATED BENEFICIARY.—If an el5 igible designated beneficiary dies before the 

6 portion of an employee’s interest described 

7 in clause (ii) is entirely distributed, clause 

8 (ii) shall not apply to any beneficiary of 

9 such eligible designated beneficiary and the 

10 remainder of such portion shall be distrib11 uted within 5 years after the death of such 

12 beneficiary.’’. 

13 (b) DEFINITION OF ELIGIBLE DESIGNATED BENE14 FICIARY.—Section 401(a)(9)(E) of such Code is amended 

15 to read as follows: 

16 ‘‘(E) DEFINITIONS AND RULES RELATING

17 TO DESIGNATED BENEFICIARY.—For purposes 

18 of this paragraph—

19 ‘‘(i) DESIGNATED BENEFICIARY.—The 

20 term ‘designated beneficiary’ means any 

21 individual designated as a beneficiary by 

22 the employee. 

23 ‘‘(ii) ELIGIBLE DESIGNATED BENE24 FICIARY.—The term ‘eligible designated 

25 beneficiary’ means, with respect to any emVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00263 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ployee, any designated beneficiary who, as 

2 of the date of death of the employee, is—

3 ‘‘(I) the surviving spouse of the 

4 employee, 

5 ‘‘(II) subject to clause (iii), a 

6 child of the employee who has not at7 tained age 22, 

8 ‘‘(III) disabled (within the mean9 ing of section 72(m)(7)), 

10 ‘‘(IV) a chronically ill individual 

11 (within the meaning of section 

12 7702B(c)(2), except that the require13 ments of subparagraph (A)(i) thereof 

14 shall only be treated as met if there is 

15 a certification that, as of such date, 

16 the period of inability described in 

17 such subparagraph with respect to the 

18 individual is an indefinite one that is 

19 reasonably expected to be lengthy in 

20 nature), or 

21 ‘‘(V) an individual not described 

22 in any of the preceding subparagraphs 

23 who is not more than 10 years young24 er than the employee. 


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1 ‘‘(iii) SPECIAL RULE FOR CHIL2 DREN.—Subject to subparagraph (F), an 

3 individual described in clause (ii)(II) shall 

4 cease to be an eligible designated bene5 ficiary as of the date the individual attains 

6 age 22 and the requirement of subpara7 graph (B)(i) shall not be treated as met 

8 with respect to any remaining portion of 

9 an employee’s interest payable to the indi10 vidual unless such portion is distributed 

11 within 5 years after such date.’’. 

12 (c) REQUIRED BEGINNING DATE.—Section 

13 401(a)(9)(C) of such Code is amended by adding at the 

14 end the following new clause: 

15 ‘‘(v) EMPLOYEES BECOMING 5-PERCENT OWNERS AFTER AGE 701 16 ⁄2.—If an 

17 employee becomes a 5-percent owner (as 

18 defined in section 416) with respect to a 

19 plan year ending in a calendar year after 

20 the calendar year in which the employee 

attains age 701 21 ⁄2, then clause (i)(II) shall 

22 be applied by substituting the calendar 

23 year in which the employee became such 

24 an owner for the calendar year in which 

25 the employee retires.’’. 


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1 (d) EFFECTIVE DATES.—

2 (1) IN GENERAL.—Except as provided in this 

3 subsection, the amendments made by this section 

4 shall apply to distributions with respect to employees 

5 who die after December 31, 2014. 

6 (2) REQUIRED BEGINNING DATE.—The amend7 ment made by subsection (c) shall apply to employ8 ees becoming a 5-percent owner with respect to plan 

9 years ending in calendar years beginning before, on, 

10 or after the date of the enactment of this Act, except 

11 that—

12 (A) if, without regard to such amendment, 

13 an employee’s required beginning date occurs 

14 before April 1, 2015, such amendment shall not 

15 result in an earlier required beginning date for 

16 such employee, and 

17 (B) if, solely by reason of such amend18 ment, an employee’s required beginning date 

19 would occur before April 1, 2015, such employ20 ee’s required beginning date shall occur on 

21 April 1, 2015. 

22 (3) EXCEPTION FOR CERTAIN BENE23 FICIARIES.—If a designated beneficiary of an em24 ployee who dies before January 1, 2015, dies after 

25 December 31, 2014—


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1 (A) the amendments made by this section 

2 shall apply to any beneficiary of such des3 ignated beneficiary, and 

4 (B) the designated beneficiary shall be 

5 treated as an eligible designated beneficiary for 

6 purposes of applying section 401(a)(9)(B)(iv) of 

7 such Code (as in effect after the amendments 

8 made by this section). 

9 (4) EXCEPTION FOR CERTAIN EXISTING ANNU10 ITY CONTRACTS.—

11 (A) IN GENERAL.—The amendments made 

12 by this section shall not apply to a qualified an13 nuity which is a binding annuity contract in ef14 fect on the date of the enactment of this Act 

15 and at all times thereafter. 

16 (B) QUALIFIED ANNUITY CONTRACT.—For 

17 purposes of this paragraph, the term ‘‘qualified 

18 annuity’’ means, with respect to an employee, 

19 an annuity—

20 (i) which is a commercial annuity (as 

21 defined in section 3405(e)(6) of such 

22 Code) or payable by a defined benefit plan, 

23 (ii) under which the annuity payments 

24 are substantially equal periodic payments 

25 (not less frequently than annually) over the 


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1 lives of such employee and a designated 

2 beneficiary (or over a period not extending 

3 beyond the life expectancy of such em4 ployee or the life expectancy of such em5 ployee and a designated beneficiary) in ac6 cordance with the regulations described in 

7 section 401(a)(9)(A)(ii) of such Code (as 

8 in effect before such amendments) and 

9 which meets the other requirements of this 

10 section 401(a)(9) of such Code (as so in 

11 effect) with respect to such payments, and 

12 (iii) with respect to which—

13 (I) annuity payments to the em14 ployee have begun before January 1, 

15 2015, and the employee has made an 

16 irrevocable election before such date 

17 as to the method and amount of the 

18 annuity payments to the employee or 

19 any designated beneficiaries, or 

20 (II) if subclause (I) does not 

21 apply, the employee has made an ir22 revocable election before the date of 

23 the enactment of this Act as to the 

24 method and amount of the annuity 


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1 payments to the employee or any des2 ignated beneficiaries. 

3 SEC. 1615. REDUCTION IN MINIMUM AGE FOR ALLOWABLE 

4 IN-SERVICE DISTRIBUTIONS. 

5 (a) IN GENERAL.—Section 401(a)(36) is amended by 

striking ‘‘age 62’’ and inserting ‘‘age 59 1 6 ⁄2’’. 

7 (b) APPLICATION TO GOVERNMENTAL SECTION

8 457(b) PLANS.—Clause (i) of section 457(d)(1)(A) is 

9 amended by inserting ‘‘(in the case of a plan maintained 

10 by an employer described in subsection (e)(1)(A), age 59 

1 11 ⁄2)’’ before the comma at the end. 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to distributions made after Decem14 ber 31, 2014. 

15 SEC. 1616. MODIFICATION OF RULES GOVERNING HARD16 SHIP DISTRIBUTIONS. 

17 (a) IN GENERAL.—Not later than 1 year after the 

18 date of the enactment of this Act, the Secretary of the 

19 Treasury shall modify Treasury Regulation section 

20 1.401(k)–1(d)(3)(iv)(E) to—

21 (1) delete the 6-month prohibition on contribu22 tions imposed by paragraph (2) thereof, and 

23 (2) to make any other modifications necessary 

24 to carry out the purposes of section 


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1 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 

2 1986. 

3 (b) EFFECTIVE DATE.—The revised regulations 

4 under this section shall apply to plan years beginning after 

5 December 31, 2014. 

6 SEC. 1617. EXTENDED ROLLOVER PERIOD FOR THE ROLL7 OVER OF PLAN LOAN OFFSET AMOUNTS IN 

8 CERTAIN CASES. 

9 (a) IN GENERAL.—Paragraph (3) of section 402(c) 

10 is amended by adding at the end the following new sub11 paragraph: 

12 ‘‘(C) ROLLOVER OF CERTAIN PLAN LOAN

13 OFFSET AMOUNTS.—

14 ‘‘(i) IN GENERAL.—In the case of a 

15 qualified plan loan offset amount, para16 graph (1) shall not apply to any transfer 

17 of such amount made after the due date 

18 (including extensions) for filing the return 

19 of tax for the taxable year in which such 

20 amount is treated as distributed from a 

21 qualified employer plan. 

22 ‘‘(ii) QUALIFIED PLAN LOAN OFFSET

23 AMOUNT.—For purposes of this subpara24 graph, the term ‘qualified plan loan offset 

25 amount’ means a plan loan offset amount 


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1 which is treated as distributed from a 

2 qualified employer plan to a participant or 

3 beneficiary solely by reason of—

4 ‘‘(I) the termination of the quali5 fied employer plan, or 

6 ‘‘(II) the failure to meet the re7 payment terms of the loan from such 

8 plan because of the separation from 

9 service of the participant (whether 

10 due to layoff, cessation of business, 

11 termination of employment, or other12 wise). 

13 ‘‘(iii) PLAN LOAN OFFSET AMOUNT.—

14 For purposes of clause (ii), the term ‘plan 

15 loan offset amount’ means the amount by 

16 which the participant’s accrued benefit 

17 under the plan is reduced in order to repay 

18 a loan from the plan. 

19 ‘‘(iv) LIMITATION.—This subpara20 graph shall not apply to any plan loan off21 set amount unless such plan loan offset 

22 amount relates to a loan to which section 

23 72(p)(1) does not apply by reason of sec24 tion 72(p)(2). 


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1 ‘‘(v) QUALIFIED EMPLOYER PLAN.—

2 For purposes of this subsection, the term 

3 ‘qualified employer plan’ has the meaning 

4 given such term by section 72(p)(4).’’. 

5 (b) CONFORMING AMENDMENT.—Subparagraph (A) 

6 of section 402(c)(3) is amended by striking ‘‘subpara7 graph (B)’’ and inserting ‘‘subparagraphs (B) and (C)’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 1618. COORDINATION OF CONTRIBUTION LIMITA12 TIONS FOR 403(b) PLANS AND GOVERN13 MENTAL 457(b) PLANS. 

14 (a) 403(b) PLANS.—

15 (1) ELIMINATION OF SPECIAL CATCH-UP

16 RULE.—Subsection (g) of section 402 is amended by 

17 striking paragraph (7) and by redesignating para18 graph (8) as paragraph (7). 

19 (2) ELIMINATION OF POST TERMINATION NON20 ELECTIVE CONTRIBUTIONS.—Subsection (b) of sec21 tion 403 is amended—

22 (A) in paragraph (3), by striking ‘‘for the 

23 most recent period’’ and all that follows 

24 through ‘‘more than five years’’, and 

25 (B) by striking paragraph (4). 


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1 (3) ELIMINATION OF INCREASED CONTRIBU2 TION LIMIT FOR CHURCH PLANS.—Subsection (c) of 

3 section 415 is amended by striking paragraph (7). 

4 (4) ELIMINATION OF SEPARATE 415(c) LIM5 ITS.—Paragraph (4) of section 415(k) is amended 

6 by striking ‘‘each employer with respect to which the 

7 participant has the control required’’ and inserting 

8 ‘‘the employer and each employer which is part of a 

9 controlled group or under common control’’. 

10 (b) 457(b) PLANS.—

11 (1) ELIMINATION OF SEPARATE DEFERRAL

12 LIMIT.—Paragraph (3) of section 402(g) is amended 

13 by striking ‘‘and’’ at the end of subparagraph (C), 

14 by striking the period at the end of subparagraph 

15 (D) and inserting ‘‘, and’’, and by inserting after 

16 subparagraph (D) the following new subparagraph: 

17 ‘‘(E) any amount deferred under an eligi18 ble deferred compensation plan (as defined in 

19 section 457(b)) of an eligible employer de20 scribed in section 457(e)(1)(A).’’. 

21 (2) TAKEN INTO ACCOUNT UNDER LIMITATION

22 FOR DEFINED CONTRIBUTION PLANS.—

23 (A) IN GENERAL.—Paragraph (2) of sec24 tion 415(a) is amended by striking ‘‘or’’ at the 

25 end of subparagraph (B), by inserting ‘‘or’’ at 


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1 the end of subparagraph (C), and by inserting 

2 after subparagraph (C) the following new sub3 paragraph: 

4 ‘‘(D) an eligible deferred compensation 

5 plan (as defined in section 457(b)) of an eligible 

6 employer described in section 457(e)(1)(A),’’. 

7 (B) DEFINITION.—Paragraph (1) of sec8 tion 415(k) is amended by striking ‘‘or’’ at the 

9 end of subparagraph (C), by striking the period 

10 at the end of subparagraph (D) and inserting 

11 ‘‘, or’’, and by adding at the end the following 

12 new subparagraph: 

13 ‘‘(E) an eligible deferred compensation 

14 plan (as defined in section 457(b)) of an eligible 

15 employer described in section 457(e)(1)(A).’’. 

16 (3) ELIMINATION OF SPECIAL CATCH-UP

17 RULE.—Paragraph (3) of section 457(b) is amended 

18 by inserting ‘‘, in the case of an eligible employer de19 scribed in subsection (e)(1)(B),’’ after ‘‘which’’. 

20 (c) CONFORMING AMENDMENTS.—

21 (1) Section 25B(d)(1)(B) is amended—

22 (A) by striking clause (ii), and 

23 (B) by striking ‘‘the amount of—’’ and all 

24 that follows through ‘‘any elective deferrals’’ 


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1 and inserting the following: ‘‘the amount of any 

2 elective deferrals’’. 

3 (2) Section 402A(e)(2) is amended—

4 (A) by striking ‘‘, and’’ and all that follows 

5 and inserting a period, and 

6 (B) by striking ‘‘means—’’ and all that 

7 follows through ‘‘any elective deferral described 

8 in subparagraph (A) or (C)’’ and inserting the 

9 following: ‘‘means any elective deferral de10 scribed in (A), (C), or (E)’’. 

11 (3) Section 457(e) is amended by striking para12 graph (18). 

13 (4) Section 414(u)(2)(C) is amended by insert14 ing ‘‘by an eligible employer described in section 

15 457(e)(1)(B)’’ after ‘‘(as defined in section 

16 457(b))’’. 

17 (5) Section 414(v)(2)(D) is amended—

18 (A) by striking ‘‘clauses (i), (ii), and (iv) 

19 of’’, and 

20 (B) by striking ‘‘, and plans described in 

21 clause (iii)’’ and all that follows through the 

22 end and inserting a period. 

23 (6) Section 414(v)(3)(A)(i) is amended by strik24 ing ‘‘(determined without regard to section 

25 457(b)(3))’’. 


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1 (7) Section 414(v)(6)(B) is amended by striking 

2 ‘‘subsection (u)(2)(C)’’ and inserting ‘‘section 

3 402(g)(3)’’. 

4 (8) Section 414(v)(6) is amended by striking 

5 subparagraph (C). 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to plan years and taxable years 

8 beginning after December 31, 2014. 

9 SEC. 1619. APPLICATION OF 10-PERCENT EARLY DISTRIBU10 TION TAX TO GOVERNMENTAL 457 PLANS. 

11 (a) IN GENERAL.—Paragraph (1) of section 72(t) is 

12 amended by inserting ‘‘or an eligible deferred compensa13 tion plan (as defined in section 457(b)) of an eligible em14 ployer described in section 457(e)(1)(A),’’ after ‘‘section 

15 4974(c)),’’. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall apply to withdrawals on or after Feb18 ruary 26, 2014. 

19 SEC. 1620. INFLATION ADJUSTMENTS FOR QUALIFIED PLAN 

20 BENEFIT AND CONTRIBUTION LIMITATIONS. 

21 (a) DEFINED BENEFIT PLANS.—

22 (1) CURRENT LIMIT.—Subparagraph (A) of 

23 section 415(b)(1) is amended by striking 

24 ‘‘$160,000’’ and inserting ‘‘$210,000’’. 


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1 (2) INFLATION ADJUSTMENT.—Section 415(d) 

2 is amended—

3 (A) in paragraph (1)(A)—

4 (i) by striking ‘‘$160,000’’ and insert5 ing ‘‘$210,000’’, and 

6 (ii) by inserting ‘‘for calendar years 

7 beginning after 2023’’ after ‘‘subsection 

8 (b)(1)(A)’’, 

9 (B) paragraph (3)(A), by striking ‘‘July 1, 

10 2001’’ and inserting ‘‘July 1, 2022’’. 

11 (b) DEFINED CONTRIBUTION PLANS.—

12 (1) CURRENT LIMIT.—Subparagraph (A) of 

13 section 415(c)(1) is amended by striking ‘‘$40,000’’ 

14 and inserting ‘‘$52,000’’. 

15 (2) INFLATION ADJUSTMENT.—Subsection (d) 

16 of section 415 is amended—

17 (A) in paragraph (1)(C)—

18 (i) by striking ‘‘$40,000’’ and insert19 ing ‘‘$52,000’’, 

20 (ii) by inserting ‘‘for calendar years 

21 beginning after 2023’’ after ‘‘subsection 

22 (c)(1)(A)’’, 

23 (B) in paragraph (3)(D), by striking ‘‘July 

24 1, 2001’’ and inserting ‘‘July 1, 2022’’. 

25 (c) CONFORMING AMENDMENTS.—


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1 (1) Section 415(b)(2) is amended by striking 

2 ‘‘$160,000’’ each place it appears in subparagraphs 

3 (C) and (D) and inserting ‘‘$210,000’’. 

4 (2) Section 415(b) is amended by striking 

5 ‘‘$160,000’’ in the fourth sentence of paragraph (7) 

6 and inserting ‘‘$210,000’’. 

7 (3) The headings for subparagraphs (C) and 

8 (D) of section 415(b)(2) are each amended by strik9 ing ‘‘$160,000’’ and inserting ‘‘$210,000’’. 

10 (4) The heading for subparagraph (A) of sec11 tion 415(d)(3) is amended by striking ‘‘$160,000’’ 

12 and inserting ‘‘$210,000’’. 

13 (5) The heading for subparagraph (D) of sec14 tion 415(d)(3) is amended by striking ‘‘$40,000’’ and 

15 inserting ‘‘$52,000’’. 

16 (6) The heading for subparagraph (A) of sec17 tion 415(d)(4) is amended by striking ‘‘$160,000’’ 

18 and inserting ‘‘$210,000’’. 

19 (7) The heading for subparagraph (B) of sec20 tion 415(d)(4) is amended by striking ‘‘$40,000’’ and 

21 inserting ‘‘$52,000’’. 

22 (d) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to years ending with or within a 

24 calendar year beginning after 2014. 


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1 SEC. 1621. INFLATION ADJUSTMENTS FOR QUALIFIED PLAN 

2 ELECTIVE DEFERRAL LIMITATIONS. 

3 (a) CURRENT LIMIT.—Subparagraph (B) of section 

4 402(g)(1) is amended by striking ‘‘shall be’’ and all that 

5 follows and inserting ‘‘is $17,500.’’

6 (b) INFLATION ADJUSTMENT.—Paragraph (4) of sec7 tion 402(g) is amended—

8 (1) by striking ‘‘December 31, 2006’’ and in9 serting ‘‘December 31, 2023’’, 

10 (2) by striking ‘‘$15,000’’ and inserting 

11 ‘‘$17,500’’, and 

12 (3) by striking ‘‘2005’’ and inserting ‘‘2022’’. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to plan years and taxable years 

15 beginning after December 31, 2014. 

16 SEC. 1622. INFLATION ADJUSTMENTS FOR SIMPLE RETIRE17 MENT ACCOUNTS. 

18 (a) CURRENT LIMIT.—Clause (i) of section 

19 408(p)(2)(E) is amended by striking ‘‘shall be’’ and all 

20 that follows and inserting ‘‘shall be $12,000’’. 

21 (b) INFLATION ADJUSTMENT.—Clause (ii) of section 

22 408(p)(2)(E) is amended—

23 (1) by striking ‘‘December 31, 2005’’ and in24 serting ‘‘December 31, 2023’’, 

25 (2) by striking ‘‘$10,000’’ and inserting 

26 ‘‘$12,000’’, 


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1 (3) by striking ‘‘2004’’ and inserting ‘‘2022’’. 

2 (c) EFFECTIVE DATE.—The amendments made by 

3 this section shall apply to calendar years beginning after 

4 2014. 

5 SEC. 1623. INFLATION ADJUSTMENTS FOR CATCH-UP CON6 TRIBUTIONS FOR CERTAIN EMPLOYER 

7 PLANS.

8 (a) CURRENT LIMIT.—

9 (1) PLANS OTHER THAN SIMPLE 401(k) AND

10 SIMPLE RETIREMENT ACCOUNTS.—Clause (i) of sec11 tion 414(v)(2)(B) is amended by striking ‘‘deter12 mined in accordance with the following table’’ and 

13 all that follows through the period at the end and 

14 inserting ‘‘$5,500.’’. 

15 (2) SIMPLE 401(k) AND SIMPLE RETIREMENT

16 ACCOUNTS.—Clause (ii) of section 414(v)(2)(B) is 

17 amended by striking ‘‘determined in accordance with 

18 the following table’’ and all that follows through the 

19 period at the end and inserting ‘‘$2,500.’’. 

20 (b) INFLATION ADJUSTMENT.—Subparagraph (C) of 

21 section 414(v)(2) is amended—

22 (1) by striking ‘‘December 31, 2006’’ and in23 serting ‘‘December 31, 2023’’, 

24 (2) by striking ‘‘$5,000’’ and inserting 

25 ‘‘$5,500’’, and 


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1 (3) by striking ‘‘2005’’ and inserting ‘‘2022’’. 

2 (c) EFFECTIVE DATE.—The amendments made by 

3 this section shall apply to taxable years beginning after 

4 December 31, 2014. 

5 SEC. 1624. INFLATION ADJUSTMENTS FOR GOVERNMENTAL 

6 AND TAX-EXEMPT ORGANIZATION PLANS. 

7 (a) CURRENT LIMIT.—Subparagraph (A) of section 

8 457(b)(2) is amended by striking ‘‘the applicable dollar 

9 amount’’ and inserting ‘‘$17,500’’. 

10 (b) INFLATION ADJUSTMENT.—Paragraph (15) of 

11 section 457(e) is amended—

12 (1) by striking ‘‘APPLICABLE DOLLAR

13 AMOUNT.—’’ and all that follows through ‘‘COST-OF14 LIVING ADJUSTMENTS.—In the case of taxable years 

15 beginning after December 31, 2006’’ and inserting 

16 the following: ‘‘COST-OF-LIVING ADJUSTMENTS.—In 

17 the case of taxable years beginning after December 

18 31, 2023’’, 

19 (2) by striking ‘‘the $15,000 amount under 

20 subparagraph (A)’’ and inserting ‘‘the $17,500 

21 amount under subsection (b)(2)(A)’’, and 

22 (3) by striking ‘‘2005’’ and inserting ‘‘2022’’. 

23 (c) CONFORMING AMENDMENT.—Section 

24 457(f)(4)(A) is amended by striking ‘‘twice the applicable 

25 dollar limit determined under subsection (e)(15)’’ and inVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00281 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 serting ‘‘twice the amount in effect under subsection 

2 (b)(2)(A)’’. 

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2014. 

6 Subtitle H—Certain Provisions Re7 lated to Members of Indian 

8 Tribes

9 SEC. 1701. INDIAN GENERAL WELFARE BENEFITS. 

10 (a) IN GENERAL.—Part III of subchapter B of chap11 ter 1 is amended by inserting before section 140 the fol12 lowing new section: 

13 ‘‘SEC. 139E. INDIAN GENERAL WELFARE BENEFITS. 

14 ‘‘(a) IN GENERAL.—Gross income does not include 

15 the value of any Indian general welfare benefit. 

16 ‘‘(b) INDIAN GENERAL WELFARE BENEFIT.—For 

17 purposes of this section, the term ‘Indian general welfare 

18 benefit’ includes any payment made or services provided 

19 to or on behalf of a member of an Indian tribe (or any 

20 spouse or dependent of such a member) pursuant to an 

21 Indian tribal government program, but only if—

22 ‘‘(1) the program is administered under speci23 fied written guidelines and does not discriminate in 

24 favor of members of the governing body of the tribe, 

25 and 


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1 ‘‘(2) the benefits provided under such pro2 gram—

3 ‘‘(A) are available to any tribal member 

4 who meets such guidelines, 

5 ‘‘(B) are for the promotion of general wel6 fare, 

7 ‘‘(C) are not lavish or extravagant, and 

8 ‘‘(D) are not compensation for services. 

9 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur10 poses of this section—

11 ‘‘(1) INDIAN TRIBAL GOVERNMENT.—For pur12 poses of this section, the term ‘Indian tribal govern13 ment’ includes any agencies or instrumentalities of 

14 an Indian tribal government and any Alaska Native 

15 regional or village corporation, as defined in, or es16 tablished pursuant to, the Alaska Native Claims Set17 tlement Act (43 U.S.C. 1601, et seq.). 

18 ‘‘(2) DEPENDENT.—The term ‘dependent’ has 

19 the meaning given such term by section 7705, deter20 mined without regard to subsections (b)(1), (b)(2), 

21 and (d)(1)(B). 

22 ‘‘(3) LAVISH OR EXTRAVAGANT.—The Sec23 retary shall, in consultation with the Tribal Advisory 

24 Committee (as established under section 1702 of the 

25 Tax Reform Act of 2014), establish guidelines for 


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1 what constitutes lavish or extravagant benefits with 

2 respect to Indian tribal government programs. 

3 ‘‘(4) ESTABLISHMENT OF TRIBAL GOVERNMENT

4 PROGRAM.—A program shall not fail to be treated as 

5 an Indian tribal government program solely by rea6 son of the program being established by tribal cus7 tom or government practice.’’. 

8 (b) CONFORMING AMENDMENT.—The table of sec9 tions for part III of subchapter B of chapter 1 is amended 

10 by inserting before the item relating to section 140 the 

11 following new item:

‘‘Sec. 139E. Indian general welfare benefits.’’.

12 (c) EFFECTIVE DATE.—

13 (1) IN GENERAL.—The amendments made by 

14 this section shall apply to taxable years for which 

15 the period of limitation on refund or credit under 

16 section 6511 of the Internal Revenue Code of 1986 

17 has not expired. 

18 (2) ONE-YEAR WAIVER OF STATUTE OF LIMITA19 TIONS.—If the period of limitation on a credit or re20 fund resulting from the amendments made by sub21 section (a) expires before the end of the 1-year pe22 riod beginning on the date of the enactment of this 

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1 theless, be made or allowed if claim therefor is filed 

2 before the close of such 1-year period. 

3 SEC. 1702. TRIBAL ADVISORY COMMITTEE. 

4 (a) ESTABLISHMENT.—The Secretary of the Treas5 ury shall establish a Tribal Advisory Committee (herein6 after in this subsection referred to as the ‘‘Committee’’). 

7 (b) DUTIES.—

8 (1) IMPLEMENTATION.—The Committee shall 

9 advise the Secretary on matters relating to the tax10 ation of Indians. 

11 (2) EDUCATION AND TRAINING.—The Secretary 

12 shall, in consultation with the Committee, establish 

13 and require—

14 (A) training and education for internal rev15 enue field agents who administer and enforce 

16 internal revenue laws with respect to Indian 

17 tribes on Federal Indian law and the Federal 

18 Government’s unique legal treaty and trust re19 lationship with Indian tribal governments, and 

20 (B) training of such internal revenue field 

21 agents, and provision of training and technical 

22 assistance to tribal financial officers, about im23 plementation of this Act and the amendments 

24 made thereby. 

25 (c) MEMBERSHIP.—


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1 (1) IN GENERAL.—The Committee shall be 

2 composed of 7 members appointed as follows: 

3 (A) Three members appointed by the Sec4 retary of the Treasury. 

5 (B) One member appointed by the Chair6 man, and one member appointed by the Rank7 ing Member, of the Committee on Ways and 

8 Means of the House of Representatives. 

9 (C) One member appointed by the Chair10 man, and one member appointed by the Rank11 ing Member, of the Committee on Finance of 

12 the Senate. 

13 (2) TERM.—

14 (A) IN GENERAL.—Except as provided in 

15 subparagraph (B), each member’s term shall be 

16 4 years. 

17 (B) INITIAL STAGGERING.—The first ap18 pointments made by the Secretary under para19 graph (1)(A) shall be for a term of 2 years. 

20 SEC. 1703. OTHER RELIEF FOR INDIAN TRIBES. 

21 (a) WAIVER OF PENALTIES AND INTEREST.—The 

22 Secretary of the Treasury may waive any interest and pen23 alties imposed under the Internal Revenue Code of 1986 

24 on any Indian tribal government or member of an Indian 

25 tribe (or any spouse or dependent of such a member) to 


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1 the extent such interest and penalties relate to excluding 

2 a payment or benefit from gross income under the general 

3 welfare exclusion. 

4 (b) DEFINITIONS.—For purposes of this section—

5 (1) INDIAN TRIBAL GOVERNMENT.—The term 

6 ‘‘Indian tribal government’’ shall have the meaning 

7 given such term by section 139E of such Code, as 

8 added by this Act. 

9 (2) INDIAN TRIBE.—The term ‘‘Indian tribe’’ 

10 shall have the meaning given such term by section 

11 139D(c)(1) of such Code, as amended by this Act. 

12 TITLE II—ALTERNATIVE 

13 MINIMUM TAX REPEAL 

14 SEC. 2001. REPEAL OF ALTERNATIVE MINIMUM TAX. 

15 (a) IN GENERAL.—Subchapter A of chapter 1 is 

16 amended by striking part VI (and by striking the item 

17 relating to such part in the table of parts for subchapter 

18 A). 

19 (b) CREDIT FOR PRIOR YEAR MINIMUM TAX LIABIL20 ITY.—

21 (1) LIMITATION.—Subsection (c) of section 53 

22 is amended to read as follows: 

23 ‘‘(c) LIMITATION.—The credit allowed under sub24 section (a) shall not exceed the regular tax liability of the 


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1 taxpayer reduced by the sum of the credits allowed under 

2 subparts A, B, and D.’’. 

3 (2) CREDITS TREATED AS REFUNDABLE.—Sub4 section (e) of section 53 is amended to read as fol5 lows: 

6 ‘‘(e) PORTION OF CREDIT TREATED AS REFUND7 ABLE.—

8 ‘‘(1) IN GENERAL.—In the case of any taxable 

9 year beginning in 2016, 2017, 2018, or 2019, the 

10 limitation under subsection (c) shall be increased by 

11 the AMT refundable credit amount for such year. 

12 ‘‘(2) AMT REFUNDABLE CREDIT AMOUNT.—

13 For purposes of paragraph (1), the AMT refundable 

14 credit amount is an amount equal to 50 percent 

15 (100 percent in the case of a taxable year beginning 

16 in 2019) of the excess (if any) of—

17 ‘‘(A) the minimum tax credit determined 

18 under subsection (b) for the taxable year, over 

19 ‘‘(B) the minimum tax credit allowed 

20 under subsection (a) for such year (before the 

21 application of this subsection for such year). 

22 ‘‘(3) CREDIT REFUNDABLE.—For purposes of 

23 this title (other than this section), the credit allowed 

24 by reason of this subsection shall be treated as a 


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1 credit allowed under subpart C (and not this sub2 part). 

3 ‘‘(4) SHORT TAXABLE YEARS.—In the case of 

4 any taxable year of less than 365 days, the AMT re5 fundable credit amount determined under paragraph 

6 (2) with respect to such taxable year shall be the 

7 amount which bears the same ratio to such amount 

8 determined without regard to this paragraph as the 

9 number of days in such taxable year bears to 365.’’. 

10 (3) TREATMENT OF REFERENCES.—Section 

11 53(d) is amended by adding at the end the following 

12 new paragraph: 

13 ‘‘(3) AMT TERM REFERENCES.—Any references 

14 in this subsection to section 55, 56, or 57 shall be 

15 treated as a reference to such section as in effect be16 fore its repeal by the Tax Reform Act of 2014.’’. 

17 (4) REPEAL OF SPECIAL RULES WITH RESPECT

18 TO TREATMENT OF INCENTIVE STOCK OPTIONS.—

19 Section 53 is amended by striking subsection (f). 

20 (c) CONFORMING AMENDMENTS RELATED TO AMT 

21 REPEAL.—

22 (1) Section 2(e), as redesignated by section 

23 1001, is amended by striking ‘‘sections 1 and 55’’ 

24 and inserting ‘‘section 1’’. 


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1 (2) Section 5(a) is amended by striking para2 graph (4). 

3 (3) Section 11(d) is amended by striking ‘‘the 

4 taxes imposed by subsection (a) and section 55’’ and 

5 inserting ‘‘the tax imposed by subsection (a)’’. 

6 (4) Section 13, as redesignated by title I, is 

7 amended by striking paragraph (7). 

8 (5) Section 26(a) is amended to read as follows: 

9 ‘‘(a) LIMITATION BASED ON AMOUNT OF TAX.—The 

10 aggregate amount of credits allowed by this subpart for 

11 the taxable year shall not exceed the taxpayer’s regular 

12 tax liability for the taxable year.’’. 

13 (6) Section 26(b)(2) is amended by striking 

14 subparagraph (A). 

15 (7) Section 26 is amended by striking sub16 section (c). 

17 (8) Section 38(c) is amended—

18 (A) by striking paragraphs (1) through 

19 (5), 

20 (B) by redesignating paragraph (6) as 

21 paragraph (2), 

22 (C) by inserting before paragraph (2) (as 

23 so redesignated) the following new paragraph: 


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1 ‘‘(1) IN GENERAL.—The credit allowed under 

2 subsection (a) for any taxable year shall not exceed 

3 the excess of—

4 ‘‘(A) the sum of—

5 ‘‘(i) so much of the regular tax liabil6 ity as does not exceed $25,000, plus 

7 ‘‘(ii) 75 percent of so much of the reg8 ular tax liability as exceeds $25,000, over 

9 ‘‘(B) the sum of the credits allowable 

10 under subparts A and B of this part.’’, and 

11 (D) by striking ‘‘subparagraph (B) of 

12 paragraph (1)’’ each place it appears in para13 graph (2) (as so redesignated) and inserting 

14 ‘‘clauses (i) and (ii) of paragraph (1)(A)’’. 

15 (9) Section 45D(g)(4)(B) is amended by strik16 ing ‘‘or for purposes of section 55’’. 

17 (10) Section 54(c)(1) is amended to read as fol18 lows: 

19 ‘‘(1) regular tax liability (as defined in section 

20 26(b)), over’’. 

21 (11) Section 54A(c)(1)(A) is amended to read 

22 as follows: 

23 ‘‘(A) regular tax liability (as defined in 

24 section 26(b)), over’’. 


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1 (12)(A) Section 108(b)(2) is amended by strik2 ing subparagraph (C) and by redesignating subpara3 graphs (D) through (G) as subparagraphs (C) 

4 through (F), respectively. 

5 (B) Section 108(b)(3)(B) is amended—

6 (i) by striking ‘‘subparagraphs (B), (C), 

7 and (G)’’ and inserting ‘‘subparagraphs (B) 

8 and (F) of paragraph (2)’’, and 

9 (ii) by striking ‘‘subparagraph (F)’’ and 

10 inserting ‘‘paragraph (2)(E)’’. 

11 (C) Section 108(b)(4)(B) is amended by strik12 ing ‘‘subparagraph (A) or (D)’’ in the heading and 

13 text thereof and inserting ‘‘subparagraph (A) or 

14 (C)’’. 

15 (D) Section 108(b)(4)(C) is amended by strik16 ing ‘‘subparagraphs (B) and (G)’’ in the heading 

17 and text thereof and inserting ‘‘subparagraphs (B) 

18 and (F)’’. 

19 (13) Section 168(k)(2) is amended by striking 

20 subparagraph (G). 

21 (14) Section 173 is amended by striking sub22 section (b). 

23 (15) Section 174(f) is amended to read as fol24 lows: 


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1 ‘‘(f) CROSS REFERENCE.—For adjustments to basis 

2 of property for amounts allowed as deductions as deferred 

3 expenses under subsection (b), see section 1016(a)(14).’’. 

4 (16) Section 263A(c) is amended by striking 

5 paragraph (6). 

6 (17) Section 382(l) is amended by striking 

7 paragraph (7) and by redesignating paragraph (8) 

8 as paragraph (7). 

9 (18) Section 443 (relating to returns for a pe10 riod of less than 12 months) adjustment in com11 puting minimum tax and tax preferences) is amend12 ed by striking subsection (d) and by redesignating 

13 subsection (e) as subsection (d). 

14 (19) Section 641(c) is amended—

15 (A) in paragraph (2) by striking subpara16 graph (B) and by redesignating subparagraphs 

17 (C) and (D) as subparagraphs (B) and (C), re18 spectively, and 

19 (B) in paragraph (3), by striking ‘‘para20 graph (2)(C)’’ and inserting ‘‘paragraph 

21 (2)(B)’’. 

22 (20) Subsections (b) and (c) of section 666 are 

23 each amended by striking ‘‘(other than the tax im24 posed by section 55)’’. 


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1 (21) Section 815(c)(2) is amended by striking 

2 the last sentence. 

3 (22) Section 847 is amended—

4 (A) by striking the last sentence of para5 graph (9), and 

6 (B) in paragraph (10), by inserting ‘‘and’’ 

7 at the end of subparagraph (A), by striking 

8 subparagraph (B), and by redesignating sub9 paragraph (C) as subparagraph (B). 

10 (23) Section 848 is amended by striking sub11 section (i) and by redesignating subsection (j) as 

12 subsection (i). 

13 (24) Section 860E(a) is amended by striking 

14 paragraph (4). 

15 (25) Section 871(b)(1) is amended by striking 

16 ‘‘or 55’’. 

17 (26) Section 882(a)(1) is amended by striking 

18 ‘‘55,’’. 

19 (27) Section 897(a) is amended to read as fol20 lows: 

21 ‘‘(a) TREATMENT AS EFFECTIVELY CONNECTED

22 WITH UNITED STATES TRADE OR BUSINESS.—For pur23 poses of this title, gain or loss of a nonresident alien indi24 vidual or a foreign corporation from the disposition of a 


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1 United States real property interest shall be taken into 

2 account—

3 ‘‘(1) in the case of a nonresident alien indi4 vidual, under section 871(b)(1), or 

5 ‘‘(2) in the case of a foreign corporation, under 

6 section 882(a)(1), as if the taxpayer were engaged 

7 in a trade or business within the United States dur8 ing the taxable year and as if such gain or loss were 

9 effectively connected with such trade or business.’’. 

10 (28) Section 904(k) is amended to read as fol11 lows: 

12 ‘‘(k) CROSS REFERENCE.—For increase of limitation 

13 under subsection (a) for taxes paid with respect to 

14 amounts received which were included in the gross income 

15 of the taxpayer for a prior taxable year as a United States 

16 shareholder with respect to a controlled foreign corpora17 tion, see section 960(b).’’. 

18 (29) Section 911(f) is amended to read as fol19 lows: 

20 ‘‘(f) DETERMINATION OF TAX LIABILITY.—If, for 

21 any taxable year, any amount is excluded from gross in22 come of a taxpayer under subsection (a), then, notwith23 standing section 1, if such taxpayer has taxable income 

24 for such taxable year, the tax imposed by section 1 for 

25 such taxable year shall be equal to the excess (if any) of—


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1 ‘‘(1) the tax which would be imposed by section 

2 1 for such taxable year if the taxpayer’s taxable in3 come were increased by the amount excluded under 

4 subsection (a) for such taxable year, over 

5 ‘‘(2) the tax which would be imposed by section 

6 1 for such taxable year if the taxpayer’s taxable in7 come were equal to the amount excluded under sub8 section (a) for such taxable year.’’. 

9 (30) Section 962(a)(1) is amended—

10 (A) by striking ‘‘sections 1 and 55’’ and 

11 inserting ‘‘section 1’’, and 

12 (B) by striking ‘‘sections 11 and 55’’ and 

13 inserting ‘‘section 11’’. 

14 (31) Section 1016(a) is amended by striking 

15 paragraph (20). 

16 (32) Section 1202(a)(4) is amended by insert17 ing ‘‘and’’ at the end of subparagraph (A), by strik18 ing ‘‘, and’’ and inserting a period at the end of sub19 paragraph (B), and by striking subparagraph (C). 

20 (33) Section 1374(b)(3)(B) is amended by 

21 striking the last sentence thereof. 

22 (34) Section 1397E(c)(1) is amended to read as 

23 follows: 

24 ‘‘(1) regular tax liability (as defined in section 

25 26(b), over’’. 


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1 (35) Section 1561(a) is amended—

2 (A) by inserting ‘‘and’’ at the end of para3 graph (1), by striking the comma at the end of 

4 paragraph (2) and inserting a period, and by 

5 striking paragraphs (3) and (4), and 

6 (B) by striking the last sentence. 

7 (36) Section 6015(d)(2)(B) is amended by 

8 striking ‘‘or 55’’. 

9 (37) Section 6425(c)(1)(A) is amended—

10 (A) by adding ‘‘plus’’ at the end of clause 

11 (i), and 

12 (B) by striking clause (ii) and by redesig13 nating clause (iii) as clause (ii). 

14 (38) Section 6654(d)(2) is amended—

15 (A) in clause (i) of subparagraph (B), by 

16 striking ‘‘, alternative minimum taxable in17 come,’’, and 

18 (B) in clause (i) of subparagraph (C), by 

19 striking ‘‘, alternative minimum taxable in20 come,’’. 

21 (39) Section 6655(e)(2)(B) is amended—

22 (A) by striking ‘‘The taxable income, alter23 native minimum taxable income, and modified 

24 alternative taxable income shall’’ and inserting 

25 ‘‘Taxable income shall’’, and 


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1 (B) by striking clause (iii). 

2 (40) Section 6655(g)(1)(A) is amended—

3 (A) by striking clause (ii), and 

4 (B) by redesignating clauses (iii) and (iv) 

5 as clauses (ii) and (iii), respectively. 

6 (41) Section 6662(e)(3)(C) is amended by strik7 ing ‘‘the regular tax (as defined in section 55(c))’’ 

8 and inserting ‘‘the regular tax liability (as defined in 

9 section 26(b))’’. 

10 (d) EFFECTIVE DATES.—

11 (1) IN GENERAL.—Except as otherwise pro12 vided in this subsection, the amendments made by 

13 this section shall apply to taxable years beginning 

14 after December 31, 2014. 

15 (2) PRIOR ELECTIONS WITH RESPECT TO CER16 TAIN TAX PREFERENCES.—So much of the amend17 ment made by subsection (a) as relates to the repeal 

18 of section 59(e) of the Internal Revenue Code of 

19 1986 shall apply to amounts paid or incurred after 

20 December 31, 2014. 

21 (3) TREATMENT OF NET OPERATING LOSS

22 CARRYBACKS.—For purposes of section 56(d) of the 

23 Internal Revenue Code of 1986 (as in effect before 

24 its repeal), the amount of any net operating loss 

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1 ginning after December 31, 2014, to taxable years 

2 beginning before January 1, 2015, shall be deter3 mined without regard to any adjustments under sec4 tion 56(d)(2)(A) of such Code (as so in effect). 

5 TITLE III—BUSINESS TAX 

6 REFORM

7 Subtitle A—Tax Rates 

8 SEC. 3001. 25-PERCENT CORPORATE TAX RATE. 

9 (a) IN GENERAL.—Subsection (b) of section 11 is 

10 amended to read as follows: 

11 ‘‘(b) AMOUNT OF TAX.—

12 ‘‘(1) IN GENERAL.—Except as provided in para13 graph (2), the amount of the tax imposed by sub14 section (a) shall be 25 percent of taxable income. 

15 ‘‘(2) PHASE-IN FOR TAXABLE YEARS BEGIN16 NING BEFORE 2019.—

17 ‘‘(A) IN GENERAL.—In the case of taxable 

18 years beginning before 2019, the amount of tax 

19 imposed by subsection (a) shall be the sum of—

20 ‘‘(i) 25 percent of so much of the tax21 able income as does not exceed $75,000, 

22 and 

23 ‘‘(ii) the applicable percentage of so 

24 much of taxable income as exceeds 

25 $75,000. 


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1 ‘‘(B) APPLICABLE PERCENTAGE.—For 

2 purposes of this paragraph, the applicable per3 centage shall be determined in accordance with 

4 the following table:

‘‘In the case of taxable years beginning during calendar yearThe applicable percentage 

is:

2015 ............................................................................................. 33%

2016 ............................................................................................. 31%

2017 ............................................................................................. 29%

2018 ............................................................................................. 27%’’.

5 (b) CONFORMING AMENDMENTS.—

6 (1) Paragraphs (2)(B) and (6)(A)(ii) of section 

7 860E(e) are each amended by striking ‘‘section 

8 11(b)(1)’’ and inserting ‘‘section 11(b)’’. 

9 (2)(A) Part I of subchapter P of chapter 1 is 

10 amended by striking section 1201 (and by striking 

11 the item relating to such section in the table of sec12 tions for such part). 

13 (B) Section 13, as amended and redesignated 

14 by the preceding provisions of this Act, is amended 

15 by striking paragraphs (4) and (6), and by redesig16 nating paragraph (5) as paragraph (4). 

17 (C) Section 527(b) is amended—

18 (i) by striking paragraph (2), and 

19 (ii) by striking all that precedes ‘‘is hereby 

20 imposed’’ and inserting: 

21 ‘‘(b) TAX IMPOSED.—A tax’’. 


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1 (D) Sections 594(a) is amended by striking 

2 ‘‘taxes imposed by section 11 or 1201(a)’’ and in3 serting ‘‘tax imposed by section 11’’. 

4 (E) Section 691(c)(4) is amended by striking 

5 ‘‘1201,’’. 

6 (F) Section 801(a) is amended—

7 (i) by striking paragraph (2), and 

8 (ii) by striking all that precedes ‘‘is hereby 

9 imposed’’ and inserting: 

10 ‘‘(a) TAX IMPOSED.—A tax’’. 

11 (G) Section 831(d) is amended by striking 

12 paragraph (1) and by redesignating paragraphs (2) 

13 and (3) as paragraphs (1) and (2), respectively. 

14 (H) Sections 832(c)(5) and 834(b)(1)(D) are 

15 each amended by striking ‘‘sec. 1201 and fol16 lowing,’’. 

17 (I) Section 852(b)(3)(A) is amended by striking 

18 ‘‘section 1201(a)’’ and inserting ‘‘section 11(b)’’. 

19 (J) Section 857(b)(3) is amended—

20 (i) by striking subparagraph (A) and re21 designating subparagraphs (B) through (F) as 

22 subparagraphs (A) through (E), respectively, 

23 (ii) in subparagraph (C), as so redesig24 nated—


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1 (I) by striking ‘‘subparagraph (A)(ii)’’ 

2 in clause (i) thereof and inserting ‘‘para3 graph (1)’’, 

4 (II) by striking ‘‘the tax imposed by 

5 subparagraph (A)(ii)’’ in clauses (ii) and 

6 (iv) thereof and inserting ‘‘the tax imposed 

7 by paragraph (1) on undistributed capital 

8 gain’’, 

9 (iii) in subparagraph (E), as so redesig10 nated, by striking ‘‘subparagraph (B) or (D)’’ 

11 and inserting ‘‘subparagraph (A) or (C)’’, and 

12 (iv) by adding at the end the following new 

13 subparagraph: 

14 ‘‘(F) UNDISTRIBUTED CAPITAL GAIN.—

15 For purposes of this paragraph, the term ‘un16 distributed capital gain’ means the excess of the 

17 net capital gain over the deduction for divi18 dends paid (as defined in section 561) deter19 mined with reference to capital gain dividends 

20 only.’’. 

21 (K) Section 882(a)(1) is amended by striking ‘‘, 

22 or 1201(a)’’. 

23 (L) Section 1374(b) is amended by striking 

24 paragraph (4). 


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1 (M) Section 1381(b) is amended by striking 

2 ‘‘taxes imposed by section 11 or 1201’’ and inserting 

3 ‘‘tax imposed by section 11’’. 

4 (N) Sections 6425(c)(1)(A)(i) and 

5 6655(g)(1)(A)(i) are each amended by striking ‘‘or 

6 1201(a),’’. 

7 (3)(A) Section 1445(e)(1) is amended—

8 (i) by striking ‘‘35 percent’’ and inserting 

9 ‘‘the highest rate of tax in effect for the taxable 

10 year under section 11(b)’’, and 

11 (ii) by striking ‘‘of the gain’’ and inserting 

12 ‘‘multiplied by the gain’’. 

13 (B) Section 1445(e)(2) is amended by striking 

14 ‘‘35 percent of the amount’’ and inserting ‘‘the high15 est rate of tax in effect for the taxable year under 

16 section 11(b) multiplied by the amount’’. 

17 (C) Section 1445(e)(6) is amended—

18 (i) by striking ‘‘35 percent’’ and inserting 

19 ‘‘the highest rate of tax in effect for the taxable 

20 year under section 11(b)’’, and 

21 (ii) by striking ‘‘of the amount’’ and in22 serting ‘‘multiplied by the amount’’. 

23 (D) Section 1446(b)(2)(B) is amended by strik24 ing ‘‘section 11(b)(1)’’ and inserting ‘‘section 

25 11(b)’’. 


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1 (4) Section 852(b)(1) is amended by striking 

2 the last sentence. 

3 (5)(A) Part I of subchapter B of chapter 5 is 

4 amended by striking section 1551 (and by striking 

5 the item relating to such section in the table of sec6 tions for such part). 

7 (B) Section 535(c)(5) is amended to read as 

8 follows: 

9 ‘‘(5) CROSS REFERENCE.—For limitation on 

10 credit provided in paragraph (2) or (3) in the case 

11 of certain controlled corporations, see section 

12 1561.’’. 

13 (6)(A) Section 1561, as amended by the pre14 ceding provisions of this Act, is amended to read as 

15 follows: 

16 ‘‘SEC. 1561. LIMITATION ON ACCUMULATED EARNINGS 

17 CREDIT IN THE CASE OF CERTAIN CON18 TROLLED CORPORATIONS. 

19 ‘‘(a) IN GENERAL.—The component members of a 

20 controlled group of corporations on a December 31 shall, 

21 for their taxable years which include such December 31, 

22 be limited for purposes of this subtitle to one $250,000 

23 ($150,000 if any component member is a corporation de24 scribed in section 535(c)(2)(B)) amount for purposes of 

25 computing the accumulated earnings credit under section 


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1 535(c)(2) and (3). Such amount shall be divided equally 

2 among the component members of such group on such De3 cember 31 unless the Secretary prescribes regulations per4 mitting an unequal allocation of such amount. 

5 ‘‘(b) CERTAIN SHORT TAXABLE YEARS.—If a cor6 poration has a short taxable year which does not include 

7 a December 31 and is a component member of a controlled 

8 group of corporations with respect to such taxable year, 

9 then for purposes of this subtitle, the amount to be used 

10 in computing the accumulated earnings credit under sec11 tion 535(c)(2) and (3) of such corporation for such taxable 

12 year shall be the amount specified in subsection (a) with 

13 respect to such group, divided by the number of corpora14 tions which are component members of such group on the 

15 last day of such taxable year. For purposes of the pre16 ceding sentence, section 1563(b) shall be applied as if such 

17 last day were substituted for December 31.’’. 

18 (B) The table of sections for part II of sub19 chapter B of chapter 5 is amended by striking the 

20 item relating to section 1561 and inserting the fol21 lowing new item:

‘‘Sec. 1561. Limitation on accumulated earnings credit in the case of certain 

controlled corporations.’’.

22 (7) Section 7874(e)(1)(B) is amended by strik23 ing ‘‘section 11(b)(1)’’ and inserting ‘‘section 

24 11(b)’’. 


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1 (c) EFFECTIVE DATE.—

2 (1) IN GENERAL.—Except as otherwise pro3 vided in this subsection, the amendments made by 

4 this section shall apply to taxable years beginning 

5 after December 31, 2014. 

6 (2) WITHHOLDING.—The amendments made by 

7 subsection (b)(3) shall apply to distributions made 

8 after December 31, 2014. 

9 (3) CERTAIN TRANSFERS.—The amendments 

10 made by subsection (b)(5) shall apply to transfers 

11 made after December 31, 2018. 

12 (4) CERTAIN OTHER AMENDMENTS RELATED

13 TO SINGLE RATE OF TAX.—The amendments made 

14 by paragraphs (4) and (6) of subsection (b) shall 

15 apply to taxable years beginning after December 31, 

16 2018. 

17 Subtitle B—Reform of Business18 related Exclusions and Deductions 

19 SEC. 3101. REVISION OF TREATMENT OF CONTRIBUTIONS 

20 TO CAPITAL. 

21 (a) INCLUSION OF CONTRIBUTIONS TO CAPITAL.—

22 Part II of subchapter B of chapter 1 is amended by insert23 ing after section 75 the following new section: 

24 ‘‘SEC. 76. CONTRIBUTIONS TO CAPITAL. 

25 ‘‘(a) IN GENERAL.—Gross income includes—


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1 ‘‘(1) any contribution to the capital of any enti2 ty, and 

3 ‘‘(2) any premium received by such entity with 

4 respect to any option on any interest in such entity. 

5 ‘‘(b) TREATMENT OF CONTRIBUTIONS IN EXCHANGE

6 FOR STOCK, ETC.—

7 ‘‘(1) IN GENERAL.—In the case of any con8 tribution of money or other property to a corpora9 tion in exchange for stock of such corporation—

10 ‘‘(A) such contribution shall not be treated 

11 for purposes of subsection (a) as a contribution 

12 to the capital of such corporation (and shall not 

13 be includible in the gross income of such cor14 poration), and 

15 ‘‘(B) no gain or loss shall be recognized to 

16 such corporation upon the issuance of such 

17 stock. 

18 ‘‘(2) TREATMENT LIMITED TO VALUE OF

19 STOCK.— For purposes of this subsection, a con20 tribution of money or other property to a corpora21 tion shall be treated as being in exchange for stock 

22 of such corporation only to the extent that the fair 

23 market value of such money and other property does 

24 not exceed the fair market value of such stock. 


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1 ‘‘(3) APPLICATION TO ENTITIES OTHER THAN

2 CORPORATIONS.—In the case of any entity other 

3 than a corporation, rules similar to the rules of 

4 paragraphs (1) and (2) shall apply in the case of 

5 any contribution of money or other property to such 

6 entity in exchange for any interest in such entity. 

7 ‘‘(c) TREASURY STOCK TREATED AS STOCK.—Any 

8 reference in this section to stock shall be treated as includ9 ing a reference to treasury stock.’’. 

10 (b) BASIS OF CORPORATION IN CONTRIBUTED PROP11 ERTY.—

12 (1) CONTRIBUTIONS TO CAPITAL.—Subsection 

13 (c) of section 362 is amended to read as follows: 

14 ‘‘(c) CONTRIBUTIONS TO CAPITAL.—If property 

15 other than money is transferred to a corporation as a con16 tribution to the capital of such corporation (within the 

17 meaning of section 76) then the basis of such property 

18 shall be the greater of—

19 ‘‘(1) the basis determined in the hands of the 

20 transferor, increased by the amount of gain recog21 nized to the transferor on such transfer, or 

22 ‘‘(2) the amount included in gross income by 

23 such corporation under section 76 with respect to 

24 such contribution.’’. 


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1 (2) CONTRIBUTIONS IN EXCHANGE FOR

2 STOCK.—Paragraph (2) of section 362(a) is amend3 ed by striking ‘‘contribution to capital’’ and insert4 ing ‘‘contribution in exchange for stock of such cor5 poration (determined under rules similar to the rules 

6 of paragraphs (2) and (3) of section 76(b))’’. 

7 (c) CONFORMING AMENDMENTS.—

8 (1) Section 108(e) is amended by striking para9 graph (6). 

10 (2) Part III of subchapter B of chapter 1 is 

11 amended by striking section 118 (and by striking 

12 the item relating to such section in the table of sec13 tions for such part). 

14 (3) The table of sections for part II of sub15 chapter B of chapter 1 is amended by inserting after 

16 the item relating to section 75 the following new 

17 item:

‘‘Sec. 76. Contributions to capital.’’.

18 (d) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to contributions made, and trans20 actions entered into, after the date of the enactment of 

21 this Act. 

22 SEC. 3102. REPEAL OF DEDUCTION FOR LOCAL LOBBYING 

23 EXPENSES.

24 (a) IN GENERAL.—Section 162(e) is amended by 

25 striking paragraphs (2) and (7) and by redesignating 


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1 paragraphs (3), (4), (5), (6), and (8) as paragraphs (2), 

2 (3), (4), (5), and (6), respectively. 

3 (b) CONFORMING AMENDMENT.—Section 

4 6033(e)(1)(B)(ii) is amended by striking ‘‘section 

5 162(e)(5)(B)(ii)’’ and inserting ‘‘section 

6 162(e)(4)(B)(ii)’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to amounts paid or incurred after 

9 December 31, 2014. 

10 SEC. 3103. EXPENDITURES FOR REPAIRS IN CONNECTION 

11 WITH CASUALTY LOSSES. 

12 (a) IN GENERAL.—Section 165, as amended by the 

13 preceding provisions of this Act, is amended by inserting 

14 after subsection (g) the following new subsection: 

15 ‘‘(h) SPECIAL RULE FOR CASUALTY LOSSES.—

16 ‘‘(1) EXPENDITURES FOR REPAIRS IN CONNEC17 TION WITH CASUALTY LOSSES.—If a deduction is al18 lowable under this section for any casualty loss with 

19 respect to any property, any expenditure made for 

20 any repair of damage to such property in connection 

21 with such casualty loss shall be treated as a perma22 nent improvement made to increase the value of 

23 such property for purposes of section 263(a)(1). 

24 ‘‘(2) ELECTION TO EXPENSE REPAIR IN LIEU

25 OF DEDUCTING CASUALTY LOSS.—If the taxpayer 


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1 elects the application of this paragraph with respect 

2 to any property with respect to which there is a cas3 ualty loss, no deduction shall be allowable under this 

4 section for the casualty loss with respect to such 

5 property and paragraph (1) shall not apply to ex6 penditures made for repair of damage to such prop7 erty in connection with such casualty loss. Any elec8 tion under this paragraph shall be made not later 

9 than the due date for the return of tax (including 

10 extensions) for the taxable year in which the cas11 ualty loss occurs and, once made, may be revoked 

12 only with the consent of the Secretary.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall apply to losses sustained after December 

15 31, 2014. 

16 SEC. 3104. REFORM OF ACCELERATED COST RECOVERY 

17 SYSTEM.

18 (a) APPLICABLE DEPRECIATION METHOD.—Sub19 section (b) of section 168 is amended to read as follows: 

20 ‘‘(b) APPLICABLE DEPRECIATION METHOD.—For 

21 purposes of this section—

22 ‘‘(1) IN GENERAL.—The applicable depreciation 

23 method is the straight line method. 

24 ‘‘(2) SALVAGE VALUE TREATED AS ZERO.—Sal25 vage value shall be treated as zero.’’. 


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1 (b) APPLICABLE RECOVERY PERIOD.—Subsection (c) 

2 of section 168 is amended to read as follows: 

3 ‘‘(c) APPLICABLE RECOVERY PERIOD.—For purposes 

4 of this section—

5 ‘‘(1) IN GENERAL.—Except as provided in para6 graph (2), the applicable recovery period for any 

7 property is the class life of such property. 

8 ‘‘(2) SPECIAL RULES FOR DETERMINING CLASS

9 LIFE OF CERTAIN PROPERTY.—

10 ‘‘(A) PROPERTY WITH NO CLASS LIFE.—In 

11 the case of personal property with no class life, 

12 the recovery period is 12 years. 

13 ‘‘(B) CERTAIN HORSES.—In the case of 

14 any race horse, and any horse other than a race 

15 horse which is more than 12 years old at the 

16 time it is placed in service, 3 years. 

17 ‘‘(C) SEMI-CONDUCTOR MANUFACTURING

18 EQUIPMENT.—In the case of any semi-con19 ductor manufacturing equipment, the recovery 

20 period is 5 years. 

21 ‘‘(D) QUALIFIED TECHNOLOGICAL EQUIP22 MENT.—In the case of any qualified techno23 logical equipment, the recovery period is 5 

24 years. 


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1 ‘‘(E) AUTOMOBILE OR LIGHT GENERAL

2 PURPOSE TRUCK.—In the case of any auto3 mobile or light general purpose truck, the recov4 ery period is 5 years. 

5 ‘‘(F) QUALIFIED RENT-TO-OWN PROP6 ERTY.—In the case of any qualified rent-to-own 

7 property, the recovery period is 9 years. 

8 ‘‘(G) CERTAIN TELEPHONE SWITCHING

9 EQUIPMENT.—In the case of any computer10 based telephone central office switching equip11 ment, the recovery period is 9.5 years. 

12 ‘‘(H) RAILROAD TRACK.—In the case of 

13 any railroad track, the recovery period is 10 

14 years. 

15 ‘‘(I) SMART ELECTRIC DISTRIBUTION

16 PROPERTY.—In the case of qualified smart elec17 tric meters and qualified smart electric grid sys18 tems, the recovery period is 10 years. 

19 ‘‘(J) AIRPLANES.—In the case of any 

20 fixed-wing aircraft (including any fixed-wing 

21 airframe or engine), the recovery period is 12 

22 years. 

23 ‘‘(K) NATURAL GAS GATHERING LINE.—In 

24 the case of any natural gas gathering line, the 

25 recovery period is 14 years. 


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1 ‘‘(L) TREE OR VINE BEARING FRUIT OR

2 NUTS.—In the case of any tree or vine bearing 

3 fruit or nuts, the recovery period is 20 years. 

4 ‘‘(M) TELEPHONE DISTRIBUTION

5 PLANT.—In the case of any telephone distribu6 tion plant and comparable equipment used for 

7 2-way exchange of voice and data communica8 tions by cable, the recovery period is 24 years. 

9 ‘‘(N) REAL PROPERTY.—In the case of 

10 nonresidential real property, residential rental 

11 property, and any section 1245 property (as de12 fined in section 1245(a)(3)) which is real prop13 erty with no class life, the recovery period is 40 

14 years. 

15 ‘‘(O) WATER TREATMENT AND UTILITY

16 PROPERTY.—In the case of any municipal 

17 wastewater treatment plant or water utility 

18 property, the recovery period is 50 years. 

19 ‘‘(P) CLEARING AND GRADING IMPROVE20 MENTS; TUNNEL BORE.—In the case of any 

21 clearing and grading land improvements or tun22 nel bore, the recovery period is 50 years. 

23 ‘‘(Q) TAX-EXEMPT USE PROPERTY SUB24 JECT TO LEASE.—In the case of any tax-exempt 

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1 riod used for purposes of paragraph (2) shall 

2 (notwithstanding any other subparagraph of 

3 this paragraph) in no event be less than 125 

4 percent of the lease term.’’. 

5 (c) NEUTRAL COST RECOVERY SYSTEM.—Section 

6 168, as amended by subsection (f), is amended by adding 

7 at the end the following new subsection: 

8 ‘‘(i) NEUTRAL COST RECOVERY SYSTEM.—

9 ‘‘(1) IN GENERAL.—In the case of any property 

10 (to which this section applies) placed in service by 

11 the taxpayer in a taxable year for which such tax12 payer has elected the application of this subsection, 

13 the deduction determined under subsection (a) with 

14 respect to such property for any taxable year shall 

15 be increased by an amount equal to the product of—

16 ‘‘(A) the modified adjusted basis of such 

17 property determined as of the close of such tax18 able year (determined without regard to this 

19 subsection but after taking all other adjust20 ments for such taxable year into account), mul21 tiplied by 

22 ‘‘(B) the inflation adjustment percentage 

23 for the calendar year in which such taxable year 

24 begins. 


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1 ‘‘(2) MODIFIED ADJUSTED BASIS.—For pur2 poses of this subsection, the term ‘modified adjusted 

3 basis’ means, with respect to any property, the ad4 justed basis which would be determined with respect 

5 to such property if this subsection never applied to 

6 such property. 

7 ‘‘(3) INFLATION ADJUSTMENT PERCENTAGE.—

8 For purposes of this subsection, the term ‘inflation 

9 adjustment percentage’ means, with respect to any 

10 calendar year, the cost-of-living adjustment which 

11 would be determined under section 1(c)(2)(A) for 

12 such calendar year if clause (ii) thereof were applied 

13 by substituting ‘the C-CPI-U for the calendar year 

14 preceding the calendar year referred to in clause (i)’ 

15 for ‘the normalized CPI for calendar year 2012’. 

16 ‘‘(4) INCREASE FOR FIRST TAXABLE YEAR RE17 DUCED TO TAKE INTO ACCOUNT PLACED IN SERVICE

18 CONVENTION.—In the case of the taxable year in 

19 which any property is placed in service, the increase 

20 determined under paragraph (1) with respect to 

21 such property shall be equal to—

22 ‘‘(A) in the case of any property to which 

subsection (d)(3) applies, 1 23 ⁄8 of the amount of 

24 such increase determined without regard to this 

25 paragraph, and 


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‘‘(B) in the case of any other property, 1 1 ⁄2

2 of the amount of such increase determined 

3 without regard to this paragraph. 

4 ‘‘(5) OVERALL DEPRECIATION ALLOWANCE NOT

5 TO EXCEED BASIS.—The deduction determined 

6 under subsection (a) (after any increase determined 

7 under this subsection) with respect to any property 

8 for any taxable year shall not exceed the adjusted 

9 basis of such property determined as of the begin10 ning of such taxable year. 

11 ‘‘(6) CERTAIN PROPERTY EXCLUDED.—Para12 graph (1) shall not apply to any specified property 

13 used outside the United States or to any property 

14 described in subsection (d)(2). 

15 ‘‘(7) ELECTION.—

16 ‘‘(A) IN GENERAL.—An election under 

17 paragraph (1) for any taxable year shall be 

18 made not later than the due date (including ex19 tensions) for the return of tax for such taxable 

20 year. Such election, once made, shall be irrev21 ocable. Such election shall apply with respect to 

22 all property placed in service during the taxable 

23 for which made (and shall apply for subsequent 

24 taxable years but only with respect to such 

25 property). 


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1 ‘‘(B) TAXPAYER ENGAGED IN MORE THAN

2 ONE BUSINESS.—A taxpayer engaged in more 

3 than one trade or business may make separate 

4 elections under paragraph (1) with respect to 

5 each such trade or business.’’. 

6 (d) APPLICATION OF MID-MONTH CONVENTION.—

7 (1) IN GENERAL.—Subparagraphs (A), (B) and 

8 (C) of section 168(d)(2) are amended to read as fol9 lows: 

10 ‘‘(A) real property, 

11 ‘‘(B) water treatment and utility property, 

12 and 

13 ‘‘(C) any clearing and grading land im14 provements or tunnel bore,’’. 

15 (2) CONFORMING AMENDMENT.—Clause (i) of 

16 section 168(d)(3)(B) is amended to read as follows: 

17 ‘‘(i) any property described in para18 graph (2),’’. 

19 (e) DEFINITIONS.—Subsection (e) of section 168 is 

20 amended to read as follows: 

21 ‘‘(e) DEFINITIONS.—For purposes of this section—

22 ‘‘(1) CLASS LIFE.—

23 ‘‘(A) IN GENERAL.—Except as provided in 

24 this section, the term ‘class life’ means the class 

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1 spect to any property as of January 1, 1986, 

2 under subsection (m) of section 167 (deter3 mined without regard to paragraph (4) and as 

4 if the taxpayer had made an election under 

5 such subsection). The reference in this para6 graph to subsection (m) of section 167 shall be 

7 treated as a reference to such subsection as in 

8 effect on the day before the date of the enact9 ment of the Revenue Reconciliation Act of 

10 1990. 

11 ‘‘(B) SECRETARIAL AUTHORITY TO MODIFY

12 REV. PROC. 87-56.—

13 ‘‘(i) IN GENERAL.—The Secretary, 

14 through the Office of Tax Analysis and in 

15 consultation with the Bureau of Economic 

16 Analysis of the Department of Commerce, 

17 shall—

18 ‘‘(I) determine, and develop a 

19 schedule of, the economic depreciation 

20 of the major categories of depreciable 

21 property (other than property with a 

22 specified class life under subsection 

23 (c)(2)) to approximate constant 

24 straight-line depreciation, and 


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1 ‘‘(II) develop recommendations 

2 regarding the proper economic depre3 ciation for property with a specified 

4 class life under subsection (c)(2). 

5 ‘‘(ii) REPORT.—Not later than De6 cember 31, 2017, the Secretary shall sub7 mit to the Committee on Ways and Means 

8 of the House of Representatives and the 

9 Committee on Finance of the Senate—

10 ‘‘(I) the schedule developed under 

11 clause (i)(I), and 

12 ‘‘(II) the recommendations devel13 oped under clause (i)(II). 

14 The schedule developed under clause (i)(I) 

15 shall take effect with respect to property 

16 placed in service after the later of Decem17 ber 31, 2017, or the end of the first cal18 endar year ending after the calendar year 

19 during which such schedule is submitted. 

20 ‘‘(2) RESIDENTIAL RENTAL PROPERTY.—

21 ‘‘(A) IN GENERAL.—The term ‘residential 

22 rental property’ means any building or struc23 ture if 80 percent or more of the gross rental 

24 income from such building or structure for the 


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1 taxable year is rental income from dwelling 

2 units. 

3 ‘‘(B) DWELLING UNIT.—For purposes of 

4 subparagraph (A)—

5 ‘‘(i) the term ‘dwelling unit’ means a 

6 house or apartment used to provide living 

7 accommodations in a building or structure, 

8 but does not include a unit in a hotel, 

9 motel, or other establishment more than 

10 one-half of the units in which are used on 

11 a transient basis, and 

12 ‘‘(ii) if any portion of the building or 

13 structure is occupied by the taxpayer, the 

14 gross rental income from such building or 

15 structure shall include the rental value of 

16 the portion so occupied. 

17 ‘‘(3) NONRESIDENTIAL REAL PROPERTY.—The 

18 term ‘nonresidential real property’ means section 

19 1250 property which is not—

20 ‘‘(A) residential rental property, or 

21 ‘‘(B) property with a class life of less than 

22 27.5 years. 

23 ‘‘(4) WATER UTILITY PROPERTY.—The term 

24 ‘water utility property’ means property—


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1 ‘‘(A) which is an integral part of the gath2 ering, treatment, or commercial distribution of 

3 water, and 

4 ‘‘(B) any municipal sewer. 

5 ‘‘(5) QUALIFIED RENT-TO-OWN PROPERTY.—

6 ‘‘(A) IN GENERAL.—The term ‘qualified 

7 rent-to-own property’ means any property held 

8 by a rent-to-own dealer for purposes of being 

9 subject to a rent-to-own contract. 

10 ‘‘(B) RENT-TO-OWN DEALER.—The term 

11 ‘rent-to-own dealer’ means a person that, in the 

12 ordinary course of business, regularly enters 

13 into rent-to-own contracts with customers for 

14 the use of consumer property, if a substantial 

15 portion of those contracts terminate and the 

16 property is returned to such person before the 

17 receipt of all payments required to transfer 

18 ownership of the property from such person to 

19 the customer. 

20 ‘‘(C) CONSUMER PROPERTY.—The term 

21 ‘consumer property’ means tangible personal 

22 property of a type generally used within the 

23 home for personal use. 

24 ‘‘(D) RENT-TO-OWN CONTRACT.—The 

25 term ‘rent-to-own contract’ means any lease for 


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1 the use of consumer property between a rent-to2 own dealer and a customer who is an individual 

3 which—

4 ‘‘(i) is titled ‘Rent-to-Own Agreement’ 

5 or ‘Lease Agreement with Ownership Op6 tion’, or uses other similar language, 

7 ‘‘(ii) provides for level (or decreasing 

8 where no payment is less than 40 percent 

9 of the largest payment), regular periodic 

10 payments (for a payment period which is a 

11 week or month), 

12 ‘‘(iii) provides that legal title to such 

13 property remains with the rent-to-own 

14 dealer until the customer makes all the 

15 payments described in clause (ii) or early 

16 purchase payments required under the con17 tract to acquire legal title to the item of 

18 property, 

19 ‘‘(iv) provides a beginning date and a 

20 maximum period of time for which the con21 tract may be in effect that does not exceed 

22 156 weeks or 36 months from such begin23 ning date (including renewals or options to 

24 extend), 


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1 ‘‘(v) provides for payments within the 

2 156-week or 36-month period that, in the 

3 aggregate, generally exceed the normal re4 tail price of the consumer property plus in5 terest, 

6 ‘‘(vi) provides for payments under the 

7 contract that, in the aggregate, do not ex8 ceed $10,000 per item of consumer prop9 erty, 

10 ‘‘(vii) provides that the customer does 

11 not have any legal obligation to make all 

12 the payments referred to in clause (ii) set 

13 forth under the contract, and that at the 

14 end of each payment period the customer 

15 may either continue to use the consumer 

16 property by making the payment for the 

17 next payment period or return such prop18 erty to the rent-to-own dealer in good 

19 working order, in which case the customer 

20 does not incur any further obligations 

21 under the contract and is not entitled to a 

22 return of any payments previously made 

23 under the contract, and 

24 ‘‘(viii) provides that the customer has 

25 no right to sell, sublease, mortgage, pawn, 


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1 pledge, encumber, or otherwise dispose of 

2 the consumer property until all the pay3 ments stated in the contract have been 

4 made. 

5 ‘‘(6) QUALIFIED TECHNOLOGICAL EQUIP6 MENT.—

7 ‘‘(A) IN GENERAL.—The term ‘qualified 

8 technological equipment’ means—

9 ‘‘(i) any computer or peripheral equip10 ment, 

11 ‘‘(ii) any high technology telephone 

12 station equipment installed on the cus13 tomer’s premises, and 

14 ‘‘(iii) any high technology medical 

15 equipment. 

16 ‘‘(B) COMPUTER OR PERIPHERAL EQUIP17 MENT DEFINED.—For purposes of this para18 graph—

19 ‘‘(i) IN GENERAL.—The term ‘com20 puter or peripheral equipment’ means—

21 ‘‘(I) any computer, and 

22 ‘‘(II) any related peripheral 

23 equipment. 


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1 ‘‘(ii) COMPUTER.—The term ‘com2 puter’ means a programmable electroni3 cally activated device which—

4 ‘‘(I) is capable of accepting infor5 mation, applying prescribed processes 

6 to the information, and supplying the 

7 results of these processes with or 

8 without human intervention, and 

9 ‘‘(II) consists of a central proc10 essing unit containing extensive stor11 age, logic, arithmetic, and control ca12 pabilities. 

13 ‘‘(C) HIGH TECHNOLOGY MEDICAL EQUIP14 MENT.—For purposes of this paragraph, the 

15 term ‘high technology medical equipment’ 

16 means any electronic, electromechanical, or 

17 computer-based high technology equipment used 

18 in the screening, monitoring, observation, diag19 nosis, or treatment of patients in a laboratory, 

20 medical, or hospital environment. 

21 ‘‘(7) NATURAL GAS GATHERING LINE.—The 

22 term ‘natural gas gathering line’ means—

23 ‘‘(A) the pipe, equipment, and appur24 tenances determined to be a gathering line by 


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1 the Federal Energy Regulatory Commission, 

2 and 

3 ‘‘(B) the pipe, equipment, and appur4 tenances used to deliver natural gas from the 

5 wellhead or a commonpoint to the point at 

6 which such gas first reaches—

7 ‘‘(i) a gas processing plant, 

8 ‘‘(ii) an interconnection with a trans9 mission pipeline for which a certificate as 

10 an interstate transmission pipeline has 

11 been issued by the Federal Energy Regu12 latory Commission, 

13 ‘‘(iii) an interconnection with an 

14 intrastate transmission pipeline, or 

15 ‘‘(iv) a direct interconnection with a 

16 local distribution company, a gas storage 

17 facility, or an industrial consumer. 

18 ‘‘(8) QUALIFIED SMART ELECTRIC METERS.—

19 ‘‘(A) IN GENERAL.—The term ‘qualified 

20 smart electric meter’ means any smart electric 

21 meter which—

22 ‘‘(i) is placed in service by a taxpayer 

23 that is a supplier of electric energy or a 

24 provider of electric energy services, and 


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1 ‘‘(ii) does not have a class life (deter2 mined without regard to subsection (c)) of 

3 less than 10 years. 

4 ‘‘(B) SMART ELECTRIC METER.—For pur5 poses of subparagraph (A), the term ‘smart 

6 electric meter’ means any time-based meter and 

7 related communication equipment which is ca8 pable of being used by the taxpayer as part of 

9 a system that—

10 ‘‘(i) measures and records electricity 

11 usage data on a time-differentiated basis 

12 in at least 24 separate time segments per 

13 day, 

14 ‘‘(ii) provides for the exchange of in15 formation between supplier or provider and 

16 the customer’s electric meter in support of 

17 time-based rates or other forms of demand 

18 response, 

19 ‘‘(iii) provides data to such supplier or 

20 provider so that the supplier or provider 

21 can provide energy usage information to 

22 customers electronically, and 

23 ‘‘(iv) provides net metering. 

24 ‘‘(9) QUALIFIED SMART ELECTRIC GRID SYS25 TEMS.—


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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 smart electric grid system’ means any smart 

3 grid property which—

4 ‘‘(i) is used as part of a system for 

5 electric distribution grid communications, 

6 monitoring, and management placed in 

7 service by a taxpayer who is a supplier of 

8 electric energy or a provider of electric en9 ergy services, and 

10 ‘‘(ii) does not have a class life (deter11 mined without regard to subsection (c)) of 

12 less than 10 years. 

13 ‘‘(B) SMART GRID PROPERTY.—For the 

14 purposes of subparagraph (A), the term ‘smart 

15 grid property’ means electronics and related 

16 equipment that is capable of—

17 ‘‘(i) sensing, collecting, and moni18 toring data of or from all portions of a 

19 utility’s electric distribution grid, 

20 ‘‘(ii) providing real-time, two-way 

21 communications to monitor or manage 

22 such grid, and 

23 ‘‘(iii) providing real time analysis of 

24 and event prediction based upon collected 

25 data that can be used to improve electric 


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1 distribution system reliability, quality, and 

2 performance. 

3 ‘‘(10) SPECIFIED PROPERTY USED OUTSIDE

4 THE UNITED STATES.—

5 ‘‘(A) IN GENERAL.—The term ‘specified 

6 property used outside the United States’ 

7 means—

8 ‘‘(i) any aircraft which is registered 

9 by the Administrator of the Federal Avia10 tion Agency and which is operated to and 

11 from the United States or is operated 

12 under contract with the United States, 

13 ‘‘(ii) rolling stock which is used within 

14 and without the United States and which 

15 is—

16 ‘‘(I) of a rail carrier subject to 

17 part A of subtitle IV of title 49, or 

18 ‘‘(II) of a United States person 

19 (other than a corporation described in 

20 subclause (I)) but only if the rolling 

21 stock is not leased to one or more for22 eign persons for periods aggregating 

23 more than 12 months in any 24-

24 month period, 


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1 ‘‘(iii) any vessel documented under the 

2 laws of the United States which is oper3 ated in the foreign or domestic commerce 

4 of the United States, 

5 ‘‘(iv) any motor vehicle of a United 

6 States person (as defined in section 

7 7701(a)(30)) which is operated to and 

8 from the United States, 

9 ‘‘(v) any container of a United States 

10 person which is used in the transportation 

11 of property to and from the United States, 

12 ‘‘(vi) any property (other than a vessel 

13 or an aircraft) of a United States person 

14 which is used for the purpose of exploring 

15 for, developing, removing, or transporting 

16 resources from the outer Continental Shelf 

17 (within the meaning of section 2 of the 

18 Outer Continental Shelf Lands Act, as 

19 amended and supplemented; (43 U.S.C. 

20 1331)), 

21 ‘‘(vii) any property which is owned by 

22 a domestic corporation or by a United 

23 States citizen (other than a citizen entitled 

24 to the benefits of section 931 or 933) and 

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1 sion of the United States by such a cor2 poration, or such a citizen, or by a cor3 poration created or organized in, or under 

4 the law of, a possession of the United 

5 States, 

6 ‘‘(viii) any communications satellite 

7 (as defined in section 103(3) of the Com8 munications Satellite Act of 1962, 47 

9 U.S.C. 702(3)), or any interest therein, of 

10 a United States person, 

11 ‘‘(ix) any cable, or any interest there12 in, of a domestic corporation engaged in 

13 furnishing telephone service to which sec14 tion 168(e)(10)(C) applies (or of a wholly 

15 owned domestic subsidiary of such a cor16 poration), if such cable is part of a sub17 marine cable system which constitutes part 

18 of a communication link exclusively be19 tween the United States and one or more 

20 foreign countries, 

21 ‘‘(x) any property (other than a vessel 

22 or an aircraft) of a United States person 

23 which is used in international or territorial 

24 waters within the northern portion of the 

25 Western Hemisphere for the purpose of exVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00332 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ploring for, developing, removing, or trans2 porting resources from ocean waters or de3 posits under such waters, 

4 ‘‘(xi) any property described in section 

5 48(l)(3)(A)(ix) (as in effect on the day be6 fore the date of the enactment of the Rev7 enue Reconciliation Act of 1990) which is 

8 owned by a United States person and 

9 which is used in international or territorial 

10 waters to generate energy for use in the 

11 United States, and 

12 ‘‘(xii) any satellite (not described in 

13 clause (viii)) or other spacecraft (or any in14 terest therein) held by a United States per15 son if such satellite or other spacecraft was 

16 launched from within the United States. 

17 ‘‘(B) NORTHERN PORTION OF THE WEST18 ERN HEMISPHERE.—For purposes of subpara19 graph (A)(x), the term ‘northern portion of the 

20 Western Hemisphere’ means the area lying west 

21 of the 30th meridian west of Greenwich, east of 

22 the international dateline, and north of the 

23 Equator, but not including any foreign country 

24 which is a country of South America.’’. 

25 (f) CONFORMING AMENDMENTS.—


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1 (1) AMENDMENTS TO SECTION 168.—

2 (A) Section 168 is amended by striking 

3 subsections (g), (j), (k), (l), (m), and (n), and 

4 by redesignating subsections (h) and (i) as sub5 sections (g) and (h), respectively. 

6 (B) Section 168(h), as redesignated by 

7 subparagraph (A), is amended—

8 (i) by striking paragraphs (1), (2), 

9 (11), (12), (13), (14), (15), (16), (17), 

10 (18), and (19) and by redesignating para11 graphs (3) through (10) as paragraphs (1) 

12 through (8), respectively, and 

13 (ii) by striking ‘‘DEFINITIONS AND’’ 

14 in the heading thereof. 

15 (C) Section 168(h)(8), as redesignated by 

16 subparagraphs (A) and (B), is moved to the 

17 end of section 168(e) (as amended by sub18 section (e)) and redesignated as paragraph 

19 (11). 

20 (2) OTHER CONFORMING AMENDMENTS.—

21 (A) Section 50(b)(4) is amended—

22 (i) in subparagraph (A)(ii)—

23 (I) by striking ‘‘section 

24 168(h)(2)(C)’’ and inserting ‘‘section 

25 168(g)(2)(C)’’, 


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1 (II) by striking ‘‘section 

2 168(h)(2)(A)(iii)’’ and inserting ‘‘sec3 tion 168(g)(2)(A)(iii)’’, and 

4 (III) by striking ‘‘section 

5 168(h)(2)(B)’’ and inserting ‘‘section 

6 168(g)(2)(B)’’, 

7 (ii) in subparagraph (B), by striking 

8 ‘‘section 168(i)(3)’’ and inserting ‘‘section 

9 168(h)(1)’’, and 

10 (iii) in subparagraphs (D) and (E), by 

11 striking ‘‘section 168(h)’’ each place it ap12 pears and inserting ‘‘section 168(g)’’. 

13 (B)(i) Section 50(b)(1)(B) is amended by 

14 striking ‘‘any property described in section 

15 168(g)(4)’’ and inserting ‘‘any specified prop16 erty used outside the United States (as defined 

17 in section 168(e)(10)’’. 

18 (ii) Section 865(c)(3)(B) is amended by 

19 striking ‘‘property of a kind described in section 

20 168(g)(4)’’ and inserting ‘‘specified property 

21 used outside the United States (as defined in 

22 section 168(e)(10)’’. 

23 (C) Section 179(e)(2) is amended by in24 serting ‘‘as in effect before its repeal by the 


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1 Tax Reform Act of 2014’’ after ‘‘section 

2 168(n)(2)’’. 

3 (D) Section 179(f), as amended by section 

4 3111, is amended—

5 (i) by striking paragraph (2), and 

6 (ii) by inserting after paragraph (1) 

7 the following new paragraphs: 

8 ‘‘(2) QUALIFIED REAL PROPERTY.—For pur9 poses of this subsection, the term ‘qualified real 

10 property’ means qualified leasehold improvement 

11 property, qualified restaurant property, and qualified 

12 retail improvement property. 

13 ‘‘(3) QUALIFIED LEASEHOLD IMPROVEMENT

14 PROPERTY.—For purposes of this subsection—

15 ‘‘(A) IN GENERAL.—The term ‘qualified 

16 leasehold improvement property’ means any im17 provement to an interior portion of a building 

18 which is nonresidential real property if—

19 ‘‘(i) such improvement is made under 

20 or pursuant to a lease (as defined in sec21 tion 168(g)(7))—

22 ‘‘(I) by the lessee (or any subles23 see) of such portion, or 

24 ‘‘(II) by the lessor of such por25 tion, 


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1 ‘‘(ii) such portion is to be occupied ex2 clusively by the lessee (or any sublessee) of 

3 such portion, and 

4 ‘‘(iii) such improvement is placed in 

5 service more than 3 years after the date 

6 the building was first placed in service. 

7 ‘‘(B) CERTAIN IMPROVEMENTS NOT IN8 CLUDED.—Such term shall not include any im9 provement for which the expenditure is attrib10 utable to—

11 ‘‘(i) the enlargement of the building, 

12 ‘‘(ii) any elevator or escalator, 

13 ‘‘(iii) any structural component bene14 fitting a common area, and 

15 ‘‘(iv) the internal structural frame16 work of the building. 

17 ‘‘(C) DEFINITIONS AND SPECIAL RULES.—

18 For purposes of this paragraph—

19 ‘‘(i) COMMITMENT TO LEASE TREAT20 ED AS LEASE.—A commitment to enter 

21 into a lease shall be treated as a lease, and 

22 the parties to such commitment shall be 

23 treated as lessor and lessee, respectively. 

24 ‘‘(ii) RELATED PERSONS.—A lease be25 tween related persons shall not be considVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00337 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ered a lease. For purposes of the preceding 

2 sentence, the term ‘related persons’ 

3 means—

4 ‘‘(I) members of an affiliated 

5 group (as defined in section 1504), 

6 and 

7 ‘‘(II) persons having a relation8 ship described in subsection (b) of 

9 section 267; except that, for purposes 

10 of this subclause, the phrase ‘80 per11 cent or more’ shall be substituted for 

12 the phrase ‘more than 50 percent’ 

13 each place it appears in such sub14 section. 

15 ‘‘(D) IMPROVEMENTS MADE BY LESSOR.—

16 In the case of an improvement made by the per17 son who was the lessor of such improvement 

18 when such improvement was placed in service, 

19 such improvement shall be qualified leasehold 

20 improvement property (if at all) only so long as 

21 such improvement is held by such person. 

22 ‘‘(E) EXCEPTION FOR CHANGES IN FORM

23 OF BUSINESS.—Property shall not cease to be 

24 qualified leasehold improvement property by 

25 reason of—


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1 ‘‘(i) death, 

2 ‘‘(ii) a transaction to which section 

3 381(a) applies, 

4 ‘‘(iii) a mere change in the form of 

5 conducting the trade or business so long as 

6 the property is retained in such trade or 

7 business as qualified leasehold improve8 ment property and the taxpayer retains a 

9 substantial interest in such trade or busi10 ness, 

11 ‘‘(iv) the acquisition of such property 

12 in an exchange described in section 1031 

13 (as in effect before its repeal by the Tax 

14 Reform Act of 2014), 1033, or 1038 to the 

15 extent that the basis of such property in16 cludes an amount representing the ad17 justed basis of other property owned by the 

18 taxpayer or a related person, or 

19 ‘‘(v) the acquisition of such property 

20 by the taxpayer in a transaction described 

21 in section 332, 351, 361, 721, or 731 (or 

22 the acquisition of such property by the tax23 payer from the transferee or acquiring cor24 poration in a transaction described in such 

25 section), to the extent that the basis of the 


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1 property in the hands of the taxpayer is 

2 determined by reference to its basis in the 

3 hands of the transferor or distributor. 

4 ‘‘(4) QUALIFIED RESTAURANT PROPERTY.—For 

5 purposes of this subsection, the term ‘qualified res6 taurant property’ means any section 1250 property 

7 which is—

8 ‘‘(A) a building, or 

9 ‘‘(B) an improvement to a building, 

10 if more than 50 percent of the building’s square 

11 footage is devoted to preparation of, and seating for 

12 on-premises consumption of, prepared meals. 

13 ‘‘(5) QUALIFIED RETAIL IMPROVEMENT PROP14 ERTY.—

15 ‘‘(A) IN GENERAL.—The term ‘qualified 

16 retail improvement property’ means any im17 provement to an interior portion of a building 

18 which is nonresidential real property if—

19 ‘‘(i) such portion is open to the gen20 eral public and is used in the retail trade 

21 or business of selling tangible personal 

22 property to the general public, and 

23 ‘‘(ii) such improvement is placed in 

24 service more than 3 years after the date 

25 the building was first placed in service. 


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1 ‘‘(B) IMPROVEMENTS MADE BY OWNER.—

2 In the case of an improvement made by the 

3 owner of such improvement, such improvement 

4 shall be qualified retail improvement property 

5 (if at all) only so long as such improvement is 

6 held by such owner. Rules similar to the rules 

7 under paragraph (3)(E) shall apply for pur8 poses of the preceding sentence. 

9 ‘‘(C) CERTAIN IMPROVEMENTS NOT IN10 CLUDED.—Such term shall not include any im11 provement for which the expenditure is attrib12 utable to—

13 ‘‘(i) the enlargement of the building, 

14 ‘‘(ii) any elevator or escalator, 

15 ‘‘(iii) any structural component bene16 fitting a common area, or 

17 ‘‘(iv) the internal structural frame18 work of the building.’’. 

19 (E) Section 280F(b) is amended—

20 (i) by striking paragraph (1) and by 

21 redesignating paragraphs (2) and (3) as 

22 paragraphs (1) and (2), respectively, and 

23 (ii) by striking ‘‘, and the depreciation 

24 deduction’’ and all that follows through 


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1 ‘‘alternative depreciation system)’’ in para2 graph (1) (as redesignated by clause (i)). 

3 (F) Section 280F(d)(4)(A)(iv) is amended 

4 by striking ‘‘section 168(i)(2)(B)’’ and inserting 

5 ‘‘section 168(e)(6)(B)’’. 

6 (G) Section 312(k)(3) is amended by strik7 ing ‘‘EXCEPTION FOR TANGIBLE PROPERTY’’ 

8 and all that follows through ‘‘For purposes of 

9 computing the earnings and profits’’ and insert10 ing ‘‘EXCEPTION FOR CERTAIN TANGIBLE

11 PROPERTY.—For purposes of computing the 

12 earnings and profits’’. 

13 (H) Section 460(c) is amended by striking 

14 paragraph (6). 

15 (I) Section 460(d)(2) is amended by strik16 ing ‘‘section 168(h)(2)(D)’’ and inserting ‘‘sec17 tion 168(g)(2)(D)’’. 

18 (J) Section 460(e)(6) is amended by strik19 ing ‘‘section 168(e)(2)(A)(ii)’’ each place it ap20 pears and inserting ‘‘section 168(e)(2)(B)’’. 

21 (K)(i) Subparagraphs (A) and (C) of sec22 tion 470(c)(2) are each amended by striking 

23 ‘‘section 168(h)’’ and inserting ‘‘section 

24 168(g).’’


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1 (ii) Section 470(c)(2)(B) is amended by 

2 striking ‘‘section 168(h)(6)’’ and inserting ‘‘sec3 tion 168(g)(6)’’. 

4 (L) Section 512(b)(17)(B)(ii)(I) is amend5 ed by striking ‘‘section 168(h)(4)(B)’’ and in6 serting ‘‘section 168(g)(4)(B)’’. 

7 (M) Section 514(c)(9)(B)(vi)(II) is amend8 ed by striking ‘‘section 168(h)(6)’’ and insert9 ing ‘‘section 168(g)(6)’’. 

10 (N) Section 527(i)(3)(D) is amended by 

11 striking ‘‘section 168(h)(4)’’ and inserting ‘‘sec12 tion 168(g)(4)’’. 

13 (O) The second sentence of section 

14 860E(e)(5) is amended by striking ‘‘section 

15 168(h)(2)(D)’’ and inserting ‘‘section 

16 168(g)(2)(D)’’. 

17 (P) Section 1245(a) is amended—

18 (i) in paragraph (3)(D), by striking 

19 ‘‘section 168(i)(13)’’ and inserting ‘‘para20 graph (4)’’, and 

21 (ii) by adding at the end the following 

22 new paragraph: 

23 ‘‘(4) SINGLE PURPOSE AGRICULTURAL OR HOR24 TICULTURAL STRUCTURE.—For purposes of this 

25 subsection—


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1 ‘‘(A) IN GENERAL.—The term ‘single pur2 pose agricultural or horticultural structure’ 

3 means—

4 ‘‘(i) a single purpose livestock struc5 ture, and 

6 ‘‘(ii) a single purpose horticultural 

7 structure. 

8 ‘‘(B) DEFINITIONS.—For purposes of this 

9 paragraph—

10 ‘‘(i) SINGLE PURPOSE LIVESTOCK

11 STRUCTURE.—The term ‘single purpose 

12 livestock structure’ means any enclosure or 

13 structure specifically designed, constructed, 

14 and used—

15 ‘‘(I) for housing, raising, and 

16 feeding a particular type of livestock 

17 and their produce, and 

18 ‘‘(II) for housing the equipment 

19 (including any replacements) nec20 essary for the housing, raising, and 

21 feeding referred to in subclause (I). 

22 ‘‘(ii) SINGLE PURPOSE HORTI23 CULTURAL STRUCTURE.—The term ‘single 

24 purpose horticultural structure’ means—


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1 ‘‘(I) a greenhouse specifically de2 signed, constructed, and used for the 

3 commercial production of plants, and 

4 ‘‘(II) a structure specifically de5 signed, constructed, and used for the 

6 commercial production of mushrooms. 

7 ‘‘(iii) STRUCTURES WHICH INCLUDE

8 WORK SPACE.—An enclosure or structure 

9 which provides work space shall be treated 

10 as a single purpose agricultural or horti11 cultural structure only if such work space 

12 is solely for—

13 ‘‘(I) the stocking, caring for, or 

14 collecting of livestock or plants (as the 

15 case may be) or their produce, 

16 ‘‘(II) the maintenance of the en17 closure or structure, and 

18 ‘‘(III) the maintenance or re19 placement of the equipment or stock 

20 enclosed or housed therein. 

21 ‘‘(iv) LIVESTOCK.—The term ‘‘live22 stock’’ includes poultry.’’. 

23 (Q) Section 1245(a)(3)(F) is amended to 

24 read as follows: 


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1 ‘‘(F) any clearing and grading land im2 provements or tunnel bore (within the meaning 

3 of section 168(c)(2)(P)).’’. 

4 (R) Section 6050V(d)(3) is amended by 

5 striking ‘‘section 168(h)(2)(A)(iv)’’ and insert6 ing ‘‘section 168(g)(2)(A)(iv)’’. 

7 (S) Section 6211(b)(4)(A) is amended by 

8 striking ‘‘168(k)(4),’’. 

9 (T) The second sentence of section 

10 7701(e)(4)(A) is amended by striking ‘‘section 

11 168(h)’’ and inserting ‘‘section 168(g)’’. 

12 (U) Section 7871(f)(3) is amended—

13 (i) by striking ‘‘(as defined in section 

14 168(j)(6))’’ in subparagraph (B)(ii), and 

15 (ii) by adding at the end the following 

16 new subparagraph: 

17 ‘‘(D) INDIAN RESERVATION.—For pur18 poses of this paragraph, the term ‘Indian res19 ervation’ means a reservation, as defined in—

20 ‘‘(i) section 3(d) of the Indian Financ21 ing Act of 1974 (25 U.S.C. 1452(d)), or 

22 ‘‘(ii) section 4(10) of the Indian Child 

23 Welfare Act of 1978 (25 U.S.C. 

24 1903(10)). 


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1 For purposes of the preceding sentence, such 

2 section 3(d) shall be applied by treating the 

3 term ‘former Indian reservations in Oklahoma’ 

4 as including only lands which are within the ju5 risdictional area of an Oklahoma Indian tribe 

6 (as determined by the Secretary of the Interior) 

7 and are recognized by such Secretary as eligible 

8 for trust land status under 25 CFR Part 151 

9 (as in effect on August 5, 1997).’’. 

10 (g) NORMALIZATION REQUIREMENTS.—

11 (1) IN GENERAL.—A normalization method of 

12 accounting shall not be treated as being used with 

13 respect to any public utility property for purposes of 

14 section 167 or 168 of the Internal Revenue Code of 

15 1986 if the taxpayer, in computing its cost of service 

16 for ratemaking purposes and reflecting operating re17 sults in its regulated books of account, reduces the 

18 excess tax reserve more rapidly or to a greater ex19 tent than such reserve would be reduced under the 

20 average rate assumption method. 

21 (2) ALTERNATIVE METHOD FOR CERTAIN TAX22 PAYERS.—If, as of the first day of the taxable year 

23 that includes the date of enactment of this Act—

24 (A) the taxpayer was required by a regu25 latory agency to compute depreciation for public 


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1 utility property on the basis of an average life 

2 or composite rate method, and 

3 (B) the taxpayer’s books and underlying 

4 records did not contain the vintage account 

5 data necessary to apply the average rate as6 sumption method, 

7 the taxpayer will be treated as using a normalization 

8 method of accounting if, with respect to such juris9 diction, the taxpayer uses the alternative method for 

10 public utility property that is subject to the regu11 latory authority of that jurisdiction. 

12 (3) DEFINITIONS.—For purposes of this sub13 section—

14 (A) EXCESS TAX RESERVE.—The term 

15 ‘‘excess tax reserve’’ means the excess of—

16 (i) the reserve for deferred taxes (as 

17 described in section 168(i)(9)(A)(ii) of the 

18 Internal Revenue Code of 1986 as in effect 

19 on the day before the date of the enact20 ment of this Act), over 

21 (ii) the amount which would be the 

22 balance in such reserve if the amount of 

23 such reserve were determined by assuming 

24 that the corporate rate reductions provided 


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1 in this Act were in effect for all prior peri2 ods. 

3 (B) AVERAGE RATE ASSUMPTION METH4 OD.—The average rate assumption method is 

5 the method under which the excess in the re6 serve for deferred taxes is reduced over the re7 maining lives of the property as used in its reg8 ulated books of account which gave rise to the 

9 reserve for deferred taxes. Under such method, 

10 if timing differences for the property reverse, 

11 the amount of the adjustment to the reserve for 

12 the deferred taxes is calculated by multi13 plying—

14 (i) the ratio of the aggregate deferred 

15 taxes for the property to the aggregate 

16 timing differences for the property as of 

17 the beginning of the period in question, by 

18 (ii) the amount of the timing dif19 ferences which reverse during such period. 

20 (C) ALTERNATIVE METHOD.—The ‘‘alter21 native method’’ is the method in which the tax22 payer—

23 (i) computes the excess tax reserve on 

24 all public utility property included in the 

25 plant account on the basis of the weighted 


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1 average life or composite rate used to com2 pute depreciation for regulatory purposes, 

3 and 

4 (ii) reduces the excess tax reserve rat5 ably over the remaining regulatory life of 

6 the property. 

7 (4) TAX INCREASED FOR NORMALIZATION VIO8 LATION.— If, for any taxable year ending after the 

9 date of the enactment of this Act, the taxpayer does 

10 not use a normalization method of accounting, the 

11 taxpayer’s tax for the taxable year shall be increased 

12 by the amount by which it reduces its excess tax re13 serve more rapidly than permitted under a normal14 ization method of accounting. 

15 (h) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to property placed in service after 

17 December 31, 2016. 

18 SEC. 3105. REPEAL OF AMORTIZATION OF POLLUTION CON19 TROL FACILITIES. 

20 (a) IN GENERAL.—Part VI of subchapter B of chap21 ter 1 is amended by striking section 169 (and by striking 

22 the item relating to such section in the table of sections 

23 for such part). 

24 (b) CONFORMING AMENDMENTS.—


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1 (1) Section 642(f) is amended by striking ‘‘the 

2 deductions for amortization provided by sections 169 

3 and 197’’ and inserting ‘‘the deduction for amortiza4 tion provided by section 197’’. 

5 (2) Section 1250(b)(3) is amended by inserting 

6 ‘‘(as in effect before its repeal by the Tax Reform 

7 Act of 2014)’’ after ‘‘169’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to facilities placed in service after 

10 December 31, 2014. 

11 SEC. 3106. NET OPERATING LOSS DEDUCTION. 

12 (a) LIMITATION ON NET OPERATING LOSSES OF

13 CORPORATIONS.—

14 (1) IN GENERAL.—Section 172(a) is amended 

15 to read as follows: 

16 ‘‘(a) DEDUCTION ALLOWED.—

17 ‘‘(1) IN GENERAL.—There shall be allowed as a 

18 deduction for the taxable year an amount equal to 

19 the aggregate of—

20 ‘‘(A) the net operating loss carryovers to 

21 such year, plus 

22 ‘‘(B) the net operating loss carrybacks to 

23 such year. 

24 ‘‘(2) LIMITATION IN CASE OF CORPORATIONS.—

25 In the case of a corporation—


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1 ‘‘(A) the deduction allowed under para2 graph (1) for the taxable year shall not exceed 

3 90 percent of the taxable income for such year 

4 computed without regard to the deduction al5 lowable under this section, and 

6 ‘‘(B) appropriate adjustments in the appli7 cation of subsection (b)(2) shall be made to 

8 take into account the limitation of subpara9 graph (A). 

10 ‘‘(3) NET OPERATING LOSS DEDUCTION DE11 FINED.—For purposes of this subtitle, the term ‘net 

12 operating loss deduction’ means the deduction al13 lowed by this subsection.’’. 

14 (2) COORDINATION WITH LIMITATION ON DE15 DUCTION FOR CHARITABLE CONTRIBUTIONS.—

16 (A) IN GENERAL.—Section 170(b)(2)(C) is 

17 amended by redesignating clauses (iv) and (v) 

18 as clauses (v) and (vi), respectively, and by in19 serting after clause (iii) the following new 

20 clause: 

21 ‘‘(iv) the limitation imposed under 

22 section 172(a)(2)(A),’’. 

23 (B) LIFE INSURANCE COMPANIES.—Sec24 tion 805(b)(2)(A) is amended by redesignating 

25 clauses (ii) through (v) as clauses (iii) through 


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1 (vi), respectively, and by inserting after clause 

2 (i) the following new clause: 

3 ‘‘(ii) the limitation imposed under sec4 tion 172(a)(2)(A),’’. 

5 (b) REPEAL OF SPECIAL CARRYBACK PROVISIONS.—

6 (1) IN GENERAL.—Section 172(b)(1) is amend7 ed by striking subparagraphs (C), (D), (E), (G), 

8 (H), (I), and (J) and by redesignating subparagraph 

9 (F) as subparagraph (C). 

10 (2) CONFORMING AMENDMENTS.—

11 (A) Section 172(b)(1)(C), as redesignated 

12 by paragraph (1), is amended—

13 (i) in clause (ii), by striking the last 

14 sentence, and 

15 (ii) in clause (iv), by striking ‘‘in a 

16 manner similar to the manner in which a 

17 specified liability loss is treated’’ and in18 serting ‘‘as a separate net operating loss 

19 for such taxable year to be taken into ac20 count after the remaining portion of the 

21 net operating loss for such taxable year’’. 

22 (B) Section 172 is amended by striking 

23 subsections (f), (g), (h), (i), and (j) and by re24 designating subsection (k) as subsection (f). 

25 (c) EFFECTIVE DATES.—


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1 (1) LIMITATION ON NOLS OF CORPORATIONS.—

2 The amendments made by subsection (a) shall apply 

3 to—

4 (A) taxable years beginning after Decem5 ber 31, 2014, and 

6 (B) to carrybacks of losses arising in tax7 able years beginning after December 31, 2014, 

8 to taxable years beginning on or before such 

9 date. 

10 (2) REPEAL OF SPECIAL CARRYBACKS.—

11 (A) IN GENERAL.—Except as otherwise 

12 provided in this paragraph, the amendments 

13 made by subsection (b) shall apply to losses 

14 arising in taxable years beginning after Decem15 ber 31, 2014. 

16 (B) EXPIRED PROVISIONS.—So much of 

17 the amendments made by subsection (b) as re18 late to striking subparagraphs (D), (H), (I), 

19 and (J) of section 172(b)(1) of the Internal 

20 Revenue Code of 1986 shall take effect on the 

21 date of the enactment of this Act. 

22 SEC. 3107. CIRCULATION EXPENDITURES. 

23 (a) IN GENERAL.—Section 173 is amended to read 

24 as follows: 


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1 ‘‘SEC. 173. CIRCULATION EXPENDITURES. 

2 ‘‘(a) IN GENERAL.—In the case of a taxpayer’s speci3 fied circulation expenditures—

4 ‘‘(1) except as provided in paragraph (2), no 

5 deduction shall be allowed for such expenditures, 

6 and 

7 ‘‘(2) the taxpayer shall—

8 ‘‘(A) charge such expenditures to capital 

9 account, and 

10 ‘‘(B) be allowed an amortization deduction 

11 of such expenditures ratably over the 36-month 

12 period beginning with the midpoint of the 

13 month in which such expenditures are paid or 

14 incurred. 

15 ‘‘(b) SPECIFIED CIRCULATION EXPENDITURES.—For 

16 purposes of this section, the term ‘specified circulation ex17 penditures’ means all expenditures (other than expendi18 tures for the purchase of land or depreciable property or 

19 for the acquisition of circulation through the purchase of 

20 any part of the business of another publisher of a news21 paper, magazine, or other periodical) to establish, main22 tain, or increase the circulation of a newspaper, magazine, 

23 or other periodical. 

24 ‘‘(c) TREATMENT UPON ABANDONMENT.—If any 

25 property with respect to which specified circulation ex26 penditures are paid or incurred is disposed, retired, or 


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1 abandoned during the period during which such expendi2 tures are allowed as an amortization deduction under this 

3 section, no deduction shall be allowed with respect to such 

4 expenditures on account of such disposition, retirement, 

5 or abandonment and such amortization deduction shall 

6 continue with respect to such expenditures. 

7 ‘‘(d) PHASE-IN FOR TAXABLE YEARS BEGINNING

8 BEFORE 2019.—

9 ‘‘(1) IN GENERAL.—In the case of specified cir10 culation expenditures paid or incurred in taxable 

11 years beginning before 2019—

12 ‘‘(A) notwithstanding subsection (a), the 

13 applicable percentage of such expenditures shall 

14 be allowed as a deduction for the taxable year 

15 in which paid or incurred, and 

16 ‘‘(B) subsection (a) shall apply to the re17 mainder of such expenditures. 

18 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

19 of paragraph (1), the applicable percentage shall be 

20 determined in accordance with the following table:

‘‘In the case of taxable years beginning in:The applicable percentage 

is:

2016 ............................................................................................. 75%

2017 ............................................................................................. 50%

2018 ............................................................................................. 25%

21 ‘‘(3) ELECTION OUT OF PHASE-IN.—The tax22 payer may elect, at such time and in such form and 

23 manner as the Secretary shall prescribe, for paraVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00356 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 graph (1) not to apply for all taxable years begin2 ning before 2019. Such election, once made, shall be 

3 irrevocable.’’. 

4 (b) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to amounts paid or incurred in tax6 able years beginning after December 31, 2015. 

7 SEC. 3108. AMORTIZATION OF RESEARCH AND EXPERI8 MENTAL EXPENDITURES. 

9 (a) IN GENERAL.—Section 174 is amended to read 

10 as follows: 

11 ‘‘SEC. 174. AMORTIZATION OF RESEARCH AND EXPERI12 MENTAL EXPENDITURES. 

13 ‘‘(a) IN GENERAL.—In the case of a taxpayer’s speci14 fied research or experimental expenditures for any taxable 

15 year—

16 ‘‘(1) except as provided in paragraph (2), no 

17 deduction shall be allowed for such expenditures, 

18 and 

19 ‘‘(2) the taxpayer shall—

20 ‘‘(A) charge such expenditures to capital 

21 account, and 

22 ‘‘(B) be allowed an amortization deduction 

23 of such expenditures ratably over the 5-year pe24 riod (15-year period in the case of any specified 

25 research or experimental expenditures which are 


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1 attributable to foreign research (within the 

2 meaning of section 41(d)(4)(F))) beginning 

3 with the midpoint of the taxable year in which 

4 such expenditures are paid or incurred. 

5 ‘‘(b) SPECIFIED RESEARCH OR EXPERIMENTAL EX6 PENDITURES.—For purposes of this section, the term 

7 ‘specified research or experimental expenditures’ means, 

8 with respect to any taxable year, research or experimental 

9 expenditures which are paid or incurred by the taxpayer 

10 during such taxable year in connection with the taxpayer’s 

11 trade or business. 

12 ‘‘(c) SPECIAL RULES.—

13 ‘‘(1) LAND AND OTHER PROPERTY.—This sec14 tion shall not apply to any expenditure for the acqui15 sition or improvement of land, or for the acquisition 

16 or improvement of property to be used in connection 

17 with the research or experimentation and of a char18 acter which is subject to the allowance under section 

19 167 (relating to allowance for depreciation, etc.) or 

20 section 611 (relating to allowance for depletion); but 

21 for purposes of this section allowances under section 

22 167, and allowances under section 611, shall be con23 sidered as expenditures. 

24 ‘‘(2) EXPLORATION EXPENDITURES.—This sec25 tion shall not apply to any expenditure paid or inVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00358 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 curred for the purpose of ascertaining the existence, 

2 location, extent, or quality of any deposit of ore or 

3 other mineral (including oil and gas). 

4 ‘‘(3) SOFTWARE DEVELOPMENT.—For purposes 

5 of this section, any amount paid or incurred in con6 nection with the development of any software shall 

7 be treated as a research or experimental expendi8 ture. 

9 ‘‘(d) TREATMENT UPON DISPOSITION, RETIREMENT, 

10 OR ABANDONMENT.—If any property with respect to 

11 which specified research or experimental expenditures are 

12 paid or incurred is disposed, retired, or abandoned during 

13 the period during which such expenditures are allowed as 

14 an amortization deduction under this section, no deduction 

15 shall be allowed with respect to such expenditures on ac16 count of such disposition, retirement, or abandonment and 

17 such amortization deduction shall continue with respect to 

18 such expenditures. 

19 ‘‘(e) SPECIAL RULES FOR EXPENDITURES FOR DO20 MESTIC RESEARCH DURING TAXABLE YEARS BEGINNING

21 BEFORE 2021.—

22 ‘‘(1) IN GENERAL.—In the case of domestic re23 search or experimental expenditures paid or incurred 

24 during any taxable year beginning before 2021—


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1 ‘‘(A) notwithstanding subsection (a), the 

2 applicable percentage of such expenditures shall 

3 be allowed as a deduction in the taxable year in 

4 which paid or incurred, and 

5 ‘‘(B) subsection (a) shall apply to the re6 mainder of such expenditures by substituting 

7 the applicable period for ‘the 5-year period’. 

8 ‘‘(2) DOMESTIC RESEARCH OR EXPERIMENTAL

9 EXPENDITURES.—For purposes of this subsection, 

10 the term ‘domestic research or experimental expendi11 tures’ means any expenditures—

12 ‘‘(A) to which subsection (a) applies (de13 termined without regard to this subsection), 

14 and 

15 ‘‘(B) which are not attributable to foreign 

16 research (within the meaning of section 

17 41(d)(4)(F)). 

18 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes 

19 of this subsection, the applicable percentage shall be 

20 determined in accordance with the following table:

‘‘In the case of taxable years beginning in:The applicable percentage 

is:

2015 ............................................................................................. 60%

2016 or 2017 ............................................................................... 40%

2018, 2019, or 2020 .................................................................... 20%

21 ‘‘(4) APPLICABLE PERIOD.—For purposes of 

22 this subsection, the applicable period shall be deter23 mined in accordance with the following table:


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‘‘In the case of taxable years beginning in:The applicable period is 

the:

2015 .............................................................................................2-year period 

2016 or 2017 ...............................................................................3-year period 

2018, 2019, or 2020 ....................................................................4-year period

1 ‘‘(5) ELECTION OUT OF PHASE-IN.—The tax2 payer may elect, at such time and in such form and 

3 manner as the Secretary shall prescribe, for para4 graph (1) not to apply to all domestic research or 

5 experimental expenditures of the taxpayer for any 

6 taxable years beginning before 2021. Such election, 

7 once made, shall be irrevocable.’’. 

8 (b) CLERICAL AMENDMENT.—The table of sections 

9 for part VI of subchapter B of chapter 1 is amended by 

10 striking the item relating to section 174 and inserting the 

11 following new item:

‘‘Sec. 174. Amortization of research and experimental expenditures.’’.

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to amounts paid or incurred in tax14 able years beginning after December 31, 2014. 

15 SEC. 3109. REPEAL OF DEDUCTIONS FOR SOIL AND WATER 

16 CONSERVATION EXPENDITURES AND ENDAN17 GERED SPECIES RECOVERY EXPENDITURES. 

18 (a) IN GENERAL.—Part VI of subchapter B of chap19 ter 1 is amended by striking section 175 (and by striking 

20 the item relating to such section in the table of sections 

21 for such part). 


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1 (b) CONFORMING AMENDMENTS.—Paragraphs 

2 (1)(A) and (2) of section 1252(a) are each amended by 

3 striking ‘‘relating to soil and water conservation expendi4 tures’’ and inserting ‘‘as in effect before its repeal by the 

5 Tax Reform Act of 2014’’. 

6 (c) EFFECTIVE DATE.—

7 (1) IN GENERAL.—The amendments made by 

8 this section shall apply to amounts paid or incurred 

9 after December 31, 2014. 

10 (2) ASSESSMENTS TREATED AS PAID OR IN11 CURRED.—In the case of any amount paid or in12 curred before December 31, 2014, and treated as 

13 paid or incurred in any succeeding taxable year by 

14 reason of section 175(f) of the Internal Revenue 

15 Code of 1986 (as in effect on the day before the 

16 date of the enactment of this Act), paragraph (1) 

17 shall not apply. 

18 SEC. 3110. AMORTIZATION OF CERTAIN ADVERTISING EX19 PENSES.

20 (a) IN GENERAL.—Part VI of subchapter B of chap21 ter 1 is amended by inserting after section 176 the fol22 lowing new section: 


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1 ‘‘SEC. 177. AMORTIZATION OF CERTAIN ADVERTISING EX2 PENSES.

3 ‘‘(a) IN GENERAL.—In the case of a taxpayer’s amor4 tizable advertising expenses for any taxable year—

5 ‘‘(1) except as provided in paragraph (2), no 

6 deduction shall be allowed for such expenses, and 

7 ‘‘(2) the taxpayer shall—

8 ‘‘(A) charge such expenses to capital ac9 count, and 

10 ‘‘(B) be allowed an amortization deduction 

11 of such expenses ratably over the 10-year period 

12 beginning with the midpoint of the taxable year 

13 in which such expenses are paid or incurred. 

14 ‘‘(b) EXEMPTION.—

15 ‘‘(1) IN GENERAL.—So much of the taxpayer’s 

16 otherwise deductible advertising expenses for any 

17 taxable year as do not exceed $1,000,000 shall not 

18 be taken into account in determining such taxpayer’s 

19 amortizable advertising expenses for such taxable 

20 year. 

21 ‘‘(2) PHASEOUT OF EXEMPTION.—In the case 

22 of a taxpayer whose otherwise deductible advertising 

23 expenses for any taxable year exceed $1,500,000, 

24 the dollar amount in effect under paragraph (1) with 

25 respect to such taxpayer for such taxable year shall 


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1 be reduced (but not below zero) by twice such ex2 cess. 

3 ‘‘(3) AGGREGATION; SHORT TAXABLE YEARS.—

4 For purposes of this subsection, rules similar to the 

5 rules of paragraphs (2) and (3)(B) of section 448(b) 

6 shall apply. 

7 ‘‘(c) AMORTIZABLE ADVERTISING EXPENSES.—

8 ‘‘(1) IN GENERAL.—For purposes of this sec9 tion, the term ‘amortizable advertising expenses’ 

10 means, with respect to any taxpayer for any taxable 

11 year, the applicable percentage of the taxpayer’s oth12 erwise deductible advertising expenses for such tax13 able year. 

14 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

15 of this subsection, the term ‘applicable percentage’ 

16 means (with respect to the taxpayer’s otherwise de17 ductible advertising expenses for any taxable year) 

18 the percentage determined in accordance with the 

19 following table:

‘‘For taxable years beginning in: The applicable percentage is: 

2015 ..................................................... 20 percent 

2016 ..................................................... 30 percent 

2017 ..................................................... 40 percent 

2018 or thereafter ................................ 50 percent. 

20 ‘‘(3) ELECTION OUT OF PHASE-IN.—The tax21 payer may elect, at such time and in such form and 


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1 manner as the Secretary shall prescribe, to treat the 

2 applicable percentage as being equal to 50 percent 

3 for all taxable years beginning before 2018. Such 

4 election, once made, shall be irrevocable. 

5 ‘‘(d) OTHERWISE DEDUCTIBLE ADVERTISING EX6 PENSES.—For purposes of this section—

7 ‘‘(1) IN GENERAL.—The term ‘otherwise de8 ductible advertising expenses’ means, with respect to 

9 any taxpayer for any taxable year, the deductions 

10 which would (but for this section) be allowable to the 

11 taxpayer for such taxable year with respect to speci12 fied advertising expenses. 

13 ‘‘(2) SPECIFIED ADVERTISING EXPENSES.—The 

14 term ‘specified advertising expenses’ means any 

15 amount paid or incurred for the development, pro16 duction, or placement (including any form of trans17 mission, broadcast, publication, display, or distribu18 tion) of any communication to the general public (or 

19 portions thereof) which is intended to promote the 

20 taxpayer or a trade or business of the taxpayer (or 

21 any service, facility, or product provided pursuant to 

22 such trade or business). 

23 ‘‘(3) EXCEPTIONS.—The term ‘specified adver24 tising expenses’ shall not include—


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1 ‘‘(A) CERTAIN WAGES.—Wages paid or in2 curred to any employee unless the services ren3 dered by such employee are primarily related 

4 to—

5 ‘‘(i) an activity described in paragraph 

6 (2) (other than the direct sale of goods or 

7 services to customers of the taxpayer), or 

8 ‘‘(ii) the direct supervision of employ9 ees rendering services primarily related to 

10 such an activity. 

11 ‘‘(B) DEPRECIATION OF TANGIBLE PROP12 ERTY.—In the case of any tangible property, 

13 any amount for which a deduction is allowed for 

14 depreciation under section 167. 

15 ‘‘(C) AMORTIZABLE SECTION 197 INTANGI16 BLES.—Any amount for which a deduction is 

17 allowed for amortization under section 197. 

18 ‘‘(D) DISCOUNTS, ETC.—Any discount, 

19 coupon, rebate, slotting allowance, sample, 

20 prize, loyalty reward point, or any item deter21 mined by the Secretary to be similar to any of 

22 the foregoing (other than any amount paid or 

23 incurred to promote any of the foregoing). 

24 ‘‘(E) CERTAIN COMMUNICATIONS ON TAX25 PAYER’S PROPERTY.—Any amount paid or inVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00366 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 curred with respect to any communication ap2 pearing on tangible property of the taxpayer 

3 which—

4 ‘‘(i) is of a character subject to the al5 lowance for depreciation, or 

6 ‘‘(ii) is properly treated as inventory 

7 for purposes of section 471. 

8 ‘‘(F) CREATION OF LOGOS, TRADE NAMES, 

9 ETC.—Any amount paid or incurred for the cre10 ation of any logo, trademark, or trade name. 

11 ‘‘(G) PACKAGE DESIGN.—Any amount to 

12 which section 263A(i) applies. 

13 ‘‘(H) MARKETING RESEARCH.—Any 

14 amount paid or incurred for marketing re15 search. 

16 ‘‘(I) BUSINESS MEALS.—Any amount paid 

17 or incurred for meals. 

18 ‘‘(J) QUALIFIED SPONSORSHIP PAY19 MENTS.—Any amount paid or incurred as a 

20 qualified sponsorship payment (as defined in 

21 section 513(i)(2)) with respect to an organiza22 tion subject to the tax imposed by section 511. 

23 ‘‘(e) TREATMENT UPON ABANDONMENT.—If any 

24 property with respect to which specified advertising ex25 penses are paid or incurred is disposed, retired, or abanVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00367 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 doned during the period during which such expenses are 

2 allowed as an amortization deduction under this section, 

3 no deduction shall be allowed with respect such expenses 

4 on account of such disposition, retirement, or abandon5 ment and such amortization deduction shall continue with 

6 respect to such expenses. 

7 ‘‘(f) INFLATION ADJUSTMENT.—

8 ‘‘(1) IN GENERAL.—In the case of any taxable 

9 year beginning after 2015, each of the dollar 

10 amounts in subsection (b) shall be increased by an 

11 amount equal to—

12 ‘‘(A) such dollar amount, multiplied by 

13 ‘‘(B) the cost-of-living adjustment deter14 mined under section 1(c)(2)(A) for such cal15 endar year, determined by substituting ‘cal16 endar year 2014’ for ‘calendar year 2012’ in 

17 clause (ii) thereof. 

18 ‘‘(2) ROUNDING.—The amount of any increase 

19 under paragraph (1) shall be rounded to the nearest 

20 multiple of $10,000.’’. 

21 (b) CAPITALIZATION OF PACKAGE DESIGN EX22 PENSES.—Section 263A is amended by redesignating sub23 section (i) as subsection (j) and by inserting after sub24 section (h) the following new subsection: 


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1 ‘‘(i) CAPITALIZATION OF PACKAGE DESIGN EX2 PENSES.—For purposes of this section, in the case of any 

3 amount paid or incurred for package design, such amounts 

4 shall be treated as an indirect cost described in subsection 

5 (a)(2)(B) with respect to packages which utilize such de6 sign.’’. 

7 (c) CLERICAL AMENDMENT.—The table of sections 

8 for part VI of subchapter B of chapter 1 is amended by 

9 inserting after the item relating to section 176 the fol10 lowing new item:

‘‘Sec. 177. Amortization of certain advertising expenses.’’.

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to amounts paid or incurred in tax13 able years beginning after December 31, 2014. 

14 SEC. 3111. EXPENSING CERTAIN DEPRECIABLE BUSINESS 

15 ASSETS FOR SMALL BUSINESS. 

16 (a) IN GENERAL.—

17 (1) DOLLAR LIMITATION.—Paragraph (1) of 

18 section 179(b) is amended by striking ‘‘shall not ex19 ceed—’’ and all that follows and inserting ‘‘shall not 

20 exceed $250,000.’’. 

21 (2) REDUCTION IN LIMITATION.—Paragraph 

22 (2) of section 179(b) is amended by striking ‘‘ex23 ceeds—’’ and all that follows and inserting ‘‘exceeds 

24 $800,000.’’. 


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1 (b) COMPUTER SOFTWARE.—Clause (ii) of section 

2 179(d)(1)(A) is amended by striking ‘‘to which section 

3 167 applies, and which is placed in service in a taxable 

4 year beginning after 2002 and before 2014’’ and inserting 

5 ‘‘and to which section 167 applies’’. 

6 (c) ELECTION.—Paragraph (2) of section 179(c) is 

7 amended—

8 (1) by striking ‘‘may not be revoked’’ and all 

9 that follows through ‘‘and before 2014’’, and 

10 (2) by striking ‘‘IRREVOCABLE’’ in the heading 

11 thereof. 

12 (d) AIR CONDITIONING AND HEATING UNITS.—

13 Paragraph (1) of section 179(d) is amended by striking 

14 ‘‘and shall not include air conditioning or heating units’’. 

15 (e) QUALIFIED REAL PROPERTY.—Section 179(f) is 

16 amended—

17 (1) by striking ‘‘beginning in 2010, 2011, 2012, 

18 or 2013’’ in paragraph (1), and 

19 (2) by striking paragraphs (3) and (4). 

20 (f) INFLATION ADJUSTMENT.—Subsection (b) of sec21 tion 179 is amended by adding at the end the following 

22 new paragraph: 

23 ‘‘(6) INFLATION ADJUSTMENT.—

24 ‘‘(A) IN GENERAL.—In the case of any 

25 taxable year beginning after 2014, the dollar 


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1 amounts in paragraphs (1) and (2) shall each 

2 be increased by an amount equal to—

3 ‘‘(i) such dollar amount, multiplied by 

4 ‘‘(ii) the cost-of-living adjustment de5 termined under section 1(c)(2)(A) for such 

6 calendar year, determined by substituting 

7 ‘calendar year 2013’ for ‘calendar year 

8 2012’ in clause (ii) thereof. 

9 ‘‘(B) ROUNDING.—The amount of any in10 crease under subparagraph (A) shall be round11 ed to the nearest multiple of $10,000.’’. 

12 (g) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning after 

14 December 31, 2013. 

15 SEC. 3112. REPEAL OF ELECTION TO EXPENSE CERTAIN RE16 FINERIES.

17 (a) IN GENERAL.—Part VI of subchapter B of chap18 ter 1 is amended by striking section 179C (and by striking 

19 the item relating to such section in the table of sections 

20 for such part). 

21 (b) CONFORMING AMENDMENT.—Section 312(k)(3), 

22 as amended by the preceding provisions of this Act, is 

23 amended by striking ‘‘, 179C’’ each place it appears. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to property placed in service after 

3 December 31, 2013. 

4 SEC. 3113. REPEAL OF DEDUCTION FOR ENERGY EFFI5 CIENT COMMERCIAL BUILDINGS. 

6 (a) IN GENERAL.—Part VI of subchapter B of chap7 ter 1 is amended by striking section 179D (and by striking 

8 the item relating to such section in the table of sections 

9 for such part). 

10 (b) CONFORMING AMENDMENT.—

11 (1) Section 1016(a) is amended by striking 

12 paragraph (31). 

13 (2) Section 312(k)(3), as amended by the pre14 ceding provisions of this Act, is amended by striking 

15 ‘‘, 179D’’ each place it appears. 

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to property placed in service after 

18 December 31, 2013. 

19 SEC. 3114. REPEAL OF ELECTION TO EXPENSE ADVANCED 

20 MINE SAFETY EQUIPMENT. 

21 (a) IN GENERAL.—Part VI of subchapter B of chap22 ter 1 is amended by striking section 179E (and by striking 

23 the item relating to such section in the table of sections 

24 for such part). 


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1 (b) CONFORMING AMENDMENT.—Section 312(k)(3), 

2 as amended by the preceding provisions of this Act, is 

3 amended—

4 (1) by striking ‘‘, or 179E, as the case may 

5 be’’, and 

6 (2) by striking ‘‘, or 179E’’ each place it ap7 pears. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to property placed in service after 

10 December 31, 2013. 

11 SEC. 3115. REPEAL OF DEDUCTION FOR EXPENDITURES BY 

12 FARMERS FOR FERTILIZER, ETC. 

13 (a) IN GENERAL.—Part VI of subchapter B of chap14 ter 1 is amended by striking section 180 (and by striking 

15 the item relating to such section in the table of sections 

16 for such part). 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to expenses paid or incurred in 

19 taxable years beginning after December 31, 2014. 

20 SEC. 3116. REPEAL OF SPECIAL TREATMENT OF CERTAIN 

21 QUALIFIED FILM AND TELEVISION PRODUC22 TIONS.

23 (a) IN GENERAL.—Part VI of subchapter B of chap24 ter 1 is amended by striking section 181 (and by striking 


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1 the item relating to such section in the table of sections 

2 for such part). 

3 (b) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to productions commencing after 

5 December 31, 2013. 

6 SEC. 3117. REPEAL OF SPECIAL RULES FOR RECOVERIES 

7 OF DAMAGES OF ANTITRUST VIOLATIONS, 

8 ETC.

9 (a) IN GENERAL.—Part VI of subchapter B of chap10 ter 1 is amended by striking section 186 (and by striking 

11 the item relating to such section in the table of sections 

12 for such part). 

13 (b) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to taxable years beginning after 

15 December 31, 2014. 

16 SEC. 3118. TREATMENT OF REFORESTATION EXPENDI17 TURES.

18 (a) ELIMINATION OF EXPENSING ELECTION.—Sec19 tion 194 is amended by striking subsections (a) and (b), 

20 by redesignating subsection (c) and (d) as subsections (b) 

21 and (c), respectively, and by inserting before subsection 

22 (b) (as so redesignated) the following new subsection: 

23 ‘‘(a) IN GENERAL.—In the case of a taxpayer’s quali24 fied reforestation expenditures for any taxable year—


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1 ‘‘(1) except as provided in paragraph (2), no 

2 deduction shall be allowed for such expenditures, 

3 and 

4 ‘‘(2) the taxpayer shall—

5 ‘‘(A) charge such expenditures to capital 

6 account, and 

7 ‘‘(B) be allowed an amortization deduction 

8 of such expenditures ratably over the 7-year pe9 riod beginning with the midpoint of the taxable 

10 year in which such expenditures are paid or in11 curred.’’. 

12 (b) QUALIFIED REFORESTATION EXPENDITURES.—

13 Section 194(b), as redesignated by subsection (a), is 

14 amended by striking paragraph (2), by redesignating 

15 paragraph (1) as paragraph (2), and by inserting before 

16 paragraph (2) (as so redesignated the following new para17 graph: 

18 ‘‘(1) QUALIFIED REFORESTATION EXPENDI19 TURES.—The term ‘qualified reforestation expendi20 tures’ means, with respect to any taxable year, the 

21 reforestation expenditures paid or incurred by the 

22 taxpayer during such taxable year with respect to 

23 qualified timber property.’’. 


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1 (c) QUALIFIED TIMBER PROPERTY LIMITED TO OR2 NAMENTAL TREES.—Section 194(b)(2), as redesignated 

3 by subsections (a) and (b), is amended to read as follows: 

4 ‘‘(2) QUALIFIED TIMBER PROPERTY.—The term 

5 ‘qualified timber property’ means a woodlot or other 

6 site located in the United States which—

7 ‘‘(A) will contain evergreen trees in signifi8 cant commercial quantities which are reason9 ably expected to be more than 6 years old at 

10 the time severed from the roots, and 

11 ‘‘(B) is held by the taxpayer for the plant12 ing, cultivating, caring for, and cutting of such 

13 trees for sale for ornamental purposes.’’. 

14 (d) DETERMINATION OF RECOMPUTED BASIS.—Sec15 tion 1245(b) is amended by striking paragraph (7). 

16 (e) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to expenditures paid or incurred 

18 in taxable years beginning after December 31, 2014. 

19 SEC. 3119. 20-YEAR AMORTIZATION OF GOODWILL AND CER20 TAIN OTHER INTANGIBLES. 

21 (a) IN GENERAL.—Subsection (a) of section 197 is 

22 amended by striking ‘‘15-year period’’ and inserting ‘‘20-

23 year period’’. 


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1 (b) MORTGAGE SERVICING RIGHTS.—Subsection (e) 

2 of section 197 is amended by striking paragraph (6) and 

3 by redesignating paragraph (7) as paragraph (6). 

4 (c) CONFORMING AMENDMENTS.—

5 (1) Clause (i) of section 197(e)(4)(D) is amend6 ed by striking ‘‘15 years’’ and inserting ‘‘20 years’’. 

7 (2) Section 167(f) is amended by striking para8 graph (3). 

9 (d) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to property acquired after Decem11 ber 31, 2014. 

12 SEC. 3120. TREATMENT OF ENVIRONMENTAL REMEDIATION 

13 COSTS.

14 (a) IN GENERAL.—Subsection (a) of section 198 is 

15 amended to read as follows: 

16 ‘‘(a) IN GENERAL.—In the case of a taxpayer’s quali17 fied environmental remediation expenditures for any tax18 able year—

19 ‘‘(1) except as provided in paragraph (2), no 

20 deduction shall be allowed for such expenditures, 

21 and 

22 ‘‘(2) the taxpayer shall—

23 ‘‘(A) charge such expenditures to capital 

24 account, and 


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1 ‘‘(B) be allowed an amortization deduction 

2 of such expenditures ratably over the 40-year 

3 period beginning with the midpoint of the tax4 able year in which such expenditures are paid 

5 or incurred.’’. 

6 (b) MADE PERMANENT.—Section 198 is amended by 

7 striking subsection (h). 

8 (c) CONFORMING AMENDMENTS.—

9 (1) Section 198, as amended by subsection (b), 

10 is amended by striking subsection (f) and by redesig11 nating subsection (g) as subsection (f). 

12 (2) Section 198 (and the item relating to such 

13 section in the table of sections for part VI of sub14 chapter B of chapter 1) is amended by striking ‘‘EX15 PENSING’’ in the heading thereof and inserting 

16 ‘‘AMORTIZATION’’. 

17 (d) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to expenditures paid or incurred 

19 after December 31, 2014. 

20 SEC. 3121. REPEAL OF EXPENSING OF QUALIFIED DIS21 ASTER EXPENSES. 

22 (a) IN GENERAL.—Part VI of subchapter B of chap23 ter 1 is amended by striking section 198A (and by striking 

24 the item relating to such section in the table of sections 

25 for such part). 


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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to amounts paid or incurred after 

3 December 31, 2014. 

4 SEC. 3122. PHASEOUT AND REPEAL OF DEDUCTION FOR IN5 COME ATTRIBUTABLE TO DOMESTIC PRO6 DUCTION ACTIVITIES. 

7 (a) PHASEOUT.—

8 (1) IN GENERAL.—Subsection (a) of section 

9 199 is amended by adding at the end the following 

10 new paragraph: 

11 ‘‘(3) PHASEOUT.—In the case of any taxable 

12 year beginning after 2014, paragraph (1) shall be 

13 applied by substituting for the percentage contained 

14 therein the phaseout percentage determined under 

15 the following table:

‘‘For taxable years beginning in: The phaseout percentage 

is:

2015 ............................................................................................. 6%

2016 ............................................................................................. 3%’’.

16 (2) COORDINATION WITH OIL RELATED QUALI17 FIED PRODUCTION ACTIVITIES INCOME.—Section 

18 199(d) is amended by striking paragraph (9). 

19 (3) EFFECTIVE DATE.—The amendments made 

20 by this subsection shall apply to taxable years begin21 ning after December 31, 2014. 

22 (b) REPEAL.—


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1 (1) IN GENERAL.—Part VI of subchapter B of 

2 chapter 1 is amended by striking section 199 (and 

3 by striking the item relating to such section in the 

4 table of sections for such part). 

5 (2) CONFORMING AMENDMENTS.—

6 (A) Sections 86(b)(2)(A), 137(b)(3)(A), 

7 246(b)(1), and 469(i)(3)(F)(iii) are each 

8 amended by striking ‘‘199,’’. 

9 (B) Section 163(j)(6)(A)(i), as amended by 

10 the preceding provisions of this Act, is amended 

11 by striking subclause (III) and by redesignating 

12 subclauses (IV) and (V) as subclauses (III) and 

13 (IV), respectively. 

14 (C) Section 170(b)(2)(C), as amended by 

15 the preceding provisions of this Act, is amended 

16 by striking clause (v), by redesignating clause 

17 (vi) as clause (v), and by inserting ‘‘and’’ at the 

18 end of clause (iv). 

19 (D) Section 172(d) is amended by striking 

20 paragraph (7). 

21 (E) Section 1402(a) is amended by adding 

22 ‘‘and’’ at the end of paragraph (15) and by 

23 striking paragraph (16). 


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1 (3) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to taxable years begin3 ning after December 31, 2016. 

4 SEC. 3123. UNIFICATION OF DEDUCTION FOR ORGANIZA5 TIONAL EXPENDITURES. 

6 (a) IN GENERAL.—Subsections (a) and (b) of section 

7 195 is amended by inserting ‘‘and organizational’’ after 

8 ‘‘start-up’’ each place it appears. 

9 (b) ORGANIZATIONAL EXPENDITURES.—Subsection 

10 (c) of section 195 is amended by adding at the end the 

11 following new paragraph: 

12 ‘‘(3) ORGANIZATIONAL EXPENDITURES.—The 

13 term ‘organizational expenditures’ means any ex14 penditure which—

15 ‘‘(A) is incident to the creation of a cor16 poration or a partnership, 

17 ‘‘(B) is chargeable to capital account, and 

18 ‘‘(C) is of a character which, if expended 

19 incident to the creation of a corporation or a 

20 partnership having a limited life, would be am21 ortizable over such life.’’. 

22 (c) DOLLAR AMOUNTS.—Clause (ii) of section 

23 195(b)(1)(A) is amended—

24 (1) by striking ‘‘$5,000’’ and inserting 

25 ‘‘$10,000’’, and 


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1 (2) by striking ‘‘$50,000’’ and inserting 

2 ‘‘$60,000’’. 

3 (d) MID-YEAR CONVENTION.—Subparagraph (B) of 

4 section 195(b)(1), as amended by subsection (a), is 

5 amended to read as follows: 

6 ‘‘(B) the remainder of such start-up and 

7 organizational expenditures shall be charged to 

8 capital account and allowed as an amortization 

9 deduction determined by amortizing such ex10 penditures ratably over the 15-year period be11 ginning with the midpoint of the taxable year in 

12 which the active trade or business begins.’’. 

13 (e) CONFORMING AMENDMENTS.—

14 (1) Section 195(b)(1) is amended—

15 (A) by inserting ‘‘(or, in the case of a part16 nership, the partnership elects)’’ after ‘‘If a tax17 payer elects’’, and 

18 (B) by inserting ‘‘(or the partnership, as 

19 the case may be)’’ after ‘‘the taxpayer’’ in sub20 paragraph (A). 

21 (2) Section 195(b)(2) is amended—

22 (A) by striking ‘‘AMORTIZATION PERIOD.—

23 In any case’’ and inserting the following: ‘‘AM24 ORTIZATION PERIOD.— 

25 ‘‘(A) IN GENERAL.—In any case’’, and 


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1 (B) by adding at the end the following new 

2 subparagraph: 

3 ‘‘(B) SPECIAL PARTNERSHIP RULE.—In 

4 the case of a partnership, subparagraph (A) 

5 shall be applied at the partnership level.’’. 

6 (3) Section 195(b) is amended by striking para7 graph (3). 

8 (4)(A) Part VIII of subchapter B of chapter 1 

9 is amended by striking section 248 (and by striking 

10 the item relating to such section in the table of sec11 tions for such part). 

12 (B) Section 170(b)(2)(C)(ii) is amended by 

13 striking ‘‘(except section 248)’’. 

14 (C) Section 312(n)(3) is amended by striking 

15 ‘‘Sections 173 and 248’’ and inserting ‘‘Section 

16 173’’. 

17 (D) Section 535(b)(3) is amended by striking 

18 ‘‘(except section 248)’’. 

19 (E) Section 545(b)(3) is amended by striking 

20 ‘‘(except section 248)’’. 

21 (F) Section 834(c)(7) is amended by striking 

22 ‘‘(except section 248)’’. 

23 (G) Section 852(b)(2)(C) is amended by strik24 ing ‘‘(except section 248)’’. 


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1 (H) Section 857(b)(2)(A) is amended by strik2 ing ‘‘(except section 248)’’. 

3 (I) Section 1363(b) is amended by inserting 

4 ‘‘and’’ at the end of paragraph (2), by striking para5 graph (3), and by redesignating paragraph (4) as 

6 paragraph (3). 

7 (J) Section 1375(b)(1)(B)(i) is amended by 

8 striking ‘‘(other than the deduction allowed by sec9 tion 248, relating to organization expenditures)’’. 

10 (5) Part I of subchapter K of chapter 1 is 

11 amended by striking section 709 (and by striking 

12 the item relating to such section in the table of sec13 tions for such part). 

14 (6) The heading of section 195 (and the item 

15 relating to such section in the table of sections for 

16 part VI of subchapter B of chapter 1) are each 

17 amended by inserting ‘‘and organizational’’ after 

18 ‘‘Start-up’’. 

19 (f) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to expenses paid or incurred in 

21 taxable years beginning after December 31, 2014. 


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1 SEC. 3124. PREVENTION OF ARBITRAGE OF DEDUCTIBLE 

2 INTEREST EXPENSE AND TAX-EXEMPT INTER3 EST INCOME. 

4 (a) PRO RATA ALLOCATION RULES APPLICABLE TO

5 FINANCIAL INSTITUTIONS MODIFIED AND MADE APPLI6 CABLE TO ALL C CORPORATIONS.—

7 (1) APPLICATION TO CORPORATIONS.—So much 

8 of section 265(b) as precedes paragraph (3) is 

9 amended to read as follows: 

10 ‘‘(b) PRO RATA ALLOCATION OF INTEREST EXPENSE

11 OF CORPORATIONS AND FINANCIAL INSTITUTIONS TO

12 TAX-EXEMPT INTEREST.—

13 ‘‘(1) IN GENERAL.—In the case of a C corpora14 tion or a financial institution, no deduction shall be 

15 allowed for that portion of the taxpayer’s interest ex16 pense which is allocable to tax-exempt interest. 

17 ‘‘(2) ALLOCATION.—For purposes of paragraph 

18 (1), the portion of the taxpayer’s interest expense 

19 which is allocable to tax-exempt interest is an 

20 amount which bears the same ratio to such interest 

21 expense as—

22 ‘‘(A) the taxpayer’s average adjusted bases 

23 (within the meaning of section 1016) of tax-ex24 empt obligations acquired on or after February 

25 26, 2014 (August 7, 1986, in the case of a fi26 nancial institution), bears to 


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1 ‘‘(B) such average adjusted bases for all 

2 assets of the taxpayer.’’. 

3 (2) REPEAL OF EXCEPTIONS.—Section 265(b) 

4 is amended by striking paragraphs (3) and (7). 

5 (b) LIMITATION ON INVESTMENT INTEREST.—

6 (1) IN GENERAL.—Section 163(d)(1) is amend7 ed to read as follows: 

8 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

9 other than a corporation, the amount allowed as a 

10 deduction under this chapter for investment interest 

11 for any taxable year—

12 ‘‘(A) shall be reduced by the amount of 

13 tax-exempt interest received by the taxpayer 

14 during such taxable year, and 

15 ‘‘(B) shall not (after any reduction under 

16 subparagraph (A)) exceed the net investment 

17 income of the taxpayer for such taxable year.’’. 

18 (2) REDUCTIONS FOR TAX-EXEMPT INTEREST

19 NOT CARRIED FORWARD.—Section 163(d)(2) is 

20 amended by striking ‘‘paragraph (1)’’ and inserting 

21 ‘‘paragraph (1)(B)’’. 

22 (3) CLARIFICATION THAT PROPERTY HELD FOR

23 INVESTMENT INCLUDES PROPERTY PRODUCING TAX24 EXEMPT INTEREST.—Section 163(d)(5)(A) is 

25 amended by striking ‘‘and’’ at the end of clause (i), 


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1 by striking the period at the end of clause (ii)(II) 

2 and inserting ‘‘, and’’, and by adding at the end the 

3 following new clause: 

4 ‘‘(iii) any property held for the pro5 duction of tax-exempt interest (including 

6 any shares of stock of a regulated invest7 ment company which during the taxable 

8 year of the holder thereof distributes ex9 empt-interest dividends).’’. 

10 (4) COORDINATION WITH SECTION 265.—

11 (A) IN GENERAL.—Section 265(a) is 

12 amended by—

13 (i) striking paragraph (2) and insert14 ing the following new paragraph: 

15 ‘‘(2) INTEREST.—

16 ‘‘(A) CORPORATIONS AND FINANCIAL IN17 STITUTIONS.—For pro rata allocation rules in 

18 the case of corporations and financial institu19 tions, see subsection (b). 

20 ‘‘(B) OTHER TAXPAYERS.—For limitation 

21 on investment interest in the case of other tax22 payers, see section 163(d).’’, and 

23 (ii) by striking paragraphs (4) and (5) 

24 and by redesignating paragraph (6) as 

25 paragraph (4). 


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1 (B) CONFORMING AMENDMENTS.—

2 (i) Section 265(b), as amended by 

3 subsection (a), is amended by inserting 

4 after paragraph (2) the following new 

5 paragraph: 

6 ‘‘(3) SPECIAL RULES FOR SHORT SALES.—

7 ‘‘(A) IN GENERAL.—For purposes of this 

8 subsection, interest includes any amount paid 

9 or incurred—

10 ‘‘(i) by any person making a short 

11 sale in connection with personal property 

12 used in such short sale, or 

13 ‘‘(ii) by any other person for the use 

14 of any collateral with respect to such short 

15 sale. 

16 ‘‘(B) EXCEPTION WHERE NO RETURN ON

17 CASH COLLATERAL .—If—

18 ‘‘(i) the taxpayer provides cash as col19 lateral for any short sale, and 

20 ‘‘(ii) the taxpayer receives no material 

21 earnings on such cash during the period of 

22 the sale, 

23 subparagraph (A)(i) shall not apply to such 

24 short sale.’’. 


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1 (ii) Section 265(b)(6) is amended to 

2 read as follows: 

3 ‘‘(6) COORDINATION WITH SECTION 263A.—This 

4 section shall be applied before the application of sec5 tion 263A (relating to capitalization of certain ex6 penses where taxpayer produces property).’’. 

7 (iii) Section 163(n)(2) is amended to 

8 read as follows: 

9 ‘‘(2) For disallowance of deduction for interest 

10 relating to tax-exempt income, see sections 163(d) 

11 and 265(b)’’. 

12 (c) EFFECTIVE DATES.—

13 (1) APPLICATION OF PRO RATA ALLOCATION

14 RULES.—

15 (A) APPLICATION TO C CORPORATIONS.—

16 The amendments made by subsection (a)(1) 

17 shall apply to taxable years ending on or after 

18 February 26, 2014. 

19 (B) REPEAL OF EXCEPTIONS.—The 

20 amendments made by subsection (a)(2) shall 

21 apply to obligations issued on or after February 

22 26, 2014. 

23 (2) LIMITATION ON INVESTMENT INTEREST.—

24 The amendments made by subsection (b) shall apply 

25 to taxable years beginning after December 31, 2014. 


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1 SEC. 3125. PREVENTION OF TRANSFER OF CERTAIN LOSSES 

2 FROM TAX INDIFFERENT PARTIES. 

3 (a) IN GENERAL.—Section 267(d) is amended to 

4 read as follows: 

5 ‘‘(d) AMOUNT OF GAIN WHERE LOSS PREVIOUSLY

6 DISALLOWED.—

7 ‘‘(1) IN GENERAL.—If—

8 ‘‘(A) in the case of a sale or exchange of 

9 property to the taxpayer a loss sustained by the 

10 transferor is not allowable to the transferor as 

11 a deduction by reason of subsection (a)(1), and 

12 ‘‘(B) the taxpayer sells or otherwise dis13 poses of such property (or of other property the 

14 basis of which in the taxpayer’s hands is deter15 mined directly or indirectly by reference to such 

16 property) at a gain, 

17 then such gain shall be recognized only to the extent 

18 that it exceeds so much of such loss as is properly 

19 allocable to the property sold or otherwise disposed 

20 of by the taxpayer. 

21 ‘‘(2) EXCEPTION FOR WASH SALES.—Para22 graph (1) shall not apply if the loss sustained by the 

23 transferor is not allowable to the transferor as a de24 duction by reason of section 1091 (relating to wash 

25 sales). 


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1 ‘‘(3) EXCEPTION FOR TRANSFERS FROM TAX

2 INDIFFERENT PARTIES.—Paragraph (1) shall not 

3 apply to the extent any loss sustained by the trans4 feror (if allowed) would not be taken into account in 

5 determining a tax imposed under section 1 or 11 or 

6 a tax computed as provided by either of such sec7 tions.’’. 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 this section shall apply to sales and exchanges after De10 cember 31, 2014. 

11 SEC. 3126. ENTERTAINMENT, ETC. EXPENSES. 

12 (a) DENIAL OF DEDUCTION.—Subsection (a) of sec13 tion 274 is amended to read as follows: 

14 ‘‘(a) ENTERTAINMENT, AMUSEMENT, OR RECRE15 ATION.—

16 ‘‘(1) IN GENERAL.—No deduction otherwise al17 lowable under this chapter shall be allowed for 

18 amounts paid or incurred for any of the following 

19 items: 

20 ‘‘(A) ACTIVITY.—With respect to an activ21 ity which is of a type generally considered to 

22 constitute entertainment, amusement, or recre23 ation. 

24 ‘‘(B) MEMBERSHIP DUES.—With respect 

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1 ness, pleasure, recreation or other social pur2 poses. 

3 ‘‘(C) AMENITY.—With respect to a de 

4 minimis fringe (as defined in section 132(e)(1)) 

5 that is primarily personal in nature and involv6 ing property or services that are not directly re7 lated to the taxpayer’s trade or business. 

8 ‘‘(D) FACILITY.—With respect to a facility 

9 or portion thereof used in connection with an 

10 activity referred to in subparagraph (A), mem11 bership dues or similar amounts referred to in 

12 subparagraph (B), or an amenity referred to in 

13 subparagraph (C). 

14 ‘‘(E) QUALIFIED TRANSPORTATION

15 FRINGE AND PARKING FACILITY.—Which is a 

16 qualified transportation fringe (as defined in 

17 section 132(f)) or which is a parking facility 

18 used in connection with qualified parking (as 

19 defined in section 132(f)(5)(C)). 

20 ‘‘(2) SPECIAL RULES.—For purposes of apply21 ing paragraph (1), an activity described in section 

22 212 shall be treated as a trade or business. 

23 ‘‘(3) REGULATIONS.—Under the regulations 

24 prescribed to carry out this section, the Secretary 

25 shall include regulations—


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1 ‘‘(A) defining entertainment, amenities, 

2 recreation, amusement, and facilities for pur3 poses of this subsection, 

4 ‘‘(B) providing for the appropriate alloca5 tion of depreciation and other costs with respect 

6 to facilities used for parking, and 

7 ‘‘(C) specifying arrangements a primary 

8 purpose of which is the avoidance of this sub9 section.’’. 

10 (b) EXCEPTION FOR CERTAIN EXPENSES INCLUD11 IBLE IN INCOME OF RECIPIENT.—

12 (1) EXPENSES TREATED AS COMPENSATION.—

13 Paragraph (2) of section 274(e) is amended to read 

14 as follows: 

15 ‘‘(2) EXPENSES TREATED AS COMPENSATION.—

16 Expenses for goods, services, and facilities, to the 

17 extent that the expenses do not exceed the amount 

18 of the expenses which are treated by the taxpayer, 

19 with respect to the recipient of the entertainment, 

20 amusement, or recreation, as compensation to an 

21 employee on the taxpayer’s return of tax under this 

22 chapter and as wages to such employee for purposes 

23 of chapter 24 (relating to withholding of income tax 

24 at source on wages).’’. 


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1 (2) EXPENSES INCLUDIBLE IN INCOME OF PER2 SONS WHO ARE NOT EMPLOYEES.—Paragraph (9) of 

3 section 274(e) is amended by striking ‘‘to the extent 

4 that the expenses’’ and inserting ‘‘to the extent that 

5 the expenses do not exceed the amount of the ex6 penses that’’. 

7 (c) EXCEPTIONS FOR REIMBURSED EXPENSES.—

8 Paragraph (3) of section 274(e) is amended to read as 

9 follows: 

10 ‘‘(3) REIMBURSED EXPENSES.—

11 ‘‘(A) IN GENERAL.—Expenses paid or in12 curred by the taxpayer, in connection with the 

13 performance by him of services for another per14 son (whether or not such other person is the 

15 taxpayer’s employer), under a reimbursement or 

16 other expense allowance arrangement with such 

17 other person, but this paragraph shall apply—

18 ‘‘(i) where the services are performed 

19 for an employer, only if the employer has 

20 not treated such expenses in the manner 

21 provided in paragraph (2), or 

22 ‘‘(ii) where the services are performed 

23 for a person other than an employer, only 

24 if the taxpayer accounts (to the extent pro25 vided by subsection (d)) to such person. 


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1 ‘‘(B) EXCEPTION.—Except as provided by 

2 the Secretary, subparagraph (A) shall not 

3 apply—

4 ‘‘(i) in the case of an arrangement in 

5 which the person other than the employer 

6 is an entity described in section 

7 168(g)(2)(A), or 

8 ‘‘(ii) to any other arrangement des9 ignated by the Secretary as having the ef10 fect of avoiding the limitation under sub11 paragraph (A).’’. 

12 (d) 50 PERCENT LIMITATION ON MEALS AND EN13 TERTAINMENT EXPENSES.—Subsection (n) of section 274 

14 is amended to read as follows: 

15 ‘‘(n) LIMITATION ON CERTAIN EXPENSES.—

16 ‘‘(1) IN GENERAL.—The amount allowable as a 

17 deduction under this chapter for any expense for 

18 food or beverages (pursuant to subsection (e)(1)) or 

19 business meals (pursuant to subsection (k)(1)) shall 

20 not exceed 50 percent of the amount of such expense 

21 or item which would (but for this paragraph) be al22 lowable as a deduction under this chapter. 

23 ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 

24 apply to any expense if—


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1 ‘‘(A) such expense is described in para2 graph (2), (3), (6), (7), or (8) of subsection (e), 

3 ‘‘(B) in the case of an expense for food or 

4 beverages, such expense is excludable from the 

5 gross income of the recipient under section 132 

6 by reason of subsection (e) thereof (relating to 

7 de minimis fringes) or under section 119 (relat8 ing to meals and lodging furnished for conven9 ience of employer), or 

10 ‘‘(C) in the case of an employer who pays 

11 or reimburses moving expenses of an employee, 

12 such expenses are includible in the income of 

13 the employee under section 82. 

14 ‘‘(3) SPECIAL RULE FOR INDIVIDUALS SUBJECT

15 TO FEDERAL HOURS OF SERVICE.—In the case of 

16 any expenses for food or beverages consumed while 

17 away from home (within the meaning of section 

18 162(a)(2)) by an individual during, or incident to, 

19 the period of duty subject to the hours of service 

20 limitations of the Department of Transportation, 

21 paragraph (1) shall be applied by substituting ‘80 

22 percent’ for ‘50 percent’.’’. 

23 (e) CONFORMING AMENDMENTS.—

24 (1) Section 274(d) is amended—


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1 (A) by striking paragraph (2) and redesig2 nating paragraphs (3) and (4) as paragraphs 

3 (2) and (3), respectively, and 

4 (B) in the flush material following para5 graph (3) (as so redesignated)—

6 (i) by striking ‘‘, entertainment, 

7 amusement, recreation, or’’ in item (B), 

8 and 

9 (ii) by striking ‘‘(D) the business rela10 tionship to the taxpayer of persons enter11 tained, using the facility or property, or re12 ceiving the gift’’ and inserting ‘‘(D) the 

13 business relationship to the taxpayer of the 

14 person receiving the benefit’’. 

15 (2) Section 274(e) is amended by striking para16 graph (4) and redesignating paragraphs (5), (6), 

17 (7), (8), and (9) as paragraphs (4), (5), (6), (7), 

18 and (8), respectively. 

19 (3) Section 274(k)(2)(A) is amended by strik20 ing ‘‘(4), (7), (8), or (9)’’ and inserting ‘‘(6), (7), or 

21 (8)’’. 

22 (4) Section 274 is amended by striking sub23 section (l). 


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1 (5) Section 274(m)(1)(B)(ii) is amended by 

2 striking ‘‘(4), (7), (8), or (9)’’ and inserting ‘‘(6), 

3 (7), or (8)’’. 

4 (f) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to amounts paid or incurred after 

6 December 31, 2014. 

7 SEC. 3127. REPEAL OF LIMITATION ON CORPORATE ACQUI8 SITION INDEBTEDNESS. 

9 (a) IN GENERAL.—Part IX of subchapter B of chap10 ter 1 is amended by striking section 279 (and by striking 

11 the item relating to such section in the table of sections 

12 for such part). 

13 (b) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to interest paid or incurred with 

15 respect to indebtedness incurred after December 31, 2014. 

16 SEC. 3128. DENIAL OF DEDUCTIONS AND CREDITS FOR EX17 PENDITURES IN ILLEGAL BUSINESSES. 

18 (a) IN GENERAL.—Section 280E is amended to read 

19 as follows: 

20 ‘‘SEC. 280E. EXPENDITURES IN CONNECTION WITH ILLEGAL 

21 BUSINESSES.

22 ‘‘No deduction or credit shall be allowed for any 

23 amount paid or incurred during the taxable year in car24 rying on any trade or business if—


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1 ‘‘(1) such trade or business (or the activities 

2 which comprise such trade or business) consists of 

3 trafficking in controlled substances (within the 

4 meaning of schedule I and II of the Controlled Sub5 stances Act) which is prohibited by Federal law or 

6 the law of any State in which such trade or business 

7 is conducted, or 

8 ‘‘(2) the carrying out of such trade or business 

9 is a felony under Federal law or the law of any State 

10 in which such trade or business is conducted.’’. 

11 (b) CLERICAL AMENDMENT.—The table of sections 

12 for part IX of subchapter B of chapter 1 is amended by 

13 striking the item relating to section 280E and inserting 

14 the following new item:

‘‘Sec. 280E. Expenditures in connection with illegal businesses.’’.

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to amounts paid or incurred after 

17 the date of the enactment of this Act in taxable years end18 ing after the date of the enactment of this Act. 

19 SEC. 3129. LIMITATION ON DEDUCTION FOR FDIC PRE20 MIUMS.

21 (a) IN GENERAL.—Section 162 is amended by redes22 ignating subsection (q) as subsection (r) and by inserting 

23 after subsection (p) the following new subsection: 

24 ‘‘(q) DISALLOWANCE OF FDIC PREMIUMS PAID BY

25 CERTAIN LARGE FINANCIAL INSTITUTIONS.—


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1 ‘‘(1) IN GENERAL.—No deduction shall be al2 lowed for the applicable percentage of any FDIC 

3 premium paid or incurred by the taxpayer. 

4 ‘‘(2) EXCEPTION FOR SMALL INSTITUTIONS.—

5 Paragraph (1) shall not apply to any taxpayer for 

6 any taxable year if the total consolidated assets of 

7 such taxpayer (determined as of the close of such 

8 taxable year) do not exceed $10,000,000,000. 

9 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes 

10 of this subsection, the term ‘applicable percentage’ 

11 means, with respect to any taxpayer for any taxable 

12 year, the ratio (expressed as a percentage but not 

13 greater than 100 percent) which—

14 ‘‘(A) the excess of—

15 ‘‘(i) the total consolidated assets of 

16 such taxpayer (determined as of the close 

17 of such taxable year), over 

18 ‘‘(ii) $10,000,000,000, bears to 

19 ‘‘(B) $40,000,000,000. 

20 ‘‘(4) FDIC PREMIUMS.—For purposes of this 

21 subsection, the term ‘FDIC premium’ means any as22 sessment imposed under section 7(b) of the Federal 

23 Deposit Insurance Act (12 U.S.C. 1817(b)). 

24 ‘‘(5) TOTAL CONSOLIDATED ASSETS.—For pur25 poses of this subsection, the term ‘total consolidated 


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1 assets’ has the meaning given such term under sec2 tion 165 of the Dodd-Frank Wall Street Reform and 

3 Consumer Protection Act (12 U.S.C. 5365). 

4 ‘‘(6) AGGREGATION RULE.—

5 ‘‘(A) IN GENERAL.—Members of an ex6 panded affiliated group shall be treated as a 

7 single taxpayer for purposes of applying this 

8 subsection. 

9 ‘‘(B) EXPANDED AFFILIATED GROUP.—

10 For purposes of this paragraph, the term ‘ex11 panded affiliated group’ means an affiliated 

12 group as defined in section 1504(a), deter13 mined—

14 ‘‘(i) by substituting ‘more than 50 

15 percent’ for ‘at least 80 percent’ each place 

16 it appears, and 

17 ‘‘(ii) without regard to paragraphs (2) 

18 and (3) of section 1504(b). 

19 A partnership or any other entity (other than a 

20 corporation) shall be treated as a member of an 

21 expanded affiliated group if such entity is con22 trolled (within the meaning of section 

23 954(d)(3)) by members of such group (includ24 ing any entity treated as a member of such 

25 group by reason of this sentence).’’. 


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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 3130. REPEAL OF PERCENTAGE DEPLETION. 

5 (a) IN GENERAL.—Part I of subchapter I of chapter 

6 1 is amended by striking sections 613 and 613A (and by 

7 striking the items relating to such sections in the table 

8 of sections for such part). 

9 (b) CONFORMING AMENDMENTS.—

10 (1)(A) Such part is amended by redesignating 

11 section 614 as section 613 (and, in the table of sec12 tions for such part, by redesignating the item relat13 ing to section 614 as an item relating to section 

14 613). 

15 (B) Clauses (iv) and (v) of section 465(c)(2)(A) 

16 are each amended by striking ‘‘section 614’’ and in17 serting ‘‘section 613’’. 

18 (C) Section 1016(e) is amended by striking 

19 ‘‘section 614’’ and inserting ‘‘section 613’’. 

20 (D) Section 1254(a)(3) is amended by striking 

21 ‘‘section 614’’ and inserting ‘‘section 613’’. 

22 (2) Section 45(c)(4) is amended to read as fol23 lows: 

24 ‘‘(4) GEOTHERMAL ENERGY.—


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1 ‘‘(A) IN GENERAL.—The term ‘geothermal 

2 energy’ means energy derived from a geo3 thermal deposit. 

4 ‘‘(B) GEOTHERMAL DEPOSIT.—The term 

5 ‘geothermal deposit’ means a geothermal res6 ervoir consisting of natural heat which is stored 

7 in rocks or in an aqueous liquid or vapor 

8 (whether or not under pressure).’’. 

9 (3) Section 48(a)(3)(A)(iii) is amended by 

10 striking ‘‘section 613(e)(2)’’ and inserting ‘‘section 

11 45(c)(4)(B)’’

12 (4) Section 381(c) is amended by striking para13 graph (18). 

14 (5) Section 465(c)(1)(E) is amended by striking 

15 ‘‘section 613(e)(2)’’ and inserting ‘‘section 

16 45(c)(4)(B)’’. 

17 (6) Section 468(d)(3) is amended by striking 

18 ‘‘section 614’’ and inserting ‘‘section 613’’. 

19 (7) Section 611(a) is amended by striking the 

20 second sentence. 

21 (8) Section 613(d), as redesignated by para22 graph (1), is amended by striking ‘‘includes only’’ 

23 and all that follows and inserting ‘‘includes only an 

24 interest burdened by the costs of production.’’. 


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1 (9) Section 636(a) is amended by striking ‘‘(for 

2 purposes of section 613)’’. 

3 (10) Section 636(d) is amended by striking 

4 ‘‘section 614(a)’’ and inserting ‘‘section 613(a)’’. 

5 (11) Section 705(a) is amended—

6 (A) in paragraph (1), by adding ‘‘and’’ at 

7 the end of subparagraph (A), by striking ‘‘; 

8 and’’ at the end of subparagraph (B) and in9 serting a period, and by striking subparagraph 

10 (C), 

11 (B) in paragraph (2), by striking ‘‘; and’’ 

12 at the end of subparagraph (B) and inserting a 

13 period, and 

14 (C) by striking paragraph (3). 

15 (12) Section 901(e)(1)(A) is amended by strik16 ing ‘‘(or, if smaller’’ and all that follows through 

17 ‘‘under section 613)’’. 

18 (13) Section 993(c)(2)(C) is amended by insert19 ing ‘‘(as each such section was in effect before its 

20 repeal by the Tax Reform Act of 2014)’’ after ‘‘sec21 tion 613 or 613A’’. 

22 (14) Section 1202(e)(3)(D) is amended by in23 serting ‘‘(as each such section was in effect before 

24 its repeal by the Tax Reform Act of 2014)’’ after 

25 ‘‘section 613 or 613A’’. 


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1 (15) Section 1367(a) is amended—

2 (A) in paragraph (1), by adding ‘‘and’’ at 

3 the end of subparagraph (A), by striking ‘‘, 

4 and’’ at the end of subparagraph (B) and in5 serting a period, and by striking subparagraph 

6 (C), and 

7 (B) in paragraph (2), by adding ‘‘and’’ at 

8 the end of subparagraph (C), by striking ‘‘, 

9 and’’ at the end of subparagraph (D) and in10 serting a period, and by striking subparagraph 

11 (E). 

12 (16) Section 1446(c) is amended by striking 

13 paragraph (2) and by redesignating paragraph (3) 

14 as paragraph (2). 

15 (17) Section 4612(a)(7) is amended by insert16 ing ‘‘(as in effect before its repeal by the Tax Re17 form Act of 2014)’’ after ‘‘section 613’’. 

18 (18) Section 4940(c)(3)(B) is amended—

19 (A) by striking clause (ii), and 

20 (B) by striking all that precedes ‘‘The de21 duction provided’’ and inserting the following: 

22 ‘‘(B) MODIFICATIONS.—For purposes of 

23 subparagraph (A), the deduction provided’’. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 3131. REPEAL OF PASSIVE ACTIVITY EXCEPTION FOR 

5 WORKING INTERESTS IN OIL AND GAS PROP6 ERTY.

7 (a) IN GENERAL.—Subsection (c) of section 469 is 

8 amended by striking paragraph (3). 

9 (b) CONFORMING AMENDMENTS.—Section 469 is 

10 amended—

11 (1) by striking paragraph (4) and by redesig12 nating paragraphs (5), (6), and (7) as paragraphs 

13 (3), (4), and (5), respectively, and 

14 (2) in paragraph (2)—

15 (A) by striking ‘‘paragraph (7)’’ and in16 serting ‘‘paragraph (5)’’, and 

17 (B) by inserting ‘‘, without regard to 

18 whether or not the taxpayer materially partici19 pates in the activity’’ before the period at the 

20 end. 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years beginning after 

23 December, 31, 2014. 


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1 SEC. 3132. REPEAL OF SPECIAL RULES FOR GAIN OR LOSS 

2 ON TIMBER, COAL, OR DOMESTIC IRON ORE. 

3 (a) IN GENERAL.—Subchapter I of chapter 1 is 

4 amended by striking part III (and by striking the item 

5 relating to such part in the table of parts for such sub6 chapter). 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 512(b)(5) is amended by striking 

9 the last sentence. 

10 (2) Section 871(a)(1)(B) is amended by strik11 ing ‘‘gains described in section 631(b) or (c), and’’. 

12 (3) Section 871(d)(1)(A) is amended—

13 (A) by striking ‘‘, (ii) rents’’ and inserting 

14 ‘‘and (ii) rents’’, and 

15 (B) by striking ‘‘, and (iii) gains described 

16 in section 631(b) or (c)’’. 

17 (4)(A) Section 881(a) is amended by striking 

18 paragraph (2) and by redesignating paragraphs (3) 

19 and (4) as paragraphs (2) and (3), respectively. 

20 (B) Section 1442(a) is amended—

21 (i) by striking ‘‘881(a)(3) and (4)’’ and in22 serting ‘‘881(a)(2) and (3)’’, 

23 (ii) by striking ‘‘881(a)(3),’’ and inserting 

24 ‘‘881(a)(2),’’, and 

25 (iii) by striking ‘‘881(a)(4)’’ and inserting 

26 ‘‘881(a)(3)’’. 


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1 (5) Section 882(d)(1)(A) is amended—

2 (A) by striking ‘‘, (ii) rents’’ and inserting 

3 ‘‘and (ii) rents’’, and 

4 (B) by striking ‘‘, and (iii) gains described 

5 in section 631(b) or (c)’’. 

6 (6) Section 1231(b) is amended by striking 

7 paragraph (2). 

8 (7) Section 1402(a)(3) is amended by inserting 

9 ‘‘or’’ at the end of subparagraph (A) and by striking 

10 subparagraph (B) and redesignating subparagraph 

11 (C) as subparagraph (B). 

12 (8) Section 1441 is amended—

13 (A) in subsection (b), by striking ‘‘, gains 

14 described in section 631(b) or (c)’’, and 

15 (B) in subsection (c)(5), by striking ‘‘gains 

16 described in section 631(b) or (c), gains subject 

17 to tax under section 871(a)(1)(D),’’ and insert18 ing ‘‘gains subject to tax under section 

19 871(a)(1)(D)’’. 

20 (9) (A) Part IX of subchapter B of chapter 1 

21 is amended by striking section 272 (and by striking 

22 the item relating to such section in the table of sec23 tions for such subpart). 

24 (B) Section 1016(a) is amended by striking 

25 paragraph (15). 


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1 (c) EFFECTIVE DATE.—

2 (1) IN GENERAL.—Except as otherwise pro3 vided in this subsection, the amendments made by 

4 this section shall apply to taxable years beginning 

5 after December 31, 2014. 

6 (2) BASIS ADJUSTMENTS.—The amendment 

7 made by subsection (b)(9)(B) shall apply to deduc8 tions determined for taxable years beginning after 

9 December 31, 2014. 

10 SEC. 3133. REPEAL OF LIKE-KIND EXCHANGES. 

11 (a) IN GENERAL.—Part III of subchapter O of chap12 ter 1 is amended by striking section 1031 (and by striking 

13 the item relating to such section in the table of sections 

14 for such part). 

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 121(d)(10) is amended by inserting 

17 ‘‘(as in effect before its repeal by the Tax Reform 

18 Act of 2014)’’ after ‘‘section 1031’’. 

19 (2) Section 197(f)(2)(B)(i) is amended by in20 serting ‘‘(as in effect before its repeal by the Tax 

21 Reform Act of 2014)’’ after ‘‘1031’’. 

22 (3) Section 453(f) is amended by striking para23 graph (6). 

24 (4) Section 470(e)(4) is amended—


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1 (A) by striking ‘‘Sections 1031(a) and’’ in 

2 subparagraph (A) and inserting ‘‘Section’’, 

3 (i) by striking ‘‘1031 or’’ in subparagraph 

4 (B), and 

5 (ii) by striking ‘‘SECTIONS 1031 AND’’ in 

6 the heading thereof and inserting ‘‘SECTION’’. 

7 (5)(A) Section 501(c)(12)(C)(v) is amended by 

8 striking ‘‘asset exchange or conversion transaction’’ 

9 and inserting ‘‘specified involuntary conversion’’. 

10 (B) Section 501(c)(12)(G) is amended—

11 (i) by striking ‘‘asset exchange or conver12 sion transaction’’ and inserting ‘‘specified invol13 untary conversion’’, 

14 (ii) by striking ‘‘voluntary exchange or’’, 

15 and 

16 (iii) by striking ‘‘1031 or’’. 

17 (6)(A) Section 704(c) is amended by striking 

18 paragraph (2) and by redesignating paragraph (3) 

19 as paragraph (2). 

20 (B) Section 704(c)(2), as so redesignated, is 

21 amended by striking ‘‘or (2)’’. 

22 (7) Section 857(e)(2) is amended by striking 

23 subparagraph (B) and by redesignating subpara24 graphs (C) and (D) as subparagraphs (B) and (C), 

25 respectively. 


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1 (8)(A) Section 1035 is amended by striking 

2 subsection (d) and inserting the following new sub3 sections: 

4 ‘‘(d) GAIN FROM EXCHANGES NOT SOLELY IN

5 KIND.—If an exchange would be within the provisions of 

6 subsection (a), of section 1036(a), or of section 1037(a), 

7 if it were not for the fact that the property received in 

8 exchange consists not only of property permitted by such 

9 provisions to be received without the recognition of gain, 

10 but also of other property or money, then the gain, if any, 

11 to the recipient shall be recognized, but in an amount not 

12 in excess of the sum of such money and the fair market 

13 value of such other property. 

14 ‘‘(e) LOSS FROM EXCHANGES NOT SOLELY IN

15 KIND.—If an exchange would be within the provisions of 

16 subsection (a), of section 1036(a), or of section 1037(a), 

17 if it were not for the fact that the property received in 

18 exchange consists not only of property permitted by such 

19 provisions to be received without the recognition of gain 

20 or loss, but also of other property or money, then no loss 

21 from the exchange shall be recognized. 

22 ‘‘(f) BASIS.—If property was acquired on an ex23 change described in this section, section 1036(a), or sec24 tion 1037(a), then the basis shall be the same as that of 

25 the property exchanged, decreased in the amount of any 


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1 money received by the taxpayer and increased in the 

2 amount of gain or decreased in the amount of loss to the 

3 taxpayer that was recognized on such exchange. If the 

4 property so acquired consisted in part of the type of prop5 erty permitted by this section, section 1036(a), or section 

6 1037(a), to be received without the recognition of gain or 

7 loss, and in part of other property, the basis provided in 

8 this subsection shall be allocated between the properties 

9 (other than money) received, and for the purpose of the 

10 allocation there shall be assigned to such other property 

11 an amount equivalent to its fair market value at the date 

12 of the exchange. For purposes of this section and section 

13 1036(a), where as part of the consideration to the tax14 payer another party to the exchange assumed (as deter15 mined under section 357(d)) a liability of the taxpayer, 

16 such assumption shall be considered as money received by 

17 the taxpayer on the exchange.’’. 

18 (B) Section 1036(c) is amended—

19 (i) in paragraph (1), by striking ‘‘sub20 sections (b) and (c) of section 1031’’ and in21 serting ‘‘subsections (d) and (e) of section 

22 1035’’, and 

23 (ii) in paragraph (2), by striking ‘‘sub24 section (d) of section 1031’’ and inserting ‘‘sub25 section (f) of section 1035’’. 


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1 (C) Section 1037(c) is amended—

2 (i) in paragraph (1), by striking ‘‘sub3 sections (b) and (c) of section 1031’’ and in4 serting ‘‘subsections (d) and (e) of section 

5 1035’’, and 

6 (ii) in paragraph (2), by striking ‘‘sub7 section (d) of section 1031’’ and inserting ‘‘sub8 section (f) of section 1035’’. 

9 (D) Section 83(g) is amended by striking ‘‘sec10 tion 1031’’ and inserting ‘‘section 1035’’. 

11 (E) Section 424(b) is amended by striking ‘‘sec12 tion 1031’’ and inserting ‘‘section 1035’’. 

13 (F) Section 424(c)(1)(B) is amended by strik14 ing ‘‘section 1031’’ and inserting ‘‘section 1035’’. 

15 (9) Section 1060(c) is amended by striking the 

16 second sentence thereof. 

17 (10) Section 1245(b)(4) is amended—

18 (A) by striking ‘‘LIKE KIND EXCHANGES; 

19 INVOLUNTARY’’ and inserting ‘‘INVOLUNTARY’’, 

20 and 

21 (B) by striking ‘‘1031 or’’. 

22 (11) Section 1250(d)(4) is amended—

23 (A) by striking ‘‘LIKE KIND EXCHANGES; 

24 INVOLUNTARY’’ and inserting ‘‘INVOLUNTARY’’, 


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1 (B) by striking ‘‘1031 or’’ in subparagraph 

2 (A), and 

3 (C) by striking ‘‘1031 or’’ in subparagraph 

4 (E). 

5 (12) Section 2032A(e)(14)(C) is amended—

6 (A) in clause (i)(I), by inserting ‘‘(as in ef7 fect before its repeal by the Tax Reform Act of 

8 2014)’’ after ‘‘section 1031’’, and 

9 (B) in clause (ii)(I), by inserting ‘‘(as so in 

10 effect)’’ after ‘‘section 1031’’. 

11 (13) Section 4940(c)(4) is amended by striking 

12 subparagraph (D). 

13 (c) EFFECTIVE DATE.—

14 (1) IN GENERAL.—The amendments made by 

15 this section shall apply to transfers after December 

16 31, 2014. 

17 (2) EXCEPTION FOR TRANSFERS PURSUANT TO

18 BINDING CONTRACTS.—Notwithstanding paragraph 

19 (1), the amendments made by this section shall not 

20 apply to any transfer if—

21 (A) such transfer is pursuant to a written 

22 binding contract entered into before January 1, 

23 2015, and 

24 (B) the exchange of which such transfer is 

25 a part is completed before January 1, 2017. 


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1 SEC. 3134. RESTRICTION ON TRADE OR BUSINESS PROP2 ERTY TREATED AS SIMILAR OR RELATED IN 

3 SERVICE TO INVOLUNTARILY CONVERTED 

4 PROPERTY IN DISASTER AREAS. 

5 (a) CLASS LIFE OF REPLACEMENT PROPERTY NOT

6 TO EXCEED CONVERTED PROPERTY.—Section 1033(h)(2) 

7 is amended by inserting ‘‘if the class life of such tangible 

8 property does not exceed the class life of the property so 

9 converted’’ before the period at the end. 

10 (b) EFFECTIVE DATE.—The amendment made by 

11 this section shall apply to disasters declared after Decem12 ber 31, 2014. 

13 SEC. 3135. REPEAL OF ROLLOVER OF PUBLICLY TRADED 

14 SECURITIES GAIN INTO SPECIALIZED SMALL 

15 BUSINESS INVESTMENT COMPANIES. 

16 (a) IN GENERAL.—Part III of subchapter O of chap17 ter 1 is amended by striking section 1044 (and by striking 

18 the item relating to such section in the table of sections 

19 of such part). 

20 (b) CONFORMING AMENDMENTS.—

21 (1) Section 45D(c)(2)(A) is amended to read as 

22 follows: 

23 ‘‘(A) any partnership or corporation which 

24 is licensed by the Small Business Administra25 tion under section 301(d) of the Small Business 


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1 Investment Act of 1958 (as in effect on May 

2 13, 1993), and’’. 

3 (2) Section 1016(a)(23) is amended—

4 (A) by striking ‘‘1044,’’, and 

5 (B) by striking ‘‘1044(d),’’. 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to sales after December 31, 2014. 

8 SEC. 3136. TERMINATION OF SPECIAL RULES FOR GAIN 

9 FROM CERTAIN SMALL BUSINESS STOCK. 

10 (a) TERMINATION OF PARTIAL EXCLUSION.—Section 

11 1202 is amended—

12 (1) by inserting ‘‘and before the date of the en13 actment of the Tax Reform Act of 2014’’ after 

14 ‘‘Revenue Reconciliation Act of 1993’’ in subsection 

15 (c)(1), and 

16 (2) by adding at the end the following new sub17 section: 

18 ‘‘(l) TERMINATION.—For termination with respect to 

19 qualified small business stock issued after the date of the 

20 enactment of the Tax Reform Act of 2014, see subsection 

21 (c)(1).’’. 

22 (b) REPEAL OF ROLLOVER RULES.—

23 (1) IN GENERAL.—Part III of subchapter O of 

24 chapter 1 is amended by striking section 1045 (and 


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1 by striking the item relating to such section in the 

2 table of sections of such part). 

3 (2) CONFORMING AMENDMENTS.—

4 (A) Section 1016(a)(23) is amended—

5 (i) by striking ‘‘1045,’’, and 

6 (ii) by striking ‘‘1045(b)(3),’’. 

7 (B) Section 1223 is amended by striking 

8 paragraph (13). 

9 (c) EFFECTIVE DATES.—

10 (1) TERMINATION OF PARTIAL EXCLUSION.—

11 The amendments made by subsection (a) shall apply 

12 to sales and exchanges after the date of the enact13 ment of this Act. 

14 (2) REPEAL OF ROLLOVER RULES.—

15 (A) IN GENERAL.—Except as provided in 

16 subparagraph (B), the amendments made by 

17 subsection (b) shall apply to sales after the date 

18 of the enactment of this Act. 

19 (B) SAVINGS PROVISION.—The amend20 ments made by subsection (b)(2) shall not apply 

21 with respect to property the acquisition of 

22 which was before the date of the enactment of 

23 this Act. 


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1 SEC. 3137. CERTAIN SELF-CREATED PROPERTY NOT TREAT2 ED AS A CAPITAL ASSET. 

3 (a) PATENTS, ETC.—Section 1221(a)(3) is amended 

4 by inserting ‘‘a patent, invention, model or design (wheth5 er or not patented), a secret formula or process,’’ before 

6 ‘‘a copyright’’. 

7 (b) SELF-CREATED MUSICAL WORKS.—Section 

8 1221(b) is amended by striking paragraph (3). 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to dispositions after December 31, 

11 2014. 

12 SEC. 3138. REPEAL OF SPECIAL RULE FOR SALE OR EX13 CHANGE OF PATENTS. 

14 (a) IN GENERAL.—Part IV of subchapter P of chap15 ter 1 is amended by striking section 1235 (and by striking 

16 the item relating to such section in the table of sections 

17 of such part). 

18 (b) CONFORMING AMENDMENTS.—

19 (1) Section 483(d) is amended by striking para20 graph (4). 

21 (2)(A) Section 871(a)(1), as amended by the 

22 preceding provisions of this Act, is amended by 

23 striking subparagraph (B) and by redesignating sub24 paragraphs (C) and (D) as subparagraphs (B) and 

25 (C), respectively. 


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1 (B) Section 871(g)(3) is amended by striking 

2 ‘‘(a)(1)(C)’’ and inserting ‘‘(a)(1)(B)’’. 

3 (C) Subsections (h)(1) and (i)(1) of section 871 

4 are each amended by striking ‘‘(1)(C)’’ and inserting 

5 ‘‘(1)(B)’’. 

6 (D) Section 1441, as amended by the preceding 

7 provisions of this Act, is amended—

8 (i) in subsections (b) and (c)(8), by strik9 ing ‘‘871(a)(1)(C)’’ and inserting 

10 ‘‘871(a)(1)(B)’’, and 

11 (ii) in subsections (b) and (c)(5), by strik12 ing ‘‘871(a)(1)(D)’’ and inserting 

13 ‘‘871(a)(1)(C)’’. 

14 (E) Section 1442(a), as amended by the pre15 ceding provisions of this Act, is amended—

16 (i) by striking ‘‘871(a)(1)(C) and (D)’’ and 

17 inserting ‘‘871(a)(1)(B) and (C)’’, and 

18 (ii) by striking ‘‘871(a)(1)(D)’’ and insert19 ing ‘‘871(a)(1)(C)’’. 

20 (3) Section 901(l)(5) is amended by striking 

21 ‘‘without regard to section 1235 or any similar rule’’ 

22 and inserting ‘‘without regard to any provision 

23 which treats a disposition as a sale or exchange of 

24 a capital asset held for more than 1 year or any 

25 similar provision’’. 


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1 (4) Section 1274(c)(3) is amended by striking 

2 subparagraph (E) and redesignating subparagraph 

3 (F) as subparagraph (E). 

4 (5) Subsections (b) and (c)(5) of section 1441, 

5 as amended by the preceding provisions of this Act, 

6 are each amended by striking ‘‘gains subject to tax 

7 under section 871(a)(1)(C), and gains on transfers 

8 described in section 1235 made on or before October 

9 4, 1966’’ and inserting ‘‘and gains subject to tax 

10 under section 871(a)(1)(C)’’. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to dispositions after December 31, 

13 2014. 

14 SEC. 3139. DEPRECIATION RECAPTURE ON GAIN FROM DIS15 POSITION OF CERTAIN DEPRECIABLE REAL16 TY.

17 (a) IN GENERAL.—Subsection (a) of section 1250 is 

18 amended to read as follows: 

19 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

20 this section, if section 1250 property is disposed of after 

21 December 31, 2014, the amount of gain with respect to 

22 such property which is treated as ordinary income shall 

23 be an amount equal to the lesser of—

24 ‘‘(1) the sum of—


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1 ‘‘(A) the amount of additional depreciation 

2 attributable to periods before January 1, 2015, 

3 in respect of such property, and 

4 ‘‘(B) the amount of depreciation adjust5 ments attributable to periods after December 

6 31, 2014, in respect of such property, or 

7 ‘‘(2) the excess of the amount realized (or, in 

8 the case of a disposition other than a sale, exchange, 

9 or involuntary conversion, the fair market value of 

10 such property), over the adjusted basis of such prop11 erty.’’. 

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 267(e)(5)(D)(i) is amended to read 

14 as follows: 

15 ‘‘(i) any interest in—

16 ‘‘(I) any section 1250 property 

17 with respect to which a mortgage is 

18 insured under section 221(d)(3) or 

19 236 of the National Housing Act, or 

20 housing financed or assisted by direct 

21 loan or tax abatement under similar 

22 provisions of State or local laws and 

23 with respect to which the owner is 

24 subject to the restrictions described in 

25 section 1039(b)(1)(B) (as in effect on 


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1 the day before the date of the enact2 ment of the Revenue Reconciliation 

3 Act of 1990), 

4 ‘‘(II) dwelling units which, on the 

5 average, were held for occupancy by 

6 families or individuals eligible to re7 ceive subsidies under section 8 of the 

8 United States Housing Act of 1937, 

9 as amended, or under the provisions 

10 of State or local law authorizing simi11 lar levels of subsidy for lower-income 

12 families, 

13 ‘‘(III) any section 1250 property 

14 with respect to which a depreciation 

15 deduction for rehabilitation expendi16 tures was allowed under section 

17 167(k), or 

18 ‘‘(IV) any section 1250 property 

19 with respect to which a loan is made 

20 or insured under title V of the Hous21 ing Act of 1949, and’’. 

22 (2) Section 1250(b) is amended by striking 

23 paragraph (4) and by redesignating paragraph (5) 

24 as paragraph (4). 


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1 (3) Section 1250(c) is amended by striking 

2 ‘‘For purposes of this section’’ and inserting ‘‘For 

3 purposes of this title’’

4 (4)(A) Section 1250(d)(5)(B)(i) is amended by 

5 striking ‘‘and the applicable percentage for the prop6 erty had been 100 percent’’. 

7 (B) Section 1250(d)(5)(B)(ii) is amended to 

8 read as follows: 

9 ‘‘(ii) the amount of such gain (if any) 

10 to which section 751(b) applied.’’. 

11 (5) Section 1250(d) is amended by striking 

12 paragraph (7). 

13 (6) Section 1250 is amended by striking sub14 sections (e) and (f) and by redesignating subsections 

15 (g) and (h) as subsections (e) and (f), respectively. 

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to dispositions after December 31, 

18 2014. 

19 SEC. 3140. COMMON DEDUCTION CONFORMING AMEND20 MENTS.

21 (a) IN GENERAL.—

22 (1) Section 1245(a)(2)(C) is amended by strik23 ing ‘‘section 179,’’ and all that follows through ‘‘or 

24 194’’ and inserting ‘‘section 179 or (as in effect be25 fore repeal by the Tax Reform Act of 2014) section 


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1 179A, 179B, 179C, 179D, 179E, 181, 190, 193, or 

2 194,’’

3 (2) Section 1245(a)(3)(C) is amended by strik4 ing ‘‘section 169’’ and all that follows through ‘‘or 

5 194’’ and inserting ‘‘section 179, 185, 188 (as in ef6 fect before its repeal by the Revenue Reconciliation 

7 Act of 1990), or (as in effect before repeal by the 

8 Tax Reform Act of 2014) section 169, 179A, 179B, 

9 179C, 179D, 179E, 190, 193, or 194’’. 

10 (3) Section 263(a)(1) is amended by striking 

11 subparagraphs (C), (D), (F), (H), (I), (J), (K), and 

12 (L) and by redesignating subparagraphs (E) and 

13 (G) as subparagraphs (C) and (D), respectively. 

14 (4) Section 280C, as amended by the preceding 

15 provisions of this Act, is amended by redesignating 

16 subsections (c) and (g) as subsections (b) and (c), 

17 respectively. 

18 (b) EFFECTIVE DATE.—Each portion of each amend19 ment made by this section shall take effect as if included 

20 in the provision of this subtitle to which such portion re21 lates. 


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1 Subtitle C—Reform of Business 

2 Credits

3 SEC. 3201. REPEAL OF CREDIT FOR ALCOHOL, ETC., USED 

4 AS FUEL. 

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 is amended by striking section 40 

7 (and by striking the item relating to such section in the 

8 table of sections for such subpart). 

9 (b) REPEAL OF CORRESPONDING EXCISE TAX CRED10 ITS.—

11 (1) CREDIT.—Subchapter B of chapter 65 is 

12 amended by striking section 6426 (and by striking 

13 the item relating to such section in the table of sec14 tions for such subchapter). 

15 (2) PAYMENT.—Section 6427 is amended by 

16 striking subsection (e). 

17 (c) CONFORMING AMENDMENTS.—

18 (1) Section 38(b) is amended by striking para19 graph (3). 

20 (2) Section 6416(a)(4)(C) is amended—

21 (A) by striking ‘‘section 6427(i)(4)’’ and 

22 inserting ‘‘section 6427(i)(3)’’, and 

23 (B) by striking ‘‘section 6427(i)(3)(B)’’ 

24 and inserting ‘‘subparagraph (B) thereof’’. 


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1 (3) Section 6427(i) is amended by striking 

2 paragraph (3) and by redesignating paragraph (4) 

3 as paragraph (3). 

4 (4) Section 6427(i)(3), as redesignated by para5 graph (2), is amended—

6 (A) by striking the sentence at the end of 

7 subparagraph (A), 

8 (B) by redesignating subparagraph (B) as 

9 subparagraph (C), and 

10 (C) by inserting after subparagraph (A) 

11 the following new subparagraph: 

12 ‘‘(B) PAYMENT OF CLAIM.—Notwith13 standing subsection (l)(1), if the Secretary has 

14 not paid pursuant to a claim filed under sub15 section (b)(4), (l)(4)(C)(ii), or (l)(5) within 45 

16 days of the date of the filing of such claim (20 

17 days in the case of an electronic claim), the 

18 claim shall be paid with interest from such date 

19 determined by using the overpayment rate and 

20 method under section 6621.’’. 

21 (5) Subpart B of part III of subchapter A of 

22 chapter 32 is amended by striking section 4104 (and 

23 by striking the item relating to such section in the 

24 table of sections for such subpart). 


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1 (6) Section 6501(m) is amended by striking 

2 ‘‘40(f),’’. 

3 (7) Section 9503(b)(1) is amended by striking 

4 the second sentence. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to fuels sold or used after Decem7 ber 31, 2013. 

8 SEC. 3202. REPEAL OF CREDIT FOR BIODIESEL AND RE9 NEWABLE DIESEL USED AS FUEL. 

10 (a) IN GENERAL.—Subpart D of part IV of sub11 chapter A of chapter 1 is amended by striking section 40A 

12 (and by striking the item relating to such section in the 

13 table of sections for such subpart). 

14 (b) CONFORMING AMENDMENTS.—

15 (1) Section 38(b) is amended by striking para16 graph (17). 

17 (2) Part II of subchapter B of chapter 1 is 

18 amended by striking section 87 (and by striking the 

19 item relating to such section in the table of sections 

20 for such subpart). 

21 (3) Section 4101(a)(1) is amended by striking 

22 ‘‘, every person producing’’ and all that follows 

23 through ‘‘section 40(b)(6)(E))’’. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to fuels sold or used after Decem3 ber 31, 2013. 

4 SEC. 3203. RESEARCH CREDIT MODIFIED AND MADE PER5 MANENT.

6 (a) PERMANENT SIMPLIFICATION OF INCREMENTAL

7 RESEARCH CREDIT AND ELIMINATION OF CREDIT FOR

8 ENERGY RESEARCH CONSORTIUM PAYMENTS.—

9 (1) IN GENERAL.—Subsection (a) of section 41 

10 is amended to read as follows: 

11 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

12 research credit determined under this section for the tax13 able year shall be an amount equal to the sum of—

14 ‘‘(1) 15 percent of so much of the qualified re15 search expenses for the taxable year as exceeds 50 

16 percent of the average qualified research expenses 

17 for the 3 taxable years preceding the taxable year 

18 for which the credit is being determined, plus 

19 ‘‘(2) 15 percent of so much of the basic re20 search payments for the taxable year as exceeds 50 

21 percent of the average basic research payments for 

22 the 3 taxable years preceding the taxable year for 

23 which the credit is being determined.’’. 

24 (2) REPEAL OF TERMINATION.—Section 41 is 

25 amended by striking subsection (h). 


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1 (3) CONFORMING AMENDMENTS.—

2 (A) Subsection (c) of section 41 is amend3 ed to read as follows: 

4 ‘‘(c) DETERMINATION OF AVERAGE RESEARCH EX5 PENSES FOR PRIOR YEARS.—

6 ‘‘(1) SPECIAL RULE IN CASE OF NO QUALIFIED

7 RESEARCH EXPENDITURES IN ANY OF 3 PRECEDING

8 TAXABLE YEARS.—In any case in which the taxpayer 

9 has no qualified research expenses in any one of the 

10 3 taxable years preceding the taxable year for which 

11 the credit is being determined, the amount deter12 mined under subsection (a)(1) for such taxable year 

13 shall be equal to 10 percent of the qualified research 

14 expenses for the taxable year. 

15 ‘‘(2) CONSISTENT TREATMENT OF EX16 PENSES.—

17 ‘‘(A) IN GENERAL.—Notwithstanding 

18 whether the period for filing a claim for credit 

19 or refund has expired for any taxable year 

20 taken into account in determining the average 

21 qualified research expenses, or average basic re22 search payments, taken into account under sub23 section (a), the qualified research expenses and 

24 basic research payments taken into account in 

25 determining such averages shall be determined 


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1 on a basis consistent with the determination of 

2 qualified research expenses and basic research 

3 payments, respectively, for the credit year. 

4 ‘‘(B) PREVENTION OF DISTORTIONS.—The 

5 Secretary may prescribe regulations to prevent 

6 distortions in calculating a taxpayer’s qualified 

7 research expenses or basic research payments 

8 caused by a change in accounting methods used 

9 by such taxpayer between the current year and 

10 a year taken into account in determining the 

11 average qualified research expenses or average 

12 basic research payments taken into account 

13 under subsection (a).’’. 

14 (B) Section 41(e) is amended—

15 (i) by striking all that precedes para16 graph (6) and inserting the following: 

17 ‘‘(e) BASIC RESEARCH PAYMENTS.—For purposes of 

18 this section—

19 ‘‘(1) IN GENERAL.—The term ‘basic research 

20 payment’ means, with respect to any taxable year, 

21 any amount paid in cash during such taxable year 

22 by a corporation to any qualified organization for 

23 basic research but only if—


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1 ‘‘(A) such payment is pursuant to a writ2 ten agreement between such corporation and 

3 such qualified organization, and 

4 ‘‘(B) such basic research is to be per5 formed by such qualified organization. 

6 ‘‘(2) EXCEPTION TO REQUIREMENT THAT RE7 SEARCH BE PERFORMED BY THE ORGANIZATION.—

8 In the case of a qualified organization described in 

9 subparagraph (C) or (D) of paragraph (3), subpara10 graph (B) of paragraph (1) shall not apply.’’, 

11 (ii) by redesignating paragraphs (6) 

12 and (7) as paragraphs (3) and (4), respec13 tively, and 

14 (iii) in paragraph (4) as so redesig15 nated, by striking subparagraphs (B) and 

16 (C) and by redesignating subparagraphs 

17 (D) and (E) as subparagraphs (B) and 

18 (C), respectively. 

19 (C)(i) Section 41(f)(1) is amended by 

20 striking ‘‘, basic research payments, and 

21 amounts paid or incurred to energy research 

22 consortiums,’’ in subparagraphs (A)(ii) and 

23 (B)(ii) and inserting ‘‘and basic research pay24 ments’’. 


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1 (ii) Section 41(f) is amended by striking 

2 paragraph (6). 

3 (4) EFFECTIVE DATE.—

4 (A) IN GENERAL.—Except as provided in 

5 subparagraph (B), the amendments made by 

6 this subsection shall apply to taxable years be7 ginning after December 31, 2013. 

8 (B) PARAGRAPH (2).—The amendment 

9 made by paragraph (2) shall apply to amounts 

10 paid or incurred after December 31, 2013. 

11 (b) OTHER REFORMS.—

12 (1) ELIMINATION OF CREDIT FOR COMPUTER

13 SOFTWARE.—Subparagraph (E) of section 41(d)(4) 

14 is amended—

15 (A) by striking ‘‘Except to the extent pro16 vided in regulations, any research’’ and insert17 ing ‘‘Any research’’, and 

18 (B) by striking ‘‘which is developed by’’ 

19 and all that follows through the end and insert20 ing a period. 

21 (2) ELIMINATION OF INCREASED CREDIT FOR

22 AMOUNTS PAID TO CERTAIN ENTITIES.—Paragraph 

23 (3) of section 41(b) is amended by striking subpara24 graphs (C) and (D). 


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1 (3) ELIMINATION OF CREDIT FOR SUPPLIES.—

2 Subparagraph (A) of section 41(b)(2) is amended by 

3 inserting ‘‘and’’ at the end of clause (i), by striking 

4 clause (ii), and by redesignating clause (iii) as clause 

5 (ii). 

6 (4) ELIMINATION OF ELECTION OF REDUCED

7 CREDIT.—Section 280C(c) is amended by striking 

8 paragraphs (3) and (4). 

9 (5) CONFORMING AMENDMENTS.—

10 (A) The second sentence of section 

11 41(b)(2)(A) is amended by striking ‘‘Clause 

12 (iii)’’ and inserting ‘‘Clause (ii)’’. 

13 (B) Section 41(b)(2) is amended by strik14 ing subparagraph (C) and by redesignating sub15 paragraph (D) as subparagraph (C). 

16 (C) Section 41(d)(2)(B) is amended by 

17 striking ‘‘, computer software’’. 

18 (6) EFFECTIVE DATE.—The amendments made 

19 by this subsection shall apply to taxable years begin20 ning after December 31, 2013. 

21 SEC. 3204. LOW-INCOME HOUSING TAX CREDIT. 

22 (a) REFORM OF LIMITATION AND ALLOCATION

23 RULES.—

24 (1) ALLOCATIONS OF ELIGIBLE BASIS AMOUNTS

25 RATHER THAN CREDIT AMOUNTS; ELIMINATION OF


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1 NATIONAL REALLOCATIONS.—Subsection (h) of sec2 tion 42 is amended to read as follows: 

3 ‘‘(h) LIMITATION ON QUALIFIED BASIS WITH RE4 SPECT TO PROJECTS LOCATED IN A STATE.—

5 ‘‘(1) QUALIFIED BASIS MAY NOT EXCEED LIMI6 TATION AMOUNT ALLOCATED TO BUILDING.—

7 ‘‘(A) IN GENERAL.—The qualified basis of 

8 any building which is taken into account under 

9 subsection (a) for any taxable year shall not ex10 ceed the limitation amount allocated to such 

11 building under this subsection. 

12 ‘‘(B) TIME FOR MAKING ALLOCATION.—

13 Except in the case of an allocation which meets 

14 the requirements of subparagraph (C), (D), 

15 (E), or (F), an allocation shall be taken into ac16 count under subparagraph (A) only if it is 

17 made not later than the close of the calendar 

18 year in which the building is placed in service. 

19 ‘‘(C) EXCEPTION WHERE BINDING COM20 MITMENT.—An allocation meets the require21 ments of this subparagraph if there is a binding 

22 commitment (not later than the close of the cal23 endar year in which the building is placed in 

24 service) by the housing credit agency to allocate 


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1 a specified limitation amount to such building 

2 beginning in a specified later taxable year. 

3 ‘‘(D) EXCEPTION WHERE INCREASE IN

4 QUALIFIED BASIS.—

5 ‘‘(i) IN GENERAL.—An allocation 

6 meets the requirements of this subpara7 graph if such allocation is made not later 

8 than the close of the calendar year in 

9 which ends the taxable year to which it will 

10 1st apply but only to the extent the 

11 amount of such allocation does not exceed 

12 the limitation under clause (ii). 

13 ‘‘(ii) LIMITATION.—The limitation 

14 under this clause is the excess of—

15 ‘‘(I) the qualified basis of such 

16 building as of the close of the 1st tax17 able year to which such allocation will 

18 apply, over 

19 ‘‘(II) the qualified basis of such 

20 building as of the close of the 1st tax21 able year to which the most recent 

22 prior allocation with respect to such 

23 building applied. 

24 ‘‘(iii) HOUSING CREDIT BASIS LIMITA25 TION REDUCED BY FULL ALLOCATION.—


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1 Notwithstanding clause (i), the full amount 

2 of the allocation shall be taken into ac3 count under paragraph (2). 

4 ‘‘(E) EXCEPTION WHERE 10 PERCENT OF

5 COST INCURRED.—

6 ‘‘(i) IN GENERAL.—An allocation 

7 meets the requirements of this subpara8 graph if such allocation is made with re9 spect to a qualified building which is 

10 placed in service not later than the close of 

11 the second calendar year following the cal12 endar year in which the allocation is made. 

13 ‘‘(ii) QUALIFIED BUILDING.—For pur14 poses of clause (i), the term ‘qualified 

15 building’ means any building which is part 

16 of a project if the taxpayer’s basis in such 

17 project (as of the date which is 1 year 

18 after the date that the allocation was 

19 made) is more than 10 percent of the tax20 payer’s reasonably expected basis in such 

21 project (as of the close of the second cal22 endar year referred to in clause (i)). Such 

23 term does not include any existing building 

24 unless a credit is allowable under sub25 section (e) for rehabilitation expenditures 


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1 paid or incurred by the taxpayer with re2 spect to such building for a taxable year 

3 ending during the second calendar year re4 ferred to in clause (i) or the prior taxable 

5 year. 

6 ‘‘(F) ALLOCATION OF CREDIT ON A

7 PROJECT BASIS.—

8 ‘‘(i) IN GENERAL.—In the case of a 

9 project which includes (or will include) 

10 more than 1 building, an allocation meets 

11 the requirements of this subparagraph if—

12 ‘‘(I) the allocation is made to the 

13 project for a calendar year during the 

14 project period, 

15 ‘‘(II) the allocation only applies 

16 to buildings placed in service during 

17 or after the calendar year for which 

18 the allocation is made, and 

19 ‘‘(III) the portion of such alloca20 tion which is allocated to any building 

21 in such project is specified not later 

22 than the close of the calendar year in 

23 which the building is placed in service. 


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1 ‘‘(ii) PROJECT PERIOD.—For pur2 poses of clause (i), the term ‘project pe3 riod’ means the period—

4 ‘‘(I) beginning with the 1st cal5 endar year for which an allocation 

6 may be made for the 1st building 

7 placed in service as part of such 

8 project, and 

9 ‘‘(II) ending with the calendar 

10 year the last building is placed in 

11 service as part of such project. 

12 ‘‘(2) ALLOCATED LIMITATION AMOUNT TO

13 APPLY TO ALL TAXABLE YEARS ENDING DURING OR

14 AFTER ALLOCATION YEAR.—Any limitation amount 

15 allocated to any building for any calendar year—

16 ‘‘(A) shall apply to such building for all 

17 taxable years in the compliance period ending 

18 during or after such calendar year, and 

19 ‘‘(B) shall reduce the aggregate limitation 

20 amount of the allocating agency only for such 

21 calendar year. 

22 ‘‘(3) LIMITATION AMOUNT FOR AGENCIES.—

23 ‘‘(A) IN GENERAL.—The limitation amount 

24 which a housing credit agency may allocate for 

25 any calendar year is the portion of the State 


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1 limitation allocated under this paragraph for 

2 such calendar year to such agency. 

3 ‘‘(B) STATE LIMITATION INITIALLY ALLO4 CATED TO STATE HOUSING CREDIT AGEN5 CIES.—Except as provided in subparagraph 

6 (F), the State limitation for each calendar year 

7 shall be allocated to the housing credit agency 

8 of such State. If there is more than 1 housing 

9 credit agency of a State, all such agencies shall 

10 be treated as a single agency. 

11 ‘‘(C) STATE LIMITATION.—The State limi12 tation applicable to any State for any calendar 

13 year shall be an amount equal to the sum of—

14 ‘‘(i) the unused State limitation (if 

15 any) of such State for the preceding cal16 endar year, 

17 ‘‘(ii) the greater of—

18 ‘‘(I) $31.20 multiplied by the 

19 State population, or 

20 ‘‘(II) $36,300,000, plus 

21 ‘‘(iii) the amount of State limitation 

22 returned in the calendar year. 

23 ‘‘(D) UNUSED STATE LIMITATION.—For 

24 purposes of subparagraph (C)(i), the unused 

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1 cess (if any) of the sum of the amounts de2 scribed in clauses (ii) and (iii) of subparagraph 

3 (C) over the aggregate limitation amount allo4 cated for such year. 

5 ‘‘(E) STATE LIMITATION RETURNED IN

6 THE CALENDAR YEAR.—For purposes of sub7 paragraph (C)(iii), the amount of State limita8 tion returned in the calendar year equals the 

9 limitation amount previously allocated within 

10 the State to any project—

11 ‘‘(i) which fails to meet the 10 percent 

12 test under paragraph (1)(E)(ii) on a date 

13 after the close of the calendar year in 

14 which the allocation was made, 

15 ‘‘(ii) which does not become a quali16 fied low-income housing project within the 

17 period required by this section or the terms 

18 of the allocation, or 

19 ‘‘(iii) with respect to which an alloca20 tion is cancelled by mutual consent of the 

21 housing credit agency and the allocation 

22 recipient. 

23 ‘‘(F) STATE MAY PROVIDE FOR DIF24 FERENT ALLOCATION.—For purposes of this 

25 paragraph, a State may by law provide (or a 


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1 Governor of a State may proclaim) a different 

2 formula for allocating the State limitation 

3 among the State housing credit agencies in 

4 such State. 

5 ‘‘(G) POPULATION.—For purposes of this 

6 paragraph, determinations of the population of 

7 any State shall be made with respect to any cal8 endar year on the basis of the most recent cen9 sus estimate of the resident population of such 

10 State released by the Bureau of Census before 

11 the beginning of such calendar year. 

12 ‘‘(H) COST-OF-LIVING ADJUSTMENT.—

13 ‘‘(i) IN GENERAL.—In the case of a 

14 calendar year after 2015, the dollar 

15 amounts in subparagraph (C)(ii) shall each 

16 be increased by an amount equal to—

17 ‘‘(I) such dollar amount, multi18 plied by 

19 ‘‘(II) the cost-of-living adjust20 ment determined under section 

21 1(c)(2)(A) for such calendar year, de22 termined by substituting ‘calendar 

23 year 2014’ for ‘calendar year 2012’ in 

24 clause (ii) thereof. 

25 ‘‘(ii) ROUNDING.—


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1 ‘‘(I) In the case of the dollar 

2 amount in subparagraph (C)(ii)(I), 

3 any increase under clause (i) which is 

4 not a multiple of 20 cents shall be 

5 rounded to the next lowest multiple of 

6 20 cents. 

7 ‘‘(II) In the case of the dollar 

8 amount in subparagraph (C)(ii)(II), 

9 any increase under clause (i) which is 

10 not a multiple of $100,000 shall be 

11 rounded to the next lowest multiple of 

12 $100,000. 

13 ‘‘(4) PORTION OF STATE LIMITATION SET14 ASIDE FOR CERTAIN PROJECTS INVOLVING QUALI15 FIED NONPROFIT ORGANIZATIONS.—

16 ‘‘(A) IN GENERAL.—Not more than 90 

17 percent of the State limitation for any State for 

18 any calendar year shall be allocated to projects 

19 other than qualified low-income housing 

20 projects described in subparagraph (B). 

21 ‘‘(B) PROJECTS INVOLVING QUALIFIED

22 NONPROFIT ORGANIZATIONS.—For purposes of 

23 subparagraph (A), a qualified low-income hous24 ing project is described in this subparagraph if 

25 a qualified nonprofit organization is to own an 


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1 interest in the project (directly or through a 

2 partnership) and materially participate (within 

3 the meaning of section 469(h)) in the develop4 ment and operation of the project throughout 

5 the credit period. 

6 ‘‘(C) QUALIFIED NONPROFIT ORGANIZA7 TION.—For purposes of this paragraph, the 

8 term ‘qualified nonprofit organization’ means 

9 any organization if—

10 ‘‘(i) such organization is described in 

11 paragraph (3) or (4) of section 501(c) and 

12 is exempt from tax under section 501(a), 

13 ‘‘(ii) such organization is determined 

14 by the State housing credit agency not to 

15 be affiliated with or controlled by a for16 profit organization; and 

17 ‘‘(iii) 1 of the exempt purposes of 

18 such organization includes the fostering of 

19 low-income housing. 

20 ‘‘(D) TREATMENT OF CERTAIN SUBSIDI21 ARIES.—

22 ‘‘(i) IN GENERAL.—For purposes of 

23 this paragraph, a qualified nonprofit orga24 nization shall be treated as satisfying the 

25 ownership and material participation test 


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1 of subparagraph (B) if any qualified cor2 poration in which such organization holds 

3 stock satisfies such test. 

4 ‘‘(ii) QUALIFIED CORPORATION.—For 

5 purposes of clause (i), the term ‘qualified 

6 corporation’ means any corporation if 100 

7 percent of the stock of such corporation is 

8 held by 1 or more qualified nonprofit orga9 nizations at all times during the period 

10 such corporation is in existence. 

11 ‘‘(E) STATE MAY NOT OVERRIDE SET12 ASIDE.—Nothing in subparagraph (F) of para13 graph (3) shall be construed to permit a State 

14 not to comply with subparagraph (A) of this 

15 paragraph. 

16 ‘‘(5) BUILDINGS ELIGIBLE FOR CREDIT ONLY

17 IF MINIMUM LONG-TERM COMMITMENT TO LOW-IN18 COME HOUSING.—

19 ‘‘(A) IN GENERAL.—No credit shall be al20 lowed by reason of this section with respect to 

21 any building for the taxable year unless an ex22 tended low-income housing commitment is in ef23 fect as of the end of such taxable year. 

24 ‘‘(B) EXTENDED LOW-INCOME HOUSING

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1 graph, the term ‘extended low-income housing 

2 commitment’ means any agreement between the 

3 taxpayer and the housing credit agency—

4 ‘‘(i) which requires that the applicable 

5 fraction (as defined in subsection (c)(1)) 

6 for the building for each taxable year in 

7 the extended use period will not be less 

8 than the applicable fraction specified in 

9 such agreement and which prohibits the 

10 actions described in subclauses (I) and (II) 

11 of subparagraph (E)(ii), 

12 ‘‘(ii) which allows individuals who 

13 meet the income limitation applicable to 

14 the building under subsection (g) (whether 

15 prospective, present, or former occupants 

16 of the building) the right to enforce in any 

17 State court the requirement and prohibi18 tions of clause (i), 

19 ‘‘(iii) which prohibits the disposition 

20 to any person of any portion of the build21 ing to which such agreement applies unless 

22 all of the building to which such agreement 

23 applies is disposed of to such person, 

24 ‘‘(iv) which prohibits the refusal to 

25 lease to a holder of a voucher or certificate 


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1 of eligibility under section 8 of the United 

2 States Housing Act of 1937 because of the 

3 status of the prospective tenant as such a 

4 holder, 

5 ‘‘(v) which is binding on all successors 

6 of the taxpayer, and 

7 ‘‘(vi) which, with respect to the prop8 erty, is recorded pursuant to State law as 

9 a restrictive covenant. 

10 ‘‘(C) ALLOCATION OF LIMITATION AMOUNT

11 MAY NOT EXCEED AMOUNT NECESSARY TO SUP12 PORT COMMITMENT.—The limitation amount 

13 allocated to any building may not exceed the 

14 amount necessary to support the applicable 

15 fraction specified in the extended low-income 

16 housing commitment for such building. 

17 ‘‘(D) EXTENDED USE PERIOD.—For pur18 poses of this paragraph, the term ‘extended use 

19 period’ means the period—

20 ‘‘(i) beginning on the 1st day in the 

21 credit period on which such building is 

22 part of a qualified low-income housing 

23 project, and 

24 ‘‘(ii) ending on the later of—


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1 ‘‘(I) the date specified by such 

2 agency in such agreement, or 

3 ‘‘(II) the date which is 15 years 

4 after the close of the credit period. 

5 ‘‘(E) EXCEPTIONS IF FORECLOSURE OR IF

6 NO BUYER WILLING TO MAINTAIN LOW-INCOME

7 STATUS.—

8 ‘‘(i) IN GENERAL.—The extended use 

9 period for any building shall terminate—

10 ‘‘(I) on the date the building is 

11 acquired by foreclosure (or instrument 

12 in lieu of foreclosure) unless the Sec13 retary determines that such acquisi14 tion is part of an arrangement with 

15 the taxpayer a purpose of which is to 

16 terminate such period, or 

17 ‘‘(II) on the last day of the pe18 riod specified in subparagraph (I) if 

19 the housing credit agency is unable to 

20 present during such period a qualified 

21 contract for the acquisition of the low22 income portion of the building by any 

23 person who will continue to operate 

24 such portion as a qualified low-income 

25 building. 


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1 Subclause (II) shall not apply to the extent 

2 more stringent requirements are provided 

3 in the agreement or in State law. 

4 ‘‘(ii) EVICTION, ETC., OF EXISTING

5 LOW-INCOME TENANTS NOT PERMITTED.—

6 The termination of an extended use period 

7 under clause (i) shall not be construed to 

8 permit before the close of the 3-year period 

9 following such termination—

10 ‘‘(I) the eviction or the termi11 nation of tenancy (other than for good 

12 cause) of an existing tenant of any 

13 low-income unit, or 

14 ‘‘(II) any increase in the gross 

15 rent with respect to such unit not oth16 erwise permitted under this section. 

17 ‘‘(F) QUALIFIED CONTRACT.—For pur18 poses of subparagraph (E), the term ‘qualified 

19 contract’ means a bona fide contract to acquire 

20 (within a reasonable period after the contract is 

21 entered into) the nonlow-income portion of the 

22 building for fair market value and the low-in23 come portion of the building for an amount not 

24 less than the applicable fraction (specified in 


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1 the extended low-income housing commitment) 

2 of—

3 ‘‘(i) the sum of—

4 ‘‘(I) the outstanding indebtedness 

5 secured by, or with respect to, the 

6 building, 

7 ‘‘(II) the adjusted investor equity 

8 in the building, plus 

9 ‘‘(III) other capital contributions 

10 not reflected in the amounts described 

11 in subclause (I) or (II), reduced by 

12 ‘‘(ii) cash distributions from (or avail13 able for distribution from) the project. 

14 The Secretary shall prescribe such regulations 

15 as may be necessary or appropriate to carry out 

16 this paragraph, including regulations to prevent 

17 the manipulation of the amount determined 

18 under the preceding sentence. 

19 ‘‘(G) ADJUSTED INVESTOR EQUITY.—

20 ‘‘(i) IN GENERAL.—For purposes of 

21 subparagraph (F), the term ‘adjusted in22 vestor equity’ means, with respect to any 

23 calendar year, the aggregate amount of 

24 cash taxpayers invested with respect to the 

25 project increased by the amount equal to—


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1 ‘‘(I) such amount, multiplied by 

2 ‘‘(II) the cost-of-living adjust3 ment for such calendar year, deter4 mined under section 1(c)(2)(A) by 

5 substituting the base calendar year 

6 for ‘calendar year 2012’ in clause (ii) 

7 thereof. 

8 An amount shall be taken into account as 

9 an investment in the project only to the ex10 tent there was an obligation to invest such 

11 amount as of the beginning of the credit 

12 period and to the extent such amount is 

13 reflected in the adjusted basis of the 

14 project. 

15 ‘‘(ii) COST-OF-LIVING INCREASES IN

16 EXCESS OF 5 PERCENT NOT TAKEN INTO

17 ACCOUNT.—Under regulations prescribed 

18 by the Secretary, if the C-CPI-U for any 

19 calendar year (within the meaning of sec20 tion 1(c)) exceeds the C-CPI-U for the pre21 ceding calendar year by more than 5 per22 cent, the C-CPI-U for the base calendar 

23 year shall be increased such that such ex24 cess shall never be taken into account 

25 under clause (i). 


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1 ‘‘(iii) BASE CALENDAR YEAR.—For 

2 purposes of this subparagraph, the term 

3 ‘base calendar year’ means the calendar 

4 year with or within which the 1st taxable 

5 year of the credit period ends. 

6 ‘‘(H) LOW-INCOME PORTION.—For pur7 poses of this paragraph, the low-income portion 

8 of a building is the portion of such building 

9 equal to the applicable fraction specified in the 

10 extended low-income housing commitment for 

11 the building. 

12 ‘‘(I) PERIOD FOR FINDING BUYER.—The 

13 period referred to in this subparagraph is the 1-

14 year period beginning on the date (after the 

15 14th year of the credit period) the taxpayer 

16 submits a written request to the housing credit 

17 agency to find a person to acquire the tax18 payer’s interest in the low-income portion of the 

19 building. 

20 ‘‘(J) EFFECT OF NONCOMPLIANCE.—If, 

21 during a taxable year, there is a determination 

22 that an extended low-income housing agreement 

23 was not in effect as of the beginning of such 

24 year, such determination shall not apply to any 

25 period before such year and subparagraph (A) 


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1 shall be applied without regard to such deter2 mination if the failure is corrected within 1 

3 year from the date of the determination. 

4 ‘‘(K) PROJECTS WHICH CONSIST OF MORE

5 THAN 1 BUILDING.—The application of this 

6 paragraph to projects which consist of more 

7 than 1 building shall be made under regulations 

8 prescribed by the Secretary. 

9 ‘‘(6) SPECIAL RULES.—

10 ‘‘(A) BUILDING MUST BE LOCATED WITH11 IN JURISDICTION OF CREDIT AGENCY.—A hous12 ing credit agency may allocate its limitation 

13 amount only to buildings located in the jurisdic14 tion of the governmental unit of which such 

15 agency is a part. 

16 ‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF

17 LIMIT.—If the limitation amounts allocated by 

18 a housing credit agency for any calendar year 

19 exceed the portion of the State limitation allo20 cated to such agency for such calendar year, the 

21 limitation amounts so allocated shall be reduced 

22 (to the extent of such excess) for buildings in 

23 the reverse of the order in which the allocations 

24 of such amounts were made. 


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1 ‘‘(C) CREDIT REDUCED IF CREDIT IS LESS

2 THAN CREDIT WHICH WOULD BE ALLOWABLE

3 WITHOUT REGARD TO PLACED IN SERVICE CON4 VENTION, ETC..—

5 ‘‘(i) IN GENERAL.—The amount of 

6 the credit determined under this section 

7 with respect to any building shall not ex8 ceed the clause (ii) percentage of the 

9 amount of the credit which would (but for 

10 this subparagraph) be determined under 

11 this section with respect to such building. 

12 ‘‘(ii) DETERMINATION OF PERCENT13 AGE.—For purposes of clause (i), the 

14 clause (ii) percentage with respect to any 

15 building is the percentage which—

16 ‘‘(I) the credit amount which 

17 would be determined under this sec18 tion with respect to the building if the 

19 limitation amount allocated to such 

20 building were equal to the qualified 

21 basis of such building, bears to 

22 ‘‘(II) the credit amount deter23 mined in accordance with clause (iii). 

24 ‘‘(iii) DETERMINATION OF CREDIT

25 AMOUNT.—The credit amount determined 


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1 in accordance with this clause is the 

2 amount of the credit which would (but for 

3 this subparagraph) be determined under 

4 this section with respect to the building if 

5 this section were applied without regard to 

6 subsection (f)(2)(A). 

7 ‘‘(7) OTHER DEFINITIONS.—For purposes of 

8 this subsection—

9 ‘‘(A) HOUSING CREDIT AGENCY.—The 

10 term ‘housing credit agency’ means any agency 

11 authorized to carry out this subsection. 

12 ‘‘(B) POSSESSIONS TREATED AS STATES.—

13 The term ‘State’ includes a possession of the 

14 United States.’’. 

15 (2) CONFORMING AMENDMENTS.—

16 (A) Section 42(f) is amended by striking 

17 paragraph (3). 

18 (B) Section 42(i)(3)(B)(iii)(II) is amended 

19 by striking ‘‘subsection (h)(5)’’ and inserting 

20 ‘‘subsection (h)(4)’’. 

21 (C) Section 42(i)(7)(A) is amended by 

22 striking ‘‘subsection (h)(5)(C)’’ and inserting 

23 ‘‘subsection (h)(4)(C)’’. 

24 (D) Section 42(i)(8) is amended by strik25 ing the last sentence. 


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1 (E) Section 42(i) is amended by striking 

2 paragraph (9). 

3 (F) Section 42(k)(2)(A) is amended by 

4 striking ‘‘subsection (h)(5)’’ and inserting ‘‘sub5 section (h)(4)’’. 

6 (G) Section 42(l)(3) is amended by strik7 ing ‘‘housing credit amount’’ both places it ap8 pears and inserting ‘‘limitation amount’’. 

9 (H) Section 42(m)(1)(A) is amended by 

10 striking ‘‘housing credit dollar amount’’ both 

11 places it appears and inserting ‘‘limitation 

12 amount’’. 

13 (I) Section 42(m)(1)(B)(ii) is amended by 

14 striking ‘‘housing credit dollar amounts’’ and 

15 inserting ‘‘limitation amounts’’. 

16 (J) Section 42(m)(1) is amended by strik17 ing subparagraph (D). 

18 (K) Subparagraphs (A), (B)(iii), (C)(i)(I), 

19 and (C)(i)(II) of section 42(m)(2) are each 

20 amended by striking ‘‘housing credit dollar 

21 amount’’ and inserting ‘‘limitation amount’’. 

22 (L) Section 42(m)(2) is amended by strik23 ing subparagraph (D). 

24 (b) 15-YEAR CREDIT PERIOD.—


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1 (1) IN GENERAL.—Section 42(f)(1) is amended 

2 by striking ‘‘10 taxable years’’ and inserting ‘‘15 

3 taxable years’’. 

4 (2) REPEAL OF RECAPTURE.—Section 42 is 

5 amended by striking subsection (j). 

6 (3) CONFORMING AMENDMENTS.—

7 (A) Section 42(d)(7) is amended—

8 (i) by striking ‘‘COMPLIANCE PERIOD’’ 

9 in the heading thereof and inserting 

10 ‘‘CREDIT PERIOD’’, and 

11 (ii) by striking ‘‘compliance period’’ in 

12 subparagraph (B)(ii) and inserting ‘‘credit 

13 period’’. 

14 (B) Section 42(f)(4) is amended by strik15 ing the last sentence thereof. 

16 (C) Section 42(i) is amended by striking 

17 paragraph (1). 

18 (D) Section 42(i)(6) is amended by strik19 ing ‘‘and any increase in tax under subsection 

20 (j)’’. 

21 (E) Section 42(k)(4)(C) is amended to 

22 read as follows: 

23 ‘‘(C) SPECIAL RULES.—

24 ‘‘(i) TAX BENEFIT RULE.—The tax 

25 for the taxable year shall be increased 


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1 under subparagraph (A) only with respect 

2 to credits allowed by reason of this section 

3 which were used to reduce tax liability. In 

4 the case of credits not so used to reduce 

5 tax liability, the carryforwards and 

6 carrybacks under section 39 shall be ap7 propriately adjusted. 

8 ‘‘(ii) NO CREDITS AGAINST TAX.—Any 

9 increase in tax under this paragraph shall 

10 not be treated as a tax imposed by this 

11 chapter for purposes of determining the 

12 amount of any credit under this chapter.’’. 

13 (c) DETERMINATION OF APPLICABLE PERCENT14 AGE.—

15 (1) ELIMINATION OF 30 PERCENT CREDIT; 

16 MODIFICATION OF DISCOUNT RATE.—Subsection (b) 

17 of section 42 is amended to read as follows: 

18 ‘‘(b) APPLICABLE PERCENTAGE.—

19 ‘‘(1) IN GENERAL.—For purposes of this sec20 tion, the term ‘applicable percentage’ means with re21 spect to any building, the appropriate percentage 

22 prescribed by the Secretary for the earlier of—

23 ‘‘(A) the month in which such building is 

24 placed in service, or 


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1 ‘‘(B) at the election of the taxpayer, the 

2 month in which the taxpayer and the housing 

3 credit agency enter into an agreement with re4 spect to such building (which is binding on such 

5 agency, the taxpayer, and all successors in in6 terest) as to the limitation amount to be allo7 cated to such building. 

8 A month may be elected under subparagraph (B) 

9 only if the election is made not later than the 5th 

10 day after the close of such month. Such an election, 

11 once made, shall be irrevocable. 

12 ‘‘(2) METHOD OF PRESCRIBING PERCENT13 AGES.—The percentages prescribed by the Secretary 

14 for any month shall be percentages which will yield 

15 over a 15-year period amounts of credit under sub16 section (a) which have a present value equal to 70 

17 percent of the qualified basis of the building. 

18 ‘‘(3) METHOD OF DISCOUNTING.—

19 ‘‘(A) IN GENERAL.—The present value 

20 under paragraph (2) shall be determined—

21 ‘‘(i) as of the last day of the 1st year 

22 of the 15-year period referred to in para23 graph (2), 

24 ‘‘(ii) by using a discount rate equal to 

25 the applicable discount percentage of the 


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1 average of the annual Federal mid-term 

2 rate and the annual Federal long-term rate 

3 applicable under section 1274(d)(1) to the 

4 month applicable under subparagraph (A) 

5 or (B) of paragraph (1) and compounded 

6 annually, and 

7 ‘‘(iii) by assuming that the credit al8 lowable under this section for any year is 

9 received on the last day of such year. 

10 ‘‘(B) APPLICABLE DISCOUNT PERCENT11 AGE.—For purposes of this paragraph, the term 

12 ‘applicable discount percentage’ means, with re13 spect to any month referred to in subparagraph 

14 (A)(ii) the number of percentage points by 

15 which 100 percent exceeds the highest rate of 

16 tax in effect under section 11 for a taxable year 

17 which begins in such month. 

18 ‘‘(4) CROSS REFERENCE.—For treatment of 

19 certain rehabilitation expenditures as separate new 

20 buildings, see subsection (e).’’. 

21 (2) EXISTING AND FEDERALLY SUBSIDIZED

22 BUILDINGS INELIGIBLE FOR CREDIT.—Section 42(d) 

23 is amended—

24 (A) by striking paragraphs (1), (2), and 

25 (6), and redesignating paragraphs (3), (4), (5), 


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1 and (7) as paragraphs (2), (3), (4), and (5), re2 spectively, and 

3 (B) by inserting before paragraph (2) (as 

4 so redesignated) the following new paragraph: 

5 ‘‘(1) IN GENERAL.—The eligible basis of any 

6 building is—

7 ‘‘(A) in the case a new building which is 

8 not Federally subsidized for the taxable year, 

9 its adjusted basis as of the close of the 1st tax10 able year of the credit period, and 

11 ‘‘(B) zero in any other case.’’. 

12 (3) CONFORMING AMENDMENTS.—

13 (A) Section 42(e) is amended—

14 (i) in paragraph (2)(B), by striking 

15 ‘‘paragraph (3) or (4)’’ and inserting 

16 ‘‘paragraph (2) or (3)’’. 

17 (ii) in paragraph (3), by striking sub18 paragraph (B) and redesignating subpara19 graphs (C) and (D) as subparagraphs (B) 

20 and (C), respectively, 

21 (iii) in paragraph (4), by striking the 

22 last sentence thereof, and 

23 (iv) by striking paragraph (5) and re24 designating paragraph (6) as paragraph 

25 (5). 


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1 (B) Section 42(f) is amended by striking 

2 paragraph (5). 

3 (C) Section 42(i)(2)(A) is amended by 

4 striking ‘‘for purposes of subsection (b)(1),’’. 

5 (D) Section 42(i)(3) is amended—

6 (i) by striking ‘‘(as defined in sub7 section (d)(2)(D)(iii))’’ in subparagraph 

8 (C)(ii) and inserting ‘‘(within the meaning 

9 of subparagraph (F))’’, and 

10 (ii) by adding at the end the following 

11 new subparagraph: 

12 ‘‘(F) RELATED PERSON.—For purposes of 

13 subparagraph (C), a person (hereinafter in this 

14 subparagraph referred to as the ‘related per15 son’) is related to any person if the related per16 son bears a relationship to such person speci17 fied in section 267(b) or 707(b)(1), or the re18 lated person and such person are engaged in 

19 trades or businesses under common control 

20 (within the meaning of subsections (a) and (b) 

21 of section 52).’’. 

22 (E) Section 42(i) is amended by striking 

23 paragraph (5). 


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1 (F) Section 42(k)(2)(B) is amended by 

2 striking ‘‘, except that’’ and all that follows and 

3 inserting a period. 

4 (d) REPEAL OF SPECIAL RULES FOR BUILDINGS IN

5 HIGH COST AND DIFFICULT DEVELOPMENT AREAS.—

6 (1) IN GENERAL.—Paragraph (4) of section 

7 42(d), as redesignated by subsection (c)(2), is 

8 amended to read as follows: 

9 ‘‘(4) FEDERAL GRANTS NOT TAKEN INTO AC10 COUNT IN DETERMINING ELIGIBLE BASIS.—The eli11 gible basis of a building shall not include any costs 

12 financed with the proceeds of a federally funded 

13 grant.’’. 

14 (2) CONFORMING AMENDMENTS.—

15 (A) Paragraph (3) of section 42(d), as re16 designated by subsection (c)(2), is amended—

17 (i) by striking ‘‘(as defined in para18 graph (5)(C))’’ in subparagraph (C)(i), 

19 and 

20 (ii) by adding at the end the following 

21 new subparagraph: 

22 ‘‘(E) QUALIFIED CENSUS TRACT.—For 

23 purposes of this paragraph—

24 ‘‘(i) IN GENERAL.—The term ‘quali25 fied census tract’ means any census tract 


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1 which is designated by the Secretary of 

2 Housing and Urban Development and, for 

3 the most recent year for which census data 

4 are available on household income in such 

5 tract, either in which 50 percent or more 

6 of the households have an income which is 

7 less than 60 percent of the area median 

8 gross income for such year or which has a 

9 poverty rate of at least 25 percent. If the 

10 Secretary of Housing and Urban Develop11 ment determines that sufficient data for 

12 any period are not available to apply this 

13 subparagraph on the basis of census tracts, 

14 such Secretary shall apply this subpara15 graph for such period on the basis of enu16 meration districts. 

17 ‘‘(ii) LIMIT ON MSA’S DESIGNATED.—

18 The portion of a metropolitan statistical 

19 area which may be designated for purposes 

20 of this subparagraph shall not exceed an 

21 area having 20 percent of the population of 

22 such metropolitan statistical area. 

23 ‘‘(iii) DETERMINATION OF AREAS.—

24 For purposes of this subparagraph, each 

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1 ed as a separate area and all nonmetropoli2 tan areas in a State shall be treated as 1 

3 area.’’. 

4 (B) Clause (i) of section 42(d)(5)(A), as 

5 redesignated by subsection (c)(2), is amended 

6 to read as follows: 

7 ‘‘(i) such building shall be treated as 

8 a new building, but’’. 

9 (e) REPEAL OF CERTAIN EXCEPTIONS TO RULES

10 AGAINST PREFERENTIAL TREATMENT.—Section 42(g)(9) 

11 is amended—

12 (1) by adding ‘‘or’’ at the end of subparagraph 

13 (A), and 

14 (2) by striking subparagraphs (B) and (C) and 

15 inserting the following new subparagraph: 

16 ‘‘(B) who are veterans (as defined in sec17 tion 101 of title 38, United States Code).’’. 

18 (f) MODIFICATION OF SELECTION CRITERIA.—Sec19 tion 42(m)(1)(C) is amended—

20 (1) by adding ‘‘and’’ at the end of clause (vii), 

21 (2) by striking the comma at the end of clause 

22 (viii) and inserting a period, and 

23 (3) by striking clauses (ix) and (x). 

24 (g) EFFECTIVE DATE.—


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1 (1) IN GENERAL.—The amendments made by 

2 this section shall apply with respect to State limita3 tion amounts determined for calendar years after 

4 2014 (and to determinations with respect to alloca5 tions of such limitation amounts). 

6 (2) TRANSITION RULE.—For purposes of deter7 mining the State limitation amount for calendar 

8 year 2015 under section 42(h)(3)(C) of the Internal 

9 Revenue Code of 1986, as amended by this section, 

10 the amount described in clause (i) of such section 

11 shall be treated as being equal to the quotient of—

12 (A) the amount which would be described 

13 in section 42(h)(3)(C)(i) of such Code (deter14 mined without regard to the amendments made 

15 by this section), divided by 

16 (B) the applicable percentage determined 

17 under section 42(b)(1)(B)(i) for December 

18 2014 (determined without regard to the amend19 ments made by this section). 

20 SEC. 3205. REPEAL OF ENHANCED OIL RECOVERY CREDIT. 

21 (a) IN GENERAL.—Subpart D of part IV of sub22 chapter A of chapter 1 is amended by striking section 43 

23 (and by striking the item relating to such section in the 

24 table of sections for such subpart). 

25 (b) CONFORMING AMENDMENTS.—


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1 (1) Section 38(b) is amended by striking para2 graph (6). 

3 (2) Section 6501(m) is amended by striking 

4 ‘‘43,’’. 

5 (c) EFFECTIVE DATE.—The amendments made by 

6 this section shall take effect on the date of the enactment 

7 of this Act. 

8 SEC. 3206. PHASEOUT AND REPEAL OF CREDIT FOR ELEC9 TRICITY PRODUCED FROM CERTAIN RENEW10 ABLE RESOURCES. 

11 (a) REDUCTION OF CREDIT AND PHASEOUT

12 AMOUNTS.—

13 (1) IN GENERAL.—Section 45(b) is amended by 

14 striking paragraph (2). 

15 (2) CONFORMING AMENDMENTS.—Section 

16 45(e)(2) is amended—

17 (A) by striking ‘‘the inflation adjustment 

18 factor and’’ in subparagraph (A), and 

19 (B) by striking subparagraph (B) and re20 designating subparagraph (C) as subparagraph 

21 (B). 

22 (3) EFFECTIVE DATE.—The amendments made 

23 by this subsection shall apply to electricity, and re24 fined coal, produced and sold after December 31, 

25 2014. 


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1 (b) SPECIAL RULE FOR DETERMINING BEGINNING

2 OF CONSTRUCTION.—

3 (1) IN GENERAL.—Section 45(e) is amended by 

4 adding at the end the following new paragraph: 

5 ‘‘(12) SPECIAL RULE FOR DETERMINING BE6 GINNING OF CONSTRUCTION.—For purposes of sub7 section (d) and section 48(a)(5), the construction of 

8 any facility, modification, improvement, addition, or 

9 other property shall not be treated as beginning be10 fore any date unless there is a continuous program 

11 of construction which begins before such date and 

12 ends on the date that such property is placed in 

13 service.’’. 

14 (2) EFFECTIVE DATE.—The amendment made 

15 by this subsection shall apply to taxable years begin16 ning before, on, or after the date of the enactment 

17 of this Act. 

18 (c) REPEAL OF CREDIT.—

19 (1) IN GENERAL.—Subpart D of part IV of 

20 subchapter A of chapter 1 is amended by striking 

21 section 45 (and by striking the item relating to such 

22 section in the table of sections for such subpart). 

23 (2) CONFORMING AMENDMENT.—Section 38(b) 

24 is amended by striking paragraph (8). 


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1 (3) EFFECTIVE DATE.—The amendments made 

2 by this subsection shall apply to electricity, and re3 fined coal, produced and sold after December 31, 

4 2024. 

5 SEC. 3207. REPEAL OF INDIAN EMPLOYMENT CREDIT. 

6 (a) IN GENERAL.—Subpart D of part IV of sub7 chapter A of chapter 1 is amended by striking section 45A 

8 (and by striking the item relating to such section in the 

9 table of sections for such subpart). 

10 (b) CONFORMING AMENDMENT.—

11 (1) Section 38(b) is amended by striking para12 graph (10). 

13 (2) Section 139D(c)(1) is amended to read as 

14 follows: 

15 ‘‘(1) INDIAN TRIBE.—The term ‘Indian tribe’ 

16 means any Indian tribe, band, nation, pueblo, or 

17 other organized group or community, including any 

18 Alaska Native village or regional or village corpora19 tion, as defined in, or established pursuant to, the 

20 Alaska Native Claims Settlement Act (43 U.S.C. 

21 1601 et seq.) which is recognized as eligible for the 

22 special programs and services provided by the 

23 United States to Indians because of their status as 

24 Indians.’’. 


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1 (3) Section 280C(a) is amended by striking 

2 ‘‘45A,’’. 

3 (4) Section 5000A(e)(3) is amended by striking 

4 ‘‘section 45A(c)(6)’’ and inserting ‘‘section 

5 139D(c)(1)’’. 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2013. 

9 SEC. 3208. REPEAL OF CREDIT FOR PORTION OF EM10 PLOYER SOCIAL SECURITY TAXES PAID WITH 

11 RESPECT TO EMPLOYEE CASH TIPS. 

12 (a) IN GENERAL.—Subpart D of part IV of sub13 chapter A of chapter 1 is amended by striking section 45B 

14 (and by striking the item relating to such section in the 

15 table of sections for such subpart). 

16 (b) CONFORMING AMENDMENTS.—

17 (1) Section 38(b) is amended by striking para18 graph (11). 

19 (2) Section 6501(m) is amended by striking 

20 ‘‘45B,’’. 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply with respect to tips received for 

23 services performed after December 31, 2014. 


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1 SEC. 3209. REPEAL OF CREDIT FOR CLINICAL TESTING EX2 PENSES FOR CERTAIN DRUGS FOR RARE DIS3 EASES OR CONDITIONS. 

4 (a) IN GENERAL.—Subpart D of part IV of sub5 chapter A of chapter 1 is amended by striking section 45C 

6 (and by striking the item relating to such section in the 

7 table of sections for such subpart). 

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 38(b) is amended by striking para10 graph (12). 

11 (2) Section 280C is amended by striking sub12 section (b). 

13 (3) Section 6501(m) is amended by striking 

14 ‘‘45C(d)(4),’’. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to amounts paid or incurred in tax17 able years beginning after December 31, 2014. 

18 SEC. 3210. REPEAL OF CREDIT FOR SMALL EMPLOYER PEN19 SION PLAN STARTUP COSTS. 

20 (a) IN GENERAL.—Subpart D of part IV of sub21 chapter A of chapter 1 is amended by striking section 45E 

22 (and by striking the item relating to such section in the 

23 table of sections for such subpart). 

24 (b) CONFORMING AMENDMENTS.—Section 38(b) is 

25 amended by striking paragraph (14). 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to costs paid or incurred after De3 cember 31, 2014, with respect to qualified employer plans 

4 first effective after such date. 

5 SEC. 3211. REPEAL OF EMPLOYER-PROVIDED CHILD CARE 

6 CREDIT.

7 (a) IN GENERAL.—Subpart D of part IV of sub8 chapter A of chapter 1 is amended by striking section 45F 

9 (and by striking the item relating to such section in the 

10 table of sections for such subpart). 

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 38(b) is amended by striking para13 graph (15). 

14 (2) Section 1016(a) is amended by striking 

15 paragraph (28). 

16 (c) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as otherwise pro18 vided in this subsection, the amendments made by 

19 this section shall apply to taxable years beginning 

20 after December 31, 2014. 

21 (2) BASIS ADJUSTMENTS.—The amendment 

22 made by subsection (b)(2) shall apply to credits de23 termined for taxable years beginning after December 

24 31, 2014. 


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1 SEC. 3212. REPEAL OF RAILROAD TRACK MAINTENANCE 

2 CREDIT.

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 is amended by striking section 45G 

5 (and by striking the item relating to such section in the 

6 table of sections for such subpart). 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 38(b) is amended by striking para9 graph (16). 

10 (2) Section 1016(a) is amended by striking 

11 paragraph (29). 

12 (c) EFFECTIVE DATE.—

13 (1) IN GENERAL.—Except as otherwise pro14 vided in this subsection, the amendments made by 

15 this section shall apply to taxable years beginning 

16 after December 31, 2013. 

17 (2) BASIS ADJUSTMENTS.—The amendment 

18 made by subsection (b)(2) shall apply to credits de19 termined for taxable years beginning after December 

20 31, 2013. 

21 SEC. 3213. REPEAL OF CREDIT FOR PRODUCTION OF LOW 

22 SULFUR DIESEL FUEL. 

23 (a) IN GENERAL.—Subpart D of part IV of sub24 chapter A of chapter 1 is amended by striking section 45H 

25 (and by striking the item relating to such section in the 

26 table of sections for such subpart). 


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1 (b) CONFORMING AMENDMENTS.—

2 (1) Section 38(b) is amended by striking para3 graph (18). 

4 (2) Section 280C is amended by striking sub5 section (d). 

6 (3) Section 6501(m) is amended by striking 

7 ‘‘45H(g),’’. 

8 (4) Section 6720A is amended—

9 (A) by striking ‘‘(as defined in section 

10 45H(c)(3))’’ in subsection (a), and 

11 (B) by adding at the end the following new 

12 subsection: 

13 ‘‘(c) APPLICABLE EPA REGULATIONS.—The term 

14 ‘applicable EPA regulations’ means the Highway Diesel 

15 Fuel Sulfur Control Requirements of the Environmental 

16 Protection Agency.’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to expenses paid or incurred in 

19 taxable years beginning after December 31, 2014. 

20 SEC. 3214. REPEAL OF CREDIT FOR PRODUCING OIL AND 

21 GAS FROM MARGINAL WELLS. 

22 (a) IN GENERAL.—Subpart D of part IV of sub23 chapter A of chapter 1 is amended by striking section 45I 

24 (and by striking the item relating to such section in the 

25 table of sections for such subpart). 


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1 (b) CONFORMING AMENDMENT.—Section 38(b) is 

2 amended by striking paragraph (19). 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2014. 

6 SEC. 3215. REPEAL OF CREDIT FOR PRODUCTION FROM AD7 VANCED NUCLEAR POWER FACILITIES. 

8 (a) IN GENERAL.—Subpart D of part IV of sub9 chapter A of chapter 1 is amended by striking section 45J 

10 (and by striking the item relating to such section in the 

11 table of sections for such subpart). 

12 (b) CONFORMING AMENDMENT.—Section 38(b) is 

13 amended by striking paragraph (21). 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to electricity produced and sold 

16 after December 31, 2014. 

17 SEC. 3216. REPEAL OF CREDIT FOR PRODUCING FUEL 

18 FROM A NONCONVENTIONAL SOURCE. 

19 (a) IN GENERAL.—Subpart D of part IV of sub20 chapter A of chapter 1 is amended by striking section 45K 

21 (and by striking the item relating to such section in the 

22 table of sections for such subpart). 

23 (b) CONFORMING AMENDMENTS.—

24 (1) Section 38(b) is amended by striking para25 graph (22). 


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1 (2) Section 45(e)(9) is amended—

2 (A) in subparagraph (A)—

3 (i) by inserting ‘‘, as in effect before 

4 its repeal’’ after ‘‘within the meaning of 

5 section 45K’’, and 

6 (ii) by inserting ‘‘(as in effect before 

7 its repeal)’’ after ‘‘under section 45K’’, 

8 and 

9 (B) in subparagraph (B), by inserting ‘‘(as 

10 in effect before its repeal)’’ after ‘‘section 

11 45K’’. 

12 (3) Section 4041(a)(2) is amended—

13 (A) by striking ‘‘(as defined in section 

14 45K(c)(3))’’ in subparagraph (B)(ii), and 

15 (B) by adding at the end the following new 

16 subparagraph: 

17 ‘‘(C) BIOMASS.—The term ‘‘biomass’’ 

18 means any organic material other than—

19 ‘‘(i) oil and natural gas (or any prod20 uct thereof), and 

21 ‘‘(ii) coal (including lignite) or any 

22 product thereof.’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to fuel produced and sold after 

25 December 31, 2013. 


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1 SEC. 3217. REPEAL OF NEW ENERGY EFFICIENT HOME 

2 CREDIT.

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 is amended by striking section 45L 

5 (and by striking the item relating to such section in the 

6 table of sections for such subpart). 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 38(b) is amended by striking para9 graph (23). 

10 (2) Section 1016(a) is amended by striking 

11 paragraph (32). 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to homes acquired after December 

14 31, 2013. 

15 SEC. 3218. REPEAL OF ENERGY EFFICIENT APPLIANCE 

16 CREDIT.

17 (a) IN GENERAL.—Subpart D of part IV of sub18 chapter A of chapter 1 is amended by striking section 45M 

19 (and by striking the item relating to such section in the 

20 table of sections for such subpart). 

21 (b) CONFORMING AMENDMENT.—Section 38(b) is 

22 amended by striking paragraph (24). 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to appliances produced after De25 cember 31, 2013. 


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1 SEC. 3219. REPEAL OF MINE RESCUE TEAM TRAINING 

2 CREDIT.

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 is amended by striking section 45N 

5 (and by striking the item relating to such section in the 

6 table of sections for such subpart). 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 38(b) is amended by striking para9 graph (31). 

10 (2) Section 280C is amended by striking sub11 section (e). 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning after 

14 December 31, 2013. 

15 SEC. 3220. REPEAL OF AGRICULTURAL CHEMICALS SECU16 RITY CREDIT. 

17 (a) IN GENERAL.—Subpart D of part IV of sub18 chapter A of chapter 1 is amended by striking section 45O 

19 (and by striking the item relating to such section in the 

20 table of sections for such subpart). 

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 38(b) is amended by striking para23 graph (32). 

24 (2) Section 280C is amended by striking sub25 section (f). 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to amounts paid or incurred after 

3 December 31, 2012. 

4 SEC. 3221. REPEAL OF CREDIT FOR CARBON DIOXIDE SE5 QUESTRATION.

6 (a) IN GENERAL.—Subpart D of part IV of sub7 chapter A of chapter 1 is amended by striking section 45Q 

8 (and by striking the item relating to such section in the 

9 table of sections for such subpart). 

10 (b) CONFORMING AMENDMENT.—Section 38(b) is 

11 amended by striking paragraph (34). 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to credits determined for taxable 

14 years beginning after December 31, 2014. 

15 SEC. 3222. REPEAL OF CREDIT FOR EMPLOYEE HEALTH IN16 SURANCE EXPENSES OF SMALL EMPLOYERS. 

17 (a) IN GENERAL.—Subpart D of part IV of sub18 chapter A of chapter 1 is amended by striking section 45R 

19 (and by striking the item relating to such section in the 

20 table of sections for such subpart). 

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 38(b) is amended by striking para23 graph (36). 

24 (2) Section 280C is amended by striking sub25 section (h). 


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1 (3) Section 6055(b)(2) is amended by inserting 

2 ‘‘and’’ at the end of subparagraph (A), by striking 

3 ‘‘, and’’ at the end of subparagraph (B) and insert4 ing a period, and by striking subparagraph (C). 

5 (c) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to amounts paid or incurred for 

7 taxable years beginning after December 31, 2014. 

8 SEC. 3223. REPEAL OF REHABILITATION CREDIT. 

9 (a) IN GENERAL.—Subpart E of part IV of sub10 chapter A of chapter 1 is amended by striking section 47 

11 (and by striking the item relating to such section in the 

12 table of sections for such subpart). 

13 (b) CONFORMING AMENDMENTS.—

14 (1) Section 170(f)(14)(A) is amended by insert15 ing ‘‘(as in effect before its repeal by the Tax Re16 form Act of 2014)’’ after ‘‘section 47’’. 

17 (2) Section 170(h)(4) is amended—

18 (A) by striking ‘‘(as defined in section 

19 47(c)(3)(B))’’ in subparagraph (C)(ii), and 

20 (B) by adding at the end the following new 

21 subparagraph: 

22 ‘‘(D) REGISTERED HISTORIC DISTRICT.—

23 The term ‘registered historic district’ means—

24 ‘‘(i) any district listed in the National 

25 Register, and 


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1 ‘‘(ii) any district—

2 ‘‘(I) which is designated under a 

3 statute of the appropriate State or 

4 local government, if such statute is 

5 certified by the Secretary of the Inte6 rior to the Secretary as containing cri7 teria which will substantially achieve 

8 the purpose of preserving and reha9 bilitating buildings of historic signifi10 cance to the district, and 

11 ‘‘(II) which is certified by the 

12 Secretary of the Interior to the Sec13 retary as meeting substantially all of 

14 the requirements for the listing of dis15 tricts in the National Register.’’. 

16 (3) Section 469(i)(3) is amended by striking 

17 subparagraph (B). 

18 (4) Section 469(i)(6)(B) is amended—

19 (A) by striking ‘‘in the case of—’’ and all 

20 that follows and inserting ‘‘in the case of any 

21 credit determined under section 42 for any tax22 able year.’’, and 

23 (B) by striking ‘‘, REHABILITATION CRED24 IT,’’ in the heading thereof. 


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1 (5) Section 469(k)(1) is amended by striking ‘‘, 

2 or any rehabilitation credit determined under section 

3 47,’’. 

4 (c) EFFECTIVE DATE.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section 

7 shall apply to amounts paid after December 31, 

8 2014. 

9 (2) TRANSITION RULE.—In the case of quali10 fied rehabilitation expenditures (within the meaning 

11 of section 47 of the Internal Revenue Code of 1986 

12 as in effect before its repeal) with respect to any 

13 building—

14 (A) acquired by the taxpayer before Janu15 ary 1, 2015, and 

16 (B) with respect to which the 24-month 

17 period selected by the taxpayer under section 

18 47(c)(1)(C) of such Code begins not later than 

19 January 1, 2015, 

20 the amendments made by this section shall apply to 

21 amounts paid after December 31, 2016. 

22 SEC. 3224. REPEAL OF ENERGY CREDIT. 

23 (a) TERMINATION.—Section 48 is amended by adding 

24 at the end the following new subsection: 


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1 ‘‘(e) APPLICATION OF SECTION.—This section shall 

2 not apply to any energy property placed in service after 

3 December 31, 2016.’’. 

4 (b) CONFORMING AMENDMENTS.—

5 (1) Paragraph (2)(A)(i)(II), and clauses (ii) 

6 and (vii) of paragraph (3)(A), of section 48(a) are 

7 each amended by striking ‘‘but only with respect to 

8 periods ending before January 1, 2017’’. 

9 (2) Paragraph (1) of section 48(c) is amended 

10 by striking subparagraph (D). 

11 (3) Paragraph (2) of section 48(c) is amended 

12 by striking subparagraph (D). 

13 (4) Subparagraph (A) of section 48(c)(3) is 

14 amended by inserting ‘‘and’’ at the end of clause 

15 (ii), by striking ‘‘, and’’ at the end of clause (iii) and 

16 inserting a period, and by striking clause (iv). 

17 (5) Paragraph (4) of section 48(c) is amended 

18 by striking subparagraph (C). 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to property placed in service after 

21 December 31, 2016. 

22 SEC. 3225. REPEAL OF QUALIFYING ADVANCED COAL 

23 PROJECT CREDIT. 

24 (a) IN GENERAL.—Subpart E of part IV of sub25 chapter A of chapter 1 is amended by striking section 48A 


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1 (and by striking the item relating to such section in the 

2 table of sections for such subpart). 

3 (b) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to allocations and reallocations 

5 after December 31, 2014. 

6 SEC. 3226. REPEAL OF QUALIFYING GASIFICATION 

7 PROJECT CREDIT. 

8 (a) IN GENERAL.—Subpart E of part IV of sub9 chapter A of chapter 1 is amended by striking section 48B 

10 (and by striking the item relating to such section in the 

11 table of sections for such subpart). 

12 (b) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to allocations and reallocations 

14 after December 31, 2014. 

15 SEC. 3227. REPEAL OF QUALIFYING ADVANCED ENERGY 

16 PROJECT CREDIT. 

17 (a) IN GENERAL.—Subpart E of part IV of sub18 chapter A of chapter 1 is amended by striking section 48C 

19 (and by striking the item relating to such section in the 

20 table of sections for such subpart). 

21 (b) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to allocations and reallocations 

23 after December 31, 2014. 


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1 SEC. 3228. REPEAL OF QUALIFYING THERAPEUTIC DIS2 COVERY PROJECT CREDIT. 

3 (a) IN GENERAL.—Subpart E of part IV of sub4 chapter A of chapter 1 is amended by striking section 48D 

5 (and by striking the item relating to such section in the 

6 table of sections for such subpart). 

7 (b) CONFORMING AMENDMENTS.—Section 280C is 

8 amended by striking the second subsection (g) (as added 

9 by the Patient Protection and Affordable Care Act). 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to allocations and reallocations 

12 after December 31, 2014. 

13 SEC. 3229. REPEAL OF WORK OPPORTUNITY TAX CREDIT. 

14 (a) IN GENERAL.—Subpart F of part IV of sub15 chapter A of chapter 1 is amended by striking section 51 

16 (and by striking the item relating to such section in the 

17 table of sections for such subpart). 

18 (b) CLERICAL AMENDMENT.—The heading of such 

19 subpart F (and the item relating to such subpart in the 

20 table of subparts for part IV of subchapter A of chapter 

21 1) are each amended by striking ‘‘Rules for Computing 

22 Work Opportunity Credit’’ and inserting ‘‘Special Rules’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to amounts paid or incurred to 

25 individuals who begin work for the employer after Decem26 ber 31, 2013. 


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1 SEC. 3230. REPEAL OF DEDUCTION FOR CERTAIN UNUSED 

2 BUSINESS CREDITS. 

3 (a) IN GENERAL.—Part VI of subchapter B of chap4 ter 1 is amended by striking section 196 (and by striking 

5 the item relating to such section in the table of sections 

6 for such part). 

7 (b) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years beginning after 

9 December 31, 2014. 

10 Subtitle D—Accounting Methods 

11 SEC. 3301. LIMITATION ON USE OF CASH METHOD OF AC12 COUNTING.

13 (a) IN GENERAL.—Section 448 is amended to read 

14 as follows: 

15 ‘‘SEC. 448. LIMITATION ON USE OF CASH METHOD OF AC16 COUNTING.

17 ‘‘(a) IN GENERAL.—The cash receipts and disburse18 ments method of accounting may only be used by—

19 ‘‘(1) a natural person, 

20 ‘‘(2) a farming business, and 

21 ‘‘(3) any other entity which meets the gross re22 ceipts test of subsection (b) for the taxable year. 

23 Such method may not be used by a tax shelter (as defined 

24 in subsection (d)). 

25 ‘‘(b) GROSS RECEIPTS TEST.—For purposes of this 

26 section—


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1 ‘‘(1) IN GENERAL.—An entity meets the gross 

2 receipts test of this subsection for any taxable year 

3 if the average annual gross receipts of such entity 

4 for the 3-taxable-year period ending with the taxable 

5 year which precedes such taxable year does not ex6 ceed $10,000,000. 

7 ‘‘(2) AGGREGATION RULES.—All persons treat8 ed as a single employer under subsection (a) or (b) 

9 of section 52 or subsection (m) or (o) of section 414 

10 shall be treated as one entity for purposes of para11 graph (1). 

12 ‘‘(3) SPECIAL RULES.—For purposes of this 

13 subsection—

14 ‘‘(A) NOT IN EXISTENCE FOR ENTIRE 3-

15 YEAR PERIOD.—If the entity was not in exist16 ence for the entire 3-year period referred to in 

17 paragraph (1), such paragraph shall be applied 

18 on the basis of the period during which such 

19 entity (or trade or business) was in existence. 

20 ‘‘(B) SHORT TAXABLE YEARS.—Gross re21 ceipts for any taxable year of less than 12 

22 months shall be annualized by multiplying the 

23 gross receipts for the short period by 12 and di24 viding the result by the number of months in 

25 the short period. 


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1 ‘‘(C) GROSS RECEIPTS.—Gross receipts for 

2 any taxable year shall be reduced by returns 

3 and allowances made during such year. 

4 ‘‘(D) TREATMENT OF PREDECESSORS.—

5 Any reference in this subsection to an entity 

6 shall include a reference to any predecessor of 

7 such entity. 

8 ‘‘(c) FARMING BUSINESS.—For purposes of this sec9 tion—

10 ‘‘(1) IN GENERAL.—The term ‘farming busi11 ness’ means the trade or business of farming. 

12 ‘‘(2) CERTAIN TRADES AND BUSINESSES IN13 CLUDED.—

14 ‘‘(A) IN GENERAL.—The term ‘farming 

15 business’ shall include the trade or business 

16 of—

17 ‘‘(i) operating a nursery or sod farm, 

18 or 

19 ‘‘(ii) the raising or harvesting of trees 

20 bearing fruit, nuts, or other crops, or orna21 mental trees. 

22 ‘‘(B) CERTAIN EVERGREEN TREES NOT

23 TREATED AS ORNAMENTAL.—For purposes of 

24 subparagraph (A)(ii), an evergreen tree which is 

25 more than 6 years old at the time severed from 


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1 the roots shall not be treated as an ornamental 

2 tree. 

3 ‘‘(d) TAX SHELTER DEFINED.—For purposes of this 

4 section, the term ‘tax shelter’ has the meaning given such 

5 term by section 461(i)(2) (determined after application of 

6 paragraph (3) thereof). An S corporation shall not be 

7 treated as a tax shelter for purposes of this section merely 

8 by reason of being required to file a notice of exemption 

9 from registration with a State agency described in section 

10 461(i)(2)(A), but only if there is a requirement applicable 

11 to all corporations offering securities for sale in the State 

12 that to be exempt from such registration the corporation 

13 must file such a notice. 

14 ‘‘(e) SPECIAL RULES.—For purposes of this sec15 tion—

16 ‘‘(1) COORDINATION WITH SECTION 481.—In 

17 the case of any person required by this section to 

18 change its method of accounting for any taxable 

19 year—

20 ‘‘(A) such change shall be treated as initi21 ated by such person, and 

22 ‘‘(B) such change shall be treated as made 

23 with the consent of the Secretary. 

24 ‘‘(2) USE OF RELATED PARTIES, ETC.—The 

25 Secretary shall prescribe such regulations as may be 


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1 necessary to prevent the use of related parties, pass2 thru entities, or intermediaries to avoid the applica3 tion of this section.’’. 

4 (b) CONFORMING AMENDMENTS.—

5 (1) Section 446(c)(1) is amended by inserting 

6 ‘‘to the extent provided in section 448,’’ before ‘‘the 

7 cash receipts’’. 

8 (2) Section 451 is amended by adding at the 

9 end the following new subsection: 

10 ‘‘(j) SPECIAL RULE FOR LOSSES OF CERTAIN SERV11 ICE PROVIDERS ON ACCRUAL METHOD OF ACCOUNT12 ING.—

13 ‘‘(1) IN GENERAL.—In the case of any person 

14 using an accrual method of accounting with respect 

15 to amounts to be received for the performance of 

16 services by such person, such person shall not be re17 quired to accrue any portion of such amounts which 

18 (on the basis of such person’s experience) will not be 

19 collected if such services are in the fields of health, 

20 law, engineering, architecture, accounting, actuarial 

21 science, performing arts, consulting, or any other 

22 field identified by the Secretary for purposes of this 

23 subsection. 

24 ‘‘(2) EXCEPTION.—Paragraph (1) shall not 

25 apply to any amount if interest is required to be 


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1 paid on such amount or there is any penalty for fail2 ure to timely pay such amount. 

3 ‘‘(3) REGULATIONS.—The Secretary shall pre4 scribe regulations to permit taxpayers to determine 

5 amounts referred to in paragraph (1) using com6 putations or formulas which, based on experience, 

7 accurately reflect the amount of income that will not 

8 be collected by such person. A taxpayer may adopt, 

9 or request consent of the Secretary to change to, a 

10 computation or formula that clearly reflects the tax11 payer’s experience. A request under the preceding 

12 sentence shall be approved if such computation or 

13 formula clearly reflects the taxpayer’s experience.’’. 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2014. 

17 (d) CHANGE IN METHOD OF ACCOUNTING.—

18 (1) IN GENERAL.—In the case of any qualified 

19 change in method of accounting for the taxpayer’s 

20 first taxable year beginning after December 31, 

21 2014—

22 (A) such change shall be treated as initi23 ated by the taxpayer, 


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1 (B) such change shall be treated as made 

2 with the consent of the Secretary of the Treas3 ury, and 

4 (C) if the net amount of the adjustments 

5 required to be taken into account by the tax6 payer under section 481 of the Internal Rev7 enue Code of 1986 by reason of such change is 

8 positive—

9 (i) such amount shall be taken into 

10 account during the 4-taxable year period 

11 beginning with the earlier of the taxpayer’s 

12 elected taxable year or the taxpayer’s first 

13 taxable year beginning after December 31, 

14 2018, as follows: 

15 (I) 10 percent of such amount in 

16 the first taxable year in such period, 

17 (II) 15 percent of such amount 

18 in the second taxable year in such pe19 riod, 

20 (III) 25 percent of such amount 

21 in the third taxable year in such pe22 riod, and 

23 (IV) 50 percent of such amount 

24 in the fourth taxable year in such pe25 riod, and 


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1 (ii) for purposes of applying the regu2 lations and other guidance issued under 

3 such section (including any provisions 

4 which require accelerated inclusion), the 

5 period beginning with the taxpayer’s first 

6 taxable year beginning after December 31 

7 2014, and ending with the taxable year be8 fore the first taxable year referred to in 

9 clause (i) shall not fail to be taken into ac10 count as part of the period of the adjust11 ment merely because such amount is not 

12 otherwise taken into account under clause 

13 (i) during such period. 

14 (2) QUALIFIED CHANGE IN METHOD OF AC15 COUNTING.—For purposes of this subsection, the 

16 term ‘‘qualified change in method of accounting’’ 

17 means any change in method of accounting which—

18 (A) is required by the amendments made 

19 by this section, or 

20 (B) was prohibited under the Internal Rev21 enue Code of 1986 prior to such amendments 

22 and is permitted under such Code after such 

23 amendments. 

24 (3) ELECTED TAXABLE YEAR.—For purposes of 

25 this subsection, the term ‘‘elected taxable year’’ 


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1 means such taxable year as the taxpayer may elect 

2 (at such time and in such form and manner as the 

3 Secretary may provide) which begins after December 

4 31, 2014, and is before the taxpayer’s second tax5 able year beginning after December 31, 2018. 

6 SEC. 3302. RULES FOR DETERMINING WHETHER TAXPAYER 

7 HAS ADOPTED A METHOD OF ACCOUNTING. 

8 (a) IN GENERAL.—Section 446 is amended by adding 

9 at the end the following new subsection: 

10 ‘‘(g) RULES FOR TREATING ACCOUNTING METHOD

11 AS ADOPTED BY TAXPAYER.—If the taxpayer uses a 

12 method of accounting with respect to any item on any re13 turn of tax—

14 ‘‘(1) in the case of any method of accounting 

15 which the taxpayer is permitted to use with respect 

16 to such item, such method shall be treated as having 

17 been adopted by the taxpayer with respect to such 

18 item, and 

19 ‘‘(2) in the case of any method of accounting 

20 which the taxpayer is not permitted to use with re21 spect to such item, such method shall be treated as 

22 having been adopted by the taxpayer with respect to 

23 such item if the taxpayer used the same method with 

24 respect to such item on the return of tax for the pre25 ceding taxable year.’’. 


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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 3303. CERTAIN SPECIAL RULES FOR TAXABLE YEAR 

5 OF INCLUSION. 

6 (a) INCLUSION NOT LATER THAN FOR FINANCIAL

7 ACCOUNTING PURPOSES.—Section 451 is amended by re8 designating subsections (b) through (j) as subsection (c) 

9 through (k), respectively, and by inserting after subsection 

10 (a) the following new subsection: 

11 ‘‘(b) INCLUSION NOT LATER THAN FOR FINANCIAL

12 ACCOUNTING PURPOSES.—

13 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

14 the taxable income of which is computed under the 

15 accrual method of accounting, the amount of any 

16 portion of any item of income shall be included in 

17 gross income not later than the taxable year with re18 spect to which such amount is taken into account as 

19 income in—

20 ‘‘(A) an audited financial statement of the 

21 taxpayer described in section 1221(b)(3)(B), or 

22 ‘‘(B) such other financial statement as the 

23 Secretary may specify for purposes of this sub24 section. 


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1 ‘‘(2) COORDINATION WITH SPECIAL RULES FOR

2 LONG-TERM CONTRACTS.—Paragraph (1) shall not 

3 apply with respect to any item of income to which 

4 section 460 applies.’’. 

5 (b) TREATMENT OF ADVANCE PAYMENTS.—Section 

6 451, as amended by subsection (a), is amended by redesig7 nating subsections (c) through (k) as subsections (d) 

8 through (l), respectively, and by inserting after subsection 

9 (b) the following new subsection: 

10 ‘‘(c) TREATMENT OF ADVANCE PAYMENTS.—

11 ‘‘(1) IN GENERAL.—A taxpayer which computes 

12 taxable income under the accrual method of account13 ing, and receives any advance payment during the 

14 taxable year, shall—

15 ‘‘(A) except as provided in subparagraph 

16 (B), include such advance payment in gross in17 come for such taxable year, or 

18 ‘‘(B) if the taxpayer elects the application 

19 of this subparagraph with respect to the cat20 egory of advance payments to which such ad21 vance payment belongs, the taxpayer shall—

22 ‘‘(i) to the extent that any portion of 

23 such advance payment is required under 

24 subsection (b) to be included in gross in25 come in the taxable year in which such 


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1 payment is received, so include such por2 tion, and 

3 ‘‘(ii) include the remaining portion of 

4 such advance payment in gross income in 

5 the taxable year following the taxable year 

6 in which such payment is received. 

7 ‘‘(2) ELECTION.—

8 ‘‘(A) IN GENERAL.—Except as otherwise 

9 provided in this paragraph, the election under 

10 paragraph (1)(B) shall be made at such time, 

11 in such form and manner, and with respect to 

12 such categories of advance payments, as the 

13 Secretary may provide. 

14 ‘‘(B) PERIOD TO WHICH ELECTION AP15 PLIES.—An election under paragraph (1)(B) 

16 shall be effective for the taxable year with re17 spect to which it is first made and for all subse18 quent taxable years, unless the taxpayer secures 

19 the consent of the Secretary to revoke such 

20 election. For purposes of this title, the com21 putation of taxable income under an election 

22 made under paragraph (1)(B) shall be treated 

23 as a method of accounting. 

24 ‘‘(3) ADVANCE PAYMENT.—For purposes of this 

25 subsection—


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1 ‘‘(A) IN GENERAL.—The term ‘advance 

2 payment’ means any payment—

3 ‘‘(i) the full inclusion of which in the 

4 gross income of the taxpayer for the tax5 able year of receipt is a permissible method 

6 of accounting under this section (deter7 mined without regard to this subsection), 

8 and 

9 ‘‘(ii) which is for goods, services, or 

10 such other items as may be identified by 

11 the Secretary for purposes of this clause. 

12 ‘‘(B) EXCLUSIONS.—Except as otherwise 

13 provided by the Secretary, such term shall not 

14 include—

15 ‘‘(i) rent, 

16 ‘‘(ii) insurance premiums, 

17 ‘‘(iii) payments with respect to finan18 cial instruments, 

19 ‘‘(iv) payments with respect to war20 ranty or guarantee contracts under which 

21 a third party is the primary obligor, 

22 ‘‘(v) payments subject to section 

23 871(a), 881, 1441, or 1442, 

24 ‘‘(vi) payments in property to which 

25 section 83 applies, and 


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1 ‘‘(vii) any other payment identified by 

2 the Secretary for purposes of this subpara3 graph.’’. 

4 (c) CROP INSURANCE PROCEEDS AND DISASTER

5 PAYMENTS.—Section 451, as amended by subsections (a) 

6 and (b), is amended by striking subsection (f). 

7 (d) LIVESTOCK SOLD ON ACCOUNT OF DROUGHT, 

8 FLOOD, AND OTHER WEATHER-RELATED CONDITIONS.—

9 Section 451, as amended by subsections (a) and (b), is 

10 amended by striking subsection (g). 

11 (e) SALES OR DISPOSITIONS TO IMPLEMENT FED12 ERAL ENERGY REGULATORY COMMISSION OR STATE

13 ELECTRIC RESTRUCTURING POLICY.—Section 451, as 

14 amended by subsections (a) and (b), is amended by strik15 ing subsection (k). 

16 (f) CONFORMING AMENDMENTS.—Section 451, as 

17 amended by subsections (a), (b), (c), (d), and (e), is 

18 amended by redesignating subsections (h), (i), (j), and (l) 

19 as subsections (f), (g), (h), and (i), respectively. 

20 (g) EFFECTIVE DATES.—

21 (1) IN GENERAL.—Except as otherwise pro22 vided in this subsection, the amendments made by 

23 this section shall apply to taxable years beginning 

24 after December 31, 2014. 


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1 (2) CROP INSURANCE PROCEEDS AND DISASTER

2 PAYMENTS.——

3 (A) IN GENERAL.—Except as provided in 

4 subparagraph (B), the amendments made by 

5 subsection (c) shall apply to destruction and 

6 damage of crops occurring after December 31, 

7 2014. 

8 (B) INABILITY TO PLANT.—In the case of 

9 inability to plant crops because of a natural dis10 aster, the amendments made by subsection (c) 

11 shall apply to natural disasters occurring after 

12 December 31, 2014. 

13 (3) LIVESTOCK.—The amendments made by 

14 subsection (d) shall apply to sales and exchanges 

15 after December 31, 2014. 

16 (4) SALES OR DISPOSITIONS TO IMPLEMENT

17 ELECTRIC RESTRUCTURING POLICY.—The amend18 ments made by subsection (e) shall apply to sales 

19 and dispositions after December 31, 2013. 

20 (5) CHANGE IN METHOD OF ACCOUNTING.—In 

21 the case of any taxpayer required by the amend22 ments made by subsections (a) and (b) to change its 

23 method of accounting for its first taxable year begin24 ning after December 31, 2014—


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1 (A) such change shall be treated as initi2 ated by the taxpayer, and 

3 (B) such change shall be treated as made 

4 with the consent of the Secretary of the Treas5 ury. 

6 SEC. 3304. INSTALLMENT SALES. 

7 (a) REPEAL OF EXCEPTIONS TO TREATMENT AS

8 DEALER DISPOSITIONS.—Section 453(l) is amended to 

9 read as follows: 

10 ‘‘(l) DEALER DISPOSITIONS.—For purposes of sub11 section (b)(2)(A), the term ‘dealer disposition’ means any 

12 of the following dispositions: 

13 ‘‘(1) PERSONAL PROPERTY.—Any disposition of 

14 personal property by a person who regularly sells or 

15 otherwise disposes of personal property of the same 

16 type on the installment plan. 

17 ‘‘(2) REAL PROPERTY.—Any disposition of real 

18 property which is held by the taxpayer for sale to 

19 customers in the ordinary course of the taxpayer’s 

20 trade or business.’’. 

21 (b) MODIFICATION OF RULES FOR NONDEALERS.—

22 (1) REPEAL OF SPECIAL RULE FOR INTEREST

23 PAYMENTS.—Section 453A(b)(2) is amended to read 

24 as follows: 


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1 ‘‘(2) INTEREST PAYMENT EXCEPTION FOR OB2 LIGATIONS NOT OUTSTANDING AT CLOSE OF TAX3 ABLE YEAR.—Subsection (a)(1) shall apply to an ob4 ligation described in paragraph (1) arising during 

5 any taxable year only if such obligation is out6 standing as of the close of such taxable year.’’. 

7 (2) REPEAL OF EXCEPTION FOR FARM PROP8 ERTY.—Section 453A(b)(3) is amended—

9 (A) by striking ‘‘from the disposition—’’ 

10 and all that follows and inserting ‘‘from the dis11 position by an individual of personal use prop12 erty (within the meaning of section 

13 1275(b)(3)).’’, and 

14 (B) by striking ‘‘AND FARM’’ in the head15 ing. 

16 (3) REPEAL OF SPECIAL RULE FOR

17 TIMESHARES AND RESIDENTIAL LOTS.—Section 

18 453A(b) is amended by striking paragraph (4) and 

19 by redesignating paragraph (5) as paragraph (4). 

20 (4) CONFORMING AMENDMENT.—Section 

21 453A(c) is amended—

22 (A) by striking ‘‘the applicable percentage 

23 of’’ in paragraph (2)(A), and 


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1 (B) by striking paragraph (4) and by re2 designating paragraphs (5) and (6) as para3 graphs (4) and (5), respectively. 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to sales and other dispositions 

6 after December 31, 2014. 

7 SEC. 3305. REPEAL OF SPECIAL RULE FOR PREPAID SUB8 SCRIPTION INCOME. 

9 (a) IN GENERAL.—Subpart B of part II of sub10 chapter E of chapter 1 is amended by striking section 455 

11 (and by striking the item relating to such section in the 

12 table of sections for such subpart). 

13 (b) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to payments received after Decem15 ber 31, 2014. 

16 SEC. 3306. REPEAL OF SPECIAL RULE FOR PREPAID DUES 

17 INCOME OF CERTAIN MEMBERSHIP ORGANI18 ZATIONS.

19 (a) IN GENERAL.—Subpart B of part II of sub20 chapter E of chapter 1 is amended by striking section 456 

21 (and by striking the item relating to such section in the 

22 table of sections for such subpart). 

23 (b) CONFORMING AMENDMENT.—Section 277(b)(2) 

24 is amended by inserting ‘‘(as in effect before its repeal)’’ 

25 after ‘‘section 456(c)’’. 


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to payments received after Decem3 ber 31, 2014. 

4 SEC. 3307. REPEAL OF SPECIAL RULE FOR MAGAZINES, PA5 PERBACKS, AND RECORDS RETURNED AFTER 

6 CLOSE OF THE TAXABLE YEAR. 

7 (a) IN GENERAL.—Subpart B of part II of sub8 chapter E of chapter 1 is amended by striking section 458 

9 (and by striking the item relating to such section in the 

10 table of sections for such subpart). 

11 (b) EFFECTIVE DATE.—

12 (1) IN GENERAL.—The amendments made by 

13 this section shall apply to taxable years beginning 

14 after December 31, 2014. 

15 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

16 the case of any taxpayer required by the amend17 ments made by this section to change its method of 

18 accounting for its first taxable year beginning after 

19 December 31, 2014—

20 (A) such change shall be treated as initi21 ated by the taxpayer, and 

22 (B) such change shall be treated as made 

23 with the consent of the Secretary of the Treas24 ury. 


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1 SEC. 3308. MODIFICATION OF RULES FOR LONG-TERM CON2 TRACTS.

3 (a) REPEAL OF EXCEPTION FOR HOME CONSTRUC4 TION CONTRACTS.—Paragraph (1) of section 460(e) is 

5 amended to read as follows: 

6 ‘‘(1) EXCEPTION FOR CERTAIN CONSTRUCTION

7 CONTRACTS.—Subsections (a), (b), and (c)(1) and 

8 (2) shall not apply to any construction contract en9 tered into by a taxpayer—

10 ‘‘(A) who estimates (at the time such con11 tract is entered into) that such contract will be 

12 completed within the 2-year period beginning on 

13 the contract commencement date of such con14 tract, and 

15 ‘‘(B) whose average annual gross receipts 

16 for the 3 taxable years preceding the taxable 

17 year in which such contract is entered into do 

18 not exceed $10,000,000. 

19 For purposes of this paragraph, rules similar to the 

20 rules of paragraphs (2) and (3) of section 448(b) 

21 shall apply.’’. 

22 (b) REPEAL OF SPECIAL RULE FOR OTHER RESI23 DENTIAL CONSTRUCTION CONTRACTS.—Section 460(e) is 

24 amended by striking paragraphs (5) and (6). 

25 (c) REPEAL OF SPECIAL RULES FOR QUALIFIED

26 SHIP CONTRACTS.—


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1 (1) IN GENERAL.—Section 10203(b) of the 

2 Revenue Act of 1987 is amended by striking para3 graph (2). 

4 (2) QUALIFIED NAVAL SHIP CONTRACTS.—The 

5 American Jobs Creation Act of 2004 is amended by 

6 striking section 708. 

7 (d) CONFORMING AMENDMENTS.—Section 460(e) is 

8 amended by striking paragraphs (2) and (3) and by redes9 ignating paragraph (4) as paragraph (2). 

10 (e) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to contracts entered into after De12 cember 31, 2014. 

13 SEC. 3309. NUCLEAR DECOMMISSIONING RESERVE FUNDS. 

14 (a) GROSS INCOME ON NUCLEAR DECOMMISSIONING

15 RESERVE FUNDS TAXED AT CORPORATE RATE.—Section 

16 468A(e)(2) is amended by striking ‘‘at the rate of 20 per17 cent’’ and inserting ‘‘at a rate equal to the maximum rate 

18 in effect for such taxable year under section 11’’. 

19 (b) INCOME INCLUSION UPON DISQUALIFIED DIS20 TRIBUTION.—Section 468A(c)(1) is amended by striking 

21 ‘‘and’’ at the end of subparagraph (A), by striking the 

22 period at the end of subparagraph (B) and inserting ‘‘, 

23 and’’, and by adding at the end the following new subpara24 graph: 


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1 ‘‘(C) if any distribution is made from the 

2 Fund during such taxable year which is not 

3 used as provided in subsection (e)(4), the bal4 ance of the Fund determined immediately be5 fore such distribution.’’. 

6 (c) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2014. 

9 SEC. 3310. REPEAL OF LAST-IN, FIRST-OUT METHOD OF IN10 VENTORY.

11 (a) IN GENERAL.—Section 471 is amended by redes12 ignating subsection (c) as subsection (d) and by inserting 

13 after subsection (b) the following new subsection: 

14 ‘‘(c) LAST-IN, FIRST-OUT METHOD NOT PERMIS15 SIBLE.—The last-in, first-out method of determining in16 ventories shall in no event be treated as clearly reflecting 

17 income.’’. 

18 (b) CONFORMING AMENDMENTS.—

19 (1) Subpart D of part II of subchapter E of 

20 chapter 1 is amended by striking sections 472, 473, 

21 and 474 (and by striking the items relating to such 

22 sections in the table of sections for such subpart). 

23 (2)(A) Section 312(n), as amended by the pre24 ceding provisions of this Act, is amended by striking 

25 paragraph (3) and by redesignating paragraphs (4) 


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1 through (7) as paragraphs (3) through (6), respec2 tively. 

3 (B) Section 312(n)(6), as amended by the pre4 ceding provisions of this Act, is amended—

5 (i) by striking ‘‘paragraphs (4) and (6)’’ in 

6 subparagraph (A) and inserting ‘‘paragraph 

7 (4)’’, and 

8 (ii) by striking ‘‘paragraph (5)’’ in sub9 paragraph (B) and inserting ‘‘paragraph (3)’’. 

10 (C) Section 301(e)(3), as amended by the pre11 ceding provisions of this Act, is amended—

12 (i) by striking ‘‘paragraph (6)’’ and insert13 ing ‘‘paragraph (5)’’, and 

14 (ii) by striking ‘‘SECTION 312(n)(6)’’ in 

15 the heading and inserting ‘‘SECTION

16 312(n)(5)’’. 

17 (D) Section 952(c)(3), as amended by the pre18 ceding provisions of this Act, is amended by striking 

19 ‘‘paragraphs (3), (4), and (5)’’ and inserting ‘‘para20 graphs (2), (3), and (4)’’. 

21 (E) Section 1293(e)(3), as amended by the pre22 ceding provisions of this Act, is amended by striking 

23 ‘‘paragraphs (3), (4), and (5)’’ and inserting ‘‘para24 graphs (2), (3), and (4)’’. 


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1 (F) Section 1503(e)(2)(C), as amended by the 

2 preceding provisions of this Act, is amended—

3 (i) by striking ‘‘paragraph (6)’’ and insert4 ing ‘‘paragraph (5)’’, and 

5 (ii) by striking ‘‘SECTION 312(n)(6)’’ in 

6 the heading and inserting ‘‘SECTION

7 312(n)(5)’’. 

8 (3) Section 1363 is amended by striking sub9 section (d). 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2014. 

13 (d) CHANGE IN METHOD OF ACCOUNTING.—

14 (1) IN GENERAL.—In the case of any taxpayer 

15 required by the amendments made by this section to 

16 change its method of accounting for its first taxable 

17 year beginning after December 31, 2014—

18 (A) such change shall be treated as initi19 ated by the taxpayer, 

20 (B) such change shall be treated as made 

21 with the consent of the Secretary of the Treas22 ury, and 

23 (C) if the net amount of the adjustments 

24 required to be taken into account by the tax25 payer under section 481 of the Internal RevVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00508 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 enue Code of 1986 by reason of such change is 

2 positive—

3 (i) such amount shall be taken into 

4 account during the 4-taxable year period 

5 beginning with the earlier of the taxpayer’s 

6 elected taxable year or the taxpayer’s first 

7 taxable year beginning after December 31, 

8 2018, as follows: 

9 (I) 10 percent of such amount in 

10 the first taxable year in such period, 

11 (II) 15 percent of such amount 

12 in the second taxable year in such pe13 riod, 

14 (III) 25 percent of such amount 

15 in the third taxable year in such pe16 riod, and 

17 (IV) 50 percent of such amount 

18 in the fourth taxable year in such pe19 riod, and 

20 (ii) for purposes of applying the regu21 lations and other guidance issued under 

22 such section (including any provisions 

23 which require accelerated inclusion), the 

24 period beginning with the taxpayer’s first 

25 taxable year beginning after December 31 


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1 2014, and ending with the taxable year be2 fore the first taxable year referred to in 

3 clause (i) shall not fail to be taken into ac4 count as part of the period of the adjust5 ment merely because such amount is not 

6 otherwise taken into account under clause 

7 (i) during such period. 

8 (2) ELECTED TAXABLE YEAR.—For purposes of 

9 this subsection, the term ‘‘elected taxable year’’ 

10 means such taxable year as the taxpayer may elect 

11 (at such time and in such form and manner as the 

12 Secretary may provide) which begins after December 

13 31, 2014, and is before the taxpayer’s second tax14 able year beginning after December 31, 2018. 

15 (3) REDUCTION IN AMOUNT OF ADJUSTMENT

16 FOR CLOSELY-HELD ENTITIES.—

17 (A) IN GENERAL.—In the case of any 

18 closely-held entity, paragraph (1)(C) shall be 

19 applied by treating any reference to ‘‘such 

20 amount’’ as a reference to 20 percent (28 per21 cent in the case of a C corporation) of such 

22 amount. 

23 (B) CLOSELY-HELD ENTITY.—For pur24 poses of this paragraph—


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1 (i) IN GENERAL.—The term ‘‘closely2 held entity’’ means any domestic corpora3 tion or domestic partnership which—

4 (I) is not an ineligible entity, 

5 (II) does not have more than 100 

6 shareholders or partners (as the case 

7 may be), and 

8 (III) does not have as a share9 holder or partner a person (other than 

10 an estate, a trust described in section 

11 1361(c)(2) of the Internal Revenue 

12 Code of 1986, or an organization de13 scribed section 1361(c)(6) of such 

14 Code) who is not an individual. 

15 (ii) CERTAIN SUBSIDIARIES.—An enti16 ty shall not fail to be treated as a closely17 held entity by reason of clause (i)(III) if all 

18 of the interests in such entity are held by 

19 a single closely-held entity (determined 

20 without regard to this clause) and individ21 uals taken into account under clause (i)(II) 

22 with respect to such entity. In the case of 

23 tiered entities (other than the top tier enti24 ty), the preceding sentence shall be ap25 plied—


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1 (I) by substituting ‘‘(determined 

2 after application of this clause)’’ for 

3 ‘‘(determined without regard to this 

4 clause)’’, and 

5 (II) by substituting ‘‘with respect 

6 to the top tier entity’’ for ‘‘with re7 spect to such entity’’. 

8 (iii) INELIGIBLE ENTITY.—The term 

9 ‘‘ineligible entity’’ means any entity de10 scribed in section 1361(b)(2) of the Inter11 nal Revenue Code of 1986 applied by sub12 stituting ‘‘corporation or partnership’’ for 

13 ‘‘corporation’’ each place it appears. 

14 (iv) DATE OF DETERMINATION.—The 

15 status of any entity as a closely-held entity 

16 shall be determined as of February 26, 

17 2014. 

18 (v) SOLE PROPRIETORS.—An indi19 vidual operating a trade or business shall 

20 be treated as a closely-held entity. 

21 (C) CERTAIN TRANSFERS DISREGARDED.—

22 (i) IN GENERAL.—In the case of any 

23 specified inventory transfer, the adjust24 ments referred to in paragraph (1)(C) 

25 shall be determined—


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1 (I) with respect to the transferor, 

2 as though the property transferred 

3 continued to be held at all times by 

4 such transferor, and 

5 (II) with respect to the trans6 feree, as though such property was 

7 never transferred to such transferee. 

8 (ii) SPECIFIED INVENTORY TRANS9 FER.—The term ‘‘specified inventory 

10 transfer’’ means any transfer of property 

11 described in section 1221(a)(1) if—

12 (I) such transfer is to a closely13 held entity from any person who is 

14 not a closely-held entity, 

15 (II) such transfer is on or after 

16 February 26, 2014, and before the be17 ginning of the transferor’s first tax18 able year beginning after December 

19 31, 2014, and 

20 (III) the basis of such property 

21 in the hands of the transferee imme22 diately after such transfer is either 

23 determined by reference to the basis 

24 of such property in the hands of the 

25 transferor or is less than the fair marVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00513 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ket value of such property at the time 

2 of such transfer. 

3 SEC. 3311. REPEAL OF LOWER OF COST OR MARKET METH4 OD OF INVENTORY. 

5 (a) IN GENERAL.—Section 471, as amended by the 

6 preceding provisions of this Act, is amended by redesig7 nating subsection (d) as subsection (e) and by inserting 

8 after subsection (c) the following new subsection: 

9 ‘‘(d) LOWER OF COST OR MARKET METHOD NOT

10 PERMISSIBLE.—The lower of cost or market method of 

11 determining inventories shall in no event be treated as 

12 clearly reflecting income. For purposes of the preceding 

13 sentence, the lower of cost or market shall include the 

14 lower of cost or bona fide net selling price.’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2014. 

18 (c) CHANGE IN METHOD OF ACCOUNTING.—

19 (1) IN GENERAL.—In the case of any taxpayer 

20 required by the amendments made by this section to 

21 change its method of accounting for its first taxable 

22 year beginning after December 31, 2014—

23 (A) such change shall be treated as initi24 ated by the taxpayer, 


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1 (B) such change shall be treated as made 

2 with the consent of the Secretary of the Treas3 ury, and 

4 (C) if the net amount of the adjustments 

5 required to be taken into account by the tax6 payer under section 481 of the Internal Rev7 enue Code of 1986 by reason of such change is 

8 positive—

9 (i) such amount shall be taken into 

10 account during the 4-taxable year period 

11 beginning with the earlier of the taxpayer’s 

12 elected taxable year or the taxpayer’s first 

13 taxable year beginning after December 31, 

14 2018, as follows: 

15 (I) 10 percent of such amount in 

16 the first taxable year in such period, 

17 (II) 15 percent of such amount 

18 in the second taxable year in such pe19 riod, 

20 (III) 25 percent of such amount 

21 in the third taxable year in such pe22 riod, and 

23 (IV) 50 percent of such amount 

24 in the fourth taxable year in such pe25 riod, and 


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1 (ii) for purposes of applying the regu2 lations and other guidance issued under 

3 such section (including any provisions 

4 which require accelerated inclusion), the 

5 period beginning with the taxpayer’s first 

6 taxable year beginning after December 31 

7 2014, and ending with the taxable year be8 fore the first taxable year referred to in 

9 clause (i) shall not fail to be taken into ac10 count as part of the period of the adjust11 ment merely because such amount is not 

12 otherwise taken into account under clause 

13 (i) during such period. 

14 (2) ELECTED TAXABLE YEAR.—For purposes of 

15 this subsection, the term ‘‘elected taxable year’’ 

16 means such taxable year as the taxpayer may elect 

17 (at such time and in such form and manner as the 

18 Secretary may provide) which begins after December 

19 31, 2014, and is before the taxpayer’s second tax20 able year beginning after December 31, 2018. 

21 SEC. 3312. MODIFICATION OF RULES FOR CAPITALIZATION 

22 AND INCLUSION IN INVENTORY COSTS OF 

23 CERTAIN EXPENSES. 

24 (a) $10,000,000 GROSS RECEIPTS EXCEPTION TO

25 APPLY TO PROPERTY PRODUCED BY THE TAXPAYER.—


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1 Section 263A(b) is amended by striking all that follows 

2 paragraph (1) and inserting the following new paragraphs: 

3 ‘‘(2) PROPERTY ACQUIRED FOR RESALE.—Real 

4 or personal property described in section 1221(a)(1) 

5 which is acquired by the taxpayer for resale. 

6 ‘‘(3) EXCEPTION FOR TAXPAYER WITH GROSS

7 RECEIPTS OF $10,000,000 OR LESS.—This section 

8 shall not apply to any property produced or acquired 

9 by the taxpayer during any taxable year if the aver10 age annual gross receipts of the taxpayer (or any 

11 predecessor) for the 3-taxable year period ending 

12 with the taxable year preceding such taxable year do 

13 not exceed $10,000,000. For purposes of this para14 graph, rules similar to the rules of paragraphs (2) 

15 and (3) of section 448(b) shall apply. 

16 ‘‘(4) FILMS, SOUND RECORDINGS, BOOKS, 

17 ETC.—For purposes of this subsection, the term 

18 ‘tangible personal property’ shall include a film, 

19 sound recording, video tape, book, or similar prop20 erty.’’. 

21 (b) REPEAL OF EXCEPTIONS FOR TIMBER AND CER22 TAIN ORNAMENTAL TREES.—Section 263A(c) is amended 

23 by striking paragraph (5). 


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1 (c) REPEAL OF EXCEPTION FOR QUALIFIED CRE2 ATIVE EXPENSES.—Section 263A is amended by striking 

3 subsection (h). 

4 (d) EFFECTIVE DATE.—

5 (1) IN GENERAL.—The amendments made by 

6 this section shall apply to taxable years beginning 

7 after December 31, 2014. 

8 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

9 the case of any taxpayer required by the amend10 ments made by this section to change its method of 

11 accounting for its first taxable year beginning after 

12 December 31, 2014—

13 (A) such change shall be treated as initi14 ated by the taxpayer, and 

15 (B) such change shall be treated as made 

16 with the consent of the Secretary of the Treas17 ury. 

18 SEC. 3313. MODIFICATION OF INCOME FORECAST METHOD. 

19 (a) EXTENSION OF FORECAST PERIOD.—

20 (1) IN GENERAL.—Paragraph (1) of section 

21 167(g) is amended by striking ‘‘10th’’ each place it 

22 appears and inserting ‘‘20th’’. 

23 (2) MODIFICATION OF RECOMPUTATION

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1 ed by striking ‘‘the 3d and the 10th’’ and inserting 

2 ‘‘the 5th, 10th, 15th, and 20th’’. 

3 (b) MODIFICATION OF RULES FOR TREATMENT OF

4 PARTICIPATIONS AND RESIDUALS.—Paragraph (7) of sec5 tion 167(g) is amended to read as follows: 

6 ‘‘(7) TREATMENT OF PARTICIPATIONS AND RE7 SIDUALS.—

8 ‘‘(A) IN GENERAL.—In the case of any 

9 participation or residual with respect to any 

10 property to which this subsection applies (in11 cluding any property to which section 168 ap12 plies by reason of paragraph (8)), the tax13 payer—

14 ‘‘(i) shall exclude such participation or 

15 residual from the adjusted basis of such 

16 property, and 

17 ‘‘(ii) shall be allowed a deduction for 

18 such participation or residual in the tax19 able year in which such participation or re20 sidual is paid. 

21 ‘‘(B) PARTICIPATIONS AND RESIDUALS.—

22 For purposes of this paragraph, the term ‘par23 ticipation or residual’ means, with respect to 

24 any property, any cost the amount of which by 


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1 contract varies with the amount of income 

2 earned in connection with such property.’’. 

3 (c) ELECTION TO UTILIZE 20-YEAR STRAIGHT LINE

4 RECOVERY.—Subsection (g) of section 167 is amended by 

5 redesignating (8) as paragraph (9) and by inserting after 

6 paragraph (7) the following new paragraph: 

7 ‘‘(8) ELECTION TO UTILIZE 20-YEAR STRAIGHT

8 LINE RECOVERY.—If the taxpayer elects the applica9 tion of this paragraph for any taxable year, the de10 preciation deduction allowable with respect to any 

11 property placed in service by the taxpayer during 

12 such taxable year which would otherwise be deter13 mined under paragraph (1) shall be determined 

14 under section 168—

15 ‘‘(A) by treating the straight line method 

16 as the applicable depreciation method, and 

17 ‘‘(B) by treating 20 years as the applicable 

18 recovery period.’’. 

19 (d) REPEAL OF SPECIAL RULES FOR CERTAIN MUSI20 CAL WORKS AND COPYRIGHTS.—Subsection (g) of section 

21 167, as amended by subsection (c), is amended by striking 

22 paragraph (9). 

23 (e) SAFE HARBOR AMORTIZATION OF CERTAIN IN24 TANGIBLE ASSETS.—Effective for property placed in serv25 ice after December 31, 2014, the Secretary of the TreasVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00520 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ury, or the Secretary’s designee, shall revise Treasury 

2 Regulation section 1.167(a)-3(b) (and such regulation 

3 shall be applied) such that the safe harbor amortization 

4 for certain intangible assets to which such regulation ap5 plies shall allow the taxpayer to treat such asset as having 

6 a useful life equal to 20 years (and not 15 years). 

7 (f) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to property placed in service after 

9 December 31, 2014. 

10 SEC. 3314. REPEAL OF AVERAGING OF FARM INCOME. 

11 (a) IN GENERAL.—Subchapter Q of chapter 1 is 

12 amended by striking part I (and by striking the item relat13 ing to such part in the table of parts for such subchapter). 

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2014. 

17 SEC. 3315. TREATMENT OF PATENT OR TRADEMARK IN18 FRINGEMENT AWARDS. 

19 (a) IN GENERAL.—Part II of subchapter B of chap20 ter 1 is amended by adding at the end the following new 

21 section: 

22 ‘‘SEC. 91. PATENT OR TRADEMARK INFRINGEMENT 

23 AWARDS.

24 ‘‘(a) IN GENERAL.—Except as provided in subsection 

25 (b), any payment received for infringement of any patent 


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1 or trademark (whether by reason of judgment or settle2 ment) shall be included in gross income as ordinary in3 come. 

4 ‘‘(b) IMPAIRMENT OF CAPITAL.—If the taxpayer 

5 demonstrates to the satisfaction of the Secretary that a 

6 payment described in subsection (a) constitutes damages 

7 received by reason of the reduction in value of property 

8 of the taxpayer caused by the infringement referred to in 

9 subsection (a)—

10 ‘‘(1) the taxpayer’s basis in such property shall 

11 be reduced (but not below zero) by the amount of 

12 such payment, and 

13 ‘‘(2) subsection (a) shall apply to so much of 

14 such payment as exceeds the amount of the reduc15 tion under paragraph (1).’’. 

16 (b) CONFORMING AMENDMENTS.—

17 (1) Section 1016(a) is amended by adding at 

18 the end the following new paragraph: 

19 ‘‘(38) to the extent provided in section 

20 91(b)(1),’’. 

21 (2) The table of sections for part II of sub22 chapter B of chapter 1 is amended by adding at the 

23 end the following new item:

‘‘Sec. 91. Patent or trademark infringement awards.’’.


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to payments received pursuant to 

3 judgments and settlements after December 31, 2014. 

4 SEC. 3316. REPEAL OF REDUNDANT RULES WITH RESPECT 

5 TO CARRYING CHARGES. 

6 (a) IN GENERAL.—Part IX of subchapter B of chap7 ter 1 is amended by striking section 266 (and by striking 

8 the item relating to such section in the table of sections 

9 for such subpart). 

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 163(n) is amended by striking para12 graph (3) and by redesignating paragraphs (4) and 

13 (5) as paragraphs (3) and (4), respectively. 

14 (2) Section 1016(a)(1)(A)(i), as amended by 

15 section 3514, is amended by striking ‘‘described in 

16 section 266’’. 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to amounts paid or incurred after 

19 December 31, 2014. 

20 SEC. 3317. REPEAL OF RECURRING ITEM EXCEPTION FOR 

21 SPUDDING OF OIL OR GAS WELLS. 

22 (a) IN GENERAL.—Section 461(i) is amended by 

23 striking paragraph (2) and by redesignating paragraphs 

24 (3), (4), and (5) as paragraphs (2), (3), and (4), respec25 tively. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 Subtitle E—Financial Instruments 

5 PART 1—DERIVATIVES AND HEDGES 

6 SEC. 3401. TREATMENT OF CERTAIN DERIVATIVES. 

7 (a) IN GENERAL.—Subchapter E of chapter 1 is 

8 amended by adding at the end the following new part: 

9 ‘‘PART IV—DERIVATIVES

‘‘Sec. 485. Treatment of certain derivatives. 

‘‘Sec. 486. Derivative defined.

10 ‘‘SEC. 485. TREATMENT OF CERTAIN DERIVATIVES. 

11 ‘‘(a) IN GENERAL.—For purposes of this subtitle—

12 ‘‘(1) any derivative held by a taxpayer at the 

13 close of the taxable year shall be treated as sold for 

14 its fair market value on the last business day of 

15 such taxable year (and any gain or loss shall be 

16 taken into account for the taxable year), and 

17 ‘‘(2) proper adjustment shall be made in the 

18 amount of any gain or loss subsequently realized for 

19 gain or loss taken into account by reason of para20 graph (1). 

21 ‘‘(b) TREATMENT AS ORDINARY INCOME OR LOSS; 

22 ALLOWANCE AS NET OPERATING LOSS.—All items of in23 come, gain, loss, and deduction with respect to any deriva24 tive—


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1 ‘‘(1) shall be treated as ordinary income or loss, 

2 and 

3 ‘‘(2) shall be treated for purposes of section 

4 172(d)(4) as attributable to a trade or business of 

5 the taxpayer. 

6 ‘‘(c) MARK TO MARKET OF CERTAIN OFFSETTING

7 POSITIONS.—

8 ‘‘(1) IN GENERAL.—In the case of any straddle 

9 which includes any derivative, subsections (a) and 

10 (b) shall apply to all positions comprising such 

11 straddle in the same manner as such subsections 

12 apply to such derivative. 

13 ‘‘(2) APPLICATION TO BUILT-IN GAIN POSI14 TIONS.—

15 ‘‘(A) IN GENERAL.—In the case of any 

16 built-in gain position to which subsection (a) 

17 applies by reason of paragraph (1)—

18 ‘‘(i) in addition to any other time at 

19 which such position is treated as sold 

20 under subsection (a)(1), such position shall 

21 be treated as sold for its fair market value 

22 at the time that the straddle is established 

23 with respect to such position, 

24 ‘‘(ii) proper adjustment shall be made 

25 in the amount of any gain or loss subseVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00525 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 quently realized for gain taken into ac2 count by reason of clause (i), and 

3 ‘‘(iii) subsection (b) shall not apply to 

4 any gain taken into account by reason of 

5 clause (i). 

6 ‘‘(B) BUILT-IN GAIN POSITION.—For pur7 poses of this subsection, the term ‘built-in gain 

8 position’ means any position (other than a de9 rivative to which subsection (a) applies) with re10 spect to which a gain would be realized if such 

11 position were sold for its fair market value at 

12 the time that the straddle is established with 

13 respect to such position. 

14 ‘‘(C) EXCEPTION FOR STRAIGHT DEBT.—

15 Subparagraph (A) shall not apply to any posi16 tion with respect to debt if—

17 ‘‘(i) the interest payments (or other 

18 similar amounts) with respect to such posi19 tion meet the requirements of section 

20 860G(a)(1)(B)(i), and 

21 ‘‘(ii) such position is not convertible 

22 (directly or indirectly) into stock of the 

23 issuer or any related person. 

24 ‘‘(D) EXCEPTION FOR STRADDLES CON25 SISTING OF QUALIFIED COVERED CALL OPTIONS


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1 AND THE OPTIONED STOCK.—Subparagraph 

2 (A) shall not apply to any position which is part 

3 of a straddle if—

4 ‘‘(i) all the offsetting positions which 

5 are part of such straddle consist of 1 or 

6 more qualified covered call options (as de7 fined in paragraph (6)) and the stock to be 

8 purchased from the taxpayer under such 

9 options, and 

10 ‘‘(ii) such straddle is not part of a 

11 larger straddle. 

12 ‘‘(3) APPLICATION TO BUILT-IN LOSS POSI13 TIONS.—

14 ‘‘(A) IN GENERAL.—In the case of any 

15 built-in loss position to which subsection (a) ap16 plies by reason of paragraph (1), any gain or 

17 loss realized under subsection (a)(1) shall be 

18 properly adjusted so as not to take into account 

19 the loss referred to in subparagraph (B) with 

20 respect to such position. 

21 ‘‘(B) BUILT-IN LOSS POSITION.—For pur22 poses of subparagraph (A), the term ‘built-in 

23 loss position’ means any position (other than a 

24 derivative to which subsection (a) applies) with 

25 respect to which a loss would be realized if such 


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1 position were sold for its fair market value at 

2 the time that the straddle is established with 

3 respect to such position. 

4 ‘‘(4) HOLDING PERIOD OF NON-DERIVATIVES.—

5 For purposes of section 1222, in the case of any po6 sition to which subsection (a) applies by reason of 

7 paragraph (1), the holding period of such position 

8 shall not include—

9 ‘‘(A) the period during which subsection 

10 (a) applies to such position, and 

11 ‘‘(B) in the case of a built-in gain position, 

12 the period before such position is treated as 

13 sold under paragraph (2)(A). 

14 ‘‘(5) STRADDLE.—For purposes of this sec15 tion—

16 ‘‘(A) the term ‘straddle’ has the meaning 

17 given such term by section 1092(c) applied by 

18 treating all offsetting positions as being with re19 spect to personal property, and 

20 ‘‘(B) the term ‘position’ includes any deriv21 ative. 

22 ‘‘(6) QUALIFIED COVERED CALL OPTIONS.—

23 ‘‘(A) IN GENERAL.—For purposes of para24 graph (2)(D), the term ‘qualified covered call 

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1 payer to purchase stock held by the taxpayer 

2 (or stock acquired by the taxpayer in connection 

3 with the granting of the option) but only if—

4 ‘‘(i) such option is traded on a na5 tional securities exchange which is reg6 istered with the Securities and Exchange 

7 Commission or other market which the 

8 Secretary determines has rules adequate to 

9 carry out the purposes of this paragraph, 

10 ‘‘(ii) such option is granted—

11 ‘‘(I) more than 30 days before 

12 the day on which the option expires, 

13 and 

14 ‘‘(II) not more than 90 days be15 fore the day on which the option ex16 pires, 

17 ‘‘(iii) such option is not granted by an 

18 options dealer (as defined in subparagraph 

19 (B)) in connection with such dealer’s activ20 ity of dealing in options, and 

21 ‘‘(iv) gain or loss with respect to such 

22 option would not be ordinary income or 

23 loss if determined without regard to this 

24 section. 


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1 ‘‘(B) OPTIONS DEALER.—For purposes of 

2 subparagraph (A), the term ‘options dealer’ 

3 means—

4 ‘‘(i) any person registered with an ap5 propriate national securities exchange as a 

6 market maker or specialist in listed op7 tions, and 

8 ‘‘(ii) to the extent provided by the 

9 Secretary consistent with the purposes of 

10 this paragraph, any person whom the Sec11 retary determines performs functions simi12 lar to the persons described in clause (i). 

13 ‘‘(C) REGULATIONS.—The Secretary shall 

14 prescribe such regulations as may be necessary 

15 or appropriate to carry out the purposes of this 

16 paragraph and paragraph (2)(D). Such regula17 tions may include modifications to the provi18 sions of this paragraph and paragraph (2)(D) 

19 which are appropriate to take account of 

20 changes in the practices of option exchanges or 

21 to prevent the use of options for tax avoidance 

22 purposes. 

23 ‘‘(d) TERMINATIONS, ETC.—

24 ‘‘(1) IN GENERAL.—The rules of subsections 

25 (a) and (b) shall also apply to the termination (or 


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1 transfer) during the taxable year of the taxpayer’s 

2 obligation (or rights) with respect to a derivative by 

3 offsetting, by taking or making delivery, by exercise 

4 or being exercised, by assignment or being assigned, 

5 by lapse, by expiration, by settlement, or otherwise. 

6 ‘‘(2) MARK TO MARKET OF ALL POSITIONS IN

7 STRADDLE IF ANY POSITION TERMINATED OR

8 TRANSFERRED.—If paragraph (1) applies with re9 spect to any position which is part of a straddle, the 

10 rules of subsections (a) and (b) shall apply to every 

11 position which is part of such straddle. 

12 ‘‘(e) DETERMINATION OF FAIR MARKET VALUE.—

13 For purposes of this section—

14 ‘‘(1) TERMINATIONS, ETC.—For purposes of 

15 subsection (d), fair market value shall be determined 

16 at the time of the termination (or transfer). 

17 ‘‘(2) BLOCKAGE FACTOR NOT TAKEN INTO AC18 COUNT.—To the extent provided in regulations pre19 scribed by the Secretary, fair market value shall be 

20 determined without regard to any premium or dis21 count based on the proportion of the total available 

22 trading units which are held. 

23 ‘‘(f) COORDINATION WITH CERTAIN RULES.—The 

24 rules of sections 263(g) and 263A shall not apply to any 

25 derivative or other position to which subsection (a) applies, 


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1 and section 1091 shall not apply (and section 1092 shall 

2 apply) to any loss recognized under subsection (a). 

3 ‘‘SEC. 486. DERIVATIVE DEFINED. 

4 ‘‘(a) IN GENERAL.—For purposes of this part, except 

5 as otherwise provided in this section, the term ‘derivative’ 

6 means any contract (including any option, forward con7 tract, futures contract, short position, swap, or similar 

8 contract) the value of which, or any payment or other 

9 transfer with respect to which, is (directly or indirectly) 

10 determined by reference to one or more of the following: 

11 ‘‘(1) Any share of stock in a corporation. 

12 ‘‘(2) Any partnership or beneficial ownership 

13 interest in a partnership or trust. 

14 ‘‘(3) Any evidence of indebtedness. 

15 ‘‘(4) Except as provided in subsection (d), any 

16 real property. 

17 ‘‘(5) Any commodity which is actively traded 

18 (within the meaning of section 1092(d)(1)). 

19 ‘‘(6) Any currency. 

20 ‘‘(7) Any rate, price, amount, index, formula, or 

21 algorithm. 

22 ‘‘(8) Any other item as the Secretary may pre23 scribe. 

24 Such term shall not include any item described in para25 graphs (1) through (8). 


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1 ‘‘(b) EXCEPTIONS.—

2 ‘‘(1) CERTAIN REAL PROPERTY.—

3 ‘‘(A) IN GENERAL.—For purposes of sub4 section (a)(4), the term ‘real property’ shall not 

5 include—

6 ‘‘(i) a tract of real property (as de7 fined in section 1237(c)), or 

8 ‘‘(ii) any real property which would be 

9 property described in section 1221(a)(1) 

10 with respect to the taxpayer if held directly 

11 by the taxpayer. 

12 ‘‘(B) REGULATIONS.—The Secretary shall 

13 prescribe regulations or other guidance under 

14 which multiple tracts of real property may be 

15 treated as a single tract of real property for 

16 purposes of subparagraph (A)(i) if the contract 

17 referred to in subsection (a) is of a type which 

18 is designed to facilitate the acquisition or dis19 position of such real property. 

20 ‘‘(2) HEDGING TRANSACTIONS.—

21 ‘‘(A) IN GENERAL.—For purposes of this 

22 part, the term ‘derivative’ shall not include any 

23 contract which is part of a hedging transaction 

24 (as defined in section 1221(b)). 


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1 ‘‘(B) SECTION 988 HEDGING TRANS2 ACTIONS.—For exception for section 988 hedg3 ing transactions, see section 988(d)(1). 

4 ‘‘(3) SECURITIES LENDING, SALE-REPURCHASE, 

5 AND SIMILAR FINANCING TRANSACTIONS.—To the 

6 extent provided by the Secretary, for purposes of 

7 this part, the term ‘derivative’ shall not include the 

8 right to the return of the same or substantially iden9 tical securities transferred in a securities lending 

10 transaction, sale-repurchase transaction, or similar 

11 financing transaction. 

12 ‘‘(4) OPTIONS RECEIVED IN CONNECTION WITH

13 THE PERFORMANCE OF SERVICES.—For purposes of 

14 this part, the term ‘derivative’ shall not include any 

15 option described in section 83(e)(3) received in con16 nection with the performance of services. 

17 ‘‘(5) INSURANCE CONTRACTS, ANNUITIES, AND

18 ENDOWMENTS.—For purposes of this part, the term 

19 ‘derivative’ shall not include any insurance, annuity, 

20 or endowment contract issued by an insurance com21 pany to which subchapter L applies (or issued by 

22 any foreign corporation to which such subchapter 

23 would apply if such foreign corporation were a do24 mestic corporation). 


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1 ‘‘(6) DERIVATIVES WITH RESPECT TO STOCK

2 OF MEMBERS OF SAME WORLDWIDE AFFILIATED

3 GROUP.—For purposes of this part, the term ‘deriv4 ative’ shall not include, and subsections (c) and 

5 (d)(2) of section 485 shall not apply to, any deriva6 tive (determined without regard to this subsection) 

7 with respect to stock issued by any member of the 

8 same worldwide affiliated group (as defined in sec9 tion 864(f)) in which the taxpayer is a member. 

10 ‘‘(7) COMMODITIES USED IN NORMAL COURSE

11 OF TRADE OR BUSINESS.—For purposes of this part, 

12 the term ‘derivative’ shall not include any contract 

13 with respect to any commodity if—

14 ‘‘(A) such contract requires physical deliv15 ery with the option of cash settlement only in 

16 unusual and exceptional circumstances, and 

17 ‘‘(B) such commodity is used (and is used 

18 in quantities with respect to which such deriva19 tive relates) in the normal course of the tax20 payer’s trade or business (or, in the case of an 

21 individual, for personal consumption). 

22 ‘‘(c) CONTRACTS WITH EMBEDDED DERIVATIVE

23 COMPONENTS.—

24 ‘‘(1) IN GENERAL.—If a contract has derivative 

25 and nonderivative components, then each derivative 


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1 component shall be treated as a derivative for pur2 poses of this part. If the derivative component can3 not be separately valued, then the entire contract 

4 shall be treated as a derivative for purposes of this 

5 part. 

6 ‘‘(2) EXCEPTION FOR CERTAIN EMBEDDED DE7 RIVATIVE COMPONENTS OF DEBT INSTRUMENTS.—A 

8 debt instrument shall not be treated as having a de9 rivative component merely because—

10 ‘‘(A) such debt instrument is denominated 

11 in a nonfunctional currency (as defined in sec12 tion 988(c)(1)(C)(ii)), 

13 ‘‘(B) payments with respect to such debt 

14 instrument are determined by reference to the 

15 value of a nonfunctional currency (as so de16 fined), or 

17 ‘‘(C) such debt instrument is a convertible 

18 debt instrument, contingent payment debt in19 strument, a variable rate debt instrument, an 

20 integrated debt instrument, an investment unit, 

21 a debt instrument with alternative payment 

22 schedules, or other debt instrument with respect 

23 to which the regulations under section 1275(d) 

24 apply. 


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1 ‘‘(d) TREATMENT OF AMERICAN DEPOSITORY RE2 CEIPTS AND SIMILAR INSTRUMENTS.—Except as other3 wise provided by the Secretary, for purposes of this part, 

4 American depository receipts (and similar instruments) 

5 with respect to shares of stock in foreign corporations 

6 shall be treated as shares of stock in such foreign corpora7 tions.’’. 

8 (b) COORDINATION WITH RULES FOR DEALERS AND

9 TRADERS.—

10 (1) DERIVATIVES NOT TREATED AS SECURI11 TIES.—Section 475(c)(2) is amended—

12 (A) by adding ‘‘and’’ at the end of sub13 paragraph (C), 

14 (B) by striking subparagraphs (D) and (E) 

15 and by redesignating subparagraph (F) as sub16 paragraph (D), 

17 (C) by striking ‘‘subparagraph (A), (B), 

18 (C), (D), or (E)’’ in subparagraph (D)(i), as so 

19 redesignated, and inserting ‘‘subparagraph (A), 

20 (B), or (C)’’, and 

21 (D) by amending the last sentence to read 

22 as follows: ‘‘Such term shall not include any po23 sition to which section 485(a) applies.’’

24 (2) DERIVATIVES NOT TREATED AS COMMOD25 ITIES.—Section 475(e)(2) is amended—


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1 (A) by adding ‘‘and’’ at the end of sub2 paragraph (A), 

3 (B) by striking subparagraphs (B) and (C) 

4 and by redesignating subparagraph (D) as sub5 paragraph (B), and 

6 (C) by striking ‘‘subparagraph (A), (B) or 

7 (C)’’ in subparagraph (B)(i), as so redesig8 nated, and inserting ‘‘subparagraph (A)’’. 

9 (3) CONFORMING AMENDMENTS.—

10 (A) Section 475(b) is amended by striking 

11 paragraph (4). 

12 (B) Section 475(d)(2)(B) is amended—

13 (i) by striking ‘‘subsection 

14 (c)(2)(F)(iii)’’ and inserting ‘‘subsection 

15 (c)(2)(D)(iii)’’, and 

16 (ii) by striking ‘‘subsection (c)(2)(F)’’ 

17 and inserting ‘‘subsection (c)(2)(D)’’. 

18 (C) Section 475(f)(1)(D) is amended by 

19 striking ‘‘subsections (b)(4) and (d)’’ and in20 serting ‘‘subsection (d)’’. 

21 (c) COORDINATION WITH STRADDLE RULES.—

22 (1) IN GENERAL.—Section 1092(e) is amended 

23 to read as follows: 


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1 ‘‘(e) EXCEPTION FOR HEDGING TRANSACTIONS AND

2 STRADDLES WITH DERIVATIVES.—This section shall not 

3 apply in the case of—

4 ‘‘(1) any hedging transaction (as defined in sec5 tion 1221(b)), and 

6 ‘‘(2) any straddle (as defined in section 485) 

7 which includes any derivative (as defined in section 

8 486).’’. 

9 (2) CONFORMING AMENDMENTS.—

10 (A) Section 263(g)(3) is amended to read 

11 as follows: 

12 ‘‘(3) EXCEPTION FOR HEDGING TRANSACTIONS

13 AND STRADDLES WITH DERIVATIVES.—This sub14 section shall not apply in the case of—

15 ‘‘(A) any hedging transaction (as defined 

16 in section 1221(b)), and 

17 ‘‘(B) any straddle (as defined in section 

18 485) which includes any derivative (as defined 

19 in section 486).’’. 

20 (B) Section 1092(b) is amended—

21 (i) by striking paragraph (2), and 

22 (ii) by striking all that precedes ‘‘The 

23 Secretary shall’’ and inserting the fol24 lowing: 

25 ‘‘(b) REGULATIONS.—The Secretary shall’’. 


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1 (C) Section 1092(c) is amended by striking 

2 paragraph (4). 

3 (D) Section 1092 is amended by striking 

4 subsection (f) and by redesignating subsection 

5 (g) as subsection (f). 

6 (d) TREATMENT OF CONVERTIBLE DEBT INSTRU7 MENTS.—The Secretary of the Treasury, or the Sec8 retary’s designee, shall modify the regulations issued 

9 under section 1275(d) of the Internal Revenue Code of 

10 1986 to provide that convertible debt instruments are 

11 treated in a manner similar to contingent payment debt 

12 instruments. 

13 (e) REPEAL OF CERTAIN OTHER SUPERCEDED

14 RULES FOR DETERMINING CAPITAL GAINS AND

15 LOSSES.—

16 (1) IN GENERAL.—Part IV of subchapter P of 

17 chapter 1 is amended by striking sections 1233, 

18 1234, 1234A, 1234B, 1236, 1256, 1258, 1259, and 

19 1260 (and by striking the items relating to such sec20 tions in the table of sections for such part). 

21 (2) CONFORMING AMENDMENTS RELATED TO

22 REPEAL OF SECTION 1233.—Section 1092(b) is 

23 amended by inserting ‘‘(as in effect before their re24 peal)’’ after ‘‘section 1233’’. 


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1 (3) CONFORMING AMENDMENTS RELATED TO

2 REPEAL OF SECTION 1234.—Section 6045(h)(2) is 

3 amended—

4 (A) by striking ‘‘(as defined in section 

5 1234(b)(2)(A)’’, and 

6 (B) by adding at the end the following: 

7 ‘‘For purposes of the preceding sentence, the 

8 term ‘closing transaction’ means any termi9 nation of the taxpayer’s obligation under an op10 tion in property other than through the exercise 

11 or lapse of the option.’’. 

12 (4) CONFORMING AMENDMENTS RELATED TO

13 REPEAL OF SECTION 1236.—

14 (A) Section 475(d)(3)(A) is amended by 

15 striking ‘‘or section 1236(b)’’. 

16 (B) Section 512(b)(5) is amended by strik17 ing ‘‘section 1236(c)’’ and inserting ‘‘section 

18 1058(c)’’. 

19 (C) Section 1058 is amended—

20 (i) by striking ‘‘(as defined in section 

21 1236(c))’’ in subsection (a), and 

22 (ii) by redesignating subsection (c) as 

23 subsection (d) and by inserting after sub24 section (b) the following new subsection: 


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1 ‘‘(c) SECURITIES.—For purposes of this section, the 

2 term ‘security’ means any share of stock in any corpora3 tion, certificate of stock or interest in any corporation, 

4 note, bond, debenture, or evidence of indebtedness, or any 

5 evidence of an interest in or right to subscribe to or pur6 chase any of the foregoing.’’. 

7 (5) CONFORMING AMENDMENTS RELATED TO

8 REPEAL OF SECTION 1256.—

9 (A) Section 461(i)(2)(B), as amended by 

10 the preceding provisions of this Act, is amended 

11 to read as follows: 

12 ‘‘(B) any partnership or other entity (other 

13 than a corporation which is not an S corpora14 tion) if more than 35 percent of the losses of 

15 such entity during the taxable year are allocable 

16 to limited partners or limited entrepreneurs 

17 (within the meaning of section 461(j)(4)), and’’. 

18 (B) Section 475(d)(1) is amended by strik19 ing ‘‘sections 263(g), 263A, and 1256(a)’’ and 

20 inserting ‘‘sections 263(g) and 263A’’. 

21 (C) Section 988(c)(1) is amended by strik22 ing subparagraphs (D) and (E). 

23 (D) Section 1092(a)(3)(C)(ii)(II) is 

24 amended by striking ‘‘section 1256(e)’’ and in25 serting ‘‘section 1221(b)’’. 


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1 (E) Section 1092(d) is amended by strik2 ing paragraphs (5) and (6) and by redesig3 nating paragraphs (7) and (8) as paragraphs 

4 (5) and (6), respectively. 

5 (F) Section 1212 is amended by striking 

6 subsection (c). 

7 (G) Section 1223 is amended by striking 

8 paragraphs (7) and (14). 

9 (H) Section 1281(b)(1)(E) is amended to 

10 read as follows: 

11 ‘‘(E) is a hedging transaction (as defined 

12 in section 1221(b)), or’’. 

13 (I) Section 1402 is amended by striking 

14 subsection (i). 

15 (J) Section 4982(e)(6)(B) is amended by 

16 striking ‘‘sections 1256 and 1296’’ and insert17 ing ‘‘sections 485 and 1296’’. 

18 (6) CONFORMING AMENDMENTS RELATED TO

19 REPEAL OF SECTION 1259.—Section 475(f)(1) is 

20 amended by striking subparagraph (C) and by redes21 ignating subparagraph (D) as subparagraph (C). 

22 (f) OTHER CONFORMING AMENDMENTS.—

23 (1) Section 355(g)(2)(B)(i)(V) is amended to 

24 read as follows: 


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1 ‘‘(V) any derivative (as defined in 

2 section 486),’’. 

3 (2) Section 856(n)(4) is amended by inserting 

4 ‘‘or derivatives (as defined in section 486)’’ after 

5 ‘‘securities (as defined in section 475(c)(2))’’. 

6 (3) Section 857(e)(2)(B)(i), as amended by the 

7 preceding provisions of this Act, is amended by 

8 striking ‘‘section 860E or 1272’’ and inserting ‘‘sec9 tion 485, 860E, or 1272’’. 

10 (4) Section 988(d)(1) is amended—

11 (A) by striking ‘‘or 1256’’ and inserting 

12 ‘‘or 485’’, and 

13 (B) by striking ‘‘1092, and 1256’’ and in14 serting ‘‘485, and 1092’’. 

15 (5) Section 1091(e) is amended to read as fol16 lows: 

17 ‘‘(e) COORDINATION WITH MARK TO MARKET OF

18 DERIVATIVES.—Notwithstanding any other provision of 

19 this section, a derivative (as defined in section 486) shall 

20 not be treated as a security for purposes of this section.’’. 

21 (6)(A) Section 1221(a)(6) is amended to read 

22 as follows: 

23 ‘‘(6) any derivative (as defined in section 

24 486),’’. 


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1 (B) Section 1221(b) is amended by striking 

2 paragraph (1). 

3 (7) Section 4975(f)(11)(D) is amended by 

4 striking clauses (i) and (ii) and inserting the fol5 lowing: 

6 ‘‘(i) SECURITY.—The term ‘security’ 

7 means any security described in section 

8 475(c)(2) (without regard to subparagraph 

9 (D)(iii) thereof) and any derivative with re10 spect to such a security (within the mean11 ing of section 486). 

12 ‘‘(ii) COMMODITY.—The term ‘com13 modity’ means any commodity described in 

14 section 475(e)(2) (without regard to sub15 paragraph (B)(iii) thereof) and any deriva16 tive with respect to such a commodity 

17 (within the meaning of section 486).’’. 

18 (8) The table of parts for subchapter E of 

19 chapter 1 is amended by adding at the end the fol20 lowing new item:

PART IV. DERIVATIVES.

21 (g) EFFECTIVE DATES.—The amendments made by 

22 this section shall apply to—

23 (1) taxable years ending after December 31, 

24 2014, in the case of property acquired and positions 

25 established after December 31, 2014, and 


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1 (2) taxable years ending after December 31, 

2 2019, in the case of any other property or position. 

3 For purposes of this subsection, any property acquired on 

4 or before December 31, 2014, which becomes part of a 

5 straddle (as defined in section 485, as added by this sec6 tion) after such date shall be treated as a position estab7 lished after such date. 

8 SEC. 3402. MODIFICATION OF CERTAIN RULES RELATED TO 

9 HEDGES.

10 (a) TREATMENT OF HEDGES IDENTIFIED FOR FI11 NANCIAL ACCOUNTING PURPOSES.—

12 (1) IN GENERAL.—Section 1221(b), as amend13 ed by the preceding provisions of this Act, is amend14 ed to read as follows: 

15 ‘‘(b) HEDGING TRANSACTION.—For purposes of this 

16 section—

17 ‘‘(1) IN GENERAL.—The term ‘hedging trans18 action’ means any transaction described in para19 graph (2) and identified under paragraph (3). 

20 ‘‘(2) TRANSACTION DESCRIBED.—A transaction 

21 is described in this paragraph if such transaction is 

22 entered into by the taxpayer in the normal course of 

23 the taxpayer’s trade or business primarily—

24 ‘‘(A) to manage risk of price changes or 

25 currency fluctuations with respect to ordinary 


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1 property which is held or to be held by the tax2 payer, 

3 ‘‘(B) to manage risk of interest rate or 

4 price changes or currency fluctuations with re5 spect to borrowings made or to be made, or or6 dinary obligations incurred or to be incurred, by 

7 the taxpayer, or 

8 ‘‘(C) to manage such other risks as the 

9 Secretary may prescribe in regulations. 

10 ‘‘(3) IDENTIFICATION.—A transaction is identi11 fied under this paragraph if—

12 ‘‘(A) such transaction is clearly identified 

13 as a hedging transaction for purposes of this 

14 paragraph before the close of the day on which 

15 it was acquired, originated, or entered into (or 

16 such other time as the Secretary may by regula17 tions prescribe), or 

18 ‘‘(B) such transaction is treated as a hedg19 ing transaction (within the meaning of generally 

20 accepted accounting principles) for purposes of 

21 an audited financial statement of the taxpayer 

22 which—

23 ‘‘(i) is certified as being prepared in 

24 accordance with generally accepted ac25 counting principles, and 


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1 ‘‘(ii) is used for the purposes of a 

2 statement or report—

3 ‘‘(I) to shareholders, partners, or 

4 other proprietors, or to beneficiaries, 

5 or 

6 ‘‘(II) for credit purposes. 

7 ‘‘(4) TREATMENT OF NONIDENTIFICATION OR

8 IMPROPER IDENTIFICATION OF HEDGING TRANS9 ACTIONS.—The Secretary shall prescribe regulations 

10 to properly characterize any income, gain, expense, 

11 or loss arising from a transaction—

12 ‘‘(A) which would be a hedging transaction 

13 if identified under paragraph (3), or 

14 ‘‘(B) which is identified under paragraph 

15 (3) but is not a transaction described in para16 graph (2). 

17 In the case of a transaction identified under para18 graph (3) solely by reason of paragraph (3)(B), sub19 paragraph (B) of this paragraph shall not apply 

20 with respect to such transaction unless the taxpayer 

21 treats such transaction as a hedging transaction for 

22 purposes of any provision of this title. 

23 ‘‘(5) BONDS HELD BY AN INSURANCE COM24 PANY.—For purposes of paragraph (2)(A), in the 

25 case of an insurance company to which subchapter 


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1 L applies, any bond, debenture, note, certificate, or 

2 other evidence of indebtedness held by the taxpayer 

3 shall be treated as ordinary property. 

4 ‘‘(6) REGULATIONS.—The Secretary shall pre5 scribe such regulations as are appropriate to carry6 out the purposes of this subsection and subsection 

7 (a)(7) in the case of transactions involving related 

8 parties.’’. 

9 (2) CONFORMING AMENDMENTS.—

10 (A) Section 856(c)(5)(G)(i) is amended by 

11 striking ‘‘(as defined in clause (ii) or (iii) of 

12 section 1221(b)(2)(A)) which is clearly identi13 fied pursuant to section 1221(a)(7)’’ and insert14 ing ‘‘(as defined in section 1221(b) (determined 

15 without regard to paragraph (2)(A) thereof)’’. 

16 (B) Section 954(c)(5)(A) is amended to 

17 read as follows: 

18 ‘‘(A) COMMODITY HEDGING TRANS19 ACTIONS.—

20 ‘‘(i) IN GENERAL.—For purposes of 

21 paragraph (1)(C)(i), the term ‘commodity 

22 hedging transaction’ means any trans23 action with respect to a commodity if such 

24 transaction would be a hedging transaction 

25 under section 1221(b) if—


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1 ‘‘(I) the only transactions de2 scribed in paragraph (2) thereof were 

3 transactions described in clause (ii), 

4 and 

5 ‘‘(II) paragraphs (3) and (4) 

6 thereof were applied by substituting 

7 ‘controlled foreign corporation’ for 

8 ‘taxpayer’ each place it appears. 

9 ‘‘(ii) TRANSACTION DESCRIBED.—A 

10 transaction is described in this clause if 

11 such transaction is entered into by the con12 trolled foreign corporation in the normal 

13 course of the controlled foreign corpora14 tion’s trade or business primarily—

15 ‘‘(I) to manage risk of price 

16 changes or currency fluctuations with 

17 respect to ordinary property or prop18 erty described in section 1231(b) 

19 which is held or to be held by the con20 trolled foreign corporation, or 

21 ‘‘(II) to manage such other risks 

22 as the Secretary may prescribe in reg23 ulations.’’. 


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1 (C) Section 1221(a)(7) is amended by 

2 striking ‘‘which is clearly’’ and all that follows 

3 through ‘‘regulations prescribe)’’. 

4 (b) SPECIAL RULE FOR COMMODITY HEDGING

5 TRANSACTIONS INVOLVING RELATED CONTROLLED FOR6 EIGN CORPORATIONS.—Section 954(c)(5)(A), as amended 

7 by subsection (a), is amended by adding at the end the 

8 following new clause: 

9 ‘‘(iii) APPLICATION TO RELATED CON10 TROLLED FOREIGN CORPORATIONS.—

11 ‘‘(I) IN GENERAL.—In the case 

12 of qualified property, clause (ii)(I) 

13 shall be applied by substituting ‘the 

14 controlled foreign corporation or an15 other controlled foreign corporation 

16 which is a related person (within the 

17 meaning of subsection (d)(3))’ for ‘the 

18 controlled foreign corporation’. 

19 ‘‘(II) QUALIFIED PROPERTY.—

20 For purposes of this clause, the term 

21 ‘qualified property’ means ordinary 

22 property or property described in sec23 tion 1231(b) (if disposed of at a gain) 

24 the income from the disposition of 

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1 come nor income treated as effectively 

2 connected with the conduct of a trade 

3 or business in the United States.’’. 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to transactions entered into after 

6 December 31, 2014. 

7 PART 2—TREATMENT OF DEBT INSTRUMENTS 

8 SEC. 3411. CURRENT INCLUSION IN INCOME OF MARKET 

9 DISCOUNT.

10 (a) IN GENERAL.—Subpart B of part V of sub11 chapter P of chapter 1 is amended by redesignating sec12 tion 1278 as section 1279 and by inserting after section 

13 1277 the following new section: 

14 ‘‘SEC. 1278. CURRENT INCLUSION IN INCOME OF MARKET 

15 DISCOUNT ON BONDS ACQUIRED AFTER 2014. 

16 ‘‘(a) IN GENERAL.—There shall be included in the 

17 gross income of the holder of any market discount bond 

18 acquired after December 31, 2014, an amount equal to 

19 the sum of the daily portions of the market discount for 

20 each day during the taxable year on which such holder 

21 held such bond. 

22 ‘‘(b) DETERMINATION OF DAILY PORTIONS.—

23 ‘‘(1) IN GENERAL.—For purposes of subsection 

24 (a), the daily portion of the market discount on any 

25 market discount bond shall be an amount equal to 


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1 the daily portion of original issue discount which 

2 would be includible in gross income under section 

3 1272(a) (determined without regard to paragraph 

4 (2) thereof) if such bond had been—

5 ‘‘(A) originally issued on the date on which 

6 such bond was acquired by the taxpayer, 

7 ‘‘(B) for an issue price equal to the basis 

8 of such bond immediately after such acquisi9 tion. 

10 ‘‘(2) COORDINATION WHERE BOND HAS ORIGI11 NAL ISSUE DISCOUNT.—In the case of any bond hav12 ing original issue discount, the daily portion deter13 mined under paragraph (1) shall be reduced by the 

14 daily portion of original issue discount includible in 

15 gross income under section 1272(a) (determined 

16 without regard to paragraph (2) thereof) with re17 spect to such bond. 

18 ‘‘(3) SPECIAL RULE WHERE PARTIAL PRIN19 CIPAL PAYMENTS.—In the case of a bond the prin20 cipal of which may be paid in 2 or more payments, 

21 the daily portions of market discount shall be deter22 mined under regulations prescribed by the Secretary. 

23 ‘‘(c) LIMITATION.—

24 ‘‘(1) IN GENERAL.—The amount of market dis25 count allocable to any accrual period for purposes of 


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1 determining the sum of the daily portions under sub2 section (a) shall not exceed the excess (if any) of—

3 ‘‘(A) the product of—

4 ‘‘(i) the maximum accrual rate deter5 mined under paragraph (2), properly ad6 justed for the length of the accrual period, 

7 multiplied by 

8 ‘‘(ii) the adjusted basis of such bond 

9 at the beginning of such accrual period, 

10 over 

11 ‘‘(B) the sum of the qualified stated inter12 est and original issue discount allocable to such 

13 accrual period. 

14 ‘‘(2) MAXIMUM ACCRUAL RATE.—The max15 imum accrual rate determined under this paragraph 

16 with respect to any bond is the greater of—

17 ‘‘(A) such bonds’s yield to maturity (deter18 mined as of the date of the issuance of such 

19 bond) plus 5 percentage points, or 

20 ‘‘(B) the applicable Federal rate for such 

21 bond (determined under section 1274(d) as of 

22 the date of the acquisition of such bond and on 

23 the basis of the remaining term of such bond as 

24 of such date) plus 10 percentage points. 


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1 ‘‘(3) APPLICATION TO POOLS.—In the case of 

2 debt instruments to which section 1272(a)(6) ap3 plies, rules similar to the rules of such section shall 

4 apply for purposes of determining the daily portions 

5 of market discount. 

6 ‘‘(4) ACCRUAL PERIOD.—For purposes of this 

7 subsection, the term ‘accrual period’ has the mean8 ing given such term in section 1272(a)(5). 

9 ‘‘(d) SPECIAL RULES.—

10 ‘‘(1) ACCRUALS TREATED AS INTEREST.—Ex11 cept for purposes of sections 103, 871(a), 881, 

12 1441, 1442, and 6049 (and such other provisions as 

13 may be specified in regulations), any amount in14 cluded in gross income under this section shall be 

15 treated as interest for purposes of this title. 

16 ‘‘(2) BASIS ADJUSTMENT.—The basis of any 

17 market discount bond in the hands of the taxpayer 

18 shall be increased by the amount included in gross 

19 income pursuant to this section. 

20 ‘‘(3) TREATMENT OF LOSS ON DISPOSITION.—

21 So much of any loss recognized by the taxpayer on 

22 the disposition of a market discount bond as does 

23 not exceed the aggregate amounts included in the 

24 taxpayer’s gross income under subsection (a) with 


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1 respect to such bond shall be treated for purposes of 

2 this title as an ordinary loss.’’. 

3 (b) TREATMENT OF MARKET DISCOUNT ON SHORT4 TERM NONGOVERNMENTAL BONDS.—

5 (1) ACCRUAL BASIS TAXPAYERS, ETC.—Section 

6 1283 is amended by striking subsection (c) and re7 designating subsection (d) as subsection (c). 

8 (2) OTHER TAXPAYERS.—

9 (A) Section 1271(a)(3) is amended—

10 (i) by striking all that precedes sub11 paragraph (C) and inserting the following: 

12 ‘‘(3) CERTAIN SHORT-TERM OBLIGATIONS.—

13 ‘‘(A) IN GENERAL.—On the sale or ex14 change of any short-term obligation (as defined 

15 in section 1283(a)(1)), any gain realized which 

16 does not exceed an amount equal to the ratable 

17 share of the acquisition discount shall be treat18 ed as ordinary income.’’, and 

19 (ii) by redesignating subparagraphs 

20 (C), (D), and (E) as subparagraphs (B), 

21 (C), and (D), respectively. 

22 (B) Section 1271(a) is amended by strik23 ing paragraph (4). 

24 (C) Section 1283(c)(3), as redesignated by 

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1 graphs (3) and (4) of section 1271(a)’’ and in2 serting ‘‘section 1271(a)(3)’’. 

3 (c) COORDINATION WITH RULES RELATED TO

4 TREATING MARKET DISCOUNT AS ORDINARY INCOME

5 UPON DISPOSITION.—

6 (1) IN GENERAL.—Section 1276 is amended by 

7 adding at the end the following new subsection: 

8 ‘‘(e) COORDINATION WITH RULES FOR CURRENT IN9 CLUSION OF MARKET DISCOUNT.—This section shall not 

10 apply to any market discount bond to which section 1278 

11 applies.’’. 

12 (2) COORDINATION WITH DEFERRAL OF INTER13 EST DEDUCTION.—Section 1277 is amended by add14 ing at the end the following new subsection: 

15 ‘‘(d) COORDINATION WITH RULES FOR CURRENT IN16 CLUSION OF MARKET DISCOUNT.—This section shall not 

17 apply to any market discount bond to which section 1278 

18 applies.’’. 

19 (3) COORDINATION WITH ELECTION TO IN20 CLUDE MARKET DISCOUNT CURRENTLY.—Section 

21 1279(b), as redesignated by subsection (a), is 

22 amended by adding at the end the following new 

23 paragraph: 

24 ‘‘(5) COORDINATION WITH RULES FOR CUR25 RENT INCLUSION OF MARKET DISCOUNT.—This subVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00557 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 section shall not apply to any market discount bond 

2 to which section 1278 applies.’’. 

3 (d) TREATMENT OF CERTAIN BONDS HELD BY

4 PARTNERSHIPS.—

5 (1) TRANSFERS OF PARTNERSHIP INTER6 ESTS.—Section 1279(a), as redesignated by sub7 section (a), is amended by adding at the end the fol8 lowing new paragraph: 

9 ‘‘(6) TRANSFERS OF PARTNERSHIP INTER10 ESTS.—In the case of a transfer described in section 

11 743 of an interest in a partnership holding a bond, 

12 the partnership shall be treated as acquiring the 

13 transferee partner’s proportionate share of such 

14 bond at the time of such transfer.’’. 

15 (2) DISTRIBUTION OF BONDS BY PARTNER16 SHIPS.—Section 1279(a)(2), as redesignated by sub17 section (a), is amended by adding at the end the fol18 lowing new subparagraph: 

19 ‘‘(D) DISTRIBUTION BY PARTNERSHIP.—If 

20 the basis of the taxpayer in a bond is deter21 mined under section 734(a)(2) or (b), for pur22 poses of subparagraph (A)(ii), the basis of such 

23 bond shall not be less than its fair market value 

24 immediately after its acquisition by the tax25 payer.’’. 


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1 (e) MODERNIZATION OF CERTAIN DEFINITIONS.—

2 (1) REPEAL OF SUPERCEDED EXCEPTION FOR

3 MARKET DISCOUNT BONDS ACQUIRED AT ISSUE.—

4 Section 1279(a)(1), as redesignated by subsection 

5 (a), is amended by striking subparagraph (D) 

6 (2) REVISED ISSUE PRICE.—Section 

7 1279(a)(4), as redesignated by subsection (a), is 

8 amended—

9 (A) by redesignating subparagraphs (A) 

10 and (B) as clauses (i) and (ii) and by indenting 

11 such clauses appropriately, 

12 (B) by striking ‘‘means the sum of—’’ and 

13 inserting ‘‘means the excess of—

14 ‘‘(A) the sum of—’’, 

15 (C) by striking the period at the end and 

16 inserting ‘‘, over’’, and 

17 (D) by adding at the end the following new 

18 subparagraph: 

19 ‘‘(B) the sum of—

20 ‘‘(i) any payments other than quali21 fied stated interest made under the bond 

22 during periods before the acquisition of the 

23 bond by the taxpayer, and 

24 ‘‘(ii) any premium which has accrued 

25 during such periods (determined as if 


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1 owned at all times by the original hold2 er).’’. 

3 (3) REDEMPTION PRICE .—

4 (A) IN GENERAL.—Section 1273(a)(2) is 

5 amended to read as follows: 

6 ‘‘(2) REDEMPTION PRICE.—

7 ‘‘(A) IN GENERAL.—The term ‘redemption 

8 price’ means the sum of all payments provided 

9 by the debt instrument other than qualified 

10 stated interest. 

11 ‘‘(B) QUALIFIED STATED INTEREST.—The 

12 term ‘qualified stated interest’ means stated in13 terest that is unconditionally payable in money 

14 and other property (other than a debt instru15 ment of the issuer) at least annually at a fixed 

16 rate (or to the extent provided by regulations, 

17 at a variable rate). 

18 ‘‘(C) BASIS ADJUSTMENT.—The basis of 

19 any debt instrument shall be reduced by the 

20 amount of any payment received other than 

21 qualified stated interest.’’. 

22 (B) CONFORMING AMENDMENTS.—

23 (i) Each of the following provisions is 

24 amended by striking ‘‘stated redemption 


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1 price at maturity’’ and inserting ‘‘redemp2 tion price’’: 

3 (I) Section 1271(a)(3)(B) (as re4 designated by subsection (b)). 

5 (II) Section 1273(a)(1)(A). 

6 (III) Section 1273(a)(3). 

7 (IV) Section 1273(b)(4). 

8 (V) Section 1274(c)(1)(A). 

9 (VI) Section 1279(a)(5) (as re10 designated by subsection (a)). 

11 (VII) Section 1283(a)(2)(A). 

12 (VIII) Section 1286(a)(1). 

13 (IX) The heading and text of sec14 tion 1286(e)(4). 

15 (ii) Section 108(e)(10)(B) is amended 

16 by striking ‘‘stated’’ both places it appears. 

17 (iii) Section 1272(a)(6)(A)(i) is 

18 amended by striking ‘‘stated’’. 

19 (iv) Subparagraphs (A)(i) and (C) of 

20 section 1279(a)(2) (as redesignated by 

21 subsection (a)) are each amended by strik22 ing ‘‘the stated redemption price of the 

23 bond at maturity’’ and inserting ‘‘the re24 demption price of the bond’’. 


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1 (v) Section 1279(a)(2)(B) (as redesig2 nated by subsection (a)) is amended by 

3 striking ‘‘the stated redemption price of 

4 such bond at maturity’’ and inserting ‘‘the 

5 redemption price of such bond’’. 

6 (4) ADJUSTED ISSUE PRICE.—Section 1275(a) 

7 is amended by adding at the end the following new 

8 paragraph: 

9 ‘‘(5) ADJUSTED ISSUE PRICE.—

10 ‘‘(A) IN GENERAL.—For purposes of this 

11 part, the adjusted issue price of any debt in12 strument is its issue price—

13 ‘‘(i) increased by the aggregate of the 

14 original issue discount includible in the 

15 gross income of all holders for prior peri16 ods (determined without regard to para17 graph (7) of section 1272(a)), or, in the 

18 case of a tax-exempt obligation, the aggre19 gate amount which accrued in the manner 

20 provided by this subsection (determined 

21 without regard to such paragraph (7)) for 

22 all prior periods, and 

23 ‘‘(ii) reduced by the sum of—


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1 ‘‘(I) any payments other than 

2 qualified stated interest previously 

3 made on the debt instrument, and 

4 ‘‘(II) in the case of a debt instru5 ment which was issued with amortiz6 able bond premium (as defined in sec7 tion 171(b)), the aggregate amount by 

8 which the basis of such instrument 

9 would have been reduced under sec10 tion 1016(a)(5) for prior periods if 

11 the instrument had been held by the 

12 original holder at all times. 

13 ‘‘(B) DE MINIMIS RULE.—The adjusted 

14 issue price of the issuer shall be properly ad15 justed to take into account that section 

16 1273(a)(3) does not apply to the deduction 

17 under section 163 for original issue discount.’’. 

18 (5) CERTAIN OTHER TERMS.—Paragraphs (3), 

19 (4), and (5) of section 1272(a) are amended to read 

20 as follows: 

21 ‘‘(3) DETERMINATION OF DAILY PORTIONS.—

22 For purposes of paragraph (1), the daily portion of 

23 the original issue discount on any debt instrument 

24 shall be determined by allocating to each day in any 

25 accrual period its ratable share of the original issue 


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1 discount allocable to such accrual period. For pur2 poses of the preceding sentence, the original issue 

3 discount allocable to any accrual period is the excess 

4 (if any) of—

5 ‘‘(A) the product of—

6 ‘‘(i) the adjusted issue price of the 

7 debt instrument at the beginning of such 

8 accrual period, multiplied by 

9 ‘‘(ii) the yield to maturity of the debt 

10 instrument properly adjusted for the 

11 length of the accrual period, over 

12 ‘‘(B) the amount of any qualified stated in13 terest allocable to such accrual period. 

14 ‘‘(4) YIELD TO MATURITY.—For purposes of 

15 this subsection, the term ‘yield to maturity’ means 

16 the discount rate that, when used in computing the 

17 present value of all principal and interest payments 

18 to be made under the debt instrument produces an 

19 amount equal to the issue price of the debt instru20 ment. 

21 ‘‘(5) ACCRUAL PERIOD.—For purposes of this 

22 subsection, the term ‘accrual period’ shall be deter23 mined under regulations prescribed by the Secretary, 

24 provided that an accrual period shall in no event be 

25 longer than one year.’’. 


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1 (f) BROKER REPORTING OF INCLUDIBLE DISCOUNT

2 ON BONDS.—

3 (1) IN GENERAL.—Section 6045 is amended by 

4 adding at the end the following new subsection: 

5 ‘‘(i) DISCOUNT ON BONDS.—

6 ‘‘(1) IN GENERAL.—If any customer of a broker 

7 holds a covered bond in an account with such broker 

8 at any time during a calendar year—

9 ‘‘(A) such broker shall file a return under 

10 subsection (a) for such calendar year, and 

11 ‘‘(B) such return shall include with respect 

12 to each such covered bond—

13 ‘‘(i) the amount (if any) includible in 

14 the gross income of such customer as origi15 nal issue discount with respect to such 

16 bond under section 1272 for periods dur17 ing such calendar year, and. 

18 ‘‘(ii) the amount (if any) includible in 

19 the gross income of such customer as mar20 ket discount with respect to such bond 

21 under section 1278(a) for periods during 

22 such calendar year. 

23 ‘‘(2) COVERED BOND.—For purposes of this 

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1 gation to which section 1272 or 1278(a) applies if 

2 such obligation—

3 ‘‘(A) was acquired after December 31, 

4 2014, through a transaction in the account in 

5 which such obligation is held, or 

6 ‘‘(B) was transferred to such account from 

7 an account in which such obligation was a cov8 ered bond, but only if the broker received a 

9 statement under section 6045A with respect to 

10 the transfer. 

11 ‘‘(3) STATEMENTS TO CUSTOMERS.—The re12 quirements of subsections (b) shall apply with re13 spect to any return filed under subsection (a) by 

14 reason of this subsection.’’. 

15 (2) INFORMATION REQUIRED IN CONNECTION

16 WITH TRANSFERS OF COVERED BONDS TO BRO17 KERS.—Subsection (a) of section 6045A is amend18 ed—

19 (A) by inserting ‘‘or a covered bond (as de20 fined in section 6045(i)(2))’’ after ‘‘covered se21 curity (as defined in section 6045(g)(3))’’, and 

22 (B) by striking ‘‘section 6045(g)’’ and in23 serting ‘‘subsections (g) and (i) of section 

24 6045’’. 


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1 (3) COORDINATION WITH REPORTING BY

2 ISSUER OF ORIGINAL ISSUE DISCOUNT.—Paragraph 

3 (6) of section 6049(d) is amended by adding at the 

4 end the following new subparagraph: 

5 ‘‘(C) PREVENTION OF DOUBLE REPORT6 ING.—Except as otherwise provided by the Sec7 retary, original issue discount with respect to 

8 any obligation shall not be required to be re9 ported under this section if such original issue 

10 discount is required to be reported with respect 

11 to such obligation under section 6045(i).’’. 

12 (g) CONFORMING AMENDMENTS.—

13 (1) Section 857(e)(2)(B)(i), as amended by the 

14 preceding provisions of this Act, is amended by 

15 striking ‘‘or 1272’’ and inserting ‘‘1272, or 1278’’. 

16 (2) Section 1042(d) is amended by striking 

17 ‘‘section 1278(a)(2)(A)(ii)’’ in the matter following 

18 paragraph (2) and inserting ‘‘section 

19 1279(a)(2)(A)(ii)’’. 

20 (3) Section 1016(a), as amended by the pre21 ceding provisions of this Act, is amended by adding 

22 at the end the following new paragraph: 

23 ‘‘(39) in the case of any debt instrument, to ex24 tend provided in sections 1272(d)(1), 1273(a)(2)(C), 

25 and 1278(d)(2).’’. 


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1 (4) Section 1276 is amended by inserting ‘‘ON

2 BONDS NOT SUBJECT TO CURRENT INCLU3 SION’’ after ‘‘ACCRUED MARKET DISCOUNT’’ in 

4 the heading thereof. 

5 (5) Section 1277 is amended by inserting ‘‘ON

6 BONDS NOT SUBJECT TO CURRENT INCLU7 SION’’ after ‘‘ACCRUED MARKET DISCOUNT’’ in 

8 the heading thereof. 

9 (6) Section 1281 is amended by striking sub10 section (c). 

11 (7) Section 1282 is amended by striking sub12 section (d). 

13 (8) The table of sections for subpart B of part 

14 V of subchapter P of chapter 1 is amended to read 

15 as follows:

‘‘Sec. 1276. Disposition gain representing accrued market discount on bonds 

not subject to current inclusion treated as ordinary income. 

‘‘Sec. 1277. Deferral of interest deduction allocable to accrued market discount 

on bonds not subject to current inclusion. 

‘‘Sec. 1278. Current inclusion in income of market discount on bonds acquired 

after 2014. 

‘‘Sec. 1279. Definitions and special rules.’’.

16 (h) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as provided in para18 graph (2), the amendments made by this section 

19 shall apply to obligations acquired after December 

20 31, 2014. 


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1 (2) MODERNIZATION OF TERMS.—The amend2 ments made by subsection (e) shall take effect on 

3 January 1, 2015. 

4 SEC. 3412. TREATMENT OF CERTAIN EXCHANGES OF DEBT 

5 INSTRUMENTS.

6 (a) DETERMINATION OF ISSUE PRICE.—

7 (1) IN GENERAL.—Subpart A of part V of sub8 chapter P is amended by inserting after section 

9 1274A the following new section: 

10 ‘‘SEC. 1274B. DETERMINATION OF ISSUE PRICE IN THE 

11 CASE OF AN EXCHANGE OF DEBT INSTRU12 MENTS.

13 ‘‘(a) IN GENERAL.—In the case of an exchange (in14 cluding by significant modification) by an issuer of a new 

15 debt instrument for an existing debt instrument issued by 

16 the same issuer, the issue price of the new debt instrument 

17 shall be the least of—

18 ‘‘(1) the adjusted issue price of the existing 

19 debt instrument, 

20 ‘‘(2) the stated principal amount of the new 

21 debt instrument, or 

22 ‘‘(3) the imputed principal amount of the new 

23 debt instrument. 


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1 ‘‘(b) APPLICABLE RATE.—The discount rate used to 

2 determine the imputed principal amount of the new debt 

3 instrument under subsection (a)(3) shall be the lesser of—

4 ‘‘(1) the applicable Federal rate determined 

5 under section 1274(d) with respect to the new debt 

6 instrument, or 

7 ‘‘(2) the greater of—

8 ‘‘(A) the rate of qualified stated interest 

9 with respect to the existing debt instrument, or 

10 ‘‘(B) the applicable Federal rate deter11 mined under section 1274(d) with respect to 

12 the existing debt instrument. 

13 ‘‘(c) TREATMENT OF INVESTMENT UNITS.—Rules 

14 similar to the rules of section 1273(c)(2) shall apply for 

15 purposes of this section.’’. 

16 (2) CONFORMING AMENDMENTS.—

17 (A) Section 108(e)(10)(B) is amended by 

18 striking ‘‘and 1274’’ and inserting ‘‘, 1274, and 

19 1274B’’. 

20 (B) Section 1274(c)(3), as amended by the 

21 preceding provisions of this Act, is amended by 

22 adding at the end the following new subpara23 graph: 


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1 ‘‘(F) CERTAIN MODIFIED DEBT.—Any debt 

2 instrument the issue price of which is deter3 mined under section 1274B.’’. 

4 (C) The table of sections for subpart A of 

5 part V of subchapter P is amended by inserting 

6 after the item relating to section 1274A the fol7 lowing new item:

‘‘Sec. 1274B. Determination of issue price in the case of an exchange of debt 

instruments.’’.

8 (b) NONRECOGNITION OF GAIN OR LOSS BY HOLD9 ER.—

10 (1) IN GENERAL.—Section 1037 is amended to 

11 read as follows: 

12 ‘‘SEC. 1037. CERTAIN EXCHANGES OF DEBT INSTRUMENTS. 

13 ‘‘(a) NONRECOGNITION OF GAIN OR LOSS.—No gain 

14 or loss shall be recognized to the holder of a debt instru15 ment if such existing debt instrument is exchanged solely 

16 for a new debt instrument (whether by exchange or signifi17 cant modification) issued by the same issuer. 

18 ‘‘(b) PROPERTY ATTRIBUTABLE TO ACCRUED INTER19 EST.—Subsection (a) shall not apply to the extent that 

20 any property received is attributable to interest which ac21 crued on the existing debt instrument on or after the be22 ginning of the holder’s holding period of such instrument. 

23 ‘‘(c) LIMITATION ON GAIN RECOGNITION IN CASE OF

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1 MENT.—In the case of an exchange of a debt instrument 

2 to which section 1035(d) applies, the amount of gain rec3 ognized shall not exceed the amount of gain which would 

4 have been recognized if section 1274B did not apply. 

5 ‘‘(d) CROSS REFERENCES.—

6 ‘‘(1) For rules relating to securities exchanged 

7 or distributed in a reorganization, etc., see sections 

8 354, 355, and 356. 

9 ‘‘(2) For rules relating to recognition of gain or 

10 loss where exchange was not made solely for another 

11 debt instrument of the issuer, see subsections (d) 

12 and (e) of section 1035. 

13 ‘‘(3) For rules relating to basis of obligations 

14 acquired in an exchange described in subsection (a), 

15 see subsection (f) of section 1035.’’. 

16 (2) CLERICAL AMENDMENT.—The table of sec17 tions for part III of subchapter O of chapter 1 is 

18 amended by striking the item relating to section 

19 1037 and inserting the following new item:

‘‘Sec. 1037. Certain exchanges of debt instruments.’’.

20 (c) APPLICATION TO EXCESS PRINCIPAL RULES FOR

21 CORPORATE REORGANIZATIONS.—

22 (1) EXCHANGES OF SECURITIES IN REORGA23 NIZATIONS.—

24 (A) IN GENERAL.—Section 354(a)(2)(A)(i) 

25 is amended to read as follows: 


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1 ‘‘(i) the issue price of any such securi2 ties received exceeds the adjusted issue 

3 price of any such securities surrendered, 

4 or’’. 

5 (B) DEFINITIONS.—Section 354(a)(2) is 

6 amended by inserting after subparagraph (C) 

7 the following new subparagraph: 

8 ‘‘(D) DEFINITIONS.—For purposes of this 

9 paragraph—

10 ‘‘(i) ISSUE PRICE.—The issue price of 

11 any security shall be determined under sec12 tions 1273, 1274, and 1274B. 

13 ‘‘(ii) ADJUSTED ISSUE PRICE.— The 

14 adjusted issue price of any security shall 

15 be determined under section 1275(a)(5).’’. 

16 (2) SECTION 355 TRANSACTIONS.—Section 

17 355(a)(3)(A)(i) is amended to read as follows: 

18 ‘‘(i) the issue price (as defined in sec19 tion 354(a)(2)(D)) of the securities in the 

20 controlled corporation which are received 

21 exceeds the adjusted issue price (as so de22 fined) of the securities which are surren23 dered in connection with such distribution, 

24 or’’. 

25 (3) SECTION 356 TRANSACTIONS.—


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1 (A) IN GENERAL.—Section 

2 356(d)(2)(B)(ii) is amended to read as follows: 

3 ‘‘(ii) the issue price (as defined in sec4 tion 354(a)(2)(D)) of such securities re5 ceived exceeds the adjusted issue price (as 

6 so defined) of such securities surren7 dered,’’. 

8 (B) CONFORMING AMENDMENTS.—

9 (i) Section 356(d)(2)(B) is amended 

10 in the matter following clause (ii)—

11 (I) by striking ‘‘the fair market 

12 value of such excess’’ and inserting 

13 ‘‘the amount of such excess’’, and 

14 (II) by striking ‘‘the entire prin15 cipal amount’’ and inserting ‘‘the en16 tire issue price (as so defined)’’. 

17 (ii) Section 356(d)(2)(C) is amended 

18 to read as follows: 

19 ‘‘(C) GREATER PRINCIPAL AMOUNT IN

20 SECTION 355 TRANSACTION.—If, in an exchange 

21 or distribution described in section 355, the 

22 issue price (as defined in section 354(a)(2)(D)) 

23 of the securities in the controlled corporation 

24 which are received exceeds the adjusted issue 

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1 tributing corporation which are surrendered, 

2 then, with respect to such securities received, 

3 the term ‘other property’ means only the 

4 amount of such excess.’’. 

5 (d) EFFECTIVE DATE.—The amendments made by 

6 this section shall apply to transactions after December 31, 

7 2014. 

8 SEC. 3413. COORDINATION WITH RULES FOR INCLUSION 

9 NOT LATER THAN FOR FINANCIAL ACCOUNT10 ING PURPOSES. 

11 (a) IN GENERAL.—Section 451(b), as amended by 

12 the preceding provisions of this Act, is amended by insert13 ing immediately after the heading thereof (and before 

14 paragraph (1) thereof) the following: ‘‘Notwithstanding 

15 any other provision of law (including part V of subchapter 

16 P)—’’. 

17 (b) EFFECTIVE DATE; CHANGE IN METHOD OF AC18 COUNTING.—The amendment made by subsection (a) shall 

19 be treated for purposes of section 3303(g) as though such 

20 amendment were made by section 3303(a). 

21 SEC. 3414. RULES REGARDING CERTAIN GOVERNMENT 

22 DEBT.

23 (a) REPEAL OF CERTAIN SUPERCEDED RULES.—

24 Subpart B of part II of subchapter E of chapter 1 is 

25 amended by striking section 454 (and by striking the item 


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1 relating to such section in the table of sections for such 

2 subpart). 

3 (b) PRESERVATION OF RULES RELATED TO UNITED

4 STATES SAVINGS BONDS.—Subpart A of part V of sub5 chapter P of chapter 1 is amended by inserting after sec6 tion 1272 the following new section: 

7 ‘‘SEC. 1272A. UNITED STATES SAVINGS BONDS. 

8 ‘‘(a) ELECTION TO INCLUDE INCREASE IN REDEMP9 TION PRICE IN INCOME.—A taxpayer holding a United 

10 States savings bond may elect (on the taxpayer’s return 

11 for the taxable year) to treat any increase in the redemp12 tion price as income received in the taxable year. If any 

13 such election is made with respect to any such obligation, 

14 it shall apply also to all such obligations owned by the 

15 taxpayer at the beginning of the first taxable year to which 

16 it applies and to all such obligations thereafter acquired 

17 by the taxpayer and shall be binding for all subsequent 

18 taxable years, unless revoked with the consent of the Sec19 retary. In the case of any such obligations owned by the 

20 taxpayer at the beginning of the first taxable year to which 

21 the taxpayer’s election applies, the increase in the redemp22 tion price of such obligations occurring between the date 

23 of acquisition and the first day of such taxable year shall 

24 also be treated as income received in such taxable year. 


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1 ‘‘(b) TREATMENT UPON REDEMPTION OR FINAL MA2 TURITY.—The increase in redemption value of a United 

3 States savings bond (to the extent not previously included 

4 in gross income) in excess of the adjusted basis of such 

5 bond shall be included in gross income in the earlier of 

6 the taxable year in which the bond is redeemed or in the 

7 taxable year of final maturity. 

8 ‘‘(c) CROSS REFERENCES.—

9 ‘‘(1) For exception from current inclusion of 

10 original issue discount, see section 1272(a)(2)(B). 

11 ‘‘(2) For exception from market discount rules, 

12 see section 1279(a)(1)(B)(iii).’’. 

13 (c) CONFORMING AMENDMENTS.—

14 (1) Section 852(b)(2), as amended by the pre15 ceding provisions of this Act, is amended by striking 

16 subparagraph (E) and redesignating subparagraphs 

17 (F) and (G) as subparagraphs (E) and (F), respec18 tively. 

19 (2) Section 1283(c)(3), as amended by the pre20 ceding provisions of this Act, is amended by striking 

21 all that precedes ‘‘shall not apply’’ and inserting the 

22 following: 

23 ‘‘(3) COORDINATION WITH SECTION 1271.—Sec24 tion 1271(a)(3)’’. 


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1 (3) Section 7871(a)(6) is amended by adding 

2 ‘‘and’’ at the end of subparagraph (A) and by strik3 ing subparagraph (C). 

4 (4) The table of sections for subpart A of part 

5 V of subchapter P of chapter 1 is amended by in6 serting after the item relating to section 1272 the 

7 following new item:

‘‘Sec. 1272A. United States savings bonds.’’.

8 (d) EFFECTIVE DATE.—The amendments made by 

9 this section shall take effect on the date of the enactment 

10 of this Act. 

11 PART 3—CERTAIN RULES FOR DETERMINING 

12 GAIN AND LOSS 

13 SEC. 3421. COST BASIS OF SPECIFIED SECURITIES DETER14 MINED WITHOUT REGARD TO IDENTIFICA15 TION.

16 (a) IN GENERAL.—Section 1012 is amended by add17 ing at the end the following new subsection: 

18 ‘‘(e) COST BASIS OF SPECIFIED SECURITIES DETER19 MINED WITHOUT REGARD TO IDENTIFICATION.—Except 

20 to the extent otherwise provided in this section or in regu21 lations thereunder permitting the use of an average basis 

22 method for determining cost, in the case of the sale, ex23 change, or other disposition of a specified security (within 

24 the meaning of section 6045(g)(3)(B)), the basis (and 


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1 holding period) of such security shall be determined on 

2 a first-in first-out basis.’’. 

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 1012(c)(1) is amended by striking 

5 ‘‘the conventions prescribed by regulations under 

6 this section’’ and inserting ‘‘the method applicable 

7 for determining the cost of such security’’. 

8 (2) Section 1012(c)(2)(A) is amended by strik9 ing ‘‘section 1012’’ and inserting ‘‘this section (as in 

10 effect prior to the enactment of the Tax Reform Act 

11 of 2014)’’. 

12 (3) Section 6045(g)(2)(B)(i)(I) is amended by 

13 striking ‘‘unless the customer notifies the broker by 

14 means of making an adequate identification of the 

15 stock sold or transferred’’. 

16 (c) EFFECTIVE DATE.—The amendments made by 

17 this section shall apply to sales, exchanges, and other dis18 positions after December 31, 2014. 

19 SEC. 3422. WASH SALES BY RELATED PARTIES. 

20 (a) APPLICATION OF WASH SALE RULES TO RE21 LATED PARTIES.—Subsection (a) of section 1091 is 

22 amended by striking ‘‘the taxpayer has acquired’’ and in23 serting ‘‘the taxpayer (or a related party) has acquired’’. 

24 (b) MODIFICATION OF BASIS ADJUSTMENT RULE TO

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1 TIES.—Subsection (d) of section 1091 is amended to read 

2 as follows: 

3 ‘‘(d) ADJUSTMENT TO BASIS IN CASE OF WASH

4 SALE.—If the taxpayer (or the taxpayer’s spouse) ac5 quires substantially identical stock or securities during the 

6 period which—

7 ‘‘(1) begins 30 days before the disposition with 

8 respect to which a deduction was disallowed under 

9 subsection (a), and 

10 ‘‘(2) ends with the close of the taxpayer’s first 

11 taxable year which begins after such disposition, 

12 the basis of such stock or securities shall be increased by 

13 the amount of the deduction so disallowed (reduced by any 

14 amount of such deduction taken into account under this 

15 subsection to increase the basis of stock or securities pre16 viously acquired).’’. 

17 (c) RELATED PARTY.—Section 1091 is amended by 

18 adding at the end the following new subsection: 

19 ‘‘(g) RELATED PARTY.—For purposes of this sec20 tion—

21 ‘‘(1) IN GENERAL.—The term ‘related party’ 

22 means—

23 ‘‘(A) the taxpayer’s spouse, 


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1 ‘‘(B) any dependent of the taxpayer and 

2 any other taxpayer with respect to whom the 

3 taxpayer is a dependent, 

4 ‘‘(C) any individual, corporation, partner5 ship, trust, or estate which controls, or is con6 trolled by, (within the meaning of section 

7 954(d)(3)) the taxpayer or any individual de8 scribed in subparagraph (A) or (B) with respect 

9 to the taxpayer (or any combination thereof), 

10 ‘‘(D) any individual retirement plan, Ar11 cher MSA (as defined in section 220(d)), or 

12 health savings account (as defined in section 

13 223(d)), of the taxpayer or of any individual de14 scribed in subparagraph (A) or (B) with respect 

15 to the taxpayer, 

16 ‘‘(E) any account under a qualified tuition 

17 program described in section 529 or a Coverdell 

18 education savings account (as defined in section 

19 530(b)) if the taxpayer, or any individual de20 scribed in subparagraph (A) or (B) with respect 

21 to the taxpayer, is the designated beneficiary of 

22 such account or has the right to make any deci23 sion with respect to the investment of any 

24 amount in such account, and 

25 ‘‘(F) any account under—


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1 ‘‘(i) a plan described in section 

2 401(a), 

3 ‘‘(ii) an annuity plan described in sec4 tion 403(a), 

5 ‘‘(iii) an annuity contract described in 

6 section 403(b), or 

7 ‘‘(iv) an eligible deferred compensa8 tion plan described in section 457(b) and 

9 maintained by an employer described in 

10 section 457(e)(1)(A), 

11 if the taxpayer or any individual described in 

12 subparagraph (A) or (B) with respect to the 

13 taxpayer has the right to make any decision 

14 with respect to the investment of any amount in 

15 such account . 

16 ‘‘(2) RULES FOR DETERMINING STATUS.—

17 ‘‘(A) RELATIONSHIPS DETERMINED AT

18 TIME OF ACQUISITION.—Determinations under 

19 paragraph (1) shall be made as of the time of 

20 the purchase or exchange referred to in sub21 section (a) except that determinations under 

22 subparagraphs (A) and (B) of paragraph (1) 

23 shall be made for the taxable year which in24 cludes such purchase or exchange. 


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1 ‘‘(B) DETERMINATION OF MARITAL STA2 TUS.—

3 ‘‘(i) IN GENERAL.—Except as pro4 vided in clause (ii), marital status shall be 

5 determined under section 7703. 

6 ‘‘(ii) SPECIAL RULE FOR MARRIED IN7 DIVIDUALS FILING SEPARATELY AND LIV8 ING APART.—A husband and wife who—

9 ‘‘(I) file separate returns for any 

10 taxable year, and 

11 ‘‘(II) live apart at all times dur12 ing such taxable year, 

13 shall not be treated as married individuals. 

14 ‘‘(3) REGULATIONS.—The Secretary shall issue 

15 such regulations or other guidance as may be nec16 essary to prevent the avoidance of the purposes of 

17 this subsection, including regulations which treat 

18 persons as related parties if such persons are formed 

19 or availed of to avoid the purposes of this sub20 section.’’. 

21 (d) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to sales and other dispositions 

23 after December 31, 2014. 


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1 SEC. 3423. NONRECOGNITION FOR DERIVATIVE TRANS2 ACTIONS BY A CORPORATION WITH RESPECT 

3 TO ITS STOCK. 

4 (a) IN GENERAL.—Section 1032 is amended to read 

5 as follows: 

6 ‘‘SEC. 1032. DERIVATIVE TRANSACTIONS BY A CORPORA7 TION WITH RESPECT TO ITS STOCK. 

8 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

9 this section or section 76, section 1032 derivative items 

10 of a corporation shall not be taken into account in deter11 mining such corporation’s liability for tax under this sub12 title. 

13 ‘‘(b) INCOME RECOGNITION ON CERTAIN FORWARD

14 CONTRACTS.—

15 ‘‘(1) IN GENERAL.—If—

16 ‘‘(A) a corporation acquires its stock, and 

17 ‘‘(B) such acquisition is part of a plan (or 

18 series of related transactions) pursuant to 

19 which the corporation enters into a forward 

20 contract with respect to its stock, 

21 such corporation shall include amounts in income as 

22 if the excess of the amount to be received under the 

23 forward contract over the fair market value of the 

24 stock as of the date the corporation entered into the 

25 forward contract were original issue discount on a 

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1 ceding sentence shall apply only to the extent that 

2 the amount of stock involved in the forward contract 

3 does not exceed the amount acquired as described in 

4 subparagraph (A). 

5 ‘‘(2) PLAN PRESUMED TO EXIST.—If a corpora6 tion enters into a forward contract with respect to 

7 its stock within the 60-day period beginning on the 

8 date which is 30 days before the date that the cor9 poration acquires its stock, such acquisition shall be 

10 treated as pursuant to a plan described in paragraph 

11 (1)(B) unless it is established that entering into 

12 such contract and such acquisition are not pursuant 

13 to a plan or series of related transactions. 

14 ‘‘(c) SECTION 1032 DERIVATIVE ITEMS.—For pur15 poses of this section, the term ‘section 1032 derivative 

16 item’ means any item of income, gain, loss, or deduction 

17 if—

18 ‘‘(1) such item arises out of the rights or obli19 gations under any derivative (as defined in section 

20 486) to the extent such derivative relates to the cor21 poration’s stock (or is attributable to any transfer or 

22 extinguishment of any such right or obligation), or 

23 ‘‘(2) such item arises under any other contract 

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1 flects (or is determined by reference to) changes in 

2 the value of such stock or distributions thereon. 

3 Such term shall not include any deduction with respect 

4 to which section 83(h) applies and shall not include any 

5 deduction for any item which is in the nature of compensa6 tion for services rendered. For purposes of this subpara7 graph, de minimis relationships, as determined by the Sec8 retary, shall be disregarded. 

9 ‘‘(d) TREASURY STOCK TREATED AS STOCK.—Any 

10 reference in this section to stock shall be treated as includ11 ing a reference to treasury stock. 

12 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

13 such regulations or other guidance as may be appropriate 

14 to carry out the purposes of this section, including regula15 tions or other guidance which—

16 ‘‘(1) treat the portion of an instrument which 

17 is described in subsection (c)(1) separately from the 

18 portion of such instrument which is not so described, 

19 and 

20 ‘‘(2) treat section 1032 derivative items as con21 tributions to the capital of the corporation to the ex22 tent that the application of this section would be in23 consistent with the purposes of section 76(b).’’. 


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1 (b) CLERICAL AMENDMENT.—The item relating to 

2 section 1032 in the table of sections for part III of sub3 chapter O of chapter 1 is amended to read as follows:

‘‘Sec. 1032. Derivative transactions by a corporation with respect to its stock.’’.

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to transactions entered into after 

6 the date of the enactment of this Act. 

7 PART 4—TAX FAVORED BONDS 

8 SEC. 3431. TERMINATION OF PRIVATE ACTIVITY BONDS. 

9 (a) IN GENERAL.—Paragraph (1) of section 103(b) 

10 is amended—

11 (1) by striking ‘‘which is not a qualified bond 

12 (within the meaning of section 141)’’, and 

13 (2) by striking ‘‘WHICH IS NOT A QUALIFIED

14 BOND’’ in the heading thereof. 

15 (b) CONFORMING AMENDMENTS.—

16 (1) Section 141 is amended by striking sub17 section (e). 

18 (2) Subpart A of part IV of subchapter B of 

19 chapter 1 is amended by striking sections 142, 143, 

20 144, 145, 146, and 147 (and by striking each of the 

21 items relating to such sections in the table of sec22 tions for such subpart). 

23 (3) Section 25 is amended by adding at the end 

24 the following new subsection: 


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1 ‘‘(j) COORDINATION WITH REPEAL OF PRIVATE AC2 TIVITY BONDS.—Any reference to section 143, 144, or 

3 146 shall be treated as a reference to such section as in 

4 effect before its repeal by the Tax Reform Act of 2014.’’. 

5 (4) Section 26(b)(2) is amended by striking 

6 subparagraph (D). 

7 (5) Section 141(b) is amended by striking para8 graphs (5) and (9) and by redesignating paragraphs 

9 (6), (7), and (8) as paragraphs (5), (6), and (7), re10 spectively. 

11 (6) Section 141(d) is amended by striking para12 graph (5) and by redesignating paragraphs (6) and 

13 (7) as paragraphs (5) and (6). 

14 (7) Section 148(b)(2)(E) is amended by strik15 ing ‘‘in the case of a bond other than a private activ16 ity bond,’’. 

17 (8) Section 148(b)(3) is amended to read as fol18 lows: 

19 ‘‘(3) TAX-EXEMPT BONDS NOT TREATED AS IN20 VESTMENT PROPERTY.—The term ‘investment prop21 erty’ does not include any tax-exempt bond.’’. 

22 (9) Section 148(f)(3) is amended by striking 

23 ‘‘or is a private activity bond’’ in the fourth sen24 tence. 

25 (10) Section 148(f)(4) is amended—


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1 (A) by striking ‘‘(determined in accordance 

2 with section 147(b)(2)(A))’’ in the flush matter 

3 following subparagraph (A)(ii), 

4 (B) by striking the last sentence of sub5 paragraph (D)(v), and 

6 (C) by adding at the end the following new 

7 subparagraph: 

8 ‘‘(E) AVERAGE MATURITY.—For purposes 

9 of this paragraph, the average maturity of any 

10 issue shall be determined by taking into account 

11 the respective issue prices of the bonds issued 

12 as part of such issue.’’. 

13 (11) Section 148(f)(4)(A) is amended in the 

14 flush matter after clause (ii) by striking ‘‘In the case 

15 of an issue no bond of which is a private activity 

16 bond, clause’’ and inserting ‘‘Clause’’. 

17 (12) Section 148(f)(4)(B)(ii) is amended—

18 (A) by striking subclause (II), and 

19 (B) by striking ‘‘CERTAIN BONDS.—’’ and 

20 all that follows through ‘‘issue described in sub21 clause (II)’’ and inserting ‘‘CERTAIN BONDS.—

22 In the case of an issue no bond of which is a 

23 tax or revenue anticipation bond’’. 

24 (13)(A) Section 148(f)(4)(C)(iv) is amended to 

25 read as follows: 


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1 ‘‘(iv) CONSTRUCTION ISSUE.—For 

2 purposes of this subparagraph, the term 

3 ‘construction issue’ means any issue if at 

4 least 75 percent of the available construc5 tion proceeds of such issue are to be used 

6 for construction expenditures with respect 

7 to property which is to be owned by a gov8 ernmental unit.’’. 

9 (B) Section 148(f)(4)(C) is amended by re10 designating clauses (v) through (xvii) as clauses 

11 (viii) through (xx), respectively, and by insert12 ing after clause (iv) the following new clauses: 

13 ‘‘(v) CONSTRUCTION.—For purposes 

14 of this subparagraph, the term ‘construc15 tion’ includes reconstruction and rehabili16 tation. 

17 ‘‘(vi) SAFE HARBOR FOR LEASES AND

18 MANAGEMENT CONTRACTS.—For purposes 

19 of this subparagraph, property leased by a 

20 governmental unit shall be treated as 

21 owned by such governmental unit if—

22 ‘‘(I) the lessee makes an irrev23 ocable election (binding on the lessee 

24 and all successors in interest under 

25 the lease) not to claim depreciation or 


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1 an investment credit with respect to 

2 such property, 

3 ‘‘(II) the lease term (as defined 

4 in section 168(h)(1)) is not more than 

5 80 percent of the reasonably expected 

6 economic life of the property, and 

7 ‘‘(III) the lessee has no option to 

8 purchase the property other than at 

9 fair market value (as of the time such 

10 option is exercised). 

11 ‘‘(vii) DETERMINATION OF ECONOMIC

12 LIFE.—For purposes of clause (vi), the 

13 reasonably expected economic life of any 

14 facility shall be determined as of the later 

15 of—

16 ‘‘(I) the date on which the bonds 

17 are issued, or 

18 ‘‘(II) the date on which the facil19 ity is placed in service (or expected to 

20 be placed in service).’’. 

21 (C) Section 148(f)(4)(D) is amended by 

22 striking ‘‘subparagraph (C)(iv)’’ each place it 

23 appears and inserting ‘‘subparagraph (C)(v)’’. 

24 (14) Section 148(f)(4)(D)(i) is amended—

25 (A) by striking subclause (II), 


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1 (B) by striking ‘‘(other than private activ2 ity bonds)’’ in subclause (IV), and 

3 (C) by redesignating subclauses (III) and 

4 (IV) (as amended by subparagraph (B)) as sub5 clauses (II) and (III). 

6 (15) Section 148(f)(4)(D)(ii) is amended by 

7 striking ‘‘subclause (IV)’’ both places it appears and 

8 inserting ‘‘subclause (III)’’. 

9 (16) Section 148(f)(4)(D)(iii) is amended by 

10 striking ‘‘subclause (IV)’’ and inserting ‘‘subclause 

11 (III)’’. 

12 (17) Section 148(f)(4)(D)(iv)(II) is amended by 

13 striking ‘‘clause (i)(IV)’’ and inserting ‘‘clause 

14 (i)(III)’’. 

15 (18) Section 148(f)(4)(D)(vi) is amended by 

16 striking the last sentence. 

17 (19) Section 148(f)(7) is amended by striking 

18 subparagraph (A) and by redesignating subpara19 graphs (B) and (C) as subparagraphs (A) and (B). 

20 (20) Section 149(b)(3) is amended—

21 (A) by striking subparagraph (C) and by 

22 redesignating subparagraphs (D) and (E) as 

23 subparagraphs (C) and (D), and 


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1 (B) by striking ‘‘subparagraph (E)’’ in 

2 subparagraph (A)(iv) and inserting ‘‘subpara3 graph (D)’’. 

4 (21) Section 149(e)(2) is amended—

5 (A) by striking subparagraphs (C), (D), 

6 and (F) and by redesignating subparagraphs 

7 (E) and (G) as subparagraphs (C) and (D), re8 spectively, and 

9 (B) by striking the second sentence. 

10 (22) Section 149(f)(6) is amended—

11 (A) by striking subparagraph (B), and 

12 (B) by striking ‘‘For purposes of this sub13 section’’ and all that follows through ‘‘The 

14 term’’ and inserting the following: ‘‘For pur15 poses of this subsection, the term’’. 

16 (23) Section 150 is amended by striking sub17 sections (b) and (c) and by redesignating subsections 

18 (d) and (e) as subsections (b) and (c), respectively. 

19 (24) Section 150(e)(3) is amended to read as 

20 follows: 

21 ‘‘(3) PUBLIC APPROVAL REQUIREMENT.—A 

22 bond shall not be treated as part of an issue which 

23 meets the requirements of paragraph (1) unless such 

24 bond satisfies the requirements of section 147(f)(2) 


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1 (as in effect before its repeal by the Tax Reform Act 

2 of 2014).’’. 

3 (25) Section 269A(b)(3) is amended by striking 

4 ‘‘144(a)(3)’’ and inserting ‘‘414(n)(6)(A)’’. 

5 (26) Section 414(m)(5) is amended by striking 

6 ‘‘section 144(a)(3)’’ and inserting ‘‘subsection 

7 (n)(6)(A)’’. 

8 (27) Section 414(n)(6)(A) is amended to read 

9 as follows: 

10 ‘‘(A) RELATED PERSONS.—A person is a 

11 related person to another person if—

12 ‘‘(i) the relationship between such per13 sons would result in a disallowance of 

14 losses under section 267 or 707(b), or 

15 ‘‘(ii) such persons are members of the 

16 same controlled group of corporations (as 

17 defined in section 1563(a), except that 

18 ‘more than 50 percent’ shall be substituted 

19 for ‘at least 80 percent’ each place it ap20 pears therein).’’. 

21 (28) Section 6045(e)(4)(B) is amended by in22 serting ‘‘(as in effect before its repeal by the Tax 

23 Reform Act of 2014)’’ after ‘‘section 143(m)(3)’’. 


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1 (29) Section 6654(f)(1) is amended by inserting 

2 ‘‘(as in effect before its repeal by the Tax Reform 

3 Act of 2014)’’ after ‘‘section 143(m)’’. 

4 (30) Section 7871(c) is amended—

5 (A) by striking paragraphs (2) and (3), 

6 and 

7 (B) by striking ‘‘TAX-EXEMPT BONDS.—’’ 

8 and all that follows through ‘‘Subsection (a) of 

9 section 103’’ and inserting the following: ‘‘TAX10 EXEMPT BONDS.—Subsection (a) of section 

11 103’’. 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to bonds issued after December 

14 31, 2014. 

15 SEC. 3432. TERMINATION OF CREDIT FOR INTEREST ON 

16 CERTAIN HOME MORTGAGES. 

17 (a) IN GENERAL.—Section 25, as amended by the 

18 preceding provisions of this Act, is amended by adding at 

19 the end the following new subsection: 

20 ‘‘(k) TERMINATION.—No credit shall be allowed 

21 under this section with respect to any mortgage credit cer22 tificate issued after December 31, 2014.’’. 

23 (b) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to taxable years ending after De25 cember 31, 2014. 


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1 SEC. 3433. REPEAL OF ADVANCE REFUNDING BONDS. 

2 (a) IN GENERAL.—Paragraph (1) of section 149(d) 

3 is amended by striking ‘‘as part of an issue described in 

4 paragraph (2), (3), or (4).’’ and inserting ‘‘to advance re5 fund a bond.’’. 

6 (b) CONFORMING AMENDMENTS.—

7 (1) Section 149(d) is amended by striking para8 graphs (2), (3), (4), and (6) and by redesignating 

9 paragraphs (5) and (7) as paragraphs (2) and (3). 

10 (2) Section 148(f)(4)(C), as amended by the 

11 preceding provisions of this Act, is amended by 

12 striking clause (xvii) and by redesignating clauses 

13 (xviii), (xix), and (xx) as clauses (xvii), (xviii), and 

14 (xix), respectively. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to advance refunding bonds issued 

17 after December 31, 2014. 

18 SEC. 3434. REPEAL OF TAX CREDIT BOND RULES. 

19 (a) IN GENERAL.—Part IV of subchapter A of chap20 ter 1 is amended by striking subparts H, I, and J (and 

21 by striking the items relating to such subparts in the table 

22 of subparts for such part). 

23 (b) PAYMENTS TO ISSUERS.—Subchapter B of chap24 ter 65 is amended by striking section 6431 (and by strik25 ing the item relating to such section in the table of sec26 tions for such subchapter). 


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1 (c) CONFORMING AMENDMENTS.—

2 (1) Section 6211(b)(4)(A) is amended by strik3 ing ‘‘and 6431’’. 

4 (2) Section 6401(b)(1) is amended by striking 

5 ‘‘G, H, I, and J’’ and inserting ‘‘and G’’. 

6 (d) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to bonds issued after the date of 

8 the enactment of this Act. 

9 Subtitle F—Insurance Reforms 

10 SEC. 3501. EXCEPTION TO PRO RATA INTEREST EXPENSE 

11 DISALLOWANCE FOR CORPORATE-OWNED 

12 LIFE INSURANCE RESTRICTED TO 20-PER13 CENT OWNERS. 

14 (a) IN GENERAL.—Subparagraph (A) of section 

15 264(f)(4) is amended—

16 (1) by striking ‘‘policy or contract)—’’ and all 

17 that follows through ‘‘A policy or contract’’ and in18 serting ‘‘policy or contract) a 20-percent owner of 

19 such entity. A policy or contract’’, and 

20 (2) by striking ‘‘, OFFICERS, DIRECTORS, AND

21 EMPLOYEES’’ in the heading. 

22 (b) CONFORMING AMENDMENT.—Section 264(f)(4) 

23 is amended by striking subparagraph (E). 

24 (c) EFFECTIVE DATE.—The amendment made by 

25 this section shall apply to contracts issued after December 


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1 31, 2014. For purposes of the preceding sentence, any ma2 terial increase in the death benefit or other material 

3 change in the contract shall be treated as a new contract. 

4 SEC. 3502. NET OPERATING LOSSES OF LIFE INSURANCE 

5 COMPANIES.

6 (a) IN GENERAL.—Paragraph (5) of section 805(a) 

7 is amended to read as follows: 

8 ‘‘(5) NET OPERATING LOSS DEDUCTION.—The 

9 deduction allowed under section 172, determined—

10 ‘‘(A) by treating the net operating loss for 

11 any taxable year as equal to the excess (if any) 

12 of—

13 ‘‘(i) the life insurance deductions for 

14 such taxable year, over 

15 ‘‘(ii) the life insurance gross income 

16 for such taxable year, and 

17 ‘‘(B) by applying subsection (d)(5) thereof 

18 with the modifications described in paragraph 

19 (4) of this subsection.’’. 

20 (b) CONFORMING AMENDMENTS.—

21 (1) Part I of subchapter L of chapter 1 is 

22 amended by striking section 810 (and by striking 

23 the item relating to such section in the table of sec24 tions for such part). 


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1 (2) Part III of subchapter L of chapter 1 is 

2 amended by striking section 844 (and by striking 

3 the item relating to such section in the table of sec4 tions for such part). 

5 (3) Section 381 is amended by striking sub6 section (d). 

7 (4) Section 805(a)(4)(B)(i), as redesignated by 

8 the preceding provisions of this Act, is amended to 

9 read as follows: 

10 ‘‘(ii) the net operating loss deduction 

11 provided by paragraph (5),’’. 

12 (5) Section 805(b)(2)(A)(iii), as redesignated 

13 by the preceding provisions of this Act, is amended 

14 to read as follows: 

15 ‘‘(iv) any net operating loss carryback 

16 to the taxable year under section 172 (as 

17 applied pursuant to subsection (a)(5)), 

18 and’’. 

19 (6) Section 805(b) is amended by striking para20 graph (4) and redesignating paragraph (5) as para21 graph (4). 

22 (7) Section 953(b)(1)(A), as redesignated by 

23 the preceding provisions of this Act, is amended by 

24 striking ‘‘operations’’ and inserting ‘‘net operating’’. 


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1 (8) Section 1351(i)(3) is amended by striking 

2 ‘‘or the operations loss deduction under section 

3 810,’’. 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to losses arising in taxable years 

6 beginning after December 31, 2014. 

7 SEC. 3503. REPEAL OF SMALL LIFE INSURANCE COMPANY 

8 DEDUCTION.

9 (a) IN GENERAL.—Part I of subchapter L of chapter 

10 1 is amended by striking section 806 (and by striking the 

11 item relating to such section in the table of sections for 

12 such part). 

13 (b) CONFORMING AMENDMENTS.—

14 (1) Section 453B(e) is amended—

15 (A) by striking ‘‘(as defined in section 

16 806(b)(3))’’ in paragraph (2)(B), and 

17 (B) by adding at the end the following new 

18 paragraph: 

19 ‘‘(3) NONINSURANCE BUSINESS.—

20 ‘‘(A) IN GENERAL.—For purposes of this 

21 subsection, the term ‘noninsurance business’ 

22 means any activity which is not an insurance 

23 business. 

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1 paragraph (A), any activity which is not an in2 surance business shall be treated as an insur3 ance business if—

4 ‘‘(i) it is of a type traditionally carried 

5 on by life insurance companies for invest6 ment purposes, but only if the carrying on 

7 of such activity (other than in the case of 

8 real estate) does not constitute the active 

9 conduct of a trade or business, or 

10 ‘‘(ii) it involves the performance of ad11 ministrative services in connection with 

12 plans providing life insurance, pension, or 

13 accident and health benefits.’’. 

14 (2) Section 465(c)(7)(D)(v)(II) is amended by 

15 striking ‘‘section 806(b)(3)’’ and inserting ‘‘section 

16 453B(e)(3)’’. 

17 (3) Section 801(a)(2) is amended by striking 

18 subparagraph (C). 

19 (4) Section 804 is amended by striking 

20 ‘‘means—’’ and all that follows and inserting 

21 ‘‘means the general deductions provided in section 

22 805.’’. 

23 (5) Section 805(a)(4)(B) is amended by strik24 ing clause (i) and by redesignating clauses (ii), (iii), 

25 and (iv) as clauses (i), (ii), and (iii), respectively. 


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1 (6) Section 805(b)(2)(A) is amended by strik2 ing clause (iii) and by redesignating clauses (iv) and 

3 (v) as clauses (iii) and (iv), respectively. 

4 (7) Section 815(c)(2)(A) is amended by insert5 ing ‘‘and’’ at the end of clause (i), by striking clause 

6 (ii), and by redesignating clause (iii) as clause (ii). 

7 (8) Section 842(c) is amended by striking para8 graph (1) and by redesignating paragraphs (2) and 

9 (3) as paragraphs (1) and (2), respectively. 

10 (9) Section 953(b)(1) is amended by striking 

11 subparagraph (A) and by redesignating subpara12 graphs (B) and (C) as subparagraphs (A) and (B), 

13 respectively. 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2014. 

17 SEC. 3504. COMPUTATION OF LIFE INSURANCE TAX RE18 SERVES.

19 (a) IN GENERAL.—Subparagraph (B) of section 

20 807(d)(2) is amended to read as follows: 

21 ‘‘(B) an interest rate equal to the sum 

22 of—

23 ‘‘(i) the applicable Federal interest 

24 rate, plus 

25 ‘‘(ii) 3.5 percentage points, and’’. 


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1 (b) CONFORMING AMENDMENTS.—

2 (1) Paragraph (4) of section 807(d) is amended 

3 to read as follows: 

4 ‘‘(4) APPLICABLE FEDERAL INTEREST RATE.—

5 ‘‘(A) IN GENERAL.—Except as provided in 

6 subparagraph (B), the term ‘applicable Federal 

7 interest rate’ means the annual rate determined 

8 by the Secretary under subparagraph (C) for 

9 the calendar year in which the contract was 

10 issued. 

11 ‘‘(B) ELECTION TO RECOMPUTE FEDERAL

12 INTEREST RATE EVERY 5 YEARS.—For pur13 poses of this subsection—

14 ‘‘(i) IN GENERAL.—In computing the 

15 amount of the reserve with respect to any 

16 contract to which an election under this 

17 subparagraph applies for periods during 

18 any recomputation period, the applicable 

19 Federal interest rate shall be the annual 

20 rate determined by the Secretary under 

21 subparagraph (C) for the 1st year of such 

22 period. No change in the applicable Fed23 eral interest rate shall be made under the 

24 preceding sentence unless such change 


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would equal or exceed 1 1 ⁄2 of 1 percentage 

2 point. 

3 ‘‘(ii) RECOMPUTATION PERIOD.—For 

4 purposes of clause (i), the term ‘recompu5 tation period’ means, with respect to any 

6 contract, the 5 calendar year period begin7 ning with the 5th calendar year beginning 

8 after the calendar year in which the con9 tract was issued (and each subsequent 5 

10 calendar year period). 

11 ‘‘(iii) ELECTION.—An election under 

12 this subparagraph shall apply to all con13 tracts issued during the calendar year for 

14 which the election was made or during any 

15 subsequent calendar year unless such elec16 tion is revoked with the consent of the Sec17 retary. 

18 ‘‘(iv) SPREAD NOT AVAILABLE.—Sub19 section (f) shall not apply to any adjust20 ment required under this paragraph. 

21 ‘‘(C) RATE OF INTEREST.—

22 ‘‘(i) IN GENERAL.—For purposes of 

23 this paragraph, the rate of interest deter24 mined under this subparagraph shall be 


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1 the annual rate determined by the Sec2 retary under clause (ii). 

3 ‘‘(ii) DETERMINATION OF ANNUAL

4 RATE.—

5 ‘‘(I) IN GENERAL.—The annual 

6 rate determined by the Secretary 

7 under this clause for any calendar 

8 year shall be a rate equal to the aver9 age of the applicable Federal mid10 term rates (as defined in section 

11 1274(d) but based on annual 

12 compounding) effective as of the be13 ginning of each of the calendar 

14 months in the test period. 

15 ‘‘(II) TEST PERIOD.—For pur16 poses of subclause (I), the test period 

17 is the most recent 60-calendar-month 

18 period ending before the beginning of 

19 the calendar year for which the deter20 mination is made.’’. 

21 (2) The first sentence following paragraph (6) 

22 in section 807(c) is amended by striking ‘‘the appli23 cable Federal interest rate under subsection 

24 (d)(2)(B)(i), the prevailing State assumed interest 

25 rate under subsection (d)(2)(B)(ii),’’ and inserting 


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1 ‘‘the interest rate determined under subsection 

2 (d)(2)(B)’’. 

3 (3) Section 808 is amended by adding at the 

4 end the following new subsection: 

5 ‘‘(g) PREVAILING STATE ASSUMED INTEREST

6 RATE.—For purposes of this subchapter—

7 ‘‘(1) IN GENERAL.—The term ‘prevailing State 

8 assumed interest rate’ means, with respect to any 

9 contract, the highest assumed interest rate per10 mitted to be used in computing life insurance re11 serves for insurance contracts or annuity contracts 

12 (as the case may be) under the insurance laws of at 

13 least 26 States. For purposes of the preceding sen14 tence, the effect of nonforfeiture laws of a State on 

15 interest rates for reserves shall not be taken into ac16 count. 

17 ‘‘(2) WHEN RATE DETERMINED.—The pre18 vailing State assumed interest rate with respect to 

19 any contract shall be determined as of the beginning 

20 of the calendar year in which the contract was 

21 issued.’’. 

22 (4) Paragraph (1) of section 811(d) is amended 

23 by striking ‘‘the greater of the prevailing State as24 sumed interest rate or applicable Federal interest 


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1 rate in effect under section 807’’ and inserting ‘‘the 

2 interest rate in effect under section 807(d)(2)(B)’’. 

3 (5) Subparagraph (A) of section 846(f)(6) is 

4 amended by striking ‘‘except that’’ and all that fol5 lows and inserting ‘‘except that the limitation of 

6 subsection (a)(3) shall apply in lieu of the limitation 

7 of the last sentence of section 807(d)(1), and’’. 

8 (6) Subparagraph (B) of section 954(i)(5) is 

9 amended by striking ‘‘shall be substituted for the 

10 prevailing State assumed interest rate’’ and insert11 ing ‘‘shall, if higher, be substituted for the interest 

12 rate in effect under section 807(d)(2)(B)’’. 

13 (c) EFFECTIVE DATE.—

14 (1) IN GENERAL.—The amendments made by 

15 this section shall apply to taxable years beginning 

16 after December 31, 2014. 

17 (2) TRANSITION RULE.—For the first taxable 

18 year beginning after December 31, 2014, the reserve 

19 with respect to any contract (as determined under 

20 section 807(d)(2) of the Internal Revenue Code of 

21 1986) at the end of the preceding taxable year shall 

22 be determined as if the amendments made by this 

23 section had applied to such reserve in such preceding 

24 taxable year and by using the interest rate applica25 ble to such reserves under section 807(d)(2) of the 


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1 Internal Revenue Code of 1986 for calendar year 

2 2015. For subsequent taxable years, such amend3 ments shall be applied with respect to such reserve 

4 by using the interest rate applicable under such sec5 tion for calendar year 2015. 

6 (3) TRANSITION RELIEF.—

7 (A) IN GENERAL.—If—

8 (i) the reserve determined under sec9 tion 807(d)(2) of the Internal Revenue 

10 Code of 1986 with respect to any contract 

11 as of the close of the year preceding the 

12 first taxable year beginning after Decem13 ber 31, 2014, differs from 

14 (ii) the reserve which would have been 

15 determined with respect to such contract 

16 as of the close of such taxable year under 

17 such section determined without regard to 

18 paragraph (2), 

19 then the difference between the amount of the 

20 reserve described in clause (i) and the amount 

21 of the reserve described in clause (ii) shall be 

22 taken into account under the method provided 

23 in subparagraph (B). 

24 (B) METHOD.—The method provided in 

25 this subparagraph is as follows: 


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1 (i) if the amount determined under 

2 subparagraph (A)(i) exceeds the amount 

determined under subparagraph (A)(ii), 1 3 ⁄8

4 of such excess shall be taken into account, 

5 for each of the 8 succeeding taxable years, 

6 as a deduction under section 805(a)(2) of 

7 such Code, or 

8 (ii) if the amount determined under 

9 subparagraph (A)(ii) exceeds the amount 

determined under subparagraph (A)(i), 1 10 ⁄8

11 of such excess shall be included in gross in12 come, for each of the 8 succeeding taxable 

13 years, under section 803(a)(2) of such 

14 Code. 

15 SEC. 3505. ADJUSTMENT FOR CHANGE IN COMPUTING RE16 SERVES.

17 (a) IN GENERAL.—Paragraph (1) of section 807(f) 

18 is amended to read as follows: 

19 ‘‘(1) TREATMENT AS CHANGE IN METHOD OF

20 ACCOUNTING.—If the basis for determining any item 

21 referred to in subsection (c) as of the close of any 

22 taxable year differs from the basis for such deter23 mination as of the close of the preceding taxable 

24 year, then so much of the difference between—


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1 ‘‘(A) the amount of the item at the close 

2 of the taxable year, computed on the new basis, 

3 and 

4 ‘‘(B) the amount of the item at the close 

5 of the taxable year, computed on the old basis, 

6 as is attributable to contracts issued before the tax7 able year shall be taken into account under section 

8 481 as adjustments attributable to a change in 

9 method of accounting initiated by the taxpayer and 

10 made with the consent of the Secretary.’’. 

11 (b) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2014. 

14 SEC. 3506. MODIFICATION OF RULES FOR LIFE INSURANCE 

15 PRORATION FOR PURPOSES OF DETER16 MINING THE DIVIDENDS RECEIVED DEDUC17 TION.

18 (a) IN GENERAL.—Section 812 is amended to read 

19 as follows: 

20 ‘‘SEC. 812. DETERMINATION OF COMPANY’S AND POLICY21 HOLDER’S SHARE ON ACCOUNT BY ACCOUNT 

22 BASIS.

23 ‘‘(a) DETERMINATION ON ACCOUNT BY ACCOUNT

24 BASIS.—Sections 805(a)(4) and 807 shall be applied on 

25 an account by account basis. 


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1 ‘‘(b) COMPANY’S SHARE.—For purposes of section 

2 805(a)(4), the term ‘company’s share’ means, with respect 

3 to any account for any taxable year, the ratio (expressed 

4 as a percentage) of—

5 ‘‘(1) the excess of—

6 ‘‘(A) the mean assets of such account for 

7 such taxable year, over 

8 ‘‘(B) the mean reserves with respect to 

9 such account for such taxable year, divided by 

10 ‘‘(2) the mean assets of such account for such 

11 taxable year. 

12 ‘‘(c) POLICYHOLDER’S SHARE.—For purposes of sec13 tion 807, the term ‘policyholder’s share’ means, with re14 spect to any account for any taxable year, the excess of 

15 100 percent over the percentage determined under para16 graph (2). 

17 ‘‘(d) MEAN ASSETS AND MEAN RESERVES DE18 FINED.—For purposes of this subsection—

19 ‘‘(1) MEAN ASSETS.—The term ‘mean assets’ 

20 means, with respect to any account for any taxable 

21 year, 50 percent of the sum of—

22 ‘‘(A) the fair market value of the assets of 

23 such account determined as of the beginning of 

24 such taxable year, and 


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1 ‘‘(B) the fair market value of the assets of 

2 such account determined as of the close of such 

3 taxable year. 

4 ‘‘(2) MEAN RESERVES.—The term ‘mean re5 serves’ means, with respect to any account for any 

6 taxable year, 50 percent of the sum of—

7 ‘‘(A) the reserves with respect to such ac8 count as determined under section 807 as of 

9 the beginning of such taxable year, and 

10 ‘‘(B) the reserves with respect to such ac11 count as determined under section 807 as of 

12 the close of such taxable year. 

13 ‘‘(3) CERTAIN DIVIDENDS NOT TAKEN INTO AC14 COUNT.—Dividends described in section 246(c) shall 

15 not be taken into account for purposes of deter16 mining mean assets or mean reserves. 

17 ‘‘(4) FEES AND EXPENSES NOT TAKEN INTO

18 ACCOUNT.—Fees and expenses shall not be taken 

19 into account for purposes of determining mean as20 sets or mean reserves.’’. 

21 (b) CONFORMING AMENDMENT.—Section 817A(e)(2) 

22 is amended by striking ‘‘, 807(d)(2)(B), and 812’’ and in23 serting ‘‘and 807(d)(2)(B)’’

24 (c) CLERICAL AMENDMENT.—The table of sections 

25 for subpart D of part I of subchapter L of chapter 1 is 


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1 amended by striking the item relating to section 812 and 

2 inserting the following:

‘‘Sec. 812. Determination of company’s and policyholder’s share on account by 

account basis.’’.

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2014. 

6 SEC. 3507. REPEAL OF SPECIAL RULE FOR DISTRIBUTIONS 

7 TO SHAREHOLDERS FROM PRE-1984 POLICY8 HOLDERS SURPLUS ACCOUNT. 

9 (a) IN GENERAL.—Subpart D of part I of subchapter 

10 L is amended by striking section 815 (and by striking the 

11 item relating to such section in the table of sections for 

12 such subpart). 

13 (b) CONFORMING AMENDMENT.—Section 801 is 

14 amended by striking subsection (c). 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years beginning after 

17 December 31, 2014. 

18 (d) PHASED INCLUSION OF REMAINING BALANCE OF

19 POLICYHOLDERS SURPLUS ACCOUNTS.—In the case of 

20 any stock life insurance company which has a balance (de21 termined as of the close of such company’s last taxable 

22 year beginning before January 1, 2015) in an existing pol23 icyholders surplus account (as defined in section 815 of 

24 the Internal Revenue Code of 1986, as in effect before 


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1 its repeal), the tax imposed by section 801 of such Code 

2 for the first 8 taxable years beginning after December 31, 

3 2014, shall be the amount which would be imposed by 

4 such section for such year on the sum of—

5 (1) life insurance company taxable income for 

6 such year (within the meaning of such section 801 

7 but not less than zero), plus 

(2) 1 8 ⁄8 of such balance. 

9 SEC. 3508. MODIFICATION OF PRORATION RULES FOR 

10 PROPERTY AND CASUALTY INSURANCE COM11 PANIES.

12 (a) IN GENERAL.—Section 832(b)(5)(B) is amended 

13 by striking ‘‘15 percent’’ and inserting ‘‘the percentage 

14 determined under subparagraph (F))’’. 

15 (b) DETERMINATION OF PERCENTAGE.—Section 

16 832(b)(5) is amended by adding at the end the following 

17 new subparagraph: 

18 ‘‘(F) DETERMINATION OF PERCENTAGE.—

19 ‘‘(i) IN GENERAL.—For purposes of 

20 subparagraph (B), the percentage deter21 mined under this subparagraph is the ratio 

22 (expressed as a percentage) of—

23 ‘‘(I) the average adjusted bases 

24 (within the meaning of section 1016) 


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1 of tax-exempt assets of the company, 

2 to 

3 ‘‘(II) such average adjusted bases 

4 of all assets of the company. 

5 ‘‘(ii) TAX-EXEMPT ASSETS.—For pur6 poses of clause (i)(I), the term ‘tax-exempt 

7 assets’ means assets of the type which give 

8 rise to income described in subparagraph 

9 (B).’’. 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2014. 

13 SEC. 3509. REPEAL OF SPECIAL TREATMENT OF BLUE 

14 CROSS AND BLUE SHIELD ORGANIZATIONS, 

15 ETC.

16 (a) TRANSITIONAL REPEAL OF SPECIAL RULES.—

17 (1) IN GENERAL.—Section 833 is amended by 

18 striking subsection (b), by redesignating subsection 

19 (c) as subsection (b), and by amending subsection 

20 (a) to read as follows: 

21 ‘‘(a) IN GENERAL.—An organization to which this 

22 section applies shall be taxable under this part in the same 

23 manner as if it were a stock insurance company.’’. 

24 (2) TAX STATUS NOT DEPENDENT ON MEDICAL

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1 designated by subsection (a), is amended by striking 

2 paragraph (5). 

3 (3) EFFECTIVE DATE.—The amendments made 

4 by this subsection shall apply to taxable years begin5 ning after December 31, 2014. 

6 (b) REPEAL OF STATUTORY TREATMENT AS A STOCK

7 INSURANCE COMPANY.—

8 (1) IN GENERAL.—Part II of subchapter L of 

9 chapter is amended by striking section 833 (and by 

10 striking the item relating to such section in the table 

11 of sections for such part). 

12 (2) EFFECTIVE DATE.—The amendments made 

13 by this subsection shall apply to taxable years begin14 ning after December 31, 2016. 

15 SEC. 3510. MODIFICATION OF DISCOUNTING RULES FOR 

16 PROPERTY AND CASUALTY INSURANCE COM17 PANIES.

18 (a) MODIFICATION OF RATE OF INTEREST USED TO

19 DISCOUNT UNPAID LOSSES.—Paragraph (2) of section 

20 846(c) is amended to read as follows: 

21 ‘‘(2) DETERMINATION OF ANNUAL RATE.—The 

22 annual rate determined by the Secretary under this 

23 paragraph for any calendar year shall be a rate de24 termined on the basis of the corporate bond yield 

25 curve (as defined in section 430(h)(2)(D)(i)).’’. 


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1 (b) MODIFICATION OF COMPUTATIONAL RULES FOR

2 LOSS PAYMENT PATTERNS.—Section 846(d)(3) is amend3 ed by striking subparagraphs (B) through (G) and insert4 ing the following new subparagraphs: 

5 ‘‘(B) TREATMENT OF CERTAIN LOSSES.—

6 Losses which would have been treated as paid 

7 in the last year of the period applicable under 

8 subparagraph (A)(i) or (A)(ii) shall be treated 

9 as paid in the following manner: 

10 ‘‘(i) 3-YEAR LOSS PAYMENT PAT11 TERN.—

12 ‘‘(I) IN GENERAL.—The period 

13 taken into account under subpara14 graph (A)(i) shall be extended to the 

15 extent required under subclause (II). 

16 ‘‘(II) COMPUTATION OF EXTEN17 SION.—The amount of losses which 

18 would have been treated as paid in the 

19 3d year after the accident year shall 

20 be treated as paid in such 3d year 

21 and each subsequent year in an 

22 amount equal to the amount of the 

23 losses treated as paid in the 2d year 

24 after the accident year (or, if lesser, 


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1 the portion of the unpaid losses not 

2 theretofore taken into account). 

3 ‘‘(ii) 10-YEAR LOSS PAYMENT PAT4 TERN.—

5 ‘‘(I) IN GENERAL.—The period 

6 taken into account under subpara7 graph (A)(ii) shall be extended to the 

8 extent required under subclause (II). 

9 ‘‘(II) COMPUTATION OF EXTEN10 SION.—The amount of losses which 

11 would have been treated as paid in the 

12 10th year after the accident year shall 

13 be treated as paid in such 10th year 

14 and each subsequent year in an 

15 amount equal to the amount of the 

16 losses treated as paid in the 9th year 

17 after the accident year (or, if lesser, 

18 the portion of the unpaid losses not 

19 theretofore taken into account). 

20 ‘‘(C) SPECIAL RULE FOR INTERNATIONAL

21 AND REINSURANCE LINES OF BUSINESS.—Ex22 cept as otherwise provided by regulations, any 

23 determination made under subsection (a) with 

24 respect to unpaid losses relating to the inter25 national or reinsurance lines of business shall 


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1 be made using, in lieu of the loss payment pat2 tern applicable to the respective lines of busi3 ness, a pattern determined by the Secretary 

4 under paragraphs (1) and (2) based on the 

5 combined losses for all lines of business de6 scribed in subparagraph (A)(ii). 

7 ‘‘(D) SPECIAL RULE FOR 2D OR 9TH YEAR

8 IF NEGATIVE OR ZERO.—

9 ‘‘(i) 3-YEAR LOSS PAYMENT PAT10 TERN.—If the amount of the losses treated 

11 as paid in the 2d year after the accident 

12 year is zero or a negative amount, sub13 paragraph (B)(i)(II) shall be applied by 

14 substituting the average of the losses treat15 ed as paid in the 1st and 2d years after 

16 the accident year for the losses treated as 

17 paid in the 2d year after the accident year. 

18 ‘‘(ii) 10-YEAR LOSS PAYMENT PAT19 TERN.—If the amount of the losses treated 

20 as paid in the 9th year after the accident 

21 year is zero or a negative amount, sub22 paragraph (B)(ii)(II) shall be applied by 

23 substituting the average of the losses treat24 ed as paid in the 7th, 8th, and 9th years 

25 after the accident year for the losses treatVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00619 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ed as paid in the 9th year after the acci2 dent year.’’. 

3 (c) REPEAL OF HISTORICAL PAYMENT PATTERN

4 ELECTION.—Section 846 is amended by striking sub5 section (e) and by redesignating subsections (f) and (g) 

6 as subsections (e) and (f), respectively. 

7 (d) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years beginning after 

9 December 31, 2014. 

10 (e) TRANSITIONAL RULE.—For the first taxable year 

11 beginning after December 31, 2014—

12 (1) the unpaid losses and the expenses unpaid 

13 (as defined in paragraphs (5)(B) and (6) of section 

14 832(b) of the Internal Revenue Code of 1986) at the 

15 end of the preceding taxable year, and 

16 (2) the unpaid losses as defined in sections 

17 807(c)(2) and 805(a)(1) of such Code at the end of 

18 the preceding taxable year, 

19 shall be determined as if the amendments made by this 

20 section had applied to such unpaid losses and expenses 

21 unpaid in the preceding taxable year and by using the in22 terest rate and loss payment patterns applicable to acci23 dent years ending with calendar year 2015, and any ad24 justment shall be taken into account ratably in such first 

25 taxable year and the 7 succeeding taxable years. For subVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00620 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 sequent taxable years, such amendments shall be applied 

2 with respect to such unpaid losses and expenses unpaid 

3 by using the interest rate and loss payment patterns appli4 cable to accident years ending with calendar year 2015. 

5 SEC. 3511. REPEAL OF SPECIAL ESTIMATED TAX PAY6 MENTS.

7 (a) IN GENERAL.—Part III of subchapter L of chap8 ter 1 is amended by striking section 847 (and by striking 

9 the item relating to such section in the table of sections 

10 for such part). 

11 (b) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2014. 

14 SEC. 3512. CAPITALIZATION OF CERTAIN POLICY ACQUISI15 TION EXPENSES. 

16 (a) IN GENERAL.—Paragraph (1) of section 848(c) 

17 is amended by striking subparagraphs (A), (B), and (C) 

18 and inserting the following new subparagraphs: 

19 ‘‘(A) 5 percent of the net premiums for 

20 such taxable year on specified insurance con21 tracts which are group contracts, and 

22 ‘‘(B) 12 percent of the net premiums for 

23 such taxable year on specified insurance con24 tracts not described in subparagraph (A).’’. 


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1 (b) GROUP CONTRACTS.—So much of paragraph (2) 

2 of section 848(e) as precedes subparagraph (A) thereof is 

3 amended to read as follows: 

4 ‘‘(2) GROUP CONTRACT.—The term ‘group con5 tract’ means any specified insurance contract—’’. 

6 (c) CONFORMING AMENDMENTS.—Section 848(e) is 

7 amended by striking paragraphs (3) and (6) and by redes8 ignating paragraphs (4) and (5) as paragraphs (3) and 

9 (4), respectively. 

10 (d) EFFECTIVE DATE.— The amendments made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2014. 

13 SEC. 3513. TAX REPORTING FOR LIFE SETTLEMENT TRANS14 ACTIONS.

15 (a) IN GENERAL.—Subpart B of part III of sub16 chapter A of chapter 61 is amended by adding at the end 

17 the following new section: 

18 ‘‘SEC. 6050X. RETURNS RELATING TO CERTAIN LIFE INSUR19 ANCE CONTRACT TRANSACTIONS. 

20 ‘‘(a) REQUIREMENT OF REPORTING OF CERTAIN

21 PAYMENTS.—

22 ‘‘(1) IN GENERAL.—Every person who acquires 

23 a life insurance contract or any interest in a life in24 surance contract in a reportable policy sale during 

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1 able year (at such time and in such manner as the 

2 Secretary shall prescribe) setting forth—

3 ‘‘(A) the name, address, and TIN of such 

4 person, 

5 ‘‘(B) the name, address, and TIN of each 

6 recipient of payment in the reportable policy 

7 sale, 

8 ‘‘(C) the date of such sale, 

9 ‘‘(D) the name of the issuer of the life in10 surance contract sold and the policy number of 

11 such contract, and 

12 ‘‘(E) the amount of each payment. 

13 ‘‘(2) STATEMENT TO BE FURNISHED TO PER14 SONS WITH RESPECT TO WHOM INFORMATION IS RE15 QUIRED.—Every person required to make a return 

16 under this subsection shall furnish to each person 

17 whose name is required to be set forth in such re18 turn a written statement showing—

19 ‘‘(A) the name, address, and phone num20 ber of the information contact of the person re21 quired to make such return, and 

22 ‘‘(B) the information required to be shown 

23 on such return with respect to such person, ex24 cept that in the case of an issuer of a life insur25 ance contract, such statement is not required to 


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1 include the information specified in paragraph 

2 (1)(E). 

3 ‘‘(b) REQUIREMENT OF REPORTING OF SELLER’S

4 BASIS IN LIFE INSURANCE CONTRACTS.—

5 ‘‘(1) IN GENERAL.—Upon receipt of the state6 ment required under subsection (a)(2) or upon no7 tice of a transfer of a life insurance contract to a 

8 foreign person, each issuer of a life insurance con9 tract shall make a return (at such time and in such 

10 manner as the Secretary shall prescribe) setting 

11 forth—

12 ‘‘(A) the name, address, and TIN of the 

13 seller who transfers any interest in such con14 tract in such sale, 

15 ‘‘(B) the investment in the contract (as de16 fined in section 72(e)(6)) with respect to such 

17 seller, and 

18 ‘‘(C) the policy number of such contract. 

19 ‘‘(2) STATEMENT TO BE FURNISHED TO PER20 SONS WITH RESPECT TO WHOM INFORMATION IS RE21 QUIRED.—Every person required to make a return 

22 under this subsection shall furnish to each person 

23 whose name is required to be set forth in such re24 turn a written statement showing—


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1 ‘‘(A) the name, address, and phone num2 ber of the information contact of the person re3 quired to make such return, and 

4 ‘‘(B) the information required to be shown 

5 on such return with respect to each seller whose 

6 name is required to be set forth in such return. 

7 ‘‘(c) REQUIREMENT OF REPORTING WITH RESPECT

8 TO REPORTABLE DEATH BENEFITS.—

9 ‘‘(1) IN GENERAL.—Every person who makes a 

10 payment of reportable death benefits during any tax11 able year shall make a return for such taxable year 

12 (at such time and in such manner as the Secretary 

13 shall prescribe) setting forth—

14 ‘‘(A) the name, address, and TIN of the 

15 person making such payment, 

16 ‘‘(B) the name, address, and TIN of each 

17 recipient of such payment, 

18 ‘‘(C) the date of each such payment, and 

19 ‘‘(D) the amount of each such payment. 

20 ‘‘(2) STATEMENT TO BE FURNISHED TO PER21 SONS WITH RESPECT TO WHOM INFORMATION IS RE22 QUIRED.—Every person required to make a return 

23 under this subsection shall furnish to each person 

24 whose name is required to be set forth in such re25 turn a written statement showing—


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1 ‘‘(A) the name, address, and phone num2 ber of the information contact of the person re3 quired to make such return, and 

4 ‘‘(B) the information required to be shown 

5 on such return with respect to each recipient of 

6 payment whose name is required to be set forth 

7 in such return. 

8 ‘‘(d) DEFINITIONS.—For purposes of this section: 

9 ‘‘(1) PAYMENT.—The term ‘payment’ means 

10 the amount of cash and the fair market value of any 

11 consideration transferred in a reportable policy sale. 

12 ‘‘(2) REPORTABLE POLICY SALE.—The term 

13 ‘reportable policy sale’ has the meaning given such 

14 term in section 101(a)(3)(B). 

15 ‘‘(3) ISSUER.—The term ‘issuer’ means any life 

16 insurance company that bears the risk with respect 

17 to a life insurance contract on the date any return 

18 or statement is required to be made under this sec19 tion. 

20 ‘‘(4) REPORTABLE DEATH BENEFITS.—The 

21 term ‘reportable death benefits’ means amounts paid 

22 by reason of the death of the insured under a life 

23 insurance contract that has been transferred in a re24 portable policy sale.’’. 


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1 (b) CLERICAL AMENDMENT.—The table of sections 

2 for subpart B of part III of subchapter A of chapter 61 

3 is amended by inserting after the item relating to section 

4 6050W the following new item:

‘‘Sec. 6050X. Returns relating to certain life insurance contract transactions.’’.

5 (c) CONFORMING AMENDMENTS.—

6 (1) Subsection (d) of section 6724 is amend7 ed—

8 (A) by striking ‘‘or’’ at the end of clause 

9 (xxiv) of paragraph (1)(B), by striking ‘‘and’’ 

10 at the end of clause (xxv) of such paragraph 

11 and inserting ‘‘or’’, and by inserting after such 

12 clause (xxv) the following new clause: 

13 ‘‘(xxvi) section 6050X (relating to re14 turns relating to certain life insurance con15 tract transactions), and’’, and 

16 (B) by striking ‘‘or’’ at the end of subpara17 graph (GG) of paragraph (2), by striking the 

18 period at the end of subparagraph (HH) of 

19 such paragraph and inserting ‘‘, or’’, and by in20 serting after such subparagraph (HH) the fol21 lowing new subparagraph: 

22 ‘‘(II) subsection (a)(2), (b)(2), or (c)(2) of 

23 section 6050X (relating to returns relating to 

24 certain life insurance contract transactions).’’. 

25 (2) Section 6047 is amended—


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1 (A) by redesignating subsection (g) as sub2 section (h), 

3 (B) by inserting after subsection (f) the 

4 following new subsection: 

5 ‘‘(g) INFORMATION RELATING TO LIFE INSURANCE

6 CONTRACT TRANSACTIONS.—This section shall not apply 

7 to any information which is required to be reported under 

8 section 6050X.’’, and 

9 (C) by adding at the end of subsection (h), 

10 as so redesignated, the following new para11 graph: 

12 ‘‘(4) For provisions requiring reporting of infor13 mation relating to certain life insurance contract 

14 transactions, see section 6050X.’’. 

15 (d) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to—

17 (1) reportable policy sales (as defined in section 

18 6050X(d)(2) of the Internal Revenue Code of 1986 

19 (as added by subsection (a)) after December 31, 

20 2014, and 

21 (2) reportable death benefits (as defined in sec22 tion 6050X(d)(4) of such Code (as added by sub23 section (a)) paid after December 31, 2014. 


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1 SEC. 3514. CLARIFICATION OF TAX BASIS OF LIFE INSUR2 ANCE CONTRACTS. 

3 (a) CLARIFICATION WITH RESPECT TO ADJUST4 MENTS.—Paragraph (1) of section 1016(a) is amended by 

5 striking subparagraph (A) and all that follows and insert6 ing the following: 

7 ‘‘(A) for—

8 ‘‘(i) taxes or other carrying charges 

9 described in section 266; or 

10 ‘‘(ii) expenditures described in section 

11 173 (relating to circulation expenditures), 

12 for which deductions have been taken by the 

13 taxpayer in determining taxable income for the 

14 taxable year or prior taxable years; or 

15 ‘‘(B) for mortality, expense, or other rea16 sonable charges incurred under an annuity or 

17 life insurance contract;’’. 

18 (b) EFFECTIVE DATE.—The amendment made by 

19 this section shall apply to transactions entered into after 

20 August 25, 2009. 

21 SEC. 3515. EXCEPTION TO TRANSFER FOR VALUABLE CON22 SIDERATION RULES. 

23 (a) IN GENERAL.—Subsection (a) of section 101 is 

24 amended by inserting after paragraph (2) the following 

25 new paragraph: 


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1 ‘‘(3) EXCEPTION TO VALUABLE CONSIDERATION

2 RULES FOR COMMERCIAL TRANSFERS.—

3 ‘‘(A) IN GENERAL.—The second sentence 

4 of paragraph (2) shall not apply in the case of 

5 a transfer of a life insurance contract, or any 

6 interest therein, which is a reportable policy 

7 sale. 

8 ‘‘(B) REPORTABLE POLICY SALE.—For 

9 purposes of this paragraph, the term ‘reportable 

10 policy sale’ means the acquisition of an interest 

11 in a life insurance contract, directly or indi12 rectly, if the acquirer has no substantial family, 

13 business, or financial relationship with the in14 sured apart from the acquirer’s interest in such 

15 life insurance contract. For purposes of the pre16 ceding sentence, the term ‘indirectly’ applies to 

17 the acquisition of an interest in a partnership, 

18 trust, or other entity that holds an interest in 

19 the life insurance contract.’’. 

20 (b) CONFORMING AMENDMENT.—Paragraph (1) of 

21 section 101(a) is amended by striking ‘‘paragraph (2)’’ 

22 and inserting ‘‘paragraphs (2) and (3)’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to transfers after December 31, 

25 2014. 


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1 Subtitle G—Pass-Thru and Certain 

2 Other Entities 

3 PART 1—S CORPORATIONS 

4 SEC. 3601. REDUCED RECOGNITION PERIOD FOR BUILT-IN 

5 GAINS MADE PERMANENT. 

6 (a) IN GENERAL.—Paragraph (7) of section 1374(d) 

7 (relating to definitions and special rules) is amended to 

8 read as follows: 

9 ‘‘(7) RECOGNITION PERIOD.—

10 ‘‘(A) IN GENERAL.—The term ‘recognition 

11 period’ means the 5-year period beginning with 

12 the 1st day of the 1st taxable year for which 

13 the corporation was an S corporation. For pur14 poses of applying this section to any amount in15 cludible in income by reason of distributions to 

16 shareholders pursuant to section 593(e), the 

17 preceding sentence shall be applied without re18 gard to the phrase ‘5-year’. 

19 ‘‘(B) INSTALLMENT SALES.—If an S cor20 poration sells an asset and reports the income 

21 from the sale using the installment method 

22 under section 453, the treatment of all pay23 ments received shall be governed by the provi24 sions of this paragraph applicable to the taxable 

25 year in which such sale was made.’’. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2013. 

4 SEC. 3602. MODIFICATIONS TO S CORPORATION PASSIVE 

5 INVESTMENT INCOME RULES. 

6 (a) INCREASED PERCENTAGE LIMIT.—Paragraph (2) 

7 of section 1375(a) is amended by striking ‘‘25 percent’’ 

8 and inserting ‘‘60 percent’’. 

9 (b) REPEAL OF EXCESSIVE PASSIVE INCOME AS A

10 TERMINATION EVENT.—Section 1362(d) is amended by 

11 striking paragraph (3). 

12 (c) CONFORMING AMENDMENTS.—

13 (1) Subsection (b) of section 1375 is amended 

14 by striking paragraphs (3) and (4) and inserting the 

15 following new paragraph: 

16 ‘‘(3) PASSIVE INVESTMENT INCOME DE17 FINED.—

18 ‘‘(A) IN GENERAL.—Except as otherwise 

19 provided in this paragraph, the term ‘passive 

20 investment income’ means gross receipts de21 rived from royalties, rents, dividends, interest, 

22 and annuities. 

23 ‘‘(B) EXCEPTION FOR INTEREST ON

24 NOTES FROM SALES OF INVENTORY.—The term 

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1 terest on any obligation acquired in the ordi2 nary course of the corporation’s trade or busi3 ness from its sale of property described in sec4 tion 1221(a)(1). 

5 ‘‘(C) TREATMENT OF CERTAIN LENDING

6 OR FINANCE COMPANIES.—If the S corporation 

7 meets the requirements of section 542(c)(6) for 

8 the taxable year, the term ‘passive investment 

9 income’ shall not include gross receipts for the 

10 taxable year which are derived directly from the 

11 active and regular conduct of a lending or fi12 nance business (as defined in section 

13 542(d)(1)). 

14 ‘‘(D) TREATMENT OF CERTAIN DIVI15 DENDS.—If an S corporation holds stock in a 

16 C corporation meeting the requirements of sec17 tion 1504(a)(2), the term ‘passive investment 

18 income’ shall not include dividends from such C 

19 corporation to the extent such dividends are at20 tributable to the earnings and profits of such C 

21 corporation derived from the active conduct of 

22 a trade or business. 

23 ‘‘(E) EXCEPTION FOR BANKS, ETC.—In 

24 the case of a bank (as defined in section 581) 

25 or a depository institution holding company (as 


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1 defined in section 3(w)(1) of the Federal De2 posit Insurance Act (12 U.S.C. 1813(w)(1)), 

3 the term ‘passive investment income’ shall not 

4 include—

5 ‘‘(i) interest income earned by such 

6 bank or company, or 

7 ‘‘(ii) dividends on assets required to 

8 be held by such bank or company, includ9 ing stock in the Federal Reserve Bank, the 

10 Federal Home Loan Bank, or the Federal 

11 Agricultural Mortgage Bank or participa12 tion certificates issued by a Federal Inter13 mediate Credit Bank. 

14 ‘‘(F) GROSS RECEIPTS FROM THE SALES

15 OF CERTAIN ASSETS.—For purposes of this 

16 paragraph—

17 ‘‘(i) CAPITAL ASSETS OTHER THAN

18 STOCK AND SECURITIES.—In the case of 

19 dispositions of capital assets (other than 

20 stock and securities), gross receipts from 

21 such dispositions shall be taken into ac22 count only to the extent of capital gain net 

23 income therefrom. 

24 ‘‘(ii) STOCK AND SECURITIES.—In the 

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1 rities, gross receipts shall be taken into ac2 count only to the extent of the gain there3 from. 

4 ‘‘(G) COORDINATION WITH SECTION

5 1374.—The amount of passive investment in6 come shall be determined by not taking into ac7 count any recognized built-in gain or loss of the 

8 S corporation for any taxable year in the rec9 ognition period. Terms used in the preceding 

10 sentence shall have the same respective mean11 ings as when used in section 1374.’’. 

12 (2)(A) Subparagraph (J) of section 26(b)(2) is 

13 amended by striking ‘‘25 percent’’ and inserting ‘‘60 

14 percent’’. 

15 (B) Clause (i) of section 1375(b)(1)(A) is 

16 amended by striking ‘‘25 percent’’ and inserting ‘‘60 

17 percent’’. 

18 (C) The heading for section 1375 is amended 

19 by striking ‘‘25 PERCENT’’ and inserting ‘‘60 PER20 CENT’’. 

21 (D) The item relating to section 1375 in the 

22 table of sections for part III of subchapter S of 

23 chapter 1 is amended by striking ‘‘25 percent’’ and 

24 inserting ‘‘60 percent’’. 


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1 (3) Subparagraph (B) of section 1362(f)(1) is 

2 amended by striking ‘‘paragraph (2) or (3) of sub3 section (d)’’ and inserting ‘‘subsection (d)(2)’’. 

4 (d) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2014. 

7 SEC. 3603. EXPANSION OF QUALIFYING BENEFICIARIES OF 

8 AN ELECTING SMALL BUSINESS TRUST. 

9 (a) NO LOOK-THROUGH FOR ELIGIBILITY PUR10 POSES.—Subparagraph (C) of section 1361(b)(1) is 

11 amended by inserting ‘‘(determined without regard to sub12 section (c)(2)(B)(v))’’ after ‘‘shareholder’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall take effect on January 1, 2015. 

15 SEC. 3604. CHARITABLE CONTRIBUTION DEDUCTION FOR 

16 ELECTING SMALL BUSINESS TRUSTS. 

17 (a) IN GENERAL.—Paragraph (2) of section 641(c), 

18 as amended by the preceding provisions of this Act, is 

19 amended by inserting after subparagraph (C) the fol20 lowing new subparagraph: 

21 ‘‘(D)(i) Section 642(c) shall not apply. 

22 ‘‘(ii) For purposes of section 170(b)(1)(E), 

23 adjusted gross income shall be computed in the 

24 same manner as in the case of an individual, 

25 except that the deductions for costs which are 


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1 paid or incurred in connection with the admin2 istration of the trust and which would not have 

3 been incurred if the property were not held in 

4 such trust shall be treated as allowable in arriv5 ing at adjusted gross income.’’. 

6 (b) EFFECTIVE DATE.—The amendment made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2014. 

9 SEC. 3605. PERMANENT RULE REGARDING BASIS ADJUST10 MENT TO STOCK OF S CORPORATIONS MAK11 ING CHARITABLE CONTRIBUTIONS OF PROP12 ERTY.

13 (a) IN GENERAL.—Section 1367(a)(2) (relating to 

14 decreases in basis) is amended by striking the last sen15 tence. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall apply to contributions made in taxable 

18 years beginning after December 31, 2013. 

19 SEC. 3606. EXTENSION OF TIME FOR MAKING S CORPORA20 TION ELECTIONS. 

21 (a) IN GENERAL.—Subsection (b) of section 1362 is 

22 amended to read as follows: 

23 ‘‘(b) WHEN MADE.—

24 ‘‘(1) IN GENERAL.—An election under sub25 section (a) may be made by a small business corVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00637 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 poration for any taxable year not later than the due 

2 date for filing the return of the S corporation for 

3 such taxable year (including extensions). 

4 ‘‘(2) CERTAIN ELECTIONS TREATED AS MADE

5 FOR NEXT TAXABLE YEAR.—If—

6 ‘‘(A) an election under subsection (a) is 

7 made for any taxable year within the period de8 scribed in paragraph (1), but 

9 ‘‘(B) either—

10 ‘‘(i) on 1 or more days in such taxable 

11 year and before the day on which the elec12 tion was made the corporation did not 

13 meet the requirements of subsection (b) of 

14 section 1361, or 

15 ‘‘(ii) 1 or more of the persons who 

16 held stock in the corporation during such 

17 taxable year and before the election was 

18 made did not consent to the election, 

19 then such election shall be treated as made for 

20 the following taxable year. 

21 ‘‘(3) AUTHORITY TO TREAT LATE ELECTIONS, 

22 ETC., AS TIMELY.—If—

23 ‘‘(A) an election under subsection (a) is 

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1 tion for such taxable year or no such election is 

2 made for any taxable year, and 

3 ‘‘(B) the Secretary determines that there 

4 was reasonable cause for the failure to timely 

5 make such election, 

6 the Secretary may treat such an election as timely 

7 made for such taxable year. 

8 ‘‘(4) ELECTION ON TIMELY FILED RETURNS.—

9 Except as otherwise provided by the Secretary, an 

10 election under subsection (a) for any taxable year 

11 may be made on a timely filed return of the S cor12 poration for such taxable year. 

13 ‘‘(5) SECRETARIAL AUTHORITY.—The Secretary 

14 may prescribe such regulations, rules, or other guid15 ance as may be necessary or appropriate for pur16 poses of applying this subsection.’’. 

17 (b) COORDINATION WITH CERTAIN OTHER PROVI18 SIONS.—

19 (1) QUALIFIED SUBCHAPTER S SUBSIDI20 ARIES.—Section 1361(b)(3)(B) is amended by add21 ing at the end the following flush sentence: 

22 ‘‘Rules similar to the rules of section 1362(b) 

23 shall apply with respect to any election under 

24 clause (ii).’’. 


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1 (2) QUALIFIED SUBCHAPTER S TRUSTS.—Sec2 tion 1361(d)(2) is amended by striking subpara3 graph (D). 

4 (c) REVOCATIONS.—Paragraph (1) of section 

5 1362(d) is amended—

6 (1) by striking ‘‘subparagraph (D)’’ in subpara7 graph (C) and inserting ‘‘subparagraphs (D) and 

8 (E)’’, and 

9 (2) by adding at the end the following new sub10 paragraph: 

11 ‘‘(E) AUTHORITY TO TREAT LATE REVOCA12 TIONS AS TIMELY.—If—

13 ‘‘(i) a revocation under subparagraph 

14 (A) is made for any taxable year after the 

15 date prescribed by this paragraph for mak16 ing such revocation for such taxable year 

17 or no such revocation is made for any tax18 able year, and 

19 ‘‘(ii) the Secretary determines that 

20 there was reasonable cause for the failure 

21 to timely make such revocation, 

22 the Secretary may treat such a revocation as 

23 timely made for such taxable year.’’. 

24 (d) EFFECTIVE DATE.—


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1 (1) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the amendments made by 

3 this section shall apply to elections for taxable years 

4 beginning after December 31, 2014. 

5 (2) REVOCATIONS.—The amendments made by 

6 subsection (c) shall apply to revocations after De7 cember 31, 2014. 

8 SEC. 3607. RELOCATION OF C CORPORATION DEFINITION. 

9 (a) IN GENERAL.—Subsection (a) of section 1361 is 

10 amended—

11 (1) by striking paragraph (2), and 

12 (2) by striking ‘‘S CORPORATION DEFINED.—’’ 

13 and all that follows through ‘‘For purposes of this 

14 title, the term ‘S corporation’ means’’ and inserting 

15 the following: ‘‘IN GENERAL.—For purposes of this 

16 title, the term ‘S corporation’ means’’. 

17 (b) CONFORMING AMENDMENT.—Section 7701(a)(3) 

18 is amended—

19 (1) by striking ‘‘CORPORATION.—The term 

20 ‘corporation’ means’’ and inserting the following: 

21 ‘‘CORPORATIONS.— 

22 ‘‘(1) IN GENERAL.—The term ‘corporation’ 

23 means’’, and 

24 (2) by adding at the end the following new 

25 paragraph: 


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1 ‘‘(2) C CORPORATIONS.—The term ‘C corpora2 tion’ means, with respect to any taxable year, a cor3 poration which is not an S corporation for such 

4 year.’’. 

5 (c) EFFECTIVE DATE.—The amendments made by 

6 this section shall take effect on the date of the enactment 

7 of this Act. 

8 PART 2—PARTNERSHIPS 

9 SEC. 3611. REPEAL OF RULES RELATING TO GUARANTEED 

10 PAYMENTS AND LIQUIDATING DISTRIBU11 TIONS.

12 (a) PAYMENT TO PARTNER FOR SERVICES OR USE

13 OF CAPITAL.—

14 (1) IN GENERAL.—Section 707 is amended by 

15 striking subsection (c). 

16 (2) CONFORMING AMENDMENTS.—

17 (A) Section 267(e) is amended by striking 

18 paragraph (4). 

19 (B) Section 706(a) is amended by striking 

20 ‘‘and 707(c)’’. 

21 (C) Section 1402(a) is amended, in the 

22 matter following paragraph (17)—

23 (i) by striking ‘‘(after such gross in24 come has been reduced by the sum of all 


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1 payments to which section 707(c) applies)’’ 

2 in clauses (iii) and (iv), and 

3 (ii) by striking ‘‘(after such gross in4 come has been so reduced)’’ in clause (iv). 

5 (D) Section 2701(c)(1)(B) is amended by 

6 inserting ‘‘or’’ at the end of clause (i), by strik7 ing ‘‘, or’’ at the end of clause (ii) and inserting 

8 a period, and by striking clause (iii). 

9 (E) Section 7519(d) is amended by strik10 ing paragraph (5). 

11 (3) EFFECTIVE DATES.—

12 (A) IN GENERAL.—Except as otherwise 

13 provided in this paragraph, the amendments 

14 made by this subsection shall apply to partner15 ship taxable years beginning after December 

16 31, 2014. 

17 (B) TRANSFERS.—The amendment made 

18 by paragraph (2)(E) shall apply to transfers 

19 after December 31, 2014. 

20 (b) PAYMENTS MADE IN LIQUIDATION OF RETIRING

21 OR DECEASED PARTNER.—

22 (1) IN GENERAL.—Subpart B of part II of sub23 chapter K of chapter 1 is amended by striking sec24 tion 736 (and by striking the item relating to such 

25 section in the table of sections for such subpart). 


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1 (2) RETIRED PARTNERS AND SUCCESSORS IN

2 INTEREST OF DECEASED PARTNERS TREATED AS

3 PARTNERS UNTIL LIQUIDATION.—Section 761(d) is 

4 amended by adding at the end the following: ‘‘For 

5 purposes of this subchapter, any retired partner or 

6 a deceased partner’s successor in interest shall be 

7 treated as a partner until the complete liquidation of 

8 such interest.’’

9 (3) CONFORMING AMENDMENT.—

10 (A) Section 357(c)(3)(A) is amended by 

11 striking ‘‘payment of which either—’’ and all 

12 that follows through ‘‘then, for purposes of’’ 

13 and inserting ‘‘payment of which would give 

14 rise to a deduction, then, for purposes of’’. 

15 (B) Section 731(d) is amended—

16 (i) by striking ‘‘section 736 (relating 

17 to payments to a retiring partner or a de18 ceased partner’s successor in interest),’’, 

19 and 

20 (ii) by striking ‘‘items), and’’ and in21 serting ‘‘items) and’’. 

22 (C) Section 751(b)(2) is amended—

23 (i) by striking subparagraph (B), and 

24 (ii) by striking ‘‘shall not apply to—

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1 tion of property’’ and inserting the fol2 lowing: ‘‘shall not apply to a distribution of 

3 property’’. 

4 (D)(i) Section 753 is amended by striking 

5 ‘‘The amount includible’’ and all that follows 

6 and inserting ‘‘For treatment of income in re7 spect of a decedent, see section 691.’’

8 (ii) Section 691 is amended by striking 

9 subsection (e). 

10 (4) EFFECTIVE DATE.—The amendments made 

11 by this subsection shall apply to partners retiring or 

12 dying after December 31, 2014. 

13 SEC. 3612. MANDATORY ADJUSTMENTS TO BASIS OF PART14 NERSHIP PROPERTY IN CASE OF TRANSFER 

15 OF PARTNERSHIP INTERESTS. 

16 (a) IN GENERAL.—Section 743 is amended—

17 (1) by striking subsections (a), (c), (d), (e), and 

18 (f) and by redesignating subsection (b) as subsection 

19 (a), 

20 (2) in subsection (a) (as so redesignated) by 

21 striking ‘‘with respect to which the election provided 

22 in section 754 is in effect or which has a substantial 

23 built-in loss immediately after such transfer’’, and 

24 (3) by adding at the end the following new sub25 section: 


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1 ‘‘(b) ALLOCATION OF BASIS.—

2 ‘‘(1) GENERAL RULE.—Any increase or de3 crease in the adjusted basis of partnership property 

4 under subsection (a) shall, except as provided in 

5 paragraph (2), be allocated—

6 ‘‘(A) in a manner which has the effect of 

7 reducing the difference between the fair market 

8 value and the adjusted basis of partnership 

9 properties, or 

10 ‘‘(B) in any other manner permitted by 

11 regulations prescribed by the Secretary. 

12 ‘‘(2) SPECIAL RULE.—In applying the allocation 

13 rules provided in paragraph (1), increases or de14 creases in the adjusted basis of partnership property 

15 arising from a transfer of an interest attributable to 

16 property consisting of—

17 ‘‘(A) capital assets and property described 

18 in section 1231(b), or 

19 ‘‘(B) any other property of the partner20 ship, 

21 shall be allocated to partnership property of a like 

22 character except that the basis of any such partner23 ship property shall not be reduced below zero.’’. 

24 (b) CONFORMING AMENDMENTS.—

25 (1) Section 704(c)(1) is amended—


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1 (A) by adding ‘‘and’’ at the end of sub2 paragraph (A), 

3 (B) by striking ‘‘, and’’ at the end of sub4 paragraph (B) and inserting a period, and 

5 (C) by striking all that follows subpara6 graph (B). 

7 (2) Section 732 is amended by striking sub8 section (d) and by redesignating subsections (e) and 

9 (f) as subsections (d) and (e), respectively. 

10 (3) Section 761(e)(2) is amended by striking 

11 ‘‘optional’’. 

12 (4) Section 6031 is amended by striking sub13 section (f). 

14 (5) The heading for section 743 is amended to 

15 read as follows: ‘‘ADJUSTMENT TO BASIS OF

16 PARTNERSHIP PROPERTY.’’

17 (6) The heading for subsection (a) (as redesig18 nated by the preceding provisions of this Act) of sec19 tion 743 is amended by striking ‘‘ADJUSTMENT TO

20 BASIS OF PARTNERSHIP PROPERTY’’ and inserting 

21 ‘‘IN GENERAL’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to transfers after December 31, 

24 2014. 


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1 SEC. 3613. MANDATORY ADJUSTMENTS TO BASIS OF UNDIS2 TRIBUTED PARTNERSHIP PROPERTY. 

3 (a) IN GENERAL.—Section 734 is amended to read 

4 as follows: 

5 ‘‘SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED 

6 PARTNERSHIP PROPERTY. 

7 ‘‘(a) IN GENERAL.—In the case of any distribution 

8 to a partner, the partnership shall adjust the basis of part9 nership property such that each remaining partner’s net 

10 liquidation amount immediately after such distribution is 

11 equal to such partner’s net liquidation amount imme12 diately before such distribution. 

13 ‘‘(b) DISTRIBUTIONS OTHER THAN IN LIQUIDATION

14 OF A PARTNER’S INTEREST.—In the case of any distribu15 tion to a partner other than in liquidation of such part16 ner’s interest, proper adjustment shall be made under sub17 section (a) with respect to such partner to take into ac18 count—

19 ‘‘(1) the amount of any gain recognized by such 

20 partner with respect to such distribution under sec21 tion 731(a), and 

22 ‘‘(2) the amount of any gain or loss which 

23 would be recognized by such partner if such partner 

24 sold the property distributed at fair market value 

25 immediately after such distribution. 


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1 ‘‘(c) NET LIQUIDATION AMOUNT.—For purposes of 

2 this section, the term ‘net liquidation amount’ means, with 

3 respect to any partner, the net amount of gain or loss (if 

4 any) which would be taken into account by the partner 

5 under section 702 if the partnership sold all of its assets 

6 at fair market value (and no other amounts were taken 

7 into account under such section). 

8 ‘‘(d) ALLOCATION OF BASIS.—

9 ‘‘(1) DECREASES IN BASIS.—Any decrease in 

10 the adjusted basis of partnership property which is 

11 required under this section—

12 ‘‘(A) shall be made in accordance with 

13 paragraph (3) of section 732(c), and 

14 ‘‘(B) shall be made first with respect to 

15 property other than unrealized receivables (as 

16 defined in section 751(c)) and inventory (as de17 fined in section 751(d)) to the extent thereof. 

18 If any such decrease is prevented by the absence of 

19 sufficient adjusted basis of partnership property, 

20 each partner shall recognize gain in the amount of 

21 such partner’s distributive share of such prevented 

22 decrease. Such gain shall be treated as gain from 

23 the sale of the partner’s partnership interest. 


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1 ‘‘(2) INCREASES IN BASIS.—Any increase in the 

2 adjusted basis of partnership property which is re3 quired under this section—

4 ‘‘(A) shall be made in accordance with 

5 paragraph (2) of section 732(c), and 

6 ‘‘(B) shall be made only with respect to 

7 property other than unrealized receivables (as 

8 defined in section 751(c)) and inventory (as de9 fined in section 751(d)). 

10 If any such increase is prevented by the absence of 

11 property described in subparagraph (B), each part12 ners shall recognize a loss in the amount of such 

13 partner’s distributive share of such prevented in14 crease. Such loss shall be treated as a loss from the 

15 sale of the partner’s partnership interest. 

16 ‘‘(e) NO ALLOCATION OF BASIS DECREASE TO

17 STOCK OF CORPORATE PARTNER.—In making an alloca18 tion under subsection (d) of any decrease in the adjusted 

19 basis of partnership property required under subsection 

20 (a)—

21 ‘‘(1) no allocation may be made to stock in a 

22 corporation (or any person related (within the mean23 ing of section 267(b) or 707(b)(1)) to such corpora24 tion) which is a partner in the partnership, and 


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1 ‘‘(2) any amount not allocable to stock by rea2 son of paragraph (1) shall be allocated under sub3 section (d) to other partnership property. 

4 Gain shall be recognized by the partnership to the extent 

5 that the amount required to be allocated to other partner6 ship property under subsection (e)(2) exceeds the aggre7 gate adjusted basis of such other property immediately be8 fore the allocation required by subsection (a).’’. 

9 (b) CONFORMING AMENDMENTS.—

10 (1)(A) Subpart D of part II of subchapter K of 

11 chapter 1 is amended by striking sections 754 and 

12 755 (and by striking items relating to such sections 

13 in the table of sections of such subpart). 

14 (B) Clause (ii) of section 706(d)(2)(D) is 

15 amended by striking ‘‘section 755’’ and inserting 

16 ‘‘section 743(b)’’. 

17 (2) Subsection (d) of section 1060 is amend18 ed—

19 (A) by striking ‘‘section 755’’ in paragraph 

20 (1) and inserting ‘‘sections 734 and 743’’, and 

21 (B) by striking ‘‘section 755’’ in paragraph 

22 (2) and inserting ‘‘section 734 or 743’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to distributions after December 31, 

25 2014. 


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1 SEC. 3614. CORRESPONDING ADJUSTMENTS TO BASIS OF 

2 PROPERTIES HELD BY PARTNERSHIP WHERE 

3 PARTNERSHIP BASIS ADJUSTED. 

4 (a) IN GENERAL.—Subpart B of part II of sub5 chapter K of chapter 1, as amended by the preceding pro6 visions of this Act, is amended by inserting after section 

7 735 the following new section: 

8 ‘‘SEC. 736. CORRESPONDING ADJUSTMENT TO BASIS OF 

9 PROPERTIES HELD BY LOWER-TIER PART10 NERSHIP IN CASE OF UPPER-TIER PARTNER11 SHIP BASIS ADJUSTMENTS. 

12 ‘‘(a) DISTRIBUTIONS BY UPPER-TIER PARTNER13 SHIP.—In the case of any distribution of property to a 

14 partner by an upper-tier partnership, if such distribution 

15 results in an adjustment in the upper-tier partnership’s 

16 adjusted basis in an interest in a lower-tier partnership 

17 under section 734, then such lower-tier partnership shall 

18 make a corresponding adjustment to the adjusted basis 

19 of its partnership property. 

20 ‘‘(b) DISTRIBUTIONS OF INTERESTS IN LOWER-TIER

21 PARTNERSHIP.—In the case of any distribution of an in22 terest in a lower-tier partnership by an upper-tier partner23 ship—

24 ‘‘(1) if the adjusted basis of such interest in the 

25 hands of the upper-tier partnership (determined im26 mediately before such distribution) exceeds the adVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00652 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 justed basis of such interest in the hands of the dis2 tributee partner (determined immediately after such 

3 distribution), then such lower-tier partnership shall 

4 decrease the adjusted basis of its partnership prop5 erty by the amount of such excess, or 

6 ‘‘(2) if the adjusted basis of such interest in the 

7 hands of the distributee partner (determined imme8 diately after such distribution) exceeds the adjusted 

9 basis of such interest in the hands of the upper-tier 

10 partnership (determined immediately before such 

11 distribution), then such lower-tier partnership shall 

12 increase the adjusted basis of its partnership prop13 erty by the amount of such excess. 

14 ‘‘(c) DISPOSITIONS OF INTERESTS IN UPPER-TIER

15 PARTNERSHIP.—In the case of a disposition of an interest 

16 in an upper-tier partnership which holds an interest in a 

17 lower-tier partnership, if there is an adjustment to the ad18 justed basis of the lower-tier partnership under section 

19 743, then such lower-tier partnership shall make a cor20 responding adjustment to the adjusted basis of its part21 nership property. 

22 ‘‘(d) MULTI-TIERED PARTNERSHIPS.—In the case of 

23 any adjustment under subsection (a), (b), or (c) in the 

24 adjusted basis of an interest in another partnership, such 


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1 other partnership shall make a corresponding adjustment 

2 in the adjusted basis of its partnership property. 

3 ‘‘(e) ALLOCATION OF BASIS; RECOGNITION OF

4 GAIN.—In the case of any adjustment in the adjusted 

5 basis of partnership property—

6 ‘‘(1) under subsection (a), (b), (c), or (d), such 

7 adjustment shall be made only with respect to the 

8 upper-tier partnership’s proportionate share (as de9 termined under section 743(a)) of the adjusted basis 

10 of the lower-tier partnership’s property, 

11 ‘‘(2) under subsection (a) or (b) (or so much of 

12 subsection (d) as relates to either such subsection), 

13 rules similar to the rules of section 734(d) shall 

14 apply, and 

15 ‘‘(3) under subsection (c) (or so much of sub16 section (d) as relates to such subsection), rules simi17 lar to the rules of section 743(b) shall apply. 

18 ‘‘(f) REPORTING.—In the case of any adjustment in 

19 the adjusted basis of partnership property by a lower-tier 

20 partnership under this section by reason of a distribution 

21 by, or a disposition of an interest in, an upper-tier part22 nership, such upper-tier partnership shall furnish (in such 

23 manner as the Secretary shall prescribe) to such lower24 tier partnership such information as is necessary to enable 

25 such lower-tier partnership to make such adjustment. 


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1 ‘‘(g) UPPER- AND LOWER-TIER PARTNERSHIPS.—

2 For purposes of this section—

3 ‘‘(1) UPPER-TIER PARTNERSHIP.—The term 

4 ‘upper-tier partnership’ means a partnership owning 

5 an interest in another partnership. 

6 ‘‘(2) LOWER-TIER PARTNERSHIP.—The term 

7 ‘lower-tier partnership’ means the partnership re8 ferred to in paragraph (1) an interest in which is 

9 owned by the upper-tier partnership.’’. 

10 (b) EFFECTIVE DATES.—The amendments made by 

11 this section shall apply to distributions and transfers after 

12 December 31, 2014. 

13 SEC. 3615. CHARITABLE CONTRIBUTIONS AND FOREIGN 

14 TAXES TAKEN INTO ACCOUNT IN DETER15 MINING LIMITATION ON ALLOWANCE OF 

16 PARTNER’S SHARE OF LOSS. 

17 (a) IN GENERAL.—Subsection (d) of section 704 is 

18 amended—

19 (1) by striking ‘‘A partner’s distributive share’’ 

20 and inserting the following: 

21 ‘‘(1) IN GENERAL.—A partner’s distributive 

22 share’’, 

23 (2) by striking ‘‘Any excess of such loss’’ and 

24 inserting the following: 


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1 ‘‘(2) CARRYOVER.—Any excess of such loss’’, 

2 and 

3 (3) by adding at the end the following new 

4 paragraph: 

5 ‘‘(3) SPECIAL RULES.—In determining the 

6 amount of any loss under paragraph (1), there shall 

7 be taken into account as a deduction the partner’s 

8 distributive share of—

9 ‘‘(A) the adjusted basis of charitable con10 tributions described in paragraph (4) of section 

11 702(a), and 

12 ‘‘(B) the amount of taxes described in 

13 paragraph (6) of such section.’’. 

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to partnership taxable years begin16 ning after December 31, 2014. 

17 SEC. 3616. REVISIONS RELATED TO UNREALIZED RECEIV18 ABLES AND INVENTORY ITEMS. 

19 (a) REPEAL OF REQUIREMENT THAT INVENTORY BE

20 SUBSTANTIALLY APPRECIATED IN CERTAIN PARTNER21 SHIP DISTRIBUTIONS TREATED AS SALE OR EX22 CHANGE.—

23 (1) IN GENERAL.—Clause (ii) of section 

24 751(b)(1)(A) is amended by striking ‘‘which have 

25 appreciated substantially in value’’. 


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1 (2) CONFORMING AMENDMENT.—Section 

2 751(b) is amended by striking paragraph (3). 

3 (3) EFFECTIVE DATE.—The amendments made 

4 by this subsection shall apply to distributions after 

5 December 31, 2014. 

6 (b) REVISION OF REGULATIONS RELATING TO

7 TREATMENT OF UNREALIZED RECEIVABLES AND INVEN8 TORY ITEMS.—The Secretary of the Treasury shall revise 

9 regulations issued under section 751(b) of the Internal 

10 Revenue Code of 1986 to take into account the partner’s 

11 share of income and gain rather than the partner’s share 

12 of partnership assets. 

13 (c) SIMPLIFICATION OF DEFINITION OF UNREALIZED

14 RECEIVABLES.—

15 (1) IN GENERAL.—Section 751(c) is amended 

16 by striking all that follows paragraph (2) and insert17 ing the following: 

18 ‘‘For purposes of this section and sections 731, 732, 734, 

19 and 741, such term also includes any property other than 

20 inventory items, but only to the extent of the amount 

21 which would be treated as ordinary income if (at the time 

22 of the transaction described in the applicable section) such 

23 property had been sold by the partnership for its fair mar24 ket value.’’. 


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1 (2) EFFECTIVE DATE.—The amendment made 

2 by this subsection shall apply to partnership taxable 

3 years beginning after December 31, 2014. 

4 SEC. 3617. REPEAL OF TIME LIMITATION ON TAXING 

5 PRECONTRIBUTION GAIN. 

6 (a) IN GENERAL.—Subparagraph (B) of section 

7 704(c)(1) is amended by striking ‘‘within 7 years of being 

8 contributed’’. 

9 (b) CONFORMING AMENDMENT.—Paragraph (1) of 

10 section 737(b) is amended by striking ‘‘within 7 years of 

11 the distribution’’. 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to property contributed to a part14 nership after December 31, 2014. 

15 SEC. 3618. PARTNERSHIP INTERESTS CREATED BY GIFT. 

16 (a) IN GENERAL.—Section 761(b) is amended by 

17 adding at the end the following: ‘‘In the case of a capital 

18 interest in a partnership in which capital is a material in19 come-producing factor, whether a person is a partner with 

20 respect to such interest shall be determined without regard 

21 to whether such interest was derived by gift from any 

22 other person.’’. 

23 (b) CONFORMING AMENDMENTS.—Section 704(e) is 

24 amended—


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1 (1) by striking paragraph (1) and by redesig2 nating paragraphs (2) and (3) as paragraphs (1) 

3 and (2), respectively, 

4 (2) by striking ‘‘this section’’ in paragraph (2) 

5 (as so redesignated) and inserting ‘‘this subsection’’, 

6 and 

7 (3) by striking ‘‘FAMILY PARTNERSHIPS’’ in 

8 the heading and inserting ‘‘PARTNERSHIP INTER9 ESTS CREATED BY GIFT’’. 

10 (c) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to partnership taxable years begin12 ning after December 31, 2014. 

13 SEC. 3619. REPEAL OF TECHNICAL TERMINATION. 

14 (a) IN GENERAL.—Paragraph (1) of section 708(b) 

15 is amended—

16 (1) by striking ‘‘, or’’ and all that follows and 

17 inserting a period, and 

18 (2) by striking ‘‘only if—’’ and all that follows 

19 through ‘‘no part of any business’’ and inserting the 

20 following: ‘‘only if no part of any business’’. 

21 (b) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to partnership taxable years begin23 ning after December 31, 2014. 


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1 SEC. 3620. PUBLICLY TRADED PARTNERSHIP EXCEPTION 

2 RESTRICTED TO MINING AND NATURAL RE3 SOURCES PARTNERSHIPS. 

4 (a) IN GENERAL.—Subsection (d) of section 7704 is 

5 amended to read as follows: 

6 ‘‘(d) QUALIFYING INCOME.—For purposes of this 

7 section, the term ‘qualifying income’ means—

8 ‘‘(1) income and gains derived from the explo9 ration, development, mining or production, proc10 essing, refining, transportation (including pipelines 

11 transporting gas, oil, or products thereof), or the 

12 marketing of any mineral or natural resource (in13 cluding geothermal energy and excluding fertilizer 

14 and timber) or industrial source carbon dioxide, and 

15 ‘‘(2) any gain from the sale or disposition of a 

16 capital asset (or property described in section 

17 1231(b)) held for the production of income described 

18 in paragraph (1). 

19 For purposes of this subsection, the term ‘mineral or nat20 ural resource’ means any product of a character with re21 spect to which a deduction for depletion is allowable under 

22 section 611 (other than minerals from sea water or the 

23 air (or similar inexhaustible sources), soil, sod, dirt, turf, 

24 water, or mosses).’’. 

25 (b) CONFORMING AMENDMENTS.—Section 

26 988(c)(1)(E) is amended—


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1 (1) by striking ‘‘income or gains described in 

2 subparagraph (A), (B), or (G) of section 

3 7704(d)(1)’’ in clause (iii)(III) and inserting ‘‘quali4 fying income or gains’’, 

5 (2) by striking subclause (III) of clause (vi) and 

6 by redesignating subclause (IV) as subclause (III), 

7 (3) by redesignating clause (vi) (as amended by 

8 this subparagraph) as clause (viii), and 

9 (4) by inserting after clause (v) the following 

10 new clauses: 

11 ‘‘(vi) QUALIFYING INCOME OR

12 GAINS.—The term ‘qualifying income or 

13 gains’ means—

14 ‘‘(I) interest, 

15 ‘‘(II) dividends, and 

16 ‘‘(III) in the case of a partner17 ship described in the second sentence 

18 of section 7704(c)(3), income and 

19 gains from commodities (not described 

20 in section 1221(a)(1)) or futures, for21 wards, and options with respect to 

22 commodities. 

23 ‘‘(vii) INADVERTENT TERMI24 NATIONS.—If—


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1 ‘‘(I) A partnership fails to meet 

2 the gross income requirements of this 

3 subparagraph, 

4 ‘‘(II) the Secretary determines 

5 that such failure was inadvertent, 

6 ‘‘(III) no later than a reasonable 

7 time after the discovery of such fail8 ure, steps are taken so that such part9 nership once more meets such gross 

10 income requirements, and 

11 ‘‘(IV) such partnership agrees to 

12 make such adjustments (including ad13 justments with respect to the part14 ners) or to pay such amounts as may 

15 be required by the Secretary with re16 spect to such period, 

17 then, notwithstanding such failure, such 

18 entity shall be treated as continuing to 

19 meet such gross income requirements for 

20 such period.’’. 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years beginning after 

23 December 31, 2016. 


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1 SEC. 3621. ORDINARY INCOME TREATMENT IN THE CASE OF 

2 PARTNERSHIP INTERESTS HELD IN CONNEC3 TION WITH PERFORMANCE OF SERVICES. 

4 (a) IN GENERAL.—Part IV of subchapter O of chap5 ter 1 is amended—

6 (1) by redesignating section 1061 as section 

7 1062, and 

8 (2) by inserting after section 1060 the following 

9 new section: 

10 ‘‘SEC. 1061. PARTNERSHIP INTERESTS HELD IN CONNEC11 TION WITH PERFORMANCE OF SERVICES. 

12 ‘‘(a) IN GENERAL.—If one or more applicable part13 nership interests are held by a taxpayer at any time during 

14 the taxable year, so much of—

15 ‘‘(1) the taxpayer’s net capital gain with respect 

16 to such interests for such taxable year, as does not 

17 exceed 

18 ‘‘(2) the taxpayer’s recharacterization account 

19 balance for such taxable year, 

20 shall be treated as ordinary income. 

21 ‘‘(b) NET CAPITAL GAIN.—

22 ‘‘(1) IN GENERAL.—For purposes of subsection 

23 (a)(1), net capital gain shall be determined under 

24 section 1222, except that such section shall be ap25 plied—


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1 ‘‘(A) without regard to the recharacteriza2 tion of any item as ordinary income under this 

3 section, 

4 ‘‘(B) by only taking into account items of 

5 gain and loss—

6 ‘‘(i) taken into account by the tax7 payer under section 702 with respect to 

8 any applicable partnership interest, 

9 ‘‘(ii) recognized by the taxpayer on 

10 the disposition of any such interest, or 

11 ‘‘(iii) recognized by the taxpayer 

12 under paragraph (4) on a distribution of 

13 property with respect to such interest, and 

14 ‘‘(C) in the case of a taxable year for 

15 which section 1231 gains (as defined in section 

16 1231(a)(3)(A)) exceed section 1231 losses (as 

17 defined in section 1231(a)(3)(B)), by treating 

18 property which is taken into account in deter19 mining such gains and losses as capital assets 

20 held for more than 1 year. 

21 ‘‘(2) ALLOCATION TO ITEMS OF GAIN.—The 

22 amount treated as ordinary income under subsection 

23 (a) shall be allocated ratably among the items of 

24 long-term capital gain taken into account in deter25 mining net capital gain under paragraph (1). 


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1 ‘‘(3) RECOGNITION OF GAIN ON DISPOSITION

2 OF APPLICABLE PARTNERSHIP INTERESTS.—Any 

3 gain on the disposition of any applicable partnership 

4 interest shall be recognized notwithstanding any 

5 other provision of this title. 

6 ‘‘(4) RECOGNITION OF GAIN ON DISTRIBUTIONS

7 OF PARTNERSHIP PROPERTY.—

8 ‘‘(A) IN GENERAL.—In the case of any dis9 tribution of property by a partnership with re10 spect to any applicable partnership interest, the 

11 partner receiving such property shall recognize 

12 gain equal to the excess (if any) of—

13 ‘‘(i) the fair market value of such 

14 property at the time of such distribution, 

15 over 

16 ‘‘(ii) the adjusted basis of such prop17 erty in the hands of such partner (deter18 mined without regard to subparagraph 

19 (B)). 

20 ‘‘(B) ADJUSTMENT OF BASIS.—In the case 

21 of a distribution to which subparagraph (A) ap22 plies, the basis of the distributed property in 

23 the hands of the distributee partner shall be the 

24 amount determined under subparagraph (A)(i). 

25 ‘‘(c) RECHARACTERIZATION ACCOUNT BALANCE.—


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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘recharacterization account balance’ 

3 means, with respect to any taxpayer for any taxable 

4 year, the excess (if any) of—

5 ‘‘(A) the sum of—

6 ‘‘(i) the taxpayer’s aggregate annual 

7 recharacterization amounts with respect to 

8 applicable partnership interests for such 

9 taxable year, plus 

10 ‘‘(ii) the taxpayer’s recharacterization 

11 account balance for the taxable year pre12 ceding such taxable year, over 

13 ‘‘(B) the sum of—

14 ‘‘(i) the taxpayer’s net ordinary in15 come with respect to applicable partnership 

16 interests for such taxable year (determined 

17 without regard to this section), plus 

18 ‘‘(ii) the amount treated as ordinary 

19 income of the taxpayer under this section 

20 for the taxable year preceding such taxable 

21 year. 

22 ‘‘(2) ANNUAL RECHARACTERIZATION

23 AMOUNT.—For purposes of this subsection—

24 ‘‘(A) IN GENERAL.—The term ‘annual re25 characterization amount’ means, with respect to 


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1 any applicable partnership interest for any 

2 partnership taxable year, an amount equal to 

3 the product of—

4 ‘‘(i) the specified rate determined 

5 under subparagraph (B) for the calendar 

6 year in which such taxable year begins, 

7 multiplied by 

8 ‘‘(ii) the excess (if any) of—

9 ‘‘(I) an amount equal to the ap10 plicable percentage of the partner11 ship’s aggregate invested capital for 

12 such taxable year, over 

13 ‘‘(II) the specified capital con14 tribution of the partner with respect 

15 to the applicable partnership interest 

16 for such taxable year. 

17 If a taxpayer holds an applicable partnership 

18 interest for less than the entire taxable year, 

19 the amount determined under the preceding 

20 sentence shall be ratably reduced. 

21 ‘‘(B) SPECIFIED RATE.—For purposes of 

22 subparagraph (A), the term ‘specified rate’ 

23 means, with respect to any calendar year, a per24 centage equal to—


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1 ‘‘(i) the Federal long-term rate deter2 mined under section 1274(d)(1) for the 

3 last month of the calendar year, plus 

4 ‘‘(ii) 10 percentage points. 

5 ‘‘(C) APPLICABLE PERCENTAGE.—

6 ‘‘(i) IN GENERAL.—The term ‘applica7 ble percentage’ means, with respect to any 

8 applicable partnership interest, the highest 

9 percentage of profits of the partnership 

10 that could be allocated with respect to such 

11 interest for the taxable year (consistent 

12 with the partnership agreement and as13 suming such facts and circumstances with 

14 respect to such taxable year as would re15 sult in such highest percentage). 

16 ‘‘(ii) SECRETARIAL AUTHORITY.—The 

17 Secretary shall prescribe rules for the de18 termination of the applicable percentage in 

19 cases in which the percentage of profits of 

20 a partnership that are to be allocated with 

21 respect to an applicable partnership inter22 est varies on the basis of the aggregate 

23 amount of such profits. Such rules may 

24 provide a percentage which may be used in 

25 lieu of the highest percentage determined 


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1 under clause (i) in cases where such other 

2 percentage is consistent with the purposes 

3 of this section. 

4 ‘‘(D) AGGREGATE INVESTED CAPITAL.—

5 ‘‘(i) IN GENERAL.—The term ‘aggre6 gate invested capital’ means, with respect 

7 to any taxable year, the average daily 

8 amount of invested capital of the partner9 ship for such taxable year. 

10 ‘‘(ii) INVESTED CAPITAL.—The term 

11 ‘invested capital’ means, with respect to 

12 any partnership as of any day, the total 

13 cumulative value, determined at the time 

14 of contribution, of all money or other prop15 erty contributed to the partnership on or 

16 before such day. 

17 ‘‘(iii) REDUCTION FOR LIQUIDATION

18 OF PARTNERSHIP INTERESTS.—The in19 vested capital of a partnership shall be re20 duced by the aggregate amount distributed 

21 in liquidation of interests in the partner22 ship. 

23 ‘‘(iv) TREATMENT OF CERTAIN IN24 DEBTEDNESS AS INVESTED CAPITAL.—The 


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1 following amounts shall be treated as in2 vested capital: 

3 ‘‘(I) PARTNER LOANS.—The ag4 gregate value (determined as of the 

5 time of the loan) of money or other 

6 property which a partner loans to the 

7 partnership. 

8 ‘‘(II) INDEBTEDNESS ELIGIBLE

9 TO SHARE IN EQUITY OF THE PART10 NERSHIP.—The face amount of any 

11 convertible debt of the partnership or 

12 any debt obligation providing equity 

13 participation in the partnership. 

14 ‘‘(E) SPECIFIED CAPITAL CONTRIBU15 TION.—

16 ‘‘(i) IN GENERAL.—The term ‘speci17 fied capital contribution’ means, with re18 spect to any applicable partnership interest 

19 for any taxable year, the average daily 

20 amount of contributed capital with respect 

21 to such interest for such year. 

22 ‘‘(ii) CONTRIBUTED CAPITAL.—The 

23 term ‘contributed capital’ means, with re24 spect to applicable partnership interest as 

25 of any day, the excess (if any) of—


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1 ‘‘(I) the total cumulative value, 

2 determined at the time of contribu3 tion, of all money or other property 

4 contributed by the partner to the 

5 partnership with respect to such inter6 est as of such day, over 

7 ‘‘(II) the total cumulative value, 

8 determined at the time of distribution, 

9 of all money or other property distrib10 uted by the partnership to the partner 

11 with respect to such interest as of 

12 such day. 

13 ‘‘(iii) TREATMENT OF RELATED

14 PARTY BORROWINGS.—Any amount bor15 rowed directly or indirectly from the part16 nership or any other partner of the part17 nership or any person related to such other 

18 partner or such partnership shall not be 

19 taken into account under this subpara20 graph. For purposes of the preceding sen21 tence, a person shall be treated as related 

22 to another person if the relationship be23 tween such persons would be described in 

24 section 267(b) or 707(b) if such sections 

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1 stituting ‘10 percent’ for ‘50 percent’ each 

2 place it appears. 

3 ‘‘(F) MULTIPLE INTERESTS.—If at any 

4 time during a taxable year a taxpayer holds di5 rectly or indirectly more than 1 applicable part6 nership interest in a single partnership, such in7 terests shall be treated as 1 applicable partner8 ship interest for purposes of applying this para9 graph. 

10 ‘‘(3) NET ORDINARY INCOME.—For purposes of 

11 this subsection, the net ordinary income with respect 

12 to applicable partnership interests for any taxable 

13 year is the excess (if any) of—

14 ‘‘(A) the taxpayer’s distributive share of 

15 items of income and gain under section 702 

16 with respect to applicable partnership interests 

17 for such taxable year (determined without re18 gard to any items of gain taken into account in 

19 determining net capital gain under subsection 

20 (b)(1)), over 

21 ‘‘(B) the taxpayer’s distributive share of 

22 items of deduction and loss under section 702 

23 with respect to such interests for such taxable 

24 year (determined without regard to any items of 


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1 loss taken into account in determining net cap2 ital gain under subsection (b)(1)). 

3 ‘‘(d) APPLICABLE PARTNERSHIP INTEREST.—For 

4 purposes of this section—

5 ‘‘(1) IN GENERAL.—The term ‘applicable part6 nership interest’ means any interest in a partnership 

7 which, directly or indirectly, is transferred to (or is 

8 held by) the taxpayer in connection with the per9 formance of services by the taxpayer, or any other 

10 person, in any applicable trade or business. 

11 ‘‘(2) APPLICABLE TRADE OR BUSINESS.—

12 ‘‘(A) IN GENERAL.—The term ‘applicable 

13 trade or business’ means any trade or business 

14 conducted on a regular, continuous, and sub15 stantial basis which, regardless of whether the 

16 activities are conducted in one or more entities, 

17 consists, in whole or in part, of—

18 ‘‘(i) raising or returning capital, 

19 ‘‘(ii) investing in (or disposing of) 

20 trades or businesses (or identifying trades 

21 or businesses for such investing or disposi22 tion), and 

23 ‘‘(iii) developing such trades or busi24 nesses. 


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1 ‘‘(B) TREATMENT OF RESEARCH AND EX2 PERIMENTATION ACTIVITIES.—Any activity in3 volving research or experimentation (within the 

4 meaning of section 469(c)(4)) shall be treated 

5 as a trade or business for purposes of clauses 

6 (ii) and (iii) of subparagraph (A). 

7 ‘‘(e) TRANSFER OF APPLICABLE PARTNERSHIP IN8 TEREST TO RELATED PERSON.—

9 ‘‘(1) IN GENERAL.—If a taxpayer transfers any 

10 applicable partnership interest, directly or indirectly, 

11 to a person related to the taxpayer, the taxpayer 

12 shall include in gross income (as ordinary income) so 

13 much of the taxpayer’s recharacterization account 

14 balance for such taxable year as is allocable to such 

15 interest (determined in such manner as the Sec16 retary may provide and reduced by any amount 

17 treated as ordinary income under subsection (a) with 

18 respect to the transfer of such interest). 

19 ‘‘(2) RELATED PERSON.—For purposes of this 

20 paragraph, a person is related to the taxpayer if—

21 ‘‘(A) the person is a member of the tax22 payer’s family within the meaning of section 

23 318(a)(1), or 

24 ‘‘(B) the person performed a service within 

25 the current calendar year or the preceding three 


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1 calendar years in any applicable trade or busi2 ness in which or for which the taxpayer per3 formed a service. 

4 ‘‘(f) REPORTING BY ENTITY OF TAXPAYER’S AN5 NUAL RECHARACTERIZATION AMOUNT.—A partnership 

6 shall report to the Secretary, and include with the infor7 mation required to be furnished under section 6031(b) to 

8 each partner, the amount of the partner’s annual re9 characterization amount for the taxable year, if any. A 

10 similar rule applies to any entity that receives a report 

11 of an annual recharacterization amount for the taxable 

12 year. 

13 ‘‘(g) REGULATIONS.—The Secretary shall issue such 

14 regulations or other guidance as necessary to carry out 

15 this section, including regulations—

16 ‘‘(1) to prevent the abuse of the purposes of 

17 this section, including through—

18 ‘‘(A) the allocation of income to tax indif19 ferent parties, or 

20 ‘‘(B) a reduction in the invested capital of 

21 the partnership (including attempts to under22 value contributed or loaned property), 

23 ‘‘(2) which provide that partnership interests 

24 shall not fail to be treated as transferred or held in 

25 connection with the performance of services merely 


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1 because the taxpayer also made contributions to the 

2 partnership, 

3 ‘‘(3) which provide for the application of this 

4 section in cases where the taxpayer has more than 

5 1 applicable interest in a partnership, and 

6 ‘‘(4) which provide for the application of this 

7 section in cases of tiered structures of entities.’’. 

8 (b) COORDINATION WITH SECTION 83.—Subsection 

9 (e) of section 83 is amended by striking ‘‘or’’ at the end 

10 of paragraph (4), by striking the period at the end of para11 graph (5) and inserting ‘‘, or’’, and by adding at the end 

12 the following new paragraph: 

13 ‘‘(6) a transfer of a partnership interest to 

14 which section 1061 applies.’’. 

15 (c) CLERICAL AMENDMENT.—The table of sections 

16 for part IV of subchapter O of chapter 1 is amended by 

17 striking the item relating to 1061 and inserting the fol18 lowing new items:

‘‘Sec. 1061. Partnership interests held in connection with performance of services. 

‘‘Sec. 1062. Cross references.’’.

19 (d) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2014. 

22 SEC. 3622. PARTNERSHIP AUDITS AND ADJUSTMENTS. 

23 (a) REPEAL OF TEFRA PARTNERSHIP AUDIT

24 RULES.—Chapter 63 is amended by striking subchapter 


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1 C (and by striking the item relating to such subchapter 

2 in the table of subchapters for such chapter). 

3 (b) REPEAL OF ELECTING LARGE PARTNERSHIP

4 RULES.—

5 (1) IN GENERAL.—Subchapter K of chapter 1 

6 is amended by striking part IV (and by striking the 

7 item relating to such part in the table of parts for 

8 such subchapter). 

9 (2) ASSESSMENT RULES RELATING TO ELECT10 ING LARGE PARTNERSHIPS.—Chapter 63 is amended 

11 by striking subchapter D (and by striking the item 

12 relating to such subchapter in the table of sub13 chapters for such chapter). 

14 (3) EFFECTIVE DATE.—The amendments made 

15 by this section shall apply to returns filed after De16 cember 31, 2014. 

17 (c) PARTNERSHIP AUDIT REFORM.—

18 (1) IN GENERAL.—Chapter 63, as amended by 

19 the preceding provisions of this Act, is amended by 

20 inserting after subchapter B the following new sub21 chapter: 

22 ‘‘Subchapter C—Treatment of Partnerships

‘‘PART I—IN GENERAL

‘‘PART II—PARTNERSHIP ADJUSTMENTS

‘‘PART III—PROCEDURE

‘‘PART IV—DEFINITIONS AND SPECIAL RULES


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1 ‘‘PART I—IN GENERAL

‘‘Sec. 6221. Determination at partnership level. 

‘‘Sec. 6222. Partner’s return must be consistent with partnership return. 

‘‘Sec. 6223. Designation of partnership representative.

2 ‘‘SEC. 6221. DETERMINATION AT PARTNERSHIP LEVEL. 

3 ‘‘(a) IN GENERAL.—Items of income, gain, loss, de4 duction, or credit of a partnership for a partnership tax5 able year (and any partner’s distributive share thereof) 

6 shall be audited, any tax attributable thereto shall be as7 sessed and collected, and the applicability of any penalty, 

8 addition to tax, or additional amount which relates to an 

9 adjustment to any such item or share shall be determined, 

10 at the partnership level pursuant to this subchapter. 

11 ‘‘(b) ELECTION OUT FOR CERTAIN PARTNERSHIPS

12 WITH 100 OR FEWER PARTNERS.—This subchapter shall 

13 not apply with respect to any partnership for any taxable 

14 year if—

15 ‘‘(1) the partnership elects the application of 

16 this subsection for such taxable year, 

17 ‘‘(2) the partnership has 100 or fewer partners 

18 on the last day of such taxable year, 

19 ‘‘(3) each of the partners of such partnership is 

20 an individual, a C corporation (other than a real es21 tate investment trust or a regulated investment com22 pany), any foreign entity that would be treated as a 

23 C corporation were it domestic, or an estate of a de24 ceased partner, 


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1 ‘‘(4) the election—

2 ‘‘(A) is made with a timely filed return for 

3 such taxable year, and 

4 ‘‘(B) includes (in the manner prescribed by 

5 the Secretary) a disclosure of the name and 

6 taxpayer identification number of each partner 

7 of such partnership, and 

8 ‘‘(5) the partnership notifies each such partner 

9 of such election in the manner prescribed by the 

10 Secretary. 

11 For purposes of paragraph (4)(B), the Secretary may pro12 vide for alternative identification of any foreign partners. 

13 ‘‘SEC. 6222. PARTNER’S RETURN MUST BE CONSISTENT 

14 WITH PARTNERSHIP RETURN. 

15 ‘‘(a) IN GENERAL.—A partner of any partnership 

16 shall, on the partner’s return, treat each item of income, 

17 gain, loss, deduction, or credit attributable to such part18 nership in a manner which is consistent with the treat19 ment of such income, gain, loss, deduction, or credit on 

20 the partnership return. 

21 ‘‘(b) UNDERPAYMENT DUE TO INCONSISTENT

22 TREATMENT ASSESSED AS MATH ERROR.—Any under23 payment of tax by a partner by reason of failing to comply 

24 with the requirements of subsection (a) shall be assessed 

25 and collected in the same manner as if such underpayment 


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1 were on account of a mathematical or clerical error ap2 pearing on the partner’s return. Paragraph (2) of section 

3 6213(b) shall not apply to any assessment of an under4 payment referred to in the preceding sentence. 

5 ‘‘(c) ADDITION TO TAX FOR FAILURE TO COMPLY

6 WITH SECTION.—For addition to tax in the case of part7 ner’s disregard of the requirements of this section, see 

8 part II of subchapter A of chapter 68. 

9 ‘‘SEC. 6223. PARTNERS BOUND BY ACTIONS OF PARTNER10 SHIP.

11 ‘‘(a) DESIGNATION OF PARTNER.—Each partnership 

12 shall designate (in the manner prescribed by the Sec13 retary) a partner (or other person) as the partnership rep14 resentative who shall have the sole authority to act on be15 half of the partnership under this subchapter. In any case 

16 in which such a designation is not in effect, the Secretary 

17 may select any partner as the partnership representative. 

18 ‘‘(b) BINDING EFFECT.—A partnership and all part19 ners of such partnership shall be bound—

20 ‘‘(1) by actions taken under this subchapter by 

21 the partnership, and 

22 ‘‘(2) by any decision in a proceeding brought 

23 under this subchapter. 

24 ‘‘PART II—PARTNERSHIP ADJUSTMENTS

‘‘Sec. 6225. Partnership adjustment by Secretary. 

‘‘Sec. 6226. Administrative adjustment request by partnership.


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1 ‘‘SEC. 6225. PARTNERSHIP ADJUSTMENT BY SECRETARY. 

2 ‘‘(a) IN GENERAL.—In the case of any adjustment 

3 by the Secretary in the amount of any item of income, 

4 gain, loss, deduction, or credit of a partnership, or any 

5 partner’s distributive share thereof—

6 ‘‘(1) the partnership shall pay any imputed un7 derpayment with respect to such adjustment in the 

8 adjustment year as provided in section 6232, and 

9 ‘‘(2) any imputed overpayment shall be taken 

10 into account by the partnership in the adjustment 

11 year as a reduction in non-separately stated income 

12 or an increase in non-separately stated loss (which13 ever is appropriate) under section 702(a)(8). 

14 ‘‘(b) DETERMINATION OF IMPUTED UNDERPAY15 MENTS AND OVERPAYMENTS.—For purposes of this sub16 chapter—

17 ‘‘(1) IN GENERAL.—Except as provided in sub18 section (c), any imputed underpayment or imputed 

19 overpayment with respect to any partnership adjust20 ment for any reviewed year shall be determined—

21 ‘‘(A) by netting all adjustments of items of 

22 income, gain, loss, or deduction and multiplying 

23 such net amount by the highest rate of tax in 

24 effect for the reviewed year under section 1 or 

25 11, 


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1 ‘‘(B) by treating any net increase or de2 crease in loss under subparagraph (A) as a de3 crease or increase, respectively, in income, and 

4 ‘‘(C) by taking into account any adjust5 ments to items of credit as an increase or de6 crease, as the case may be, in the amount de7 termined under subparagraph (A). 

8 ‘‘(2) ADJUSTMENTS TO DISTRIBUTIVE SHARES

9 OF PARTNERS NOT NETTED.—In the case of any ad10 justment which reallocates the distributive share of 

11 any item from one partner to another, such adjust12 ment shall be taken into account under paragraph 

13 (1) by disregarding—

14 ‘‘(A) any decrease in any item of income or 

15 gain, and 

16 ‘‘(B) any increase in any item of deduc17 tion, loss, or credit. 

18 ‘‘(c) MODIFICATION OF IMPUTED UNDERPAY19 MENTS.—

20 ‘‘(1) METHOD IN GENERAL.—The Secretary 

21 shall establish procedures under which the imputed 

22 underpayment amount may be modified consistent 

23 with the requirements of this subsection. 

24 ‘‘(2) AMENDED RETURNS OF PARTNERS.—Such 

25 procedures shall provide that if—


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1 ‘‘(A) one or more partners file returns for 

2 the taxable year of the partners which includes 

3 the end of the reviewed year of the partnership, 

4 ‘‘(B) such returns take into account all ad5 justments under subsection (a) properly allo6 cable to such partners (and for any other tax7 able year with respect to which any tax at8 tribute is affected by reason of such adjust9 ments), and 

10 ‘‘(C) payment of any tax due is included 

11 with such return, 

12 then the imputed underpayment amount shall be de13 termined without regard to the portion of the adjust14 ments so taken into account. 

15 ‘‘(3) REALLOCATION OF DISTRIBUTIVE

16 SHARE.—In the case of any adjustment which reallo17 cates the distributive share of any item from one 

18 partner to another, paragraph (2) shall apply only if 

19 returns are filed by all partners affected by such ad20 justment. 

21 ‘‘(4) YEAR AND DAY FOR SUBMISSION TO SEC22 RETARY.—Anything required to be submitted pursu23 ant to paragraph (1) shall be submitted to the Sec24 retary not later than the close the 180-day period 

25 beginning on the date on which the notice of a proVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00683 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 posed partnership adjustment is mailed under sec2 tion 6231 unless such period is extended with the 

3 consent of the Secretary. 

4 ‘‘(5) DECISION OF SECRETARY.—Any modifica5 tion of the imputed underpayment amount under 

6 this subsection shall be made only upon approval of 

7 such modification by the Secretary. 

8 ‘‘(d) DEFINITIONS AND SPECIAL RULE.—For pur9 poses of this subchapter—

10 ‘‘(1) REVIEWED YEAR.—The term ‘reviewed 

11 year’ means the partnership taxable year to which 

12 the item being adjusted relates. 

13 ‘‘(2) ADJUSTMENT YEAR.—The term ‘adjust14 ment year’ means the partnership taxable year in 

15 which—

16 ‘‘(A) in the case of an adjustment pursu17 ant to the decision of a court in a proceeding 

18 brought under section 6234, such decision be19 comes final, 

20 ‘‘(B) in the case of an administrative ad21 justment request under section 6226, such ad22 ministrative adjustment request is made, or 

23 ‘‘(C) in any other case, notice of the final 

24 partnership adjustment is mailed under section 

25 6231. 


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1 ‘‘SEC. 6226. ADMINISTRATIVE ADJUSTMENT REQUEST BY 

2 PARTNERSHIP.

3 ‘‘(a) IN GENERAL.—A partnership may file a request 

4 for an administrative adjustment in the amount of any 

5 item of income, gain, loss, deduction, or credit of the part6 nership for any partnership taxable year, but only to the 

7 extent such adjustment results in an imputed under8 payment. 

9 ‘‘(b) ADJUSTMENT.—Any adjustment under sub10 section (a) shall be determined and taken into account by 

11 the partnership under rules similar to the rules of section 

12 6225 (other than subsection (c) thereof) for the partner13 ship taxable year in which the administrative adjustment 

14 request is made. 

15 ‘‘(c) PERIOD OF LIMITATIONS.—A partnership may 

16 not file such a request—

17 ‘‘(1) more than 3 years after the later of—

18 ‘‘(A) the date on which the partnership re19 turn for such year is filed, or 

20 ‘‘(B) the last day for filing the partnership 

21 return for such year (determined without re22 gard to extensions), and 

23 ‘‘(2) after any notice of an administrative pro24 ceeding with respect to the taxable year is mailed 

25 under section 6231. 


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1 ‘‘PART III—PROCEDURE

‘‘Sec. 6231. Notice of proceedings and adjustment. 

‘‘Sec. 6232. Assessment, collection, and payment. 

‘‘Sec. 6233. Penalties and interest. 

‘‘Sec. 6234. Judicial review of partnership adjustment. 

‘‘Sec. 6235. Period of limitations on making adjustments.

2 ‘‘SEC. 6231. NOTICE OF PROCEEDINGS AND ADJUSTMENT. 

3 ‘‘(a) IN GENERAL.—The Secretary shall mail to the 

4 partnership and the partnership representative—

5 ‘‘(1) notice of any administrative proceeding 

6 initiated at the partnership level with respect to an 

7 adjustment of any item of income, gain, loss, deduc8 tion, or credit of a partnership for a partnership tax9 able year, or any partner’s distributive share thereof, 

10 ‘‘(2) notice of any proposed partnership adjust11 ment resulting from such proceeding, and 

12 ‘‘(3) notice of any final partnership adjustment 

13 resulting from such proceeding. 

14 Any notice of a final partnership adjustment shall not be 

15 mailed earlier than 180 days after the date on which the 

16 notice of the proposed partnership adjustment is mailed. 

17 Such notices shall be sufficient if mailed to the last known 

18 address of the partnership representative or the partner19 ship (even if the partnership has terminated its existence). 

20 The first sentence shall apply to any proceeding with re21 spect to an administrative adjustment request filed by a 

22 partnership under section 6226. 


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1 ‘‘(b) FURTHER NOTICES RESTRICTED.—If the Sec2 retary mails a notice of a final partnership adjustment to 

3 any partnership for any partnership taxable year and the 

4 partnership files a petition under section 6234 with re5 spect to such notice, in the absence of a showing of fraud, 

6 malfeasance, or misrepresentation of a material fact, the 

7 Secretary shall not mail another such notice to such part8 nership with respect to such taxable year. 

9 ‘‘(c) AUTHORITY TO RESCIND NOTICE WITH PART10 NERSHIP CONSENT.—The Secretary may, with the con11 sent of the partnership, rescind any notice of a partner12 ship adjustment mailed to such partnership. Any notice 

13 so rescinded shall not be treated as a notice of a partner14 ship adjustment for purposes of this subchapter, and the 

15 taxpayer shall have no right to bring a proceeding under 

16 section 6234 with respect to such notice. 

17 ‘‘SEC. 6232. ASSESSMENT, COLLECTION, AND PAYMENT. 

18 ‘‘(a) IN GENERAL.—Any imputed underpayment—

19 ‘‘(1) shall be assessed and collected in the same 

20 manner as if it were a tax imposed for the adjust21 ment year by subtitle A, and 

22 ‘‘(2) shall be paid on or before the return due 

23 date for the adjustment year. 

24 ‘‘(b) LIMITATION ON ASSESSMENT.—Except as oth25 erwise provided in this chapter, no assessment of a defiVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00687 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ciency may be made (and no levy or proceeding in any 

2 court for the collection of any amount resulting from such 

3 adjustment may be made, begun or prosecuted) before—

4 ‘‘(1) the close of the 90th day after the day on 

5 which a notice of a final partnership adjustment was 

6 mailed, and 

7 ‘‘(2) if a petition is filed under section 6234 

8 with respect to such notice, the decision of the court 

9 has become final. 

10 ‘‘(c) PREMATURE ACTION MAY BE ENJOINED.—Not11 withstanding section 7421(a), any action which violates 

12 subsection (b) may be enjoined in the proper court, includ13 ing the Tax Court. The Tax Court shall have no jurisdic14 tion to enjoin any action under this subsection unless a 

15 timely petition has been filed under section 6234 and then 

16 only in respect of the adjustments that are the subject 

17 of such petition. 

18 ‘‘(d) EXCEPTIONS TO RESTRICTIONS ON ADJUST19 MENTS.—

20 ‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR

21 CLERICAL ERRORS.—

22 ‘‘(A) IN GENERAL.— If the partnership is 

23 notified that, on account of a mathematical or 

24 clerical error appearing on the partnership re25 turn, an adjustment to a partnership item is reVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00688 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 quired, rules similar to the rules of paragraphs 

2 (1) and (2) of section 6213(b) shall apply to 

3 such adjustment. 

4 ‘‘(B) SPECIAL RULE.—If a partnership is 

5 a partner in another partnership, any adjust6 ment on account of such partnership’s failure to 

7 comply with the requirements of section 

8 6222(a) with respect to its interest in such 

9 other partnership shall be treated as an adjust10 ment referred to in subparagraph (A), except 

11 that paragraph (2) of section 6213(b) shall not 

12 apply to such adjustment. 

13 ‘‘(2) PARTNERSHIP MAY WAIVE RESTRIC14 TIONS.—The partnership may at any time (whether 

15 or not any notice of partnership adjustment has 

16 been issued), by a signed notice in writing filed with 

17 the Secretary, waive the restrictions provided in sub18 section (b) on the making of any partnership adjust19 ment. 

20 ‘‘(e) LIMIT WHERE NO PROCEEDING BEGUN.—If no 

21 proceeding under section 6234 is begun with respect to 

22 any notice of a final partnership adjustment during the 

23 90-day period described in subsection (b) thereof, the 

24 amount for which the partnership is liable under section 


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1 6225 shall not exceed the amount determined in accord2 ance with such notice. 

3 ‘‘SEC. 6233. PENALTIES AND INTEREST. 

4 ‘‘(a) PENALTIES AND INTEREST DETERMINED FROM

5 REVIEWED YEAR.—

6 ‘‘(1) IN GENERAL.—In the case of an imputed 

7 underpayment with respect to a partnership adjust8 ment for a reviewed year, the partnership—

9 ‘‘(A) shall pay to the Secretary interest 

10 computed under paragraph (2), and 

11 ‘‘(B) shall be liable for any penalty, addi12 tion to tax, or additional amount as provided in 

13 paragraph (3). 

14 ‘‘(2) DETERMINATION OF AMOUNT OF INTER15 EST.—The interest computed under this paragraph 

16 with respect to any partnership adjustment is the in17 terest which would be determined under chapter 

18 67—

19 ‘‘(A) on the imputed underpayment deter20 mined with respect to such adjustment, 

21 ‘‘(B) for the period beginning on the day 

22 after the return due date for the reviewed year 

23 and ending on the return due date for the ad24 justment year (or, if earlier, the date payment 

25 of the imputed underpayment is made). 


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1 Proper adjustments in the amount determined under 

2 the preceding sentence shall be made for adjust3 ments required for partnership taxable years after 

4 the reviewed year and before the adjustment year by 

5 reason of such partnership adjustment. 

6 ‘‘(3) PENALTIES.—A partnership shall be liable 

7 for any penalty, addition to tax, or additional 

8 amount for which it would have been liable if such 

9 partnership had been an individual subject to tax 

10 under chapter 1 for the reviewed year and the im11 puted underpayment were an actual underpayment 

12 (or understatement) for such year. 

13 ‘‘(b) INTEREST AND PENALTIES WITH RESPECT TO

14 ADJUSTMENT YEAR RETURN.—

15 ‘‘(1) IN GENERAL.—In the case of any failure 

16 to pay an imputed underpayment on the date pre17 scribed therefor, the partnership shall be liable—

18 ‘‘(A) for interest as determined under 

19 paragraph (2), and 

20 ‘‘(B) for any penalty, addition to tax, or 

21 additional amount as determined under para22 graph (3). 

23 ‘‘(2) INTEREST.—Interest determined under 

24 this paragraph is the interest that would be deter25 mined by treating the imputed underpayment as an 


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1 underpayment of tax imposed in the adjustment 

2 year. 

3 ‘‘(3) PENALTIES.—Penalties, additions to tax, 

4 or additional amounts determined under this para5 graph are the penalties, additions to tax, or addi6 tional amounts that would be determined—

7 ‘‘(A) by applying section 6651(a)(2) to 

8 such failure to pay. 

9 ‘‘(B) by treating the imputed under10 payment as an underpayment of tax for pur11 poses of part II of subchapter A of chapter 68. 

12 ‘‘SEC. 6234. JUDICIAL REVIEW OF PARTNERSHIP ADJUST13 MENT.

14 ‘‘(a) IN GENERAL.—Within 90 days after the date 

15 on which a notice of a final partnership adjustment is 

16 mailed under section 6231 with respect to any partnership 

17 taxable year, the partnership may file a petition for a re18 adjustment for such taxable year with—

19 ‘‘(1) the Tax Court, 

20 ‘‘(2) the district court of the United States for 

21 the district in which the partnership’s principal place 

22 of business is located, or 

23 ‘‘(3) the Claims Court. 

24 ‘‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING

25 ACTION IN DISTRICT COURT OR CLAIMS COURT.—


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1 ‘‘(1) IN GENERAL.—A readjustment petition 

2 under this section may be filed in a district court of 

3 the United States or the Claims Court only if the 

4 partnership filing the petition deposits with the Sec5 retary, on or before the date the petition is filed, the 

6 amount of the imputed underpayment (as of the 

7 date of the filing of the petition) if the partnership 

8 adjustment was made as provided by the notice of 

9 final partnership adjustment. The court may by 

10 order provide that the jurisdictional requirements of 

11 this paragraph are satisfied where there has been a 

12 good faith attempt to satisfy such requirement and 

13 any shortfall of the amount required to be deposited 

14 is timely corrected. 

15 ‘‘(2) INTEREST PAYABLE.—Any amount depos16 ited under paragraph (1), while deposited, shall not 

17 be treated as a payment of tax for purposes of this 

18 title (other than chapter 67). 

19 ‘‘(c) SCOPE OF JUDICIAL REVIEW.—A court with 

20 which a petition is filed in accordance with this section 

21 shall have jurisdiction to determine all items of income, 

22 gain, loss, deduction, or credit of the partnership for the 

23 partnership taxable year to which the notice of final part24 nership adjustment relates, the proper allocation of such 

25 items among the partners, and the applicability of any 


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1 penalty, addition to tax, or additional amount for which 

2 the partnership may be liable under this subchapter. 

3 ‘‘(d) DETERMINATION OF COURT REVIEWABLE.—

4 Any determination by a court under this section shall have 

5 the force and effect of a decision of the Tax Court or a 

6 final judgment or decree of the district court or the Claims 

7 Court, as the case may be, and shall be reviewable as such. 

8 The date of any such determination shall be treated as 

9 being the date of the court’s order entering the decision. 

10 ‘‘(e) EFFECT OF DECISION DISMISSING ACTION.—If 

11 an action brought under this section is dismissed other 

12 than by reason of a rescission under section 6231(c), the 

13 decision of the court dismissing the action shall be consid14 ered as its decision that the notice of final partnership 

15 adjustment is correct, and an appropriate order shall be 

16 entered in the records of the court. 

17 ‘‘SEC. 6235. PERIOD OF LIMITATIONS ON MAKING ADJUST18 MENTS.

19 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

20 this section, no adjustment under this subpart for any 

21 partnership taxable year may be made after the date 

22 which is 3 years after the latest of—

23 ‘‘(1) the date on which the partnership return 

24 for such taxable year was filed, 


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1 ‘‘(2) the return due date for the taxable year, 

2 or 

3 ‘‘(3) the date on which the partnership filed an 

4 administrative adjustment request with respect to 

5 such year under section 6226. 

6 ‘‘(b) EXTENSION BY AGREEMENT.— The period de7 scribed in subsection (a) (including an extension period 

8 under this subsection) may be extended by an agreement 

9 entered into by the Secretary and the partnership before 

10 the expiration of such period. 

11 ‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC.—

12 ‘‘(1) FALSE RETURN.— In the case of a false 

13 or fraudulent partnership return with intent to 

14 evade tax, the adjustment may be made at any time. 

15 ‘‘(2) SUBSTANTIAL OMISSION OF INCOME.—If 

16 any partnership omits from gross income an amount 

17 properly includible therein and such amount is de18 scribed in section 6501(e)(1)(A), subsection (a) shall 

19 be applied by substituting ‘6 years’ for ‘3 years’. 

20 ‘‘(3) NO RETURN.—In the case of a failure by 

21 a partnership to file a return for any taxable year, 

22 the adjustment may be made at any time. 

23 ‘‘(4) RETURN FILED BY SECRETARY.—For pur24 poses of this section, a return executed by the Sec25 retary under subsection (b) of section 6020 on beVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00695 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 half of the partnership shall not be treated as a re2 turn of the partnership. 

3 ‘‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE

4 OF ADJUSTMENT.—If notice of a final partnership adjust5 ment with respect to any taxable year is mailed under sec6 tion 6231, the running of the period specified in sub7 section (a) (as modified by the other provisions of this sec8 tion) shall be suspended—

9 ‘‘(1) for the period during which an action may 

10 be brought under section 6234 (and, if a petition is 

11 filed under such section with respect to such notice, 

12 until the decision of the court becomes final), and 

13 ‘‘(2) for 1 year thereafter. 

14 ‘‘PART IV—DEFINITIONS AND SPECIAL RULES

‘‘Sec. 6241. Definitions and special rules.

15 ‘‘SEC. 6241. DEFINITIONS AND SPECIAL RULES. 

16 ‘‘(a) DEFINITIONS AND SPECIAL RULES.—For pur17 poses of this subchapter—

18 ‘‘(1) PARTNERSHIP.—The term ‘partnership’ 

19 means any partnership required to file a return 

20 under section 6031(a). 

21 ‘‘(2) PARTNER.—The term ‘partner’ means—

22 ‘‘(A) a partner in the partnership, and 

23 ‘‘(B) any other person whose income tax li24 ability under subtitle A is determined in whole 


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1 or in part by taking into account directly or in2 directly income, gain, deduction, or loss of the 

3 partnership. 

4 ‘‘(b) PARTNERSHIP ADJUSTMENT.—The term ‘part5 nership adjustment’ means any adjustment in the amount 

6 of any item of income, gain, loss, deduction, or credit of 

7 a partnership, or any partner’s distributive share thereof. 

8 ‘‘(c) RETURN DUE DATE.—The term ‘return due 

9 date’ means, with respect to the taxable year, the date 

10 prescribed for filing the partnership return for such tax11 able year (determined without regard to extensions). 

12 ‘‘(d) JOINT AND SEVERAL LIABILITY.—

13 ‘‘(1) IN GENERAL.—The partnership and any 

14 partner of the partnership shall be jointly and sever15 ally liable for any imputed underpayment and any 

16 penalty, addition to tax, or additional amount attrib17 utable thereto. 

18 ‘‘(2) PERIOD FOR ASSESSMENT OF PART19 NERS.—The period for assessment of an imputed 

20 underpayment with respect to a partner of a part21 nership shall not expire earlier than 3 years after 

22 the date on which an assessment of such imputed 

23 underpayment was made with respect to the partner24 ship. 


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1 ‘‘(3) DETERMINING PARTNERS.—A person shall 

2 be treated as partner of the partnership if such per3 son is a partner of such partnership at any time 

4 during the reviewed or adjustment year. 

5 ‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduction 

6 shall be allowed under subtitle A for any payment required 

7 to be made by a partnership under this subchapter. 

8 ‘‘(f) SPECIAL RULE FOR DEDUCTIONS, LOSSES, AND

9 CREDITS OF FOREIGN PARTNERSHIPS.—Except to the ex10 tent otherwise provided in regulations, in the case of any 

11 partnership the partnership representative of which re12 sides outside the United States or the books of which are 

13 maintained outside the United States, no deduction, loss, 

14 or credit shall be allowable to any partner unless section 

15 6031 is complied with for the partnership’s taxable year 

16 in which such deduction, loss, or credit arose at such time 

17 as the Secretary prescribes by regulations. 

18 ‘‘(g) PARTNERSHIPS HAVING PRINCIPAL PLACE OF

19 BUSINESS OUTSIDE UNITED STATES.—For purposes of 

20 sections 6234, a principal place of business located outside 

21 the United States shall be treated as located in the Dis22 trict of Columbia. 

23 ‘‘(h) PARTNERSHIPS IN CASES UNDER TITLE 11 OF

24 UNITED STATES CODE.—


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1 ‘‘(1) SUSPENSION OF PERIOD OF LIMITATIONS

2 ON MAKING ADJUSTMENT, ASSESSMENT, OR COLLEC3 TION.—The running of any period of limitations pro4 vided in this subchapter on making a partnership 

5 adjustment (or provided by section 6501 or 6502 on 

6 the assessment or collection of any imputed under7 payment determined under this subchapter) shall, in 

8 a case under title 11 of the United States Code, be 

9 suspended during the period during which the Sec10 retary is prohibited by reason of such case from 

11 making the adjustment (or assessment or collection) 

12 and—

13 ‘‘(A) for adjustment or assessment, 60 

14 days thereafter, and 

15 ‘‘(B) for collection, 6 months thereafter. 

16 A rule similar to the rule of section 6213(f)(2) shall 

17 apply for purposes of section 6232(b). 

18 ‘‘(2) SUSPENSION OF PERIOD OF LIMITATION

19 FOR FILING FOR JUDICIAL REVIEW.—The running 

20 of the period specified in section 6234 shall, in a 

21 case under title 11 of the United States Code, be 

22 suspended during the period during which the part23 nership is prohibited by reason of such case from fil24 ing a petition under section 6234 and for 60 days 

25 thereafter.’’. 


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1 (2) CLERICAL AMENDMENT.—The table of sub2 chapters for chapter 63 is amended by inserting 

3 after the item relating to subchapter B the following 

4 new items:

‘‘SUBCHAPTER C. TREATMENT OF PARTNERSHIPS.’’.

5 (d) CONFORMING AMENDMENTS.—

6 (1) Section 6422 is amended by striking para7 graph (12). 

8 (2) Section 6501(n) is amended by striking 

9 paragraphs (2) and (3) and by striking ‘‘CROSS

10 REFERENCES’’ and all that follows through ‘‘For pe11 riod of limitations’’ and inserting ‘‘CROSS REF12 ERENCE.—For period of limitations’’. 

13 (3) Section 6503(a)(1) is amended by striking 

14 ‘‘(or section 6229’’ and all that follows through ‘‘of 

15 section 6230(a))’’. 

16 (4) Section 6504 is amended by striking para17 graph (11). 

18 (5) Section 6511 is amended by striking sub19 section (g). 

20 (6) Section 6512(b)(3) is amended by striking 

21 the second sentence. 

22 (7) Section 6515 is amended by striking para23 graph (6). 

24 (8) Section 6601(c) is amended by striking the 

25 last sentence. 


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1 (9) Section 7421(a) is amended by striking 

2 ‘‘6225(b), 6246(b)’’ and inserting ‘‘6232(c)’’. 

3 (10) Section 7422 is amended by striking sub4 section (h). 

5 (11) Section 7459(c) is amended by striking 

6 ‘‘section 6226’’ and all that follows through ‘‘or 

7 6252’’ and inserting ‘‘section 6234’’. 

8 (12) Section 7482(b)(1) is amended—

9 (A) in subparagraph (E), by striking ‘‘sec10 tion 6226, 6228, 6247, or 6252’’ and inserting 

11 ‘‘section 6234’’, 

12 (B) by striking subparagraph (F), by strik13 ing ‘‘or’’ at the end of subparagraph (E) and 

14 inserting a period, and by inserting ‘‘or’’ at the 

15 end of subparagraph (D), and 

16 (C) in the last sentence, by striking ‘‘sec17 tion 6226, 6228(a), or 6234(c)’’ and inserting 

18 ‘‘section 6234’’. 

19 (13) Section 7485(b) is amended by striking 

20 ‘‘section 6226, 6228(a), 6247, or 6252’’ and insert21 ing ‘‘section 6234’’. 

22 (e) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to returns filed for partnership tax24 able years ending after December 31, 2014, except that 

25 a partnership may elect (at such time and in such form 


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1 and manner as the Secretary of the Treasury may pre2 scribe) for such amendments to apply to any return of the 

3 partnership filed for partnership taxable years ending 

4 after the date of the enactment of this Act and before Jan5 uary 1, 2015. 

6 PART 3—REITS AND RICS 

7 SEC. 3631. PREVENTION OF TAX-FREE SPINOFFS INVOLV8 ING REITS. 

9 (a) IN GENERAL.—Section 355 is amended by adding 

10 at the end the following new subsection: 

11 ‘‘(h) SECTION NOT TO APPLY TO DISTRIBUTIONS IN12 VOLVING REAL ESTATE INVESTMENT TRUSTS.—This sec13 tion (and so much of section 356 as relates to this section) 

14 shall not apply to any distribution if either the distributing 

15 corporation or controlled corporation is a real estate in16 vestment trust.’’. 

17 (b) PREVENTION OF REIT ELECTION FOLLOWING

18 TAX-FREE SPIN OFF.—Section 856(c) is amended by re19 designating paragraph (8) as paragraph (9) and by insert20 ing after paragraph (7) the following new paragraph: 

21 ‘‘(8) ELECTION AFTER TAX-FREE REORGANIZA22 TION.—If a corporation was a distributing corpora23 tion or a controlled corporation with respect to any 

24 distribution to which section 355 applied, such cor25 poration (and any successor corporation) shall not 


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1 be eligible to make any election under subsection 

2 (c)(1) for any taxable year prior to the 10th taxable 

3 year which begins after the taxable year in which 

4 such distribution was made.’’. 

5 (c) EFFECTIVE DATE.—

6 (1) IN GENERAL.—Except as otherwise pro7 vided in this subsection, the amendments made by 

8 this section shall apply to distributions on or after 

9 February 26, 2014. 

10 (2) TRANSITION RULE.—The amendments 

11 made by this section shall not apply to any distribu12 tion made pursuant to an agreement which was 

13 binding on February 26, 2014, and at all times 

14 thereafter. 

15 SEC. 3632. EXTENSION OF PERIOD FOR PREVENTION OF 

16 REIT ELECTION FOLLOWING REVOCATION 

17 OR TERMINATION. 

18 (a) IN GENERAL.—Section 856(g)(3) is amended by 

19 striking ‘‘fifth’’ and inserting ‘‘10th’’. 

20 (b) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to terminations and revocations 

22 after December 31, 2014. 


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1 SEC. 3633. CERTAIN SHORT-LIFE PROPERTY NOT TREATED 

2 AS REAL PROPERTY FOR PURPOSES OF REIT 

3 PROVISIONS.

4 (a) IN GENERAL.—Section 856(c)(5) is amended by 

5 adding at the end the following new subparagraph: 

6 ‘‘(L) REAL PROPERTY.—The term ‘real 

7 property’ shall not include any tangible prop8 erty with a class life of less than 27.5 years. 

9 For purposes of the preceding sentence, class 

10 life of tangible property for any taxable year 

11 shall be the greater of—

12 ‘‘(i) the class life of such property in 

13 the hands of the real estate investment 

14 trust, or 

15 ‘‘(ii) the class life which would be ap16 plicable to such property if such property 

17 was placed in service in the taxable year.’’. 

18 (b) EFFECTIVE DATE.—The amendment made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2016. 

21 SEC. 3634. REPEAL OF SPECIAL RULES FOR TIMBER HELD 

22 BY REITS. 

23 (a) IN GENERAL.—Section 856(c)(5)(L), as added by 

24 this Act, is amended by inserting ‘‘timber or’’ after ‘‘shall 

25 not include’’. 

26 (b) CONFORMING AMENDMENTS.—


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1 (1) Section 856(c)(2) is amended by inserting 

2 ‘‘and’’ at the end of subparagraph (G), by striking 

3 ‘‘and’’ at the end of subparagraph (H), and by strik4 ing subparagraph (I). 

5 (2) Section 856(c)(5), as amended by the pre6 ceding provisions of this Act, is amended by striking 

7 subparagraphs (H) and (I) and by redesignating 

8 subparagraphs (J), (K), and (L) as subparagraphs 

9 (H), (I) and (J), respectively. 

10 (3) Section 856(c), as amended by the pre11 ceding provisions of this Act, is amended by striking 

12 paragraph (9). 

13 (4) Section 857(b)(6) is amended by striking 

14 subparagraphs (D), (G), and (H), and by redesig15 nating subparagraphs (E) and (F) as subparagraphs 

16 (D) and (E), respectively. 

17 (5) Section 857(b)(6)(D), as redesignated by 

18 paragraph (4), is amended by striking ‘‘subpara19 graphs (C) and (D)’’ and inserting ‘‘subparagraph 

20 (C)’’. 

21 (6) Section 857(b)(6)(E), as redesignated by 

22 paragraph (4), is amended—

23 (A) by striking ‘‘subparagraph (C) or (D)’’ 

24 and inserting ‘‘subparagraph (C)’’, and 


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1 (B) by striking ‘‘subparagraphs (C), (D), 

2 and (E)’’ and inserting ‘‘subparagraphs (C) and 

3 (D)’’. 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to taxable years beginning after 

6 December 31, 2016. 

7 SEC. 3635. LIMITATION ON FIXED PERCENTAGE RENT AND 

8 INTEREST EXCEPTIONS FOR REIT INCOME 

9 TESTS.

10 (a) IN GENERAL.—Section 856 is amended by adding 

11 at the end the following new subsection: 

12 ‘‘(o) LIMITATION ON FIXED PERCENTAGE RENT AND

13 INTEREST EXCEPTIONS.—

14 ‘‘(1) IN GENERAL.—If the fixed percentage rent 

15 and interest income received or accrued by a real es16 tate investment trust from a single C corporation 

17 (other than a taxable REIT subsidiary of such real 

18 estate investment trust) for any taxable year exceeds 

19 either—

20 ‘‘(A) 25 percent of the fixed percentage 

21 rent income received or accrued by such real es22 tate investment trust for such taxable year, or 

23 ‘‘(B) 25 percent of the fixed percentage in24 terest income received or accrued by such real 

25 estate investment trust for such taxable year, 


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1 then, notwithstanding subsection (d)(2), none of the 

2 fixed percentage rent income received or accrued 

3 from such corporation which is attributable to leases 

4 entered into after December 31, 2014, shall be 

5 treated as rents from real property and, notwith6 standing subsection (f), none of the fixed percentage 

7 interest income received or accrued from such cor8 poration which is attributable to debt instruments 

9 acquired after December 31, 2014, shall be treated 

10 as interest. 

11 ‘‘(2) FIXED PERCENTAGE RENT AND INTEREST

12 INCOME.—For purposes of this subsection—

13 ‘‘(A) FIXED PERCENTAGE RENT AND IN14 TEREST INCOME.—The term ‘fixed percentage 

15 rent and interest income’ means the sum of the 

16 fixed percentage rent income plus the fixed per17 centage interest income. 

18 ‘‘(B) FIXED PERCENTAGE RENT IN19 COME.—The term ‘fixed percentage rent in20 come’ means amounts described in subsection 

21 (d)(2)(A) which are based on a fixed percentage 

22 or percentages of receipts or sales. 

23 ‘‘(C) FIXED PERCENTAGE INTEREST IN24 COME.—The term ‘fixed percentage interest in25 come’ means amounts described in subsection 


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1 (f)(1) which are based on a fixed percentage or 

2 percentages of receipts or sales. 

3 ‘‘(3) AGGREGATION RULE.—Members of the 

4 same affiliated group (as defined in section 1504, 

5 applied by substituting ‘50 percent’ for ‘80 percent’ 

6 each place it appears therein) shall be treated as 1 

7 corporation for purposes of paragraph (1). 

8 ‘‘(4) TREATMENT OF MODIFICATIONS.—For 

9 purposes of paragraph (1), any material modifica10 tion (including any extension of the term) of a lease 

11 or debt instrument shall be treated as a new lease 

12 or debt instrument, as the case may be, entered into 

13 on the date of such modification.’’. 

14 (b) EFFECTIVE DATE.—The amendment made by 

15 this section shall apply to taxable years ending after De16 cember 31, 2014. 

17 SEC. 3636. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR 

18 PUBLICLY OFFERED REITS. 

19 (a) IN GENERAL.—Paragraph (1) of section 562(c), 

20 as amended by the preceding provisions of this Act, is 

21 amended by inserting ‘‘or a publicly offered REIT’’ after 

22 ‘‘a publicly offered regulated investment company’’. 

23 (b) PUBLICLY OFFERED REIT.—Subsection (c) of 

24 section 562, as so amended, is amended by adding at the 

25 end the following new paragraph: 


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1 ‘‘(3) PUBLICLY OFFERED REIT.—For purposes 

2 of this subsection, the term ‘publicly offered REIT’ 

3 means a real estate investment trust which is re4 quired to file annual and periodic reports with the 

5 Securities and Exchange Commission under the Se6 curities Exchange Act of 1934.’’. 

7 (c) EFFECTIVE DATE.—The amendment made by 

8 this section shall apply to distributions in taxable years 

9 beginning after December 31, 2014. 

10 SEC. 3637. AUTHORITY FOR ALTERNATIVE REMEDIES TO 

11 ADDRESS CERTAIN REIT DISTRIBUTION FAIL12 URES.

13 (a) IN GENERAL.—Subsection (e) of section 562 is 

14 amended—

15 (1) by striking ‘‘In the case of a real estate in16 vestment trust’’ and inserting the following: 

17 ‘‘(1) DETERMINATION OF EARNINGS AND PROF18 ITS FOR PURPOSES OF DIVIDENDS PAID DEDUC19 TION.—In the case of a real estate investment 

20 trust’’, and 

21 (2) by adding at the end the following new 

22 paragraph: 

23 ‘‘(2) AUTHORITY TO PROVIDE ALTERNATIVE

24 REMEDIES FOR CERTAIN FAILURES.—In the case of 

25 a failure of a distribution by a real estate investment 


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1 trust to comply with the requirements of subsection 

2 (c), the Secretary may provide an appropriate rem3 edy to cure such failure in lieu of not considering 

4 the distribution to be a dividend for purposes of 

5 computing the dividends paid deduction if—

6 ‘‘(A) the Secretary determines that such 

7 failure is inadvertent or is due to reasonable 

8 cause and not due to willful neglect, or 

9 ‘‘(B) such failure is of a type of failure 

10 which the Secretary has identified for purposes 

11 of this paragraph as being described in sub12 paragraph (A).’’. 

13 (b) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to distributions in taxable years 

15 beginning after December 31, 2014. 

16 SEC. 3638. LIMITATIONS ON DESIGNATION OF DIVIDENDS 

17 BY REITS. 

18 (a) IN GENERAL.—Section 857 is amended by redes19 ignating subsection (g) as subsection (h) and by inserting 

20 after subsection (f) the following new subsection: 

21 ‘‘(g) LIMITATIONS ON DESIGNATION OF DIVI22 DENDS.—

23 ‘‘(1) OVERALL LIMITATION.—The aggregate 

24 amount of dividends designated by a real estate in25 vestment trust under subsections (b)(3)(C) and 


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1 (c)(2)(A) with respect to any taxable year may not 

2 exceed the dividends paid by such trust with respect 

3 to such year. For purposes of the preceding sen4 tence, dividends paid after the close of the taxable 

5 year described in section 858 shall be treated as 

6 paid with respect to such year. 

7 ‘‘(2) PROPORTIONALITY.—The Secretary may 

8 prescribe regulations or other guidance requiring the 

9 proportionality of the designation of particular types 

10 of dividends among shares or beneficial interests of 

11 a real estate investment trust.’’. 

12 (b) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to distributions in taxable years 

14 beginning after December 31, 2014. 

15 SEC. 3639. NON-REIT EARNINGS AND PROFITS REQUIRED 

16 TO BE DISTRIBUTED BY REIT IN CASH. 

17 (a) IN GENERAL.—Section 857, as amended by the 

18 preceding provisions of this Act, is amended by redesig19 nating subsection (h) as subsection (i) and by inserting 

20 after subsection (g) the following new subsection: 

21 ‘‘(h) DETERMINATION OF EARNINGS AND PROFITS

22 ACCUMULATED IN NON-REIT YEARS.—

23 ‘‘(1) IN GENERAL.—For purposes of subsection 

24 (a)(2)(B), distributions during the transition period 

25 shall be taken into account in determining accumuVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00711 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 lated earning and profits only if such distributions 

2 are made in cash. 

3 ‘‘(2) TRANSITION PERIOD.—For purposes of 

4 this subsection, the term ‘transition period’ means 

5 the period of taxable years beginning with the last 

6 taxable year (other than a short taxable year) which 

7 was a non-REIT year (as defined in subsection (a)) 

8 and ending with the first taxable year to which the 

9 provisions of this part apply.’’. 

10 (b) CONFORMING AMENDMENT.—Section 

11 857(a)(2)(B) is amended by inserting ‘‘(determined as 

12 provided in subsection (h))’’ before the period at the end. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to distributions made on or after 

15 February 26, 2014. 

16 SEC. 3640. DEBT INSTRUMENTS OF PUBLICLY OFFERED 

17 REITS AND MORTGAGES TREATED AS REAL 

18 ESTATE ASSETS. 

19 (a) DEBT INSTRUMENTS OF PUBLICLY OFFERED

20 REITS TREATED AS REAL ESTATE ASSETS.—

21 (1) IN GENERAL.—Subparagraph (B) of section 

22 856(c)(5) is amended—

23 (A) by striking ‘‘and shares’’ and inserting 

24 ‘‘, shares’’, and 


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1 (B) by inserting ‘‘, and debt instruments 

2 issued by publicly offered REITs’’ before the 

3 period at the end of the first sentence. 

4 (2) INCOME FROM NONQUALIFIED DEBT IN5 STRUMENTS OF PUBLICLY OFFERED REITS NOT

6 QUALIFIED FOR PURPOSES OF SATISFYING THE 75

7 PERCENT GROSS INCOME TEST.—Subparagraph (H) 

8 of section 856(c)(3) is amended by inserting ‘‘(other 

9 than a nonqualified publicly offered REIT debt in10 strument)’’ after ‘‘real estate asset’’. 

11 (3) 25 PERCENT ASSET LIMITATION ON HOLD12 ING OF NONQUALIFIED DEBT INSTRUMENTS OF PUB13 LICLY OFFERED REITS.—Subparagraph (B) of sec14 tion 856(c)(4) is amended by redesignating clause 

15 (iii) as clause (iv) and by inserting after clause (ii) 

16 the following new clause: 

17 ‘‘(iii) not more than 25 percent of the 

18 value of its total assets is represented by 

19 nonqualified publicly offered REIT debt in20 struments, and’’. 

21 (4) DEFINITIONS RELATED TO DEBT INSTRU22 MENTS OF PUBLICLY OFFERED REITS.—Paragraph 

23 (5) of section 856(c), as amended by the preceding 

24 provisions of this Act, is amended by adding at the 

25 end the following new subparagraph: 


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1 ‘‘(K) DEFINITIONS RELATED TO DEBT IN2 STRUMENTS OF PUBLICLY OFFERED REITS.—

3 ‘‘(i) PUBLICLY OFFERED REIT.—The 

4 term ‘publicly offered REIT’ has the 

5 meaning given such term by section 

6 562(c)(3). 

7 ‘‘(ii) NONQUALIFIED PUBLICLY OF8 FERED REIT DEBT INSTRUMENT.—The 

9 term ‘nonqualified publicly offered REIT 

10 debt instrument’ means any real estate 

11 asset which would cease to be a real estate 

12 asset if subparagraph (B) were applied 

13 without regard to the reference to ‘debt in14 struments issued by publicly offered 

15 REITs’.’’. 

16 (b) INTERESTS IN MORTGAGES ON INTERESTS IN

17 REAL PROPERTY TREATED AS REAL ESTATE ASSETS.—

18 Subparagraph (B) of section 856(c)(5) is amended by in19 serting ‘‘or on interests in real property’’ after ‘‘interests 

20 in mortgages on real property’’. 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years beginning after 

23 December 31, 2014. 


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1 SEC. 3641. ASSET AND INCOME TEST CLARIFICATION RE2 GARDING ANCILLARY PERSONAL PROPERTY. 

3 (a) IN GENERAL.—Subsection (c) of section 856 is 

4 amended by adding at the end the following new para5 graph: 

6 ‘‘(9) SPECIAL RULES FOR CERTAIN PERSONAL

7 PROPERTY WHICH IS ANCILLARY TO REAL PROP8 ERTY.—

9 ‘‘(A) CERTAIN PERSONAL PROPERTY

10 LEASED IN CONNECTION WITH REAL PROP11 ERTY.—Personal property shall be treated as a 

12 real estate asset for purposes of paragraph 

13 (4)(A) to the extent that rents attributable to 

14 such personal property are treated as rents 

15 from real property under subsection (d)(1)(C). 

16 ‘‘(B) CERTAIN PERSONAL PROPERTY

17 MORTGAGED IN CONNECTION WITH REAL PROP18 ERTY.—In the case of an obligation secured by 

19 a mortgage on both real property and personal 

20 property, if the fair market value of such per21 sonal property does not exceed 15 percent of 

22 the total fair market value of all such property, 

23 such personal property shall be treated as real 

24 property for purposes of applying paragraphs 

25 (3)(B) and (4)(A). For purposes of the pre26 ceding sentence, the fair market value of all 


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1 such property shall be determined in the same 

2 manner as the fair market value of real prop3 erty is determined for purposes of apportioning 

4 interest income between real property and per5 sonal property under paragraph (3)(B).’’. 

6 (b) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2014. 

9 SEC. 3642. HEDGING PROVISIONS. 

10 (a) MODIFICATION TO PERMIT THE TERMINATION

11 OF A HEDGING TRANSACTION USING AN ADDITIONAL

12 HEDGING INSTRUMENT.—Subparagraph (G) of section 

13 856(c)(5) is amended by striking ‘‘and’’ at the end of 

14 clause (i), by striking the period at the end of clause (ii) 

15 and inserting ‘‘, and’’, and by adding at the end the fol16 lowing new clause: 

17 ‘‘(iii) if—

18 ‘‘(I) a real estate investment 

19 trust enters into one or more positions 

20 described in clause (i) with respect to 

21 indebtedness described in clause (i) or 

22 one or more positions described in 

23 clause (ii) with respect to property 

24 which generates income or gain de25 scribed in paragraph (2) or (3), 


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1 ‘‘(II) any portion of such indebt2 edness is extinguished or any portion 

3 of such property is disposed of, and 

4 ‘‘(III) in connection with such ex5 tinguishment or disposition, such 

6 trust enters into one or more trans7 actions which would be hedging trans8 actions described in subparagraph (B) 

9 or (C) of section 1221(b)(2) with re10 spect to any position referred to in 

11 subclause (I) if such position were or12 dinary property, 

13 any income of such trust from any position 

14 referred to in subclause (I) and from any 

15 transaction referred to in subclause (III) 

16 (including gain from the termination of 

17 any such position or transaction) shall not 

18 constitute gross income under paragraphs 

19 (2) and (3) to the extent that such trans20 action hedges such position.’’. 

21 (b) IDENTIFICATION REQUIREMENTS.—

22 (1) IN GENERAL.—Subparagraph (G) of section 

23 856(c)(5), as amended by subsection (a), is amended 

24 by striking ‘‘and’’ at the end of clause (ii), by strik25 ing the period at the end of clause (iii) and inserting 


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1 ‘‘, and’’, and by adding at the end the following new 

2 clause: 

3 ‘‘(iv) clauses (i), (ii), and (iii) shall 

4 not apply with respect to any transaction 

5 unless such transaction satisfies the identi6 fication requirement described in section 

7 1221(b)(3)(A) (determined after taking 

8 into account any curative provisions pro9 vided under the regulations referred to 

10 therein).’’. 

11 (2) CONFORMING AMENDMENTS.—Subpara12 graph (G) of section 856(c)(5) is amended—

13 (A) by striking ‘‘which is clearly identified 

14 pursuant to section 1221(a)(7)’’ in clause (i), 

15 and 

16 (B) by striking ‘‘, but only if such trans17 action is clearly identified as such before the 

18 close of the day on which it was acquired, origi19 nated, or entered into (or such other time as 

20 the Secretary may prescribe)’’ in clause (ii). 

21 (c) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years beginning after 

23 December 31, 2014. 


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1 SEC. 3643. MODIFICATION OF REIT EARNINGS AND PROF2 ITS CALCULATION TO AVOID DUPLICATE TAX3 ATION.

4 (a) EARNINGS AND PROFITS NOT INCREASED BY

5 AMOUNTS ALLOWED IN COMPUTING TAXABLE INCOME IN

6 PRIOR YEARS.—

7 (1) IN GENERAL.—Paragraph (1) of section 

8 857(d) is amended to read as follows: 

9 ‘‘(1) IN GENERAL.—The earnings and profits of 

10 a real estate investment trust for any taxable year 

11 (but not its accumulated earnings) shall not be re12 duced by any amount which—

13 ‘‘(A) is not allowable in computing its tax14 able income for such taxable year, and 

15 ‘‘(B) was not allowable in computing its 

16 taxable income for any prior taxable year.’’. 

17 (2) EXCEPTION FOR PURPOSES OF DETER18 MINING DIVIDENDS PAID DEDUCTION.—Paragraph 

19 (1) of section 562(e), as amended by the preceding 

20 provisions of this Act, is amended—

21 (A) by striking ‘‘deduction, the earnings’’ 

22 and inserting the following: ‘‘deduction—

23 ‘‘(A) the earnings’’, 

24 (B) by striking the period at the end and 

25 inserting ‘‘, and’’, and 


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1 (C) by adding at the end the following new 

2 subparagraph: 

3 ‘‘(B) section 857(d)(1) shall be applied 

4 without regard to subparagraph (B) thereof.’’. 

5 (3) CONFORMING AMENDMENTS.—Subsection 

6 (d) of section 857 is amended by adding at the end 

7 the following new paragraphs: 

8 ‘‘(4) REAL ESTATE INVESTMENT TRUST.—For 

9 purposes of this subsection, the term ‘real estate in10 vestment trust’ includes a domestic corporation, 

11 trust, or association which is a real estate invest12 ment trust determined without regard to the require13 ments of subsection (a). 

14 ‘‘(5) SPECIAL RULES FOR DETERMINING EARN15 INGS AND PROFITS FOR PURPOSES OF THE DEDUC16 TION FOR DIVIDENDS PAID.—For special rules for 

17 determining the earnings and profits of a real estate 

18 investment trust for purposes of the deduction for 

19 dividends paid, see section 562(e)(1).’’. 

20 (b) TREATMENT OF GAIN ON SALES OF REAL PROP21 ERTY.—Subparagraph (A) of section 562(e)(1), as amend22 ed by the preceding provisions of this Act, is amended to 

23 read as follows: 

24 ‘‘(A) the earnings and profits of such trust 

25 for any taxable year (but not its accumulated 


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1 earnings) shall be increased by the amount of 

2 gain (if any) on the sale or exchange of real 

3 property which is taken into account in deter4 mining the taxable income of such trust for 

5 such taxable year (and not otherwise taken into 

6 account in determining such earnings and prof7 its), and’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 3644. REDUCTION IN PERCENTAGE LIMITATION ON AS12 SETS OF REIT WHICH MAY BE TAXABLE REIT 

13 SUBSIDIARIES.

14 (a) IN GENERAL.—Section 856(c)(4)(B)(ii) is 

15 amended by striking ‘‘25 percent’’ and inserting ‘‘20 per16 cent’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2016. 

20 SEC. 3645. TREATMENT OF CERTAIN SERVICES PROVIDED 

21 BY TAXABLE REIT SUBSIDIARIES. 

22 (a) TAXABLE REIT SUBSIDIARIES TREATED IN

23 SAME MANNER AS INDEPENDENT CONTRACTORS FOR

24 CERTAIN PURPOSES.—


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1 (1) MARKETING AND DEVELOPMENT EXPENSES

2 UNDER RENTAL PROPERTY SAFE HARBOR.—Clause 

3 (v) of section 857(b)(6)(C) is amended by inserting 

4 ‘‘or by a taxable REIT subsidiary’’ before the period 

5 at the end. 

6 (2) FORECLOSURE PROPERTY GRACE PERIOD.—

7 Subparagraph (C) of section 856(e)(4) is amended 

8 by inserting ‘‘or through a taxable REIT subsidiary’’ 

9 after ‘‘receive any income’’. 

10 (b) TAX ON REDETERMINED TRS SERVICE IN11 COME.—

12 (1) IN GENERAL.—Subparagraph (A) of section 

13 857(b)(7) is amended by striking ‘‘and excess inter14 est’’ and inserting ‘‘excess interest, and redeter15 mined TRS service income’’. 

16 (2) REDETERMINED TRS SERVICE INCOME.—

17 Paragraph (7) of section 857(b) is amended by re18 designating subparagraphs (E) and (F) as subpara19 graphs (F) and (G), respectively, and inserting after 

20 subparagraph (D) the following new subparagraph: 

21 ‘‘(E) REDETERMINED TRS SERVICE IN22 COME.—

23 ‘‘(i) IN GENERAL.—The term ‘redeter24 mined TRS service income’ means gross 

25 income of a taxable REIT subsidiary of a 


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1 real estate investment trust attributable to 

2 services provided to, or on behalf of, such 

3 trust (less deductions properly allocable 

4 thereto) to the extent the amount of such 

5 income (less such deductions) would (but 

6 for subparagraph (F)) be increased on dis7 tribution, apportionment, or allocation 

8 under section 482. 

9 ‘‘(ii) COORDINATION WITH REDETER10 MINED RENTS.—Clause (i) shall not apply 

11 with respect to gross income attributable 

12 to services furnished or rendered to a ten13 ant of the real estate investment trust (or 

14 to deductions properly allocable thereto).’’. 

15 (3) CONFORMING AMENDMENTS.—Subpara16 graphs (B)(i) and (C) of section 857(b)(7) are each 

17 amended by striking ‘‘subparagraph (E)’’ and insert18 ing ‘‘subparagraph (F)’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2014. 

22 SEC. 3646. STUDY RELATING TO TAXABLE REIT SUBSIDI23 ARIES.

24 The Secretary of the Treasury (or the Secretary’s 

25 designee) shall, biannually—


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1 (1) conduct a study to determine—

2 (A) how many taxable REIT subsidiaries 

3 are in existence and the aggregate amount of 

4 taxes paid by such subsidiaries, and 

5 (B) the amount by which transactions be6 tween a REIT and a taxable REIT subsidiary 

7 reduce taxable income of the taxable REIT sub8 sidiary (whether or not such transactions are 

9 conducted at arms length), and 

10 (2) submit a report to the Committee on Ways 

11 and Means of the House of Representatives and the 

12 Committee on Finance of the Senate describing the 

13 results of such study. 

14 SEC. 3647. C CORPORATION ELECTION TO BECOME, OR 

15 TRANSFER ASSETS TO, A RIC OR REIT. 

16 (a) IN GENERAL.—Part IV of subchapter O of chap17 ter 1, as amended by the preceding provisions of this Act, 

18 is amended by redesignating section 1062 as section 1063 

19 and by inserting after section 1061 the following new sec20 tion: 


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1 ‘‘SEC. 1062. RECOGNITION OF GAIN OR LOSS UPON C COR2 PORATION ELECTION TO BECOME, OR TRANS3 FER ASSETS TO, A REGULATED INVESTMENT 

4 COMPANY OR A REAL ESTATE INVESTMENT 

5 TRUST.

6 ‘‘(a) IN GENERAL.—If a C corporation elects to be7 come a regulated investment company or a real estate in8 vestment trust for a taxable year, such corporation shall 

9 recognize gain or loss as if all its assets were sold by such 

10 corporation at their fair market value immediately before 

11 the close of the last taxable year before such corporation 

12 becomes a regulated investment company or real estate in13 vestment trust (as the case may be). 

14 ‘‘(b) APPLICATION TO TRANSFERS OF ASSETS.—In 

15 the case of a C corporation which transfers to a regulated 

16 investment company or a real estate investment trust one 

17 or more assets the basis of which is determined (in whole 

18 or in part) by reference to the basis of such asset or assets 

19 in the hands of the C corporation, such corporation shall 

20 recognize gain or loss as if such assets were sold by such 

21 corporation at their fair market value as of the end of 

22 the day before the day of the transfer. 

23 ‘‘(c) NONAPPLICATION TO NET LOSS.—Subsections 

24 (a) and (b) shall not apply if their application would result 

25 in the recognition of a net loss. For purposes of the pre26 ceding sentence, the term ‘net loss’ means the excess of 


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1 aggregate losses over aggregate gains (including items of 

2 income) without regard to character. 

3 ‘‘(d) BASIS ADJUSTMENT.—If any asset is treated as 

4 sold under subsection (a) or (b), the basis of such asset 

5 immediately after such deemed sale shall be equal to the 

6 fair market value of such asset as determined under such 

7 subsection. 

8 ‘‘(e) C CORPORATION.—For purposes of this section, 

9 the term ‘C corporation’ does not include a regulated in10 vestment company or a real estate investment trust.’’. 

11 (b) CLERICAL AMENDMENT.—The table of sections 

12 for part IV of subchapter O of chapter 1 is amended by 

13 redesignating the item relating to section 1062 as an item 

14 relating to section 1063 and by inserting after the item 

15 relating to section 1061 the following new item:

‘‘Sec. 1062. Recognition of gain or loss upon C corporation election to become, 

or transfer assets to, a regulated investment company or a real 

estate investment trust.’’.

16 (c) EFFECTIVE DATE.—The amendment made by 

17 this section shall apply to elections and transfers on or 

18 after February 26, 2014. 

19 SEC. 3648. INTERESTS IN RICS AND REITS NOT EXCLUDED 

20 FROM DEFINITION OF UNITED STATES REAL 

21 PROPERTY INTERESTS. 

22 (a) IN GENERAL.—Section 897(c)(1)(B) is amended 

23 by striking ‘‘and’’ at the end of clause (i), by striking the 


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1 period at the end of clause (ii)(II) and inserting ‘‘, and’’, 

2 and by adding at the end the following new clause: 

3 ‘‘(iii) neither such corporation nor any 

4 predecessor of such corporation was a reg5 ulated investment company or a real estate 

6 investment company at any time during 

7 the period described in subparagraph 

8 (A)(ii).’’. 

9 (b) EFFECTIVE DATE.—The amendment made by 

10 this section shall apply to dispositions after December 31, 

11 2014. 

12 SEC. 3649. DIVIDENDS DERIVED FROM RICS AND REITS IN13 ELIGIBLE FOR DEDUCTION FOR UNITED 

14 STATES SOURCE PORTION OF DIVIDENDS 

15 FROM CERTAIN FOREIGN CORPORATIONS. 

16 (a) IN GENERAL.—Section 245(a) is amended by 

17 adding at the end the following new paragraph: 

18 ‘‘(12) DIVIDENDS DERIVED FROM RICS AND

19 REITS INELIGIBLE FOR DEDUCTION.—Regulated in20 vestment companies and real estate investment 

21 trusts shall not be treated as domestic corporations 

22 for purposes of paragraph (5)(B).’’. 

23 (b) EFFECTIVE DATE.—The amendment made by 

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1 lated investment companies and real estate investment 

2 trusts on or after February 26, 2014. 

3 PART 4—PERSONAL HOLDING COMPANIES 

4 SEC. 3661. EXCLUSION OF DIVIDENDS FROM CONTROLLED 

5 FOREIGN CORPORATIONS FROM THE DEFINI6 TION OF PERSONAL HOLDING COMPANY IN7 COME FOR PURPOSES OF THE PERSONAL 

8 HOLDING COMPANY RULES. 

9 (a) IN GENERAL.—Paragraph (1) of section 543(a) 

10 is amended—

11 (1) by redesignating subparagraphs (C) and 

12 (D) as subparagraphs (D) and (E), respectively, and 

13 (2) by inserting after subparagraph (B) the fol14 lowing: 

15 ‘‘(C) dividends received by a United States 

16 shareholder (as defined in section 951(b)) from 

17 a controlled foreign corporation (as defined in 

18 section 957(a)),’’. 

19 (b) EFFECTIVE DATE.—The amendments made by 

20 this Act shall apply to taxable years beginning after De21 cember 31, 2014. 


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1 Subtitle H—Taxation of Foreign 

2 Persons

3 SEC. 3701. PREVENTION OF AVOIDANCE OF TAX THROUGH 

4 REINSURANCE WITH NON-TAXED AFFILIATES. 

5 (a) IN GENERAL.—Part III of subchapter L of chap6 ter 1 is amended by adding at the end the following new 

7 section: 

8 ‘‘SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON9 LIFE CONTRACTS WITH NON-TAXED AFFILI10 ATES.

11 ‘‘(a) IN GENERAL.—The taxable income under sec12 tion 831(a) or the life insurance company taxable income 

13 under section 801(b) (as the case may be) of an insurance 

14 company shall be determined by not taking into account—

15 ‘‘(1) any non-taxed reinsurance premium, 

16 ‘‘(2) any additional amount paid by such insur17 ance company with respect to the reinsurance for 

18 which such non-taxed reinsurance premium is paid, 

19 to the extent such additional amount is properly al20 locable to such non-taxed reinsurance premium, and 

21 ‘‘(3) any return premium, ceding commission, 

22 reinsurance recovered, or other amount received by 

23 such insurance company with respect to the reinsur24 ance for which such non-taxed reinsurance premium 

25 is paid, to the extent such return premium, ceding 


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1 commission, reinsurance recovered, or other amount 

2 is properly allocable to such non-taxed reinsurance 

3 premium. 

4 ‘‘(b) NON-TAXED REINSURANCE PREMIUMS.—For 

5 purposes of this section—

6 ‘‘(1) IN GENERAL.—The term ‘non-taxed rein7 surance premium’ means any reinsurance premium 

8 paid directly or indirectly to an affiliated corporation 

9 with respect to reinsurance of risks (other than ex10 cepted risks), to the extent that the income attrib11 utable to the premium is not subject to tax under 

12 this subtitle (either as the income of the affiliated 

13 corporation or as amounts included in gross income 

14 by a United States shareholder under section 951). 

15 ‘‘(2) EXCEPTED RISKS.—The term ‘excepted 

16 risks’ means any risk with respect to which reserves 

17 described in section 816(b)(1) are established. 

18 ‘‘(c) AFFILIATED CORPORATIONS.—For purposes of 

19 this section, a corporation shall be treated as affiliated 

20 with an insurance company if both corporations would be 

21 members of the same controlled group of corporations (as 

22 defined in section 1563(a)) if section 1563 were applied—

23 ‘‘(1) by substituting ‘at least 50 percent’ for ‘at 

24 least 80 percent’ each place it appears in subsection 

25 (a)(1), and 


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1 ‘‘(2) without regard to subsections (a)(4), 

2 (b)(2)(C), (b)(2)(D), and (e)(3)(C). 

3 ‘‘(d) ELECTION TO TREAT REINSURANCE INCOME AS

4 EFFECTIVELY CONNECTED.—

5 ‘‘(1) IN GENERAL.—A specified affiliated cor6 poration may elect for any taxable year to treat 

7 specified reinsurance income as—

8 ‘‘(A) income effectively connected with the 

9 conduct of a trade or business in the United 

10 States, and 

11 ‘‘(B) for purposes of any treaty between 

12 the United States and any foreign country, in13 come attributable to a permanent establishment 

14 in the United States. 

15 ‘‘(2) EFFECT OF ELECTION.—In the case of 

16 any specified reinsurance income with respect to 

17 which the election under this subsection applies—

18 ‘‘(A) DEDUCTION ALLOWED FOR REINSUR19 ANCE PREMIUMS.—For exemption from sub20 section (a), see definition of non-taxed reinsur21 ance premiums in subsection (b). 

22 ‘‘(B) EXCEPTION FROM EXCISE TAX.—The 

23 tax imposed by section 4371 shall not apply 

24 with respect to any income treated as effectively 


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1 connected with the conduct of a trade or busi2 ness in the United States under paragraph (1). 

3 ‘‘(C) TAXATION UNDER THIS SUB4 CHAPTER.—Such income shall be subject to tax 

5 under this subchapter to the same extent and 

6 in the same manner as if such income were the 

7 income of a domestic insurance company. 

8 ‘‘(D) COORDINATION WITH FOREIGN TAX

9 CREDIT PROVISIONS.—For purposes of subpart 

10 A of part III of subchapter N and sections 78 

11 and 960—

12 ‘‘(i) such specified reinsurance income 

13 shall be treated as derived from sources 

14 without the United States, and 

15 ‘‘(ii) subsections (a), (b), and (c) of 

16 section 904 ,and section 960, shall be ap17 plied separately with respect to each item 

18 of such income. 

19 The Secretary may issue regulations or other 

20 guidance which provide that related items of 

21 specified reinsurance income may be aggregated 

22 for purposes of applying clause (ii). 

23 ‘‘(3) SPECIFIED AFFILIATED CORPORATION.—

24 For purposes of this subsection, the term ‘specified 

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1 tion which is a foreign corporation and which meets 

2 such requirements as the Secretary shall prescribe to 

3 ensure that tax on the specified reinsurance income 

4 of such corporation is properly determined and paid. 

5 ‘‘(4) SPECIFIED REINSURANCE INCOME.—For 

6 purposes of this paragraph, the term ‘specified rein7 surance income’ means all income of a specified af8 filiated corporation which is attributable to reinsur9 ance with respect to which subsection (a) would (but 

10 for the election under this subsection) apply. 

11 ‘‘(5) RULES RELATED TO ELECTION.—Any 

12 election under paragraph (1) shall—

13 ‘‘(A) be made at such time and in such 

14 form and manner as the Secretary may provide, 

15 and 

16 ‘‘(B) apply for the taxable year for which 

17 made and all subsequent taxable years unless 

18 revoked with the consent of the Secretary. 

19 ‘‘(e) EXCEPTION FOR AMOUNTS SUBJECT TO FOR20 EIGN TAX.—An amount shall not be treated as described 

21 in paragraph (1), (2), or (3) of subsection (a) if the tax22 payer demonstrates to the satisfaction of the Secretary 

23 that such amount was subject to an effective rate of in24 come tax imposed by a foreign country which is not less 


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1 than 100 percent of the maximum rate of tax specified 

2 in section 11. 

3 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

4 such regulations or other guidance as may be appropriate 

5 to carry out, or to prevent the avoidance of the purposes 

6 of, this section, including regulations or other guidance 

7 which provide for the application of this section to alter8 native reinsurance transactions, fronting transactions, 

9 conduit and reciprocal transactions, and any economically 

10 equivalent transactions.’’. 

11 (b) CLERICAL AMENDMENT.—The table of sections 

12 for part III of subchapter L of chapter 1 is amended by 

13 adding at the end the following new item:

‘‘Sec. 849. Special rules for reinsurance of non-life contracts with non-taxed affiliates.’’.

14 (c) EFFECTIVE DATE.—The amendment made by 

15 this section shall apply to taxable years beginning after 

16 December 31, 2014. 

17 SEC. 3702. TAXATION OF PASSENGER CRUISE GROSS IN18 COME OF FOREIGN CORPORATIONS AND 

19 NONRESIDENT ALIEN INDIVIDUALS. 

20 (a) IN GENERAL.—Section 882 is amended by redes21 ignating subsection (f) as subsection (g) and by inserting 

22 after subsection (e) the following new subsection: 

23 ‘‘(f) TREATMENT OF PASSENGER CRUISE GROSS IN24 COME.—


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1 ‘‘(1) IN GENERAL.—For purposes of this title, 

2 the effectively connected passenger cruise gross in3 come of a foreign corporation shall be treated as 

4 gross income which is effectively connected with the 

5 conduct of a trade or business in the United States. 

6 ‘‘(2) EFFECTIVELY CONNECTED PASSENGER

7 CRUISE GROSS INCOME.—For purposes of this sub8 section, the term ‘effectively connected passenger 

9 cruise gross income’ means, with respect to the oper10 ation of any ship in a covered voyage, the United 

11 States territorial waters percentage of the gross in12 come (determined without regard to section 

13 883(a)(1)) derived from such operation, including 

14 any amount received with respect to the provision of 

15 any on- or off-board activities, services, or sales, 

16 with respect to passengers incidental to such oper17 ation (or with respect to any agreement with any 

18 person with respect to the provision of any such ac19 tivities, services, or sales). 

20 ‘‘(3) UNITED STATES TERRITORIAL WATERS

21 PERCENTAGE.—For purposes of this subsection—

22 ‘‘(A) IN GENERAL.—The term ‘United 

23 States territorial waters percentage’ means, 

24 with respect to the operation of any ship in any 


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1 covered voyage, the ratio (expressed as a per2 centage) of—

3 ‘‘(i) the number of days during such 

4 voyage such ship was operated in the terri5 torial waters of the United States, divided 

6 by 

7 ‘‘(ii) the total number of days of such 

8 voyage. 

9 ‘‘(B) CALENDAR DAY RULE.—If a ship—

10 ‘‘(i) is operated in a covered voyage, 

11 or 

12 ‘‘(ii) is operated in the territorial wa13 ters of the United States during a covered 

14 voyage, 

15 for any portion of a calendar day, such ship 

16 shall be treated as having operated in a covered 

17 voyage, or as having operated in such territorial 

18 waters, respectively, for the entirety of such 

19 day. 

20 ‘‘(C) TERRITORIAL WATERS.—The terri21 torial waters of the United States shall be 

22 treated as consisting of those waters which 

23 are—


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1 ‘‘(i) within the international boundary 

2 line between the United States and any 

3 contiguous foreign country, or 

4 ‘‘(ii) within 12 nautical miles from low 

5 tide on the coastline of the United States. 

6 ‘‘(4) COVERED VOYAGE.—For purposes of this 

7 subsection—

8 ‘‘(A) IN GENERAL.—The term ‘covered 

9 voyage’ has the meaning given such term by 

10 section 4472(1). 

11 ‘‘(B) ANTI-ABUSE RULE.—Except as oth12 erwise provided by the Secretary, if passengers 

13 embark a ship in the United States and more 

14 than 10 percent of such passengers disembark 

15 in the United States, the operation of such ship 

16 at all times between such events shall be treat17 ed as a covered voyage. Nothing in the pre18 ceding sentence shall preclude any operation of 

19 a ship (including any operation of a ship before 

20 or after such events) which would otherwise be 

21 treated as part of a covered voyage from being 

22 so treated. 

23 ‘‘(5) TREATMENT OF OTHERWISE EFFECTIVELY

24 CONNECTED INCOME.—Gross income which would, 

25 without regard to this subsection, be gross income 


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1 which is effectively connected with the conduct of a 

2 trade or business in the United States—

3 ‘‘(A) shall be so treated, and 

4 ‘‘(B) shall not be taken into account as 

5 gross income under paragraph (2).’’. 

6 (b) APPLICATION TO NONRESIDENT ALIEN INDIVID7 UALS.—Section 871 is amended by redesignating sub8 section (n) as subsection (o) and by inserting after sub9 section (m) the following new subsection: 

10 ‘‘(n) TREATMENT OF PASSENGER CRUISE GROSS IN11 COME.—

12 ‘‘(1) IN GENERAL.—For purposes of this title, 

13 the effectively connected passenger cruise gross in14 come of a nonresident alien individual shall be treat15 ed as gross income which is effectively connected 

16 with the conduct of a trade or business in the 

17 United States. 

18 ‘‘(2) DEFINITIONS AND SPECIAL RULES.—For 

19 purposes of this subsection—

20 ‘‘(A) DEFINITIONS.—Terms used in this 

21 subsection which are also used in section 882(f) 

22 shall have the same meaning as when used in 

23 such section, except that section 882(f)(2) shall 

24 be applied by substituting ‘section 872(b)(1)’ 

25 for ‘section 883(a)(1)’. 


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1 ‘‘(B) TREATMENT OF OTHERWISE EFFEC2 TIVELY CONNECTED INCOME.—Rules similar to 

3 the rules of section 882(f)(5) shall apply for 

4 purposes of this subsection.’’. 

5 (c) COORDINATION WITH RECIPROCAL EXEMPTIONS

6 FOR SHIPPING INCOME.—

7 (1) IN GENERAL.—Section 883(a)(1) is amend8 ed by striking ‘‘Gross income’’ and inserting ‘‘Ex9 cept as provided in section 882(f), gross income’’. 

10 (2) NONRESIDENT ALIEN INDIVIDUALS.—Sec11 tion 872(b)(1) is amended by striking ‘‘Gross in12 come’’ and inserting ‘‘Except as provided in section 

13 871(n), gross income’’. 

14 (d) COORDINATION WITH TAX ON GROSS TRANSPOR15 TATION INCOME.—Section 887(b)(4) is amended by add16 ing at the end the following new flush text: 

17 ‘‘The preceding sentence shall not apply to any 

18 United States source gross transportation income 

19 which is effectively connected passenger cruise gross 

20 income (within the meaning of section 871(n) or 

21 882(f)).’’. 

22 (e) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2014. 


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1 SEC. 3703. RESTRICTION ON INSURANCE BUSINESS EXCEP2 TION TO PASSIVE FOREIGN INVESTMENT 

3 COMPANY RULES. 

4 (a) IN GENERAL.—Section 1297(b)(2)(B) is amend5 ed to read as follows: 

6 ‘‘(B) derived in the active conduct of an in7 surance business by a corporation if—

8 ‘‘(i) such corporation would be subject 

9 to tax under subchapter L if such corpora10 tion were a domestic corporation, 

11 ‘‘(ii) more than 50 percent of such 

12 corporation’s gross receipts for the taxable 

13 year consist of premiums, and 

14 ‘‘(iii) the applicable insurance liabil15 ities of such corporation constitute more 

16 than 35 percent of its total assets as re17 ported on the corporation’s applicable fi18 nancial statement for the year with which 

19 or in which the taxable year ends,’’. 

20 (b) APPLICABLE INSURANCE LIABILITIES; APPLICA21 BLE FINANCIAL STATEMENT.—

22 (1) IN GENERAL.—Section 1297(b) is amended 

23 by adding at the end the following new paragraph: 

24 ‘‘(3) DEFINITIONS.—For purposes of this sub25 section—


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1 ‘‘(A) APPLICABLE INSURANCE LIABIL2 ITIES.—The term ‘applicable insurance liabil3 ities’ means, with respect to any life or property 

4 and casualty insurance business—

5 ‘‘(i) loss and loss adjustment ex6 penses, 

7 ‘‘(ii) unearned premiums, and 

8 ‘‘(iii) reserves (other than deficiency 

9 or contingency reserves) for life and health 

10 insurance risks and life and health insur11 ance claims with respect to contracts pro12 viding coverage for mortality or morbidity 

13 risks (not to exceed the amount of such re14 serve that is required to be reported to the 

15 home country insurance regulatory body). 

16 ‘‘(B) APPLICABLE FINANCIAL STATE17 MENT.—The term ‘applicable financial state18 ment’ means a statement for financial reporting 

19 purposes which—

20 ‘‘(i) is made on the basis of generally 

21 accepted accounting principles, 

22 ‘‘(ii) is made on the basis of inter23 national financial reporting standards, but 

24 only if there is no statement that meets 

25 the requirement of clause (i), or 


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1 ‘‘(iii) except as otherwise provided by 

2 the Secretary in regulations, is the annual 

3 statement which is required to be filed 

4 with the home country insurance regu5 latory body, but only if there is no state6 ment which meets the requirements of 

7 clause (i) or (ii).’’. 

8 (2) CONFORMING AMENDMENT.—Section 

9 1297(b) is amended—

10 (A) by striking the last sentence in para11 graph (2) thereof, and 

12 (B) by adding at the end of paragraph (3) 

13 thereof (as added by paragraph (1)), the fol14 lowing new subparagraph: 

15 ‘‘(C) RELATED PERSON.—The term ‘re16 lated person’ has the meaning given such term 

17 by section 954(d)(3) determined by substituting 

18 ‘foreign corporation’ for ‘controlled foreign cor19 poration’ each place it appears therein.’’. 

20 (c) EFFECTIVE DATE.—The amendment made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2014. 


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1 SEC. 3704. MODIFICATION OF LIMITATION ON EARNINGS 

2 STRIPPING.

3 (a) IN GENERAL.—Section 163(j)(2)(B)(i)(II) is 

4 amended by striking ‘‘50 percent’’ and inserting ‘‘40 per5 cent’’. 

6 (b) NO NEW EXCESS LIMITATION

7 CARRYFORWARDS.—Section 163(j)(2)(B)(ii) is amended 

8 by striking ‘‘for any taxable year’’ and inserting ‘‘for any 

9 taxable year beginning before January 1, 2015’’. 

10 (c) EFFECTIVE DATE.—The amendment made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2014. 

13 SEC. 3705. LIMITATION ON TREATY BENEFITS FOR CERTAIN 

14 DEDUCTIBLE PAYMENTS. 

15 (a) IN GENERAL.—Section 894 of the Internal Rev16 enue Code of 1986 (relating to income affected by treaty) 

17 is amended by adding at the end the following new sub18 section: 

19 ‘‘(d) LIMITATION ON TREATY BENEFITS FOR CER20 TAIN DEDUCTIBLE PAYMENTS.—

21 ‘‘(1) IN GENERAL.—In the case of any deduct22 ible related-party payment, any withholding tax im23 posed under chapter 3 (and any tax imposed under 

24 subpart A or B of this part) with respect to such 

25 payment may not be reduced under any treaty of the 

26 United States unless any such withholding tax would 


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1 be reduced under a treaty of the United States if 

2 such payment were made directly to the foreign par3 ent corporation. 

4 ‘‘(2) DEDUCTIBLE RELATED-PARTY PAY5 MENT.—For purposes of this subsection, the term 

6 ‘deductible related-party payment’ means any pay7 ment made, directly or indirectly, by any person to 

8 any other person if the payment is allowable as a de9 duction under this chapter and both persons are 

10 members of the same foreign controlled group of en11 tities. 

12 ‘‘(3) FOREIGN CONTROLLED GROUP OF ENTI13 TIES.—For purposes of this subsection—

14 ‘‘(A) IN GENERAL.—The term ‘foreign 

15 controlled group of entities’ means a controlled 

16 group of entities the common parent of which 

17 is a foreign corporation. 

18 ‘‘(B) CONTROLLED GROUP OF ENTITIES.—

19 The term ‘controlled group of entities’ means a 

20 controlled group of corporations as defined in 

21 section 1563(a)(1), except that—

22 ‘‘(i) ‘more than 50 percent’ shall be 

23 substituted for ‘at least 80 percent’ each 

24 place it appears therein, and 


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1 ‘‘(ii) the determination shall be made 

2 without regard to subsections (a)(4) and 

3 (b)(2) of section 1563. 

4 A partnership or any other entity (other than a 

5 corporation) shall be treated as a member of a 

6 controlled group of entities if such entity is con7 trolled (within the meaning of section 

8 954(d)(3)) by members of such group (includ9 ing any entity treated as a member of such 

10 group by reason of this sentence). 

11 ‘‘(4) FOREIGN PARENT CORPORATION.—For 

12 purposes of this subsection, the term ‘foreign parent 

13 corporation’ means, with respect to any deductible 

14 related-party payment, the common parent of the 

15 foreign controlled group of entities referred to in 

16 paragraph (3)(A). 

17 ‘‘(5) REGULATIONS.—The Secretary may pre18 scribe such regulations or other guidance as are nec19 essary or appropriate to carry out the purposes of 

20 this subsection, including regulations or other guid21 ance which provide for—

22 ‘‘(A) the treatment of two or more persons 

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1 ent of such group if treated as one corporation, 

2 and 

3 ‘‘(B) the treatment of any member of a 

4 foreign controlled group of entities as the com5 mon parent of such group if such treatment is 

6 appropriate taking into account the economic 

7 relationships among such entities.’’. 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 this section shall apply to payments made after the date 

10 of the enactment of this Act. 

11 Subtitle I—Provisions Related to 

12 Compensation

13 PART 1—EXECUTIVE COMPENSATION 

14 SEC. 3801. NONQUALIFIED DEFERRED COMPENSATION. 

15 (a) IN GENERAL.—Subpart A of part I of subchapter 

16 D of chapter 1 is amended by adding at the end the fol17 lowing new section: 

18 ‘‘SEC. 409B. NONQUALIFIED DEFERRED COMPENSATION. 

19 ‘‘(a) IN GENERAL.—Any compensation which is de20 ferred under a nonqualified deferred compensation plan 

21 shall be includible in gross income when there is no sub22 stantial risk of forfeiture of the rights to such compensa23 tion. 

24 ‘‘(b) DEFINITIONS.—For purposes of this section—


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1 ‘‘(1) SUBSTANTIAL RISK OF FORFEITURE.—The 

2 rights of a person to compensation shall be treated 

3 as subject to a substantial risk of forfeiture only if 

4 such person’s rights to such compensation are condi5 tioned upon the future performance of substantial 

6 services by any individual. 

7 ‘‘(2) NONQUALIFIED DEFERRED COMPENSA8 TION PLAN.—For purposes of this section: 

9 ‘‘(A) NONQUALIFIED DEFERRED COM10 PENSATION PLAN.—The term ‘nonqualified de11 ferred compensation plan’ means any plan that 

12 provides for the deferral of compensation, other 

13 than—

14 ‘‘(i) a qualified employer plan, 

15 ‘‘(ii) any bona fide vacation leave, sick 

16 leave, compensatory time, disability pay, or 

17 death benefit plan, and 

18 ‘‘(iii) any other plan or arrangement 

19 designated by the Secretary consistent with 

20 the purposes of this section. 

21 ‘‘(B) EQUITY-BASED COMPENSATION.—

22 The term ‘nonqualified deferred compensation 

23 plan’ shall include any plan that provides a 

24 right to compensation based on the appreciation 


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1 in value of a specified number of equity units 

2 of the service recipient or stock options. 

3 ‘‘(3) QUALIFIED EMPLOYER PLAN.—The term 

4 ‘qualified employer plan’ means any plan, contract, 

5 pension, account, or trust described in 

6 408(p)(2)(D)(ii). 

7 ‘‘(4) PLAN INCLUDES ARRANGEMENTS, ETC.—

8 The term ‘plan’ includes any agreement or arrange9 ment, including an agreement or arrangement that 

10 includes one person. 

11 ‘‘(5) EXCEPTION.—Compensation shall not be 

12 treated as deferred for purposes of this section if the 

13 service provider receives payment of such compensa14 tion not later than 6 months after the end of the 

15 taxable year of the service recipient during which the 

16 right to the payment of such compensation is no 

17 longer subject to a substantial risk of forfeiture. 

18 ‘‘(6) TREATMENT OF EARNINGS.—References to 

19 deferred compensation shall be treated as including 

20 references to income (whether actual or notional) at21 tributable to such compensation or such income. 

22 ‘‘(7) AGGREGATION RULES.—Except as pro23 vided by the Secretary, rules similar to the rules of 

24 subsections (b) and (c) of section 414 shall apply. 


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1 ‘‘(c) NO INFERENCE ON EARLIER INCOME INCLU2 SION OR REQUIREMENT OF LATER INCLUSION.—Nothing 

3 in this section shall be construed to prevent the inclusion 

4 of amounts in gross income under any other provision of 

5 this chapter or any other rule of law earlier than the time 

6 provided in this section. Any amount included in gross in7 come under this section shall not be required to be in8 cluded in gross income under any other provision of this 

9 chapter or any other rule of law later than the time pro10 vided in this section. 

11 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

12 such regulations as may be necessary or appropriate to 

13 carry out the purposes of this section, including regula14 tions disregarding a substantial risk of forfeiture in cases 

15 where necessary to carry out the purposes of this sec16 tion.’’. 

17 (b) TERMINATION OF CERTAIN OTHER NON18 QUALIFIED DEFERRED COMPENSATION RULES.—

19 (1) NONQUALIFIED DEFERRED COMPENSA20 TION.—

21 (A) IN GENERAL.—Subpart A of part I of 

22 subchapter D of chapter 1 is amended by strik23 ing section 409A (and by striking the item re24 lating to such section in the table of sections 

25 for such subpart). 


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1 (B) CONFORMING AMENDMENTS.—

2 (i) Section 26(b)(2) is amended by 

3 striking subparagraph (V). 

4 (ii) Section 3401(a) is amended by 

5 striking the flush sentence at the end. 

6 (iii) Section 6041 is amended by 

7 striking subsection (g). 

8 (iv) Section 6051(a), as amended by 

9 the preceding provisions of this Act, is 

10 amended by striking paragraph (12), by 

11 inserting ‘‘and’’ at the end of paragraph 

12 (11), and by redesignating paragraph (13) 

13 as paragraph (12). 

14 (2) 457(b) PLANS OF TAX EXEMPT ORGANIZA15 TIONS.—Section 457 is amended by adding at the 

16 end the following new subsection: 

17 ‘‘(h) TERMINATION OF CERTAIN PLANS.—

18 ‘‘(1) TAX-EXEMPT ORGANIZATION PLANS.—

19 This section shall not apply to amounts deferred 

20 which are attributable to services performed after 

21 December 31, 2014, under a plan maintained by an 

22 employer described in subsection (e)(1)(B). 

23 ‘‘(2) INELIGIBLE DEFERRED COMPENSATION

24 PLANS.—Subsection (f) shall not apply to amounts 


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1 deferred which are attributable to services performed 

2 after December 31, 2014.’’. 

3 (3) NONQUALIFIED DEFERRED COMPENSATION

4 FROM CERTAIN TAX INDIFFERENT PARTIES.—

5 (A) IN GENERAL.—Subpart B of part II of 

6 subchapter E of chapter 1 is amended by strik7 ing section 457A (and by striking the item re8 lating to such section in the table of sections 

9 for such subpart). 

10 (B) CONFORMING AMENDMENT.—Section 

11 26(b)(2) is amended by striking subparagraph 

12 (X). 

13 (c) CLERICAL AMENDMENT.—The table of sections 

14 for part I of subchapter D of chapter 1 is amended by 

15 adding at the end the following new item:

‘‘Sec. 409B. Nonqualified deferred compensation.’’.

16 (d) EFFECTIVE DATE.—

17 (1) IN GENERAL.—Except as otherwise pro18 vided in this subsection, the amendments made by 

19 this section shall apply to amounts which are attrib20 utable to services performed after December 31, 

21 2014. 

22 (2) APPLICATION TO EXISTING DEFERRALS.—

23 In the case of any amount deferred to which the 

24 amendments made by this section do no apply solely 

25 by reason of the fact that the amount is attributable 


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1 to services performed before January 1, 2015, to the 

2 extent such amount is not includible in gross income 

3 in a taxable year beginning before 2023, such 

4 amounts shall be includible in gross income in the 

5 later of—

6 (A) the last taxable year beginning before 

7 2023, or 

8 (B) the taxable year in which there is no 

9 substantial risk of forfeiture of the rights to 

10 such compensation (determined in the same 

11 manner as determined for purposes of section 

12 409B of the Internal Revenue Code of 1986, as 

13 added by this section). 

14 (3) ACCELERATED PAYMENTS.—No later than 

15 120 days after the date of the enactment of this Act, 

16 the Secretary shall issue guidance providing a lim17 ited period of time during which a nonqualified de18 ferred compensation arrangement attributable to 

19 services performed on or before December 31, 2014, 

20 may, without violating the requirements of section 

21 409A of the Internal Revenue Code of 1986, be 

22 amended to conform the date of distribution to the 

23 date the amounts are required to be included in in24 come. 


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1 (4) CERTAIN BACK-TO-BACK ARRANGEMENTS.—

2 If the taxpayer is also a service recipient and main3 tains one or more nonqualified deferred compensa4 tion arrangements for its service providers under 

5 which any amount is attributable to services per6 formed on or before December 31, 2014, the guid7 ance issued under paragraph (3) shall permit such 

8 arrangements to be amended to conform the dates of 

9 distribution under such arrangement to the date 

10 amounts are required to be included in the income 

11 of such taxpayer under this subsection. 

12 (5) ACCELERATED PAYMENT NOT TREATED AS

13 MATERIAL MODIFICATION.—Any amendment to a 

14 nonqualified deferred compensation arrangement 

15 made pursuant to paragraph (3) or (4) shall not be 

16 treated as a material modification of the arrange17 ment for purposes of section 409A of the Internal 

18 Revenue Code of 1986. 

19 SEC. 3802. MODIFICATION OF LIMITATION ON EXCESSIVE 

20 EMPLOYEE REMUNERATION. 

21 (a) REPEAL OF PERFORMANCE-BASED COMPENSA22 TION AND COMMISSION EXCEPTIONS FOR LIMITATION ON

23 EXCESSIVE EMPLOYEE REMUNERATION.—

24 (1) IN GENERAL.—Paragraph (4) of section 

25 162(m) is amended by striking subparagraphs (B) 


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1 and (C) and by redesignating subparagraphs (D), 

2 (E), (F), and (G) as subparagraphs (B), (C), (D), 

3 and (E), respectively. 

4 (2) CONFORMING AMENDMENTS.—

5 (A) Paragraphs (5)(E) and (6)(D) of sec6 tion 162(m) are each amended by striking 

7 ‘‘subparagraphs (B), (C), and (D)’’ and insert8 ing ‘‘subparagraph (B)’’. 

9 (B) Paragraphs (5)(G) and (6)(G) of sec10 tion 162(m) are each amended by striking ‘‘(F) 

11 and (G)’’ and inserting ‘‘(D) and (E)’’. 

12 (b) MODIFICATION OF DEFINITION OF COVERED EM13 PLOYEES.—Paragraph (3) of section 162(m) is amend14 ed—

15 (1) in subparagraph (A), by striking ‘‘as of the 

16 close of the taxable year, such employee is the chief 

17 executive officer of the taxpayer or is’’ and inserting 

18 ‘‘such employee is the chief executive officer or the 

19 chief financial officer of the taxpayer at any time 

20 during the taxable year, or was’’, 

21 (2) in subparagraph (B)—

22 (A) by striking ‘‘4’’ and inserting ‘‘3’’, and 

23 (B) by striking ‘‘(other than the chief exec24 utive officer)’’ and inserting ‘‘(other than any 

25 individual described in subparagraph (A))’’, and 


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1 (3) by striking ‘‘or’’ at the end of subparagraph 

2 (A), by striking the period at the end of subpara3 graph (B) and inserting ‘‘, or’’, and by adding at the 

4 end the following: 

5 ‘‘(C) was a covered employee of the tax6 payer (or any predecessor) for any preceding 

7 taxable year beginning after December 31, 

8 2013.’’. 

9 (c) SPECIAL RULE FOR REMUNERATION PAID TO

10 BENEFICIARIES, ETC.—Paragraph (4) of section 162(m), 

11 as amended by subsection (a), is amended by adding at 

12 the end the following new subparagraph: 

13 ‘‘(F) SPECIAL RULE FOR REMUNERATION

14 PAID TO BENEFICIARIES, ETC.—Remuneration 

15 shall not fail to be applicable employee remu16 neration merely because it is includible in the 

17 income of, or paid to, a person other than the 

18 covered employee, including after the death of 

19 the covered employee.’’. 

20 (d) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2014. 


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1 SEC. 3803. EXCISE TAX ON EXCESS TAX-EXEMPT ORGANIZA2 TION EXECUTIVE COMPENSATION. 

3 (a) IN GENERAL.—Subchapter D of chapter 42 is 

4 amended by adding at the end the following new section: 

5 ‘‘SEC. 4960. TAX ON EXCESS TAX-EXEMPT ORGANIZATION 

6 EXECUTIVE COMPENSATION. 

7 ‘‘(a) TAX IMPOSED.—There is hereby imposed a tax 

8 equal to 25 percent of the sum of—

9 ‘‘(1) so much of the remuneration paid (other 

10 than any excess parachute payment) by an applica11 ble tax-exempt organization for the taxable year with 

12 respect to employment of any covered employee in 

13 excess of $1,000,000, plus 

14 ‘‘(2) any excess parachute payment paid by 

15 such an organization to any covered employee. 

16 ‘‘(b) LIABILITY FOR TAX.—The employer shall be lia17 ble for the tax imposed under subsection (a). 

18 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur19 poses of this section—

20 ‘‘(1) APPLICABLE TAX-EXEMPT ORGANIZA21 TION.—The term ‘applicable tax-exempt organiza22 tion’ means any organization that for the taxable 

23 year—

24 ‘‘(A) is exempt from taxation under section 

25 501(a), 


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1 ‘‘(B) is a farmers’ cooperative organization 

2 described in section 521(b)(1), or 

3 ‘‘(C) has income excluded from taxation 

4 under section 115(1). 

5 ‘‘(2) COVERED EMPLOYEE.—For purposes of 

6 this section, the term ‘covered employee’ means any 

7 employee (including any former employee) of an ap8 plicable tax-exempt organization if the employee—

9 ‘‘(A) is one of the 5 highest compensated 

10 employees of the organization for the taxable 

11 year, or 

12 ‘‘(B) was a covered employee of the organi13 zation (or any predecessor) for any preceding 

14 taxable year beginning after December 31, 

15 2013. 

16 ‘‘(3) REMUNERATION.—For purposes of this 

17 section, the term ‘remuneration’ means wages (as 

18 defined in section 3401(a)), except that such term 

19 shall not include any designated Roth contribution 

20 (as defined in section 402A(c)). 

21 ‘‘(4) REMUNERATION FROM RELATED ORGANI22 ZATIONS.—

23 ‘‘(A) IN GENERAL.—Remuneration of a 

24 covered employee by an applicable tax-exempt 

25 organization shall include any remuneration 


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1 paid with respect to employment of such em2 ployee by any related person or governmental 

3 entity. 

4 ‘‘(B) RELATED ORGANIZATIONS.—A per5 son or governmental entity shall be treated as 

6 related to an applicable tax-exempt organization 

7 if such person or governmental entity—

8 ‘‘(i) controls, or is controlled by, the 

9 organization, 

10 ‘‘(ii) is controlled by one or more per11 sons that control the organization, 

12 ‘‘(iii) is a supported organization (as 

13 defined in section 509(f)(2)) during the 

14 taxable year with respect to the organiza15 tion, 

16 ‘‘(iv) is a supporting organization de17 scribed in section 509(a)(3) during the 

18 taxable year with respect to the organiza19 tion, or 

20 ‘‘(v) in the case of an organization 

21 that is a voluntary employees’ beneficiary 

22 association described in section 501(a)(9), 

23 establishes, maintains, or makes contribu24 tions to such voluntary employees’ bene25 ficiary association. 


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1 ‘‘(C) LIABILITY FOR TAX.—In any case in 

2 which remuneration from more than one em3 ployer is taken into account under this para4 graph in determining the tax imposed by sub5 section (a), each such employer shall be liable 

6 for such tax in an amount which bears the 

7 same ratio to the total tax determined under 

8 subsection (a) with respect to such remunera9 tion as—

10 ‘‘(i) the amount of remuneration paid 

11 by such employer with respect to such em12 ployee, bears to 

13 ‘‘(ii) the amount of remuneration paid 

14 by all such employers to such employee. 

15 ‘‘(5) EXCESS PARACHUTE PAYMENT.—For pur16 poses determining the tax imposed by subsection 

17 (a)(2)—

18 ‘‘(A) IN GENERAL.—The term ‘excess 

19 parachute payment’ means an amount equal to 

20 the excess of any parachute payment over the 

21 portion of the base amount allocated to such 

22 payment. 

23 ‘‘(B) PARACHUTE PAYMENT.—The term 

24 ‘parachute payment’ means any payment in the 


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1 nature of compensation to (or for the benefit 

2 of) a covered employee if—

3 ‘‘(i) such payment is contingent on 

4 such employee’s separation from employ5 ment with the employer, and 

6 ‘‘(ii) the aggregate present value of 

7 the payments in the nature of compensa8 tion to (or for the benefit of) such indi9 vidual which are contingent on such sepa10 ration equals or exceeds an amount equal 

11 to 3 times the base amount. 

12 Such term does not include any payment de13 scribed in section 280G(b)(6) (relating to ex14 emption for payments under qualified plans) or 

15 any payment made under or to an annuity con16 tract described in section 403(b) or a plan de17 scribed in section 457(b). 

18 ‘‘(C) BASE AMOUNT.—Rules similar to the 

19 rules of 280G(b)(3) shall apply for purposes of 

20 determining the base amount. 

21 ‘‘(D) PROPERTY TRANSFERS; PRESENT

22 VALUE.—Rules similar to the rules of para23 graphs (3) and (4) of section 280G(d) shall 

24 apply. 


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1 ‘‘(6) COORDINATION WITH DEDUCTION LIMITA2 TION.—Remuneration the deduction for which is not 

3 allowed by reason of section 162(m) shall not be 

4 taken into account for purposes of this section.’’. 

5 (b) CLERICAL AMENDMENT.—The table of sections 

6 for subchapter D of chapter 42 is amended by adding at 

7 the end the following new item:

‘‘Sec. 4960. Tax on excess exempt organization executive compensation.’’.

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 3804. DENIAL OF DEDUCTION AS RESEARCH EXPENDI12 TURE FOR STOCK TRANSFERRED PURSUANT 

13 TO AN INCENTIVE STOCK OPTION. 

14 (a) IN GENERAL.—Paragraph (2) of section 421(a) 

15 is amended by striking ‘‘under section 162 (relating to 

16 trade or business expenses)’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to stock transferred on or after 

19 February 26, 2014. 

20 PART 2—WORKER CLASSIFICATION 

21 SEC. 3811. DETERMINATION OF WORKER CLASSIFICATION. 

22 (a) IN GENERAL.—Chapter 79, as amended by the 

23 preceding provisions of this Act, is amended by adding at 

24 the end the following new section: 


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1 ‘‘SEC. 7707. DETERMINATION OF WORKER CLASSIFICATION. 

2 ‘‘(a) IN GENERAL.—For purposes of this title (and 

3 notwithstanding any provision of this title not contained 

4 in this section to the contrary), if the requirements of sub5 sections (b), (c), and (d) are met with respect to any serv6 ice performed by a service provider, then with respect to 

7 such service—

8 ‘‘(1) the service provider shall not be treated as 

9 an employee, 

10 ‘‘(2) the service recipient shall not be treated as 

11 an employer, 

12 ‘‘(3) any payor shall not be treated as an em13 ployer, and 

14 ‘‘(4) the compensation paid or received for such 

15 service shall not be treated as paid or received with 

16 respect to employment. 

17 ‘‘(b) GENERAL SERVICE PROVIDER REQUIRE18 MENTS.—

19 ‘‘(1) IN GENERAL.—The requirements of this 

20 subsection are met with respect to any service if the 

21 service provider either—

22 ‘‘(A) meets the requirements of paragraph 

23 (2) with respect to such service, or 

24 ‘‘(B) in the case a service provider engaged 

25 in the trade or business of selling (or soliciting 

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1 quirements of paragraph (3) with respect to 

2 such service. 

3 ‘‘(2) GENERAL REQUIREMENTS.—The require4 ments of this paragraph are met with respect to any 

5 service if the service provider, in connection with 

6 performing the service—

7 ‘‘(A) incurs significant unreimbursed ex8 penses, 

9 ‘‘(B) agrees to perform the service for a 

10 particular amount of time, to achieve a specific 

11 result, or to complete a specific task, 

12 ‘‘(C) is primarily compensated on a basis 

13 not tied to the number of hours worked, and 

14 ‘‘(D) at least one of the following: 

15 ‘‘(i) has a significant investment in 

16 assets or training, 

17 ‘‘(ii) is not required to perform serv18 ices exclusively for the service recipient, or 

19 ‘‘(iii) has not performed services for 

20 the service recipient as an employee during 

21 the 1-year period ending with the date of 

22 the commencement of services under the 

23 contract described in subsection (d). 

24 ‘‘(3) ALTERNATIVE REQUIREMENTS WITH RE25 SPECT TO SALES PERSONS.—In the case of a service 


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1 provider engaged in the trade or business of selling 

2 (or soliciting the sale of) goods or services, the re3 quirements of this paragraph are met with respect 

4 to any service provided in the ordinary course of 

5 such trade or business if—

6 ‘‘(A) the service provider is compensated 

7 primarily on a commission basis, and 

8 ‘‘(B) substantially all the compensation for 

9 such service is directly related to sales of goods 

10 or services rather than to the number of hours 

11 worked. 

12 ‘‘(c) PLACE OF BUSINESS OR OWN EQUIPMENT RE13 QUIREMENT.—The requirement of this subsection is met 

14 with respect to any service if the service provider—

15 ‘‘(1) has a principal place of business, 

16 ‘‘(2) does not primarily provide the service in 

17 the service recipient’s place of business, 

18 ‘‘(3) pays a fair market rent for use of the serv19 ice recipient’s place of business, or 

20 ‘‘(4) provides the service primarily using equip21 ment supplied by the service provider. 

22 ‘‘(d) WRITTEN CONTRACT REQUIREMENT.—The re23 quirements of this subsection are met with respect to any 

24 service if such service is performed pursuant to a written 


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1 contract between the service provider and the service re2 cipient (or payor) which meets the following requirements: 

3 ‘‘(1) The contract includes each of the fol4 lowing: 

5 ‘‘(A) The service provider’s name, taxpayer 

6 identification number, and address. 

7 ‘‘(B) A statement that the service provider 

8 will not be treated as an employee with respect 

9 to the services provided pursuant to the con10 tract for purposes of this title. 

11 ‘‘(C) A statement that the service recipient 

12 (or the payor) will withhold upon and report to 

13 the Internal Revenue Service the compensation 

14 payable pursuant to the contract consistent 

15 with the requirements of this title. 

16 ‘‘(D) A statement that the service provider 

17 is responsible for payment of Federal, State, 

18 and local taxes, including self-employment 

19 taxes, on compensation payable pursuant to the 

20 contract. 

21 ‘‘(E) A statement that the contract is in22 tended to be considered a contract described in 

23 this subsection. 

24 ‘‘(2) The term of the contract does not exceed 

25 1 year. The preceding sentence shall not prevent one 


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1 or more subsequent written renewals of the contract 

2 from satisfying the requirements of this subsection 

3 if the term of each such renewal does not exceed 1 

4 year and if the information required under para5 graph (1)(A) is updated in connection with each 

6 such renewal. 

7 ‘‘(3) The contract (or renewal) is signed by 

8 both the service recipient (or payor) and the service 

9 provider not later than the date on which the aggre10 gate payments made by the service recipient to the 

11 service provider exceeds $600 for the year covered 

12 by the contract (or renewal). 

13 ‘‘(e) REPORTING REQUIREMENTS.—If any service re14 cipient or payor fails to meet the applicable reporting re15 quirements of section 6041(a) or 6041A(a) for any taxable 

16 year with respect to any service provider, this section shall 

17 not apply for purposes of making any determination with 

18 respect to the liability of such service recipient or payor 

19 for any tax with respect to such service provider for such 

20 period. For purposes of the preceding sentence, such re21 porting requirements shall be treated as met if the failure 

22 to satisfy such requirements is due to reasonable cause 

23 and not willful neglect. 

24 ‘‘(f) EXCEPTION FOR SERVICES PROVIDED BY

25 OWNER.—This section shall not apply with respect to any 


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1 service provided by a service provider to a service recipient 

2 if the service provider owns any interest in the service re3 cipient or any payor with respect to the service provided. 

4 The preceding sentence shall not apply in the case of a 

5 service recipient the stock of which is regularly traded on 

6 an established securities market. 

7 ‘‘(g) EXCEPTION FOR SERVICES NOT RECEIVED IN

8 COURSE OF A TRADE OR BUSINESS.—This section shall 

9 not apply with respect to any service unless such service 

10 is performed in the ordinary course of a trade or business 

11 of the service recipient. 

12 ‘‘(h) LIMITATION ON RECLASSIFICATION BY SEC13 RETARY.—For purposes of this title—

14 ‘‘(1) EFFECT OF RECLASSIFICATION ON RECIPI15 ENTS AND PAYORS.—A determination by the Sec16 retary that a service recipient or a payor should 

17 have treated a service provider as an employee shall 

18 be effective with respect to the service recipient or 

19 payor no earlier than the notice date if—

20 ‘‘(A) the service recipient or the payor en21 tered into a written contract with the service 

22 provider which meets the requirements of sub23 section (d), 

24 ‘‘(B) the service recipient or the payor sat25 isfied the applicable reporting requirements of 


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1 section 6041(a) or 6041A(a) for all relevant 

2 taxable years with respect to the service pro3 vider, 

4 ‘‘(C) the service recipient or the payor col5 lected and paid over all applicable taxes im6 posed under subtitle C for all relevant taxable 

7 years with respect to the service provider, 

8 ‘‘(D) the service recipient or the payor 

9 demonstrates a reasonable basis for having de10 termined that the service provider should not be 

11 treated as an employee under this section and 

12 that such determination was made in good 

13 faith. 

14 ‘‘(2) EFFECT OF RECLASSIFICATION ON SERV15 ICE PROVIDERS.—A determination by the Secretary 

16 that a service provider should have been treated as 

17 an employee shall be effective with respect to the 

18 service provider no earlier than the notice date if—

19 ‘‘(A) the service provider entered into a 

20 written contract with the service recipient or 

21 payor which meets the requirements of sub22 section (d), 

23 ‘‘(B) the service provider satisfied the ap24 plicable reporting requirements of sections 

25 6012(a) and 6017 for all relevant taxable years 


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1 with respect to the service recipient or payor, 

2 and 

3 ‘‘(C) the service provider demonstrates a 

4 reasonable basis for determining that the serv5 ice provider is not an employee under this sec6 tion and that such determination was made in 

7 good faith. 

8 ‘‘(3) NOTICE DATE.—For purposes of this sub9 section, the term ‘notice date’ means the 30th day 

10 after the earliest of—

11 ‘‘(A) the date on which the first letter of 

12 proposed deficiency which allows the service 

13 provider, the service recipient, or the payor an 

14 opportunity for administrative review in the In15 ternal Revenue Service Office of Appeals is 

16 sent, 

17 ‘‘(B) the date on which a deficiency notice 

18 under section 6212 is sent, or 

19 ‘‘(C) the date on which a notice of deter20 mination under section 7436(b)(2) is sent. 

21 ‘‘(4) REASONABLE CAUSE EXCEPTION.—The re22 quirements of paragraphs (1)(B) and (2)(B) shall be 

23 treated as met if the failure to satisfy such require24 ments is due to reasonable cause and not willful ne25 glect. 


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1 ‘‘(5) NO RESTRICTION ON ADMINISTRATIVE OR

2 JUDICIAL REVIEW.—Nothing in this subsection shall 

3 be construed as limiting any provision of law which 

4 provides an opportunity for administrative or judi5 cial review of a determination by the Secretary. 

6 ‘‘(i) DEFINITIONS.—For purposes of this section—

7 ‘‘(1) SERVICE PROVIDER.—

8 ‘‘(A) IN GENERAL.—The term ‘service pro9 vider’ means any qualified person who performs 

10 service for another person. 

11 ‘‘(B) QUALIFIED PERSON.—The term 

12 ‘qualified person’ means—

13 ‘‘(i) any natural person, and 

14 ‘‘(ii) any entity if any of the services 

15 referred to in subparagraph (A) are per16 formed by one or more natural persons 

17 who directly own interests in such entity. 

18 ‘‘(2) SERVICE RECIPIENT.—The term ‘service 

19 recipient’ means the person for whom the service 

20 provider performs such service. 

21 ‘‘(3) PAYOR.—The term ‘payor’ means any per22 son who pays the service provider for performing 

23 such service. 

24 ‘‘(j) REGULATIONS.—Notwithstanding section 530(d) 

25 of the Revenue Act of 1978, the Secretary shall issue such 


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1 regulations as the Secretary determines are necessary to 

2 carry out the purposes of this section.’’. 

3 (b) WITHHOLDING BY PAYOR IN CASE OF CERTAIN

4 PERSONS CLASSIFIED AS NOT EMPLOYEES.—Section 

5 3402 is amended by redesignating subsection (s) as sub6 section (t) and inserting after subsection (r) the following 

7 new subsection: 

8 ‘‘(s) EXTENSION OF WITHHOLDING TO PAYMENTS

9 TO CERTAIN PERSONS CLASSIFIED AS NOT EMPLOY10 EES.—

11 ‘‘(1) IN GENERAL.—For purposes of this chap12 ter and so much of subtitle F as relates to this chap13 ter, compensation paid pursuant to a contract de14 scribed in section 7707(d) shall be treated as if it 

15 were a payment of wages by an employer to an em16 ployee. 

17 ‘‘(2) AMOUNT WITHHELD.—Except as otherwise 

18 provided under subsection (i), the amount to be de19 ducted and withheld pursuant to paragraph (1) with 

20 respect to compensation paid pursuant to any such 

21 contract during any calendar year shall be an 

22 amount equal to 5 percent of so much of the amount 

23 of such compensation as does not exceed $10,000.’’. 

24 (c) REPORTING.—Section 6041A is amended by add25 ing at the end the following new subsection: 


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1 ‘‘(g) SPECIAL RULES FOR CERTAIN PERSONS CLAS2 SIFIED AS NOT EMPLOYEES.—In the case of any service 

3 recipient required to make a return under subsection (a) 

4 with respect to compensation to which section 7707(a) ap5 plies—

6 ‘‘(1) such return shall include—

7 ‘‘(A) the aggregate amount of such com8 pensation paid to each person whose name is 

9 required to be included on such return, 

10 ‘‘(B) the aggregate amount deducted and 

11 withheld under section 3402(s) with respect to 

12 such compensation, and 

13 ‘‘(C) an indication of whether a copy of the 

14 contract described in section 7707(d) is on file 

15 with the service recipient or payor, and 

16 ‘‘(2) the statement required to be furnished 

17 under subsection (e) shall include the information 

18 described in paragraph (1) with respect to the serv19 ice provider to whom such statement is furnished. 

20 Terms used in this subsection which are also used in sec21 tion 7707 shall have the same meaning as when used in 

22 such section.’’. 

23 (d) CLERICAL AMENDMENT.—The table of sections 

24 for chapter 79, as amended by the preceding provisions 


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1 of this Act, is amended by adding at the end the following 

2 new item:

‘‘Sec. 7707. Determination of worker classification.’’.

3 (e) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to services performed after Decem5 ber 31, 2014 (and to payments made for such services 

6 after such date). 

7 Subtitle J—Zones and Short-Term 

8 Regional Benefits 

9 SEC. 3821. REPEAL OF PROVISIONS RELATING TO EM10 POWERMENT ZONES AND ENTERPRISE COM11 MUNITIES.

12 (a) IN GENERAL.—Chapter 1 is amended by striking 

13 subchapter U (and by striking the item relating to such 

14 subchapter in the table of subchapters for such chapter). 

15 (b) CONFORMING AMENDMENTS.—

16 (1)(A) Section 38(b) is amended by striking 

17 paragraph (9). 

18 (B) Section 280C(a) is amended by striking 

19 ‘‘1396(a),’’. 

20 (2) Section 179(e) is amended by striking para21 graph (3) and by redesignating paragraph (4) as 

22 paragraph (3). 

23 (3) Section 1202(a)(2)(A) is amended by insert24 ing ‘‘(as in effect before its repeal by the Tax Re25 form Act of 2014)’’ after ‘‘section 1397C(b)’’. 


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1 (c) EFFECTIVE DATE.—

2 (1) IN GENERAL.—Except as otherwise pro3 vided in this subsection, the amendment made by 

4 this section shall take effect on the date of the en5 actment of this Act. 

6 (2) ROLLOVERS.—So much of subsection (a) as 

7 relates to the repeal of section 1397B of the Internal 

8 Revenue Code of 1986 shall apply to sales after the 

9 date of the enactment of this Act. 

10 (3) SAVINGS PROVISION.—The amendments 

11 made by this section shall not apply to obligations 

12 described in section 1394 of the Internal Revenue 

13 Code of 1986 (as in effect before its repeal) which 

14 were issued before January 1, 2014. 

15 SEC. 3822. REPEAL OF DC ZONE PROVISIONS. 

16 (a) IN GENERAL.—Chapter 1 is amended by striking 

17 subchapter W (and by striking the item relating to such 

18 subchapter in the table of subchapters for such chapter). 

19 (b) CONFORMING AMENDMENTS.—

20 (1)(A) Section 1202(a)(2)(B) is amended by in21 serting ‘‘(as in effect before its repeal by the Tax 

22 Reform Act of 2014)’’ after ‘‘1400B(b)’’. 

23 (2) Section 25(e)(1)(C) is amended by striking 

24 ‘‘sections 23, 25D, and 1400C’’ and inserting ‘‘sec25 tion 23’’. 


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1 (3) Section 1016(a) is amended by striking 

2 paragraph (27). 

3 (c) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except as otherwise pro5 vided in paragraph (2), the amendments made by 

6 this section shall take effect on the date of the en7 actment of this Act. 

8 (2) SAVINGS PROVISION.—The amendments 

9 made by this section shall not apply to—

10 (A) in the case of the repeal of section 

11 1400A of the Internal Revenue Code of 1986, 

12 obligations described in section 1394 of such 

13 Code (as in effect before its repeal) which were 

14 issued before January 1, 2012, 

15 (B) in the case of the repeal of section 

16 1400B of such Code, DC Zone assets (as de17 fined in such section, as in effect before its re18 peal) which were acquired by the taxpayer be19 fore January 1, 2012, and 

20 (C) in the case of the repeal of section 

21 1400C of such Code, principal residences ac22 quired before January 1, 2012. 


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1 SEC. 3823. REPEAL OF PROVISIONS RELATING TO RE2 NEWAL COMMUNITIES. 

3 (a) IN GENERAL.—Chapter 1 is amended by striking 

4 subchapter X (and by striking the item relating to such 

5 subchapter in the table of subchapters for such chapter). 

6 (b) CONFORMING AMENDMENTS.—

7 (1)(A) Section 469(i)(3), as amended by the 

8 preceding provisions of this Act, is amended by 

9 striking subparagraph (C) and by redesignating sub10 paragraphs (D), (E), and (F) as subparagraphs (B), 

11 (C), and (D). 

12 (B) Section 469(i)(3)(C), as so redesignated, is 

13 amended to read as follows: 

14 ‘‘(C) ORDERING RULE.—If subparagraph 

15 (B) applies for a taxable year, paragraph (1) 

16 shall be applied—

17 ‘‘(i) first to the portion of the passive 

18 activity loss to which such subparagraph 

19 does not apply, and 

20 ‘‘(ii) then to the portion of such loss 

21 to which such subparagraph does apply.’’. 

22 (C) Section 469(i)(6)(B), as amended by the 

23 preceding provisions of this Act, is amended—

24 (i) by striking ‘‘COMMERCIAL REVITALIZA25 TION DEDUCTION’’ in the heading, 


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1 (ii) by striking ‘‘in the case of—’’ and all 

2 that follows through ‘‘any credit’’ in clause (i), 

3 (iii) by striking ‘‘year, or’’ in clause (i) and 

4 inserting ‘‘year.’’, and 

5 (iv) by striking clause (iii). 

6 (c) EFFECTIVE DATE.—

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the amendments made by this section 

9 shall take effect on the date of the enactment of this 

10 Act. 

11 (2) SAVINGS PROVISION.—The amendments 

12 made by this section shall not apply to—

13 (A) in the case of the repeal of section 

14 1400F of the Internal Revenue Code of 1986, 

15 qualified community assets (as defined in such 

16 section, as in effect before its repeal) which 

17 were acquired by the taxpayer before January 

18 1, 2010, 

19 (B) in the case of the repeal section 

20 1400H of such Code, wages paid or incurred 

21 before January 1, 2010, 

22 (C) in the case of the repeal of section 

23 1400I of such Code, qualified revitalization 

24 buildings (as defined in such section, as in efVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00777 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 fect before its repeal) which were placed in 

2 service before January 1, 2010, and 

3 (D) in the case of the repeal of section 

4 1400J of such Code, property acquired before 

5 January 1, 2010. 

6 SEC. 3824. REPEAL OF VARIOUS SHORT-TERM REGIONAL 

7 BENEFITS.

8 (a) IN GENERAL.—Chapter 1 is amended by striking 

9 subchapter Y (and by striking the item relating to such 

10 subchapter in the table of subchapters for such chapter). 

11 (b) CONFORMING AMENDMENTS.—Section 38(b) is 

12 amended by striking paragraphs (27), (28), (29) and (30). 

13 (c) EFFECTIVE DATES.—

14 (1) IN GENERAL.—Except as provided in para15 graph (2), the amendments made by this section 

16 shall take effect on the date of the enactment of this 

17 Act. 

18 (2) SAVINGS PROVISION.—The amendments 

19 made by this section shall not apply to—

20 (A) in the case of the repeal of section 

21 1400L(a) of the Internal Revenue Code of 

22 1986, qualified wages (as defined in such sec23 tion, as in effect before its repeal) which were 

24 paid or incurred before January 1, 2004, 


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1 (B) in the case of the repeal of subsections 

2 (b) and (f) of section 1400L of such Code, 

3 qualified New York Liberty Zone property (as 

4 defined in section 1400L(b) of such Code, as in 

5 effect before its repeal) placed in service before 

6 January 1, 2010, 

7 (C) in the case of the repeal of section 

8 1400L(c) of such Code, qualified New York 

9 Liberty Zone leasehold improvement property 

10 (as defined in such section, as in effect before 

11 its repeal) placed in service before January 1, 

12 2007, 

13 (D) in the case of the repeal of section 

14 1400L(d) of such Code, qualified New York 

15 Liberty bonds (as defined in such section, as in 

16 effect before its repeal) issued before January 

17 1, 2014, 

18 (E) in the case of the repeal of section 

19 1400L(e) of such Code, advanced refundings 

20 before January 1, 2006, 

21 (F) in the case of the repeal of section 

22 1400L(g) of such Code, property which is 

23 compulsorily or involuntarily converted as a re24 sult of the terrorist attacks on September 11, 

25 2001, 


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1 (G) in the case of the repeal of section 

2 1400N(a) of such Code, obligations issued be3 fore January 1, 2012, 

4 (H) in the case of the repeal of section 

5 1400N(b) of such Code, advanced refundings 

6 before January 1, 2011, 

7 (I) in the case of the repeal of section 

8 1400N(d) of such Code, property placed in 

9 service before January 1, 2012, 

10 (J) in the case of the repeal of section 

11 1400N(e) of such Code, property placed in serv12 ice before January 1, 2009, 

13 (K) in the case of the repeal of subsections 

14 (f) and (g) of section 1400N of such Code, 

15 amounts paid or incurred before January 1, 

16 2008, 

17 (L) in the case of the repeal of section 

18 1400N(h) of such Code, amounts paid or in19 curred before January 1, 2012, 

20 (M) in the case of the repeal of section 

21 1400N(l) of such Code, bonds issued before 

22 January 1, 2007, 

23 (N) in the case of the repeal of section 

24 1400Q(a) of such Code, distributions before 

25 January 1, 2007, 


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1 (O) in the case of the repeal of section 

2 1400Q(b) of such Code, contributions before 

3 March 1, 2006, 

4 (P) in the case of the repeal of section 

5 1400Q(c) of such Code, loans made before Jan6 uary 1, 2007, 

7 (Q) in the case of the repeal of section 

8 1400R of such Code, wages paid or incurred be9 fore January 1, 2006, 

10 (R) in the case of the repeal of section 

11 1400S(a) of such Code, contributions paid be12 fore January 1, 2006, 

13 (S) in the case of the repeal of section 

14 1400T of such Code, financing provided before 

15 January 1, 2011, and 

16 (T) in the case of the repeal of part III of 

17 subchapter Y of chapter 1 of such Code, obliga18 tions issued before January 1, 2011. 


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1 TITLE IV—PARTICIPATION EX2 EMPTION SYSTEM FOR THE 

3 TAXATION OF FOREIGN IN4 COME

5 Subtitle A—Establishment of 

6 Exemption System 

7 SEC. 4001. DEDUCTION FOR DIVIDENDS RECEIVED BY DO8 MESTIC CORPORATIONS FROM CERTAIN FOR9 EIGN CORPORATIONS. 

10 (a) IN GENERAL.—Part VIII of subchapter B of 

11 chapter 1 is amended by inserting after section 245 the 

12 following new section: 

13 ‘‘SEC. 245A. DIVIDENDS RECEIVED BY DOMESTIC CORPORA14 TIONS FROM CERTAIN FOREIGN CORPORA15 TIONS.

16 ‘‘(a) IN GENERAL.—In the case of any dividend re17 ceived from a specified 10-percent owned foreign corpora18 tion by a domestic corporation which is a United States 

19 shareholder with respect to such foreign corporation, there 

20 shall be allowed as a deduction an amount equal to 95 

21 percent of the foreign-source portion of such dividend. 

22 ‘‘(b) SPECIFIED 10-PERCENT OWNED FOREIGN COR23 PORATION.—For purposes of this section, the term ‘speci24 fied 10-percent owned foreign corporation’ means any for25 eign corporation if any domestic corporation owns directly, 


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1 or indirectly through a chain of ownership described under 

2 section 958(a), 10 percent or more of the voting stock of 

3 such foreign corporation. 

4 ‘‘(c) FOREIGN-SOURCE PORTION.—For purposes of 

5 this section—

6 ‘‘(1) IN GENERAL.—The foreign-source portion 

7 of any dividend is an amount which bears the same 

8 ratio to such dividends as—

9 ‘‘(A) the post-1986 undistributed foreign 

10 earnings, bears to 

11 ‘‘(B) the total post-1986 undistributed 

12 earnings. 

13 ‘‘(2) POST-1986 UNDISTRIBUTED EARNINGS.—

14 The term ‘post-1986 undistributed earnings’ means 

15 the amount of the earnings and profits of the speci16 fied 10-percent owned foreign corporation (computed 

17 in accordance with sections 964(a) and 986) accu18 mulated in taxable years beginning after December 

19 31, 1986—

20 ‘‘(A) as of the close of the taxable year of 

21 the specified 10-percent owned foreign corpora22 tion in which the dividend is distributed, and 

23 ‘‘(B) without diminution by reason of divi24 dends distributed during such taxable year. 


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1 ‘‘(3) POST-1986 UNDISTRIBUTED FOREIGN

2 EARNINGS.—The term ‘post-1986 undistributed for3 eign earnings’ means the portion of the post-1986 

4 undistributed earnings which is attributable to nei5 ther—

6 ‘‘(A) income described in subparagraph (A) 

7 of section 245(a)(5), nor 

8 ‘‘(B) dividends described in subparagraph 

9 (B) of such section (determined without regard 

10 to section 245(a)(12)). 

11 ‘‘(4) TREATMENT OF DISTRIBUTIONS FROM

12 EARNINGS BEFORE 1987.—

13 ‘‘(A) IN GENERAL.—In the case of any div14 idend paid out of earnings and profits of the 

15 specified 10-percent owned foreign corporation 

16 (computed in accordance with sections 964(a) 

17 and 986) accumulated in taxable years begin18 ning before January 1, 1987—

19 ‘‘(i) paragraphs (1), (2), and (3) shall 

20 be applied without regard to the phrase 

21 ‘post-1986’ each place it appears, and 

22 ‘‘(ii) paragraph (2) shall be applied 

23 without regard to the phrase ‘in taxable 

24 years beginning after December 31, 1986’. 


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1 ‘‘(B) DIVIDENDS PAID FIRST OUT OF

2 POST-1986 EARNINGS.—Dividends shall be treat3 ed as paid out of post-1986 undistributed earn4 ings to the extent thereof. 

5 ‘‘(d) DISALLOWANCE OF FOREIGN TAX CREDIT, 

6 ETC.—

7 ‘‘(1) IN GENERAL.—No credit shall be allowed 

8 under section 901 for any taxes paid or accrued (or 

9 treated as paid or accrued) with respect to any divi10 dend for which a deduction is allowed under this sec11 tion. 

12 ‘‘(2) DENIAL OF DEDUCTION.—No deduction 

13 shall be allowed under this chapter for any tax for 

14 which credit is not allowable under section 901 by 

15 reason of paragraph (1) (determined by treating the 

16 taxpayer as having elected the benefits of subpart A 

17 of part III of subchapter N). 

18 ‘‘(e) REGULATIONS.—The Secretary may prescribe 

19 such regulations or other guidance as may be necessary 

20 or appropriate to carry out the provisions of this section.’’. 

21 (b) APPLICATION OF HOLDING PERIOD REQUIRE22 MENT.—Subsection (c) of section 246 is amended—

23 (1) by striking ‘‘or 245’’ in paragraph (1) and 

24 inserting ‘‘245, or 245A’’, and 


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1 (2) by adding at the end the following new 

2 paragraph: 

3 ‘‘(5) SPECIAL RULES FOR FOREIGN SOURCE

4 PORTION OF DIVIDENDS RECEIVED FROM SPECIFIED

5 10-PERCENT OWNED FOREIGN CORPORATIONS.—

6 ‘‘(A) 6-MONTH HOLDING PERIOD REQUIRE7 MENT.—For purposes of section 245A—

8 ‘‘(i) paragraph (1)(A) shall be ap9 plied—

10 ‘‘(I) by substituting ‘180 days’ 

11 for ‘45 days’each place it appears, and 

12 ‘‘(II) by substituting ‘361-day pe13 riod’ for ‘91-day period’, and 

14 ‘‘(ii) paragraph (2) shall not apply. 

15 ‘‘(B) STATUS MUST BE MAINTAINED DUR16 ING HOLDING PERIOD.—For purposes of section 

17 245A, the holding period requirement of this 

18 subsection shall be treated as met only if—

19 ‘‘(i) the specified 10-percent owned 

20 corporation referred to in section 245A(a) 

21 is a specified 10-percent owned corporation 

22 at all times during such period, and 

23 ‘‘(ii) the taxpayer is a United States 

24 shareholder with respect to such specified 


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1 10-percent owned corporation at all times 

2 during such period.’’. 

3 (c) APPLICATION OF RULES GENERALLY APPLICA4 BLE TO DEDUCTIONS FOR DIVIDENDS RECEIVED.—

5 (1) TREATMENT OF DIVIDENDS FROM CERTAIN

6 CORPORATIONS.—Paragraph (1) of section 246(a) is 

7 amended by striking ‘‘and 245’’ and inserting ‘‘245, 

8 and 245A’’. 

9 (2) ASSETS GENERATING TAX-EXEMPT PORTION

10 OF DIVIDEND NOT TAKEN INTO ACCOUNT IN ALLO11 CATING AND APPORTIONING DEDUCTIBLE EX12 PENSES.—Paragraph (3) of section 864(e) is amend13 ed by striking ‘‘or 245(a)’’ and inserting ‘‘, 245(a), 

14 or 245A’’. 

15 (3) COORDINATION WITH SECTION 1059.—Sub16 paragraph (B) of section 1059(b)(2) is amended by 

17 striking ‘‘or 245’’ and inserting ‘‘245, or 245A’’. 

18 (d) COORDINATION WITH FOREIGN TAX CREDIT

19 LIMITATION.—Subsection (b) of section 904, as amended 

20 by the preceding provisions of this Act, is amended by re21 designating paragraph (2) as paragraph (1) and by adding 

22 at the end the following new paragraph: 

23 ‘‘(2) TREATMENT OF DIVIDENDS FOR WHICH

24 DEDUCTION IS ALLOWED UNDER SECTION 245A.—

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1 mestic corporation which is a United States share2 holder with respect to a specified 10-percent owned 

3 foreign corporation, such domestic corporation’s tax4 able income from sources without the United States 

5 shall be determined without regard to—

6 ‘‘(A) the foreign-source portion of any divi7 dend received from such foreign corporation, 

8 and 

9 ‘‘(B) any deductions properly allocable to 

10 such portion. 

11 Any term which is used in section 245A and in this 

12 paragraph shall have the same meaning for purposes 

13 of this paragraph as when used in such section.’’. 

14 (e) CONFORMING AMENDMENTS.—

15 (1) Paragraph (4) of section 245(a) is amended 

16 by striking ‘‘section 902(c)(1)’’ and inserting ‘‘sec17 tion 245A(c)(2)’’. 

18 (2) Subsection (b) of section 951 is amended by 

19 striking ‘‘subpart’’ and inserting ‘‘title’’. 

20 (3) Subsection (a) of section 957 is amended by 

21 striking ‘‘subpart’’ in the matter preceding para22 graph (1) and inserting ‘‘title’’. 

23 (4) The table of sections for part VIII of sub24 chapter B of chapter 1 is amended by inserting after 


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1 the item relating to section 245 the following new 

2 item:

‘‘Sec. 245A. Dividends received by domestic corporations from certain foreign 

corporations.’’.

3 (f) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years of foreign corpora5 tions beginning after December 31, 2014, and to taxable 

6 years of United States shareholders in which or with which 

7 such taxable years of foreign corporations end. 

8 SEC. 4002. LIMITATION ON LOSSES WITH RESPECT TO 

9 SPECIFIED 10-PERCENT OWNED FOREIGN 

10 CORPORATIONS.

11 (a) BASIS IN SPECIFIED 10-PERCENT OWNED FOR12 EIGN CORPORATION REDUCED BY NONTAXED PORTION

13 OF DIVIDEND FOR PURPOSES OF DETERMINING LOSS.—

14 (1) IN GENERAL.—Section 961 is amended by 

15 adding at the end the following new subsection: 

16 ‘‘(d) BASIS IN SPECIFIED 10-PERCENT OWNED FOR17 EIGN CORPORATION REDUCED BY NONTAXED PORTION

18 OF DIVIDEND FOR PURPOSES OF DETERMINING LOSS.—

19 If a domestic corporation received a dividend from a speci20 fied 10-percent owned foreign corporation (as defined in 

21 section 245A) in any taxable year, solely for purposes of 

22 determining loss on any disposition in such taxable year 

23 or any subsequent taxable year, the basis of such domestic 

24 corporation in the stock of such foreign corporation shall 


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1 be reduced by the amount of any deduction allowable to 

2 such domestic corporation under section 245A with re3 spect to such stock.’’. 

4 (2) EFFECTIVE DATE.—The amendments made 

5 by this subsection shall apply to dividends received 

6 in taxable years beginning after December 31, 2014. 

7 (b) TREATMENT OF FOREIGN BRANCH LOSSES

8 TRANSFERRED TO SPECIFIED 10-PERCENT OWNED FOR9 EIGN CORPORATIONS.—

10 (1) IN GENERAL.—Part II of subchapter B of 

11 chapter 1, as amended by the preceding provisions 

12 of this Act, is amended by adding at the end the fol13 lowing new section: 

14 ‘‘SEC. 92. CERTAIN FOREIGN BRANCH LOSSES TRANS15 FERRED TO SPECIFIED 10-PERCENT OWNED 

16 FOREIGN CORPORATIONS. 

17 ‘‘(a) IN GENERAL.—If a domestic corporation trans18 fers substantially all of the assets of a foreign branch 

19 (within the meaning of section 367(a)(3)(C)) to a specified 

20 10-percent owned foreign corporation (as defined in sec21 tion 245A) with respect to which it is a United States 

22 shareholder after such transfer, such domestic corporation 

23 shall include in gross income for the taxable year which 

24 includes such transfer an amount equal to the transferred 

25 loss amount with respect to such transfer. 


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1 ‘‘(b) LIMITATION AND CARRYFORWARD BASED ON

2 FOREIGN-SOURCE DIVIDENDS RECEIVED.—

3 ‘‘(1) IN GENERAL.—The amount included in 

4 the gross income of the taxpayer under subsection 

5 (a) for any taxable year shall not exceed the amount 

6 allowed as a deduction under section 245A for such 

7 taxable year (taking into account dividends received 

8 from all specified 10-percent owned foreign corpora9 tions with respect to which the taxpayer is a United 

10 States shareholder). 

11 ‘‘(2) AMOUNTS NOT INCLUDED CARRIED FOR12 WARD.—Any amount not included in gross income 

13 for any taxable year by reason of paragraph (1) 

14 shall, subject to the application of paragraph (1) to 

15 the succeeding taxable year, be included in gross in16 come for the succeeding taxable year. 

17 ‘‘(c) TRANSFERRED LOSS AMOUNT.—For purposes 

18 of this section, the term ‘transferred loss amount’ means, 

19 with respect to any transfer of substantially all of the as20 sets of a foreign branch, the excess (if any) of—

21 ‘‘(1) the sum of losses—

22 ‘‘(A) which were incurred by the foreign 

23 branch after December 31, 2014, and before 

24 the transfer, and 


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1 ‘‘(B) with respect to which a deduction was 

2 allowed to the taxpayer, over 

3 ‘‘(2) the sum of—

4 ‘‘(A) any taxable income of such branch 

5 for a taxable year after the taxable year in 

6 which the loss was incurred and through the 

7 close of the taxable year of the transfer, and 

8 ‘‘(B) any amount which is recognized 

9 under section 904(f)(3) on account of the trans10 fer. 

11 ‘‘(d) REDUCTION FOR RECOGNIZED GAINS.—

12 ‘‘(1) IN GENERAL.—In the case of a transfer 

13 not described in section 367(a)(3)(C), the trans14 ferred loss amount shall be reduced (but not below 

15 zero) by the amount of gain recognized by the tax16 payer on account of the transfer (other than 

17 amounts taken into account under subsection 

18 (c)(2)(B)). 

19 ‘‘(2) COORDINATION WITH RECOGNITION

20 UNDER SECTION 367.—In the case of a transfer de21 scribed in section 367(a)(3)(C), the transferred loss 

22 amount shall not exceed the excess (if any) of—

23 ‘‘(A) the excess of the amount described in 

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1 scribed in section 367(a)(3)(C)(ii) with respect 

2 to such transfer, over 

3 ‘‘(B) the amount of gain recognized under 

4 section 367(a)(3)(C) with respect to such trans5 fer. 

6 ‘‘(e) SOURCE OF INCOME.—Amounts included in 

7 gross income under this section shall be treated as derived 

8 from sources within the United States. 

9 ‘‘(f) BASIS ADJUSTMENTS.—Consistent with such 

10 regulations or other guidance as the Secretary may pre11 scribe, proper adjustments shall be made in the adjusted 

12 basis of the taxpayer’s stock in the specified 10-percent 

13 owned foreign corporation to which the transfer is made, 

14 and in the transferee’s adjusted basis in the property 

15 transferred, to reflect amounts included in gross income 

16 under this section.’’. 

17 (2) AMOUNTS RECOGNIZED UNDER SECTION 367

18 ON TRANSFER OF FOREIGN BRANCH WITH PRE19 VIOUSLY DEDUCTED LOSSES TREATED AS UNITED

20 STATES SOURCE.—Subparagraph (C) of section 

21 367(a)(3) is amended by striking ‘‘outside’’ in the 

22 last sentence and inserting ‘‘within’’. 

23 (3) CLERICAL AMENDMENT.—The table of sub24 parts for such part, as amended by the preceding 


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1 provisions of this Act, is amended by adding at the 

2 end the following new item:

‘‘Sec. 92. Certain foreign branch losses transferred to specified 10-percent 

owned foreign corporations.’’.

3 (4) EFFECTIVE DATE.—The amendments made 

4 by this subsection shall apply to transfers after De5 cember 31, 2014. 

6 SEC. 4003. TREATMENT OF DEFERRED FOREIGN INCOME 

7 UPON TRANSITION TO PARTICIPATION EX8 EMPTION SYSTEM OF TAXATION. 

9 (a) IN GENERAL.—Section 965 is amended to read 

10 as follows: 

11 ‘‘SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME 

12 UPON TRANSITION TO PARTICIPATION EX13 EMPTION SYSTEM OF TAXATION. 

14 ‘‘(a) TREATMENT OF DEFERRED FOREIGN INCOME

15 AS SUBPART F INCOME.—In the case of the last taxable 

16 year of a deferred foreign income corporation which begins 

17 before January 1, 2015, the subpart F income of such 

18 foreign corporation (as otherwise determined for such tax19 able year under section 952) shall be increased by the ac20 cumulated post-1986 deferred foreign income of such cor21 poration determined as of the close of such taxable year. 

22 ‘‘(b) REDUCTION IN AMOUNTS INCLUDED IN GROSS

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1 FIED FOREIGN CORPORATIONS WITH DEFICITS IN EARN2 INGS AND PROFITS.—

3 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

4 which is a United States shareholder with respect to 

5 at least one deferred foreign income corporation and 

6 at least one E&P deficit foreign corporation, the 

7 amount which would (but for this subsection) be 

8 taken into account under section 951(a)(1) by rea9 son of subsection (a) as such United States share10 holder’s pro rata share of the subpart F income of 

11 each deferred foreign income corporation shall be re12 duced (but not below zero) by the amount of such 

13 United States shareholder’s aggregate foreign E&P 

14 deficit which is allocated under paragraph (2) to 

15 such deferred foreign income corporation. 

16 ‘‘(2) ALLOCATION OF AGGREGATE FOREIGN E&P

17 DEFICIT.—The aggregate foreign E&P deficit of any 

18 United States shareholder shall be allocated among 

19 the deferred foreign income corporations of such 

20 United States shareholder in an amount which bears 

21 the same proportion to such aggregate as—

22 ‘‘(A) such United States shareholder’s pro 

23 rata share of the accumulated post-1986 de24 ferred foreign income of each such deferred for25 eign income corporation, bears to 


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1 ‘‘(B) the aggregate of such United States 

2 shareholder’s pro rata share of the accumulated 

3 post-1986 deferred foreign income of all de4 ferred foreign income corporations of such 

5 United States shareholder. 

6 ‘‘(3) DEFINITIONS RELATED TO E&P DEFI7 CITS.—For purposes of this subsection—

8 ‘‘(A) AGGREGATE FOREIGN E&P DEF9 ICIT.—The term ‘aggregate foreign E&P deficit’ 

10 means, with respect to any United States share11 holder, the aggregate of such shareholder’s pro 

12 rata shares of the specified E&P deficits of the 

13 E&P deficit foreign corporations of such share14 holder. 

15 ‘‘(B) E&P DEFICIT FOREIGN CORPORA16 TION.—The term ‘E&P deficit foreign corpora17 tion’ means, with respect to any taxpayer, any 

18 specified foreign corporation with respect to 

19 which such taxpayer is a United States share20 holder, if—

21 ‘‘(i) such specified foreign corporation 

22 has a deficit in post-1986 earnings and 

23 profits, and 

24 ‘‘(ii) as of February 26, 2014—


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1 ‘‘(I) such corporation was a spec2 ified foreign corporation, and 

3 ‘‘(II) such taxpayer was a United 

4 States shareholder of such corpora5 tion. 

6 ‘‘(C) SPECIFIED E&P DEFICIT.—The term 

7 ‘specified E&P deficit’ means, with respect to 

8 any E&P deficit foreign corporation, the 

9 amount of the deficit referred to in subpara10 graph (B). 

11 ‘‘(c) APPLICATION OF PARTICIPATION EXEMPTION

12 TO INCLUDED INCOME.—

13 ‘‘(1) IN GENERAL.—In the case of a United 

14 States shareholder of a deferred foreign income cor15 poration, there shall be allowed as a deduction for 

16 the taxable year in which an amount is included in 

17 the gross income of such United States shareholder 

18 under section 951(a)(1) by reason of this section an 

19 amount equal to the sum of—

20 ‘‘(A) 90 percent of the excess (if any) of—

21 ‘‘(i) the amount so included as gross 

22 income, over 

23 ‘‘(ii) the amount of such United 

24 States shareholder’s aggregate foreign cash 

25 position, plus 


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1 ‘‘(B) 75 percent of so much of the amount 

2 described in subparagraph (A)(ii) as does not 

3 exceed the amount described in subparagraph 

4 (A)(i). 

5 ‘‘(2) AGGREGATE FOREIGN CASH POSITION.—

6 For purposes of this subsection—

7 ‘‘(A) IN GENERAL.—The term ‘aggregate 

8 foreign cash position’ means, with respect to 

9 any United States shareholder, the greater of—

10 ‘‘(i) the aggregate of such United 

11 States shareholder’s pro rata share of the 

12 cash position of each specified foreign cor13 poration of such United States shareholder 

14 determined as of the close of the last tax15 able year of such specified foreign corpora16 tion which begins before January 1, 2015, 

17 or 

18 ‘‘(ii) one half of the sum of—

19 ‘‘(I) the aggregate described in 

20 clause (i) determined as of the close of 

21 the last taxable year of each such 

22 specified foreign corporation which 

23 ends before February 26, 2014, plus 

24 ‘‘(II) the aggregate described in 

25 clause (i) determined as of the close of 


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1 the taxable year of each such specified 

2 foreign corporation which precedes the 

3 taxable year referred to in subclause 

4 (I). 

5 ‘‘(B) CASH POSITION.—For purposes of 

6 this paragraph, the cash position of any speci7 fied foreign corporation is the sum of—

8 ‘‘(i) cash and foreign currency held by 

9 such foreign corporation, 

10 ‘‘(ii) the net accounts receivable of 

11 such foreign corporation, plus 

12 ‘‘(iii) the fair market value of the fol13 lowing assets held by such corporation: 

14 ‘‘(I) Actively traded personal 

15 property for which there is an estab16 lished financial market. 

17 ‘‘(II) Commercial paper, certifi18 cates of deposit, the securities of the 

19 Federal government and of any State 

20 or foreign government 

21 ‘‘(III) Any obligation with a term 

22 of less than one year. 

23 ‘‘(IV) Any asset which the Sec24 retary identifies as being economically 


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1 equivalent to any asset described in 

2 this subparagraph. 

3 ‘‘(C) NET ACCOUNTS RECEIVABLE.—For 

4 purposes of this paragraph, the term ‘net ac5 counts receivable’ means, with respect to any 

6 specified foreign corporation, the excess (if any) 

7 of—

8 ‘‘(i) such corporation’s accounts re9 ceivable, over 

10 ‘‘(ii) such corporation’s accounts pay11 able (determined consistent with the rules 

12 of section 461). 

13 ‘‘(D) PREVENTION OF DOUBLE COUNT14 ING.—Cash positions of a specified foreign cor15 poration described in clause (ii) or (iii)(III) of 

16 subparagraph (B) shall not be taken into ac17 count by a United States shareholder under 

18 subparagraph (A) to the extent that such 

19 United States shareholder demonstrates to the 

20 satisfaction of the Secretary that such amount 

21 is so taken into account by such United States 

22 shareholder with respect to another specified 

23 foreign corporation. 

24 ‘‘(E) CASH POSITIONS OF FOREIGN PASS25 THRU ENTITIES TAKEN INTO ACCOUNT.—Any 


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1 foreign entity which would be a specified for2 eign corporation of a United States shareholder 

3 if such entity were a corporation shall be treat4 ed as a specified foreign corporation of such 

5 United States shareholder for purposes of de6 termining such United States shareholder’s ag7 gregate foreign cash position. 

8 ‘‘(F) ANTI-ABUSE.—If the Secretary deter9 mines that the principal purpose of any trans10 action was to reduce the aggregate foreign cash 

11 position taken into account under this sub12 section, such transaction shall be disregarded 

13 for purposes of this subsection. 

14 ‘‘(d) DEFERRED FOREIGN INCOME CORPORATION; 

15 ACCUMULATED POST-1986 DEFERRED FOREIGN IN16 COME.—For purposes of this section—

17 ‘‘(1) DEFERRED FOREIGN INCOME CORPORA18 TION.—The term ‘deferred foreign income corpora19 tion’ means, with respect to any United States 

20 shareholder, any specified foreign corporation of 

21 such United States shareholder which has accumu22 lated post-1986 deferred foreign income (as of the 

23 close of the taxable year referred to in subsection 

24 (a)) greater than zero. 


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1 ‘‘(2) ACCUMULATED POST-1986 DEFERRED FOR2 EIGN INCOME.—The term ‘accumulated post-1986 

3 deferred foreign income’ means the post-1986 earn4 ings and profits except to the extent such earnings—

5 ‘‘(A) are attributable to income of the 

6 specified foreign corporation which is effectively 

7 connected with the conduct of a trade or busi8 ness within the United States and subject to 

9 tax under this chapter, 

10 ‘‘(B) if distributed, would—

11 ‘‘(i) in the case of a controlled foreign 

12 corporation, be excluded from the gross in13 come of a United States shareholder under 

14 section 959, or 

15 ‘‘(ii) in the case of any passive foreign 

16 investment company (as defined in section 

17 1297) other than a controlled foreign cor18 poration, be treated as a distribution which 

19 is not a dividend, or 

20 ‘‘(C) in the case of any passive foreign in21 vestment company (as so defined), is properly 

22 attributable to an unreversed inclusion of a 

23 United States person under section 1296. 

24 To the extent provided in regulations or other guid25 ance prescribed by the Secretary, in the case of any 


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1 controlled foreign corporation which has share2 holders which are not United States shareholders, 

3 accumulated post-1986 deferred foreign income shall 

4 be appropriately reduced by amounts which would be 

5 described in subparagraph (B)(i) is such share6 holders were United States shareholders. Such regu7 lations or other guidance may provide a similar rule 

8 for purposes of subparagraph (B)(ii) and (C). 

9 ‘‘(3) POST-1986 EARNINGS AND PROFITS.—The 

10 term ‘post-1986 earnings and profits’ means the 

11 earnings and profits of the foreign corporation (com12 puted in accordance with sections 964(a) and 986) 

13 accumulated in taxable years beginning after Decem14 ber 31, 1986, and determined—

15 ‘‘(A) as of the close the taxable year re16 ferred to in subsection (a), and 

17 ‘‘(B) without diminution by reason of divi18 dends distributed during such taxable year. 

19 ‘‘(e) SPECIFIED FOREIGN CORPORATION.—

20 ‘‘(1) IN GENERAL.—For purposes of this sec21 tion, the term ‘specified foreign corporation’ 

22 means—

23 ‘‘(A) any controlled foreign corporation, 

24 and 


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1 ‘‘(B) any section 902 corporation (as de2 fined in section 909(d)(5) as in effect before the 

3 date of the enactment of the Tax Reform Act 

4 of 2014). 

5 ‘‘(2) APPLICATION TO SECTION 902 CORPORA6 TIONS.—For purposes of section 951, a section 902 

7 corporation (as so defined) shall be treated as a con8 trolled foreign corporation solely for purposes of tak9 ing into account the subpart F income of such cor10 poration under subsection (a) (and for purposes of 

11 applying subsection (f)). 

12 ‘‘(f) DETERMINATIONS OF PRO RATA SHARE.—For 

13 purposes of this section, the determination of any United 

14 States shareholder’s pro rata share of any amount with 

15 respect to any specified foreign corporation shall be deter16 mined under rules similar to the rules of section 951(a)(2) 

17 by treating such amount in the same manner as subpart 

18 F income (and by treating such specified foreign corpora19 tion as a controlled foreign corporation). 

20 ‘‘(g) DISALLOWANCE OF FOREIGN TAX CREDIT, 

21 ETC.—

22 ‘‘(1) IN GENERAL.—No credit shall be allowed 

23 under section 901 for the applicable percentage of 

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1 crued) with respect to any amount for which a de2 duction is allowed under this section. 

3 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

4 of this subsection, the term ‘applicable percentage’ 

5 means the amount (expressed as a percentage) equal 

6 to the sum of—

7 ‘‘(A) 0.9 multiplied by the ratio of—

8 ‘‘(i) the excess to which subsection 

9 (c)(1)(A) applies, divided by 

10 ‘‘(ii) the sum of such excess plus the 

11 amount to which subsection (c)(1)(B) ap12 plies, plus 

13 ‘‘(B) 0.75 multiplied by the ratio of—

14 ‘‘(i) the amount to which subsection 

15 (c)(1)(B) applies, divided by 

16 ‘‘(ii) the sum described in subpara17 graph (A)(ii). 

18 ‘‘(3) DENIAL OF DEDUCTION.—No deduction 

19 shall be allowed under this chapter for any tax for 

20 which credit is not allowable under section 901 by 

21 reason of paragraph (1) (determined by treating the 

22 taxpayer as having elected the benefits of subpart A 

23 of part III of subchapter N). 

24 ‘‘(4) COORDINATION WITH SECTION 78.—Sec25 tion 78 shall not apply to any tax for which credit 


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1 is not allowable under section 901 by reason of para2 graph (1). 

3 ‘‘(h) ELECTION TO PAY LIABILITY IN INSTALL4 MENTS.—

5 ‘‘(1) IN GENERAL.—In the case of a United 

6 States shareholder of a deferred foreign income cor7 poration, such United States shareholder may elect 

8 to pay the net tax liability under this section in 8 

9 installments of the following amounts: 

10 ‘‘(A) 8 percent of the net tax liability in 

11 the case of each of the first 5 of such install12 ments, 

13 ‘‘(B) 15 percent of the net tax liability in 

14 the case of the 6th such installment, 

15 ‘‘(C) 20 percent of the net tax liability in 

16 the case of the 7th such installment, and 

17 ‘‘(D) 25 percent of the net tax liability in 

18 the case of the 8th such installment. 

19 ‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.—

20 If an election is made under paragraph (1), the first 

21 installment shall be paid on the due date (deter22 mined without regard to any extension of time for 

23 filing the return) for the return of tax for the tax24 able year described in subsection (b) and each suc25 ceeding installment shall be paid on the due date (as 


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1 so determined) for the return of tax for the taxable 

2 year following the taxable year with respect to which 

3 the preceding installment was made. 

4 ‘‘(3) ACCELERATION OF PAYMENT.—If there is 

5 an addition to tax for failure to pay timely assessed 

6 with respect to any installment required under this 

7 subsection, a liquidation or sale of substantially all 

8 the assets of the taxpayer (including in a title 11 or 

9 similar case), a cessation of business by the tax10 payer, or any similar circumstance, then the unpaid 

11 portion of all remaining installments shall be due on 

12 the date of such event (or in the case of a title 11 

13 or similar case, the day before the petition is filed). 

14 The preceding sentence shall not apply to the sale 

15 of substantially all the assets of a taxpayer to a 

16 buyer if such buyer enters into an agreement with 

17 the Secretary under which such buyer is liable for 

18 the remaining installments due under this subsection 

19 in the same manner as if such buyer were the tax20 payer. 

21 ‘‘(4) PRORATION OF DEFICIENCY TO INSTALL22 MENTS.—If an election is made under paragraph (1) 

23 to pay the net tax liability under this section in in24 stallments and a deficiency has been assessed with 

25 respect to such net tax liability, the deficiency shall 


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1 be prorated to the installments payable under para2 graph (1). The part of the deficiency so prorated to 

3 any installment the date for payment of which has 

4 not arrived shall be collected at the same time as, 

5 and as a part of, such installment. The part of the 

6 deficiency so prorated to any installment the date 

7 for payment of which has arrived shall be paid upon 

8 notice and demand from the Secretary. This sub9 section shall not apply if the deficiency is due to 

10 negligence, to intentional disregard of rules and reg11 ulations, or to fraud with intent to evade tax. 

12 ‘‘(5) ELECTION.—Any election under paragraph 

13 (1) shall be made not later than the due date for the 

14 return of tax for the taxable year described in sub15 section (a) and shall be made in such manner as the 

16 Secretary may provide. 

17 ‘‘(6) NET TAX LIABILITY UNDER THIS SEC18 TION.—For purposes of this subsection—

19 ‘‘(A) IN GENERAL.—The net tax liability 

20 under this section with respect to any United 

21 States shareholder is the excess (if any) of—

22 ‘‘(i) such taxpayer’s net income tax 

23 for the taxable year described in subsection 

24 (a), over 


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1 ‘‘(ii) such taxpayer’s net income tax 

2 for such taxable year determined without 

3 regard to this section. 

4 ‘‘(B) NET INCOME TAX.—The term ‘net 

5 income tax’ means the regular tax liability re6 duced by the credits allowed under subparts A, 

7 B, and D of part IV of subchapter A. 

8 ‘‘(i) SPECIAL RULES FOR S CORPORATION SHARE9 HOLDERS.—

10 ‘‘(1) IN GENERAL.—In the case of any S cor11 poration which is a United States shareholder of a 

12 deferred foreign income corporation, each share13 holder of such S corporation may elect to defer pay14 ment of such shareholder’s net tax liability under 

15 this section with respect to such S corporation until 

16 the shareholder’s taxable year which includes the 

17 triggering event with respect to such liability. 

18 ‘‘(2) TRIGGERING EVENT.—

19 ‘‘(A) IN GENERAL.—In the case of any 

20 shareholder’s net tax liability under this section 

21 with respect to any S corporation, the trig22 gering event with respect to such liability is 

23 whichever of the following occurs first: 

24 ‘‘(i) Such corporation ceases to be an 

25 S corporation (determined as of the first 


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1 day of the first taxable year that such cor2 poration is not an S corporation). 

3 ‘‘(ii) A liquidation or sale of substan4 tially all the assets of such S corporation 

5 (including in a title 11 or similar case), a 

6 cessation of business by such S corpora7 tion, such S corporation ceases to exist, or 

8 any similar circumstance. 

9 ‘‘(iii) A transfer of any share of stock 

10 in such S corporation by the taxpayer (in11 cluding by reason of death, or otherwise). 

12 ‘‘(B) PARTIAL TRANSFERS OF STOCK.—In 

13 the case of a transfer of less than all of the tax14 payer’s shares of stock in the S corporation, 

15 such transfer shall only be a triggering event 

16 with respect to so much of the taxpayer’s net 

17 tax liability under this section with respect to 

18 such S corporation as is properly allocable to 

19 such stock. 

20 ‘‘(C) TRANSFER OF LIABILITY.—A trans21 fer described in clause (iii) shall not be treated 

22 as a triggering event if the transferee enters 

23 into an agreement with the Secretary under 

24 which such transferee is liable for net tax liabilVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00810 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ity with respect to such stock in the same man2 ner as if such transferee were the taxpayer. 

3 ‘‘(3) NET TAX LIABILITY.—A shareholder’s net 

4 tax liability under this section with respect to any S 

5 corporation is the net tax liability under this section 

6 which would be determined under subsection (h)(6) 

7 if the only subpart F income taken into account by 

8 such shareholder by reason of this section were allo9 cations from such S corporation. 

10 ‘‘(4) ELECTION TO PAY DEFERRED LIABILITY

11 IN INSTALLMENTS.—In the case of a taxpayer which 

12 elects to defer payment under paragraph (1), sub13 section (h) shall be applied—

14 ‘‘(A) separately with respect to the liability 

15 to which such election applies, 

16 ‘‘(B) an election under subsection (h) with 

17 respect to such liability shall be treated as time18 ly made if made not later than the due date for 

19 the return of tax for the taxable year in which 

20 the triggering event with respect to such liabil21 ity occurs, 

22 ‘‘(C) the first installment under subsection 

23 (h) with respect to such liability shall be paid 

24 not later than such due date (but determined 


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1 without regard to any extension of time for fil2 ing the return), and 

3 ‘‘(D) if the triggering event with respect to 

4 any net tax liability is described in paragraph 

5 (2)(A)(ii), an election under subsection (h) with 

6 respect to such liability may be made only with 

7 the consent of the Secretary. 

8 ‘‘(5) JOINT AND SEVERAL LIABILITY OF S COR9 PORATION.—If any shareholder of an S corporation 

10 elects to defer payment under paragraph (1), such 

11 S corporation shall be jointly and severally liable for 

12 such payment and any penalty, addition to tax, or 

13 additional amount attributable thereto. 

14 ‘‘(6) EXTENSION OF LIMITATION ON COLLEC15 TION.—Notwithstanding any other provision of law, 

16 any limitation on the time period for the collection 

17 of a liability deferred under this subsection shall not 

18 be treated as beginning before the date of the trig19 gering event with respect to such liability. 

20 ‘‘(7) ELECTION.—Any election under paragraph 

21 (1) shall be made not later than the due date for the 

22 return of tax for the taxable year described in sub23 section (a) and shall be made in such manner as the 

24 Secretary may provide. 


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1 ‘‘(j) INCLUSION OF DEFERRED FOREIGN INCOME

2 UNDER THIS SECTION NOT TO TRIGGER RECAPTURE OF

3 OVERALL FOREIGN LOSS.—For purposes of section 

4 904(f)(1), in the case of a United States shareholder of 

5 a deferred foreign income corporation, such United States 

6 shareholder’s taxable income from sources without the 

7 United States shall be determined without regard to this 

8 section. 

9 ‘‘(k) REGULATIONS.—The Secretary may prescribe 

10 such regulations or other guidance as may be necessary 

11 or appropriate to carry out the provisions of this section.’’. 

12 (b) DEDICATION OF REVENUES TO HIGHWAY TRUST

13 FUND.—

14 (1) IN GENERAL.—Section 9503(f) is amended 

15 by redesignating paragraph (5) as paragraph (6) 

16 and by inserting after paragraph (4) the following 

17 new paragraph: 

18 ‘‘(5) APPROPRIATION TO TRUST FUND OF NET

19 TAX LIABILITIES RECEIVED UNDER SECTION 965.—

20 ‘‘(A) IN GENERAL.—Out of money in the 

21 Treasury not otherwise appropriated, there are 

22 hereby appropriated to the Highway Trust 

23 Fund amounts equivalent to the aggregate net 

24 tax liabilities under section 965 (as defined in 

25 such section) received in the Treasury. 


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1 ‘‘(B) MONTHLY TRANSFERS BASED ON ES2 TIMATES.—For rule providing for the monthly 

3 transfer of amounts appropriated under sub4 paragraph (A) based on estimates of the Sec5 retary, see section 9601.’’. 

6 (2) TRANSFERS TO MASS TRANSIT ACCOUNT.—

7 Section 9503(e)(2) is amended by striking ‘‘the 

8 mass transit portion’’ and inserting ‘‘, 20 percent of 

9 the amounts appropriated to the Highway Trust 

10 Fund under subsection (f)(5), and the mass transit 

11 portion’’. 

12 (c) CLERICAL AMENDMENT.—The table of section for 

13 subpart F of part III of subchapter N of chapter 1 is 

14 amended by striking the item relating to section 965 and 

15 inserting the following:

‘‘Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation.’’.

16 SEC. 4004. LOOK-THRU RULE FOR RELATED CONTROLLED 

17 FOREIGN CORPORATIONS MADE PERMA18 NENT.

19 (a) IN GENERAL.—Paragraph (6) of section 954(c) 

20 is amended by striking subparagraph (C). 

21 (b) EFFECTIVE DATE.—The amendments made by 

22 this section shall apply to taxable years of foreign corpora23 tions beginning after December 31, 2013, and to taxable 


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1 years of United States shareholders in which or with which 

2 such taxable years of foreign corporations end. 

3 Subtitle B—Modifications Related 

4 to Foreign Tax Credit System 

5 SEC. 4101. REPEAL OF SECTION 902 INDIRECT FOREIGN 

6 TAX CREDITS; DETERMINATION OF SECTION 

7 960 CREDIT ON CURRENT YEAR BASIS. 

8 (a) REPEAL OF SECTION 902 INDIRECT FOREIGN

9 TAX CREDITS.—Subpart A of part III of subchapter N 

10 of chapter 1 is amended by striking section 902. 

11 (b) DETERMINATION OF SECTION 960 CREDIT ON

12 CURRENT YEAR BASIS.—Section 960 is amended—

13 (1) by striking subsection (c), by redesignating 

14 subsection (b) as subsection (c), by striking all that 

15 precedes subsection (c) (as so redesignated) and in16 serting the following: 

17 ‘‘SEC. 960. DEEMED PAID CREDIT FOR SUBPART F INCLU18 SIONS.

19 ‘‘(a) IN GENERAL.—For purposes of this subpart, if 

20 there is included in the gross income of a domestic cor21 poration any item of income under section 951(a)(1) with 

22 respect to any controlled foreign corporation with respect 

23 to which such domestic corporation is a United States 

24 shareholder, such domestic corporation shall be deemed to 

25 have paid so much of such foreign corporation’s foreign 


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1 income taxes as are properly attributable to the item of 

2 income so included. 

3 ‘‘(b) SPECIAL RULES FOR DISTRIBUTIONS FROM

4 PREVIOUSLY TAXED EARNINGS AND PROFITS.—For pur5 poses of this subpart—

6 ‘‘(1) IN GENERAL.—If any portion of a dis7 tribution from a controlled foreign corporation to a 

8 domestic corporation which is a United States share9 holder with respect to such controlled foreign cor10 poration is excluded from gross income under section 

11 959(a), such domestic corporation shall be deemed 

12 to have paid so much of such foreign corporation’s 

13 foreign income taxes as—

14 ‘‘(A) are properly attributable to such por15 tion, and 

16 ‘‘(B) have not been deemed to have to been 

17 paid by such domestic corporation under this 

18 section for any prior taxable year. 

19 ‘‘(2) TIERED CONTROLLED FOREIGN CORPORA20 TIONS.—If section 959(b) applies to any portion of 

21 a distribution from a controlled foreign corporation 

22 to another controlled foreign corporation, such con23 trolled foreign corporation shall be deemed to have 

24 paid so much of such other controlled foreign cor25 poration’s foreign income taxes as—


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1 ‘‘(A) are properly attributable to such por2 tion, and 

3 ‘‘(B) have not been deemed to have been 

4 paid by a domestic corporation under this sec5 tion for any prior taxable year.’’, 

6 (2) and by adding after subsection (c) (as so re7 designated) the following new subsections: 

8 ‘‘(d) FOREIGN INCOME TAXES.—The term ‘foreign 

9 income taxes’ means any income, war profits, or excess 

10 profits taxes paid or accrued to any foreign country or 

11 possession of the United States. 

12 ‘‘(e) REGULATIONS.—The Secretary shall provide 

13 such regulations as may be necessary or appropriate to 

14 carry out the provisions of this section.’’. 

15 (c) CONFORMING AMENDMENTS.—

16 (1) Section 78 is amended to read as follows: 

17 ‘‘SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX 

18 CREDIT.

19 ‘‘If a domestic corporation chooses to have the bene20 fits of subpart A of part III of subchapter N (relating 

21 to foreign tax credit) for any taxable year, an amount 

22 equal to the taxes deemed to be paid by such corporation 

23 under section 960 (relating to deemed paid credit for sub24 part F inclusions) for such taxable year shall be treated 

25 for purposes of this title (other than section 960) as an 


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1 item of income required to be included in the gross income 

2 of such domestic corporation under section 951(a).’’. 

3 (2) Section 245(a)(10) is amended by striking 

4 ‘‘902,’’. 

5 (3) Sections 535(b)(1) and 545(b)(1) are each 

6 amended by striking ‘‘section 902(a) or 960(a)(1)’’ 

7 and inserting ‘‘section 960’’. 

8 (4) Paragraph (1) of section 814(f) is amend9 ed—

10 (A) by striking subparagraph (B), and 

11 (B) by striking all that precedes ‘‘No in12 come’’ and inserting the following: 

13 ‘‘(1) TREATMENT OF FOREIGN TAXES.—’’. 

14 (5) Subparagraph (B) of section 864(h)(1) is 

15 amended by striking ‘‘902,’’. 

16 (6) Subsection (a) of section 901 is amended by 

17 striking ‘‘sections 902 and 960’’ and inserting ‘‘sec18 tion 960’’. 

19 (7) Paragraph (2) of section 901(e) is amended 

20 by striking ‘‘but is not limited to—’’ and all that fol21 lows through ‘‘that portion’’ and inserting ‘‘but is 

22 not limited to that portion’’. 

23 (8) Subsection (f) of section 901 is amended by 

24 striking ‘‘sections 902 and 960’’ and inserting ‘‘sec25 tion 960’’. 


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1 (9) Subparagraph (A) of section 901(j)(1) is 

2 amended by striking ‘‘902 or’’. 

3 (10) Subparagraph (B) of section 901(j)(1) is 

4 amended by striking ‘‘sections 902 and 960’’ and in5 serting ‘‘section 960’’. 

6 (11) Paragraph (2) of section 901(k) is amend7 ed by striking ‘‘902,’’. 

8 (12) Paragraph (6) of section 901(k) is amend9 ed by striking ‘‘902 or’’. 

10 (13) Subparagraph (A) of section 904(h)(10) is 

11 amended by striking ‘‘sections 902, 907, and 960’’ 

12 and inserting ‘‘sections 907 and 960’’. 

13 (14) Section 904 is amended by striking sub14 section (k). 

15 (15) Paragraph (1) of section 905(c) is amend16 ed by striking the last sentence. 

17 (16) Subclause (I) of section 905(c)(2)(B)(i) is 

18 amended by striking ‘‘section 902 or’’. 

19 (17) Subsection (a) of section 906 is amended 

20 by striking ‘‘(or deemed, under section 902, paid or 

21 accrued during the taxable year)’’. 

22 (18) Subsection (b) of section 906 is amended 

23 by striking paragraphs (4) and (5). 

24 (19) Subparagraph (B) of section 907(b)(2) is 

25 amended by striking ‘‘902 or’’. 


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1 (20) Paragraph (3) of section 907(c) is amend2 ed—

3 (A) by striking subparagraph (A) and re4 designating subparagraphs (B) and (C) as sub5 paragraphs (A) and (B), respectively, and 

6 (B) by striking ‘‘section 960(a)’’ in sub7 paragraph (A) (as so redesignated) and insert8 ing ‘‘section 960’’. 

9 (21) Paragraph (5) of section 907(c) is amend10 ed by striking ‘‘902 or’’. 

11 (22) Clause (i) of section 907(f)(2)(B) is 

12 amended by striking ‘‘902 or’’. 

13 (23) Subsection (a) of section 908 is amended 

14 by striking ‘‘902 or’’. 

15 (24) Subsection (b) of section 909 is amend16 ed—

17 (A) by striking ‘‘section 902 corporation’’ 

18 in the matter preceding paragraph (1) and in19 serting ‘‘specified 10-percent owned foreign cor20 poration’’, 

21 (B) by striking ‘‘902 or’’ in paragraph (1), 

22 (C) by striking ‘‘by such section 902 cor23 poration’’ and all that follows in the matter fol24 lowing paragraph (2) and inserting ‘‘by such 

25 specified 10-percent owned foreign corporation 


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1 or a domestic corporation which is a United 

2 States shareholder with respect to such speci3 fied 10-percent owned foreign corporation.’’, 

4 and 

5 (D) by striking ‘‘SECTION 902 CORPORA6 TIONS’’ in the heading thereof and inserting 

7 ‘‘SPECIFIED 10-PERCENT OWNED FOREIGN

8 CORPORATIONS’’. 

9 (25) Subsection (d) of section 909 is amended 

10 by striking paragraph (5). 

11 (26) Paragraph (1) of section 958(a) is amend12 ed by striking ‘‘960(a)(1)’’ and inserting ‘‘960’’. 

13 (27) Subsection (d) of section 959 is amended 

14 by striking ‘‘Except as provided in section 960(a)(3), 

15 any’’ and inserting ‘‘Any’’. 

16 (28) Subsection (e) of section 959 is amended 

17 by striking ‘‘and section 960(b)’’. 

18 (29) Subparagraph (A) of section 1291(g)(2) is 

19 amended by striking ‘‘any distribution—’’ and all 

20 that follows through ‘‘but only if’’ and inserting 

21 ‘‘any distribution, any withholding tax imposed with 

22 respect to such distribution, but only if’’. 

23 (30) Section 1293 is amended by striking sub24 section (f). 


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1 (31) Subparagraph (B) of section 6038(c)(1) is 

2 amended by striking ‘‘sections 902 (relating to for3 eign tax credit for corporate stockholder in foreign 

4 corporation) and 960 (relating to special rules for 

5 foreign tax credit)’’ and inserting ‘‘section 960’’. 

6 (32) Paragraph (4) of section 6038(c) is 

7 amended by striking subparagraph (C). 

8 (33) The table of sections for subpart A of part 

9 III of subchapter N of chapter 1 is amended by 

10 striking the item relating to section 902. 

11 (34) The table of sections for subpart F of part 

12 III of subchapter N of chapter 1 is amended by 

13 striking the item relating to section 960 and insert14 ing the following:

‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’.

15 (d) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to taxable years of foreign corpora17 tions beginning after December 31, 2014, and to taxable 

18 years of United States shareholders in which or with which 

19 such taxable years of foreign corporations end. 

20 SEC. 4102. FOREIGN TAX CREDIT LIMITATION APPLIED BY 

21 ALLOCATING ONLY DIRECTLY ALLOCABLE 

22 DEDUCTIONS TO FOREIGN SOURCE INCOME. 

23 (a) IN GENERAL.—Subsection (b) of section 904, as 

24 amended by the preceding provisions of this Act, is amend25 ed by adding at the end the following new paragraph: 


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1 ‘‘(3) DEDUCTIONS ALLOCABLE TO FOREIGN

2 SOURCE INCOME ONLY IF DIRECTLY ALLOCABLE.—

3 For purposes of subsection (a), the taxpayer’s tax4 able income from sources without the United States 

5 shall be determined by allocating deductions to such 

6 income only if such deductions are directly allocable 

7 to such income.’’. 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years of foreign corpora10 tions beginning after December 31, 2014, and to taxable 

11 years of United States shareholders in which or with which 

12 such taxable years of foreign corporations end. 

13 SEC. 4103. PASSIVE CATEGORY INCOME EXPANDED TO IN14 CLUDE OTHER MOBILE INCOME. 

15 (a) TREATMENT OF FOREIGN BASE COMPANY IN16 TANGIBLE INCOME AND FOREIGN BASE COMPANY SALES

17 INCOME AS MOBILE CATEGORY INCOME.—Clause (i) of 

18 section 904(d)(2)(A) is amended by striking ‘‘and speci19 fied passive category income’’ and inserting ‘‘specified pas20 sive category income, foreign base company sales income 

21 (as defined in section 954(d)), and foreign base company 

22 intangible income (as defined in section 954(f))’’. 

23 (b) REPEAL OF SPECIAL RULES TREATING FINAN24 CIAL SERVICES INCOME AS GENERAL CATEGORY IN25 COME.—Paragraph (2) of section 904(d) is amended by 


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1 striking subparagraphs (C) and (D) and by redesignating 

2 subparagraphs (E) through (K) as subparagraphs (C) 

3 through (I), respectively. 

4 (c) CONFORMING AMENDMENTS.—

5 (1) RELATING TO REFERENCES TO PASSIVE IN6 COME.—

7 (A) Section 904(d)(1)(A) is amended by 

8 striking ‘‘passive category income’’ and insert9 ing ‘‘mobile category income’’. 

10 (B) Section 904(d)(2)(A)(i), as amended 

11 by subsection (a), is amended—

12 (i) by striking ‘‘PASSIVE CATEGORY

13 INCOME’’ in the heading thereof and insert14 ing ‘‘MOBILE CATEGORY INCOME’’, 

15 (ii) by striking ‘‘passive category in16 come’’ and inserting ‘‘mobile category in17 come’’, 

18 (iii) by striking ‘‘passive income’’ and 

19 inserting ‘‘mobile income’’, and 

20 (iv) by striking ‘‘specified passive cat21 egory income’’ and inserting ‘‘specified mo22 bile category income’’. 

23 (C) Section 904(d)(2)(A)(ii) is amended by 

24 striking ‘‘passive category income’’ and insert25 ing ‘‘mobile category income’’. 


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1 (D) Section 904(d)(2)(B) is amended—

2 (i) by striking ‘‘PASSIVE INCOME’’ in 

3 the heading thereof and inserting ‘‘MOBILE

4 INCOME’’, 

5 (ii) by striking ‘‘passive income’’ in 

6 clauses (i), (ii), and (iii) and inserting 

7 ‘‘mobile income’’, 

8 (iii) by striking ‘‘SPECIFIED PASSIVE

9 CATEGORY INCOME’’ in the heading of 

10 clause (iv) and inserting ‘‘SPECIFIED MO11 BILE CATEGORY INCOME’’, and 

12 (iv) by striking ‘‘specified passive cat13 egory income’’ in clause (iv) and inserting 

14 ‘‘specified mobile category income’’. 

15 (E) Section 904(d)(2)(D), as redesignated 

16 by subsection (b), is amended by striking ‘‘pas17 sive income’’ and inserting ‘‘mobile income’’. 

18 (F) Section 904(d)(3)(A) is amended by 

19 striking ‘‘passive category income’’ and insert20 ing ‘‘mobile category income’’. 

21 (G) Section 904(d)(3)(B) is amended by 

22 striking ‘‘passive category income’’ both places 

23 it appears and inserting ‘‘mobile category in24 come’’. 


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1 (H) Section 904(d)(3)(C) is amended by 

2 striking ‘‘passive category income’’ both places 

3 it appears and inserting ‘‘mobile category in4 come’’. 

5 (I) Section 904(d)(3)(D) is amended by 

6 striking ‘‘passive category income’’ both places 

7 it appears and inserting ‘‘mobile category in8 come’’. 

9 (J) Section 904(d)(3)(E) is amended—

10 (i) by striking ‘‘passive category in11 come’’ both places it appears and inserting 

12 ‘‘mobile category income’’, and 

13 (ii) by striking ‘‘passive income’’ and 

14 inserting ‘‘mobile income’’. 

15 (K) Section 904(d)(3)(F) is amended by 

16 striking ‘‘passive category income’’ both places 

17 it appears and inserting ‘‘mobile category in18 come’’. 

19 (2) OTHER CONFORMING AMENDMENTS.—

20 (A) Subparagraph (B) of section 864(f)(5) 

21 is amended by inserting ‘‘(as in effect before its 

22 repeal)’’ after ‘‘section 904(d)(2)(D)(ii)’’. 

23 (B) Subparagraph (B) of section 954(c)(2) 

24 is amended by striking ‘‘section 904(d)(2)(G)’’ 

25 and inserting ‘‘section 904(d)(2)(E)’’. 


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1 (d) EFFECTIVE DATE.—

2 (1) IN GENERAL.—The amendments made by 

3 this section shall apply to taxable years of foreign 

4 corporations beginning after December 31, 2014, 

5 and to taxable years of United States shareholders 

6 in which or with which such taxable years of foreign 

7 corporations end. 

8 (2) TREATMENT OF CARRYFORWARDS AND

9 CARRYBACKS.—For purposes of section 904 of the 

10 Internal Revenue Code of 1986—

11 (A) the amendments made by this section 

12 shall apply to any taxes carried from any tax13 able year beginning before January 1, 2015, to 

14 any taxable year beginning on or after such 

15 date, and 

16 (B) the Secretary of the Treasury, or his 

17 designee, may by regulations provide for the al18 location of any carryback of taxes with respect 

19 to income from a taxable year beginning on or 

20 after January 1, 2015, to a taxable year begin21 ning before such date for purposes of allocating 

22 such income among the separate categories in 

23 effect under section 904(d) for the taxable year 

24 to which carried. 


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1 SEC. 4104. SOURCE OF INCOME FROM SALES OF INVEN2 TORY DETERMINED SOLELY ON BASIS OF 

3 PRODUCTION ACTIVITIES. 

4 (a) IN GENERAL.—Subsection (b) of section 863 is 

5 amended by adding at the end the following: ‘‘Gains, prof6 its, and income from the sale or exchange of inventory 

7 property described in paragraph (2) shall be allocated and 

8 apportioned between sources within and without the 

9 United States solely on the basis of the production activi10 ties with respect to the property.’’. 

11 (b) EFFECTIVE DATE.—The amendment made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2014. 

14 Subtitle C—Rules Related to 

15 Passive and Mobile Income 

16 PART 1—MODIFICATION OF SUBPART F 

17 PROVISIONS

18 SEC. 4201. SUBPART F INCOME TO ONLY INCLUDE LOW19 TAXED FOREIGN INCOME. 

20 (a) IN GENERAL.—Subsection (a) of section 954 is 

21 amended—

22 (1) by redesignating paragraphs (1), (2), (3), 

23 and (5) as subparagraphs (A) through (D), respec24 tively, 

25 (2) by striking ‘‘For purposes of’’ and inserting 

26 the following: 


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1 ‘‘(1) IN GENERAL.—For purposes of’’, and 

2 (3) by adding at the end the following new 

3 paragraph: 

4 ‘‘(2) APPLICATION ONLY TO FOREIGN BASE

5 COMPANY INCOME SUBJECT TO A LOW FOREIGN EF6 FECTIVE RATE OF TAX.—

7 ‘‘(A) IN GENERAL.—Foreign base company 

8 income shall only include items of income re9 ceived by a controlled foreign corporation which 

10 are subject to an effective rate of income tax 

11 imposed by a foreign country which is less than 

12 100 percent of the maximum rate of tax speci13 fied in section 11. 

14 ‘‘(B) APPLICATION TO FOREIGN BASE

15 COMPANY INCOME SUBJECT TO REDUCED DO16 MESTIC RATE OF TAX.—

17 ‘‘(i) FOREIGN BASE COMPANY SALES

18 INCOME.—In the case of foreign base com19 pany sales income, subparagraph (A) shall 

20 be applied by substituting ‘50 percent’ for 

21 ‘100 percent’. 

22 ‘‘(ii) FOREIGN BASE COMPANY INTAN23 GIBLE INCOME.—In the case of foreign 

24 base company intangible income, subpara25 graph (A) shall be applied—


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1 ‘‘(I) by substituting ‘the applica2 ble percentage of the foreign percent3 age (determined under section 250(c) 

4 with respect to the controlled foreign 

5 corporation)’ for ‘100 percent’, and 

6 ‘‘(II) by treating the foreign base 

7 company intangible income as a single 

8 item of income. 

9 ‘‘(iii) APPLICABLE PERCENTAGE.—

10 For purposes of clause (ii)(I), the term 

11 ‘applicable percentage’ means, with respect 

12 to any taxable year of a controlled foreign 

13 corporation, the percentage determined in 

14 accordance with the following table:

‘‘In the case of any taxable year beginning in: The applicable percentage 

is: 

2015 .......................................................................... 45 percent 

2016 .......................................................................... 48 percent 

2017 .......................................................................... 52 percent 

2018 .......................................................................... 56 percent 

2019 or thereafter ..................................................... 60 percent.’’. 

15 (b) INSURANCE INCOME.—Subsection (a) of section 

16 953 is amended by redesignating paragraph (2) as para17 graph (3) and by inserting after paragraph (1) the fol18 lowing new paragraph: 

19 ‘‘(2) APPLICATION ONLY TO INSURANCE IN20 COME SUBJECT TO A LOW FOREIGN EFFECTIVE

21 RATE OF TAX.—Insurance income shall only include 


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1 items of income received by a controlled foreign cor2 poration which are subject to an effective rate of in3 come tax imposed by a foreign country which is less 

4 than the maximum rate of tax specified in section 

5 11.’’. 

6 (c) CONFORMING AMENDMENTS.—

7 (1) Section 954(b)(3)(B) is amended by strik8 ing ‘‘paragraphs (4) and (5)’’ and inserting ‘‘sub9 section (a)(2), section 953(a)(2), and paragraph 

10 (5)’’

11 (2) Section 954(b) is amended by striking para12 graph (4). 

13 (3) Section 954(c)(1) is amended by striking 

14 ‘‘subsection (a)(1)’’ and inserting ‘‘this section’’. 

15 (4) Section 954(d)(1) is amended by striking 

16 ‘‘subsection (a)(2)’’ and inserting ‘‘this section’’. 

17 (5) Section 954(e)(1) is amended by striking 

18 ‘‘subsection (a)(3)’’ and inserting ‘‘this section’’. 

19 (d) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years of foreign corpora21 tions beginning after December 31, 2014, and to taxable 

22 years of United States shareholders in which or with which 

23 such taxable years of foreign corporations end. 


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1 SEC. 4202. FOREIGN BASE COMPANY SALES INCOME. 

2 (a) 50 PERCENT EXCLUSION FOR LOW-TAXED FOR3 EIGN BASE COMPANY SALES INCOME.—

4 (1) IN GENERAL.—Subparagraph (B) of section 

5 954(a)(1), as amended by the preceding provisions 

6 of this Act, is amended by inserting ‘‘50 percent of’’ 

7 before ‘‘the foreign base company sales income’’. 

8 (2) PRESERVATION OF DEEMED PAID FOREIGN

9 TAX CREDIT ON LOW-TAXED FOREIGN BASE COM10 PANY INCOME.—Section 960, as amended by this 

11 Act, is amended by redesignating subsection (c) as 

12 subsection (d) and by inserting after subsection (b) 

13 the following new subsection: 

14 ‘‘(c) DEEMED PAID CREDIT DETERMINED WITHOUT

15 REGARD TO CERTAIN EXCLUSIONS FROM SUBPART F IN16 COME.—Solely for purposes of subsection (a), section 

17 954(a)(1)(B) shall be applied by substituting ‘100 per18 cent’ for ‘50 percent’ in determining amounts included 

19 under section 951(a)(1).’’. 

20 (b) EXCEPTION FROM FOREIGN BASE COMPANY

21 SALES INCOME FOR FOREIGN CORPORATIONS ELIGIBLE

22 FOR BENEFITS UNDER COMPREHENSIVE INCOME TAX

23 TREATIES.—Section 954(d) is amended by adding at the 

24 end the following new paragraph: 

25 ‘‘(5) EXCEPTION FOR FOREIGN CORPORATIONS

26 ELIGIBLE FOR BENEFITS UNDER COMPREHENSIVE


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1 INCOME TAX TREATIES.—No portion of the gross in2 come of a controlled foreign corporation shall be 

3 treated as foreign base company sales income if such 

4 controlled foreign corporation is eligible as a quali5 fied resident for all of the benefits provided under a 

6 comprehensive income tax treaty with the United 

7 States.’’. 

8 (c) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years of foreign corpora10 tions beginning after December 31, 2014, and to taxable 

11 years of United States shareholders in which or with which 

12 such taxable years of foreign corporations end. 

13 SEC. 4203. INFLATION ADJUSTMENT OF DE MINIMIS EXCEP14 TION FOR FOREIGN BASE COMPANY INCOME. 

15 (a) IN GENERAL.—Paragraph (3) of section 954(b) 

16 is amended by adding at the end the following new sub17 paragraph: 

18 ‘‘(D) INFLATION ADJUSTMENT.—In the 

19 case of any taxable year beginning after 2015, 

20 the dollar amount in subparagraph (A)(ii) shall 

21 be increased by an amount equal to—

22 ‘‘(i) such dollar amount, multiplied by 

23 ‘‘(ii) the cost-of-living adjustment de24 termined under section 1(c)(2)(A) for the 

25 calendar year in which the taxable year beVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00833 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 gins, determined by substituting ‘calendar 

2 year 2014’ for ‘calendar year 2012’ in 

3 clause (ii) thereof. 

4 Any increase determined under the preceding 

5 sentence shall be rounded to the nearest mul6 tiple of $50,000.’’. 

7 (b) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years of foreign corpora9 tions beginning after December 31, 2014, and to taxable 

10 years of United States shareholders in which or with which 

11 such taxable years of foreign corporations end. 

12 SEC. 4204. ACTIVE FINANCING EXCEPTION EXTENDED WITH 

13 LIMITATION FOR LOW-TAXED FOREIGN IN14 COME.

15 (a) EXTENSION OF ACTIVE FINANCING EXCEP16 TION.—

17 (1) IN GENERAL.—Paragraph (9) of section 

18 954(h) is amended by striking ‘‘January 1, 2014’’ 

19 and inserting ‘‘January 1, 2019’’. 

20 (2) EXEMPT INSURANCE INCOME.—Paragraph 

21 (10) of section 953(e) is amended—

22 (A) by striking ‘‘January 1, 2014’’ and in23 serting ‘‘January 1, 2019’’, and 

24 (B) by striking ‘‘December 31, 2013’’ and 

25 inserting ‘‘December 31, 2018’’. 


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1 (b) LIMITATION FOR LOW-TAXED FOREIGN IN2 COME.—

3 (1) IN GENERAL.—Paragraph (1) of section 

4 954(h) is amended to read as follows: 

5 ‘‘(1) IN GENERAL.—For purposes of subsection 

6 (c)(1), in the case of an eligible controlled foreign 

7 corporation, foreign personal holding company in8 come shall not include—

9 ‘‘(A) qualified banking or financing income 

10 which is subject to an effective rate of income 

11 tax imposed by a foreign country which is at 

12 least 50 percent of the maximum rate of tax 

13 specified in section 11, and 

14 ‘‘(B) 50 percent of any other qualified 

15 banking or financing income of such eligible 

16 controlled foreign corporation.’’. 

17 (2) INSURANCE BUSINESS INCOME.—Paragraph 

18 (1) of section 954(i) is amended to read as follows: 

19 ‘‘(1) IN GENERAL.—For purposes of subsection 

20 (c)(1), in the case of a qualifying insurance com21 pany, foreign personal holding company income shall 

22 not include—

23 ‘‘(A) any qualified insurance income which 

24 is subject to an effective rate of income tax im25 posed by a foreign country which is at least 50 


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1 percent of the maximum rate of tax specified in 

2 section 11, and 

3 ‘‘(B) 50 percent of any other qualified in4 surance income of such qualifying insurance 

5 company.’’. 

6 (3) PRESERVATION OF DEEMED PAID FOREIGN

7 TAX CREDIT ON HIGH-TAXED FOREIGN INCOME.—

8 Subsection (c) of section 960, as amended by the 

9 preceding provisions of this Act, is amended by 

10 striking ‘‘Solely for purposes of subsection (a)’’ and 

11 all that following and inserting the following: ‘‘Solely 

12 for purposes of subsection (a)—

13 ‘‘(1) section 954(a)(1)(B) shall be applied by 

14 substituting ‘100 percent’ for ‘50 percent’, and 

15 ‘‘(2) the exclusions under subsections (h)(1)(B) 

16 and (i)(1)(B) of section 954 shall not apply, 

17 in determining amounts included under section 

18 951(a)(1).’’. 

19 (c) EFFECTIVE DATE.—The amendments made by 

20 this section shall apply to taxable years of foreign corpora21 tions beginning after December 31, 2013, and to taxable 

22 years of United States shareholders in which or with which 

23 such taxable years of foreign corporations end. 


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1 SEC. 4205. REPEAL OF INCLUSION BASED ON WITHDRAWAL 

2 OF PREVIOUSLY EXCLUDED SUBPART F IN3 COME FROM QUALIFIED INVESTMENT. 

4 (a) IN GENERAL.—Subpart F of part III of sub5 chapter N of chapter 1 is amended by striking section 955. 

6 (b) CONFORMING AMENDMENTS.—

7 (1)(A) Subparagraph (A) of section 951(a)(1), 

8 as amended by this Act, is amended to read as fol9 lows: 

10 ‘‘(A) his pro rata share (determined under 

11 paragraph (2)) of the corporation’s subpart F 

12 income for such year, and’’. 

13 (B) Paragraph (3) of section 851(b) is amended 

14 by striking ‘‘section 951(a)(1)(A)(i)’’ in the flush 

15 language at the end and inserting ‘‘section 

16 951(a)(1)(A)’’. 

17 (C) Clause (i) of section 952(c)(1)(B) is amend18 ed by striking ‘‘section 951(a)(1)(A)(i)’’ and insert19 ing ‘‘section 951(a)(1)(A)’’. 

20 (D) Subparagraph (C) of section 953(c)(1) is 

21 amended by striking ‘‘section 951(a)(1)(A)(i)’’ and 

22 inserting ‘‘section 951(a)(1)(A)’’. 

23 (2) Subsection (a) of section 951 is amended by 

24 striking paragraph (3). 


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1 (3) Subclause (II) of section 953(d)(4)(B)(iv) is 

2 amended by striking ‘‘or amounts referred to in 

3 clause (ii) or (iii) of section 951(a)(1)(A)’’. 

4 (4) Subsection (b) of section 964 is amended by 

5 striking ‘‘, 955,’’. 

6 (5) Section 970 is amended by striking sub7 section (b). 

8 (6) The table of sections for subpart F of part 

9 III of subchapter N of chapter 1 is amended by 

10 striking the item relating to section 955. 

11 (c) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years of foreign corpora13 tions beginning after December 31, 2014, and to taxable 

14 years of United States shareholders in which or with which 

15 such taxable years of foreign corporations end. 

16 PART 2—PREVENTION OF BASE EROSION 

17 SEC. 4211. FOREIGN INTANGIBLE INCOME SUBJECT TO 

18 TAXATION AT REDUCED RATE; INTANGIBLE 

19 INCOME TREATED AS SUBPART F INCOME. 

20 (a) FOREIGN BASE COMPANY INTANGIBLE INCOME

21 TREATED AS SUBPART F INCOME.—

22 (1) TREATMENT AS SUBPART F INCOME.—

23 Paragraph (1) of section 954(a), as amended by the 

24 preceding provisions of this Act, is amended by re25 designating subparagraph (D) as subparagraph (E) 


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1 and by inserting after subparagraph (C) the fol2 lowing new subparagraph: 

3 ‘‘(D) the foreign base company intangible 

4 income for the taxable year (determined under 

5 subsection (f) and reduced as provided in sub6 section (b)(5)), and’’. 

7 (2) FOREIGN BASE COMPANY INTANGIBLE IN8 COME DEFINED.—Section 954 of such Code is 

9 amended by inserting after subsection (e) the fol10 lowing new subsection: 

11 ‘‘(f) FOREIGN BASE COMPANY INTANGIBLE IN12 COME.—For purposes of this section—

13 ‘‘(1) IN GENERAL.—The term ‘foreign base 

14 company intangible income’ means, with respect to 

15 any corporation for any taxable year, the excess of—

16 ‘‘(A) so much of the adjusted gross income 

17 of the corporation as exceeds 10 percent of the 

18 corporation’s qualified business asset invest19 ment, over 

20 ‘‘(B) the applicable percentage of such cor21 poration’s foreign personal holding company in22 come, foreign base company sales income, for23 eign base company services income, and foreign 

24 base company oil related income. 


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1 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

2 of paragraph (1), the term ‘applicable percentage’ 

3 means, with respect to any corporation for any tax4 able year, the ratio (expressed as a percentage) of—

5 ‘‘(A) the excess described in paragraph 

6 (1)(A), divided by 

7 ‘‘(B) the adjusted gross income of the cor8 poration. 

9 ‘‘(3) QUALIFIED BUSINESS ASSET INVEST10 MENT.—

11 ‘‘(A) IN GENERAL.—The term ‘qualified 

12 business asset investment’ means, with respect 

13 to any corporation for any taxable year, the ag14 gregate of the corporation’s adjusted bases (de15 termined as of the close of such taxable year 

16 and after any adjustments with respect to such 

17 taxable year) in specified tangible property—

18 ‘‘(i) used in a trade or business of the 

19 corporation, and 

20 ‘‘(ii) of a type with respect to which 

21 a deduction is allowable under section 168. 

22 ‘‘(B) DETERMINATION OF ADJUSTED

23 BASIS.—For purposes of subparagraph (A), the 

24 adjusted basis in any property shall be deter25 mined without regard to any provision of this 


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1 title (or any other provision of law) which is en2 acted after the date of the enactment of this 

3 section. 

4 ‘‘(C) REGULATIONS.—The Secretary shall 

5 issue such regulations or other guidance as the 

6 Secretary determines appropriate to prevent the 

7 avoidance of the purposes of this paragraph, in8 cluding regulations or other guidance which 

9 provide for the treatment of property if—

10 ‘‘(i) such property is transferred, or 

11 held, temporarily, or 

12 ‘‘(ii) the avoidance of the purposes of 

13 this paragraph is a factor in the transfer 

14 or holding of such property. 

15 ‘‘(4) ADJUSTED GROSS INCOME; SPECIFIED

16 TANGIBLE PROPERTY.—For purposes of this sub17 section—

18 ‘‘(A) ADJUSTED GROSS INCOME.—

19 ‘‘(i) IN GENERAL.—The term ‘ad20 justed gross income’ means, with respect 

21 to any corporation, the gross income of 

22 such corporation reduced by such corpora23 tion’s commodities gross income. 

24 ‘‘(ii) COMMODITIES GROSS INCOME.—

25 The term ‘commodities gross income’ 


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1 means, with respect to any corporation, the 

2 gross income of such corporation which is 

3 derived from commodities which are pro4 duced or extracted by such corporation. 

5 ‘‘(B) SPECIFIED TANGIBLE PROPERTY.—

6 The term ‘specified tangible property’ means 

7 any tangible property unless such property is 

8 used in the production of commodities gross in9 come. In the case of property which is used in 

10 the production of commodities gross income and 

11 other gross income, such property shall be 

12 treated as specified tangible property in the 

13 same proportion that the adjusted gross income 

14 produced with respect to such property bears to 

15 the total gross income produced with respect to 

16 such property. 

17 ‘‘(C) COMMODITY.—The term ‘commodity’ 

18 means any commodity described in section 

19 475(e)(2).’’. 

20 (3) APPLICATION ONLY TO FOREIGN BASE COM21 PANY INTANGIBLE INCOME SUBJECT TO A LOW FOR22 EIGN EFFECTIVE RATE OF TAX.—Paragraph (2) of 

23 section 954(a), as amended by preceding provisions 

24 of this Act, is amended by inserting ‘‘or foreign base 


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1 company intangible income’’ after ‘‘foreign base 

2 company sales income’’. 

3 (4) CONFORMING AMENDMENT.—Paragraph (5) 

4 of section 954(b) is amended by inserting ‘‘the for5 eign base company intangible income,’’ before ‘‘and 

6 the foreign base company oil related income’’. 

7 (b) DEDUCTION FOR FOREIGN INTANGIBLE IN8 COME.—

9 (1) IN GENERAL.—Part VIII of subchapter B 

10 of chapter 1 is amended by adding at the end the 

11 following new section: 

12 ‘‘SEC. 250. FOREIGN INTANGIBLE INCOME. 

13 ‘‘(a) IN GENERAL.—In the case of a domestic cor14 poration for any taxable year, there shall be allowed as 

15 a deduction an amount equal to the applicable percentage 

16 of the lesser of—

17 ‘‘(1) the sum of—

18 ‘‘(A) the foreign percentage multiplied by 

19 the net imputed intangible income of such do20 mestic corporation for such taxable year, plus 

21 ‘‘(B) in the case of a domestic corporation 

22 which is a United States shareholder with re23 spect to any controlled foreign corporation, the 

24 foreign percentage (determined with respect to 

25 such controlled foreign corporation) multiplied 


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1 by any foreign base company intangible income 

2 (as defined in section 954(f)) of such controlled 

3 foreign corporation which is included in the 

4 gross income of such domestic corporation 

5 under section 951 for such taxable year, or 

6 ‘‘(2) taxable income of such domestic corpora7 tion (determined without regard to this section) for 

8 the taxable year. 

9 ‘‘(b) NET IMPUTED INTANGIBLE INCOME.—For pur10 poses of this subsection, the term ‘net imputed intangible 

11 income’ means the excess of—

12 ‘‘(1) the excess described in section 

13 954(f)(1)(A), over 

14 ‘‘(2) the deductions properly allocable to the 

15 amount described in paragraph (1). 

16 ‘‘(c) FOREIGN PERCENTAGE.—For purposes of this 

17 section—

18 ‘‘(1) IN GENERAL.—The term ‘foreign percent19 age’ means, with respect to any corporation for any 

20 taxable year, the ratio (expressed as a percentage) 

21 of—

22 ‘‘(A) the foreign-derived adjusted gross in23 come of such corporation for such taxable year, 

24 over 


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1 ‘‘(B) the adjusted gross income of such 

2 corporation for such taxable year. 

3 ‘‘(2) FOREIGN-DERIVED ADJUSTED GROSS IN4 COME.—

5 ‘‘(A) IN GENERAL.—The term ‘foreign-de6 rived adjusted gross income’ means, with re7 spect to any corporation for any taxable year, 

8 any adjusted gross income of such corporation 

9 which is derived in connection with—

10 ‘‘(i) property which is sold for use, 

11 consumption, or disposition outside the 

12 United States, or 

13 ‘‘(ii) services provided with respect to 

14 persons or property located outside the 

15 United States. 

16 ‘‘(B) SPECIAL RULES.—

17 ‘‘(i) ULTIMATE DISPOSITION.—Prop18 erty shall not be treated as sold for use, 

19 consumption, or disposition outside the 

20 United States if the taxpayer knew, or had 

21 reason to know, that such property would 

22 be ultimately sold for use, consumption, or 

23 disposition in the United States. 

24 ‘‘(ii) SALES TO RELATED PARTIES.—

25 If property is sold to a related party, such 


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1 sale shall not be treated as for use, con2 sumption or disposition outside the United 

3 States unless—

4 ‘‘(I) such property is ultimately 

5 sold for use, consumption or disposi6 tion outside the United States, or 

7 ‘‘(II) such property is resold to 

8 an unrelated party outside the United 

9 States and no related party knew or 

10 had reason to know that such prop11 erty would be ultimately sold for use, 

12 consumption, or disposition in the 

13 United States. 

14 ‘‘(iii) APPLICATION TO SERVICES.—

15 Rules similar to the rules of clauses (i) and 

16 (ii) shall apply with respect to services de17 scribed in subparagraph (A)(ii). 

18 ‘‘(C) RELATED PARTY.—For purposes of 

19 this paragraph, the term ‘related party’ means 

20 any member of an affiliated group as defined in 

21 section 1504(a), determined—

22 ‘‘(i) by substituting ‘more than 50 

23 percent’ for ‘at least 80 percent’ each place 

24 it appears, and 


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1 ‘‘(ii) without regard to paragraphs (2) 

2 and (3) of section 1504(b). 

3 Any person (other than a corporation) shall be 

4 treated as a member of such group if such per5 son is controlled by members of such group (in6 cluding any entity treated as a member of such 

7 group by reason of this sentence) or controls 

8 any such member. For purposes of the pre9 ceding sentence, control shall be determined 

10 under the rules of section 954(d)(3). 

11 ‘‘(3) ADJUSTED GROSS INCOME.—The term ‘ad12 justed gross income’ has the meaning given such 

13 term by section 954(f)(4). 

14 ‘‘(d) APPLICABLE PERCENTAGE.—For purposes of 

15 this section, the term ‘applicable percentage’ means, with 

16 respect to any taxable year of the domestic corporation 

17 referred to in subsection (a), the percentage determined 

18 in accordance with the following table:

‘‘In the case of any taxable year beginning in: The applicable percentage 

is: 

2015 .......................................................................... 55 percent 

2016 .......................................................................... 52 percent 

2017 .......................................................................... 48 percent 

2018 .......................................................................... 44 percent 

2019 or thereafter ..................................................... 40 percent. 

19 ‘‘(e) REGULATIONS.—The Secretary may prescribe 

20 such regulations or other guidance as may be necessary 

21 or appropriate to carry out the provisions of this section.’’. 


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1 (2) CONFORMING AMENDMENTS.—

2 (A) Clause (i) of section 163(j)(6)(A), as 

3 amended by the preceding provisions of this 

4 Act, is amended by striking ‘‘and’’ at the end 

5 of subclause (II) and by adding at the end the 

6 following new subclause: 

7 ‘‘(IV) any deduction allowable 

8 under section 250, and’’. 

9 (B) Subparagraph (C) of section 170(b)(2) 

10 is amended by striking ‘‘and’’ at the end of 

11 clause (iv), by redesignating clause (v) as clause 

12 (vi), and by inserting after clause (iv) the fol13 lowing new clause: 

14 ‘‘(v) section 250, and’’. 

15 (C) Subsection (d) of section 172, as 

16 amended by the preceding provisions of this 

17 Act, is amended by adding at the end the fol18 lowing new paragraph: 

19 ‘‘(7) DEDUCTION FOR FOREIGN INTANGIBLE

20 INCOME.—The deduction under section 250 shall not 

21 be allowed.’’. 

22 (D) Paragraph (1) of section 246(b) is 

23 amended by striking ‘‘and 247’’ and inserting 

24 ‘‘247, and 250’’. 


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1 (E) Clause (iii) of section 469(i)(3)(D), as 

2 amended by the preceding provisions of this 

3 Act, is amended by striking ‘‘and 222’’ and in4 serting ‘‘222, and 250’’. 

5 (c) EFFECTIVE DATE.—

6 (1) TREATMENT AS SUBPART F INCOME.—The 

7 amendments made by subsection (a) shall apply to 

8 taxable years of foreign corporations beginning after 

9 December 31, 2014, and to taxable years of United 

10 States shareholders in which or with which such tax11 able years of foreign corporations end. 

12 (2) DEDUCTION FOR FOREIGN INTANGIBLE IN13 COME.—The amendments made by subsection (b) 

14 shall apply to taxable years beginning after Decem15 ber 31, 2014. 

16 SEC. 4212. DENIAL OF DEDUCTION FOR INTEREST EXPENSE 

17 OF UNITED STATES SHAREHOLDERS WHICH 

18 ARE MEMBERS OF WORLDWIDE AFFILIATED 

19 GROUPS WITH EXCESS DOMESTIC INDEBTED20 NESS.

21 (a) IN GENERAL.—Section 163 is amended by redes22 ignating subsection (n) as subsection (o) and by inserting 

23 after subsection (m) the following new subsection: 

24 ‘‘(n) DISALLOWANCE OF DEDUCTION FOR INTEREST

25 EXPENSE OF UNITED STATES SHAREHOLDERS WHICH


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1 ARE MEMBERS OF WORLDWIDE AFFILIATED GROUPS

2 WITH EXCESS DOMESTIC INDEBTEDNESS.—

3 ‘‘(1) IN GENERAL.—In the case of any domestic 

4 corporation which is a United States shareholder (as 

5 defined in section 951(b)) with respect to any for6 eign corporation both of which are members of the 

7 same worldwide affiliated group, the deduction al8 lowed under this chapter for interest paid or accrued 

9 by such domestic corporation during the taxable year 

10 shall be reduced by the lesser of—

11 ‘‘(A) the product of—

12 ‘‘(i) the net interest expense of such 

13 domestic corporation, multiplied by 

14 ‘‘(ii) the debt-to-equity differential 

15 percentage of such worldwide affiliated 

16 group, or 

17 ‘‘(B) the excess (if any) of—

18 ‘‘(i) such net interest expense, over 

19 ‘‘(ii) 40 percent of the adjusted tax20 able income (as defined in subsection 

21 (j)(6)(A)) of such domestic corporation. 

22 ‘‘(2) CARRYFORWARD.—Any amount disallowed 

23 under paragraph (1) for any taxable year shall be 

24 treated as interest paid or accrued in the succeeding 


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1 taxable year (and shall not be treated as disqualified 

2 interest for purposes of applying subsection (j)). 

3 ‘‘(3) DEBT-TO-EQUITY DIFFERENTIAL PER4 CENTAGE.—

5 ‘‘(A) IN GENERAL.—For purposes of this 

6 subsection, the term ‘debt-to-equity differential 

7 percentage’ means, with respect to any world8 wide affiliated group, the percentage which the 

9 excess domestic indebtedness of such group 

10 bears to the total indebtedness of the domestic 

11 corporations which are members of such group. 

12 ‘‘(B) EXCESS DOMESTIC INDEBTED13 NESS.—For purposes of subparagraph (A), the 

14 term ‘excess domestic indebtedness’ means, with 

15 respect to any worldwide affiliated group, the 

16 excess (if any) of—

17 ‘‘(i) the total indebtedness of the do18 mestic corporations which are members of 

19 such group, over 

20 ‘‘(ii) 110 percent of the amount which 

21 the total indebtedness of such domestic 

22 corporations would be if the ratio of such 

23 indebtedness to the total equity of such do24 mestic corporations equaled the ratio 

25 which—


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1 ‘‘(I) the total indebtedness of 

2 such group, bears to 

3 ‘‘(II) the total equity of such 

4 group. 

5 ‘‘(C) TOTAL EQUITY.—For purposes of 

6 subparagraph (B), the term ‘total equity’ 

7 means, with respect to one or more corpora8 tions, the excess (if any) of—

9 ‘‘(i) the money and all other assets of 

10 such corporations, over 

11 ‘‘(ii) the total indebtedness of such 

12 corporations. 

13 ‘‘(D) SPECIAL RULES FOR DETERMINING

14 DEBT AND EQUITY.—For purposes of this para15 graph—

16 ‘‘(i) APPLICATION OF CERTAIN GEN17 ERAL RULES.—Rules similar to the rules 

18 of clauses (i), (ii), and (iii) of subsection 

19 (j)(2)(C) shall apply. 

20 ‘‘(ii) INTRAGROUP DEBT AND EQUITY

21 INTERESTS DISREGARDED.—The total in22 debtedness, and the assets, of any group of 

23 corporations shall be determined by treat24 ing all members of such group as one cor25 poration. 


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1 ‘‘(iii) DETERMINATION OF ASSETS OF

2 DOMESTIC GROUP.—The assets of the do3 mestic corporations which are members of 

4 any worldwide affiliated group shall be de5 termined by disregarding any interest held 

6 by any such domestic corporation in any 

7 foreign corporation which is a member of 

8 such group. 

9 ‘‘(4) OTHER DEFINITIONS.—For purposes of 

10 this subsection—

11 ‘‘(A) WORLDWIDE AFFILIATED GROUP.—

12 The term ‘worldwide affiliated group’ has the 

13 meaning which would be given such term by 

14 section 864(f)(1)(C) if section 1504(a) were ap15 plied by substituting ‘more than 50 percent’ for 

16 ‘at least 80 percent’ each place it appears. 

17 ‘‘(B) NET INTEREST EXPENSE.—The term 

18 ‘net interest expense’ has the meaning given 

19 such term by subsection (j)(6)(B). 

20 ‘‘(5) TREATMENT OF AFFILIATED GROUP.—For 

21 purposes of this subsection, all members of the same 

22 affiliated group (within the meaning of section 

23 1504(a) applied by substituting ‘more than 50 per24 cent’ for ‘at least 80 percent’ each place it appears) 

25 shall be treated as 1 taxpayer. 


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1 ‘‘(6) REGULATIONS.—The Secretary shall pre2 scribe such regulations or other guidance as may be 

3 appropriate to carry out the purposes of this sub4 section, including regulations or other guidance—

5 ‘‘(A) to prevent the avoidance of the pur6 poses of this subsection, 

7 ‘‘(B) providing such adjustments in the 

8 case of corporations which are members of an 

9 affiliated group as may be appropriate to carry 

10 out the purposes of this subsection, 

11 ‘‘(C) providing for the coordination of this 

12 subsection with section 884, and 

13 ‘‘(D) providing for the reallocation of 

14 shares of partnership indebtedness, or distribu15 tive shares of the partnership’s interest income 

16 or interest expense.’’. 

17 (b) COORDINATION WITH LIMITATION ON RELATED

18 PARTY INDEBTEDNESS.—Paragraph (1) of section 163(j) 

19 is amended by adding at the end the following new sub20 paragraph: 

21 ‘‘(C) COORDINATION WITH LIMITATION ON

22 EXCESS DOMESTIC INDEBTEDNESS.—The 

23 amount disallowed under subparagraph (A) 

24 with respect to any corporation for any taxable 

25 year shall be reduced by any amount disallowed 


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1 under subsection (n)(1) with respect to such 

2 corporation for such taxable year.’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2014. 

6 TITLE V—TAX EXEMPT ENTITIES 

7 Subtitle A—Unrelated Business 

8 Income Tax 

9 SEC. 5001. CLARIFICATION OF UNRELATED BUSINESS IN10 COME TAX TREATMENT OF ENTITIES TREAT11 ED AS EXEMPT FROM TAXATION UNDER SEC12 TION 501(a). 

13 (a) IN GENERAL.—Subparagraph (A) of section 

14 511(a)(2) is amended by adding at the end the following: 

15 ‘‘For purposes of the preceding sentence, an organization 

16 shall not fail to be treated as exempt from taxation under 

17 this subtitle by reason of section 501(a) solely because 

18 such organization is also so exempt, or excludes amounts 

19 from gross income, by reason of any other provision of 

20 this title.’’. 

21 (b) CLERICAL AMENDMENT.—The heading for sub22 paragraph (A) of section 511(a)(2) is amended to read 

23 as follows: ‘‘ORGANIZATIONS EXEMPT FROM TAXATION BY

24 REASON OF SECTION 501(a).’’


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 5002. NAME AND LOGO ROYALTIES TREATED AS UNRE5 LATED BUSINESS TAXABLE INCOME. 

6 (a) IN GENERAL.—Section 513 is amended by adding 

7 at the end the following new subsection: 

8 ‘‘(k) NAME AND LOGO ROYALTIES.—Any sale or li9 censing by an organization of any name or logo of the 

10 organization (including any trademark or copyright relat11 ing to such name or logo) shall be treated as an unrelated 

12 trade or business regularly carried on by such organiza13 tion.’’. 

14 (b) CALCULATION OF UNRELATED BUSINESS TAX15 ABLE INCOME.—Subsection (b) of section 512 is amended 

16 by adding at the end the following new paragraph: 

17 ‘‘(20) SPECIAL RULE FOR NAME AND LOGO

18 ROYALTIES.—Notwithstanding paragraph (1), (2), 

19 (3), or (5), any income derived from any sale or li20 censing described in section 513(k) shall be included 

21 as an item of gross income derived from an unre22 lated trade or business.’’. 

23 (c) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to taxable years beginning after 

25 December 31, 2014. 


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1 SEC. 5003. UNRELATED BUSINESS TAXABLE INCOME SEPA2 RATELY COMPUTED FOR EACH TRADE OR 

3 BUSINESS ACTIVITY. 

4 (a) IN GENERAL.—Subsection (a) of section 512 is 

5 amended by adding at the end the following new para6 graph: 

7 ‘‘(6) SPECIAL RULE FOR ORGANIZATION WITH

8 MORE THAN 1 UNRELATED TRADE OR BUSINESS.—

9 In the case of any organization with more than 1 

10 unrelated trade or business—

11 ‘‘(A) unrelated business taxable income 

12 shall be computed separately with respect to 

13 each such trade or business and without regard 

14 to subsection (b)(12), 

15 ‘‘(B) the unrelated business taxable income 

16 of such organization shall be the sum of the un17 related business taxable income so computed 

18 with respect to each such trade or business, less 

19 a specific deduction under subsection (b)(12), 

20 and 

21 ‘‘(C) for purposes of subparagraph (B), 

22 unrelated business taxable income with respect 

23 to any such trade or business shall not be less 

24 than zero, and 

25 ‘‘(D) the net operating loss deduction shall 

26 only be allowed with respect to the trade or 


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1 business from which the net operating loss 

2 arose.’’. 

3 (b) EFFECTIVE DATE.—

4 (1) IN GENERAL.—Except to the extent pro5 vided in paragraph (2), the amendment made by this 

6 section shall apply to taxable years beginning after 

7 December 31, 2014. 

8 (2) NET OPERATING LOSSES.—

9 (A) CERTAIN CARRYOVERS.—In the case of 

10 any net operating loss arising in a taxable year 

11 beginning before January 1, 2015, that is car12 ried over to a taxable year beginning on or after 

13 such date, section 512(a)(6)(D) of the Internal 

14 Revenue Code of 1986, as added by this Act, 

15 shall not apply. 

16 (B) CERTAIN CARRYBACKS.—In the case 

17 of any net operating loss arising in a taxable 

18 year beginning after December 31, 2014, and 

19 carried back to any taxable year beginning on 

20 or before such date, in computing unrelated 

21 business taxable income of an organization 

22 under section 512(a) of such Code for the tax23 able year, the net operating loss deduction shall 

24 be allowed only with respect to the trade or 


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1 business from which the net operating loss 

2 arose. 

3 SEC. 5004. EXCLUSION OF RESEARCH INCOME LIMITED TO 

4 PUBLICLY AVAILABLE RESEARCH. 

5 (a) IN GENERAL.—Paragraph (9) of section 512(b) 

6 is amended by striking ‘‘from research’’ and inserting 

7 ‘‘from such research’’. 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years beginning after 

10 December 31, 2014. 

11 SEC. 5005. PARITY OF CHARITABLE CONTRIBUTION LIMITA12 TION BETWEEN TRUSTS AND CORPORATIONS. 

13 (a) IN GENERAL.—Paragraph (11) of section 512(b) 

14 is amended by striking the second sentence and inserting 

15 the following: ‘‘The deduction allowed by this paragraph 

16 shall not exceed 10 percent of the unrelated business tax17 able income computed without the benefit of this para18 graph.’’

19 (b) EFFECTIVE DATE.—The amendment made by 

20 this section shall apply to taxable years beginning after 

21 December 31, 2014. 

22 SEC. 5006. INCREASED SPECIFIC DEDUCTION. 

23 (a) IN GENERAL.—Paragraph (12) of section 512(b) 

24 is amended by striking ‘‘$1,000’’ each place it appears and 

25 inserting ‘‘$10,000’’. 


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1 (b) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 SEC. 5007. REPEAL OF EXCLUSION OF GAIN OR LOSS FROM 

5 DISPOSITION OF DISTRESSED PROPERTY. 

6 (a) IN GENERAL.—Subsection (b) of section 512 is 

7 amended by striking paragraph (16). 

8 (b) EFFECTIVE DATE.—The amendment made by 

9 this section shall apply to property acquired after Decem10 ber 31, 2014. 

11 SEC. 5008. QUALIFIED SPONSORSHIP PAYMENTS. 

12 (a) REPEAL OF USE OR ACKNOWLEDGMENT OF

13 PRODUCT LINES FOR QUALIFIED SPONSORSHIP PAY14 MENTS.—Subparagraphs (A) and (B)(ii)(I) of section 

15 513(i)(2) are each amended by striking ‘‘(or product 

16 lines)’’. 

17 (b) USE OR ACKNOWLEDGMENT LIMITED IN CASE

18 OF CERTAIN EVENTS.—Subparagraph (B) of section 

19 513(i)(2) is amended by adding at the end the following 

20 new clause: 

21 ‘‘(iii) USE OR ACKNOWLEDGMENT

22 LIMITED IN CASE OF CERTAIN EVENTS.—

23 In the case of an event with respect to 

24 which an organization receives an aggre25 gate amount of qualified sponsorship payVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00860 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ments greater than $25,000, a payment 

2 shall not be treated as a qualified sponsor3 ship payment for purposes of paragraph 

4 (1) unless the use or acknowledgment of 

5 the sponsor’s name or logo appears with, 

6 and in substantially the same manner as, 

7 the names of a significant portion of other 

8 donors to the organization. For purposes 

9 of the preceding sentence, whether a num10 ber of donors is a significant portion shall 

11 be determined based on the total number 

12 of donors and the total contributed with 

13 respect to the event, but in no event shall 

14 fewer than 2 other donors be treated as a 

15 significant portion of other donors.’’. 

16 (c) CLERICAL AMENDMENT.—The heading for clause 

17 (ii) of section 513(i)(2)(B) is amended to read as follows: 

18 ‘‘PERIODICALS AND QUALIFIED CONVENTION AND TRADE

19 SHOW ACTIVITIES.’’. 

20 (d) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2014. 


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1 Subtitle B—Penalties 

2 SEC. 5101. INCREASE IN INFORMATION RETURN PEN3 ALTIES.

4 (a) FAILURE TO FILE RETURN.—

5 (1) ORGANIZATION.—Subparagraph (A) of sec6 tion 6652(c)(1) is amended—

7 (A) by striking ‘‘$20’’ each place it ap8 pears and inserting ‘‘$40’’, 

9 (B) by striking ‘‘$100’’ and inserting 

10 ‘‘$200’’. 

11 (2) MANAGERS.—Clause (ii) of section 

12 6652(c)(1)(B) is amended by striking ‘‘$10’’ and in13 serting ‘‘$20’’. 

14 (b) FAILURE TO MAKE RETURNS, REPORTS, AND

15 APPLICATIONS AVAILABLE FOR PUBLIC INSPECTION.—

16 Subparagraphs (C) and (D) of section 6652(c)(1) are each 

17 amended by striking ‘‘$20’’ and inserting ‘‘$40’’. 

18 (c) FAILURE TO FILE RETURNS UNDER SECTION

19 6034 OR 6043.—Paragraph (2) of section 6652(c) is 

20 amended—

21 (1) by striking ‘‘$10’’ each place it appears in 

22 subparagraphs (A) and (B) and inserting ‘‘$20’’, 

23 and 


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1 (2) by striking ‘‘substituting ‘$100’ for ‘$20’,’’ 

2 in subparagraph (C)(ii) and inserting ‘‘substituting 

3 ‘$200’ for ‘$40’,’’. 

4 (d) FAILURE TO FILE DISCLOSURE UNDER SECTION

5 6033(a)(2).—

6 (1) ORGANIZATION.—Subparagraph (A) of sec7 tion 6652(c)(3) is amended by striking ‘‘$100’’ and 

8 inserting ‘‘$200’’. 

9 (2) MANAGERS.—Subparagraph (B) of section 

10 6652(c)(3) is amended by striking ‘‘$100’’ and in11 serting ‘‘$200’’. 

12 (e) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply with respect to information returns 

14 required to be filed on or after January 1, 2015. 

15 SEC. 5102. MANAGER-LEVEL ACCURACY-RELATED PENALTY 

16 ON UNDERPAYMENT OF UNRELATED BUSI17 NESS INCOME TAX. 

18 (a) IN GENERAL.—Section 6662 is amended by add19 ing at the end the following new subsection: 

20 ‘‘(k) MANAGER-LEVEL PENALTY FOR SUBSTANTIAL

21 UNDERPAYMENT OF UNRELATED BUSINESS INCOME

22 TAX.—

23 ‘‘(1) IN GENERAL.—In the case of any substan24 tial underpayment of income tax which is attrib25 utable to the tax imposed by section 511 on the unVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00863 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 related business taxable income of an organization 

2 for the taxable year, there is hereby imposed a tax 

3 with respect to such organization an amount equal 

4 to 5 percent of such underpayment to which the un5 derpayment relates. Such tax shall be paid by any 

6 manager of the organization. 

7 ‘‘(2) MANAGER.—For purposes of this sub8 section, the term ‘manager’ means any officer, direc9 tor, trustee, employee, or other individual who is 

10 under a duty to perform an act in respect of which 

11 the underpayment relates. 

12 ‘‘(3) JOINT AND SEVERAL LIABILITY.—If more 

13 than one person is liable under paragraph (1) with 

14 respect to an underpayment, all such persons shall 

15 be jointly and severally liable under such paragraph 

16 with respect to such underpayment 

17 ‘‘(4) LIMIT.—With respect to any substantial 

18 underpayment of income tax for a taxable year, the 

19 maximum amount of the tax added by paragraph (1) 

20 shall not exceed $20,000.’’. 

21 (b) REPORTABLE TRANSACTIONS.—Section 6662A is 

22 amended by adding at the end the following new sub23 section: 

24 ‘‘(f) MANAGER-LEVEL PENALTY IN CASE OF UNRE25 LATED BUSINESS INCOME TAX.—


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1 ‘‘(1) IN GENERAL.—In the case of any portion 

2 of a reportable transaction understatement of the 

3 tax imposed by section 511 to which this section ap4 plies, there is hereby imposed a tax in an amount 

5 equal to 10 percent of such portion of the under6 payment to which the reportable transaction under7 statement occurs. Such tax shall be paid by any 

8 manager of the organization. 

9 ‘‘(2) MANAGER.—For purposes of this sub10 section, the term ‘manager’ means any officer, direc11 tor, trustee, employee, or other individual who is 

12 under a duty to perform an act in respect of which 

13 such understatement occurs. 

14 ‘‘(3) JOINT AND SEVERAL LIABILITY.—If more 

15 than one person is liable under paragraph (1) with 

16 respect to an understatement, all such persons shall 

17 be jointly and severally liable under such paragraph 

18 with respect to such understatement. 

19 ‘‘(4) LIMIT.—With respect to any understate20 ment of tax to which this section applies, the max21 imum amount of the tax added by paragraph (1) 

22 shall not exceed $40,000’’. 

23 (c) COORDINATION.—Section 6662 is amended—

24 (1) by striking the flush matter at the end of 

25 subsection (b), and 


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1 (2) by adding at the end the following new sub2 section: 

3 ‘‘(l) COORDINATION WITH OTHER PENALTIES.—

4 This section shall not apply to any portion of an under5 payment on which a penalty is imposed under section 

6 6663. Except as provided in paragraph (1) or (2)(B) of 

7 section 6662A(e), this section shall not apply to the por8 tion of any underpayment which is attributable to a re9 portable transaction understatement on which a penalty 

10 is imposed under section 6662A.’’. 

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall apply to taxable years beginning after 

13 December 31, 2014. 

14 Subtitle C—Excise Taxes 

15 SEC. 5201. MODIFICATION OF INTERMEDIATE SANCTIONS. 

16 (a) ORGANIZATION LEVEL TAX.—Subsection (a) of 

17 section 4958 is amended by adding at the end the fol18 lowing new paragraph: 

19 ‘‘(3) ON THE ORGANIZATION.—In any case in 

20 which a tax is imposed by paragraph (1), there is 

21 hereby imposed on the organization a tax equal to 

22 10 percent of the excess benefit.’’. 

23 (b) MINIMUM STANDARDS OF ORGANIZATION DUE

24 DILIGENCE.—Subsection (d) of section 4958 is amended 

25 by adding at the end the following new paragraph: 


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1 ‘‘(3) MINIMUM STANDARDS OF ORGANIZATION

2 DUE DILIGENCE.—

3 ‘‘(A) IN GENERAL.—Subsection (a)(3) 

4 shall not apply to a transaction, if—

5 ‘‘(i) the organization establishes that 

6 the minimum standards of due diligence 

7 described in subparagraph (B) were met 

8 with respect to the transaction, or 

9 ‘‘(ii) the organization establishes to 

10 the satisfaction of the Secretary that such 

11 other reasonable procedures were used to 

12 ensure that no excess benefit was provided. 

13 ‘‘(B) MINIMUM STANDARDS.—An organiza14 tion shall be treated as satisfying the minimum 

15 standards of due diligence described in this sub16 paragraph with respect to any transaction, if—

17 ‘‘(i) the transaction was approved in 

18 advance by an authorized body of the orga19 nization composed entirely of individuals 

20 who did not have a conflict of interest with 

21 respect to the transaction, 

22 ‘‘(ii) the authorized body obtained and 

23 relied upon appropriate data as to com24 parability prior to approval of the trans25 action, and 


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1 ‘‘(iii) the authorizing body adequately 

2 and concurrently documented the basis for 

3 approving the transaction. 

4 ‘‘(C) NO PRESUMPTION AS TO REASON5 ABLENESS.—Meeting the requirements of 

6 clause (i) or (ii) of subparagraph (A) with re7 spect to a transaction shall not give rise to a 

8 presumption of reasonableness for purposes of 

9 the taxes imposed by paragraphs (1) or (2) of 

10 subsection (a) and shall not, by itself, support 

11 a conclusion that a manager did not act know12 ingly for purposes of subsection (a)(2).’’. 

13 (c) REPEAL OF EXCEPTION FOR MANAGER RELI14 ANCE ON PROFESSIONAL ADVICE.—Section 4958 is 

15 amended by adding at the end the following new sub16 section: 

17 ‘‘(g) NO SAFE HARBOR FOR RELIANCE ON PROFES18 SIONAL ADVICE.—An organization manager’s reliance on 

19 a written opinion of a professional with respect to elements 

20 of a transaction within the professional’s expertise shall 

21 not, by itself, preclude the manager from being treated 

22 as participating in the transaction knowingly.’’. 

23 (d) ATHLETIC COACHES AND INVESTMENT MAN24 AGERS TREATED AS DISQUALIFIED PERSONS.—

25 (1) ATHLETIC COACHES.—


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1 (A) IN GENERAL.—Paragraph (1) of sec2 tion 4958(f) is amended by striking ‘‘and’’ at 

3 the end of subparagraph (E), by striking the 

4 period at the end of subparagraph (F) and in5 serting ‘‘, and’’, and by adding at the end the 

6 following new subparagraph: 

7 ‘‘(G) any person who performs services as 

8 an athletic coach for the organization.’’. 

9 (B) FAMILY MEMBERS.—Subparagraph 

10 (B) of section 4958(f)(1) is amended by insert11 ing ‘‘or (G)’’ after ‘‘subparagraph (A)’’. 

12 (2) INVESTMENT ADVISORS.—

13 (A) IN GENERAL.—Subparagraph (F) of 

14 section 4958(f)(1) is amended—

15 (i) by striking ‘‘which involves a spon16 soring organization (as defined in section 

17 4966(d)(1)),’’, and 

18 (ii) by striking ‘‘such sponsoring orga19 nization (as so defined)’’ and inserting 

20 ‘‘the organization’’. 

21 (B) INVESTMENT ADVISOR DEFINITION.—

22 Subparagraph (B) of section 4958(f)(8) is 

23 amended to read as follows: 


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1 ‘‘(B) INVESTMENT ADVISOR DEFINED.—

2 For purposes of subparagraph (A), the term 

3 ‘investment advisor’ means—

4 ‘‘(i) with respect to any organization, 

5 any person who is compensated by such or6 ganization and is primarily responsible for 

7 managing the investment of, or providing 

8 investment advice with respect to, assets of 

9 such organization, and 

10 ‘‘(ii) with respect to any sponsoring 

11 organization (as defined in section 

12 4966(d)(1)), any person (other than an 

13 employee of such organization) com14 pensated by such organization for man15 aging the investment of, or providing in16 vestment advice with respect to, assets 

17 maintained in donor advised funds (as de18 fined in section 4966(d)(2)) owned by such 

19 organization.’’. 

20 (e) APPLICATION TO UNIONS AND TRADE ASSOCIA21 TIONS.—Paragraph (1) of section 4958(e) is amended by 

22 inserting ‘‘(5), (6),’’ after ‘‘(4),’’. 

23 (f) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to taxable years beginning after 

25 December 31, 2014. 


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1 SEC. 5202. MODIFICATION OF TAXES ON SELF-DEALING. 

2 (a) ORGANIZATION LEVEL TAX.—Subsection (a) of 

3 section 4941 is amended by adding at the end the fol4 lowing new paragraph: 

5 ‘‘(3) ON THE FOUNDATION.—In any case in 

6 which a tax is imposed by paragraph (1), there is 

7 hereby imposed on the foundation a tax equal to 2.5 

8 percent (10 percent in the case payment of com9 pensation) of the amount involved with respect to 

10 the act of self-dealing for each year (or part thereof) 

11 in the taxable period.’’. 

12 (b) REPEAL OF EXCEPTION FOR MANAGER RELI13 ANCE ON ADVICE FROM COUNSEL.—Section 4941 is 

14 amended by adding at the end the following new sub15 section: 

16 ‘‘(f) NO SAFE HARBOR FOR RELIANCE ON ADVICE

17 OF COUNSEL.—A foundation manager’s reliance on a 

18 written legal opinion by legal counsel that an act is not 

19 an act of self-dealing shall not, by itself, preclude the man20 ager from being treated as participating in the act know21 ingly.’’. 

22 (c) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to taxable years beginning after 

24 December 31, 2014. 


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1 SEC. 5203. EXCISE TAX ON FAILURE TO DISTRIBUTE WITH2 IN 5 YEARS CONTRIBUTION TO DONOR AD3 VISED FUND. 

4 (a) IN GENERAL.—Subchapter G of chapter 42 is 

5 amended by adding at the end the following new section: 

6 ‘‘SEC. 4968. FAILURE TO DISTRIBUTE CONTRIBUTIONS 

7 WITHIN 5 YEARS. 

8 ‘‘(a) IN GENERAL.—In the case of a contribution 

9 which is held in a donor advised fund, there is hereby im10 posed a tax equal to 20 percent of so much of the portion 

11 of such contribution as has not been distributed by the 

12 sponsoring organization in an eligible distribution before 

13 the beginning of the 6th (or succeeding) taxable year be14 ginning after the taxable year during which such contribu15 tion was made. The tax imposed by this subsection shall 

16 be paid by such sponsoring organization. 

17 ‘‘(b) TREATMENT OF DISTRIBUTIONS.—For purposes 

18 of this section—

19 ‘‘(1) ELIGIBLE DISTRIBUTION.—The term ‘eli20 gible distribution’ means any distribution to an orga21 nization described in section 170(b)(1)(A) (other 

22 than an organization described in section 509(a)(3) 

23 or any fund or account described in section 

24 4966(d)(2). 

25 ‘‘(2) ACCOUNTING.—Distributions shall be 

26 treated as made from contributions (and any earnVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00872 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ings attributable thereto) on a first-in, first-out 

2 basis.’’. 

3 (b) CONFORMING AMENDMENT.—The table of sec4 tions for subchapter G of chapter 42 is amended by adding 

5 at the end the following new item:

‘‘Sec. 4968. Failure to distribute contributions within 5 years.’’.

6 (c) EFFECTIVE DATE.—

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the amendments made by this section 

9 shall apply to contributions made after December 

10 31, 2014. 

11 (2) TRANSITION RULE.—In the case of any con12 tribution—

13 (A) which was made before January 1, 

14 2015, and 

15 (B) any portion of which (including any 

16 earnings attributable thereto) is held in a donor 

17 advised fund on such date, 

18 such portion shall be treated as contributed on such 

19 date. 

20 SEC. 5204. SIMPLIFICATION OF EXCISE TAX ON PRIVATE 

21 FOUNDATION INVESTMENT INCOME. 

22 (a) RATE REDUCTION.—Subsection (a) of section 

23 4940 is amended by striking ‘‘2 percent’’ and inserting 

24 ‘‘1 percent’’. 


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1 (b) REPEAL OF SPECIAL RULES FOR CERTAIN PRI2 VATE FOUNDATIONS.—Section 4940 is amended by strik3 ing subsections (d) and (e). 

4 (c) CONFORMING AMENDMENT.—Section 

5 4945(d)(4)(A) is amended by striking clause (iii) and by 

6 inserting ‘‘or’’ at the end of clause (i). 

7 (d) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years beginning after 

9 December 31, 2014. 

10 SEC. 5205. REPEAL OF EXCEPTION FOR PRIVATE OPER11 ATING FOUNDATION FAILURE TO DIS12 TRIBUTE INCOME. 

13 (a) IN GENERAL.—Subsection (a) of section 4942 is 

14 amended—

15 (1) by striking ‘‘a private foundation—’’ and all 

16 that follows through ‘‘(2) to the extent’’ and insert17 ing ‘‘a private foundation to the extent’’, and 

18 (2) by redesignating subparagraphs (A), (B), 

19 (C), and (D) as paragraphs (1), (2), (3), and (4), 

20 respectively, and by moving such paragraphs, as so 

21 redesignated, two ems to the left. 

22 (b) CONFORMING AMENDMENTS.—

23 (1) Section 4942(j) is amended by striking 

24 paragraphs (3), (4), and (5). 


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1 (2) Section 170(b)(1)(F)(i) is amended by 

2 striking ‘‘(as defined in section 4942(j)(3))’’, 

3 (3) Section 170(b)(1) is amended by adding at 

4 the end the following new subparagraphs: 

5 ‘‘(H) PRIVATE OPERATING FOUNDA6 TION.—For purposes of this paragraph, the 

7 term ‘private operating foundation’ means any 

8 organization—

9 ‘‘(i) which makes qualifying distribu10 tions (within the meaning of paragraph (1) 

11 or (2) of section 4942(g)) directly for the 

12 active conduct of the activities constituting 

13 the purpose or function for which it is or14 ganized and operated equal to substantially 

15 all of the lesser of—

16 ‘‘(I) its adjusted net income (as 

17 defined in subsection section 4942(f)), 

18 or 

19 ‘‘(II) its minimum investment re20 turn, and 

21 ‘‘(ii)(I) substantially more than half of 

22 the assets of which are devoted directly to 

23 such activities or to functionally related 

24 businesses, or to both, or are stock of a 

25 corporation which is controlled by the 


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1 foundation and substantially all of the as2 sets of which are so devoted, 

3 ‘‘(II) which normally makes qualifying 

4 distributions (within the meaning of para5 graph (1) or (2) of section 4942(g)) di6 rectly for the active conduct of the activi7 ties constituting the purpose or function 

8 for which it is organized and operated in 

9 an amount not less than two-thirds of its 

10 minimum investment return (as defined in 

11 section 4942(e)), or 

12 ‘‘(III) substantially all of the support 

13 (other than gross investment income as de14 fined in section 509(e)) of which is nor15 mally received from the general public and 

16 from 5 or more exempt organizations 

17 which are not described in section 

18 4946(a)(1)(H) with respect to each other 

19 or the recipient foundation; not more than 

20 25 percent of the support (other than 

21 gross investment income) of which is nor22 mally received from any one such exempt 

23 organization; and not more than half of 

24 the support of which is normally received 

25 from gross investment income. 


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1 Notwithstanding the provisions of clause (i), if 

2 the qualifying distributions (within the meaning 

3 of paragraph (1) or (2) of section 4942(g)) of 

4 an organization for the taxable year exceed the 

5 minimum investment return for the taxable 

6 year, subclause (II) of clause (i) shall not apply 

7 unless substantially all of such qualifying dis8 tributions are made directly for the active con9 duct of the activities constituting the purpose or 

10 function for which it is organized and operated. 

11 ‘‘(I) FUNCTIONALLY RELATED BUSI12 NESS.—For purposes of subparagraph (H), the 

13 term ‘functionally related business’ means—

14 ‘‘(i) a trade or business which is not 

15 an unrelated trade or business (as defined 

16 in section 513), or 

17 ‘‘(ii) an activity which is carried on 

18 within a larger aggregate of similar activi19 ties or within a larger complex of other en20 deavors which is related (aside from the 

21 need of the organization for income or 

22 funds or the use it makes of the profits de23 rived) to the exempt purposes of the orga24 nization.’’. 


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1 (4) Section 170(e)(3)(A) is amended by striking 

2 ‘‘as defined in section 4942(j)(3)’’ and inserting ‘‘as 

3 defined in subsection (b)(1)(H)’’. 

4 (5) Section 150(b)(3)(F), as redesignated by 

5 this Act, is amended—

6 (A) by striking ‘‘4942 (relating to the ex7 cise tax on a failure to distribute income) and’’, 

8 (B) by striking ‘‘section 4942(j)(4)’’ and 

9 inserting ‘‘section 170(b)(1)(I)’’. 

10 (6) Section 2055(e)(4)(D) is amended by strik11 ing ‘‘section 4942(j)(3)’’ and inserting ‘‘section 

12 170(b)(1)(H)’’. 

13 (7) Section 2503(g)(2)(B) is amended by strik14 ing ‘‘section 4942(j)(3)’’ and inserting ‘‘section 

15 170(b)(1)(H)’’. 

16 (8) Section 4942(g)(1)(A) is amended by strik17 ing ‘‘which is not an operating foundation (as de18 fined in subsection (j)(3))’’. 

19 (9) Section 4942(g)(3)(A) is amended by strik20 ing ‘‘which is not an operating foundation’’. 

21 (10) Section 4942(g)(4)(A) is amended by 

22 striking ‘‘which is not an operating foundation’’. 

23 (11) Section 4943(d)(3)(A) is amended by 

24 striking ‘‘section 4942(j)(4)’’ and inserting ‘‘section 

25 170(b)(1)(I)’’. 


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1 (12) Section 6110(l)(2)(A) is amended by strik2 ing ‘‘section 4942(j)(3)’’ and inserting ‘‘section 

3 170(b)(1)(H)’’. 

4 (13) Section 7428(a)(1)(C) is amended by 

5 striking ‘‘section 4942(j)(3)’’ and inserting ‘‘section 

6 170(b)(1)(H)’’. 

7 (c) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to taxable years beginning after 

9 December 31, 2014. 

10 SEC. 5206. EXCISE TAX BASED ON INVESTMENT INCOME OF 

11 PRIVATE COLLEGES AND UNIVERSITIES. 

12 (a) IN GENERAL.—Chapter 42 is amended by adding 

13 at the end the following new subchapter: 

14 ‘‘Subchapter H—Excise Tax Based on Invest15 ment Income of Private Colleges and Uni16 versities

‘‘Sec. 4969. Excise tax based on investment income of private colleges and universities.

17 ‘‘SEC. 4969. EXCISE TAX BASED ON INVESTMENT INCOME 

18 OF PRIVATE COLLEGES AND UNIVERSITIES. 

19 ‘‘(a) TAX IMPOSED.—There is hereby imposed on 

20 each applicable educational institution for the taxable year 

21 a tax equal to 1 percent of the net investment income of 

22 such institution for the taxable year. 

23 ‘‘(b) APPLICABLE EDUCATIONAL INSTITUTION.—For 

24 purposes of this subchapter—


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1 ‘‘(1) IN GENERAL.—The term ‘applicable edu2 cational institution’ means an eligible educational in3 stitution (as defined in section 25A(e)(3))—

4 ‘‘(A) which is not described in the first 

5 sentence of section 511(a)(2)(B) (relating to 

6 State colleges and universities), and 

7 ‘‘(B) the aggregate fair market value of 

8 the assets of which at the end of the preceding 

9 taxable year (other than those assets which are 

10 used (or held for use) directly in carrying out 

11 the institution’s exempt purpose) is at least 

12 $100,000 per student of the institution. 

13 ‘‘(2) STUDENTS.—For purposes of paragraph 

14 (1)(B), the number of students of an institution 

15 shall be based on the daily average number of full16 time students attending such institution (with part17 time students taken into account on a full-time stu18 dent equivalent basis). 

19 ‘‘(c) NET INVESTMENT INCOME.—For purposes of 

20 this section, net investment income shall be determined 

21 under rules similar to the rules of section 4940(c).’’. 

22 (b) CLERICAL AMENDMENT.—The table of sub23 chapters for chapter 42 is amended by adding at the end 

24 the following new item:

‘‘SUBCHAPTER H—EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE

COLLEGES AND UNIVERSITIES’’.


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2014. 

4 Subtitle D—Requirements For 

5 Organizations Exempt From Tax 

6 SEC. 5301. REPEAL OF TAX-EXEMPT STATUS FOR PROFES7 SIONAL SPORTS LEAGUES. 

8 (a) IN GENERAL.—Paragraph (6) of section 501(c) 

9 is amended—

10 (1) by striking ‘‘, boards of trade, or profes11 sional’’ and all that follows through ‘‘players)’’ and 

12 inserting ‘‘, or boards of trade’’ , and 

13 (2) by adding at the end the following: ‘‘This 

14 paragraph shall not apply to any professional sports 

15 league (whether or not administering a pension fund 

16 for players).’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2014. 

20 SEC. 5302. REPEAL OF EXEMPTION FROM TAX FOR CER21 TAIN INSURANCE COMPANIES AND CO-OP 

22 HEALTH INSURANCE ISSUERS. 

23 (a) IN GENERAL.—Section 501(c) is amended by 

24 striking paragraphs (15) and (29). 

25 (b) CONFORMING AMENDMENTS.—


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1 (1) Section 831(d), as amended by the pre2 ceding provisions of this Act, is amended to read as 

3 follows: 

4 ‘‘(d) CROSS REFERENCE.—For taxation of foreign 

5 corporations carrying on an insurance business within the 

6 United States, see section 842.’’. 

7 (2) Section 4958(e)(1) is amended by striking 

8 ‘‘(4), or (29)’’ and inserting ‘‘or (4)’’. 

9 (3) Section 6033 is amended by striking sub10 section (m) and redesignating subsection (n) as sub11 section (m). 

12 (c) EFFECTIVE DATE.—The amendments made by 

13 this section shall apply to taxable years beginning after 

14 December 31, 2014. 

15 (d) TRANSITION RULES.—In the case of any organi16 zation described in paragraph (15) or (29) of section 

17 501(c) of the Internal Revenue Code of 1986 (as in effect 

18 immediately before the enactment of this Act)—

19 (1) no adjustment shall be made under section 

20 481 (or any other provision) of the Internal Revenue 

21 Code of 1986 on account of a change in its method 

22 of accounting for its 1st taxable year beginning after 

23 December 31, 2014, and 

24 (2) for purposes of determining gain or loss, the 

25 adjusted basis of any asset held on the 1st day of 


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1 such taxable year shall be treated as equal to its fair 

2 market value as of such day. 

3 SEC. 5303. IN-STATE REQUIREMENT FOR WORKMEN’S COM4 PENSATION INSURANCE ORGANIZATION. 

5 (a) IN GENERAL.—Clause (ii) of section 

6 501(c)(27)(B) is amended by inserting before the comma 

7 at the end the following: ‘‘, and must not offer any other 

8 insurance’’. 

9 (b) EFFECTIVE DATE.—The amendment made by 

10 this section shall apply to insurance policies issued, and 

11 renewals, after December, 31, 2014. 

12 SEC. 5304. REPEAL OF TYPE II AND TYPE III SUPPORTING 

13 ORGANIZATIONS.

14 (a) IN GENERAL.—Subparagraph (B) of section 

15 509(a)(3) is amended—

16 (1) by inserting ‘‘and’’ at the end of clause (i), 

17 (2) by striking clauses (ii) and (iii), and 

18 (3) by striking ‘‘is—’’ and all that follows 

19 through ‘‘operated, supervised, or controlled’’ and 

20 inserting ‘‘is operated, supervised, or controlled’’. 

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 170(f)(18)(A) is amended by strik23 ing ‘‘is not—’’ and all that follows through ‘‘, and’’ 

24 and inserting the following: ‘‘is not described in 

25 paragraph (3), (4), or (5) of subsection (c), and’’. 


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1 (2)(A)(i) Section 509(f) is amended by striking 

2 paragraph (1) and by redesignating paragraphs (2) 

3 and (3) as paragraphs (1) and (2), respectively. 

4 (ii) Section 4942(g)(4)(A)(ii)(I) is amended by 

5 striking ‘‘section 509(f)(3)’’ and inserting ‘‘section 

6 509(f)(2)’’. 

7 (iii) Section 4958(c)(3)(C)(ii)(II) is amended by 

8 striking ‘‘section 509(f)(3)’’ and inserting ‘‘section 

9 509(f)(2)’’. 

10 (iv) Section 4966(d)(4)(A)(ii)(I) is amended by 

11 striking ‘‘section 509(f)(3)’’ and inserting ‘‘section 

12 509(f)(2)’’. 

13 (B) Section 509(f)(1)(A), as so redesignated, is 

14 amended by striking ‘‘shall not be considered to 

15 be—’’ and all that follows through ‘‘if such organi16 zation’’ and inserting the following: ‘‘shall not be 

17 considered to be operated, supervised, or controlled 

18 by any organization described in paragraph (1) or 

19 (2) of subsection (a), if such organization’’. 

20 (3) Section 2055(e)(5)(A) is amended by strik21 ing ‘‘is not—’’ and all that follows through ‘‘, and’’ 

22 and inserting the following: ‘‘is not described in 

23 paragraph (3) or (4) of subsection (a), and’’. 

24 (4) Section 2522(c)(5)(A) is amended by strik25 ing ‘‘is not—’’ and all that follows through ‘‘, and’’ 


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1 and inserting the following: ‘‘is not described in 

2 paragraph (3) or (4) of subsection (a), and’’. 

3 (5)(A) Section 4942(g)(4)(A), as amended by 

4 the preceding provision of this Act, is amended—

5 (i) by redesignating subclauses (I) and 

6 (II) of clause (ii) as clauses (i) and (ii), re7 spectively, and moving such redesignated 

8 clauses 2 ems to the left, 

9 (ii) by striking ‘‘paid by a private 

10 foundation to—’’ and all that follows 

11 through ‘‘any organization which’’ and in12 serting the following: ‘‘paid by a private 

13 foundation to any organization which’’, 

14 and 

15 (iii) by striking ‘‘subparagraph (B) or 

16 (C)’’ and inserting ‘‘subparagraph (B)’’. 

17 (B) Section 4942(g)(4)(B) is amended—

18 (i) by striking clause (ii), 

19 (ii) by striking ‘‘section 509(a), or’’ and in20 serting ‘‘section 509(a).’’, 

21 (iii) by striking ‘‘and is—’’ and all that fol22 lows through ‘‘operated, supervised, or con23 trolled by’’ and inserting the following: ‘‘and is 

24 operated, supervised, or controlled by’’, and 


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1 (iv) by striking ‘‘TYPE I AND TYPE II’’ in 

2 the heading thereof. 

3 (C) Section 4942(g)(4) is amended by striking 

4 subparagraph (C). 

5 (D) Section 4945(d)(4)(A)(ii) is amended by 

6 striking ‘‘clause (i) or (ii) of section 4942(g)(4)(A)’’ 

7 and inserting ‘‘section 4942(g)(4)(A)’’. 

8 (6) Section 4943 is amended by striking sub9 section (f). 

10 (7)(A) Section 4966(d)(4)(A), as amended by 

11 this Act, is amended—

12 (i) by redesignating subclauses (I) and 

13 (II) of clause (ii) as clauses (i) and (ii), re14 spectively, and moving such redesignated 

15 clauses 2 ems to the left, 

16 (ii) by striking ‘‘with respect to any 

17 distribution—’’ and all that follows 

18 through ‘‘any organization which’’ and in19 serting the following: ‘‘with respect to any 

20 distribution, any organization which’’, and 

21 (iii) by striking ‘‘subparagraph (B) or 

22 (C)’’ and inserting ‘‘subparagraph (B)’’. 

23 (B) Section 4966(d)(4)(B) is amended—

24 (i) by striking clause (ii), 


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1 (ii) by striking ‘‘section 509(a), or’’ and in2 serting ‘‘section 509(a).’’, 

3 (iii) by striking ‘‘and is—’’ and all that fol4 lows through ‘‘operated, supervised, or con5 trolled by’’ and inserting the following: ‘‘and is 

6 operated, supervised, or controlled by’’, and 

7 (iv) by striking ‘‘TYPE I AND TYPE II’’ in 

8 the heading thereof. 

9 (C) Section 4966(d)(4) is amended by striking 

10 subparagraph (C). 

11 (8) Section 6033(l) is amended by inserting 

12 ‘‘and’’ at the end of paragraph (1), by striking para13 graph (2), and by redesignating paragraph (3) as 

14 paragraph (2). 

15 (c) EFFECTIVE DATE.—

16 (1) IN GENERAL.—Except as provided in para17 graph (2), the amendments made by this section 

18 shall take effect on the date of the enactment of this 

19 Act. 

20 (2) DELAY FOR CURRENT SUPPORTING ORGANI21 ZATIONS.—In the case of an organization which, as 

22 of the date of the enactment of this Act, meets the 

23 requirements of subparagraphs (A) and (C) of sec24 tion 509(a)(3) of the Internal Revenue Code of 1986 

25 and is—


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1 (A) supervised or controlled in connection 

2 with one or more organizations described in 

3 paragraph (1) or (2) of section 509(a) of such 

4 Code, or 

5 (B) is operated in connection with one or 

6 more such organizations, 

7 the amendments made by this section shall apply to 

8 taxable years beginning after December 31, 2015. 

9 TITLE VI—TAX ADMINISTRATION 

10 AND COMPLIANCE 

11 Subtitle A—IRS Investigation12 Related Reforms 

13 SEC. 6001. ORGANIZATIONS REQUIRED TO NOTIFY SEC14 RETARY OF INTENT TO OPERATE AS 501(c)(4). 

15 (a) IN GENERAL.—Part I of subchapter F of chapter 

16 1 is amended by adding at the end the following new sec17 tion: 

18 ‘‘SEC. 506. ORGANIZATIONS REQUIRED TO NOTIFY SEC19 RETARY OF INTENT TO OPERATE AS 501(c)(4). 

20 ‘‘(a) IN GENERAL.—An organization described in 

21 section 501(c)(4) shall, not later than 60 days after the 

22 organization is established, notify the Secretary (in such 

23 manner as the Secretary shall by regulation prescribe) 

24 that it is operating as such. 


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1 ‘‘(b) CONTENTS OF NOTICE.—The notice required 

2 under subsection (a) shall include the following informa3 tion: 

4 ‘‘(1) The name, address, and taxpayer identi5 fication number of the organization. 

6 ‘‘(2) The date on which, and the State under 

7 the laws of which, the organization was organized. 

8 ‘‘(3) A statement of the purpose of the organi9 zation. 

10 ‘‘(c) ACKNOWLEDGMENT OF RECEIPT.—Not later 

11 than 60 days after receipt of such a notice, the Secretary 

12 shall send to the organization an acknowledgment of such 

13 receipt. 

14 ‘‘(d) EXTENSION FOR REASONABLE CAUSE.—The 

15 Secretary may, for reasonable cause, extend the 60-day 

16 period described in subsection (a). 

17 ‘‘(e) USER FEE.—The Secretary shall impose a rea18 sonable user fee for submission of the notice under sub19 section (a). 

20 ‘‘(f) REQUEST FOR DETERMINATION.—Upon request 

21 by an organization to be treated as an organization de22 scribed in section 501(c)(4), the Secretary may issue a de23 termination with respect to such treatment. Such request 

24 shall be treated for purposes of section 6104 as an applica25 tion for exemption from taxation under section 501(a).’’. 


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1 (b) SUPPORTING INFORMATION WITH FIRST RE2 TURN.—Paragraph (1) of section 6033(f) is amended—

3 (1) by striking the period at the end and insert4 ing ‘‘, and’’, 

5 (2) by striking ‘‘include on the return required 

6 under subsection (a) the information’’ and inserting 

7 the following: ‘‘include on the return required under 

8 subsection (a)—

9 ‘‘(1) the information’’, and 

10 (3) by adding at the end the following new 

11 paragraph: 

12 ‘‘(2) in the case of the first such return filed by 

13 such an organization after submitting a notice to the 

14 Secretary under section 506(a), such information as 

15 the Secretary shall by regulation require in support 

16 of the organization’s treatment as an organization 

17 described in section 501(c)(4).’’. 

18 (c) FAILURE TO FILE INITIAL NOTIFICATION.—Sub19 section (c) of section 6652 is amended by redesignating 

20 paragraphs (4) and (5) as paragraphs (5) and (6), respec21 tively, and by inserting after paragraph (3) the following 

22 new paragraph: 

23 ‘‘(4) NOTICES UNDER SECTION 506.—

24 ‘‘(A) PENALTY ON ORGANIZATION.—In the 

25 case of a failure to submit a notice required 


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1 under section 506(a) (relating to organizations 

2 required to notify Secretary of intent to operate 

3 as 501(c)(4)) on the date and in the manner 

4 prescribed therefor, there shall be paid by the 

5 organization failing to so submit $20 for each 

6 day during which such failure continues, but 

7 the total amount imposed under this subpara8 graph on any organization for failure to submit 

9 any one notice shall not exceed $5,000. 

10 ‘‘(B) MANAGERS.—The Secretary may 

11 make written demand on an organization sub12 ject to penalty under subparagraph (A) speci13 fying in such demand a reasonable future date 

14 by which the notice shall be submitted for pur15 poses of this subparagraph. If such notice is not 

16 submitted on or before such date, there shall be 

17 paid by the person failing to so submit $20 for 

18 each day after the expiration of the time speci19 fied in the written demand during which such 

20 failure continues, but the total amount imposed 

21 under this subparagraph on all persons for fail22 ure to submit any one notice shall not exceed 

23 $5,000.’’. 


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1 (d) CLERICAL AMENDMENT.—The table of sections 

2 for part I of subchapter F of chapter 1 is amended by 

3 adding at the end the following new item:

‘‘Sec. 506. Organizations required to notify Secretary of intent to operate as 

501(c)(4).’’.

4 (e) EFFECTIVE DATE.—

5 (1) IN GENERAL.—The amendments made by 

6 this section shall apply to organizations which are 

7 described in section 501(c)(4) of the Internal Rev8 enue Code of 1986 and organized after December 

9 31, 2014. 

10 (2) CERTAIN EXISTING ORGANIZATIONS.—In 

11 the case of any other organization described in sec12 tion 501(c)(4) of such Code, the amendments made 

13 by this section shall apply to such organization only 

14 if, on or before the date of the enactment of this 

15 Act—

16 (A) such organization has not applied for 

17 a written determination of recognition as an or18 ganization described in section 501(c)(4) of 

19 such Code, and 

20 (B) such organization has not filed at least 

21 one annual return or notice required under sub22 section (a)(1) or (i) (as the case may be) of sec23 tion 6033 of such Code. 


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1 In the case of any organization to which the amend2 ments made by this section apply by reason of the 

3 preceding sentence, such organization shall submit 

4 the notice required by section 506(a) of such Code, 

5 as added by this Act, not later than 180 days after 

6 the date of the enactment of this Act. 

7 SEC. 6002. DECLARATORY JUDGMENTS FOR 501(c)(4) ORGA8 NIZATIONS.

9 (a) IN GENERAL.—Paragraph (1) of section 7428(a) 

10 is amended by striking ‘‘or’’ at the end of subparagraph 

11 (C) and by inserting after subparagraph (D) the following 

12 new subparagraph: 

13 ‘‘(E) with respect to the initial classifica14 tion or continuing classification of an organiza15 tion described in section 501(c)(4) which is ex16 empt from tax under section 501(a), or’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to pleadings filed after the date 

19 of the enactment of this Act. 

20 SEC. 6003. RESTRICTION ON DONATION REPORTING FOR 

21 CERTAIN 501(c)(4) ORGANIZATIONS. 

22 (a) IN GENERAL.—Subsection (f) of section 6033, as 

23 amended by this Act, is amended—


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1 (1) by redesignating paragraphs (1) and (2) as 

2 subparagraphs (A) and (B), respectively, and by 

3 moving such subparagraphs 2 ems to the right, 

4 (2) by striking ‘‘IN SECTION 501(c)(4).—Every 

5 organization’’ and inserting the following: ‘‘IN SEC6 TION 501(c)(4).— 

7 ‘‘(1) IN GENERAL.—Every organization’’, and 

8 (3) by adding at the end the following new 

9 paragraph: 

10 ‘‘(2) RESTRICTION ON DONATION REPORT11 ING.—In the case of any such organization, informa12 tion relating to contributions and gifts may only be 

13 required to be included on a return required under 

14 subsection (a) if the contribution or gift is made by 

15 an officer or director of the organization (or an indi16 vidual having powers or responsibilities similar to 

17 those of officers or directors) or any covered em18 ployee (as defined in section 4960(c)(2)) of the orga19 nization.’’. 

20 (b) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to returns for taxable years begin22 ning after December 31, 2013. 


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1 SEC. 6004. MANDATORY ELECTRONIC FILING FOR ANNUAL 

2 RETURNS OF EXEMPT ORGANIZATIONS. 

3 (a) IN GENERAL.—Section 6033, as amended by the 

4 preceding provisions of this Act, is amended by redesig5 nating subsection (m) as subsection (n) and by inserting 

6 after subsection (l) the following new subsection: 

7 ‘‘(m) MANDATORY ELECTRONIC FILING.—Any orga8 nization required to file a return under this section shall 

9 file such return in electronic form.’’. 

10 (b) INSPECTION OF ELECTRONICALLY FILED AN11 NUAL RETURNS.—Subsection (b) of section 6104 is 

12 amended by adding at the end the following: ‘‘Any annual 

13 return required to be filed electronically under section 

14 6033(m) shall be made available by the Secretary to the 

15 public in machine readable format as soon as prac16 ticable.’’. 

17 (c) EFFECTIVE DATE.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), the amendments made by this section 

20 shall apply to taxable years beginning after the date 

21 of the enactment of this Act. 

22 (2) TRANSITIONAL RELIEF.—

23 (A) SMALL ORGANIZATIONS.—

24 (i) IN GENERAL.—In the case of any 

25 small organizations, or any other organiza26 tions for which the Secretary determines 


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1 the application of the amendments made 

2 by subsection (a) would cause undue bur3 den without a delay, the Secretary may 

4 delay the application of such amendments, 

5 but not later than taxable years beginning 

6 2 years after the date of the enactment of 

7 this Act. 

8 (ii) SMALL ORGANIZATION.—For pur9 poses of clause (i), the term ‘‘small organi10 zation’’ means any organization—

11 (I) the gross receipts of which for 

12 the taxable year are less than 

13 $200,000, and 

14 (II) the aggregate gross assets of 

15 which at the end of the taxable year 

16 are less than $500,000. 

17 (B) ORGANIZATIONS FILING FORM 990-

18 T.—In the case of any organization described 

19 in section 511(a)(2) of the Internal Revenue 

20 Code of 1986 which is subject to the tax im21 posed by section 511(a)(1) of such Code on its 

22 unrelated business taxable income, or any orga23 nization required to file a return under section 

24 6033 of such Code and include information 

25 under subsection (e) thereof, the Secretary may 


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1 delay the application of the amendments made 

2 by this section, but not later than taxable years 

3 beginning 2 years after the date of the enact4 ment of this Act. 

5 SEC. 6005. DUTY TO ENSURE THAT IRS EMPLOYEES ARE FA6 MILIAR WITH AND ACT IN ACCORD WITH CER7 TAIN TAXPAYER RIGHTS. 

8 Section 7803(a) is amended by redesignating para9 graph (3) as paragraph (4) and by inserting after para10 graph (2) the following new paragraph: 

11 ‘‘(3) EXECUTION OF DUTIES IN ACCORD WITH

12 TAXPAYER RIGHTS.—In discharging his duties, the 

13 Commissioner shall ensure that employees of the In14 ternal Revenue Service are familiar with and act in 

15 accord with taxpayer rights as afforded by other 

16 provisions of this title, including—

17 ‘‘(A) the right to be informed, 

18 ‘‘(B) the right to be assisted, 

19 ‘‘(C) the right to be heard, 

20 ‘‘(D) the right to pay no more than the 

21 correct amount of tax, 

22 ‘‘(E) the right of appeal, 

23 ‘‘(F) the right to certainty, 

24 ‘‘(G) the right to privacy, 

25 ‘‘(H) the right to confidentiality, 


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1 ‘‘(I) the right to representation, and 

2 ‘‘(J) the right to a fair and just tax sys3 tem.’’. 

4 SEC. 6006. TERMINATION OF EMPLOYMENT OF IRS EM5 PLOYEES FOR TAKING OFFICIAL ACTIONS 

6 FOR POLITICAL PURPOSES. 

7 Paragraph (10) of section 1203(b) of the Internal 

8 Revenue Service Restructuring and Reform Act of 1998 

9 is amended to read as follows: 

10 ‘‘(10) performing, delaying, or failing to per11 form (or threatening to perform, delay, or fail to 

12 perform) any official action (including any audit) 

13 with respect to a taxpayer for purpose of extracting 

14 personal gain or benefit or for a political purpose.’’. 

15 SEC. 6007. RELEASE OF INFORMATION REGARDING THE 

16 STATUS OF CERTAIN INVESTIGATIONS. 

17 (a) IN GENERAL.—Subsection (e) of section 6103 is 

18 amended by adding at the end the following new para19 graph: 

20 ‘‘(11) DISCLOSURE OF INFORMATION REGARD21 ING STATUS OF INVESTIGATION OF VIOLATION OF

22 THIS SECTION.—In the case of a person who pro23 vides to the Secretary information indicating a viola24 tion of section 7213, 7213A, or 7214 with respect 

25 to any return or return information of such person, 


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1 the Secretary may disclose to such person (or such 

2 person’s designee)—

3 ‘‘(A) whether an investigation based on the 

4 person’s provision of such information has been 

5 initiated and whether it is open or closed, 

6 ‘‘(B) whether any such investigation sub7 stantiated such a violation by any individual, 

8 and 

9 ‘‘(C) whether any action has been taken 

10 with respect to such individual (including 

11 whether a referral has been made for prosecu12 tion of such individual).’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall take effect on the date of the enactment 

15 of this Act. 

16 SEC. 6008. REVIEW OF IRS EXAMINATION SELECTION PRO17 CEDURES.

18 (a) IN GENERAL.—The Comptroller General of the 

19 United States shall conduct a study of each Internal Rev20 enue Service operating division to assess the process used 

21 for determining how enforcement cases are selected and 

22 processed. Such study shall include a review of the fol23 lowing: 

24 (1) The standards each such operating division 

25 has established for enforcement case selection (inVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00899 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 cluding any automated or discretionary selection 

2 processes) and case work, and whether such stand3 ards meet the objectives of impartiality, objectivity, 

4 compliance, and minimizing taxpayer burden. 

5 (2) The extent to which any cases are initiated 

6 by referrals or complaints from inside or outside of 

7 the operating division (including from outside of the 

8 Internal Revenue Service). 

9 (3) The Internal Revenue Service controls (in10 cluding management reviews and regular updates) 

11 for assuring that its standards for enforcement cases 

12 (and handling of referrals and complaints) in each 

13 operating division are sufficient for achieving the ob14 jectives described in paragraph (1). 

15 (4) The Internal Revenue Service controls (in16 cluding training, monitoring, and quality assess17 ments) for assuring that its standards are adhered 

18 to by all division personnel and the effectiveness of 

19 such controls. 

20 (5) Whether the existing standards and controls 

21 provide reasonable assurance that each division’s en22 forcement processes meet the Internal Revenue Serv23 ice objectives of impartiality, objectivity, compliance, 

24 and minimizing taxpayer burden. 


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1 (b) INITIAL REPORT.—Not later than 1 year after 

2 the date of the enactment of this section, the Comptroller 

3 General shall submit to the Committee on Ways and 

4 Means of the House of Representatives, the Committee on 

5 Finance of the Senate, and the Secretary of the Treasury 

6 a report on the results of such study. Such report shall 

7 include such recommendations as the Comptroller General 

8 may deem advisable. 

9 (c) FOLLOW-UP ON RECOMMENDATIONS.—Not later 

10 than 180 days after a report is submitted with respect 

11 to an operating division under subsection (b), the Comp12 troller General shall conduct a follow-up study, and submit 

13 to the Committee on Ways and Means of the House of 

14 Representatives, the Committee on Finance of the Senate, 

15 and the Secretary of the Treasury a report, on whether 

16 any recommendations to improve case selection and case 

17 work processes have been implemented and are working 

18 as intended. 

19 (d) CONTINUING CASE MANAGEMENT STUDIES AND

20 REPORTS.—

21 (1) IN GENERAL.—After a report is submitted 

22 under subsection (b), the Comptroller General shall 

23 conduct follow-up studies and reports in the same 

24 manner as provided in subsections (a) and (b) with 

25 respect to each operating division of the Internal 


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1 Revenue Service and shall include in such study and 

2 report a review of whether any previous rec3 ommendations to improve case selection and case 

4 work processes have been implemented and are 

5 working as intended. 

6 (2) FREQUENCY.—Each such report with re7 spect to an operating division shall be submitted not 

8 later than 4 years after the date the most recent re9 port was submitted with respect to such operating 

10 division under subsection (b) or this subsection. The 

11 Comptroller General shall submit no fewer than 1 

12 such report each year. 

13 SEC. 6009. IRS EMPLOYEES PROHIBITED FROM USING PER14 SONAL EMAIL ACCOUNTS FOR OFFICIAL 

15 BUSINESS.

16 No officer or employee of the Internal Revenue Serv17 ice may use a personal email account to conduct any offi18 cial business of the Government. 

19 SEC. 6010. MORATORIUM ON IRS CONFERENCES. 

20 The Internal Revenue Service shall not hold any con21 ference until the Treasury Inspector General for Tax Ad22 ministration submits a report to Congress—

23 (1) certifying that the Internal Revenue Service 

24 has implemented all of the recommendations set out 

25 in such Inspector General’s report titled ‘‘Review of 


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1 the August 2010 Small Business/Self-Employed Di2 vision’s Conference in Anaheim, California’’, and 

3 (2) describing such implementation. 

4 SEC. 6011. APPLICABLE STANDARD FOR DETERMINATIONS 

5 OF WHETHER AN ORGANIZATION IS OPER6 ATED EXCLUSIVELY FOR THE PROMOTION OF 

7 SOCIAL WELFARE. 

8 (a) IN GENERAL.—The standard and definitions as 

9 in effect on January 1, 2010, which are used to determine 

10 whether an organization is operated exclusively for the 

11 promotion of social welfare for purposes of section 

12 501(c)(4) of the Internal Revenue Code of 1986 shall 

13 apply for purposes of determining the status of organiza14 tions under section 501(c)(4) of the Internal Revenue 

15 Code of 1986 after the date of the enactment of this Act. 

16 (b) PROHIBITION ON MODIFICATION OF STAND17 ARD.—The Secretary of the Treasury may not (nor may 

18 any delegate of such Secretary) issue, revise, or finalize 

19 any regulation (including the proposed regulations pub20 lished at 78 Fed. Reg. 71535 (November 29, 2013)), rev21 enue ruling, or other guidance not limited to a particular 

22 taxpayer relating to the standard and definitions specified 

23 in subsection (a). 

24 (c) APPLICATION TO ORGANIZATIONS.—Except as 

25 provided in subsection (d), this section shall apply with 


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1 respect to any organization claiming tax exempt status 

2 under section 501(c)(4) of the Internal Revenue Code of 

3 1986 which was created on, before, or after the date of 

4 the enactment of this Act. 

5 (d) SUNSET.—This section shall not apply after the 

6 one-year period beginning on the date of the enactment 

7 of this Act. 

8 Subtitle B—Taxpayer Protection 

9 and Service Reforms 

10 SEC. 6101. EXTENSION OF IRS AUTHORITY TO REQUIRE 

11 TRUNCATED SOCIAL SECURITY NUMBERS ON 

12 FORM W-2. 

13 (a) IN GENERAL.—Paragraph (2) of section 6051(a) 

14 is amended by striking ‘‘his social security number’’ and 

15 inserting ‘‘an identifying number for the employee’’. 

16 (b) EFFECTIVE DATE.—The amendment made by 

17 this section shall take effect on the date of the enactment 

18 of this Act. 

19 SEC. 6102. FREE ELECTRONIC FILING. 

20 (a) IN GENERAL.—The Secretary of the Treasury 

21 shall, in cooperation with the private sector technology in22 dustry, maintain a program that provides free individual 

23 income tax preparation and electronic filing services to 

24 low-income taxpayers and elderly taxpayers. 


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1 (b) REQUIREMENTS OF PROGRAM.—The Secretary 

2 shall by regulation or other guidance prescribe with re3 spect to the program—

4 (1) the qualifications, selection process, and 

5 contract term for businesses participating in the pro6 gram, 

7 (2) a process for periodic review of businesses 

8 participating in the program, 

9 (3) procedures for terminating business partici10 pation in the program for failure to comply with any 

11 program requirements, and 

12 (4) such other procedures as the Secretary de13 termines are necessary or appropriate to carry out 

14 the purposes of the program. 

15 (c) FREE FILE PROGRAM.—The Internal Revenue 

16 Service Free File program, as set forth in the notice pub17 lished in the Federal Register on November 4, 2002 (67 

18 Fed. Reg. 67247), shall be treated as meeting the require19 ments of subsection (a). 

20 SEC. 6103. PRE-POPULATED RETURNS PROHIBITED. 

21 Except to the extent provided in section 6014, 6020, 

22 or 6201(d) of the Internal Revenue Code of 1986, the Sec23 retary of the Treasury shall not provide to any person a 

24 proposed final return or statement for use by such person 


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1 to satisfy a filing or reporting requirement under such 

2 Code. 

3 SEC. 6104. FORM 1040SR FOR SENIORS. 

4 (a) IN GENERAL.—The Secretary of the Treasury (or 

5 the Secretary’s delegate) shall make available a form, to 

6 be known as ‘‘Form 1040SR’’, for use by individuals to 

7 file the return of tax imposed by chapter 1 of the Internal 

8 Revenue Code of 1986. Such form shall be as similar as 

9 practicable to Form 1040EZ, except that—

10 (1) the form shall be available to individuals 

11 who have attained age 65 as of the close of the tax12 able year, 

13 (2) the form may be used even if income for the 

14 taxable year includes—

15 (A) social security benefits (as defined in 

16 section 86(d) of the Internal Revenue Code of 

17 1986), 

18 (B) distributions from qualified retirement 

19 plans (as defined in section 4974(c) of such 

20 Code), annuities or other such deferred pay21 ment arrangements, 

22 (C) interest and dividends, or 

23 (D) capital gains and losses taken into ac24 count in determining the deduction for adjusted 


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1 net capital gain under section 169 of such 

2 Code, and 

3 (3) the form shall be available without regard 

4 to the amount of any item of taxable income or the 

5 total amount of taxable income for the taxable year. 

6 (b) EFFECTIVE DATE.—The form required by sub7 section (a) shall be made available for taxable years begin8 ning after December 31, 2014. 

9 SEC. 6105. INCREASED REFUND AND CREDIT THRESHOLD 

10 FOR JOINT COMMITTEE ON TAXATION RE11 VIEW OF C CORPORATION RETURN. 

12 (a) IN GENERAL.—Subsections (a) and (b) of section 

13 6405 are each amended by inserting ‘‘($5,000,000 in the 

14 case of a C corporation)’’ after ‘‘$2,000,000’’. 

15 (b) EFFECTIVE DATE.—The amendment made by 

16 this section shall take effect on the date of the enactment 

17 of this Act, except that such amendment shall not apply 

18 with respect to any refund or credit with respect to a re19 port that has been made before such date under section 

20 6405 of the Internal Revenue Code of 1986. 

21 Subtitle C—Tax Return Due Date 

22 Simplification

23 SEC. 6201. DUE DATES FOR RETURNS OF PARTNERSHIPS, S 

24 CORPORATIONS, AND C CORPORATIONS. 

25 (a) PARTNERSHIPS AND S CORPORATIONS.—


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1 (1) IN GENERAL.—So much of subsection (b) of 

2 6072 as precedes the second sentence thereof is 

3 amended to read as follows: 

4 ‘‘(b) RETURNS OF PARTNERSHIPS AND S CORPORA5 TIONS.—Returns of partnerships under section 6031 and 

6 returns of S corporations under sections 6012 and 6037 

7 made on the basis of the calendar year shall be filed on 

8 or before the 15th day of March following the close of the 

9 calendar year, and such returns made on the basis of a 

10 fiscal year shall be filed on or before the 15th day of the 

11 third month following the close of the fiscal year.’’. 

12 (2) CONFORMING AMENDMENT.—Section 

13 6072(a) is amended by striking ‘‘6017, or 6031’’ 

14 and inserting ‘‘or 6017’’. 

15 (b) CONFORMING AMENDMENTS RELATING TO C 

16 CORPORATION DUE DATE OF 15TH DAY OF FOURTH

17 MONTH FOLLOWING TAXABLE YEAR.—

18 (1) Section 170(a)(3)(B), as redesignated by 

19 the preceding provisions of this Act, is amended by 

20 striking ‘‘third month’’ and inserting ‘‘fourth 

21 month’’. 

22 (2) Section 563 is amended by striking ‘‘third 

23 month’’ each place it appears and inserting ‘‘fourth 

24 month’’. 


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1 (3) Section 1354(d)(1)(B)(i) is amended by 

2 striking ‘‘3d month’’ and inserting ‘‘4th month’’. 

3 (4) Subsection (a) and (c) of section 6167 are 

4 each amended by striking ‘‘third month’’ and insert5 ing ‘‘fourth month’’. 

6 (5) Section 6425(a)(1) is amended by striking 

7 ‘‘third month’’ and inserting ‘‘fourth month’’. 

8 (6) Subsections (b)(2)(A), (g)(3), and (h)(1) of 

9 section 6655 are each amended by striking ‘‘3rd 

10 month’’ and inserting ‘‘4th month’’. 

11 (c) EFFECTIVE DATES.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section 

14 shall apply to returns for taxable years beginning 

15 after December 31, 2014. 

16 (2) SPECIAL RULE FOR C CORPORATIONS WITH

17 FISCAL YEARS ENDING ON JUNE 30.—In the case of 

18 any C corporation with a fiscal year ending on June 

19 30, the amendments made by this section shall not 

20 apply to any taxable year beginning in 2022. 

21 SEC. 6202. MODIFICATION OF DUE DATES BY REGULATION. 

22 In the case of returns for taxable years beginning 

23 after December 31, 2014, the Secretary of the Treasury, 

24 or the Secretary’s designee, shall modify appropriate regu25 lations to provide as follows: 


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1 (1) The maximum extension for the returns of 

2 partnerships filing Form 1065 shall be a 6-month 

3 period ending on September 15 for calendar year 

4 taxpayers. 

5 (2) The maximum extension for the returns of 

trusts filing Form 1041 shall be a 51 6 ⁄2-month period 

7 ending on September 30 for calendar year taxpayers. 

8 (3) The maximum extension for the returns of 

9 employee benefit plans filing Form 5500 shall be an 

automatic 31 10 ⁄2-month period ending on November 15 

11 for calendar year plans. 

12 (4) The maximum extension for the returns of 

13 organizations exempt from income tax filing Form 

14 990 shall be an automatic 6-month period ending on 

15 November 15 for calendar year filers. 

16 (5) The due date of Form 3520–A (relating to 

17 the Annual Information Return of Foreign Trust 

18 with a United States Owner) for calendar year filers 

19 shall be April 15 with a maximum extension for a 

20 6-month period ending on October 15. 

21 (6) The due date of Form TD F 90–22.1 (re22 lating to Report of Foreign Bank and Financial Ac23 counts) shall be April 15 with a maximum extension 

24 for a 6-month period ending on October 15 and with 

25 provision for an extension under rules similar to the 


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1 rules in Treas. Reg. section 1.6081–5. For any tax2 payer required to file such Form for the first time, 

3 any penalty for failure to timely request for, or file, 

4 an extension, may be waived by the Secretary. 

5 SEC. 6203. CORPORATIONS PERMITTED STATUTORY AUTO6 MATIC 6-MONTH EXTENSION OF INCOME TAX 

7 RETURNS.

8 (a) IN GENERAL.—Section 6081(b) is amended by 

9 striking ‘‘3 months’’ and inserting ‘‘6 months’’. 

10 (b) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to returns for taxable years begin12 ning after December 31, 2014. 

13 Subtitle D—Compliance Reforms 

14 SEC. 6301. PENALTY FOR FAILURE TO FILE. 

15 (a) IN GENERAL.—Section 6651(a) is amended by 

16 striking ‘‘$135’’ in the flush material at the end and in17 serting ‘‘$400’’. 

18 (b) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to returns the due date for the 

20 filing of which (including extension) is after December 31, 

21 2014. 

22 SEC. 6302. PENALTY FOR FAILURE TO FILE CORRECT IN23 FORMATION RETURNS AND PROVIDE PAYEE 

24 STATEMENTS.

25 (a) IN GENERAL.—Section 6721(a)(1) is amended—


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1 (1) by striking ‘‘$100’’ and inserting ‘‘$250’’, 

2 and 

3 (2) by striking ‘‘$1,500,000’’ and inserting 

4 ‘‘$3,000,000’’. 

5 (b) REDUCTION WHERE CORRECTION IN SPECIFIED

6 PERIOD.—

7 (1) CORRECTION WITHIN 30 DAYS.—Section 

8 6721(b)(1) is amended—

9 (A) by striking ‘‘$30’’ and inserting 

10 ‘‘$50’’, 

11 (B) by striking ‘‘$100’’ and inserting 

12 ‘‘$250’’, and 

13 (C) by striking ‘‘$250,000’’ and inserting 

14 ‘‘$500,000’’. 

15 (2) FAILURES CORRECTED ON OR BEFORE AU16 GUST 1.—Section 6721(b)(2) is amended—

17 (A) by striking ‘‘$60’’ and inserting 

18 ‘‘$100’’, 

19 (B) by striking ‘‘$100’’ (prior to amend20 ment by subparagraph (A)) and inserting 

21 ‘‘$250’’, and 

22 (C) by striking ‘‘$500,000’’ and inserting 

23 ‘‘$1,500,000’’. 


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1 (c) LOWER LIMITATION FOR PERSONS WITH GROSS

2 RECEIPTS OF NOT MORE THAN $5,000,000.—Section 

3 6721(d)(1) is amended—

4 (1) in subparagraph (A)—

5 (A) by striking ‘‘$500,000’’ and inserting 

6 ‘‘$1,000,000’’, and 

7 (B) by striking ‘‘$1,500,000’’ and insert8 ing ‘‘$3,000,000’’, 

9 (2) in subparagraph (B)—

10 (A) by striking ‘‘$75,000’’ and inserting 

11 ‘‘$175,000’’, and 

12 (B) by striking ‘‘$250,000’’ and inserting 

13 ‘‘$500,000’’, and 

14 (3) in subparagraph (C)—

15 (A) by striking ‘‘$200,000’’ and inserting 

16 ‘‘$500,000’’, and 

17 (B) by striking ‘‘$500,000’’ (prior to 

18 amendment by subparagraph (A)) and inserting 

19 ‘‘$1,500,000’’. 

20 (d) PENALTY IN CASE OF INTENTIONAL DIS21 REGARD.—Section 6721(e) is amended—

22 (1) by striking ‘‘$250’’ in paragraph (2) and in23 serting ‘‘$500’’, and 

24 (2) by striking ‘‘$1,500,000’’ in paragraph 

25 (3)(A) and inserting ‘‘$3,000,000’’. 


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1 (e) FAILURE TO FURNISH CORRECT PAYEE STATE2 MENTS.—

3 (1) IN GENERAL.—Section 6722(a)(1) is 

4 amended—

5 (A) by striking ‘‘$100’’ and inserting 

6 ‘‘$250’’, and 

7 (B) by striking ‘‘$1,500,000’’ and insert8 ing ‘‘$3,000,000’’. 

9 (2) REDUCTION WHERE CORRECTION IN SPECI10 FIED PERIOD.—

11 (A) CORRECTION WITHIN 30 DAYS.—Sec12 tion 6722(b)(1) is amended—

13 (i) by striking ‘‘$30’’ and inserting 

14 ‘‘$50’’, 

15 (ii) by striking ‘‘$100’’ and inserting 

16 ‘‘$250’’, and 

17 (iii) by striking ‘‘$250,000’’ and in18 serting ‘‘$500,000’’. 

19 (B) FAILURES CORRECTED ON OR BEFORE

20 AUGUST 1.—Section 6722(b)(2) is amended—

21 (i) by striking ‘‘$60’’ and inserting 

22 ‘‘$100’’, 

23 (ii) by striking ‘‘$100’’ (prior to 

24 amendment by clause (i)) and inserting 

25 ‘‘$250’’, and 


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1 (iii) by striking ‘‘$500,000’’ and in2 serting ‘‘$1,500,000’’. 

3 (3) LOWER LIMITATION FOR PERSONS WITH

4 GROSS RECEIPTS OF NOT MORE THAN $5,000,000.—

5 Section 6722(d)(1) is amended—

6 (A) in subparagraph (A)—

7 (i) by striking ‘‘$500,000’’ and insert8 ing ‘‘$1,000,000’’, and 

9 (ii) by striking ‘‘$1,500,000’’ and in10 serting ‘‘$3,000,000’’, 

11 (B) in subparagraph (B)—

12 (i) by striking ‘‘$75,000’’ and insert13 ing ‘‘$175,000’’, and 

14 (ii) by striking ‘‘$250,000’’ and in15 serting ‘‘$500,000’’, and 

16 (C) in subparagraph (C)—

17 (i) by striking ‘‘$200,000’’ and insert18 ing ‘‘$500,000’’, and 

19 (ii) by striking ‘‘$500,000’’ (prior to 

20 amendment by subparagraph (A)) and in21 serting ‘‘$1,500,000’’. 

22 (4) PENALTY IN CASE OF INTENTIONAL DIS23 REGARD.—Section 6722(e) is amended—

24 (A) by striking ‘‘$250’’ in paragraph (2) 

25 and inserting ‘‘$500’’, and 


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1 (B) by striking ‘‘$1,500,000’’ in paragraph 

2 (3)(A) and inserting ‘‘$3,000,000’’. 

3 (f) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply with respect to returns and state5 ments required to be filed after December 31, 2014. 

6 SEC. 6303. CLARIFICATION OF 6-YEAR STATUTE OF LIMITA7 TIONS IN CASE OF OVERSTATEMENT OF 

8 BASIS.

9 (a) IN GENERAL.—Subparagraph (B) of section 

10 6501(e)(1) is amended—

11 (1) by striking ‘‘and’’ at the end of clause (i), 

12 by redesignating clause (ii) as clause (iii), and by in13 serting after clause (i) the following new clause: 

14 ‘‘(ii) An understatement of gross in15 come by reason of an overstatement of un16 recovered cost or other basis is an omission 

17 from gross income; and’’, and 

18 (2) by inserting ‘‘(other than in the case of an 

19 overstatement of unrecovered cost or other basis)’’ 

20 in clause (iii) (as so redesignated) after ‘‘In deter21 mining the amount omitted from gross income’’. 

22 (b) EFFECTIVE DATE.—The amendments made by 

23 this section shall apply to—

24 (1) returns filed after the date of the enactment 

25 of this Act, and 


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1 (2) returns filed on or before such date if the 

2 period specified in section 6501 of the Internal Rev3 enue Code of 1986 (determined without regard to 

4 such amendments) for assessment of the taxes with 

5 respect to which such return relates has not expired 

6 as of such date. 

7 SEC. 6304. REFORM OF RULES RELATED TO QUALIFIED TAX 

8 COLLECTION CONTRACTS. 

9 (a) REQUIREMENT TO COLLECT CERTAIN INACTIVE

10 TAX RECEIVABLES UNDER QUALIFIED TAX COLLECTION

11 CONTRACTS.—Section 6306 is amended by redesignating 

12 subsections (c) through (f) as subsections (d) through (g), 

13 respectively, and by inserting after subsection (b) the fol14 lowing new subsection: 

15 ‘‘(c) COLLECTION OF INACTIVE TAX RECEIV16 ABLES.—

17 ‘‘(1) IN GENERAL.—Notwithstanding any other 

18 provision of law, the Secretary shall enter into one 

19 or more qualified tax collection contracts for the col20 lection of all outstanding inactive tax receivables. 

21 ‘‘(2) INACTIVE TAX RECEIVABLES.—For pur22 poses of this section—

23 ‘‘(A) IN GENERAL.—The term ‘inactive tax 

24 receivable’ means any tax receivable if—


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1 ‘‘(i) at any time after assessment, the 

2 Internal Revenue Service removes such re3 ceivable from the active inventory for lack 

4 of resources or inability to locate the tax5 payer, 

‘‘(ii) more than 1 6 ⁄3 of the period of the 

7 applicable statute of limitation has lapsed 

8 and no employee of the Internal Revenue 

9 Service has been assigned such receivable 

10 for collection, or 

11 ‘‘(iii) in the case of a receivable which 

12 has been assigned for collection, more than 

13 365 days have passed without interaction 

14 with the taxpayer or a third party for pur15 poses of furthering the collection of such 

16 receivable. 

17 ‘‘(B) TAX RECEIVABLE.—The term ‘tax re18 ceivable’ means any outstanding assessment 

19 which the Internal Revenue Service includes in 

20 potentially collectible inventory.’’. 

21 (b) CERTAIN TAX RECEIVABLES NOT ELIGIBLE FOR

22 COLLECTION UNDER QUALIFIED TAX COLLECTION CON23 TRACTS.—Section 6306, as amended by subsection (a), is 

24 amended by redesignating subsections (d) through (g) as 


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1 subsections (e) through (h), respectively, and by inserting 

2 after subsection (c) the following new subsection: 

3 ‘‘(d) CERTAIN TAX RECEIVABLES NOT ELIGIBLE

4 FOR COLLECTION UNDER QUALIFIED TAX COLLECTIONS

5 CONTRACTS.—A tax receivable shall not be eligible for col6 lection pursuant to a qualified tax collection contract if 

7 such receivable—

8 ‘‘(1) is subject to a pending or active offer-in9 compromise or installment agreement, 

10 ‘‘(2) is classified as an innocent spouse case, 

11 ‘‘(3) involves a taxpayer identified by the Sec12 retary as being—

13 ‘‘(A) deceased, 

14 ‘‘(B) under the age of 18, 

15 ‘‘(C) in a designated combat zone, or 

16 ‘‘(D) a victim of identity theft, 

17 ‘‘(4) is currently under examination, litigation, 

18 criminal investigation, or levy, or 

19 ‘‘(5) is currently subject to a proper exercise of 

20 a right of appeal under this title.’’. 

21 (c) CONTRACTING PRIORITY.—Section 6306, as 

22 amended by the preceding provisions of this section, is 

23 amended by redesignating subsection (h) as subsection (i) 

24 and by inserting after subsection (g) the following new 

25 subsection: 


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1 ‘‘(h) CONTRACTING PRIORITY.—In contracting for 

2 the services of any person under this section, the Secretary 

3 shall give priority to private collection contractors and 

4 debt collection centers on the schedule required under sec5 tion 3711(g) of title 31, United States Code, to the extent 

6 such private collection contractors and debt collection cen7 ters are appropriate to carry out the purposes of this sec8 tion.’’. 

9 (d) DISCLOSURE OF RETURN INFORMATION.—Sec10 tion 6103(k) is amended by adding at the end the fol11 lowing new paragraph: 

12 ‘‘(11) QUALIFIED TAX COLLECTION CONTRAC13 TORS.—Persons providing services pursuant to a 

14 qualified tax collection contract under section 6306 

15 may, if speaking to a person who has identified him16 self or herself as having the name of the taxpayer 

17 to which a tax receivable (within the meaning of 

18 such section) relates, identify themselves as contrac19 tors of the Internal Revenue Service and disclose the 

20 business name of the contractor, and the nature, 

21 subject, and reason for the contact. Disclosures 

22 under this paragraph shall be made only in such sit23 uations and under such conditions as have been ap24 proved by the Secretary.’’. 


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1 (e) TAXPAYERS AFFECTED BY FEDERALLY DE2 CLARED DISASTERS.—Section 6306, as amended by the 

3 preceding provisions of this section, is amended by redes4 ignating subsection (i) as subsection (j) and by inserting 

5 after subsection (h) the following new subsection: 

6 ‘‘(i) TAXPAYERS IN PRESIDENTIALLY DECLARED

7 DISASTER AREAS.—The Secretary may prescribe proce8 dures under which a taxpayer determined to be affected 

9 by a federally declared disaster (as defined by section 

10 165(i)(5)) may request—

11 ‘‘(1) relief from immediate collection measures 

12 by contractors under this section, and 

13 ‘‘(2) a return of the inactive tax receivable to 

14 the Internal Revenue Service for collection.’’. 

15 (f) REPORT TO CONGRESS.—

16 (1) IN GENERAL.—Section 6306, as amended 

17 by the preceding provisions of this section, is amend18 ed by redesignating subsection (j) as subsection (k) 

19 and by inserting after subsection (i) the following 

20 new subsection: 

21 ‘‘(j) REPORT TO CONGRESS.—Not later than 90 days 

22 after each fiscal year ending on September 30, the Sec23 retary shall submit to the Committee on Ways and Means 

24 of the House of Representatives and the Committee on 

25 Finance of the Senate a report with respect to qualified 


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1 tax collection contracts under this section which shall in2 clude—

3 ‘‘(1) annually (with respect to each such fiscal 

4 year beginning with the first such fiscal year ending 

5 after the date of the enactment of this subsection)—

6 ‘‘(A) the total number and amount of tax 

7 receivables provided to each contractor for col8 lection under this section, 

9 ‘‘(B) the total amounts collected (and 

10 amounts of installment agreements entered into 

11 under subsection (b)(1)(B)) with respect to 

12 each contractor and the collection costs in13 curred (directly and indirectly) by the Internal 

14 Revenue Service with respect to such amounts, 

15 ‘‘(C) the impact of such contracts on the 

16 total number and amount of unpaid assess17 ments, and on the number and amount of as18 sessments collected by Internal Revenue Service 

19 personnel after initial contact by a contractor, 

20 ‘‘(D) the amount of fees retained by the 

21 Secretary under subsection (e) and a descrip22 tion of the use of such funds, and 

23 ‘‘(E) a disclosure safeguard report in a 

24 form similar to that required under section 

25 6103(p)(5), and 


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1 ‘‘(2) biannually (beginning with the second re2 port submitted under this subsection)—

3 ‘‘(A) an independent evaluation of con4 tractor performance; and 

5 ‘‘(B) a measurement plan that includes a 

6 comparison of the best practices used by the 

7 private collectors to the collection techniques 

8 used by the Internal Revenue Service and 

9 mechanisms to identify and capture information 

10 on successful collection techniques used by the 

11 contractors that could be adopted by the Inter12 nal Revenue Service.’’. 

13 (2) REPEAL OF EXISTING REPORTING REQUIRE14 MENTS WITH RESPECT TO QUALIFIED TAX COLLEC15 TION CONTRACTS.—Section 881 of the American 

16 Jobs Creation Act of 2004 is amended by striking 

17 subsection (e). 

18 (g) EFFECTIVE DATES.—

19 (1) IN GENERAL.—The amendments made by 

20 subsections (a) and (b) shall apply to tax receivables 

21 identified by the Secretary after the date of the en22 actment of this Act. 

23 (2) CONTRACTING PRIORITY.—The amendments 

24 made by subsection (c) shall apply to contracts and 


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1 agreements entered into after the date of the enact2 ment of this Act. 

3 (3) DISCLOSURES.—The amendments made by 

4 subsection (d) shall apply to disclosures made after 

5 the date of the enactment of this Act. 

6 (4) PROCEDURES; REPORT TO CONGRESS.—The 

7 amendments made by subsections (e) and (f) shall 

8 take effect on the date of the enactment of this Act. 

9 SEC. 6305. 100 PERCENT CONTINUOUS LEVY ON PAYMENTS 

10 TO MEDICARE PROVIDERS AND SUPPLIERS. 

11 (a) IN GENERAL.—Paragraph (3) of section 6331(h) 

12 is amended by striking the period at the end and inserting 

13 ‘‘, or to a Medicare provider or supplier under title XVIII 

14 of the Social Security Act.’’. 

15 (b) EFFECTIVE DATE.—The amendment made by 

16 this section shall apply to levies issued after the date of 

17 the enactment of this Act. 

18 SEC. 6306. TREATMENT OF REFUNDABLE CREDITS FOR 

19 PURPOSES OF CERTAIN PENALTIES. 

20 (a) APPLICATION OF UNDERPAYMENT PENALTIES.—

21 Section 6664(a) is amended by adding at the end the fol22 lowing: ‘‘A rule similar to the rule of section 6211(b)(4) 

23 shall apply for purposes of this subsection.’’. 

24 (b) PENALTY FOR ERRONEOUS CLAIM OF CREDIT

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1 tion 6676(a) is amended by striking ‘‘(other than a claim 

2 for a refund or credit relating to the earned income credit 

3 under section 32)’’. 

4 (c) EFFECTIVE DATES.—

5 (1) UNDERPAYMENT PENALTIES.—The amend6 ment made by subsection (a) shall apply to—

7 (A) returns filed after February 26, 2014, 

8 and 

9 (B) returns filed on or before such date if 

10 the period specified in section 6501 of the In11 ternal Revenue Code of 1986 for assessment of 

12 the taxes with respect to which such return re13 lates has not expired as of such date. 

14 (2) PENALTY FOR ERRONEOUS CLAIM OF CRED15 IT.—The amendment made by subsection (b) shall 

16 apply to claims filed after February 26, 2014. 

17 TITLE VII—EXCISE TAXES 

18 SEC. 7001. REPEAL OF MEDICAL DEVICE EXCISE TAX. 

19 (a) IN GENERAL.—Chapter 32 is amended by strik20 ing subchapter E. 

21 (b) CONFORMING AMENDMENTS.—

22 (1) Subsection (a) of section 4221 is amended 

23 by striking the last sentence. 

24 (2) Paragraph (2) of section 6416(b) is amend25 ed by striking the last sentence. 


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1 (c) CLERICAL AMENDMENT.—The table of sub2 chapters for chapter 32 is amended by striking the item 

3 relating to subchapter E. 

4 (d) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to sales after the date of the enact6 ment of this Act. 

7 SEC. 7002. MODIFICATIONS RELATING TO OIL SPILL LI8 ABILITY TRUST FUND. 

9 (a) EXTENSION OF OIL SPILL LIABILITY TRUST

10 FUND FINANCING RATE.—Paragraph (2) of section 

11 4611(f) is amended by striking ‘‘December 31, 2017’’ and 

12 inserting ‘‘December 31, 2023’’. 

13 (b) APPLICATION WITH RESPECT TO BITUMEN AND

14 BITUMINOUS MIXTURES AND SHALE OIL.—Paragraph 

15 (1) of section 4612(a) is amended to read as follows: 

16 ‘‘(1) CRUDE OIL.—The term ‘crude oil’ includes 

17 crude oil condensates, natural gasoline, any bitumen 

18 or bituminous mixture, any oil derived from a bitu19 men or bituminous mixture, shale oil, and any oil de20 rived from kerogen-bearing sources.’’. 

21 (c) CONFORMING AMENDMENT.—Paragraph (2) of 

22 section 4612(a) is amended by striking ‘‘from a well lo23 cated’’. 

24 (d) EFFECTIVE DATE.—The amendments made by 

25 this section shall apply to oil and petroleum products reVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00926 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 ceived or entered during calendar quarters beginning more 

2 than 60 days after the date of the enactment of this Act. 

3 SEC. 7003. MODIFICATION RELATING TO INLAND WATER4 WAYS TRUST FUND FINANCING RATE. 

5 (a) IN GENERAL.—Section 4042(b)(2)(A) is amend6 ed to read as follows: 

7 ‘‘(A) The Inland Waterways Trust Fund 

8 financing rate is 26 cents per gallon.’’. 

9 (b) EFFECTIVE DATE.—The amendment made by 

10 this section shall apply to fuel used after December 31, 

11 2014. 

12 SEC. 7004. EXCISE TAX ON SYSTEMICALLY IMPORTANT FI13 NANCIAL INSTITUTIONS. 

14 (a) IN GENERAL.—Chapter 36 is amended by adding 

15 at the end the following new subchapter: 

16 ‘‘Subchapter E—Tax on Systemically 

17 Important Financial Institutions

‘‘Sec. 4491. Tax on systemically important financial institutions.

18 ‘‘SEC. 4491. TAX ON SYSTEMICALLY IMPORTANT FINANCIAL 

19 INSTITUTIONS.

20 ‘‘(a) IN GENERAL.—There is hereby imposed a tax 

21 on the excess total consolidated assets of any systemically 

22 important financial institution on the close of each cal23 endar quarter. 


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1 ‘‘(b) AMOUNT OF TAX.—The rate of tax imposed by 

2 subsection (a) is 0.035 percent of such excess total consoli3 dated assets. 

4 ‘‘(c) BY WHOM PAID.—The tax imposed by sub5 section (a) shall be paid by the systemically important fi6 nancial institution. 

7 ‘‘(d) DUE DATE.—The tax imposed by subsection (a) 

8 for a calendar quarter shall be due on the first day of 

9 the third month beginning after the close of such quarter. 

10 ‘‘(e) SYSTEMICALLY IMPORTANT FINANCIAL INSTI11 TUTION.—For purposes of this section, the term ‘system12 ically important financial institution’ means any person 

13 subject to section 165 of the Dodd-Frank Wall Street Re14 form and Consumer Protection Act. 

15 ‘‘(f) EXCESS TOTAL CONSOLIDATED ASSETS.—For 

16 purposes of this section, the term ‘excess total consoli17 dated assets’ means the excess of—

18 ‘‘(1) total consolidated assets (within the mean19 ing of section 165 of the Dodd-Frank Wall Street 

20 Reform and Consumer Protection Act), over 

21 ‘‘(2) $500,000,000,000. 

22 ‘‘(g) ADJUSTMENT OF DOLLAR AMOUNT.—

23 ‘‘(1) IN GENERAL.—In the case of any calendar 

24 year beginning after 2015, there shall be substituted 

25 for the dollar amount in subsection (f)(2) a dollar 


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1 amount which bears the same ratio to such amount 

2 (determined without regard to this subsection) as—

3 ‘‘(A) the GDP for the preceding calendar 

4 year, bears to 

5 ‘‘(B) the GDP for 2014. 

6 Any dollar amount determined under this paragraph 

7 for substitution in subsection (f)(2) which is not a 

8 multiple of $1,000,000,000 shall be rounded to the 

9 nearest multiple of $1,000,000,000. 

10 ‘‘(2) GDP.—For purposes of this subsection, 

11 the GDP for any calendar year means the latest es12 timate of the gross domestic product published by 

13 the Department of Commerce for the preceding cal14 endar year. 

15 ‘‘(h) TREATMENT OF CERTAIN REFERENCES.—Any 

16 reference in this section to any provision of the Dodd17 Frank Wall Street Reform and Consumer Protection Act 

18 shall be treated as a reference to such provision as in ef19 fect on the date of the enactment of this section.’’. 

20 (b) CLERICAL AMENDMENT.—The table of sub21 chapters for chapter 36 is amended by adding at the end 

22 the following new item:

‘‘SUBCHAPTER E. TAX ON SYSTEMICALLY IMPORTANT FINANCIAL

INSTITUTIONS.’’.


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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to calendar quarters beginning 

3 after December 31, 2014. 

4 SEC. 7005. CLARIFICATION OF ORPHAN DRUG EXCEPTION 

5 TO ANNUAL FEE ON BRANDED PRESCRIP6 TION PHARMACEUTICAL MANUFACTURERS 

7 AND IMPORTERS. 

8 (a) IN GENERAL.—Paragraph (3) of section 9008(e) 

9 of the Patient Protection and Affordable Care Act (Public 

10 Law 111–148) is amended to read as follows: 

11 ‘‘(3) EXCLUSION OF ORPHAN DRUG SALES.—

12 ‘‘(A) IN GENERAL.—The term ‘branded 

13 prescription drug sales’ shall not include sales 

14 of any drug or biological product—

15 ‘‘(i) with respect to which a credit was 

16 allowed for any taxable year under section 

17 45C of the Internal Revenue Code of 1986 

18 (as in effect before its repeal by the Tax 

19 Reform Act of 2014); or 

20 ‘‘(ii) which is approved or licensed by 

21 the Food and Drug Administration for 

22 marketing solely for one or more rare dis23 eases or conditions. 

24 ‘‘(B) LIMITATION.—Subparagraph (A) 

25 shall not apply with respect to any drug or bioVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00930 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 logical product after the date on which the drug 

2 or biological product is approved or licensed by 

3 the Food and Drug Administration for mar4 keting for any indication other than the treat5 ment of a rare disease or condition. 

6 ‘‘(C) RARE DISEASE OR CONDITION.—

7 ‘‘(i) IN GENERAL.—For purposes of 

8 this paragraph, the term ‘rare disease or 

9 condition’ means any disease or condition 

10 which—

11 ‘‘(I) affects less than 200,000 

12 persons in the United States, or 

13 ‘‘(II) affects more than 200,000 

14 persons in the United States but for 

15 which there is no reasonable expecta16 tion that the cost of developing and 

17 making available in the United States 

18 a drug or biological product for such 

19 disease or condition will be recovered 

20 from sales in the United States of 

21 such drug or biological product. 

22 ‘‘(ii) TIME OF DETERMINATION.—De23 terminations under the preceding sentence 

24 with respect to any drug or biological prodVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00931 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 uct shall be made on the basis of the facts 

2 and circumstances as of—

3 ‘‘(I) in the case a drug or biologi4 cal product that has been designated 

5 under section 526 of the Federal 

6 Food, Drug, and Cosmetic Act for a 

7 particular indication, the date of such 

8 designation, and 

9 ‘‘(II) in any other case, the date 

10 such drug or biological product is ap11 proved or licensed by the Food and 

12 Drug Administration for marketing 

13 for the treatment of the disease or 

14 condition referred to in clause (i).’’. 

15 (b) EFFECTIVE DATE.—The amendment made by 

16 this section shall apply to fees imposed under section 

17 9008(a)(1) of the Patient Protection and Affordable Care 

18 Act with annual payment dates after 2013. 

19 TITLE VIII—DEADWOOD AND 

20 TECHNICAL PROVISIONS 

21 Subtitle A—Repeal of Deadwood 

22 SEC. 8001. REPEAL OF PUERTO RICO ECONOMIC ACTIVITY 

23 CREDIT.

24 Subpart B of part IV of subchapter A of chapter 1 

25 is amended by striking section 30A (and by striking the 


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1 item relating to such section in the table of sections of 

2 such subpart). 

3 SEC. 8002. REPEAL OF MAKING WORK PAY CREDIT. 

4 (a) IN GENERAL.—Subpart C of part IV of sub5 chapter A of chapter 1 is amended by striking section 36A 

6 (and by striking the item relating to such section in the 

7 table of sections of such subpart). 

8 (b) CONFORMING AMENDMENTS.—

9 (1) Section 6211(b)(4)(A) is amended by strik10 ing ‘‘36A,’’. 

11 (2) Section 6213(g)(2) is amended by striking 

12 subparagraph (N). 

13 SEC. 8003. GENERAL BUSINESS CREDIT. 

14 Subsection (d) of section 38 is amended by striking 

15 paragraph (3). 

16 SEC. 8004. ENVIRONMENTAL TAX. 

17 (a) IN GENERAL.—Subchapter A of chapter 1 is 

18 amended by striking part VII (and the table of parts for 

19 such chapter is amended by striking the item relating to 

20 part VII). 

21 (b) CONFORMING AMENDMENTS.—

22 (1) Section 26(b)(2) is amended by striking 

23 subparagraph (B). 

24 (2) Section 164(a) is amended by striking para25 graph (5). 


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1 (3) Section 275(a) is amended by striking the 

2 last sentence. 

3 (4) Section 882(a)(1) is amended by striking 

4 ‘‘59A,’’. 

5 (5) Section 6425(c)(1)(A), as amended by the 

6 preceding provisions of this Act, is amended to read 

7 as follows: 

8 ‘‘(A) the tax imposed by section 11 or 

9 1201(a), or subchapter L of chapter 1, which10 ever is applicable, over’’. 

11 (6) Section 6655(g)(1)(A), as amended by the 

12 preceding provisions of this Act, is amended by add13 ing ‘‘plus’’ at the end of clause (i) and by striking 

14 clause (ii). 

15 SEC. 8005. ANNUITIES; CERTAIN PROCEEDS OF ENDOW16 MENT AND LIFE INSURANCE CONTRACTS. 

17 Section 72 is amended—

18 (1) in subsection (c)(4) by striking ‘‘; except 

19 that if such date was before January 1, 1954, then 

20 the annuity starting date is January 1, 1954’’, and 

21 (2) in subsection (g)(3) by striking ‘‘January 1, 

22 1954, or’’ and ‘‘, whichever is later’’. 

23 SEC. 8006. UNEMPLOYMENT COMPENSATION. 

24 Section 85 is amended by striking subsection (c). 


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1 SEC. 8007. FLEXIBLE SPENDING ARRANGEMENTS. 

2 Section 106(c)(1) is amended by striking ‘‘Effective 

3 on and after January 1, 1997, gross’’ and inserting 

4 ‘‘Gross’’. 

5 SEC. 8008. CERTAIN COMBAT ZONE COMPENSATION OF 

6 MEMBERS OF THE ARMED FORCES. 

7 Subsection (c) of section 112 is amended—

8 (1) by striking ‘‘(after June 24, 1950)’’ in 

9 paragraph (2), and 

10 (2) striking ‘‘such zone;’’ and all that follows in 

11 paragraph (3) and inserting ‘‘such zone.’’. 

12 SEC. 8009. QUALIFIED GROUP LEGAL SERVICES PLANS. 

13 (a) IN GENERAL.—Part III of subchapter B of chap14 ter 1 is amended by striking section 120 (and by striking 

15 the item relating to such section in the table of sections 

16 for such part). 

17 (b) TAX-EXEMPTION OF GROUP LEGAL SERVICES

18 PLANS.—Section 501(c) is amended by striking paragraph 

19 (20). 

20 (c) CONFORMING AMENDMENTS.—

21 (1) Section 414(n)(3)(C) is amended by strik22 ing ‘‘120,’’. 

23 (2) Section 414(t)(2) is amended by striking 

24 ‘‘120,’’. 

25 (3) Section 3121(a) is amended by striking 

26 paragraph (17). 


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1 (4) Section 3231(e) is amended by striking 

2 paragraph (7). 

3 (5) Section 3306(b) is amended by striking 

4 paragraph (12). 

5 (6) Section 6039D(d)(1) is amended by striking 

6 ‘‘120,’’. 

7 (7) Section 209(a)(14) of the Social Security 

8 Act is amended—

9 (A) by striking subparagraph (B), and 

10 (B) by striking ‘‘(14)(A)’’ and inserting 

11 ‘‘(14)’’. 

12 SEC. 8010. CERTAIN REDUCED UNIFORMED SERVICES RE13 TIREMENT PAY. 

14 Section 122(b)(1) is amended by striking ‘‘after De15 cember 31, 1965,’’. 

16 SEC. 8011. GREAT PLAINS CONSERVATION PROGRAM. 

17 Section 126(a) is amended by striking paragraph (6) 

18 and by redesignating paragraphs (7),(8), (9), and (10) as 

19 paragraphs (6), (7), (8), and (9), respectively. 

20 SEC. 8012. STATE LEGISLATORS’ TRAVEL EXPENSES AWAY 

21 FROM HOME. 

22 Paragraph (4) of section 162(h) is amended by strik23 ing ‘‘For taxable years beginning after December 31, 

24 1980, this’’ and inserting ‘‘This’’. 


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1 SEC. 8013. TREBLE DAMAGE PAYMENTS UNDER THE ANTI2 TRUST LAW. 

3 Section 162(g) is amended by striking the last sen4 tence. 

5 SEC. 8014. PHASE-IN OF LIMITATION ON INVESTMENT IN6 TEREST.

7 Section 163(d) is amended by striking paragraph (6). 

8 SEC. 8015. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS. 

9 Section 170 is amended by striking subsection (k). 

10 SEC. 8016. AMORTIZABLE BOND PREMIUM. 

11 (a) IN GENERAL.—Subparagraph (B) of section 

12 171(b)(1) is amended to read as follows: 

13 ‘‘(B)(i) with reference to the amount pay14 able on maturity (or if it results in a smaller 

15 amortizable bond premium attributable to the 

16 period before the call date, with reference to the 

17 amount payable on the earlier call date), in the 

18 case of a bond described in subsection (a)(1), 

19 and 

20 ‘‘(ii) with reference to the amount payable 

21 on maturity or on an earlier call date, in the 

22 case of a bond described in subsection (a)(2).’’. 

23 (b) CONFORMING AMENDMENTS.—Paragraphs 

24 (2)(B) and (3)(B) of section 171(b) are each amended by 

25 striking ‘‘paragraph (1)(B)(ii)’’ and inserting ‘‘paragraph 

26 (1)(B)(i)’’. 


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1 SEC. 8017. REPEAL OF DEDUCTION FOR CLEAN-FUEL VEHI2 CLES AND CERTAIN REFUELING PROPERTY. 

3 (a) IN GENERAL.—Part VI of subchapter B of chap4 ter 1 is amended by striking section 179A (and by striking 

5 the item relating to such section in the table of sections 

6 for such part). 

7 (b) CONFORMING AMENDMENT.—

8 (1) Section 62(a) is amended by striking para9 graph (14). 

10 (2) Section 280F(a)(1) is amended by striking 

11 subparagraph (C). 

12 (3) Section 312(k)(3), as amended by this Act, 

13 is amended by striking ‘‘, 179A’’ each place it ap14 pears. 

15 (4) Section 1016(a) is amended by striking 

16 paragraph (24). 

17 (c) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to property placed in service after 

19 December 31, 2005. 

20 SEC. 8018. REPEAL OF DEDUCTION FOR CAPITAL COSTS IN21 CURRED IN COMPLYING WITH ENVIRON22 MENTAL PROTECTION AGENCY SULFUR REG23 ULATIONS.

24 (a) IN GENERAL.—Part VI of subchapter B of chap25 ter 1 is amended by striking section 179B (and by striking 


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1 the item relating to such section in the table of sections 

2 for such part). 

3 (b) CONFORMING AMENDMENTS.—

4 (1) Section 312(k)(3), as amended by this Act, 

5 is amended by striking ‘‘, 179B’’ each place it ap6 pears. 

7 (2) Section 1016(a) is amended by striking 

8 paragraph (30). 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to amounts paid or incurred after 

11 December 31, 2009. 

12 SEC. 8019. ACTIVITIES NOT ENGAGED IN FOR PROFIT. 

13 Section 183(e)(1) is amended by striking the last sen14 tence. 

15 SEC. 8020. DIVIDENDS RECEIVED ON CERTAIN PREFERRED 

16 STOCK; AND DIVIDENDS PAID ON CERTAIN 

17 PREFERRED STOCK OF PUBLIC UTILITIES. 

18 (a) IN GENERAL.—Sections 244 and 247 are hereby 

19 repealed, and the table of sections for part VIII of sub20 chapter B of chapter 1 is amended by striking the items 

21 relating to sections 244 and 247. 

22 (b) CONFORMING AMENDMENTS.—

23 (1) Paragraph (5) of section 172(d) is amended 

24 to read as follows: 


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1 ‘‘(5) COMPUTATION OF DEDUCTION FOR DIVI2 DENDS RECEIVED.—The deductions allowed by sec3 tion 243 (relating to dividends received by corpora4 tions) and 245 (relating to dividends received from 

5 certain foreign corporations) shall be computed with6 out regard to section 246(b) (relating to limitation 

7 on aggregate amount of deductions).’’. 

8 (2) Paragraph (1) of section 243(c) is amended 

9 to read as follows: 

10 ‘‘(1) IN GENERAL.—In the case of any dividend 

11 received from a 20-percent owned corporation, sub12 section (a)(1) shall be applied by substituting ‘80 

13 percent’ for ‘70 percent’ ’’.’’. 

14 (3) Section 243(d) is amended by striking para15 graph (4). 

16 (4) Section 246 is amended—

17 (A) by striking ‘‘, 244,’’ in subsection 

18 (a)(1), 

19 (B) in subsection (b)(1)—

20 (i) by striking ‘‘sections 243(a)(1), 

21 244(a),’’ the first place it appears and in22 serting ‘‘section 243(a)(1)’’, 

23 (ii) by striking ‘‘244(a),’’ the second 

24 place it appears, and 


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1 (iii) by striking ‘‘subsection (a) or (b) 

2 of section 245, and 247,’’ and inserting 

3 ‘‘and subsection (a) or (b) of section 

4 245,’’, and 

5 (C) by striking ‘‘, 244,’’ in subsection 

6 (c)(1). 

7 (5) Section 246A is amended by striking ‘‘, 

8 244,’’ both places it appears in subsections (a) and 

9 (e). 

10 (6) Sections 263(g)(2)(B)(iii), 277(a), 

11 301(e)(2), 469(e)(4), 512(a)(3)(A), 805(a)(4)(A), 

12 (C), and (D), 805(b)(4) (as redesignated by this 

13 Act), 832(b)(5)(B)(ii), (D)(i), and (D)(ii)(I), 

14 833(b)(3)(E), and 1059(b)(2)(B) are each amended 

15 by striking ‘‘, 244,’’ each place it appears. 

16 (7) Section 805(a)(4)(B) is amended by strik17 ing ‘‘, 244(a),’’ each place it appears. 

18 (8) Section 810(c)(2)(B) is amended by striking 

19 ‘‘244 (relating to dividends on certain preferred 

20 stock of public utilities),’’. 

21 (9) Section 1244(c)(2)(C) is amended by strik22 ing ‘‘244,’’. 


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1 SEC. 8021. ACQUISITIONS MADE TO EVADE OR AVOID IN2 COME TAX. 

3 Paragraphs (1) and (2) of section 269(a) are each 

4 amended by striking ‘‘or acquired on or after October 8, 

5 1940,’’. 

6 SEC. 8022. DISTRIBUTIONS OF PROPERTY. 

7 Paragraph (3) of section 301(c) is amended to read 

8 as follows: 

9 ‘‘(3) AMOUNTS IN EXCESS OF BASIS.—That 

10 portion of the distribution which is not a dividend, 

11 to the extent that it exceeds the adjusted basis of 

12 the stock, shall be treated as gain from the sale or 

13 exchange of property.’’. 

14 SEC. 8023. EFFECT ON EARNINGS AND PROFITS. 

15 Subsection (d) of section 312 is amended by striking 

16 paragraph (2) and redesignating paragraph (3) as para17 graph (2). 

18 SEC. 8024. BASIS TO CORPORATIONS. 

19 Section 362(a) is amended by striking ‘‘on or after 

20 June 22, 1954,’’. 

21 SEC. 8025. TAX CREDIT EMPLOYEE STOCK OWNERSHIP 

22 PLANS.

23 Section 409 is amended by striking subsection (q). 

24 SEC. 8026. EMPLOYEE STOCK PURCHASE PLANS. 

25 Section 423(a) is amended by striking ‘‘after Decem26 ber 31, 1963’’. 


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1 SEC. 8027. TRANSITION RULES. 

2 (a) Paragraph (5) of section 430(c) is amended by 

3 striking subparagraph (B) and by striking ‘‘(A) IN GEN4 ERAL.—’’. 

5 (b) Paragraph (2) of section 430(h) is amended by 

6 striking subparagraph (G). 

7 (c) Paragraph (3) of section 436(j) is amended by 

8 striking subparagraphs (B) and (C) and by striking ‘‘(A) 

9 IN GENERAL.—’’

10 (d) Section 436 is amended by striking subsection 

11 (m). 

12 SEC. 8028. LIMITATION ON DEDUCTIONS FOR CERTAIN 

13 FARMING.

14 (a) IN GENERAL.—Section 464 is amended by strik15 ing ‘‘any farming syndicate (as defined in subsection (c))’’ 

16 both places it appears in subsections (a) and (b) and in17 serting ‘‘any taxpayer to whom subsection (d) applies’’. 

18 (b) FARMING SYNDICATE.—

19 (1) Subsection (c) of section 464 is hereby 

20 moved to the end of section 461 and redesignated as 

21 subsection (j). 

22 (2) Such subsection (j) is amended—

23 (A) by striking ‘‘For purposes of this sec24 tion’’ in paragraph (1) and inserting ‘‘For pur25 poses of subsection (i)(4)’’, and 


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1 (B) by adding at the end the following new 

2 paragraphs: 

3 ‘‘(3) FARMING.—For purposes of this sub4 section, the term ‘farming’ has the meaning given to 

5 such term by section 464(e). 

6 ‘‘(4) LIMITED ENTREPRENEUR.—For purposes 

7 of this subsection, the term ‘limited entrepreneur’ 

8 means a person who—

9 ‘‘(A) has an interest in an enterprise other 

10 than as a limited partner, and 

11 ‘‘(B) does not actively participate in the 

12 management of such enterprise.’’. 

13 (C) Paragraph (4) of section 461(i) is 

14 amended by striking ‘‘section 464(c)’’ and in15 serting ‘‘subsection (j)’’. 

16 (c) Section 464 is amended—

17 (1) by striking subsections (e) and (g) and re18 designating subsections (d) and (f) as subsections 

19 (c) and (d), respectively, and 

20 (2) by inserting after subsection (d) the fol21 lowing new subsection: 

22 ‘‘(e) FARMING.—For purposes of this section, the 

23 term ‘farming’ means the cultivation of land or the raising 

24 or harvesting of any agricultural or horticultural com25 modity including the raising, shearing, feeding, caring for, 


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1 training, and management of animals. For purposes of the 

2 preceding sentence, trees (other than trees bearing fruit 

3 or nuts) shall not be treated as an agricultural or horti4 cultural commodity.’’. 

5 (d) Subsection (d) of section 464 of such Code, as 

6 redesignated by subsection (c), is amended—

7 (1) by striking paragraph (1) and redesignating 

8 paragraphs (2), (3), and (4) as paragraphs (1), (2), 

9 and (3), respectively, and 

10 (2) by striking ‘‘SUBSECTIONS (A) AND (B) 

11 TO APPLY TO’’ in the subsection heading. 

12 (e) Subparagraph (A) of section 58(a)(2) is amended 

13 by striking ‘‘section 464(c)’’ and inserting ‘‘section 

14 461(j)’’. 

15 SEC. 8029. DEDUCTIONS LIMITED TO AMOUNT AT RISK. 

16 Paragraph (3) of section 465(c) is amended by strik17 ing ‘‘In the case of taxable years beginning after Decem18 ber 31, 1978, this’’ and inserting ‘‘This’’. 

19 SEC. 8030. PASSIVE ACTIVITY LOSSES AND CREDITS LIM20 ITED.

21 Section 469 is amended by striking subsection (m). 

22 SEC. 8031. ADJUSTMENTS REQUIRED BY CHANGES IN 

23 METHOD OF ACCOUNTING. 

24 Section 481(b)(3) is amended by striking subpara25 graph (C). 


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1 SEC. 8032. EXEMPTION FROM TAX ON CORPORATIONS, CER2 TAIN TRUSTS, ETC. 

3 Section 501 is amended by striking subsection (s). 

4 SEC. 8033. REQUIREMENTS FOR EXEMPTION. 

5 (a) Section 503(a)(1) is amended to read as follows: 

6 ‘‘(1) GENERAL RULE.—An organization de7 scribed in paragraph (17) or (18) of section 501(c) 

8 or described in section 401(a) and referred to in sec9 tion 4975(g)(2) or (3) shall not be exempt from tax10 ation under section 501(a) if it has engaged in a 

11 prohibited transaction.’’. 

12 (b) Paragraph (2) of section 503(a) is amended by 

13 striking ‘‘described in section 501(c)(17) or (18) or para14 graph (a)(1)(B)’’ and inserting ‘‘described in paragraph 

15 (1)’’. 

16 (c) Subsection (c) of section 503 is amended by strik17 ing ‘‘described in section 501(c)(17) or (18) or subsection 

18 (a)(1)(B)’’ and inserting ‘‘described in subsection (a)(1)’’. 

19 SEC. 8034. REPEAL OF SPECIAL TREATMENT FOR RELI20 GIOUS BROADCASTING COMPANY. 

21 (a) IN GENERAL.—Subsection (b) of section 512 is 

22 amended by striking paragraph (15). 

23 (b) EFFECTIVE DATE.—The amendment made by 

24 this section shall apply to taxable years beginning after 

25 the date of the enactment of this Act. 


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1 SEC. 8035. REPEAL OF EXCLUSION OF GAIN OR LOSS FROM 

2 DISPOSITION OF BROWNFIELD PROPERTY. 

3 (a) IN GENERAL.—Subsection (b) of section 512 is 

4 amended by striking paragraph (19). 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply to property acquired after Decem7 ber 31, 2009. 

8 SEC. 8036. ACCUMULATED TAXABLE INCOME. 

9 Paragraph (1) of section 535(b) and paragraph (1) 

10 of section 545(b) are each amended by striking ‘‘section 

11 531’’ and all that follows and inserting ‘‘section 531 or 

12 the personal holding company tax imposed by section 

13 541.’’. 

14 SEC. 8037. CERTAIN PROVISIONS RELATED TO DEPLETION. 

15 (a) Section 614(b)(3) (before being redesignated by 

16 title III) is amended by striking subparagraph (C). 

17 (b) Section 614(b)(4) (before being redesignated by 

18 title III) is amended by striking ‘‘whichever of the fol19 lowing taxable years is the later: The first taxable year 

20 beginning after December 31, 1963, or’’. 

21 (c) Section 614(b) (before being redesignated by title 

22 III) is amended by striking paragraph (5). 


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1 SEC. 8038. AMOUNTS RECEIVED BY SURVIVING ANNUITANT 

2 UNDER JOINT AND SURVIVOR ANNUITY CON3 TRACT.

4 Subparagraph (A) of section 691(d)(1) is amended 

5 by striking ‘‘after December 31, 1953, and’’. 

6 SEC. 8039. INCOME TAXES OF MEMBERS OF ARMED FORCES 

7 ON DEATH. 

8 Section 692(a)(1) is amended by striking ‘‘after June 

9 24, 1950’’. 

10 SEC. 8040. SPECIAL RULES FOR COMPUTING RESERVES. 

11 Paragraph (7) of section 807(e) is amended by strik12 ing subparagraph (B) and redesignating subparagraph 

13 (C) as subparagraph (B). 

14 SEC. 8041. INSURANCE COMPANY TAXABLE INCOME. 

15 (a) Section 832(e) is amended by striking ‘‘of taxable 

16 years beginning after December 31, 1966,’’. 

17 (b) Section 832(e)(6) is amended by striking ‘‘In the 

18 case of any taxable year beginning after December 31, 

19 1970, the’’ and inserting ‘‘The’’. 

20 SEC. 8042. CAPITALIZATION OF CERTAIN POLICY ACQUISI21 TION EXPENSES. 

22 Section 848 (as amended by title II) is amended by 

23 striking subsection (i). 


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1 SEC. 8043. REPEAL OF PROVISION ON EXPATRIATION TO 

2 AVOID TAX. 

3 (a) IN GENERAL.—Subpart A of part II of sub4 chapter N of chapter 1 is amended by striking section 877 

5 (and by striking the item relating to such section in the 

6 table of sections for such subpart). 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 2(d) is amended by striking ‘‘or 

9 877’’. 

10 (2) Section 121 is amended by striking sub11 section (e). 

12 (3) Section 865(j)(3) is amended by inserting 

13 ‘‘as in effect before its repeal’’ after ‘‘section 877’’. 

14 (4) Paragraph (2) of section 871(o) (as amend15 ed by this Act) is amended to read as follows: 

16 ‘‘(2) For taxation of covered expatriates, see 

17 section 877A.’’. 

18 (5)(A) Section 877A(g)(1)(A) is amended to 

19 read as follows: 

20 ‘‘(A) IN GENERAL.—The term ‘covered ex21 patriate’ means any expatriate if—

22 ‘‘(i) the average annual net income 

23 tax of such individual for the period of 5 

24 taxable years ending before the date of the 

25 loss of United States citizenship is greater 

26 than $124,000, 


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1 ‘‘(ii) the net worth of the individual as 

2 of such date is $2,000,000 or more, or 

3 ‘‘(iii) such individual fails to certify 

4 under penalty of perjury that he has met 

5 the requirements of this title for the 5 pre6 ceding taxable years or fails to submit such 

7 evidence of such compliance as the Sec8 retary may require.’’. 

9 (B) Section 877A(g)(1)(B) is amended by strik10 ing ‘‘shall not be treated as meeting the require11 ments of subparagraph (A) or (B) of section 

12 877(a)(2)’’ and inserting ‘‘shall not be treated as de13 scribed in clause (i) or (ii) of subparagraph (A)’’. 

14 (C) Section 877A(g)(1) is amended by redesig15 nating subparagraph (C) as subparagraph (D) and 

16 inserting after subparagraph (B) the following new 

17 subparagraph: 

18 ‘‘(C) NET INCOME TAX.—For purposes of 

19 subparagraph (A), the term ‘net income tax’ 

20 means the regular tax liability reduced by the 

21 credits allowed under subparts A, B, and D of 

22 part IV of subchapter A.’’. 

23 (D) Section 877A(g)(1), as amended by sub24 paragraph (C), is amended by adding at the end the 

25 following new subparagraph: 


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1 ‘‘(E) INFLATION ADJUSTMENT.—In the 

2 case of the loss of United States citizenship in 

3 any calendar year after 2007, the dollar amount 

4 in subparagraph (A)(i) shall be increased by an 

5 amount equal to—

6 ‘‘(i) such dollar amount, multiplied by 

7 ‘‘(ii) the cost-of-living adjustment de8 termined under section 1(c)(2)(A) for the 

9 calendar year in which such loss of United 

10 States citizenship occurs determined by 

11 substituting ‘calendar year 2003’ for ‘cal12 endar year 2012’ in clause (ii) thereof. 

13 Any increase determined under the preceding 

14 sentence shall be rounded to the nearest mul15 tiple of $1,000.’’. 

16 (E) Section 877A(g)(5) is amended to read as 

17 follows: 

18 ‘‘(5) LONG-TERM RESIDENT.—The term ‘long19 term resident’ means any individual (other than a 

20 citizen of the United States) who is a lawful perma21 nent resident of the United States in at least 8 tax22 able years during the period of 15 taxable years end23 ing with the taxable year during which the event de24 scribed in subparagraph (A) or (B) of paragraph (2) 

25 occurs. For purposes of the preceding sentence, an 


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1 individual shall not be treated as a lawful permanent 

2 resident for any taxable year if such individual is 

3 treated as a resident of a foreign country for the 

4 taxable year under the provisions of a tax treaty be5 tween the United States and the foreign country and 

6 does not waive the benefits of such treaty applicable 

7 to residents of the foreign country.’’. 

8 (6) Section 894(b) is amended by striking the 

9 last sentence. 

10 (7) Section 2107 is amended by striking sub11 section (e). 

12 (8) Section 2501(a) is amended by striking 

13 paragraphs (3) and (5) and by redesignating para14 graph (4) as paragraph (3). 

15 (9) Section 3405(e)(13)(B) is amended by 

16 striking ‘‘that such person is not—’’ and all that fol17 lows and inserting ‘‘that such person is not a United 

18 States citizen or a resident alien of the United 

19 States.’’. 

20 (10) Section 6039G(a) is amended by striking 

21 ‘‘section 877(b) or 877A’’ and inserting ‘‘section 

22 877A’’. 

23 (11) Section 6039G(d) is amended by striking 

24 ‘‘section 877(a) or 877A’’ and inserting ‘‘section 

25 877A’’. 


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1 (12) Section 7701(b) is amended by striking 

2 paragraph (10) and by redesignating paragraph (11) 

3 as paragraph (10). 

4 (c) EFFECTIVE DATE.—The amendments made by 

5 this subsection shall apply to individuals whose expatria6 tion date (as defined in section 877A(g)(3) of the Internal 

7 Revenue Code of 1986) is on or after June 17, 2008. 

8 SEC. 8044. REPEAL OF CERTAIN TRANSITION RULES ON IN9 COME FROM SOURCES WITHOUT UNITED 

10 STATES.

11 (a) LIMITATION ON CREDIT.—Paragraph (2) of sec12 tion 904(d) is amended by striking subparagraph (J). 

13 (b) FOREIGN EARNED INCOME.—Clause (i) of section 

14 911(b)(2)(D) is amended to read as follows: 

15 ‘‘(i) IN GENERAL.—The exclusion 

16 amount for any calendar year is $80,000.’’. 

17 SEC. 8045. REPEAL OF PUERTO RICO AND POSSESSION TAX 

18 CREDIT.

19 (a) IN GENERAL.—Subpart D of part III of sub20 chapter N of chapter 1 is amended by striking section 936 

21 (and by striking the item relating to such section in the 

22 table of sections of such subpart). 

23 (b) CONFORMING AMENDMENTS.—

24 (1)(A) Section 27 is amended to read as fol25 lows: 


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1 ‘‘SEC. 27. TAXES OF FOREIGN COUNTRIES AND POSSES2 SIONS OF THE UNITED STATES. 

3 ‘‘The amount of taxes imposed by foreign countries 

4 and possessions of the United States shall be allowed as 

5 a credit against the tax imposed by this chapter to the 

6 extent provided in section 901.’’. 

7 (B) The item relating to section 27 in the table 

8 of sections for subpart B of part IV of subchapter 

9 A of chapter 1 is amended to read as follows:

‘‘Sec. 27. Taxes of foreign countries and possessions of the United States.’’.

10 (2) Section 243(b)(1)(B) is amended to read as 

11 follows: 

12 ‘‘(B) if such dividend is distributed out of 

13 the earnings and profits of a taxable year of the 

14 distributing corporation which ends after De15 cember 31, 1963, and on each day of which the 

16 distributing corporation and the corporation re17 ceiving the dividend were members of such af18 filiated group.’’. 

19 (3) Section 246 is amended by striking sub20 section (e). 

21 (4) Section 338(h)(6)(B)(i) is amended by 

22 striking ‘‘, a DISC, or a corporation to which an 

23 election under section 936 applies’’ and inserting ‘‘or 

24 a DISC’’. 

25 (5) Section 861(a)(2) is amended—


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1 (A) by striking subparagraph (A) and by 

2 redesignating subparagraphs (B), (C), and (D) 

3 as subparagraphs (A), (B), and (C), respec4 tively, and 

5 (B) by striking ‘‘subparagraph (B)’’ each 

6 place it appears and inserting ‘‘subparagraph 

7 (A)’’. 

8 (6) Section 864(d)(5) is amended to read as fol9 lows: 

10 ‘‘(5) CERTAIN PROVISIONS NOT TO APPLY.—

11 The following provisions shall not apply to any 

12 amount treated as interest under paragraph (1) or 

13 (6): 

14 ‘‘(A) Section 904(d)(2)(B)(iii)(I) (relating 

15 to exceptions for export financing interest). 

16 ‘‘(B) Subparagraph (A) of section 

17 954(b)(3) (relating to exception where foreign 

18 base company income is less than 5 percent or 

19 $1,000,000). 

20 ‘‘(C) Subparagraph (B) of section 

21 954(c)(2) (relating to certain export financing). 

22 ‘‘(D) Clause (i) of section 954(c)(3)(A) 

23 (relating to certain income received from related 

24 persons).’’. 


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1 (7) Section 865(j)(3) is amended by striking ‘‘, 

2 933, and 936’’ and inserting ‘‘and 933’’. 

3 (8) Section 901(g)(2) is amended by inserting 

4 ‘‘(as in effect before its repeal)’’ after ‘‘936’’. 

5 (9) Section 904(b) is amended by striking para6 graph (4). 

7 (10) Section 1202(e)(4) is amended by striking 

8 subparagraph (B) and by redesignating subpara9 graphs (C) and (D) as subparagraphs (B) and (C), 

10 respectively. 

11 (11) Section 1361(b)(2) is amended by adding 

12 ‘‘or’’ at the end of subparagraph (B), by striking 

13 subparagraph (C), and by redesignating subpara14 graph (D) as subparagraph (C). 

15 (12) Section 1504(b) is amended by striking 

16 paragraph (4). 

17 (13) Section 6091(b)(2)(B) is amended by 

18 striking clause (ii) and by redesignating clauses (iii) 

19 and (iv) as clauses (ii) and (iii), respectively. 

20 (14) Section 6654(d)(2)(D) is amended—

21 (A) by striking ‘‘936(h) or’’ in clause (i), 

22 and 

23 (B) by striking ‘‘AND SECTION 936’’ in the 

24 heading. 

25 (15) Section 6655(e)(4) is amended—


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1 (A) by striking ‘‘936(h) or’’ in subpara2 graph (A), and 

3 (B) by striking ‘‘AND SECTION 936’’ in the 

4 heading. 

5 (16)(A) Section 367(d) is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(4) INTANGIBLE PROPERTY.—For purposes of 

8 this subsection, the term ‘intangible property’ means 

9 any—

10 ‘‘(A) patent, invention, formula, process, 

11 design, pattern, or know-how, 

12 ‘‘(B) copyright, literary, musical, or artis13 tic composition, 

14 ‘‘(C) trademark, trade name, or brand 

15 name, 

16 ‘‘(D) franchise, license, or contract, 

17 ‘‘(E) method, program, system, procedure, 

18 campaign, survey, study, forecast, estimate, 

19 customer list, or technical data, or 

20 ‘‘(F) any similar item, 

21 which has substantial value independent of the serv22 ices of any individual.’’. 

23 (B) Section 367(a)(3)(B)(iv) is amended by 

24 striking ‘‘section 936(h)(3)(B)’’ and inserting ‘‘sub25 section (d)(4)’’. 


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1 (C) Sections 482 and 1298(e)(2)(A) are each 

2 amended by striking ‘‘section 936(h)(4)(B)’’ and in3 serting ‘‘section 367(d)(4)’’. 

4 SEC. 8046. BASIS OF PROPERTY ACQUIRED FROM DECE5 DENT.

6 Section 1014 is amended—

7 (1) by striking ‘‘either’’ and by striking ‘‘or sec8 tion 811(j) of the Internal Revenue Code of 1939 

9 where the decedent died after October 21, 1942’’ in 

10 subsection (a)(2), and 

11 (2) by striking paragraphs (7) and (8) of sub12 section (b). 

13 SEC. 8047. PROPERTY ON WHICH LESSEE HAS MADE IM14 PROVEMENTS.

15 Section 1019 is amended by striking the last sen16 tence. 

17 SEC. 8048. INVOLUNTARY CONVERSION. 

18 Section 1033 is amended by striking subsection (j) 

19 and by redesignating subsection (k) as subsection (j). 

20 SEC. 8049. PROPERTY ACQUIRED DURING AFFILIATION. 

21 Section 1051 is hereby repealed, and the table of sec22 tions for part IV of subchapter O of chapter 1 is amended 

23 by striking the item relating to section 1051. 


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1 SEC. 8050. REPEAL OF SPECIAL HOLDING PERIOD RULES 

2 FOR CERTAIN COMMODITY FUTURES TRANS3 ACTIONS.

4 Section 1222 is amended by striking the last sen5 tence. 

6 SEC. 8051. HOLDING PERIOD OF PROPERTY. 

7 (a) Paragraph (1) of section 1223 is amended by 

8 striking ‘‘, in the case of such exchanges after March 1, 

9 1954,’’. 

10 (b) Paragraph (4) of section 1223 is amended by 

11 striking ‘‘(or under so much of section 1052(c) as refers 

12 to section 113(a)(23) of the Internal Revenue Code of 

13 1939)’’. 

14 (c) Paragraph (6) of section 1223 is repealed. 

15 (d) Paragraph (8) of section 1223 is repealed. 

16 SEC. 8052. PROPERTY USED IN THE TRADE OR BUSINESS 

17 AND INVOLUNTARY CONVERSIONS. 

18 Subparagraph (A) of section 1231(c)(2) is amended 

19 by striking ‘‘beginning after December 31, 1981’’. 

20 SEC. 8053. SALE OF PATENTS. 

21 Subsection (a) of section 1249 is amended by striking 

22 ‘‘after December 31, 1962,’’. 

23 SEC. 8054. GAIN FROM DISPOSITION OF FARMLAND. 

24 (a) Paragraph (1) of section 1252(a), as amended by 

25 the preceding provisions of this Act, is amended—


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1 (1) by striking ‘‘beginning after December 31, 

2 1969’’ in the matter preceding subparagraph (A), 

3 and 

4 (2) by amending subparagraph (A) to read as 

5 follows: 

6 ‘‘(A) the applicable percentage of the ag7 gregate deductions allowed under section 175 

8 (as in effect before its repeal by the Tax Re9 form Act of 2014) with respect to the farmland, 

10 or’’. 

11 (b) Paragraph (2) of section 1252(a) is amended by 

12 striking ‘‘sections 175’’ and all that follows and inserting 

13 ‘‘section 175 (as in effect before its repeal by the Tax Re14 form Act of 2014).’’. 

15 SEC. 8055. TRANSITION RULES RELATED TO THE TREAT16 MENT OF AMOUNTS RECEIVED ON RETIRE17 MENT OR SALE OR EXCHANGE OF DEBT IN18 STRUMENTS.

19 (a) Section 1271 is amended by striking subsection 

20 (c). 

21 (b) Section 1271(a)(2)(B) is amended by striking 

22 ‘‘(and paragraph (2) of subsection (c))’’. 


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1 SEC. 8056. CERTAIN RULES WITH RESPECT TO DEBT IN2 STRUMENTS ISSUED BEFORE JULY 2, 1982. 

3 (a) Section 1272 is amended by striking subsection 

4 (b). 

5 (b) Section 163(j)(2)(C)(ii) is amended by striking 

6 ‘‘or (b)(4)’’. 

7 (c) Section 1271(a)(2)(A)(ii) is amended by striking 

8 ‘‘subsection (a)(7) or (b)(4) of section 1272’’ and inserting 

9 ‘‘section 1272(a)(7)’’. 

10 (d) Section 1271(b)(1) is amended to read as follows: 

11 ‘‘(1) IN GENERAL.—This section shall not apply 

12 to any obligation issued by a natural person before 

13 June 9, 1997.’’. 

14 (e) Section 1279(a)(4)(A)(ii), as amended by the pre15 ceding provisions of this Act, is amended by striking ‘‘or 

16 (b)(4)’’. 

17 (f) The amendments made by this section shall apply 

18 to debt instruments issued after July 1, 1982. 

19 SEC. 8057. CERTAIN RULES WITH RESPECT TO STRIPPED 

20 BONDS PURCHASED BEFORE JULY 2, 1982. 

21 (a) Section 1286 is amended by striking subsection 

22 (c). 

23 (b) Section 1286(e)(5) is amended by striking the 

24 last sentence. 

25 (c) Subsections (a) and (b) of section 1286 are each 

26 amended by striking ‘‘after July 1, 1982,’’. 


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1 (d) The amendments made by this section shall apply 

2 to bonds and coupons purchased after July 1, 1982. 

3 SEC. 8058. AMOUNT AND METHOD OF ADJUSTMENT. 

4 Section 1314 is amended by striking subsection (d) 

5 and by redesignating subsection (e) as subsection (d). 

6 SEC. 8059. OLD-AGE, SURVIVORS, AND DISABILITY INSUR7 ANCE.

8 Subsection (a) of section 1401 is amended by striking 

9 ‘‘the following percent’’ and all that follows and inserting 

10 ‘‘12.4 percent of the amount of the self-employment in11 come for such taxable year.’’. 

12 SEC. 8060. HOSPITAL INSURANCE. 

13 Paragraph (1) of section 1401(b) is amended by 

14 striking ‘‘the following percent’’and all that follows and 

15 inserting ‘‘2.9 percent of the amount of the self-employ16 ment income for such taxable year.’’. 

17 SEC. 8061. MINISTERS, MEMBERS OF RELIGIOUS ORDERS, 

18 AND CHRISTIAN SCIENCE PRACTITIONERS. 

19 Paragraph (3) of section 1402(e) is amended by 

20 striking ‘‘whichever of the following dates is later: (A)’’ 

21 and by striking ‘‘; or (B)’’ and all that follows and insert22 ing a period. 

23 SEC. 8062. AFFILIATED GROUP DEFINED. 

24 Subparagraph (A) of section 1504(a)(3) is amended 

25 by striking ‘‘for a taxable year which includes any period 


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1 after December 31, 1984’’ in clause (i) and by striking 

2 ‘‘in a taxable year beginning after December 31, 1984’’ 

3 in clause (ii). 

4 SEC. 8063. CREDIT FOR STATE DEATH TAXES. 

5 (a) Part II of subchapter A of chapter 11 is amended 

6 by striking section 2011 (and by striking the item relating 

7 to such section in the table of sections for such subpart). 

8 (b) Subchapter A of chapter 13 is amended by strik9 ing section 2604 (and by striking the item relating to such 

10 section in the table of sections for such subpart). 

11 SEC. 8064. FAMILY-OWNED BUSINESS INTEREST. 

12 Part IV of subchapter A of chapter 11 is amended 

13 by striking section 2057 (and by striking the item relating 

14 to such section in the table of sections for such part). 

15 SEC. 8065. PROPERTY WITHIN THE UNITED STATES. 

16 Subsection (c) of section 2104 is amended by striking 

17 ‘‘With respect to estates of decedents dying after Decem18 ber 31, 1969, deposits’’ and inserting ‘‘Deposits’’. 

19 SEC. 8066. REPEAL OF DEADWOOD PROVISIONS RELATING 

20 TO EMPLOYMENT TAXES. 

21 (a) TAX ON EMPLOYEES.—Subsection (a) of section 

22 3101 is amended by striking ‘‘the following percentages’’ 

23 and all that follows and inserting ‘‘6.2 percent of the 

24 wages (as defined in section 3121(a)) received by him with 

25 respect to employment (as defined in section 3121(b)).’’. 


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1 (b) TAX ON EMPLOYERS.—

2 (1) Subsection (a) of section 3111 is amended 

3 by striking ‘‘the following percentages’’ and all that 

4 follows and inserting ‘‘6.2 percent of the wages (as 

5 defined in section 3121(a)) paid by him with respect 

6 to employment (as defined in section 3121(b)).’’

7 (2) Subsection (b) of section 3111 is amended 

8 by striking ‘‘the following percentages’’ and all that 

9 follows and inserting ‘‘1.45 percent of the wages (as 

10 defined in section 3121(a)) paid by him with respect 

11 to employment (as defined in section 3121(b)).’’

12 (3) Section 3111 is amended by striking sub13 section (d) and redesignating subsection (e) as sub14 section (d). 

15 (c) TIER 2 TAX ON EMPLOYEES.—Subsection (b) of 

16 section 3201 is amended to read as follows: 

17 ‘‘(b) TIER 2 TAX.—In addition to other taxes, there 

18 is hereby imposed on the income of each employee a tax 

19 equal to the percentage determined under section 3241 for 

20 any calendar year of the compensation received during 

21 such calendar year by such employee for services rendered 

22 by such employee.’’. 

23 (d) RATE OF TIER 2 TAX ON EMPLOYEE REP24 RESENTATIVES.—Subsection (b) of section 3211 is 

25 amended to read as follows: 


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1 ‘‘(b) TIER 2 TAX.—In addition to other taxes, there 

2 is hereby imposed on the income of each employee rep3 resentative a tax equal to the percentage determined under 

4 section 3241 for any calendar year of the compensation 

5 received during such calendar year by such employee rep6 resentative for services rendered by such employee rep7 resentative.’’. 

8 (e) TIER 2 TAX ON EMPLOYERS.—

9 (1) Subsection (b) of section 3221 is amended 

10 to read as follows: 

11 ‘‘(b) TIER 2 TAX.—In addition to other taxes, there 

12 is hereby imposed on the income of each employer a tax 

13 equal to the percentage determined under section 3241 for 

14 any calendar year of the compensation paid during such 

15 calendar year by such employer for services rendered for 

16 such employer.’’. 

17 (2) Section 3221 is amended by striking sub18 section (d) and redesignating subsection (e) as sub19 section (d). 

20 (f) EMPLOYEE UNDER RAILROAD RETIREMENT SYS21 TEM.—Subsection (b) of section 3231 is amended by is 

22 amended by striking ‘‘; except’’ and all that follows and 

23 inserting a period. 

24 (g) DEFINITION OF WAGES.—


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1 (1) Section 3121(b) is amended by striking 

2 paragraph (17). 

3 (2) Section 210(a) of the Social Security Act is 

4 amended by striking paragraph (17). 

5 (h) CREDITS AGAINST UNEMPLOYMENT TAX.—

6 (1) Paragraph (4) of section 3302(f) is amend7 ed—

8 (A) by striking ‘‘subsection—’’ and all that 

9 follows through ‘‘ (A) in general—The’’ and in10 serting ‘‘subsection, the’’, 

11 (B) by striking subparagraph (B), 

12 (C) by redesignating clauses (i) and(ii) as 

13 subparagraphs (A) and (B), respectively, and 

14 (D) by moving the text of such subpara15 graphs (as so redesignated) 2 ems to the left. 

16 (2) Paragraph (5) of section 3302(f) is amend17 ed by striking subparagraph (D) and by redesig18 nating subparagraph (E) as subparagraph (D). 

19 (i) DOMESTIC SERVICE EMPLOYMENT TAXES.—Sec20 tion 3510(b) is amended by striking paragraph (4). 

21 SEC. 8067. LUXURY PASSENGER AUTOMOBILES. 

22 (a) IN GENERAL.—Chapter 31 is amended by strik23 ing subchapter A (and by striking the item relating to 

24 such subchapter in the table of sections for such chapter). 

25 (b) CONFORMING AMENDMENTS.—


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1 (1) Section 4293 is amended by striking ‘‘sub2 chapter A of chapter 31,’’. 

3 (2) Section 4221 is amended—

4 (A) in subsections (a) and (d)(1), by strik5 ing ‘‘subchapter A or’’ and inserting ‘‘sub6 chapter’’, 

7 (B) in subsection (a), by striking ‘‘In the 

8 case of taxes imposed by subchapter A of chap9 ter 31, paragraphs (1), (3), (4), and (5) shall 

10 not apply.’’, and 

11 (C) in subsection (c), by striking ‘‘4001(c), 

12 4001(d)’’. 

13 (3) Section 4222 is amended by striking 

14 ‘‘4001(c), 4001(d),’’. 

15 SEC. 8068. TRANSPORTATION BY AIR. 

16 Section 4261(e) is amended—

17 (1) in paragraph (1) by striking subparagraph 

18 (C), and 

19 (2) by striking paragraph (5). 

20 SEC. 8069. TAXES ON FAILURE TO DISTRIBUTE INCOME. 

21 (a) Paragraph (2) of section 4942(f) is amended by 

22 striking the semicolon at the end of subparagraph (B) and 

23 inserting ‘‘, and’’, by striking ‘‘; and’’ at the end of sub24 paragraph (C) and inserting a period, and by striking sub25 paragraph (D). 


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1 (b) Subsection (g) of section 4942 (as amended by 

2 this Act) is amended—

3 (1) by striking ‘‘For all taxable years beginning 

4 on or after January 1, 1975, subject’’ in paragraph 

5 (2)(A) and inserting ‘‘Subject’’, and 

6 (2) by striking paragraph (4). 

7 (c) Section 4942(i)(2) is amended by striking ‘‘begin8 ning after December 31, 1969, and’’. 

9 SEC. 8070. TAXES ON TAXABLE EXPENDITURES. 

10 Section 4945(f) is amended by striking ‘‘(excluding 

11 therefrom any preceding taxable year which begins before 

12 January 1, 1970)’’. 

13 SEC. 8071. DEFINITIONS AND SPECIAL RULES. 

14 Section 4682 is amended by striking subsection (h). 

15 SEC. 8072. RETURNS. 

16 Subsection (a) of section 6039D is amended by strik17 ing ‘‘beginning after December 31, 1984,’’. 

18 SEC. 8073. INFORMATION RETURNS. 

19 Subsection (c) of section 6060 is amended by striking 

20 ‘‘year’’ and all that follows and inserting ‘‘year.’’. 

21 SEC. 8074. ABATEMENTS. 

22 Section 6404(f) is amended by striking paragraph 

23 (3). 


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1 SEC. 8075. FAILURE BY CORPORATION TO PAY ESTIMATED 

2 INCOME TAX. 

3 Clause (i) of section 6655(g)(4)(A) is amended by 

4 striking ‘‘(or the corresponding provisions of prior law)’’. 

5 SEC. 8076. REPEAL OF 2008 RECOVERY REBATES. 

6 (a) IN GENERAL.—Subchapter B of chapter 65 is 

7 amended by striking section 6428 (and by striking the 

8 item relating to such section in the table of sections for 

9 such subchapter). 

10 (b) CONFORMING AMENDMENTS.—

11 (1) Section 6211(b)(4)(A) is amended by strik12 ing ‘‘6428,’’. 

13 (2) Section 6213(g)(2)(L) is amended by strik14 ing ‘‘32, or 6428’’ and inserting ‘‘or 32’’. 

15 (3) Paragraph (2) of section 1324(b) of title 

16 31, United States Code, is amended by striking ‘‘or 

17 6428’’. 

18 SEC. 8077. REPEAL OF ADVANCE PAYMENT OF PORTION OF 

19 INCREASED CHILD CREDIT FOR 2003. 

20 Subchapter B of chapter 65 is amended by striking 

21 section 6429 (and by striking the item relating to such 

22 section in the table of sections for such subchapter). 

23 SEC. 8078. REPEAL OF PROVISIONS RELATED TO COBRA 

24 PREMIUM ASSISTANCE. 

25 (a) IN GENERAL.—Subchapter B of chapter 65 is 

26 amended by striking section 6432 (and by striking the 


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1 item relating to such section in the table of sections for 

2 such subchapter). 

3 (b) NOTIFICATION REQUIREMENT.—Part I of sub4 chapter B of chapter 68 is amended by striking section 

5 6720C (and by striking the item relating to such section 

6 in the table of sections for such part). 

7 (c) EXCLUSION FROM GROSS INCOME.—Part III of 

8 subchapter B of chapter 1 is amended by striking section 

9 139C (and by striking the item relating to such section 

10 in the table of sections for such part). 

11 SEC. 8079. RETIREMENT. 

12 Section 7447(i)(3)(B)(ii) is amended by striking ‘‘at 

13 4 percent per annum to December 31, 1947, and at 3 per14 cent per annum thereafter’’, and inserting ‘‘at 3 percent 

15 per annum’’. 

16 SEC. 8080. ANNUITIES TO SURVIVING SPOUSES AND DE17 PENDENT CHILDREN OF JUDGES. 

18 (a) Paragraph (2) of section 7448(a) is amended by 

19 striking ‘‘or under section 1106 of the Internal Revenue 

20 Code of 1939’’ and by striking ‘‘or pursuant to section 

21 1106(d) of the Internal Revenue Code of 1939’’. 

22 (b) Subsection (g) of section 7448 is amended by 

23 striking ‘‘or other than pursuant to section 1106 of the 

24 Internal Revenue Code of 1939’’. 


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1 (c) Subsections (g), (j)(1), and (j)(2) of section 7448 

2 are each amended by striking ‘‘at 4 percent per annum 

3 to December 31, 1947, and at 3 percent per annum there4 after’’ and inserting ‘‘at 3 percent per annum’’. 

5 SEC. 8081. MERCHANT MARINE CAPITAL CONSTRUCTION 

6 FUNDS.

7 Paragraph (4) of section 7518(g) is amended by 

8 striking ‘‘any nonqualified withdrawal’’ and all that fol9 lows through ‘‘shall be determined’’ and inserting ‘‘any 

10 nonqualified withdrawal shall be determined’’. 

11 SEC. 8082. VALUATION TABLES. 

12 (a) Subsection (c) of section 7520 is amended by 

13 striking paragraph (2) and by redesignating paragraph 

14 (3) as paragraph (2). 

15 (b) Paragraph (2) of section 7520(c) of such Code, 

16 as so redesignated, is amended—

17 (1) by striking ‘‘Not later than December 31, 

18 1989, the’’ and inserting ‘‘The’’, and 

19 (2) by striking ‘‘thereafter’’ in the last sentence 

20 thereof. 

21 SEC. 8083. DEFINITION OF EMPLOYEE. 

22 Section 7701(a)(20) is amended by striking ‘‘chapter 

23 21’’ and all that follows and inserting ‘‘chapter 21.’’. 


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1 SEC. 8084. EFFECTIVE DATE. 

2 (a) GENERAL RULE.—Except as otherwise provided 

3 in subsection (b) of this section and the preceding sections 

4 of this subtitle, the amendments made by this subtitle 

5 shall take effect on the date of enactment of this Act. 

6 (b) SAVINGS PROVISION.—If—

7 (1) any provision amended or repealed by the 

8 amendments made by this subtitle applied to—

9 (A) any transaction occurring before the 

10 date of the enactment of this Act, 

11 (B) any property acquired before such date 

12 of enactment, or 

13 (C) any item of income, loss, deduction, or 

14 credit taken into account before such date of 

15 enactment, and 

16 (2) the treatment of such transaction, property, 

17 or item under such provision would (without regard 

18 to the amendments or repeals made by this subtitle) 

19 affect the liability for tax for periods ending after 

20 such date of enactment, 

21 nothing in the amendments or repeals made by this sub22 title shall be construed to affect the treatment of such 

23 transaction, property, or item for purposes of determining 

24 liability for tax for periods ending after such date of enact25 ment. 


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1 Subtitle B—Conforming Amend2 ments Related to Multiple Sec3 tions

4 SEC. 8101. CONFORMING AMENDMENTS RELATED TO MUL5 TIPLE SECTIONS. 

6 (a) GENERAL BUSINESS CREDIT.—Section 38(b), as 

7 amended by the preceding provisions of this Act, is amend8 ed—

9 (1) by redesignating paragraphs (4), (5), (7), 

10 (8), (13), (20), and (33) as paragraphs (3), (4), (5), 

11 (6), (7), (8), and (9), respectively, 

12 (2) by adding ‘‘plus’’ at the end of paragraph 

13 (8) (as so redesignated), and 

14 (3) by striking the comma at the end of para15 graph (9) (as so redesignated) and inserting a pe16 riod. 

17 (b) ADJUSTMENTS TO BASIS.—Section 1016(a), as 

18 amended by the preceding provisions of this Act, is amend19 ed—

20 (1) by striking the last two sentences of para21 graph (2), 

22 (2) in paragraph (4) by striking ‘‘(not includ23 ing’’ and all that follows through ‘‘1921)’’, 

24 (3) by striking paragraph (12), 


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1 (4) by redesignating paragraphs (11), (14), 

2 (16), (17), (18), (21), (23), (26), (38), and (39) as 

3 paragraphs (9), (10), (11), (12), (13), (14), (15), 

4 (16), (17), and (18), respectively, and 

5 (5) by adding ‘‘and’’ at the end of paragraph 

6 (17) (as so redesignated). 

7 (c) HOLDING PERIOD OF PROPERTY.—Section 1223, 

8 as amended by the preceding provisions of this Act, is 

9 amended by redesignating paragraphs (9), (10), (11), 

10 (12), and (15) as paragraphs (6), (7), (8), (9) and (10), 

11 respectively. 

12 (d) CORPORATE PREFERENCE ITEMS.—

13 (1) IN GENERAL.—Subchapter B of chapter 1, 

14 as amended by this Act, is amended by striking part 

15 XI (and by striking the item relating to such part 

16 from the table of parts for such subchapter). 

17 (2) PRESERVATION OF SPECIAL RULE FOR

18 TREATMENT OF INTANGIBLE DRILLING COSTS.—

19 Section 263(c) is amended—

20 (A) by striking all that precedes ‘‘and ex21 cept as provided in subsection (i)’’ and inserting 

22 the following: 

23 ‘‘(c) INTANGIBLE DRILLING AND DEVELOPMENT

24 COSTS IN THE CASE OF OIL AND GAS WELLS AND GEO25 THERMAL WELLS.—


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1 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

2 (a),’’, and 

3 (B) by adding at the end the following new 

4 paragraph: 

5 ‘‘(2) REDUCTION FOR INTEGRATED OIL COMPA6 NIES.—

7 ‘‘(A) IN GENERAL.—In the case of a cor8 poration which is an integrated oil company, 

9 the amount allowable as a deduction for any 

10 taxable year (determined without regard to this 

11 paragraph) under paragraph (1) shall be re12 duced by 30 percent. 

13 ‘‘(B) AMORTIZATION OF DISALLOWED

14 AMOUNTS.—The amount not allowable as a de15 duction under paragraph (1) for any taxable 

16 year by reason of subparagraph (A) shall be al17 lowable as a deduction ratably over the 60-

18 month period beginning with the month in 

19 which the costs are paid or incurred. 

20 ‘‘(C) DISPOSITIONS.—For purposes of sec21 tion 1254, any deduction under subparagraph 

22 (B) shall be treated as a deduction allowable 

23 under paragraph (1). 

24 ‘‘(D) INTEGRATED OIL COMPANY.—For 

25 purposes of this paragraph, the term ‘inteVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00975 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 grated oil company’ means, with respect to any 

2 taxable year, any producer of crude oil to whom 

3 subsection (c) of section 613A does not apply 

4 by reason of paragraph (2) or (4) of section 

5 613A(d) (as such provisions were in effect be6 fore their repeal by the Tax Reform Act of 

7 2014). 

8 ‘‘(E) COORDINATION WITH COST DEPLE9 TION.—The portion of the adjusted basis of any 

10 property which is attributable to amounts to 

11 which subparagraph (A) applied shall not be 

12 taken into account for purposes of determining 

13 depletion under section 611.’’. 

14 (3) PRESERVATION OF LIMITATION ON CERTAIN

15 INTEREST ON INDEBTEDNESS OF FINANCIAL INSTI16 TUTIONS.—

17 (A) IN GENERAL.—Section 163 is amended 

18 by redesignating subsection (n) as subsection 

19 (o) and by inserting after subsection (m) the 

20 following new subsection: 

21 ‘‘(n) LIMITATION ON CERTAIN INTEREST ON IN22 DEBTEDNESS OF FINANCIAL INSTITUTIONS.—

23 ‘‘(1) IN GENERAL.—For purposes of this sub24 title, in the case of a corporation, the amount allow25 able as a deduction under this chapter (determined 


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1 without regard to this subsection) with respect to 

2 the amount described in paragraph (2) shall be re3 duced by 20 percent. 

4 ‘‘(2) INTEREST ON DEBT TO CARRY TAX-EX5 EMPT OBLIGATIONS ACQUIRED AFTER DECEMBER 31, 

6 1982, AND BEFORE AUGUST 8, 1986.—

7 ‘‘(A) IN GENERAL.—In the case of a finan8 cial institution which is a bank (as defined in 

9 section 585(a)(2)), the amount described in this 

10 paragraph is the amount of interest on indebt11 edness incurred or continued to purchase or 

12 carry obligations acquired after December 31, 

13 1982, and before August 8, 1986, the interest 

14 on which is exempt from taxes for the taxable 

15 year, to the extent that a deduction would (but 

16 for this paragraph or section 265(b)) be allow17 able with respect to such interest for such tax18 able year. 

19 ‘‘(B) DETERMINATION OF INTEREST ALLO20 CABLE TO INDEBTEDNESS ON TAX-EXEMPT OB21 LIGATIONS.—Unless the taxpayer (under regu22 lations prescribed by the Secretary) establishes 

23 otherwise, the amount determined under sub24 paragraph (A) shall be an amount which bears 

25 the same ratio to the aggregate amount allowVerDate 0ct 09 2002 15:23 Feb 21, 2014 Jkt 000000 PO 00000 Frm 00977 Fmt 6652 Sfmt 6201 C:\DOCUME~1\HWCHRI~1\APPLIC~1\SOFTQUAD\XMETAL\5.5\GEN\C\CAMP_041.XML H

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1 able (determined without regard to this section 

2 and section 265(b)) to the taxpayer as a deduc3 tion for interest for the taxable year as—

4 ‘‘(i) the taxpayer’s average adjusted 

5 basis (within the meaning of section 1016) 

6 of obligations described in subparagraph 

7 (A), bears to 

8 ‘‘(ii) such average adjusted basis for 

9 all assets of the taxpayer. 

10 ‘‘(C) INTEREST.—For purposes of this 

11 paragraph, the term ‘interest’ includes amounts 

12 (whether or not designated as interest) paid in 

13 respect of deposits, investment certificates, or 

14 withdrawable or repurchasable shares. 

15 ‘‘(D) APPLICATION OF SUBPARAGRAPH TO

16 CERTAIN OBLIGATIONS ISSUED AFTER AUGUST

17 7, 1986.—For application of this subparagraph 

18 to certain obligations issued after August 7, 

19 1986, see section 265(b)(3) (as in effect before 

20 the enactment of the Tax Reform Act of 2014). 

21 That portion of any obligation not taken into 

22 account under paragraph (2)(A) of section 

23 265(b) (as so in effect) by reason of paragraph 

24 (7) of such section shall be treated for purposes 


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1 of this section as having been acquired on Au2 gust 7, 1986.’’. 

3 (B) CONFORMING AMENDMENTS.—

4 (i) Section 1277(c) is amended by 

5 striking ‘‘section 291(e)(1)(B)(ii)’’ and in6 serting ‘‘section 163(n)(2)(B)’’. 

7 (ii) Section 1363(b)(3), as amended 

8 by the preceding provisions of this Act, is 

9 amended by striking ‘‘section 291’’ and in10 serting ‘‘section 163(n)’’. 

11 (4) EFFECTIVE DATE.—Except as otherwise 

12 provided in this Act with respect to amendments 

13 made to section 291 of the Internal Revenue Code 

14 of 1986, the amendments made this subsection shall 

15 apply to taxable years beginning after December 31, 

16 2014.


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dkrause on DSKHT7XVN1PROD with LOCATORS
TAX REFORM ACT OF 2014 

DISCUSSION DRAFT 

AS RELEASED ON FEBRUARY 26, 2014 

Section-by-Section Summary 


dkrause on DSKHT7XVN1PROD with LOCATORS

dkrause on DSKHT7XVN1PROD with LOCATORS
Prepared by Ways and Means Committee Majority Tax Staff i 

Tax Reform Act of 2014 

Discussion Draft 

Section-by-Section Summary 

Table of Contents 

Section 1. Short Title; Etc. ............................................................................................................. 1

Title I – Tax Reform for Individuals............................................................................................... 1

Subtitle A – Individual Income Tax Rate Reform ...................................................................... 1

Secs. 1001-1003. Simplification of individual income tax rates; Deduction for 

adjusted net capital gain; Conforming amendments related to simplification 

of individual income tax rates. ............................................................................. 1

Subtitle B – Simplification of Tax Benefits for Families ........................................................... 3

Sec. 1101. Standard deduction. .............................................................................................. 4

Sec. 1102. Increase and expansion of child tax credit. .......................................................... 5

Sec. 1103. Modification of earned income tax credit. ........................................................... 6

Sec. 1104. Repeal of deduction for personal exemptions. ..................................................... 7

Subtitle C – Simplification of Education Incentives .................................................................. 8

Sec. 1201. American opportunity tax credit. ......................................................................... 8

Sec. 1202. Expansion of Pell Grant exclusion from gross income. ....................................... 9

Sec. 1203. Repeal of exclusion of income from United States savings bonds used to 

pay higher education tuition and fees. ............................................................... 10

Sec. 1204. Repeal of deduction for interest on education loans. ......................................... 10

Sec. 1205. Repeal of deduction for qualified tuition and related expenses. ........................ 10

Sec. 1206. No new contributions to Coverdell education savings accounts. ....................... 11

Sec. 1207. Repeal of exclusion for discharge of student loan indebtedness. ....................... 11

Sec. 1208. Repeal of exclusion for qualified tuition reductions. ......................................... 12

Sec. 1209. Repeal of exclusion for education assistance programs. .................................... 12

Sec. 1210. Repeal of exception to 10-percent penalty for higher education expenses. ....... 12

Subtitle D – Repeal of Certain Credits for Individuals ............................................................. 13

Sec. 1301. Repeal of dependent care credit. ........................................................................ 13

Sec. 1302. Repeal of credit for adoption expenses. ............................................................. 13

Sec. 1303. Repeal of credit for nonbusiness energy property. ............................................. 14

Sec. 1304. Repeal of credit for residential energy efficient property. ................................. 14

Sec. 1305. Repeal of credit for qualified electric vehicles................................................... 14

Sec. 1306. Repeal of alternative motor vehicle credit. ........................................................ 15

Sec. 1307. Repeal of alternative fuel vehicle refueling property credit. .............................. 15

Sec. 1308. Repeal of credit for new qualified plug-in electric drive motor vehicles........... 15
Prepared by Ways and Means Committee Majority Tax Staff ii 

Sec. 1309. Repeal of credit for health insurance costs of eligible individuals. ................... 16

Sec. 1310. Repeal of first-time homebuyer credit. .............................................................. 16

Subtitle E – Deductions, Exclusions, and Certain Other Provisions ........................................ 17

Sec. 1401. Exclusion of gain from sale of a principal residence. ........................................ 17

Sec. 1402. Mortgage interest. .............................................................................................. 18

Sec. 1403. Charitable contributions. .................................................................................... 19

Sec. 1404. Denial of deduction for expenses attributable to the trade or business of 

being an employee. ............................................................................................ 22

Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade or business. ......... 23

Sec. 1406. Repeal of deduction for personal casualty losses. .............................................. 23

Sec. 1407. Limitation on wagering losses. .......................................................................... 24

Sec. 1408. Repeal of deduction for tax preparation expenses. ............................................ 24

Sec. 1409. Repeal of deduction for medical expenses. ........................................................ 24

Sec. 1410. Repeal of disqualification of expenses for over-the-counter drugs under 

certain accounts and arrangements. ................................................................... 25

Sec. 1411. Repeal of deduction for alimony payments and corresponding inclusion 

in gross income. ................................................................................................. 25

Sec. 1412. Repeal of deduction for moving expenses. ........................................................ 26

Sec. 1413. Termination of deduction and exclusions for contributions to medical 

savings accounts. ............................................................................................... 26

Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized deductions. ..................... 27

Sec. 1415. Repeal of overall limitation on itemized deductions. ......................................... 27

Sec. 1416. Deduction for amortizable bond premium allowed in determining adjusted 

gross income. ..................................................................................................... 28

Sec. 1417. Repeal of exclusion, etc., for employee achievement awards. ........................... 28

Sec. 1418. Clarification of special rule for certain governmental plans. ............................. 29

Sec. 1419. Limitation on exclusion for employer-provided housing. .................................. 29

Sec. 1420. Fringe benefits. ................................................................................................... 30

Sec. 1421. Repeal of exclusion of net unrealized appreciation in employer securities. ...... 30

Sec. 1422. Consistent basis reporting between estate and person acquiring property 

from decedent. ................................................................................................... 31

Subtitle F – Employment Tax Modifications ........................................................................... 31

Sec. 1501. Modifications of deduction for Social Security taxes in computing net 

earnings from self-employment. ........................................................................ 31

Sec. 1502. Determination of net earnings from self-employment. ...................................... 32

Sec. 1503. Repeal of exemption from FICA taxes for certain foreign workers. ................. 33

Sec. 1504. Repeal of exemption from FICA taxes for certain students. .............................. 34

Sec. 1505. Override of Treasury guidance providing that certain employer-provided 

supplemental unemployment benefits are not subject to employment taxes. .... 34

Sec. 1506. Certified professional employer organizations. ................................................. 35

Subtitle G – Pensions and Retirement ...................................................................................... 36

Part 1 – Individual Retirement Plans ........................................................................................ 36

Secs. 1601-1603. Elimination of income limits on contributions to Roth IRAs; No 

new contributions to traditional IRAs; Inflation adjustment for Roth IRA 

contributions. ..................................................................................................... 36
Prepared by Ways and Means Committee Majority Tax Staff iii 

Sec. 1604. Repeal of special rule permitting recharacterization of Roth IRA 

contributions as traditional IRA contributions................................................... 37

Sec. 1605. Repeal of exception to 10-percent penalty for first home purchases. ................ 37

Part 2 – Employer-Provided Plans ............................................................................................ 38

Secs. 1611-1612. Termination for new SEPs; Termination for new SIMPLE 401(k)s. ...... 38

Sec. 1613. Rules related to designated Roth contributions. ................................................. 39

Sec. 1614. Modifications of required distribution rules for pension plans. ......................... 40

Sec. 1615. Reduction in minimum age for allowable in-service distributions. ................... 41

Sec. 1616. Modification of rules governing hardship distributions. .................................... 42

Sec. 1617. Extended rollover period for the rollover of plan loan offset amounts in 

certain cases. ...................................................................................................... 42

Sec. 1618. Coordination of contribution limitations for 403(b) plans and governmental 

457(b) plans. ...................................................................................................... 43

Sec. 1619. Application of 10-percent early distribution tax to governmental 457 plans. .... 44

Secs. 1620-1624. Inflation adjustments for qualified plan benefit and contribution 

limitations; Inflation adjustments for qualified plan elective deferral 

limitations; Inflation adjustments for SIMPLE retirement accounts; Inflation 

adjustments for catch-up contributions for certain employer plans; Inflation 

adjustments for governmental and tax-exempt organization plans. .................. 44

Subtitle H – Certain Provisions Related to Members of Indian Tribes .................................... 45

Secs. 1701-1703. Indian general welfare benefits; Tribal Advisory Committee; Other 

relief for Indian tribes. ....................................................................................... 45

Title II – Alternative Minimum Tax Repeal ................................................................................. 47

Sec. 2001. Repeal of alternative minimum tax. ................................................................... 47

Title III – Business Tax Reform ................................................................................................... 49

Subtitle A – Tax Rates .............................................................................................................. 49

Sec. 3001. 25-percent corporate tax rate. ............................................................................. 49

Subtitle B – Reform of Business-related Exclusions and Deductions ...................................... 50

Sec. 3101. Revision of treatment of contributions to capital. .............................................. 50

Sec. 3102. Repeal of deduction for local lobbying expenses. ............................................. 51

Sec. 3103. Expenditures for repairs in connection with casualty losses. ............................. 51

Sec. 3104. Reform of accelerated cost recovery system. ..................................................... 51

Sec. 3105. Repeal of amortization of pollution control facilities. ....................................... 53

Sec. 3106. Net operating loss deduction. ............................................................................. 53

Sec. 3107. Circulation expenditures. ................................................................................... 54

Sec. 3108. Amortization of research and experimental expenditures. ................................. 54

Sec. 3109. Repeal of deductions for soil and water conservation expenditures and 

endangered species recovery expenditures. ....................................................... 55

Sec. 3110. Amortization of certain advertising expenses. ................................................... 56

Sec. 3111. Expensing certain depreciable business assets for small business. .................... 57

Sec. 3112. Repeal of election to expense certain refineries. ................................................ 58

Sec. 3113. Repeal of deduction for energy efficient commercial buildings. ....................... 58

Sec. 3114. Repeal of election to expense advanced mine safety equipment. ...................... 58
Prepared by Ways and Means Committee Majority Tax Staff iv 

Sec. 3115. Repeal of deduction for expenditures by farmers for fertilizer, etc. .................. 59

Sec. 3116. Repeal of special treatment of certain qualified film and television 

productions......................................................................................................... 59

Sec. 3117. Repeal of special rules for recoveries of damages of antitrust violations, etc. .. 59

Sec. 3118. Treatment of reforestation expenditures. ........................................................... 60

Sec. 3119. 20-year amortization of goodwill and certain other intangibles. ....................... 60

Sec. 3120. Treatment of environmental remediation costs. ................................................. 61

Sec. 3121. Repeal of expensing of qualified disaster expenses. .......................................... 61

Sec. 3122. Phaseout and repeal of deduction for income attributable to domestic 

production activities. .......................................................................................... 62

Sec. 3123. Unification of deduction for organizational expenditures.................................. 62

Sec. 3124. Prevention of arbitrage of deductible interest expense and tax-exempt 

interest income. .................................................................................................. 63

Sec. 3125. Prevention of transfer of certain losses from tax indifferent parties. ................. 63

Sec. 3126. Entertainment, etc. expenses. ............................................................................. 64

Sec. 3127. Repeal of limitation on corporate acquisition indebtedness. ............................. 65

Sec. 3128. Denial of deductions and credits for expenditures in illegal businesses. ........... 65

Sec. 3129. Limitation on deduction for FDIC premiums. ................................................... 66

Sec. 3130. Repeal of percentage depletion. ......................................................................... 66

Sec. 3131. Repeal of passive activity exception for working interests in oil and gas 

property. ............................................................................................................. 67

Sec. 3132. Repeal of special rules for gain or loss on timber, coal, or domestic iron ore. .. 67

Sec. 3133. Repeal of like-kind exchanges. .......................................................................... 68

Sec. 3134. Restriction on trade or business property treated as similar or related in 

service to involuntarily converted property in disaster areas. ........................... 69

Sec. 3135. Repeal of rollover of publicly traded securities gain into specialized small 

business investment companies. ........................................................................ 69

Sec. 3136. Termination of special rules for gain from certain small business stock. .......... 70

Sec. 3137. Certain self-created property not treated as a capital asset. ............................... 70

Sec. 3138. Repeal of special rule for sale or exchange of patents. ...................................... 71

Sec. 3139. Depreciation recapture on gain from disposition of certain depreciable realty. 71

Sec. 3140. Common deduction conforming amendments. .................................................. 72

Subtitle C – Reform of Business Credits .................................................................................. 72

Sec. 3201. Repeal of credit for alcohol, etc., used as fuel. .................................................. 72

Sec. 3202. Repeal of credit for biodiesel and renewable diesel used as fuel. ...................... 72

Sec. 3203. Research credit modified and made permanent. ................................................ 73

Sec. 3204. Low-income housing tax credit. ......................................................................... 75

Sec. 3205. Repeal of enhanced oil recovery credit. ............................................................. 77

Sec. 3206. Phaseout and repeal of credit for electricity produced from certain 

renewable resources. .......................................................................................... 78

Sec. 3207. Repeal of Indian employment credit. ................................................................. 78

Sec. 3208. Repeal of credit for portion of employer Social Security taxes paid with 

respect to employee cash tips. ............................................................................ 79

Sec. 3209. Repeal of credit for clinical testing expenses for certain drugs for rare 

diseases or conditions. ....................................................................................... 79

Sec. 3210. Repeal of credit for small employer pension plan startup costs. ........................ 79
Prepared by Ways and Means Committee Majority Tax Staff v 

Sec. 3211. Repeal of employer-provided child care credit. ................................................. 80

Sec. 3212. Repeal of railroad track maintenance credit. ...................................................... 80

Sec. 3213. Repeal of credit for production of low sulfur diesel fuel. .................................. 80

Sec. 3214. Repeal of credit for producing oil and gas from marginal wells. ....................... 81

Sec. 3215. Repeal of credit for production from advanced nuclear power facilities. .......... 81

Sec. 3216. Repeal of credit for producing fuel from a nonconventional source.................. 81

Sec. 3217. Repeal of new energy efficient home credit. ..................................................... 81

Sec. 3218. Repeal of energy efficient appliance credit. ....................................................... 82

Sec. 3219. Repeal of mine rescue team training credit. ....................................................... 82

Sec. 3220. Repeal of agricultural chemicals security credit. ............................................... 82

Sec. 3221. Repeal of credit for carbon dioxide sequestration. ............................................. 83

Sec. 3222. Repeal of credit for employee health insurance expenses of small employers. . 83

Sec. 3223. Repeal of rehabilitation credit. ........................................................................... 84

Sec. 3224. Repeal of energy credit. ..................................................................................... 84

Sec. 3225. Repeal of qualifying advanced coal project credit. ............................................ 85

Sec. 3226. Repeal of qualifying gasification project credit. ................................................ 85

Sec. 3227. Repeal of qualifying advanced energy project credit. ........................................ 85

Sec. 3228. Repeal of qualifying therapeutic discovery project credit. ................................ 86

Sec. 3229. Repeal of work opportunity tax credit. .............................................................. 86

Sec. 3230. Repeal of deduction for certain unused business credits. .................................. 86

Subtitle D – Accounting Methods ............................................................................................ 87

Sec. 3301. Limitation on use of cash method of accounting. .............................................. 87

Sec. 3302. Rules for determining whether taxpayer has adopted a method of accounting. 88

Sec. 3303. Certain special rules for taxable year of inclusion. ............................................ 88

Sec. 3304. Installment sales. ................................................................................................ 89

Secs. 3305-3306. Repeal of special rule for prepaid subscription income; Repeal of 

special rule for prepaid dues income of certain membership organizations. ..... 90

Sec. 3307. Repeal of special rule for magazines, paperbacks, and records returned 

after close of the taxable year. ........................................................................... 90

Sec. 3308. Modification of rules for long-term contracts. ................................................... 90

Sec. 3309. Nuclear decommissioning reserve funds. .......................................................... 91

Sec. 3310. Repeal of last-in, first-out method of inventory. ................................................ 92

Sec. 3311. Repeal of lower of cost or market method of inventory. ................................... 93

Sec. 3312. Modification of rules for capitalization and inclusion in inventory costs of 

certain expenses. ................................................................................................ 94

Sec. 3313. Modification of income forecast method. .......................................................... 94

Sec. 3314. Repeal of averaging for farm income. ................................................................ 95

Sec. 3315. Treatment of patent or trademark infringement awards. .................................... 95

Sec. 3316. Repeal of redundant rules with respect to carrying charges............................... 96

Sec. 3317. Repeal of recurring item exception for spudding of oil or gas wells. ................ 96

Subtitle E – Financial Instruments ............................................................................................ 97

Part 1 – Derivatives and Hedges ............................................................................................... 97

Sec. 3401. Treatment of certain derivatives. ........................................................................ 97

Sec. 3402. Modification of certain rules related to hedges. ................................................. 98 
Prepared by Ways and Means Committee Majority Tax Staff vi 

Part 2 – Treatment of Debt Instruments .................................................................................... 98

Sec. 3411. Current inclusion in income of market discount. ............................................... 98

Sec. 3412. Treatment of certain exchanges of debt instruments. ......................................... 99

Sec. 3413. Coordination with rules for inclusion not later than for financial accounting 

purposes. .......................................................................................................... 100

Sec. 3414. Rules regarding certain government debt......................................................... 100

Part 3 – Certain Rules for Determining Gain and Loss .......................................................... 101

Sec. 3421. Cost basis of specified securities determined without regard to 

identification. ................................................................................................... 101

Sec. 3422. Wash sales by related parties. .......................................................................... 101

Sec. 3423. Nonrecognition for derivative transactions by a corporation with respect 

to its stock. ....................................................................................................... 102

Part 4 – Tax Favored Bonds ................................................................................................... 102

Secs. 3431-3432. Termination of private activity bonds; Termination of credit for 

interest on certain home mortgages. ................................................................ 102

Sec. 3433. Repeal of advance refunding bonds. ................................................................ 103

Sec. 3434. Repeal of tax credit bond rules. ........................................................................ 104

Subtitle F – Insurance Reforms .............................................................................................. 104

Sec. 3501. Exception to pro rata interest expense disallowance for corporate-owned 

life insurance restricted to 20-percent owners. ................................................ 104

Sec. 3502. Net operating losses of life insurance companies. ........................................... 105

Sec. 3503. Repeal of small life insurance company deduction. ......................................... 105

Sec. 3504. Computation of life insurance tax reserves. ..................................................... 106

Sec. 3505. Adjustment for change in computing reserves. ................................................ 106

Sec. 3506. Modification of rules for life insurance proration for purposes of 

determining the dividends received deduction. ............................................... 107

Sec. 3507. Repeal of special rule for distributions to shareholders from pre-1984 

policyholders surplus account. ......................................................................... 107

Sec. 3508. Modification of proration rules for property and casualty insurance 

companies. ....................................................................................................... 108

Sec. 3509. Repeal of special treatment of Blue Cross and Blue Shield 

organizations, etc. ............................................................................................ 108

Sec. 3510. Modification of discounting rules for property and casualty insurance 

companies. ....................................................................................................... 109

Sec. 3511. Repeal of special estimated tax payments. ....................................................... 110

Sec. 3512. Capitalization of certain policy acquisition expenses. ..................................... 110

Secs. 3513-3514. Tax reporting for life settlement transactions; Clarification of tax 

basis of life insurance contracts. ...................................................................... 111

Sec. 3515. Exception to transfer for valuable consideration rules. .................................... 112

Subtitle G – Pass-Thru and Certain Other Entities ................................................................. 112

Part 1 – S Corporations ........................................................................................................... 112

Sec. 3601. Reduced recognition period for built-in gains made permanent. ..................... 113

Sec. 3602. Modifications to S corporation passive investment income rules. ................... 113

Sec. 3603. Expansion of qualifying beneficiaries of an electing small business trust. ...... 113
Prepared by Ways and Means Committee Majority Tax Staff vii 

Sec. 3604. Charitable contribution deduction for electing small business trusts. .............. 114

Sec. 3605. Permanent rule regarding basis adjustment to stock of S corporations 

making charitable contributions of property. ................................................... 114

Sec. 3606. Extension of time for making S corporation elections. .................................... 115

Sec. 3607. Relocation of C corporation definition. ........................................................... 115

Part 2 – Partnerships ............................................................................................................... 116

Sec. 3611. Repeal of rules relating to guaranteed payments and liquidating 

distributions. .................................................................................................... 116

Sec. 3612-3614. Mandatory adjustments to basis of partnership property in case of 

transfer of partnership interests; Mandatory adjustments to basis of 

undistributed partnership property; Corresponding adjustments to basis of 

properties held by partnership where partnership basis adjusted. ................... 117

Sec. 3615. Charitable contributions and foreign taxes taken into account in 

determining limitation on allowance of partner’s share of loss. ...................... 117

Sec. 3616. Revisions related to unrealized receivables and inventory items. .................... 118

Sec. 3617. Repeal of time limitation on taxing precontribution gain. ............................... 118

Sec. 3618. Partnership interests created by gift. ................................................................ 119

Sec. 3619. Repeal of technical termination........................................................................ 119

Sec. 3620. Publicly traded partnership exception restricted to mining and natural 

resources partnerships. ..................................................................................... 119

Sec. 3621. Ordinary income treatment in the case of partnership interests held in 

connection with performance of services. ....................................................... 120

Sec. 3622. Partnership audits and adjustments. ................................................................. 122

Part 3 – REITs and RICs ......................................................................................................... 123

Sec. 3631. Prevention of tax-free spinoffs involving REITs. ............................................ 123

Sec. 3632. Extension of period for prevention of REIT election following revocation 

or termination. .................................................................................................. 124

Sec. 3633. Certain short-life property not treated as real property for purposes of 

REIT provisions. .............................................................................................. 124

Sec. 3634. Repeal of special rules for timber held by REITs. ........................................... 124

Sec. 3635. Limitation on fixed percentage rent and interest exceptions for REIT 

income tests...................................................................................................... 125

Secs. 3636-3637. Repeal of preferential dividend rule for publicly offered REITs; 

Authority for alternative remedies to address certain REIT distribution 

failures. ............................................................................................................ 126

Sec. 3638. Limitations on designation of dividends by REITs. ......................................... 126

Sec. 3639. Non-REIT earnings and profits required to be distributed by REIT in cash. .. 127

Sec. 3640. Debt instruments of publicly offered REITs and mortgages treated as real 

estate assets. ..................................................................................................... 127

Sec. 3641. Asset and income test clarification regarding ancillary personal property. ..... 127

Sec. 3642. Hedging provisions. ......................................................................................... 128

Sec. 3643. Modification of REIT earnings and profits calculation to avoid duplicate 

taxation............................................................................................................. 128

Sec. 3644. Reduction in percentage limitation on assets of REIT which may be 

taxable REIT subsidiaries. ............................................................................... 129

Sec. 3645. Treatment of certain services provided by taxable REIT subsidiaries. ............ 129
Prepared by Ways and Means Committee Majority Tax Staff viii 

Sec. 3646. Study relating to taxable REIT subsidiaries. .................................................... 130

Sec. 3647. C corporation election to become, or transfer assets to, a RIC or REIT. ......... 130

Sec. 3648. Interests in RICs and REITs not excluded from definition of United States 

real property interests....................................................................................... 130

Sec. 3649. Dividends derived from RICs and REITs ineligible for deduction for 

United States source portion of dividends from certain foreign corporations. 131

Part 4 – Personal Holding Companies .................................................................................... 132

Sec. 3661. Exclusion of dividends from controlled foreign corporations from the 

definition of personal holding company income for purposes of the 

personal holding company rules. ..................................................................... 132

Subtitle H – Taxation of Foreign Persons ............................................................................... 132

Sec. 3701. Prevention of avoidance of tax through reinsurance with non-taxed 

affiliates. .......................................................................................................... 132

Sec. 3702. Taxation of passenger cruise gross income of foreign corporations and 

nonresident alien individuals. .......................................................................... 133

Sec. 3703. Restriction on insurance business exception to passive foreign investment 

company rules. ................................................................................................. 134

Sec. 3704. Modification of limitation on earnings stripping. ............................................ 134

Sec. 3705. Limitation on treaty benefits for certain deductible payments. ........................ 135

Subtitle I – Provisions Related to Compensation ................................................................... 135

Part 1 – Executive Compensation ........................................................................................... 135

Sec. 3801. Nonqualified deferred compensation. .............................................................. 135

Sec. 3802. Modification of limitation on excessive employee remuneration. ................... 136

Sec. 3803. Excise tax on excess tax-exempt organization executive compensation. ........ 137

Sec. 3804. Denial of deduction as research expenditure for stock transferred pursuant 

to an incentive stock option. ............................................................................ 138

Part 2 – Worker Classification ................................................................................................ 138

Sec. 3811. Determination of worker classification. ........................................................... 138

Subtitle J – Zones and Short-Term Regional Benefits ........................................................... 139

Sec. 3821. Repeal of provisions relating to Empowerment Zones and Enterprise 

Communities. ................................................................................................... 139

Sec. 3822. Repeal of DC Zone provisions. ........................................................................ 140

Sec. 3823. Repeal of provisions relating to renewal communities. ................................... 140

Sec. 3824. Repeal of various short-term regional benefits. ............................................... 141

Title IV – Participation Exemption System for the Taxation of Foreign Income ...................... 142

Subtitle A – Establishment of Exemption System .................................................................. 142

Sec. 4001. Deduction for dividends received by domestic corporations from certain 

foreign corporations. ........................................................................................ 142

Sec. 4002. Limitation on losses with respect to specified 10-percent owned foreign 

corporations. .................................................................................................... 142

Sec. 4003. Treatment of deferred foreign income upon transition to participation 

exemption system of taxation. ......................................................................... 143

Sec. 4004. Look-thru rule for related controlled foreign corporations made permanent... 144
Prepared by Ways and Means Committee Majority Tax Staff ix 

Subtitle B – Modifications Related to Foreign Tax Credit System ........................................ 145

Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of 

section 960 credit on current year basis. .......................................................... 145

Sec. 4102. Foreign tax credit limitation applied by allocating only directly allocable 

deductions to foreign source income. .............................................................. 145

Sec. 4103. Passive category income expanded to include other mobile income. .............. 146

Sec. 4104. Source of income from sales of inventory determined solely on basis of 

production activities. ........................................................................................ 146

Subtitle C – Rules Related to Passive and Mobile Income ..................................................... 147

Part 1 – Modification of Subpart F Provisions ....................................................................... 147

Sec. 4201. Subpart F income to only include low-taxed foreign income. ......................... 147

Sec. 4202. Foreign base company sales income. ............................................................... 147

Sec. 4203. Inflation adjustment of de minimis exception for foreign base company 

income. ............................................................................................................. 148

Sec. 4204. Active finance exception extended with limitation for low-taxed foreign 

income. ............................................................................................................. 148

Sec. 4205. Repeal of inclusion based on withdrawal of previously excluded subpart F 

income from qualified investment. .................................................................. 149

Part 2 – Prevention of Base Erosion ....................................................................................... 149

Sec. 4211. Foreign intangible income subject to taxation at reduced rate; intangible 

income treated as subpart F income. ................................................................ 149

Sec. 4212. Denial of deduction for interest expense of United States shareholders 

which are members of worldwide affiliated groups with excess domestic 

indebtedness. .................................................................................................... 151

Title V – Tax Exempt Entities .................................................................................................... 152

Subtitle A – Unrelated Business Income Tax ......................................................................... 152

Sec. 5001. Clarification of unrelated business income tax treatment of entities treated 

as exempt from taxation under section 501(a). ................................................ 152

Sec. 5002. Name and logo royalties treated as unrelated business taxable income. .......... 153

Sec. 5003. Unrelated business taxable income separately computed for each trade or 

business activity. .............................................................................................. 153

Sec. 5004. Exclusion of research income limited to publicly available research. ............. 154

Sec. 5005. Parity of charitable contribution limitation between trusts and corporations. . 154

Sec. 5006. Increased specific deduction. ........................................................................... 154

Sec. 5007. Repeal of exclusion of gain or loss from disposition of distressed property. .. 155

Sec. 5008. Qualified sponsorship payments. ..................................................................... 155

Subtitle B – Penalties .............................................................................................................. 156

Sec. 5101. Increase in information return penalties. .......................................................... 156

Sec. 5102. Manager-level accuracy-related penalty on underpayment of unrelated 

business income tax. ........................................................................................ 157

Subtitle C – Excise Taxes ....................................................................................................... 158

Sec. 5201. Modification of intermediate sanctions. ........................................................... 158

Sec. 5202. Modification of taxes on self-dealing. ............................................................. 159
Prepared by Ways and Means Committee Majority Tax Staff x 

Sec. 5203. Excise tax on failure to distribute within 5 years contribution to donor 

advised fund. .................................................................................................... 160

Sec. 5204. Simplification of excise tax on private foundation investment income. .......... 161

Sec. 5205. Repeal of exception for private operating foundation failure to distribute 

income. ............................................................................................................. 161

Sec. 5206. Excise tax based on investment income of private colleges and universities. . 162

Subtitle D – Requirements for Organizations Exempt from Tax ........................................... 162

Sec. 5301. Repeal of tax-exempt status for professional sports leagues. .......................... 162

Sec. 5302. Repeal of exemption from tax for certain insurance companies and co-op 

health insurance issuers. .................................................................................. 163

Sec. 5303. In-State requirement for workmen’s compensation insurance organizations. . 163

Sec. 5304. Repeal of Type II and Type III supporting organizations. ............................... 164

Title VI – Tax Administration and Compliance ......................................................................... 165

Subtitle A – IRS Investigation-Related Reforms .................................................................... 165

Sec. 6001. Organizations required to notify Secretary of intent to operate as 501(c)(4)... 165

Sec. 6002. Declaratory judgments for 501(c)(4) organizations. ........................................ 166

Sec. 6003. Restriction on donation reporting for certain 501(c)(4) organizations. ........... 167

Sec. 6004. Mandatory electronic filing for annual returns of exempt organizations. ........ 167

Sec. 6005. Duty to ensure that IRS employees are familiar with and act in accord 

with certain taxpayer rights.............................................................................. 168

Sec. 6006. Termination of employment of IRS employees for taking official actions 

for political purposes. ...................................................................................... 168

Sec. 6007. Release of information regarding the status of certain investigations. ............ 169

Sec. 6008. Review of IRS examination selection procedures............................................ 169

Sec. 6009. IRS employees prohibited from using personal email accounts for official 

business. ........................................................................................................... 170

Sec. 6010. Moratorium on IRS conferences. ..................................................................... 170

Sec. 6011. Applicable standard for determinations of whether an organization is 

operated exclusively for the promotion of social welfare................................ 170

Subtitle B – Taxpayer Protection and Service Reforms ......................................................... 171

Sec. 6101. Extension of IRS authority to require truncated Social Security numbers 

on Form W-2. .................................................................................................. 171

Sec. 6102. Free electronic filing. ....................................................................................... 172

Sec. 6103. Pre-populated returns prohibited. ..................................................................... 172

Sec. 6104. Form 1040SR for seniors. ................................................................................ 173

Sec. 6105. Increased refund and credit threshold for Joint Committee on Taxation 

review of C corporation return. ........................................................................ 174

Subtitle C – Tax Return Due Date Simplification .................................................................. 174

Secs. 6201-6203. Due dates for returns of partnerships, S corporations, and 

C corporations; Modification of due dates by regulation; Corporations 

permitted statutory automatic 6-month extension of income tax returns. ....... 174

Subtitle D – Compliance Reforms .......................................................................................... 175

Sec. 6301. Penalty for failure to file. ................................................................................. 175
Prepared by Ways and Means Committee Majority Tax Staff xi 

Sec. 6302. Penalty for failure to file correct information returns and provide payee 

statements......................................................................................................... 175

Sec. 6303. Clarification of 6-year statute of limitations in case of overstatement 

of basis. ............................................................................................................ 176

Sec. 6304. Reform of rules related to qualified tax collection contracts. .......................... 176

Sec. 6305. 100 percent continuous levy on payments to Medicare providers and 

suppliers. .......................................................................................................... 177

Sec. 6306. Treatment of refundable credits for purposes of certain penalties. .................. 178

Title VII – Excise Taxes ............................................................................................................. 179

Sec. 7001. Repeal of medical device excise tax. ............................................................... 179

Sec. 7002. Modifications relating to oil spill liability trust fund. ...................................... 179

Sec. 7003. Modification relating to inland waterways trust fund financing rate. .............. 179

Sec. 7004. Excise tax on systemically important financial institutions. ............................ 180

Sec. 7005. Clarification of orphan drug exception to annual fee on branded 

prescription pharmaceutical manufacturers and importers. ............................. 181

Title VIII – Deadwood and Technical Provisions ...................................................................... 182

Subtitle A – Repeal of Deadwood .......................................................................................... 182

Secs. 8001-8084. Repeal of Deadwood. ............................................................................ 182

Subtitle B – Conforming Amendments Related to Multiple Sections .................................... 182

Sec. 8101. Conforming amendments related to multiple sections. .................................... 182
Prepared by Ways and Means Committee Majority Tax Staff xii 
Prepared by Ways and Means Committee Majority Tax Staff 1 

Tax Reform Act of 2014 

Discussion Draft 

Section-by-Section Summary 

Section 1. Short Title; Etc. 

This section provides: (1) a short title for the discussion draft, the “Tax Reform Act of 2014”; 

(2) that when the discussion draft amends or repeals a particular section or other provision, such 

amendment or repeal generally should be considered as referring to sections or provisions of the 

Internal Revenue Code of 1986; and (3) a table of contents. 

Title I – Tax Reform for Individuals

Subtitle A – Individual Income Tax Rate Reform 

Secs. 1001-1003. Simplification of individual income tax rates; Deduction for adjusted net 

capital gain; Conforming amendments related to simplification of individual income tax 

rates.

Current law: Under current law, a taxpayer generally determines his regular tax liability by 

applying the tax rate schedules (or the tax tables) to his regular taxable income. The rate 

schedules are broken into several ranges of income, known as income brackets, and the marginal 

tax rate increases as a taxpayer’s income increases. Separate rate schedules apply based on an 

individual’s filing status. For 2014, there are seven regular individual income tax brackets of 10 

percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. In addition, 

there are five categories of filing status: single, head of household, married filing jointly (and 

surviving spouses), married filing separately, and estates and trusts. For married individuals 

filing jointly, the upper bounds of the 10- and 15-percent brackets are exactly double the upper 

bounds that apply to single individuals, to prevent a marriage penalty from applying at these 

income levels. The income levels for each bracket threshold are indexed annually based on 

increases in the Consumer Price Index (CPI). 

A separate rate schedule applies to adjusted net capital gain and qualified dividends, with rates of 

0 percent, 15 percent, and 20 percent. Additional rates of 25 percent and 28 percent apply to 

unrecaptured section 1250 gain and 28-percent rate gain (collectibles gain and section 1202 

gain), respectively. Special rules (i.e., the so-called “kiddie tax”) apply to certain unearned 

income of children, taxing a portion of such income at the parents’ tax bracket. 

Provision: Under the provision, the current seven tax brackets would be consolidated and 

simplified into three brackets: 10 percent, 25 percent, and 35 percent. Generally, the new 10-

percent bracket would replace the current 10- and 15-percent brackets; the new 25-percent 

bracket would replace the current 25-, 28-, 33-, and 35-percent brackets; and the new 35-percent 

bracket would replace the current 39.6-percent bracket. While the current 25-percent bracket 
Prepared by Ways and Means Committee Majority Tax Staff 2 

begins at $72,500 (2013 dollars) for joint filers (half that amount for single filers), the new 25-

percent bracket would begin at $71,200 (2013 dollars) for joint filers (half that amount for single 

filers). The new 35-percent bracket would begin at the same income levels as the current 39.6-

percent bracket (e.g., $400,000 for single filers and $450,000 for joint filers in 2013). Beginning 

in tax year 2015, these income levels would be indexed for chained CPI instead of CPI, a slightly 

different measure of inflation. 

The 35-percent bracket would not apply to qualified domestic manufacturing income (QDMI), 

meaning that such income would be subject to a maximum statutory rate of 25 percent. QDMI 

generally would be net income attributable to domestic manufacturing gross receipts. Domestic 

manufacturing gross receipts would include gross receipts derived from (1) any lease, rental, 

license, sale, exchange, or other disposition of tangible personal property that is manufactured, 

produced, grown, or extracted by the taxpayer in whole or in significant part within the United 

States, or (2) construction of real property in the United States as part of the active conduct of a 

construction trade or business. Income that either is net earnings from self-employment or 

results from an adjustment under Code section 481 (for changes in accounting methods) would 

not qualify as QDMI. Puerto Rico would be considered “domestic” for these purposes, and other 

rules similar to those under current-law Code section 199 would apply. Finally, the exemption 

of QDMI from the 35-percent bracket would be phased in over three years, with only one-third 

of QDMI being excluded from the top bracket in tax year 2015, and two-thirds being excluded in 

2016.

In addition, certain tax preferences could only be taken against the 25-percent bracket, but not 

the 35-percent bracket. These tax preferences would include: the standard deduction; all 

itemized deductions except the deduction for charitable contributions; the foreign earned income 

exclusion (including the exclusions for income from Puerto Rico and U.S. possessions); taxexempt interest; employer contributions to health, accident, and defined contribution retirement 

plans to the extent excluded from gross income; the deduction for health premiums of the selfemployed; the deduction for contributions to Health Savings Accounts; and the portion of Social 

Security benefits excluded from gross income. 

The 25-percent cap that would apply to both the maximum rate imposed on QDMI and the rate 

against which certain tax preferences may be taken would be administered by imposing the 

difference between the 25-percent bracket and the 35-percent bracket (i.e., 10 percentage points) 

on modified adjusted gross income (MAGI) rather than taxable income. MAGI would equal 

adjusted gross income, plus the above-the-line deductions and exclusions listed above, minus 

QDMI and charitable contributions. 

For high-income taxpayers, the provision would phase out the tax benefit of the 10-percent 

bracket, measured as the difference between what the taxpayer pays and what the taxpayer would 

have paid had the first dollar of taxable income been subject to the 25-percent bracket. This tax 

benefit is phased out at a rate of $5 of tax savings for every $100 of modified adjusted gross 

income in excess of $250,000 (single filers) or $300,000 (joint filers). These thresholds are 

adjusted for chained CPI in tax years after 2013. 
Prepared by Ways and Means Committee Majority Tax Staff 3 

The special rate structure for net capital gain would be repealed. Instead, non-corporate 

taxpayers could claim an above-the-line deduction equal to 40 percent of adjusted net capital 

gain. Adjusted net capital gain would equal the sum of net capital gain and qualified dividends, 

reduced by net collectibles gain. 

The provision would be effective for tax years beginning after 2014. 

Considerations:

Overall, the changes to the individual rate structure would create a simpler, fairer, and 

flatter Federal income tax. 

Most economists consider chained CPI to represent a more accurate measure of inflation 

than CPI. 

Qualifying for head of household filing status requires a taxpayer to comply with a 

complicated set of rules, and comparable relief for single individuals with dependents 

could be provided through simpler changes to certain deductions and credits. 

The modified tax preference for long-term capital gains and dividends would result in 

such income being taxed at 60 percent of the taxpayer’s marginal rate. Thus, for

example, taxpayers in the 35-percent bracket would pay an effective rate of 21 percent on 

adjusted net capital gain. Combining this with the additional 3.8 percent tax imposed on 

such income by Code section 1411 yields a top effective rate of 24.8 percent, slightly 

lower than the top effective rate under current law, which is 25 percent. 

The 40-percent deduction for adjusted net capital gain would greatly simplify the 

calculation of the tax preference for such income relative to current law, and is similar to 

how the tax preference was structured prior to enactment of the Tax Reform Act of 1986. 

Excluding qualified domestic manufacturing income from the 35-percent bracket would 

ensure that small businesses and pass-through entities (such as S corporations and 

partnerships) engaged in such activity are taxed at a rate no higher than 25 percent, 

achieving parity with C corporations under the discussion draft. 

JCT estimate: According to JCT, the provisions, along with sections 3132 and 3139 of the 

discussion draft, would reduce revenues by $498.7 billion over 2014-2023, and increase outlays 

by $0.4 billion over 2014-2023. 

Subtitle B – Simplification of Tax Benefits for Families 

Considerations for Subtitle B: 

The Code currently includes six basic family tax benefits, each with its own rules, 

eligibility criteria, and calculations. 

Three – the basic standard deduction, additional standard deduction, and personal 

exemption for taxpayer and spouse – are intended to shield a minimum level of income 

from Federal income taxation, with the level depending on whether the taxpayer is single 

or married. 

The other three – personal exemptions for children and dependents, the child tax credit, 

and head of household filing status – are intended to deliver additional tax benefits to 

households with children and dependents. 
Prepared by Ways and Means Committee Majority Tax Staff 4 

Consolidating these six benefits into three simpler benefits – a larger standard deduction, 

an additional deduction for single parents, and an enhanced child and dependent tax 

credit – would achieve the same policy and distributional goals as current law while 

making the Code much simpler for low- and middle-income families. 

Sec. 1101. Standard deduction. 

Current law: Under current law, an individual reduces adjusted gross income (AGI) by any 

personal exemption deductions and either (1) the applicable standard deduction or (2) his 

itemized deductions to determine taxable income. The basic standard deduction varies 

depending upon a taxpayer’s filing status. For 2013, the amount of the standard deduction was 

$6,100 for single individuals and married individuals filing separate returns, $8,950 for heads of 

households, and $12,200 for married individuals filing a joint return (and surviving spouses). An 

additional standard deduction is allowed with respect to any individual who is elderly or blind. 

The amounts of the basic and additional standard deductions are indexed annually for inflation 

(CPI). In lieu of taking the applicable standard deductions, an individual may elect to itemize 

deductions.

Provision: Under the provision, the basic and additional standard deductions would be 

consolidated into a single standard deduction of $22,000 for joint filers (and surviving spouses) 

and $11,000 for other individual filers. Single filers with at least one qualifying child could 

claim an additional deduction of $5,500, regardless of whether or not they itemize deductions. 

These amounts would be adjusted annually from tax year 2013 based on changes in the chained 

CPI. 

The standard deduction – or in the case of itemizers, an equivalent amount of itemized 

deductions – would phase out by $20 for every $100 by which modified adjusted gross income 

(MAGI) exceeds $517,500 for joint filers and $358,750 for single filers. The additional 

deduction for single filers with a qualifying child would phase out by one dollar for every dollar 

by which AGI exceeds $30,000. The phase-out threshold amounts also are adjusted for inflation 

based on 2013 dollars. 

The provision would be effective for tax years beginning after 2014. 

Considerations:

The increase in the standard deduction would achieve substantial simplification by 

reducing the number of taxpayers who choose to itemize their deductions – from roughly 

one-third under current law to only 5 percent under the discussion draft (in 2015). 

While the provision eliminates the additional standard deduction for the elderly and 

blind, the increase in the standard deduction more than compensates these taxpayers for 

this simplification. 

JCT estimate: According to JCT, the provision would reduce revenues by $578.3 billion over 

2014-2023, and increase outlays by $87.9 billion over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 5 

Sec. 1102. Increase and expansion of child tax credit. 

Current law: Under current law, an individual may claim a tax credit for each qualifying child 

under the age of 17. The amount of the credit per child is $1,000. The aggregate amount of 

child credits that may be claimed is phased out by $50 for each $1,000 of MAGI over $75,000 

for single filers and $110,000 for joint filers. Neither the $1,000 credit amount nor the MAGI 

thresholds are indexed for inflation. The taxpayer must submit a valid taxpayer identification 

number (TIN) for each child for whom the credit is claimed. 

To the extent the child credit exceeds the taxpayer’s tax liability, the taxpayer is eligible for a 

refundable credit (the additional child tax credit, or ACTC) equal to 15 percent of earned income 

in excess of $3,000 for tax years beginning before 2018, or $10,000 thereafter, indexed for 

changes in the CPI since calendar year 2000. The taxpayer is not required to have a Social 

Security number (SSN) to claim the refundable portion of the credit, and (unlike with the EITC) 

taxpayers claiming the foreign earned income exclusion may qualify for the refundable portion 

of the credit. 

Provision: Under the provision, the child credit would be increased to $1,500 and would be 

allowed for qualifying children under the age of 18. A reduced credit of $500 would be allowed 

for non-child dependents. Both the $1,500 and $500 credit amounts would be indexed annually 

for changes in the chained CPI. The credit would be refundable to the extent of 25 percent of the 

taxpayer’s earned income (earned income in excess of $3,000 before 2018). The credit would 

not begin to phase out until MAGI exceeds $413,750 for single filers and $627,500 for joint 

filers (indexed for inflation, using 2013 dollars). 

To reduce waste, fraud, and abuse, a taxpayer would be required to provide his SSN, but not an 

SSN for the child or dependent, to claim the refundable portion of the credit. The IRS would be 

granted math error authority to adjust the returns of taxpayers failing to satisfy the identification 

requirements. The refundable portion of the credit would be disallowed for taxpayers claiming 

the foreign earned income exclusion. 

The provision would be effective for tax years beginning after 2014. 

Considerations:

The cost of raising children increases every year, but the current law child tax credit fails 

to recognize this because it is not indexed for inflation. 

Consolidating the personal exemption for children and dependents and the child tax credit 

into a single tax credit achieves simplification while better targeting relief to low- and 

middle-income families. 

Increasing the phase-out level dramatically would reward more families with children 

and would simplify the Code for middle class families currently forced to perform a 

phase-out computation. 

JCT estimate: According to JCT, the provision would reduce revenues by $277.9 billion over 

2014-2023, and increase outlays by $276.1 billion over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 6 

Sec. 1103. Modification of earned income tax credit. 

Current law: Under current law, a refundable earned income tax credit (EITC) is available to 

low-income workers who satisfy certain requirements. The amount of the EITC varies 

depending upon the taxpayer’s earned income and whether the taxpayer has zero, one, two, or 

more than two qualifying children. In 2013, the maximum EITC (regardless of filing status) was 

$6,044 for taxpayers with more than two qualifying children, $5,372 for taxpayers with two 

qualifying children, $3,250 for taxpayers with one qualifying child, and $487 for taxpayers with 

no qualifying children. For tax year 2013, the credit amount begins to phase out at an income 

level of $17,530 ($7,970 for taxpayers with no qualifying children). The phase-out percentages 

are 15.98 percent for taxpayers with one qualifying child, 17.68 percent for two or more 

qualifying children, and 7.65 percent for no qualifying children. 

Provision: Under the provision, the EITC would be modified so that it would refund 

employment-related taxes (i.e., payroll taxes and self-employment taxes) paid by or with respect 

to the individual. The employee’s share of payroll taxes would be offset by a credit against such 

taxes, while the employer’s share would be rebated through a refundable income tax credit. 

Only taxpayers with at least one qualifying child could qualify for the credit against the 

employer’s share of payroll taxes. For taxpayers without a qualifying child, the maximum credit 

amount would be $200 for joint filers ($100 for other filers). For taxpayers with one qualifying 

child, the maximum credit would be $2,400. For taxpayers with more than one qualifying child, 

the maximum credit would be $4,000 in the case of a joint return and $3,000 in other cases. 

These credit amounts would be indexed for chained CPI based on 2013 dollars. 

A special rule would apply to tax years 2015, 2016, and 2017 that would make the credit equal to 

200 percent of the taxpayer’s payroll taxes (both employee and employer shares). In addition, 

taxpayers with one qualifying child could claim a maximum credit of $3,000 (rather than 

$2,400), and taxpayers with two or more qualifying children could claim a maximum credit of 

$4,000, regardless of filing status. 

The credit would phase out as AGI exceeds certain levels. For taxpayers with qualifying 

children, the credit would begin phasing out at $20,000 for single filers and $27,000 for joint 

filers. For taxpayers without qualifying children, the credit would begin phasing out at $8,000 

for single filers and $13,000 for joint filers. These thresholds would be indexed to chained CPI, 

based on 2013 dollars. The phase-out percentages would be 19 percent for filers with one or 

more qualifying children and 7.65 percent for no qualifying children. 

Finally, the provision would require the Treasury Department to report to Congress, within 180 

days of the date of enactment, recommendations for providing advance payments of the EITC (1) 

as promptly as feasible, and (2) with minimal administrative burden imposed on employers and 

the IRS. 

The provision would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 7 

Considerations:

Exempting a portion of wages from payroll tax would represent a tax cut, whereas the 

current EITC constitutes government spending. 

The Treasury Inspector General for Tax Administration (TIGTA) recently estimated that 

up to 25 percent of EITC payments are improper (including fraudulent claims), costing 

the Federal government up to $132 billion over the last 10 years. 

The EITC calculation is highly complex, and TIGTA has estimated that as many as 22 

percent of eligible taxpayers fail to claim it. 

Simply allowing low-income taxpayers a rebate of their payroll taxes is both much 

simpler and more transparent than current law, with the potential for fraud reduced by the 

direct link to payroll taxes withheld on a taxpayer’s Form W-2.

Allowing a larger maximum credit for joint filers than for other filers helps to reduce the 

marriage penalty embedded in the current EITC. 

JCT estimate: According to JCT, the provision would reduce revenues by $160.8 billion over 

2014-2023, and reduce outlays by $378.0 billion over 2014-2023. 

Sec. 1104. Repeal of deduction for personal exemptions. 

Current law: Under current law, a taxpayer generally may claim personal exemptions for the 

taxpayer, the taxpayer’s spouse, and any dependents. For 2013, taxpayers may deduct $3,900 for 

each personal exemption. This amount is indexed annually for inflation (CPI). Additionally, the 

personal exemption phase-out (PEP) reduces a taxpayer’s personal exemptions by 2 percent for 

each $2,500 ($1,250 for married filing separately) by which the taxpayer’s AGI exceeds 

$250,000 (single), $275,000 (head-of-household), $300,000 (married filing jointly), and 

$150,000 (married filing separately). These threshold amounts apply to tax year 2013 and also 

are indexed for inflation. 

Provision: Under the provision, the deduction for personal exemptions would be repealed. The 

provision would be effective for tax years beginning after 2014. 

Considerations:

The personal exemption for the taxpayer and taxpayer’s spouse would be consolidated 

into a larger standard deduction. 

The personal exemption for children and dependents would be consolidated into an 

expanded child and dependent tax credit. 

JCT estimate: According to JCT, the provision would increase revenues by $859.1 billion over 

2014-2023, and reduce outlays by $128.1 billion over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 8 

Subtitle C – Simplification of Education Incentives 

Considerations for Subtitle C: 

Under current law, there are 15 different tax benefits relating to education that often 

overlap with one another. 

The current-law education tax benefits are so complicated that they are ineffective 

because many taxpayers cannot determine the tax benefits for which they are eligible. 

The IRS publication on tax benefits for education is almost 90 pages long. 

Streamlining education tax benefits would enable taxpayers to understand better the tax 

benefits for which they qualify. 

The provisions would help to simplify considerably the tax benefits relating to education. 

Sec. 1201. American opportunity tax credit. 

Current law: Under current law, the American Opportunity Tax Credit (AOTC) replaces the 

pre-existing Hope Scholarship Credit (HSC) through the end of 2017. The AOTC provides a 

100-percent tax credit for the first $2,000 of certain higher education expenses and a 25-percent 

tax credit for the next $2,000 of such expenses, for a maximum credit of $2,500. The expenses 

that are eligible for the AOTC include tuition, fees and course materials. Up to 40 percent of the 

AOTC is refundable. The AOTC is available for up to four years of post-secondary education in 

a degree or certificate program, and generally phases out between modified adjusted gross 

income (MAGI) of $160,000 and $180,000 for joint filers and $80,000 and $90,000 for other 

filers. 

After 2017, the AOTC expires and taxpayers may claim the HSC instead. Generally, the HSC is 

less generous than the AOTC in that it: (1) provides a credit of 100 percent of the first $1,000 in 

expenses and 50 percent of the next $1,000 in expenses; (2) applies only to tuition and fees; (3) 

is available only for two years of post-secondary education; (4) phases out at MAGI of $80,000 

to $100,000 (joint filers) and $40,000 to $50,000 (other filers); and (5) is not refundable. (Under 

the HSC, all dollar amounts are indexed for inflation using 2000 as the base year.) As an 

alternative to the AOTC or the HSC, taxpayers may instead elect the Lifetime Learning Credit 

(LLC) for 20 percent of up to $10,000 of qualified education expenses for post-secondary 

education. There is no limit on the number of years the LLC may be claimed for each student. 

For 2014, the LLC generally phases out for taxpayers with MAGI between $54,000 and $64,000 

($108,000 and $128,000 for joint filers). These income phase-outs are adjusted for inflation. 

Prior to 2014, an individual also could claim an above-the-line deduction for qualified tuition 

and related expenses incurred. The maximum amount of the deduction was $4,000 for taxpayers 

whose adjusted gross income (AGI) did not exceed $65,000 ($130,000 in the case of a joint 

return), and $2,000 for taxpayers whose AGI did not exceed $80,000 ($160,000 in the case of a 

joint return). 

Pell Grants generally may be used for a wider array of expenses than the AOTC or the HSC. 

However, Pell Grants must be first used against the expenses that are also covered by the AOTC 

or the HSC. These ordering rules have led to taxpayer confusion. 
Prepared by Ways and Means Committee Majority Tax Staff 9 

Certain educational institutions are also subject to Federal tax reporting requirements regarding 

tuition and related expenses that may be satisfied by providing either the amounts billed or the 

amounts paid. 

Provision: Under the provision, the four existing higher education tax benefits described above 

– AOTC, HSC, LLC, and the tuition deduction – would be consolidated into a permanent, 

reformed AOTC. The new AOTC, like the current, temporary AOTC, would provide a 100-

percent tax credit for the first $2,000 of certain higher education expenses and a 25-percent tax 

credit for the next $2,000 of such expenses. Also like the current AOTC, it would be available 

for up to four years of higher education, and eligible expenses would include tuition, fees and 

course materials. The provision would provide greater refundability, with the first $1,500 of the 

credit being refundable. The credit would generally phase out for MAGI between $86,000 and 

$126,000 for joint filers and $43,000 and $63,000 for other filers. The credit amounts and phaseout ranges would be indexed for inflation starting in 2018. The HSC, LLC, and tuition deduction 

would be repealed. 

The provision would deem Pell Grants to be applied first against expenses not covered by the 

AOTC. Thus, qualified tuition and related expenses that may be used for calculating the AOTC 

would be reduced by Pell Grants only to the extent the Pell Grants exceed the non-AOTC 

covered costs of college attendance. 

To reduce credit overpayments, educational institutions subject to current reporting requirements 

would be required to report amounts paid rather than amounts billed. 

The provision would be effective for tax years beginning after 2014. 

Consideration: The provision would help to simplify the tax benefits relating to education by 

consolidating four similar, but not identical, tax benefits – AOTC, HSC, and LLC, and the 

deduction for qualified tuition and related expenses – into a single, easy-to-understand tax credit. 

JCT estimate: According to JCT, the provision, along with section 1202 of the discussion draft, 

would increase revenues by $29.4 billion over 2014-2023 and would increase outlays by $38.1 

billion over 2014-2023. 

Sec. 1202. Expansion of Pell Grant exclusion from gross income. 

Current law: Under current law, qualified scholarship amounts, such as Pell Grants, received 

by a degree candidate at a qualifying educational organization are generally excluded from gross 

income. However, such scholarship amounts are only excluded if used for qualified tuition and 

related expenses, a category that does not include room and board. 

Provision: Under the provision, all Pell Grants would be excluded from income regardless of 

how they are used. The provision would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 10 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 1201 of the discussion draft. 

Sec. 1203. Repeal of exclusion of income from United States savings bonds used to pay 

higher education tuition and fees. 

Current law: Under current law, interest on United States savings bonds is excluded from 

income if used to pay qualified higher education expenses. Only taxpayers with MAGI below 

certain (inflation-adjusted) levels qualify for the exclusion. For 2014, the exclusion phases out 

between $113,950 and $143,950 for joint returns and between $76,700 and $91,000 for other 

returns. 

Provision: The provision would repeal the exclusion for interest on United States savings bonds 

used to pay qualified higher education expenses. The provision would be effective for tax years 

beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 1204. Repeal of deduction for interest on education loans. 

Current law: Under current law, an individual may claim an above-the-line deduction for 

interest payments on qualified education loans for qualified higher education expenses of the 

taxpayer, the taxpayer’s spouse, or dependents. The maximum amount of the deduction is 

$2,500. Only taxpayers with MAGI below certain inflation-adjusted amounts qualify for the 

exclusion. For 2014, the exclusion phases out between $130,000 and $160,000 for joint returns 

and between $65,000 and $80,000 for other returns. 

Provision: The provision would repeal the deduction for interest on education loans. The 

provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $13.0 billion over 

2014-2023.

Sec. 1205. Repeal of deduction for qualified tuition and related expenses. 

Current law: Under current law, an individual could claim an above-the-line deduction for 

qualified tuition and related expenses incurred in tax years beginning before 2014. The 

maximum amount of the deduction was $4,000 for taxpayers whose adjusted gross income (AGI) 

did not exceed $65,000 ($130,000 in the case of a joint return), and $2,000 for taxpayers whose 

AGI did not exceed $80,000 ($160,000 in the case of a joint return). 
Prepared by Ways and Means Committee Majority Tax Staff 11 

Provision: The provision would repeal the deduction for qualified tuition and related expenses. 

The provision would be effective for tax years beginning after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 1206. No new contributions to Coverdell education savings accounts. 

Current law: Under current law, Coverdell education savings accounts, which are established 

for the purpose of paying qualified education expenses of a named beneficiary, are exempt from 

tax. Contributions are not deductible and may not exceed $2,000 per beneficiary annually, and 

may not be made after the designated beneficiary reaches age 18 (except in the case of a special 

needs beneficiary). The contribution limit is phased out for contributors with modified adjusted 

gross income between $95,000 and $110,000 ($190,000 and $220,000 for married taxpayers 

filing a joint return). Distributions from a Coverdell account are excludable from the gross 

income of the beneficiary if used to pay for qualified education expenses. Qualified education 

expenses include qualified higher education expenses and qualified elementary and secondary 

school expenses for attendance in kindergarten through grade 12. 

Provision: The provision would prohibit new contributions to Coverdell education savings 

accounts after 2014 (except rollover contributions), but would allow tax-free rollovers from 

Coverdell accounts into section 529 plans. The provision would be effective for contributions 

made and distributions after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 1207. Repeal of exclusion for discharge of student loan indebtedness. 

Current law: Under current law, discharge of indebtedness generally constitutes taxable 

income. However, an exception applies to student loans that are forgiven because the former 

students work for a period of time in certain professions or for certain classes of employers. The 

exception also applies to loan repayments as part of the National Health Services Corps Loan 

Repayment Program and loan repayments or forgiveness under certain State loan repayment 

programs intended to provide for increased health care services in certain areas. 

Provision: Under the provision, the exclusion for discharge of student loan indebtedness would 

be repealed. The provision would be effective for amounts discharged after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.1 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 12 

Sec. 1208. Repeal of exclusion for qualified tuition reductions. 

Current law: Under current law, qualified tuition reductions provided by educational 

institutions to their employees, spouses, or dependents are excluded from income. The exclusion 

may be provided in the form of either reduced tuition or cash. The reduction must be part of a 

program that does not discriminate in favor of highly compensated employees and may not apply 

to graduate programs (except for a graduate student who is teaching or a research assistant). 

Provision: Under the provision, the exclusion for qualified tuition reduction programs would be 

repealed. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $2.5 billion over 

2014-2023.

Sec. 1209. Repeal of exclusion for education assistance programs. 

Current law: Under current law, employer-provided education assistance is excluded from 

income. The exclusion is limited to $5,250 per year and applies to both graduate and 

undergraduate courses. The education assistance must be part of a written plan of the employer 

that does not discriminate in favor of highly compensated employees. 

Provision: Under the provision, the exclusion for education assistance programs would be 

repealed. Employer-provided education assistance may still be excluded as a working condition 

fringe benefit, however, if it is related to the employee’s performance of his job duties for the 

employer. The provision would be effective for amounts paid or incurred after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $10.5 billion over 

2014-2023.

Sec. 1210. Repeal of exception to 10-percent penalty for higher education expenses.

Current law: Under current law, an additional 10-percent tax generally is imposed on 

distributions from retirement plans and Individual Retirement Accounts (IRAs) occurring before 

the account holder reaches age 591⁄2. This 10-percent tax is in addition to any income tax that 

may be due on the distribution. There are several exceptions to the early withdrawal penalty, 

including early distributions to pay for higher education expenses. 

Provision: Under the provision, the exception to the additional 10-percent tax for early 

distributions used to pay for higher education expenses would be repealed. The provision would 

be effective for distributions after 2014. 

Consideration: This provision would help Americans achieve greater retirement security by 

encouraging taxpayers not to make withdrawals from their accounts before retirement. 
Prepared by Ways and Means Committee Majority Tax Staff 13 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 1605 of the discussion draft. 

Subtitle D – Repeal of Certain Credits for Individuals 

Sec. 1301. Repeal of dependent care credit. 

Current law: Under current law, a taxpayer may claim a non-refundable credit for a portion of 

the taxpayer's employment-related expenses for household services and the care of qualifying 

individuals. The credit takes into account up to $3,000 of such expenses for households with one 

qualifying individual, and $6,000 for two qualifying individuals. Taxpayers whose adjusted 

gross income is $15,000 or less may claim a credit of 35 percent of expenses. The credit rate 

phases down to 20 percent as adjusted gross income increases from $15,000 to $43,000 (meaning 

that taxpayers with incomes exceeding $43,000 may claim a maximum credit of $600). 

Provision: Under the provision, the dependent care credit would be repealed. The provision 

would be effective for tax years beginning after 2014. 

Considerations:

The dependent care credit is complex and overlaps with other tax provisions that provide 

tax benefits for families.

Consolidating redundant and complex family tax benefits, such as the dependent care 

credit, into an increased child credit and standard deduction would result in significant 

simplification.

JCT estimate: According to JCT, the provision would increase revenues by $20.0 billion over 

2014-2023, and would reduce outlays by $6.0 billion over 2014-2023. 

Sec. 1302. Repeal of credit for adoption expenses. 

Current law: Under current law, a taxpayer may claim an adoption tax credit of $13,190 per 

eligible child for 2014 (both special needs and non-special needs adoptions). These benefits are 

phased-out for taxpayers with modified adjusted gross income (MAGI) between $197,880 and 

$237,880 for 2014. The amount of the credit and the income phase-outs are indexed for 

inflation. For a non-special needs adoption, the credit amount is limited to actual adoption 

expenses. The credit is not refundable, but unused amounts may be carried forward for five 

years. 

Provision: Under the provision, the adoption credit would be repealed. The provision would be 

effective for amounts paid or incurred after 2014 for non-special needs adoptions. For special 

needs adoptions, amounts deemed to have been paid for purposes of the credit shall be treated as 

paid on the date the adoption was finalized. 
Prepared by Ways and Means Committee Majority Tax Staff 14 

Considerations:

The adoption credit can be complex and overlaps with other tax provisions that provide 

tax benefits for families.

Consolidating redundant and complex family tax benefits, such as the adoption credit, 

into an increased child credit and standard deduction would result in significant 

simplification.

JCT estimate: According to JCT, the provision would increase revenues by $4.7 billion over 

2014-2023.

Sec. 1303. Repeal of credit for nonbusiness energy property. 

Current law: Under current law, a taxpayer could claim a credit of 10 percent of expenditures 

for energy-efficient improvements to the building envelope (e.g., windows, doors, skylights, and 

roofs) of principal residences and credits of fixed dollar amounts ranging from $50 to $300 for 

energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, 

central air conditioners and circulating fans, for property placed in service before 2014. The 

credit was subject to a lifetime cap of $500. The credit expired at the end of 2013. 

Provision: Under the provision, the credit for nonbusiness energy property would be repealed. 

The provision would be effective for property placed in service after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 1304. Repeal of credit for residential energy efficient property. 

Current law: Under current law, a taxpayer may claim a credit for the purchase of qualified 

solar electric property and qualified solar water heating property that is used exclusively for 

purposes other than heating swimming pools and hot tubs. The credit is equal to 30 percent of 

qualifying expenditures. There also is a 30-percent credit for the purchase of qualified 

geothermal heat pump property, qualified small wind energy property, and qualified fuel cell 

power plants. The credit applies to property placed in service prior to 2017. 

Provision: Under the provision, the credit for residential energy efficient property would be 

repealed. The provision would be effective for property placed in service after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $2.3 billion over 

2014-2023.

Sec. 1305. Repeal of credit for qualified electric vehicles. 

Current law: Under current law, a taxpayer could claim a 10-percent credit for the cost of a 

qualified plug-in electric-drive motor vehicle that is either a low-speed vehicle, motorcycle, or 
Prepared by Ways and Means Committee Majority Tax Staff 15 

three-wheeled vehicle prior to 2012. Two- or three-wheeled vehicles must have a battery 

capacity of at least 2.5 kilowatt-hours. Other vehicles must have a battery capacity of at least 4 

kilowatt-hours. The maximum credit for such vehicles was $2,500. The credit was available for 

vehicles acquired after February 17, 2009, and before January 1, 2012. 

Provision: Under the provision, the credit for qualified electric vehicles would be repealed. The 

provision would be effective for vehicles acquired after 2011. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2013. 

Sec. 1306. Repeal of alternative motor vehicle credit. 

Current law: Under current law, a taxpayer may claim a credit for each new qualified fuel cell 

vehicle, hybrid vehicle, advanced lean burn technology vehicle, and alternative fuel vehicle 

placed in service by the taxpayer during the tax year. The credit amount varies depending upon 

the type of technology used, the weight class of the vehicle, the amount by which the vehicle 

exceeds certain fuel economy standards, and, for some vehicles, the estimated lifetime fuel 

savings. The credit generally is available for vehicles purchased after 2005, but terminates after 

2009, 2010, or 2014, depending on the type of vehicle. 

Provision: Under the provision, the credit for qualified fuel cell motor vehicles would be 

repealed. The provision would be effective for property purchased after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 1307. Repeal of alternative fuel vehicle refueling property credit. 

Current law: Under current law, a taxpayer 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. The credit may not exceed 

$30,000 per tax year per location in the case of a trade or business, and $1,000 per tax year per 

location in the case of a principal residence. 

Provision: Under the provision, the alternative motor vehicle credit would be repealed. The 

provision would be effective for property placed in service after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 1308. Repeal of credit for new qualified plug-in electric drive motor vehicles. 

Current law: Under current law, a taxpayer may claim a credit for each qualified plug-in 

electric-drive motor vehicle placed in service. A qualified plug-in electric-drive motor vehicle is 

a motor vehicle that has at least four wheels, is manufactured for use on public roads, meets 
Prepared by Ways and Means Committee Majority Tax Staff 16 

certain emissions standards (except for certain heavy vehicles), draws propulsion using a traction 

battery with at least four kilowatt hours of capacity, and is capable of being recharged from an 

external source of electricity. 

For plug-in electric drive vehicles acquired after 2009, the maximum credit is capped at $7,500 

regardless of vehicle weight. In addition, after that date, no credit is available for low speed 

plug-in vehicles or for plug-in vehicles weighing 14,000 pounds or more. 

After 2009, the 250,000 total plug-in vehicle limitation is replaced with a 200,000 plug-in 

vehicles per manufacturer limitation. Under the new limitation, the credit phases out over four 

calendar quarters beginning in the second calendar quarter following the quarter in which the 

manufacturer limit is reached. A limited $2,500 credit was available for certain 2- and 3-wheel 

vehicles through the end of 2013. 

Provision: Under the provision, the credit for new qualified plug-in drive vehicles would be 

repealed. The provision would be effective for vehicles acquired after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $5.0 billion over 

2014-2023.

Sec. 1309. Repeal of credit for health insurance costs of eligible individuals. 

Current law: Under current law, certain individuals could claim a refundable health coverage 

tax credit (HCTC) equal to 72.5 percent of the cost of certain types of health coverage purchased 

prior to 2014. In general, the HCTC was available to individuals who received certain 

unemployment assistance due to trade-related events (i.e., Trade Adjustment Assistance), as well 

as individuals over age 55 who received pension benefits from the Pension Benefit Guaranty 

Corporation. The credit was available for certain employer-based insurance, State-based 

insurance and, in some cases, insurance purchased in the individual market. The credit expired 

for coverage months beginning after 2013. 

Provision: Under the provision, the HCTC would be repealed. The provision would be 

effective for months beginning after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 1310. Repeal of first-time homebuyer credit. 

Current law: Under current law, a first-time homebuyer could claim a refundable tax credit of 

up to 10 percent of the purchase price of a principal residence in the United States for residences 

purchased on or after April 9, 2008, and before May 1, 2010 (or June 30, 2011, for taxpayers on 

qualified official extended duty outside of the United States). The credit amount was limited to 

$8,000 ($4,000 for married individuals filing a separate return). The credit phased out for 

taxpayers with MAGI of $125,000 ($225,000 for married taxpayers filing a joint return). 
Prepared by Ways and Means Committee Majority Tax Staff 17 

Provision: Under the provision, the first-time homebuyer credit would be repealed. The 

provision would be effective for residences purchased after June 30, 2011. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Subtitle E – Deductions, Exclusions, and Certain Other Provisions 

Note: The JCT revenue estimate for the discussion draft reports only the combined, aggregate 

revenue effect of a number of separate provisions making changes to certain itemized 

deductions. The specific provisions for which JCT reports only this aggregate revenue effect are 

as follows:

Sec. 1402. Mortgage interest; 

Sec. 1403. Charitable contributions; 

Sec. 1404. Denial of deduction for expenses attributable to the trade or business of being 

an employee; 

Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade or business; 

Sec. 1406. Repeal of deduction for personal casualty losses; 

Sec. 1408. Repeal of deduction for tax preparation expenses; 

Sec. 1409. Repeal of deduction for medical expenses; 

Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized deductions; and 

Sec. 1415. Repeal of overall limitation on itemized deductions. 

According to JCT, these provisions, taken together, would increase revenues by $853.7 billion 

over 2014-2023, and reduce outlays by $4.7 billion over 2014-2023. 

Sec. 1401. Exclusion of gain from sale of a principal residence. 

Current law: Under current law, a taxpayer may exclude from gross income up to $500,000 for 

joint filers ($250,000 for other filers) of gain on the sale of a principal residence. The property 

generally must have been owned and used as the taxpayer’s principal residence for two out of the 

previous five years. A taxpayer may only use this exclusion once every two years. 

Provision: Under the provision, a taxpayer would have to own and use a home as the taxpayer’s 

principal residence for five out of the previous eight years to qualify for the exclusion. In 

addition, the taxpayer would only be able to use the exclusion once every five years. The 

exclusion would be phased out by one dollar for every dollar by which a taxpayer’s modified 

adjusted gross income (MAGI) exceeds $500,000 ($250,000 for single filers). The provision 

would be effective for sales and exchanges after 2014. 

Considerations:

The provision would continue to protect middle-class homeowners who either do not 

have the documentation to establish basis in their home or who have experienced gains as 

a result of inflation over a long period of ownership. Meanwhile, speculators and so-
Prepared by Ways and Means Committee Majority Tax Staff 18 

called “flippers” in the housing market would not be rewarded for their activity with taxexempt income. 

The provision’s “five-out-of-eight year” rule existed prior to 1978, when Congress 

decided to reduce the necessary holding period. This provision would merely restore the 

holding period requirement to what it was prior to 1978. 

JCT estimate: According to JCT, the provision would increase revenues by $15.8 billion over 

2014-2023.

Sec. 1402. Mortgage interest. 

Current law: Under current law, a taxpayer may claim an itemized deduction for mortgage 

interest paid with respect to a principal residence and one other residence of the taxpayer. 

Itemizers may deduct interest payments on up to $1 million in acquisition indebtedness (for 

acquiring, constructing, or substantially improving a residence), and up to $100,000 in home 

equity indebtedness. Under the alternative minimum tax (AMT), however, the deduction for 

home equity indebtedness is disallowed. 

Premiums paid before 2014 on a private mortgage insurance contract issued after 2006 for 

acquisition indebtedness are generally deductible as qualified residence interest, but this 

deduction phases out for taxpayers with adjusted gross income exceeding $100,000. 

In addition, the discharge of up to $2 million in mortgage debt with respect to a principal 

residence was not subject to tax if the discharge occurred before 2014 and was on account of a 

decline in the value of the residence or the financial condition of the borrower.

Provision: Under the provision, a taxpayer may continue to claim an itemized deduction for 

interest on acquisition indebtedness, but the $1 million limitation would be reduced to $500,000 

in four annual increments, so that the limitation would be $875,000 for debt incurred in 2015, 

$750,000 for debt incurred in 2016, $625,000 for debt incurred in 2017, and $500,000 for debt 

incurred thereafter. Similar to the current-law AMT rule, interest on home equity indebtedness 

incurred after the effective date would not be deductible. The provision would generally be 

effective for interest paid on debt incurred after 2014. In the case of refinancings of debt 

incurred prior to 2018, the refinanced debt generally would be treated as incurred on the same 

date that the original debt was incurred for purposes of determining the limitation amount 

applicable to the refinanced debt. 

The provision also would require that information reporting for mortgage interest also include 

the mortgage origination date and the amount of the outstanding principal on the mortgage as of 

the beginning of the calendar year. The information reporting provision would be effective for 

returns and statements for calendar years after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 19 

Considerations:

The provision would preserve a substantial tax benefit for homeownership without 

affecting most taxpayers, who either do not itemize their deductions or who live in 

moderately priced housing markets. 

Because of other changes in the discussion draft, far fewer taxpayers would choose to 

itemize overall, with the remaining 95 percent of taxpayers finding they are better off by 

taxing advantage of the larger, simpler standard deduction instead. And, for those 

taxpayers who would continue to itemize, no existing mortgage would be affected by this 

provision, and 95 percent of future mortgages are also expected to be unaffected. 

By reducing the current-law $1 million limitation, the provision would more effectively 

promote homeownership, rather than also promoting leveraged purchases of larger homes 

than taxpayers otherwise would acquire without the tax benefit. 

The provision would phase in the reduced limitation and only apply to new debt to avoid 

disrupting the housing market, which more broadly will benefit from comprehensive, 

pro-growth tax reform. Indeed, historical data show that the strength of the nation’s 

housing market is tied more closely to the health of the overall economy than to any 

specific tax policies that may be in place. The best way to promote a thriving housing 

market is to improve the overall economy, which is precisely what comprehensive tax 

reform is designed to achieve. 

By creating a stronger economy, the discussion draft as a whole is estimated – based on 

calculations using data provided by the independent, non-partisan Joint Committee on 

Taxation – to increase the rate of growth in home values by up to 40 percent. 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1403. Charitable contributions. 

Current law: Under current law, a taxpayer may claim an itemized deduction for charitable 

contributions. To be eligible, a contribution must be made by the last day of the tax year for 

which a return is filed. Thus, for a calendar year taxpayer, a contribution must be made on or 

before December 31 to be included on a tax return for that tax year, which must be filed by April 

15 of the following year. 

A charitable contribution deduction is limited to a certain percentage of the individual’s adjusted 

gross income (AGI). The AGI limitation varies depending on the type of property contributed 

and the type of exempt organization receiving the property. In general, cash contributed to 

public charities, private operating foundations, and certain non-operating private foundations 

may be deducted up to 50 percent of the donor’s AGI. Contributions that do not qualify for the 

50-percent limitation (e.g., contributions to private foundations) may be deducted up to the lesser 

of (1) 30 percent of AGI, or (2) the excess of the 50-percent-of-AGI limitation for the tax year 

over the amount of charitable contributions subject to the 30-percent limitation. 

Capital gain (i.e., appreciated) property contributed to public charities, private operating 

foundations, and certain non-operating private foundations may be deducted up to 30 percent of 
Prepared by Ways and Means Committee Majority Tax Staff 20 

AGI. Capital gain property contributed to non-operating private foundations may be deducted up 

to the lesser of (1) 20 percent of AGI, or (2) the excess of the 30-percent-of-AGI limitation over 

the amount of property subject to the 30-percent limitation for contributions of capital gain 

property. In general, qualified conservation contributions (e.g., conservation easements) are 

subject to the 30-percent limitation. Under a temporary provision, however, qualified 

conservation contributions made in tax years beginning before 2014 may be deducted up to 50 

percent of AGI, or up to 100 percent of AGI in the case of property used in agriculture or 

livestock production. 

If an individual contributes more than the applicable AGI limits, the excess contribution 

generally may be carried over and deducted in the following five tax years, or 15 years in the 

case of qualified conservation contributions. 

In general, taxpayers may deduct the fair market value of a charitable contribution. A variety of 

complex rules under current law, however, limit the amount of a charitable deduction to less than 

fair market value (e.g., the taxpayer’s adjusted basis) based on the type of property and charitable 

organization receiving the contribution. 

In general, a charitable deduction is disallowed to the extent a taxpayer receives a benefit in 

return. A special rule, however, permits taxpayers to deduct as a charitable contribution 80 

percent of the value of a contribution made to an educational institution to secure the right to 

purchase tickets for seating at an athletic event in a stadium at that institution. 

In general, the value of a deduction for intellectual property is limited to the property’s adjusted 

basis. Under current law, however, the donor is allowed an additional deduction equal to a 

percentage of the income generated by the intellectual property over the 12 years following the 

contribution, even though that income is likely earned by a tax-exempt entity. 

Provision: Under the provision, numerous changes would be made to the rules applicable to 

charitable contributions, all of which, unless otherwise indicated, would be effective for tax years 

after 2014. 

Extension of time to file: Under the provision, individual taxpayers would be permitted to deduct 

charitable contributions made after the close of the tax year but before the due date of the return 

(April 15 for calendar year taxpayers) for the tax year covered by the return. 

AGI limitations: Under the provision, the AGI limitations on deductible contributions would be 

substantially simplified. First, the 50-percent limitation for cash contributions and the 30-percent 

limitation for contributions of capital gain property to public charities and certain private 

foundations would be harmonized at a single limit of 40 percent. Second, the 30-percent 

contribution limit for cash contributions and the 20-percent limitation for contributions of capital 

gain property that apply to organizations not covered by the current 50-percent limitation rule 

would be harmonized at a single limit of 25 percent. Thus, contributions to this latter group of 

organizations would be allowed to the extent they do not exceed the lesser of (1) 25 percent of 

AGI or (2) the excess of 40 percent of AGI for the tax year over the amount of charitable 

contributions subject to the 25-percent limitation. 
Prepared by Ways and Means Committee Majority Tax Staff 21 

Two-percent floor: Under the provision, an individual’s charitable contributions could be 

deducted only to the extent they exceed 2 percent of the individual’s AGI. The reduction would 

apply to charitable contributions in the following order: first, to contributions subject to the 25-

percent of AGI limitation; second, to qualified conservation contributions; and third, to 

contributions subject to the 40-percent limitation. 

Value of deduction generally limited to adjusted basis: Under the provision, the rules for 

determining the value of the deduction for contributions of property (e.g., fair market value or 

adjusted basis) would be substantially simplified. The amount of any charitable deduction 

generally would be equal to the adjusted basis of the contributed property. For the following 

types of property, however, the deduction would be based on the fair market value of the 

property less any ordinary gain that would have been realized if the property had been sold by 

the taxpayer at its fair market value: 

(1) tangible property related to the purpose of the donee exempt organization; 

(2) any qualified conservation contribution; 

(3) any qualified inventory contribution; 

(4) any qualified research property; and 

(5) publicly traded stock. 

In addition, in the case of inventory contributed solely for the care of the ill, needy, or infants, 

the provision would preserve the current law rule that provides a higher valuation for the 

charitable deduction. 

Qualified conservation contributions: Under the provision, the special, temporary rules for 

conservation easements, including the rules for farmers or ranchers, would be made permanent. 

The general rule would provide that deductions for conservation easements would be limited to 

40 percent of AGI. Farmers and ranchers would still be allowed a charitable deduction up to 100 

percent of AGI for property used in agricultural or livestock production. The provision also 

would clarify that no deduction is permitted for land reasonably expected to be used as a golf 

course. This portion of the provision would be effective for tax years after 2013. 

College athletic event seating rights: Under the provision, the special rule that provides a 

charitable deduction of 80 percent of the amount paid for the right to purchase tickets for athletic 

events would be repealed. 

Income from intellectual property: Under the provision, income from intellectual property 

contributed to a charitable organization would no longer be allowed as an additional contribution 

by the donor. The deduction for the contribution of the intellectual property would be retained. 

Considerations:

Because a taxpayer must itemize to claim a charitable deduction, only about 25 percent of 

Americans benefit from the current charitable contribution rules. While other changes in 

the discussion draft would result in fewer taxpayers choosing to itemize overall – as the 

remaining 95 percent would take advantage of the larger, simpler standard deduction 
Prepared by Ways and Means Committee Majority Tax Staff 22 

instead – the changes to the charitable contribution rules would continue to provide 

significant tax incentives for those who would continue to itemize. 

The provision recognizes that Americans typically contribute to churches, community 

organizations and other public charities out of generosity, not for a tax benefit, which 

only higher income individuals generally claim under current law. The provision would 

continue to provide a tax incentive for individuals who want to make large contributions 

to public charities. 

Moreover, historical data show that the total amount of charitable giving is tied more 

closely to the health of the overall economy than to any specific tax policies that may be 

in place. The best way to promote charitable giving to the organizations doing so much 

good in communities across the country is to improve the overall economy, which is 

precisely what comprehensive tax reform is designed to achieve. 

As noted below, several aspects of the provision would encourage charitable giving in 

important ways, and by creating a stronger economy, the discussion draft as a whole is 

estimated – based on calculations using data provided by the independent, non-partisan 

Joint Committee on Taxation – to increase charitable giving by up to $2.2 billion per 

year. 

Enabling individuals to take charitable deductions in a particular tax year through the due 

date for that return (typically April 15 of the following year) is expected to increase 

charitable giving, since many taxpayers will decide to give more generously at the time 

they are actually preparing and finalizing their returns. 

The provision also would continue to provide an incentive for contributions of 

conservation easements for the benefit of our communities and the environment. 

The provision would simplify the complex rules and limitations with respect to charitable 

contributions to make the tax law easier to understand and to help taxpayers better 

comply with the rules. 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1404. Denial of deduction for expenses attributable to the trade or business of being 

an employee. 

Current law: Under current law, a taxpayer generally may claim a deduction for trade and 

business expenses, regardless of whether the taxpayer itemizes deductions or take the standard 

deduction. Taxpayers generally may claim expenses relating to the trade or business of being an 

employee only if they itemize deductions. Certain expenses attributable to the trade or business 

of being an employee, however, are allowed as above-the-line deductions, including reimbursed 

expenses included in the employee’s income, certain expenses of performing artists, certain 

expenses of State and local government officials, certain expenses of elementary and secondary 

school teachers (for tax years beginning after 2001 and before 2014), and certain expenses of 

members of reserve components of the United States military. 

Provision: Under the provision, a taxpayer would not be allowed an itemized deduction for 

expenses attributable to the trade or business of performing services as an employee. In addition, 
Prepared by Ways and Means Committee Majority Tax Staff 23 

the only above-the-line deductions allowed for expenses attributable to the trade or business of 

being an employee would be those for reimbursed expenses and certain expenses of members of 

reserve components of the United States military. The provision would be effective for tax years 

beginning after 2014. 

Considerations:

In conjunction with an increased standard deduction and lower overall tax rates, the 

provision would simplify the tax laws for taxpayers who currently claim deductions for 

employee business expenses. 

Keeping records of these expenses is often very burdensome for taxpayers, and this 

current-law deduction also poses administrative and enforcement challenges for the IRS. 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade or business. 

Current law: Under current law, an individual may claim an itemized deduction for State and 

local government income and property taxes paid. In lieu of the itemized deduction for State and 

local income taxes, individuals may claim, for tax years beginning before 2014, an itemized 

deduction for State and local government sales taxes. 

Provision: Under the provision, individuals would only be allowed a deduction for State and 

local taxes paid or accrued in carrying on a trade or business or producing income. The 

provision would be effective for tax years beginning after December 31, 2014. 

Considerations:

In conjunction with an increased standard deduction and lower overall tax rates, the 

provision would simplify the tax laws for taxpayers who currently claim itemized 

deductions for non-business State and local taxes. 

The provision would eliminate a tax benefit that effectively subsidizes higher State and 

local taxes and increased spending at the State and local level. 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1406. Repeal of deduction for personal casualty losses. 

Current law: Under current law, an individual may claim an itemized deduction for personal 

casualty losses (i.e., losses not connected with a trade or business or entered into for profit), 

including property losses arising from fire, storm, shipwreck, or other casualty, or from theft. 

Provision: Under the provision, the deduction for personal casualty losses would be repealed. 

The provision would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 24 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1407. Limitation on wagering losses. 

Current law: Under current law, a taxpayer may claim an itemized deduction for losses from 

gambling, but only to the extent of gambling winnings. However, taxpayers may claim other 

deductions connected to gambling that are deductible regardless of gambling winnings. 

Provision: Under the provision, all deductions for expenses incurred in carrying out wagering 

transactions (not just gambling losses) would be limited to the extent of wagering winnings. The 

provision would be effective for tax years beginning after 2014.

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 1408. Repeal of deduction for tax preparation expenses. 

Current law: Under current law, an individual may claim an itemized deduction for tax 

preparation expenses. 

Provision: Under the provision, an individual would not be allowed an itemized deduction for 

tax preparation expenses. The provision would be effective for tax years beginning after 2014

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1409. Repeal of deduction for medical expenses. 

Current law: Under current law, a taxpayer may claim an itemized deduction for out-of-pocket 

medical expenses of the taxpayer, a spouse, or a dependent. This deduction is allowed only to 

the extent the expenses exceed 10 percent of the taxpayer’s adjusted gross income.

Provision: Under the provision, the itemized deduction for medical expenses would be 

repealed. The provision would be effective for tax years beginning after 2014.

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 
Prepared by Ways and Means Committee Majority Tax Staff 25 

Sec. 1410. Repeal of disqualification of expenses for over-the-counter drugs under certain 

accounts and arrangements. 

Current law: Under prior law, expenses incurred for over-the-counter medicine could 

constitute qualified medical expenses for purposes of receiving tax-favored reimbursements from 

Health Savings Accounts, Archer MSAs, and Health Flexible Spending Arrangements (“health 

accounts”). Pursuant to section 9003 of the Patient Protection and Affordable Care Act, 

however, taxpayers now may not receive tax-free disbursements from health accounts to pay for 

medicine other than prescription medication and insulin. 

Provision: Under the provision, the prohibition on using tax-free funds from health accounts to 

pay for over-the-counter drugs would be repealed, and expenses for such medication could again 

constitute qualified medical expenses. The provision would be effective for expenses incurred 

after 2014.

Considerations:

The provision would reinstate the prior-law treatment of over-the-counter drugs as 

qualified expenses for purposes of health accounts, repealing the prohibition on the use of 

tax-free funds from such accounts enacted in the Affordable Care Act (ACA). 

The provision recognizes that diseases and other physical ailments often can be cured, 

mitigated, treated, or prevented through the use of over-the-counter drugs, rather than 

prescription drugs. Moreover, because over-the-counter medicines are often less 

expensive treatment options, repealing the ACA prohibition could help reduce overall 

health care spending.

JCT estimate: According to JCT, the provision would reduce revenues by $3.3 billion over 

2014-2023.

Sec. 1411. Repeal of deduction for alimony payments and corresponding inclusion in gross 

income. 

Current law: Under current law, alimony payments generally are an-above-the line deduction 

for the payor and included in the income of the payee. However, alimony payments are not 

deductible by the payor or includible in the income of the payee if designated as such by the 

divorce decree or separation agreement. 

Provision: Under the provision, alimony payments would not be deductible by the payor or 

includible in the income of the payee. The provision would be effective for any divorce decree 

or separation agreement executed after 2014 and to any modification after 2014 of any such 

instrument executed before such date if expressly provided for by such modification. 

Considerations:

The provision would eliminate what is effectively a “divorce subsidy” under current law, 

in that a divorced couple can often achieve a better tax result for payments between them 

than a married couple can. 
Prepared by Ways and Means Committee Majority Tax Staff 26 

The provision recognizes that the provision of spousal support as a consequence of a 

divorce or separation should have the same tax treatment as the provision of spousal 

support within the context of a married couple, as well as the provision of child support. 

JCT estimate: According to JCT, the provision would increase revenues by $5.5 billion over 

2014-2023.

Sec. 1412. Repeal of deduction for moving expenses. 

Current law: Under current law, a taxpayer may claim a deduction for moving expenses 

incurred in connection with starting a new job, regardless of whether or not the taxpayer itemizes 

his deductions. To qualify, the new workplace generally must be at least 50 miles farther from 

the former residence than the former place of work or, if the taxpayer had no former workplace, 

at least 50 miles from the former residence. 

Provision: Under the provision, the deduction for moving expenses would be repealed. The 

provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $8.0 billion over 

2014-2023.

Sec. 1413. Termination of deduction and exclusions for contributions to medical savings 

accounts.

Current law: Under current law, an individual may claim an above-the-line deduction for 

contributions to an Archer Medical Savings Account (MSA) and exclude from income employer 

contributions to an MSA. In general, Archer MSAs may be set up by an individual working for a 

small employer and who participates in the employer’s high-deductible health plan. The total 

amount of monthly contributions to an Archer MSA may not exceed one-twelfth of 65 percent of 

the annual deductible for an individual with a self-only plan and one-twelfth of 75 percent of the 

annual deductible for an individual with family coverage. Distributions from the accounts used 

to pay qualified medical expenses are not taxable. Archer MSAs may not be established after 

2005. Archer MSA balances may be rolled over on a tax-free basis to another Archer MSA or to 

a Health Savings Account (HSA). 

Provision: Under the provision, no deduction would be allowed for contributions to an Archer 

MSA, and employer contributions to an Archer MSA would not be excluded from income. 

Existing Archer MSA balances, however, could continue to be rolled over on a tax-free basis to 

an HSA. The provision would be effective for tax years beginning after 2014. 

Considerations:

There is no manner in which Archer MSAs are more favorable than HSAs; thus, no 

taxpayer would see his ability to save for future health costs restricted. 
Prepared by Ways and Means Committee Majority Tax Staff 27 

As a result, the provision merely simplifies the Code by consolidating two similar taxfavored accounts into a single account with more taxpayer-friendly rules (i.e., HSAs). 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized deductions. 

Current law: Under current law, “miscellaneous” itemized deductions may only be claimed to 

the extent such deductions in the aggregate exceed 2 percent of adjusted gross income. The floor 

applies to all itemized deductions except for those relating to interest, taxes, casualty or theft 

losses, wagering losses, charitable contributions, medical expenses, impairment-related work 

expenses, the estate tax for income in respect of a decedent, personal property used in a short 

sale, computation of tax where the taxpayer restores a substantial amount held under claim of 

right, annuity payments that cease before the investment is recovered, amortizable bond 

premium, and cooperative housing corporations. The floor applies after the application of any 

other limits on such deductions. 

Provision: Under the provision, the 2-percent floor on miscellaneous itemized deductions 

would be repealed. The provision would be effective for tax years after 2014. 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1415. Repeal of overall limitation on itemized deductions. 

Current law: Under current law, the total amount of otherwise allowable itemized deductions 

(other than medical expenses, investment interest, and casualty, theft, or wagering losses) is 

limited for certain upper-income taxpayers (sometimes referred to as the “Pease limitation”). 

This limitation applies on top of any other limitations applicable to such deductions. Under the 

Pease limitation, the otherwise allowable total amount of itemized deductions is reduced by 3 

percent of the amount by which the taxpayer’s adjusted gross income exceeds a threshold 

amount. For 2013, the threshold amount is (1) $250,000 for single individuals, (2) $300,000 for 

married couples filing joint returns and surviving spouses, (3) $275,000 for heads of households, 

and (4) $150,000 for married individuals filing a separate return. These amounts are indexed for 

inflation for tax years beginning after 2013. The Pease limitation does not reduce itemized 

deductions by more than 80 percent. 

Provision: Under the provision, the overall limitation on itemized deductions would be 

repealed. The provision would be effective for tax years after 2014. 

Consideration: The Pease limitation functions as a hidden increase in the top marginal rate for 

individuals – about 1.2 percent – and adds significant complexity.
Prepared by Ways and Means Committee Majority Tax Staff 28 

JCT estimate: For information about JCT’s revenue estimate for this provision, see the note 

immediately following the heading for Subtitle E of Title I in this document. 

Sec. 1416. Deduction for amortizable bond premium allowed in determining adjusted 

gross income. 

Current law: Under current law, the holder of a taxable debt instrument purchased at a 

premium (i.e., on which the holder paid more for the instrument than the principal payable at 

maturity) may amortize and deduct the premium over the term of the bond. However, bond 

premium amortization deductions may only be claimed as itemized deductions (although the 

deductions are not subject to the 2-percent floor generally applicable to itemized deductions). 

Provision: Under the provision, bond premium amortization deductions would be allowed as 

above-the-line deductions (i.e., without regard to whether a taxpayer itemizes deductions). The 

provision would apply for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 1417. Repeal of exclusion, etc., for employee achievement awards.

Current law: Under current law, employee achievement awards are excluded from employees’ 

income. To qualify for the tax exclusion, an employee achievement award must be given in 

recognition of the employee’s length of service or safety achievement at a ceremony that is a 

meaningful presentation. Furthermore, the conditions and circumstances cannot suggest a 

significant likelihood of the payment of disguised compensation. The employee is taxed to the 

extent that the cost (or value, if greater) of the award exceeds the employer’s deduction for the 

award. The employer’s deduction for employee achievement awards for any employee in any 

year cannot exceed $1,600 for qualified plan awards, and $400 otherwise. A qualified plan 

award is an employee achievement award that is part of an established written program of the 

employer, which does not discriminate in favor of highly compensated employees. In addition, 

the average award (not counting those of nominal value) may not exceed $400. 

Provision: The provision would repeal the exclusion for employee achievement awards, so that 

such awards would constitute taxable compensation to the recipient. The provision also would 

repeal the restrictions on employer deductions for such awards. The provision would be 

effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $3.4 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 29 

Sec. 1418. Clarification of special rule for certain governmental plans. 

Current law: Under current law, amounts received as reimbursement of medical expenses 

under an employer-provided accident or health insurance plan generally are excluded from an 

employee’s gross income. An accident or health insurance plan, however, is disqualified if the 

plan permits amounts to be paid as medical benefits to a designated beneficiary, other than the 

employee’s spouse or dependents. In such a case, all amounts paid as medical expense 

reimbursement are includible in the employee’s gross income. 

Similar rules apply to a governmental accident or health plan that is funded by a medical trust 

established in connection with a public retirement system and that either has been authorized by 

a State legislature or received a favorable IRS ruling providing that the trust’s income is taxexempt under Code section 115, which generally exempts States and municipalities from Federal 

income tax. A special rule provides that such a governmental accident or health plan will not be 

disqualified (and amounts paid as medical benefits will be excluded from the employee’s gross 

income) if the plan permitted the payment of medical benefits to a deceased participant’s 

beneficiaries (including non-spousal and non-dependent beneficiaries) on or before January 1, 

2008. This special rule does not affect the tax treatment of amounts received by the beneficiary, 

which continue to be taxable. The special rule does not apply to accident or health plans of 

certain State or political subdivisions, including plans organized as voluntary employees’ 

beneficiary associations (VEBAs) that are exempt from tax under Code section 501(c)(9). 

Provision: Under the provision, the special rule would be extended to accident or health plans 

established in connection with a public retirement system or established by or on behalf of a 

State or political subdivision that either has been authorized by a State legislature or received a 

favorable ruling from the IRS that the trust’s income is not includible in gross income under 

either Code section 115 or section 501(c)(9), and that on or before January 1, 2008, provided for 

payment of medical benefits to a deceased participant’s beneficiary. The provision would be 

effective for payments after the date of enactment. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 1419. Limitation on exclusion for employer-provided housing. 

Current law: Under current law, housing and meals provided to an employee and the 

employee’s spouse or dependents for the convenience of the employer are excluded from income 

if the meals are on the business premises of the employer and the employee is required to accept 

lodging on the premises of the employer as a condition of employment. In the case of 

educational institutions, the value of housing provided to their employees also is excluded to the 

extent the rent paid by the employee is at least the lesser of 5 percent of the lodging’s appraised 

value or the average of the rent paid by individuals (other than employees or students of the 

educational institution) for comparable lodging provided by the educational institution. 
Prepared by Ways and Means Committee Majority Tax Staff 30 

Provision: Under the provision, the exclusion for housing provided for the convenience of the 

employer and for employees of educational institutions would be limited to $50,000 ($25,000 for 

a married individual filing a joint return). The exclusion also would be limited to one residence. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023.

Sec. 1420. Fringe benefits. 

Current law: Under current law, various fringe benefits provided by employers to employees 

are not included in employee income, including no-additional cost services and qualified 

transportation fringes. No-additional cost services include free air transportation to an employee, 

retired employee, or dependent, spouse or parent of an employee or retired employee, or 

widowed spouse of a deceased employee. 

A qualified transportation fringe includes, for 2014, up to $250 per month for qualified parking 

and up to $130 for any transit pass provided by an employer to employees (with these amounts 

adjusted for inflation). The qualified transportation fringe also includes qualified bicycle 

commuting reimbursement of up to $20 per month. 

Provision: The provision would repeal the exclusion from income for air transportation 

provided as a no-additional cost service to the parent of an employee. For the qualified 

transportation fringe benefit, the provision would set the qualified transportation fringe 

excludable qualified parking amount at $250 per month, and the excludable transit pass amount 

at $130 per month. These amounts would no longer be adjusted for inflation. The provision 

would repeal the qualified bicycle commuting reimbursement. The provision would be effective 

for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $39.0 billion over 

2014-2023.

Sec. 1421. Repeal of exclusion of net unrealized appreciation in employer securities.

Current law: Under current law, distributions from tax-deferred retirement plans generally are 

subject to tax, including the value of any securities distributed. In the case of a lump-sum 

distribution of employer securities, however, any net unrealized appreciation in the securities is 

excluded from income, unless the individual elects to forgo the exclusion. A distributee’s basis 

in distributed employer securities is the securities’ fair market value, less the unrealized 

appreciation excluded from gross income, thus preserving any capital gain if the securities are 

later sold.
Prepared by Ways and Means Committee Majority Tax Staff 31 

Employer securities include the securities issued by the employer or a parent or subsidiary of the 

employer. The “net unrealized appreciation” is the excess of the fair market value of the 

employer securities over the retirement plan’s cost of acquiring them.

Provision: Under the provision, the exclusion for net unrealized appreciation in distributed 

employer securities would be repealed. The distributee generally would have income in the 

amount of the value of the distributed securities. The provision would be effective for 

distributions after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.9 billion over 

2014-2023.

Sec. 1422. Consistent basis reporting between estate and person acquiring property from 

decedent. 

Current law: Under current law, the basis of property acquired by a beneficiary from a 

decedent generally is the fair market value of the property on the date of the decedent’s death. 

Similarly, property included in a decedent’s gross estate for estate tax purposes generally also 

must be the fair market value on the date of death. However, while both provisions generally 

require that fair market value on the date of death be used, there is no requirement that the 

valuations be the same. 

Provision: Under the provision, the basis of property acquired from a decedent may not exceed 

the fair market value of property as reported for estate for tax purposes. This provision would 

apply to property if inclusion of the property in the decedent’s estate results in additional estate 

tax liability or if an executor is required to file an estate tax return. The estate would be required 

to report the value of the property to the IRS and to the beneficiary receiving the property, and 

the estate would be subject to a penalty for failure to file such an information return. Any 

underpayment of tax due to the understatement of basis under this provision would be subject to 

a 20-percent accuracy-related penalty. The provision would be effective for transfers for which 

an estate tax return is filed after the date of enactment. 

JCT estimate: According to JCT, the provision would increase revenues by $1.6 billion over 

2014-2023.

Subtitle F – Employment Tax Modifications 

Sec. 1501. Modifications of deduction for Social Security taxes in computing net earnings 

from self-employment. 

Current law: Under current law, a tax is imposed under the Self-Employment Contributions 

Act (SECA) on the self-employment income of an individual to help finance the Social Security 

and Medicare trust funds. Under the Social Security component, the rate of tax is 12.4 percent of 

the first $117,000 (for 2014) of self-employment income, which is indexed for inflation. Under 
Prepared by Ways and Means Committee Majority Tax Staff 32 

the Medicare component, the rate is 2.9 percent, and the amount of self-employment income 

subject to the Medicare component is not capped. An additional 0.9-percent tax applies for 

individuals with self-employment income in excess of $200,000 (single filers) or $250,000 

(married couples). 

Under current law, self-employed individuals may deduct one-half of self-employment taxes for 

income tax purposes. This deduction reflects the fact that under the Federal Insurance 

Contributions Act (FICA), a similar tax is imposed on an employee’s wages, with the liability to 

pay the tax divided evenly between employer and employee. The deduction is intended to 

provide parity between FICA and SECA taxes because an employer may deduct, as a business 

expense, its share of FICA taxes paid. The SECA deduction, however, is larger than the amount 

needed to make SECA taxes the economic equivalent of FICA taxes because the calculation does 

not properly reflect the fact that net earnings from self-employment are inclusive of SECA taxes. 

In addition, the calculation does not take into account the fact that wages above the Social 

Security wage base (i.e., $117,000 for 2014) are subject to tax only at the hospital insurance rate 

of 2.9 percent. 

Provision: Under the provision, the deduction with respect to net earnings from selfemployment would be modified to make SECA taxes economically equivalent to FICA taxes. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $5.1 billion over 

2014-2023.

Sec. 1502. Determination of net earnings from self-employment. 

Current law: Under current law, for SECA tax purposes, net earnings from self-employment –

upon which the calculation of self-employment income and the SECA tax are based – means the 

gross income derived by an individual from any trade or business carried on by the individual, 

less the allowable deductions. Specified types of income or loss are excluded, such as rentals 

from real estate in certain circumstances, dividends and interest, and gains or losses from the sale 

or exchange of a capital asset, and certain other property. 

Application of the SECA tax can depend on the form of business entity through which the 

taxpayer operates. For an individual who is a general partner in a partnership, net earnings from 

self-employment generally include the partner’s distributive share of income or loss from any 

trade or business carried on by the partnership (excluding specified types of income described 

above). A limited partner’s distributive share of partnership income or loss, however, is 

excluded from SECA. This exclusion does not apply to guaranteed payments for services 

actually rendered by the limited partner. The IRS takes the position that owners of a limited 

liability company, which is taxed as a partnership, are treated as general partners for SECA tax 

purposes. 

In contrast, an S corporation shareholder who is an employee of the S corporation is subject to 

FICA taxes on wages, but is not subject to SECA on S corporation distributions. The question of 
Prepared by Ways and Means Committee Majority Tax Staff 33 

how much of the shareholder’s distributive share should constitute wages turns on the definition

of reasonable compensation, which has been the subject of much controversy and case law. 

Provision: Under the provision, the SECA tax would be clarified to apply to general and limited 

partners of a partnership (including limited liability companies) as well as to shareholders of an S 

corporation to the extent of their distributive share of the entity’s income or loss (subject to the 

exclusions for certain types of income described above under current law). In determining net 

earnings from self-employment, partners and S corporation shareholders would be allowed a new 

deduction designed to approximate the return on invested capital. The effect of the deduction 

would be that partners and S corporation shareholders who materially participate in the trade or 

business of the partnership or S corporation would treat 70 percent of their combined 

compensation and distributive share of the entity’s income as net earnings from self-employment 

(and thus subject to FICA or SECA, as applicable) and the remaining 30 percent as earnings on 

invested capital not subject to SECA. For partners and S corporation shareholders who do not 

materially participate in the trade or business (i.e., passive investors), the effect of the deduction 

would be that no amount would be treated as net earnings from self-employment. The provision 

would be effective for tax years beginning after 2014. 

Considerations:

Under current law, self-employment taxes are not applied consistently to owners of 

different types of business entities. An S corporation shareholder, a general partner, and 

a limited partner are all subject to different rules. Additionally, many LLC owners take 

the position that they are limited partners and exempted from SECA when they are more 

properly treated as general partners who are subject to SECA. The disparate application 

of SECA leads to confusion, poor compliance, and significant opportunities for abuse of 

the rules, all of which result in similarly situated business owners being treated in 

substantially different ways. The provision creates a straightforward rule that treats all 

owners of pass-through businesses equally. 

The provision’s distinction between net earnings from self-employment and other income 

not subject to SECA reflects the fact that over the last several decades, the portion of 

Gross Domestic Product (GDP) attributable to labor has remained remarkably constant at 

approximately 70 percent, while the portion of GDP attributable to capital has held steady 

at roughly 30 percent. The 30-percent deduction recognizes that a portion of the 

distributive share of a partnership, LLC or S corporation represents earnings on invested 

capital.

The material participation standard is a familiar standard that has been used to enforce the 

passive loss rules since their enactment in 1986. 

JCT estimate: According to JCT, the provision would increase revenues by $15.3 billion over 

2014-2023.

Sec. 1503. Repeal of exemption from FICA taxes for certain foreign workers. 

Current law: Under current law, certain foreign workers from the Bahamas, Jamaica, and the 

other British West Indies (or any possession of such country) are exempt from the FICA tax 
Prepared by Ways and Means Committee Majority Tax Staff 34 

provided they are lawfully admitted to the United States on a temporary basis to perform 

agricultural services. A similar exemption applies to certain foreign students and their families 

present in the United States on a temporary basis for educational purposes and to foreign 

participants in international cultural exchange programs in the United States. 

Provision: Under the provision, the exceptions for foreign agricultural workers, foreign 

students, and foreign participants in international cultural exchange programs would be repealed. 

Thus, earnings by such foreign individuals while in the United States would be subject to FICA 

on the same basis as other employees in the United States. The provision would be effective for 

remuneration received for services performed after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $7.7 billion over 

2014-2023.

Sec. 1504. Repeal of exemption from FICA taxes for certain students. 

Current law: Under current law, an exemption from FICA is provided in the case of certain 

services performed by a student employed by a school, college, or university, provided that the 

student is enrolled and regularly attending classes at the school, college, or university. The 

exception also applies to students who perform certain domestic services in a college club, 

fraternity or sorority. 

Provision: Under the provision, the FICA exception for students would be limited to the 

student’s earnings that are less than the amount needed to receive a quarter of Social Security 

coverage for the year ($1,200 for 2014). The provision would be effective for remuneration 

received for services performed after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $13.0 billion over 

2014-2023.

Sec. 1505. Override of Treasury guidance providing that certain employer-provided 

supplemental unemployment benefits are not subject to employment taxes. 

Current law: Under current law, certain supplemental unemployment benefit payments (e.g., 

severance pay) are treated as wages for purposes of income tax withholding. The IRS has issued 

administrative guidance concluding that severance pay meeting certain requirements is exempt 

from payroll tax withholding under the Federal Insurance Contribution Act (FICA), Federal 

Unemployment Tax Act (FUTA), and the Railroad Retirement Tax Act (RRTA). The courts 

have issued conflicting rulings concerning the extent to which severance benefit payments not 

covered by the IRS administrative guidance are similarly exempt from withholding under FICA, 

FUTA, and RRTA. 

Provision: Under the provision, the IRS guidance exempting certain supplemental 

unemployment benefit payments from payroll tax withholding would be overridden and the 
Prepared by Ways and Means Committee Majority Tax Staff 35 

general tax treatment of severance benefit payments would be clarified, so that all such payments 

would be subject to income and payroll taxes (i.e., FICA, FUTA and RRTA). The provision 

would be effective for amounts paid after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.9 billion over 

2014-2023.

Sec. 1506. Certified professional employer organizations. 

Current law: Under current law, employers are responsible for withholding and payment of 

certain employment taxes with respect to their employees. In some cases, employers contract 

with professional employer organizations (PEOs) for human-resource services, such as managing 

employee payroll and employment taxes. Despite such arrangements, the contractual agreement 

between the employer and the PEO does not release the employer from responsibility for all 

taxes due with respect to its employees if the PEO fails to withhold or remit the taxes or 

otherwise comply with related reporting requirements. 

Provision: Under the provision, if an employer becomes a customer of a certified PEO under a 

contract for employment-tax services with respect to the customer’s work site employees, the 

certified PEO, and not the customer, would be treated as the employer of such work site 

employees for Federal employment tax purposes. Thus, the customer would be released from 

liability for employment taxes. To qualify, at least 85 percent of individuals performing services 

for the customer at the work site (subject to exceptions for certain workers, such as temporary or 

part-time workers) would have to be covered by a PEO services contract. The services contract 

would be required to provide that the certified PEO is responsible for wages, employee benefits 

(if any), and employment taxes regardless of whether the customer pays the certified PEO for 

such services. 

For a PEO to be certified by the IRS, the business must satisfy various requirements intended to 

ensure that the PEO properly remits wages and employment taxes. Under these requirements, 

the PEO must satisfy applicable reporting obligations, submit audited financial statements and 

quarterly auditing reports, and post a bond against the PEO’s failure to satisfy its employment 

tax withholding and payment obligations. The bond would be posted on April 1 and be equal to 

the greater of 5 percent of employment taxes for the previous calendar year (but not to exceed $1 

million) or $50,000. A special rule would reduce the bond to $50,000 during the first three years 

of a PEO’s operations, provided the PEO’s employment tax liability for the calendar year does 

not exceed $5 million. The provision would apply only for purposes of employment taxes under 

Chapter 25 of the Code and would not create any inference with respect to who is an employee 

or employer for any other provision of law. 

The provision would be effective for wages for services performed on or after January 1 of the 

first calendar year beginning more than 12 months after date of enactment (e.g., January 1, 2016, 

assuming the date of enactment is during calendar year 2014), and the IRS would be required to 

establish the PEO certification program no later than six months prior to such date. 
Prepared by Ways and Means Committee Majority Tax Staff 36 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023.

Subtitle G – Pensions and Retirement 

Part 1 – Individual Retirement Plans 

Secs. 1601-1603. Elimination of income limits on contributions to Roth IRAs; No new 

contributions to traditional IRAs; Inflation adjustment for Roth IRA contributions. 

Current law: Under current law, taxpayers may contribute to traditional Individual Retirement 

Accounts (IRAs) up to $5,500 for 2014, with an additional $1,000 catch-up contribution 

permitted for those at least 50 years old. These contribution limits are indexed for inflation. 

Contributions to a traditional IRA are deductible, earnings are not taxed currently, and 

distributions are included in income. Taxpayers may also make non-deductible IRA 

contributions with after-tax dollars, and earnings on amounts invested in the IRA are not 

currently taxed, but distributions (less previously taxed contributions) are subject to tax. 

Additionally, taxpayers may contribute up to the same limits to Roth IRAs but with after-tax 

contributions. Earnings and distributions from Roth IRAs are excluded from income. The 

$5,500 and $1,000 annual limits apply in the aggregate to the three types of IRAs. 

Taxpayers covered by employer-sponsored retirement plans may not contribute to a traditional 

IRA if they are married filing separately, or if they exceed certain income levels. In 2014, the 

phase-out range for participation in a traditional IRA is $60,000 to $70,000 for singles and heads 

of households, $96,000 to $116,000 for joint returns for a spouse who is covered by an 

employer-sponsored plan, and $181,000 to $191,000 for the spouse who is not covered. 

Taxpayers not covered by an employer-sponsored plan may contribute to a traditional IRA 

regardless of income. There are no income limits on eligibility to contribute to non-deductible 

traditional IRAs. For Roth IRAs, eligibility does not depend on participation in an employer 

plan, but the contribution limit phases out over a range of $114,000 to $129,000 for singles and 

$181,000 to $191,000 for joint returns.) These amounts are indexed for inflation. 

Provision: Under the provisions, the income eligibility limits for contributing to Roth IRAs 

would be eliminated and new contributions to traditional IRAs and non-deductible traditional 

IRAs would be prohibited. The inflation adjustment of the annual limit on Roth IRA 

contributions also would be suspended until tax year 2024, at which time inflation indexing 

would recommence based off of the frozen level. The provisions would be effective for tax 

years beginning after 2014. 

Considerations:

These provisions would help Americans achieve greater retirement security by effectively 

increasing the amounts they have available at retirement. Most people saving in 

traditional IRAs do not consider the taxes that will be due upon distribution, and 

mistakenly assume that their entire account balance will be available to them upon 
Prepared by Ways and Means Committee Majority Tax Staff 37 

retirement. In contrast, the entire balance in a Roth account is distributed free of tax and 

is available for retirement needs. 

These provisions would help Americans save for retirement by simplifying their options. 

The multitude of types of IRAs, with their different income limits and other varying 

requirements (such as minimum distribution rules), results in many Americans simply not 

saving because of the complexity. Streamlining the choices would encourage more 

Americans to save. 

When interest rates are relatively low, as they have been for the last several years, 

freezing the inflation adjustment would have little or no effect on the annual Roth IRA 

contribution limitations. For example, the maximum Roth IRA contribution of $5,500 is 

the same for 2013 and 2014. 

JCT estimate: According to JCT, the provisions would increase revenues by $14.8 billion over 

2014-2023, and would reduce outlays by $1.9 billion over 2014-2023. 

Sec. 1604. Repeal of special rule permitting recharacterization of Roth IRA contributions 

as traditional IRA contributions. 

Current law: Under current law, an individual may re-characterize a contribution to a 

traditional IRA as a contribution to a Roth IRA (and vice versa). An individual may also recharacterize a conversion of a traditional IRA to a Roth IRA. The deadline for recharacterization generally is October 15 of the year following the contribution or conversion. 

When a re-characterization occurs, the individual is treated for tax purposes as having made the 

original contribution to the second account or not having made the conversion. The recharacterization must include any net earnings related to the contribution. 

Provision: Under the provision, the rule allowing re-characterization of Roth IRA contributions 

or conversions would be repealed. Note that under other provisions of the discussion draft, no 

new contributions to traditional IRAs would be permitted. The provision would be effective for 

tax years beginning after 2014. 

Consideration: This provision would prevent a taxpayer from gaming the system by converting 

to a Roth IRA, investing in an extremely aggressive fashion and benefiting from any gains 

(which are never subject to tax), but retroactively reversing the conversion if the taxpayer suffers 

a loss to avoid taxes on some or all of the converted amount. 

JCT estimate: According to JCT, the provision would increase revenues by $0.4 billion over 

2014-2023.

Sec. 1605. Repeal of exception to 10-percent penalty for first home purchases. 

Current law: Under current law, an additional 10-percent tax generally is imposed on 

distributions from retirement plans and Individual Retirement Accounts (IRAs) occurring before 

the account holder reaches age 591⁄2. This 10-percent tax is in addition to any income tax that 
Prepared by Ways and Means Committee Majority Tax Staff 38 

may be due on the distribution. There are several exceptions to the early withdrawal penalty, 

including early distributions of up to $10,000 to pay for first-time homebuyer expenses. 

Provision: Under the provision, the exception to the additional 10-percent tax for early 

distributions used to pay for first-time homebuyer expenses would be repealed. The provision 

would be effective for distributions after 2014. 

Consideration: The provision would help Americans achieve greater retirement security by 

encouraging taxpayers not to make withdrawals from their accounts before retirement.

JCT estimate: According to JCT, the provision, along with section 1210 of the discussion draft, 

would increase revenues by $0.3 billion over 2014-2023.

Part 2 – Employer-Provided Plans 

Secs. 1611-1612. Termination for new SEPs; Termination for new SIMPLE 401(k)s. 

Current law: Under current law, certain employers may offer a Simplified Employee Pension 

(SEP) IRA, which generally may only accept employer contributions. (Certain grandfathered 

SEPs, called SARSEPs, also may accept employee contributions.) The maximum contribution to 

a SEP is the lesser of the overall limit for contributions to a defined-contribution plan ($52,000 

for 2014, indexed for inflation) or 25 percent of the employee’s compensation. Employers must 

make contributions on behalf of all employees, which generally must be the same percentage of 

compensation for all employees. 

For employers with no more than 100 employees, the Savings Incentive Match Plan for 

Employees (SIMPLE) option allows sponsoring employers to set up a SIMPLE 401(k) plan or a 

SIMPLE IRA. Under the SIMPLE 401(k) plan, the employer generally may satisfy the 

nondiscrimination rules by matching contributions up to 2 percent of compensation or nonelective contributions equal to 3 percent of compensation. A SIMPLE 401(k) must allow each 

eligible employee to participate through salary reduction contributions equal to a specified 

percentage of compensation up to $12,000 for 2014 (indexed for inflation). Individuals who are 

at least 50 years old may contribute annually up to another $2,500 (indexed for inflation). Under 

the SIMPLE IRA, sponsoring employers generally must follow similar contribution 

requirements, and the employee contribution annual limits are the same, but with individual IRA 

accounts established for the participating employees. 

Provision: Under the provisions, employers would not be permitted to establish new SEPs or 

SIMPLE 401(k) plans after 2014. Employers would be permitted to continue making 

contributions to existing SEPs and SIMPLE 401(k) plans. SIMPLE IRAs would continue to be 

available. The SEP provision would be effective for tax years beginning after 2014, and the 

SIMPLE 401(k) provision would be effective for plan years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 39 

Considerations:

The multitude of confusing plans and accounts from which employers must choose if 

they want to set up a tax-qualified plan to help employees save for retirement serves to 

dissuade many employers from establishing any workplace retirement plan. 

Today, SIMPLE IRAs and 401(k) plans are the most popular defined-contribution 

options selected by businesses starting new retirement plans. SEPs and SIMPLE 401(k) 

plans lack many of the flexibilities of these other plan options and are not as commonly 

selected. 

The provision reduces the complexity of choices facing employers looking to start a 

retirement plan, encouraging employers to make a workplace retirement plan available to 

more Americans. 

JCT estimate: According to JCT, the provisions would increase revenues by $0.6 billion over 

2014-2023.

Sec. 1613. Rules related to designated Roth contributions. 

Current law: Under current law, 401(k) plans may offer either traditional accounts alone or 

both traditional and Roth accounts. Contributions to a traditional 401(k) account are not 

included in the employee’s income and earnings are not currently taxed, while distributions are 

treated as taxable income. Contributions to a 401(k) Roth account are made out of the 

employee’s after-tax income. Earnings in a Roth account are not taxable currently, and 

distributions generally are not taxable if the employee meets certain holding period and age 

requirements. If a 401(k) plan has a Roth option, the employee (but not the employer) may 

contribute to the Roth account, the traditional account, or both. Employer contributions to a 

401(k) plan for employees with Roth accounts must be made into separate traditional accounts 

for the employee for whom the contribution is made. For these purposes, 403(b) plans and 

457(b) plans are treated like 401(k) plans. 

Provision: Under the provision, employees would generally be able to contribute up to half the 

maximum annual elective deferral amount (including catch-up contributions for employees at 

least 50 years old, if applicable) into a traditional account. (For 2014, the maximum annual 

elective deferral amount is $17,500, and the maximum catch-up amount is $5,500 (for a total of 

$23,000 for such employees)). Any contributions in excess of half of these limits – $8,750 and 

$11,500, respectively – would be to a Roth account. Employees could contribute up to the entire 

annual elective deferral amount into a Roth account if they wish. Plans would generally be 

required to offer Roth accounts. Employer contributions would continue to be made to 

traditional accounts. 

The provision would not apply to employers with 100 or fewer employees. In addition, 

employers may choose to have Roth accounts in a SIMPLE IRA, and if an employer with a 

SIMPLE IRA elects to limit traditional employee contributions to half the annual contribution 

limits, the employee contribution limits to such SIMPLE IRA would be increased to the 

contribution limits for a 401(k) plan. For purposes of this provision, 403(b) plans and 457(b) 

plans would be treated like 401(k) plans. The provision would generally be effective for plan 
Prepared by Ways and Means Committee Majority Tax Staff 40 

years and tax years beginning after 2014. The SIMPLE IRA portion of the provision would be 

effective for tax years and calendar years beginning after 2014. 

Considerations:

The provision would help Americans achieve greater retirement security by effectively 

increasing the amounts they have available at retirement. Many people saving in 

traditional 401(k) plans do not consider the taxes that will be due upon distribution, and 

assume that their entire account balance will be available to them upon retirement. In 

contrast, the entire balance in a Roth account is distributed free of tax, and is available for 

retirement needs. 

Only approximately 17 percent of those making contributions to 401(k) plans in a given 

year contribute more than 50 percent of the maximum amount and thus would be affected 

by the provision. This amounts to only approximately 5 percent of the civilian 

workforce. 

JCT estimate: According to JCT, the provision would increase revenues by $143.7 billion over 

2014-2023.

Sec. 1614. Modifications of required distribution rules for pension plans. 

Current law: Under current law, owners of traditional IRAs and employees in employersponsored retirement plans (both defined contribution and defined benefit plans) are subject to 

required minimum distribution (RMD) rules, which generally require the IRA owner (other than 

Roth IRAs) or employee (if he has retired, except for a 5-percent owner) to take minimum 

distributions beginning at age 701⁄2 or pay a 50-percent excise tax on the amount of such 

distributions. Special rules apply when the IRA owner (including a Roth IRA owner) or 

employee dies before the entire account balance has been withdrawn. If the death occurs on or 

after the required beginning date for RMDs, the remaining amount must be distributed to the 

beneficiaries at least as rapidly as distributed to the decedent as of the date of death (but over the 

life expectancy of any designated beneficiary, if longer). Absent a designated beneficiary, the 

distribution period is the remaining life expectancy of the IRA owner or employee at the time of 

death. If an IRA owner or employee dies before the required beginning date and any part of the 

benefit is payable to a designated beneficiary, distributions generally must begin within one year 

of death and are spread over the life expectancy of the designated beneficiary. If the IRA owner 

or employee dies before the required beginning date and there is no designated beneficiary, the 

entire remaining account balance generally must be distributed to the estate by the end of the 

fifth year following the death. 

Provision: Under the provision, if an employee becomes a 5-percent owner after age 701⁄2 but 

before retiring, the required beginning date for RMDs would be April 1 of the following year. 

With respect to IRAs and employer-sponsored retirement plans that exist when the IRA owner or 

employee dies distributions would be required within five years (regardless of whether the IRA 

owner or employee dies before or after RMDs have begun). An exception would apply if the 

beneficiary is a spouse, is disabled, chronically ill, not more than 10 years younger than the 

deceased, or is a child, and would permits distributions to begin within one year of death and be 
Prepared by Ways and Means Committee Majority Tax Staff 41 

spread over the life expectancy of the beneficiary. However, if that beneficiary dies or a child 

beneficiary turns 21, the general five-year-distribution rule would apply upon such occurrence. 

The provision regarding RMDs after the death of an IRA owner or employee generally would be 

effective for distributions with respect to IRA owners or employees who die after 2014. The 

provisions would not apply to certain qualified annuities that are binding annuity contracts in 

effect on the date of enactment and at all times thereafter. The provision changing RMDs for 5-

percent owners generally would become effective for employees becoming 5-percent owners 

with respect to plan years ending in calendar years beginning before, on, or after the date of 

enactment – except that the provision would not result in a required beginning date earlier than 

April 1, 2015.

Considerations:

The provision would simplify the current complex required minimum distribution rules 

and reduce the compliance burdens on seniors and beneficiaries of IRAs and other 

retirement plans. 

The provision would also address the issue in current law that permits deferral of tax on 

retirement savings not only until the account owner’s retirement, but also well past the 

owner’s life if the beneficiary choses to spread the RMDs over his life expectancy.

The provision also safeguards the ability of individuals to provide resources for spouses, 

minor children, and others with special needs through beneficiary designations on 

retirement accounts. 

The modifications in the provision would not affect the ability or incentive for Americans 

to save for retirement. 

JCT estimate: According to JCT, the provision would increase revenues by $3.5 billion over 

2014-2023.

Sec. 1615. Reduction in minimum age for allowable in-service distributions. 

Current law: Under current law, defined-contribution plans generally are not permitted to allow 

in-service distributions (i.e., distributions while an employee is still working for the employer) 

attributable to tax-deferred contributions if the employee is less than 591⁄2 years old. For State 

and local government defined-contribution plans, and for all defined-benefit plans, the restriction 

on in-service distributions applies if the employee is less than age 62. 

Provision: Under the provision, all defined-benefit plans as well as State and local government 

defined-contribution plans would be permitted to make in-service distributions beginning at age 

591⁄2. The provision would be effective for distributions made after 2014. 

Considerations:

The provision would encourage Americans to continue working or working part-time 

instead of retiring early in order to access retirement savings at age 591⁄2. Under current 

law, many employees choose to retire instead of continuing to work because they cannot 

otherwise access their retirement accounts.
Prepared by Ways and Means Committee Majority Tax Staff 42 

The provision would provide uniformity across various plan types, allowing all plans to 

offer in-service distributions at age 591⁄2 instead of having different ages for different 

types of plans. The varying rules under current law have no apparent justification.

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 1616. Modification of rules governing hardship distributions. 

Current law: Under current law, defined-contribution plans are generally not permitted to allow 

in-service distributions (distributions while an employee is still working for the employer) 

attributable to elective deferrals if the employee is less than 591⁄2 years old. One exception is for 

hardship distributions, which plans have the option of offering participants, but only if the plan 

follows guidelines such as that any distribution be necessary for an immediate and heavy 

financial need of the employee. Treasury regulations require that plans not allow employees 

taking hardship distributions to make contributions to the plan for six months after the 

distribution. 

Provision: Under the provision, the IRS would be required within one year of the date of 

enactment to change its guidance to allow employees taking hardship distributions to continue 

making contributions to the plan. The provision would be effective for plan years beginning 

after 2014. 

Considerations:

The provision would help Americans save for retirement by making common-sense 

reforms to remove harsh rules that often trap individuals and families going through 

difficult financial circumstances. 

The provision would overturn Treasury regulations requiring individuals to stop making 

contributions to their retirement plans in order to take hardship distributions, which often 

results in such individuals failing to resume retirement savings in the future. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 1617. Extended rollover period for the rollover of plan loan offset amounts in certain 

cases. 

Current law: Under current law, defined-contribution plans are permitted (but not required) to 

allow plan loans. If the employee fails to abide by the applicable rules, the loan is treated as a 

taxable distribution that may also be subject to the 10-percent penalty for early withdrawals. If a 

plan terminates or an employee’s employment terminates while a plan loan is outstanding, the 

employee has 60 days to contribute the loan balance to an individual retirement account (IRA), 

or the loan is treated as a distribution. 
Prepared by Ways and Means Committee Majority Tax Staff 43 

Provision: Under the provision, employees whose plan terminates or who separate from 

employment while they have plan loans outstanding would have until the due date for filing their 

tax return for that year to contribute the loan balance to an IRA in order to avoid the loan being 

taxed as a distribution. The provision would apply to tax years beginning after 2014. 

Considerations:

The provision would help Americans save for retirement by making common-sense 

reforms to remove harsh rules that often trap individuals and families going through 

difficult financial circumstances. 

The provision would overturn the current rule requiring individuals who lose their jobs to 

roll over any outstanding retirement plan loans to an IRA within 60 days or be subject to 

taxes and penalties on the loan amount. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 1618. Coordination of contribution limitations for 403(b) plans and governmental 

457(b) plans. 

Current law: Under current law, 401(k) plans generally may allow employees to make elective 

deferrals of up to $17,500 for 2014 and an additional $5,500 catch-up contribution for those who 

are at least 50 years old. Total employer and employee contributions may not exceed $52,000 

for 2014. Contributions generally may not exceed employee compensation and may only be 

made by active employees. These amounts are indexed for inflation. 

Certain employees with more than 15 years of service who are participants in 403(b) plans may 

make an additional contribution of up to $3,000 per year. Entities sponsoring 403(b) plans 

(typically tax-exempt organizations) also may make non-elective employer contributions of up to 

$52,000 in 2014 (indexed for inflation) for up to five years after the employee has separated 

from service. Similarly, a church may contribute a maximum of $10,000 per year, even if the 

participant has no taxable compensation, up to a lifetime limit of $40,000 per participant. For 

foreign missionaries with $17,000 or less in adjusted gross income, a church may contribute up 

to $3,000 per year (even in the absence of U.S. taxable compensation). 

Participants in 457 plans sponsored by State and local governments are allowed to make 

additional contributions of up to $35,000 for 2014 (indexed for inflation) for the three years prior 

to normal retirement age. State and local government employees may participate in both a 457 

plan and either a 403(b) plan or a 401(k) plan in which case the employee may make the 

maximum allowable annual contributions to each of the plans. 

Provision: Under the provision, all defined-contribution plans would be subject to the annual 

contribution limits currently applicable to 401(k) plans and would not have additional limits for 

different classes of employees at certain types of employers. The provision would apply to plan 

years and tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 44 

Consideration: The provision would simplify the Code by treating employees the same 

regardless of whether they work for private, non-profit or public employers. 

JCT estimate: According to JCT, the provisions would increase revenues by $0.9 billion over 

2014-2023.

Sec. 1619. Application of 10-percent early distribution tax to governmental 457 plans. 

Current law: Under current law, early distributions from employer-sponsored retirement plans 

and IRAs are generally subject to an additional tax of 10 percent. This additional tax does not 

apply to early distributions from 457 plans sponsored by State and local governments. 

Provision: Under the provision, participants in governmental 457 plans would be subject to the 

10-percent additional tax on early distributions. The provision would be effective for 

withdrawals after February 26, 2014. 

Consideration: The provision would simplify the Code by treating employees the same 

regardless of whether they work for private, non-profit or public employers. 

JCT estimate: According to JCT, the provision would increase revenues by $0.6 billion over 

2014-2023.

Secs. 1620-1624. Inflation adjustments for qualified plan benefit and contribution 

limitations; Inflation adjustments for qualified plan elective deferral limitations; Inflation 

adjustments for SIMPLE retirement accounts; Inflation adjustments for catch-up 

contributions for certain employer plans; Inflation adjustments for governmental and taxexempt organization plans. 

Current law: Under current law, the myriad retirement plan alternatives generally have 

contributions limits that are indexed for inflation. For 2014, the maximum benefit under a taxqualified defined benefit plan is an annual payment equal to the lesser of an employee’s average 

compensation for the three highest compensation years or $210,000. For 401(k), 403(b), and 457 

plans (as well as grandfathered SARSEPs), the maximum annual elective deferral by employees 

is $17,500 (not counting catch-up contributions for employees at least 50 years old). The 

maximum combined contribution by employer and employee to a defined contribution plan (as 

well as SEPs) in 2014 is $52,000. SIMPLE IRA and SIMPLE 401(k) plans sponsored by small 

businesses are subject to a maximum annual contribution of $12,000 (not counting catch-up 

contributions for employees at least 50 years old) for 2014. 

Employees in certain retirement plans who are at least 50 years old may make additional catchup contributions beyond the otherwise applicable annual contribution limits. For 401(k), 403(b), 

and 457 plans, the maximum annual catch-up contribution is $5,500 for 2014. For SIMPLE 

IRAs and SIMPLE 401(k) plans, the maximum annual catch-up contribution is $2,500 for 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 45 

Provision: Under the provisions, the inflation adjustments for the maximum benefit under a 

defined benefit plan, the maximum combined contribution by an employer and employee to a 

defined contribution plan, the maximum elective deferrals with respect to each type of SEP, 

SIMPLE IRA, and defined contribution plan (i.e., 401(k), 403(b), and 457(b)), and catch-up 

contributions would be suspended until 2024, at which time inflation indexing would 

recommence based off of the frozen level. The provisions generally would be effective after 

2014. More specifically, the inflation adjustments for qualified plan benefit and contribution 

limitations would be effective for years ending with or within a calendar year beginning after 

2014; the inflation adjustments for qualified plan elective deferral limitations would be effective 

for plan years and tax years beginning after 2014; the inflation adjustments for SIMPLE 

retirement accounts would be effective for calendar years beginning after 2014; and the inflation 

adjustments for catch-up contributions for certain employer plans and for governmental and taxexempt organization plans would be effective for tax years beginning after 2014. 

Consideration: When interest rates are relatively low, as they have been for the last several 

years, these provisions would have little or no effect on the annual contribution limitations. For 

example, the maximum employee contribution levels of $12,000 for SIMPLE IRAs and $17,500 

for 401(k) plans were the same in 2013 and 2014. 

JCT estimate: According to JCT, the provisions would increase revenues by $63.4 billion over 

2014-2023.

Subtitle H – Certain Provisions Related to Members of Indian Tribes 

Secs. 1701-1703. Indian general welfare benefits; Tribal Advisory Committee; Other relief 

for Indian tribes. 

Current law: Under current law, taxpayers must generally include all items of income in 

computing gross income. IRS guidance has established a general welfare exclusion under which 

payments made to individuals by governmental entities pursuant to legislatively provided social 

benefit programs for the promotion of the general welfare are not included in the recipient’s 

gross income. To qualify under the general welfare exclusion, payments must not be lavish or 

extravagant, they must be made under a government program based on need, and such payments 

may not constitute compensation. Under proposed IRS guidance, the IRS will conclusively 

presume that payments from Indian tribes to tribal members and their spouses and dependents 

will qualify under the general welfare exclusion if certain requirements are met. Specifically, the 

payments must be made pursuant to a specific Indian tribal government program with written 

guidelines, be available to any tribal member meeting those guidelines, not discriminate in favor 

of the tribe’s governing body members, not be compensation for services, and not be 

extravagant. Taxpayers may rely on the proposed rule until additional guidance is published. 

Additionally, taxpayers may rely on the proposed rules retroactively to file for refunds for any 

open tax years. 

Provision: Under the provisions, the proposed IRS guidance specifically applying the general 

welfare exclusion to Indian tribes and payments received by tribal members, their spouses and 
Prepared by Ways and Means Committee Majority Tax Staff 46 

children generally would be codified. The provisions also would require the IRS to establish a 

Tribal Advisory Committee to advise the IRS on matters relating to taxation of tribal members 

including training and education for IRS agents dealing with tribal members. Additionally, the 

provisions would provide the IRS with discretion to waive any interest and penalties under the 

Code for any tribe or tribal member with regard to the general welfare exclusion. The provision 

codifying the IRS guidance concerning the general welfare exclusion would be effective for tax 

years for which the period of limitations is open as of the date of enactment, and taxpayers would 

have one additional year from the date of enactment to file for a refund with respect to any such 

open tax year. 

JCT estimate: According to JCT, the provisions would have negligible revenue effect over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 47 

Title II – Alternative Minimum Tax Repeal 

Sec. 2001. Repeal of alternative minimum tax. 

Current law: Under current law, taxpayers must compute their income for purposes of both the 

regular income tax and the alternative minimum tax (AMT), and their tax liability is equal to the 

greater of their regular income tax liability or AMT liability. In computing the AMT, only 

alternative minimum taxable income (AMTI) above an AMT exemption amount is taken into 

account, but AMTI represents a broader base of income than regular taxable income. For 

example, personal exemptions, the standard deduction, and certain itemized deductions (such as 

the deduction for State and local taxes) are not allowed in calculating AMTI. In addition, many 

business tax preferences that are allowed for regular taxable income are not allowed in 

determining AMTI, including accelerated depreciation. Corporations and, in some cases, noncorporate taxpayers receive a credit for AMT paid, which they may carry forward and claim 

against regular tax liability in future tax years (to the extent such liability exceeds AMT in a 

particular year), and which never expire. 

For individuals, estates, and trusts, the AMT has a 26-percent bracket and a 28-percent bracket, 

but capital gains and dividends are taxed under the AMT at the highest rate that such items are 

taxed under the regular income tax. The 26-percent tax rate applies to the first $182,500 of 

AMTI (half that amount for married couples filing separately), and the 28-percent rate applies to 

AMTI in excess of that amount. For 2014, the AMT exemption amounts for non-corporate 

taxpayers are $52,800 for single filers, $82,100 for joint filers, $41,050 for married individuals 

filing separately, and $23,500 for estates and trusts. The AMT exemption amounts begin 

phasing out at a 25-percent rate at $156,500 for joint returns, $117,300 for singles, and $78,250 

for married individuals filing separately and trusts and estates. These amounts are indexed for 

inflation.

The corporate AMT rate is 20 percent, and the exemption amount is $40,000, though 

corporations with average gross receipts of less than $7.5 million for the preceding three tax 

years are exempt from the AMT. The exemption amount for corporations phases out at a 25-

percent rate starting at $150,000. 

Provision: Under the provision, the AMT would be repealed. If a taxpayer has AMT credit 

carryforwards, the taxpayer would be able to claim a refund of 50 percent of the remaining 

credits (to the extent the credits exceed regular tax for the year) in tax years beginning in 2016, 

2017, and 2018. Taxpayers would be able to claim a refund of all remaining credits in the tax 

year beginning in 2019. The provision would generally be effective for tax years beginning after 

2014.

Considerations:

The requirement that taxpayers compute their income for purposes of both the regular 

income tax and the AMT is one of the most far-reaching complexities of the current 

Code.

According to JCT, the AMT affected about 4 million American families in 2013, and that 

this number will rise to more than 6 million American families in 2023 under current law.
Prepared by Ways and Means Committee Majority Tax Staff 48 

Families subject to the AMT face an average tax increase of approximately $7,300, based 

on recent IRS Statistics of Income (SOI) data.

The AMT is particularly burdensome for small businesses, which often do not know 

whether they will be affected until they file their taxes and therefore must maintain a 

reserve that cannot be used to hire, expand, and give raises to workers.

In its 2001 tax simplification report, JCT concluded that the AMT “no longer serves the 

purposes for which it was intended,” and recommended its repeal. 

JCT estimate: According to JCT, the repeal of the individual AMT would reduce revenues by 

$1,331.8 billion over 2014-2023, and the repeal of the corporate AMT would reduce revenues by 

$110.2 billion over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 49 

Title III – Business Tax Reform 

Subtitle A – Tax Rates 

Sec. 3001. 25-percent corporate tax rate. 

Current law: Under current law, a corporation’s regular income tax liability generally is 

determined by applying the following tax rate schedule to its taxable income: 

Taxable income: Tax rate: 

$0-$50,000 15 percent 

$50,001-$75,000 25 percent 

$75,001-$10,000,000 34 percent 

Over $10,000,000 35 percent 

The 15- and 25-percent rates are phased out for corporations with taxable income between 

$100,000 and $335,000. As a result, a corporation with taxable income between $335,000 and 

$10,000,000 effectively is subject to a flat tax rate of 34 percent. Similarly, the 34-percent rate is 

gradually phased out for corporations with taxable income between $15,000,000 and 

$18,333,333, such that a corporation with taxable income of $18,333,333 or more effectively is 

subject to a flat rate of 35 percent. 

Personal service corporations are not entitled to use the graduated corporate rates below the 35-

percent rate. A personal service corporation is a corporation the principal activity of which is the 

performance of personal services in the fields of health, law, engineering, architecture, 

accounting, actuarial science, performing arts, or consulting, and such services are substantially 

performed by the employee-owners. 

Provision: Under the provision, the corporate tax rate would be a flat 25-percent rate beginning 

in 2019. A transition rule would set the rate for taxable income up to $75,000 to 25 percent 

beginning in 2015, with the rate on income above that level phased down to 25 percent as 

follows:

For tax years beginning 

during calendar year: Tax rate: 

 2015 33 percent 

 2016 31 percent 

 2017 29 percent 

2018 27 percent 

2019 and later 25 percent 

The special rule applicable to personal services corporations would be repealed. The provision 

would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 50 

Considerations:

Today, U.S. corporations are subject to the highest combined Federal-State tax rate in the 

industrialized world, which puts American multinational companies at a significant 

competitive disadvantage against their global competitors. 

Lowering the corporate rate from 35 percent to 25 percent not only would increase 

America’s ability to compete internationally, but also would ensure that American 

corporations have more resources here in the United States to invest, hire and grow their 

businesses.

According to information compiled by the RATE Coalition, reducing the corporate rate 

to 25 percent would add 581,000 jobs annually and increase GDP growth by 1-2 percent. 

JCT estimate: According to JCT, the provision would reduce revenues by $680.3 billion over 

2014-2023.

Subtitle B – Reform of Business-related Exclusions and Deductions 

Sec. 3101. Revision of treatment of contributions to capital. 

Current law: Under current law, the gross income of a corporation generally does not include 

contributions to its capital (i.e., transfers of money or property to the corporation by a nonshareholder such as a government entity). In addition, a corporation does not recognize gain or 

loss on the receipt of money or property in exchange for stock of the corporation, nor does it 

recognize gain or loss with respect to any lapse or acquisition of an option to buy or sell its stock. 

Provision: Under the provision, the gross income of a corporation would include contributions 

to its capital (including any premiums received by the corporation with respect to an option 

written by the corporation to sell its stock), to the extent the amount of money and fair market 

value of property contributed to the corporation exceeds the fair market value of any stock that is 

issued in exchange for such money or property. Similar rules would apply to contributions to the 

capital of any non-corporate entity, such as a partnership. Under section 3423 of the discussion 

draft, however, the tax liability of a corporation would not take into account income, gains, 

losses, or deductions with regard to a derivative that relates to the corporation’s stock, except for 

income received with regard to certain forward contracts that relate to the corporation’s stock. 

The provision would be effective for contributions made, and transactions entered into, after the 

date of enactment. 

Consideration: This provision would remove a Federal tax subsidy for State and local 

governments to offer incentives and concessions to business that locate operations within their 

jurisdiction (usually in lieu of locating operations in a different State or locality). In conjunction 

with section 3423 of the discussion draft, the provision also would eliminate current-law 

loopholes for corporations that engage in transactions involving their own stock. 

JCT estimate: According to JCT, the provision would increase revenues by $8.8 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 51 

Sec. 3102. Repeal of deduction for local lobbying expenses. 

Current law: Under current law, businesses generally may deduct ordinary and necessary 

expenses paid or incurred in connection with carrying on any trade or business. An exception to 

the general rule, however, disallows deductions for lobbying and political expenditures with 

respect to legislation and candidates for office, except for lobbying expenses with respect to 

legislation before local or Indian tribal government bodies. 

Provision: Under the provision, deductions for lobbying expenses with respect to legislation 

before local government bodies (including Indian tribal governments) would be disallowed. The 

provision would be effective for amounts paid or incurred after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.6 billion over 

2014-2023.

Sec. 3103. Expenditures for repairs in connection with casualty losses. 

Current law: Under current law, a taxpayer that is engaged in a trade or business generally may 

deduct any property loss sustained during the tax year (e.g., as a result of a natural disaster) that 

is not compensated by insurance or otherwise. A taxpayer’s loss is limited to the adjusted basis 

of the property, and adjusted basis is reduced if a casualty loss is deducted. Taxpayers engaged 

in a trade or business also may deduct amounts paid or incurred to maintain property, including 

repairs for damage as a result of a natural disaster. If the repairs rise to the level of a permanent 

improvement or betterment made to increase the value of the property (rather than just to 

maintain the property), the costs must be capitalized in the basis and recovered over the 

depreciable life of the property. Some taxpayers have taken the position that both the casualtyloss deduction and the deduction for amounts paid or incurred for repairs may be claimed with 

respect to the same property damaged in a natural disaster. 

Provision: Under the provision, taxpayers could elect either to claim a casualty loss for 

damaged property (with a corresponding decrease to the property’s basis) or to deduct the repair 

of such property, but not both. The provision would be effective for losses sustained after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 3104. Reform of accelerated cost recovery system. 

Current law: Under current law, a taxpayer may recover, through annual depreciation 

deductions, the cost of certain property used in a trade or business or for the production of 

income. The amount of the depreciation deduction with respect to tangible property for a tax 

year is determined under the modified accelerated cost recovery system (MACRS). Under 

MACRS, different types of property generally are assigned applicable recovery periods and 

depreciation methods. 
Prepared by Ways and Means Committee Majority Tax Staff 52 

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

25 years. In general, the recovery periods for real property are 39 years for non-residential real 

property and 27.5 years for residential rental property. The depreciation methods generally 

applicable to tangible personal property are the 200-percent and 150-percent declining balance 

methods, switching to the straight-line method for the tax year in which the straight-line method 

would provide a larger deduction. However, in certain circumstances – such as with respect to 

corporate taxpayers subject to the alternative minimum tax (AMT) – property must be 

depreciated under the alternative depreciation system (ADS), which requires longer recovery 

periods and the use of the straight-line depreciation method. The primary source of IRS 

guidance for class lives is Revenue Procedure 87-56, 1987-2 C.B. 674, which has not been 

updated since its release in 1987 (as the result of a statutory prohibition enacted by Congress). 

Special depreciation provisions enacted in recent years have also accelerated cost recovery for 

certain assets. For example, in general, property with a recovery period of less than 20 years 

placed in service from 2008 through 2013 is eligible for bonus depreciation of either 50 percent 

or 100 percent, depending on the year. In addition, qualified leasehold improvement property, 

qualified restaurant property, and qualified retail improvement property placed in service before 

2014 were eligible for an accelerated recovery period of 15 years. 

Provision: Under the provision, MACRS recovery periods and methods would be repealed and 

rules substantially similar to the ADS rules would apply to depreciable property. Thus, in 

general, class lives would match more closely the true economic useful life of assets, and 

depreciation deductions would be determined under the straight-line method. In addition, a 

taxpayer could elect to take an additional depreciation deduction to account for the effects of 

inflation on depreciable personal property, calculated by multiplying the year-end adjusted basis 

in the property (determined without regard to inflation deductions) by the chained CPI rate for 

the year. 

The provision also would repeal the following special depreciation provisions: bonus 

depreciation, the special recovery periods for Indian reservation property, the special allowance 

for second generation biofuel plant property, the special allowance for certain reuse and 

recycling property, and the special allowance for qualified disaster assistance property. In 

addition, the special depreciation provisions for qualified leasehold improvement property, 

qualified restaurant property, and qualified retail improvement property would be repealed. The 

provision would require the Treasury Department, in consultation with the Bureau of Economic 

Analysis, to develop a new schedule of economic depreciation, and submit a report to Congress 

containing the new schedule and other recommendations by December 31, 2017. The provision 

would be effective for property placed in service after 2016. Thus, current law would apply to 

property placed in service during 2014, 2015 and 2016. 

Considerations:

Public companies already must use the straight-line method for purposes of financial 

statements, and switching to this slower depreciation method does not affect the earnings 

statements they provide to investors and the Securities and Exchange Commission (SEC). 

Thus, because most public companies prioritize financial statement earnings, they 

generally support trading accelerated depreciation for a lower tax rate. 
Prepared by Ways and Means Committee Majority Tax Staff 53 

The provision eliminates numerous special depreciation provisions, simplifying the Code 

and providing uniform rules for all businesses. 

The longer ADS class lives more accurately reflect the actual economic life of assets. 

In addition, the provision requires the Treasury Department to reexamine the class lives 

of depreciable assets, focusing on the economic life of the assets, and revise IRS 

guidance. Such an update has not been published since 1987, and the nature of asset 

classes has changed dramatically in the last 26 years. 

JCT estimate: According to JCT, the provision would increase revenues by $269.5 billion over 

2014-2023.

Sec. 3105. Repeal of amortization of pollution control facilities. 

Current law: Under current law, a taxpayer may elect to recover the cost of a certified pollution 

control facility over a period of 60 months (84 months in the case of certain atmospheric 

pollution control facilities used in connection with a power plant or other property that is 

primarily coal-fired) rather than through annual depreciation deductions based on the useful life 

of the property. A corporate taxpayer must reduce the amount of basis otherwise eligible for the 

60-month recovery by 20 percent. 

Provision: Under the provision, the special election for amortization of pollution control 

facilities would be repealed. Accordingly, such facilities would be subject to the general 

depreciation rules, with the cost recovery of pollution control facilities generally based on the 

class life of the underlying property (e.g., the building to which the pollution control facility is 

attached would have a 40-year life). The provision would be effective for facilities placed in 

service after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $7.9 billion over 

2014-2023.

Sec. 3106. Net operating loss deduction. 

Current law: Under current law, a net operating loss (NOL) generally is the amount by which a 

taxpayer’s current-year business deductions exceed its current-year gross income. NOLs may 

not be deducted in the year generated, but may be carried back two years and carried forward 20 

years to offset taxable income in such years. The AMT rules provide that a taxpayer’s NOL 

deduction may not reduce the taxpayer’s alternative minimum taxable income by more than 90 

percent. 

Different rules apply with respect to NOLs arising in certain circumstances. A special five-year 

carryback applies to NOLs arising from a farming loss, losses arising from certain bad debts of 

commercial banks, and certain amounts related to the Hurricane Katrina and the Gulf 

Opportunity Zone before 2010. Special rules also apply to specified liability losses (ten-year 

carryback) and excess interest losses (no carryback to any year preceding a corporate equity 
Prepared by Ways and Means Committee Majority Tax Staff 54 

reduction transaction). Additionally, a special rule applied to losses incurred in 2008 and 2009 

(up to a five-year carryback) and a special rule applied to certain electric utility companies with 

respect to NOLs arising in 2003 through 2005 (five-year carryback). 

Provision: Under the provision, C corporations could deduct an NOL carryover or carryback 

only to the extent of 90 percent of the corporation’s taxable income (determined without regard 

to the NOL deduction) – conforming to the current-law AMT rule. The provision also would 

repeal the special carryback rules for specified liability losses, bad debts losses of commercial 

banks, excess interest losses relating to corporate equity reduction transactions, and certain 

farming losses. Additionally, the provision would repeal the expired special rules regarding 

losses incurred in 2008 and 2009, losses of certain electric utility companies, and losses related 

to the Hurricane Katrina and the Gulf Opportunity Zone. The provision generally would be 

effective for tax years beginning after 2014 and losses incurred after 2014 and carried back to 

prior years. 

JCT estimate: According to JCT, the provision would increase revenues by $70.5 billion over 

2014-2023.

Sec. 3107. Circulation expenditures. 

Current law: Under current law, expenditures that produce benefits in future tax years to a 

taxpayer’s business or income-producing activities generally are capitalized and recovered over 

time through depreciation, amortization, or depletion deductions. A special rule, however, 

allows taxpayers to deduct immediately expenditures to establish, maintain, or increase the 

circulation of a newspaper, magazine, or other periodical. Under the AMT, however, circulation 

expenditures must be capitalized and amortized over 36 months. 

Provision: Under the provision, taxpayers would recover the cost of circulation expenditures by 

capitalizing and amortizing such costs over 36 months – conforming to the current-law AMT 

rule. The provision would be effective for amounts paid or incurred in tax years beginning after 

2015, with a three-year phase-in period in which 75 percent of circulation expenditures would be 

deductible in 2016 (25 percent amortized), 50 percent would be deductible in 2017 (50 percent 

amortized), and 25 percent deductible in 2018 (75 percent amortized). 

JCT estimate: According to JCT, the provision would increase revenues by $0.6 billion over 

2014-2023.

Sec. 3108. Amortization of research and experimental expenditures. 

Current law: Under current law, business expenditures associated with the development and 

creation of an asset having a useful life extending beyond the current year generally must be 

capitalized and depreciated over such useful life. As an exception to this general rule, taxpayers 

may elect to deduct currently certain research or experimentation (R&E) expenditures paid or 
Prepared by Ways and Means Committee Majority Tax Staff 55 

incurred in connection with a trade or business. Such deductions must be reduced by the amount 

of the taxpayer’s research tax credit. 

Provision: Under the provision, all R&E expenditures would be amortized over a five-year 

period beginning with the midpoint of the tax year in which the expenditure is paid or incurred. 

The five-year period would continue even in the event any property with respect to which 

amortization deductions were made is retired or abandoned. Expenditures incurred for the 

development of software would be treated as R&E expenditures. 

The provision would be effective for amounts paid or incurred in tax years beginning after 2014, 

but would be phased in slowly over several years. For tax years beginning in 2015, a taxpayer 

could expense 60 percent and amortize 40 percent over two years; for tax years beginning in 

2016 and 2017, a taxpayer could expense 40 percent and amortize 60 percent over three years; 

and for tax years beginning in 2018, 2019, and 2020, a taxpayer could expense 20 percent and 

amortize 80 percent over four years. When adding together, the percentage that is permitted to 

be expensed in any particular year and the amortized percentages from prior years that are also 

available as a deduction in that particular year, the effect of this formula is to permit a deduction 

of at least 80 percent of the amount that is deductible under current law (assuming constant 

levels of annual investment). Alternatively, a taxpayer may elect to apply the five-year 

amortization rule to all R&E expenditures immediately. 

Considerations:

In general, the cost of assets that have a useful life beyond the tax year must be recovered 

over the useful life of the asset. The provision recognizes that research and 

experimentation has a useful life beyond the tax year in which the expenses are incurred. 

In particular, the tangible and intangible property created through research and 

experimentation provide value to a business beyond a single tax year. 

JCT estimate: According to JCT, the provision would increase revenues by $192.6 billion over 

2014-2023.

Sec. 3109. Repeal of deductions for soil and water conservation expenditures and 

endangered species recovery expenditures. 

Current law: Under current law, a taxpayer engaged in the business of farming may deduct 

immediately, rather than recover over time through annual depreciation deductions, costs paid or 

incurred during the tax year for the purpose of soil or water conservation in respect of land used 

in farming, for the prevention of erosion of land used in farming, or for endangered species 

recovery. Such expenditures are allowed as a deduction, not to exceed 25 percent of the gross 

income derived from farming during the tax year, with any excess amount carried over to a 

succeeding year subject to the same percentage limitations. 

Provision: Under the provision, the special deduction for soil and water conservation and for 

the prevention of erosion in land used in farming and endangered species recovery would be 
Prepared by Ways and Means Committee Majority Tax Staff 56 

repealed. Accordingly, such costs would be capitalized in the basis of the underlying property. 

The provision would be effective for amounts paid or incurred after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.8 billion over 

2014-2023.

Sec. 3110. Amortization of certain advertising expenses. 

Current law: Under current law, a deduction is allowed for ordinary and necessary expenses 

paid or incurred in carrying on any trade or business. However, expenditures that create a longterm benefit generally must be capitalized and recovered through depreciation or amortization, 

rather than deducted currently. Although advertising expenditures are not addressed specifically 

in the Code, the IRS generally allows taxpayers to treat advertising expenditures as an ordinary 

and necessary business expense. In addition, a special regulatory exception applies to amounts 

paid to develop a package design. This includes the design of shapes, colors, words, pictures, 

lettering, and other elements on a given product package or the design of a container to hold a 

given product. Even though such design cost may have a useful life beyond the current tax year, 

current regulations permit taxpayers to deduct such costs in the year incurred. 

Provision: Under the provision, 50 percent of certain advertising expenses would be currently 

deductible and 50 percent would be amortized ratably over a ten-year period. This rule would 

phase in for tax years beginning before 2018 as follows: for tax years beginning in 2015, 80 

percent of advertising costs would be deductible and 20 percent amortized; in 2016, 70 percent 

of advertising costs would be deductible and 30 percent amortized; and in 2017, 60 percent of 

advertising costs would be deductible and 40 percent amortized. The provision would also 

permit taxpayers to expense the first $1,000,000 of advertising expenditures. However, the 

$1,000,000 would be reduced to the extent a taxpayer’s advertising costs exceed $1,500,000, and 

completely phased out once advertising costs exceed $2,000,000. All of these thresholds would 

be adjusted for inflation. 

Advertising expenses would include any amount paid or incurred for development, production, 

or placement (including any form of transmission, broadcast, publication, display, or 

distribution) of any communication to the general public intended to promote the taxpayer’s 

trade or business (including any service, facility, or product provided pursuant to such trade or 

business). In addition, advertising expenses would include wages paid to employees primarily 

engaged in activities related to advertising and the direct supervision of employees engaged in 

such activities. Advertising expenses, however, would not include: depreciable property, 

amortizable section 197 intangibles, discounts, certain communications on the taxpayer’s 

property, the creation of logos (and trade names), marketing research, business meals, and 

qualified sponsorship payments. 

Under the provision, no deduction of unamortized expenses would be allowed if any property 

with respect to which amortizable advertising expenses are paid or incurred is retired or 

abandoned during the 10-year amortization period. 
Prepared by Ways and Means Committee Majority Tax Staff 57 

Under the provision, the regulatory exception permitting the immediate deduction of packagingdesign costs would be repealed, and such costs would be capitalized into the cost of producing 

the packaging and recovered as the packaging (and products the packaging contains) are sold. 

The provision would be effective for amounts paid or incurred in tax years beginning after 2014. 

Considerations:

In general, the cost of assets that have a useful life beyond the tax year must be recovered 

over the useful life of the asset. The provision recognizes that a portion of advertising 

has a useful life beyond the tax year in which the expenses are incurred because a portion 

of advertising creates long-lived intangible assets such as brand awareness and customer 

loyalty, the benefits of which inure to the company for many years after the taxpayer 

incurs the expense. 

The Supreme Court has noted that “a taxpayer’s realization of benefits beyond the year in 

which [an] expenditure is incurred is undeniably important in determining whether the 

appropriate tax treatment is immediate deduction or capitalization.”

JCT estimate: According to JCT, the provision would increase revenues by $169.0 billion over 

2014-2023.

Sec. 3111. Expensing certain depreciable business assets for small business. 

Current law: Under current law, a taxpayer is allowed to recover, through annual depreciation 

deductions, the cost of certain property used in a trade or business or for the production of 

income. Under Code section 179, a taxpayer may deduct immediately (“expense”) the cost of

investments in property, equipment, and computer software rather than depreciating such costs 

over the recovery period of such property under the Code. For 2008 and 2009, taxpayers could 

expense up to $250,000 of qualifying property, reduced proportionately to the extent that the 

taxpayer placed in service more than $800,000 of qualifying property. From 2010 through 2013, 

the expensing limitation was $500,000 and phase-out threshold was $2 million. For tax years 

after 2013, the expensing limitation under Code section 179 drops to $25,000, and the phase-out 

begins once investments exceed $200,000. Computer software and certain types of real property 

(qualifying leasehold improvements, investments in restaurant property, and improvements to 

retail property) were eligible for expensing if placed in service before 2014. However, the 

amount of real property that could be expensed was limited to $250,000. Investments in air 

conditioning and heating units do not qualify for expensing. 

Provision: Under the provision, Code section 179 expensing would be made permanent at the 

2008-2009 levels. Taxpayers would be able to expense up to $250,000 of investments in new 

equipment and property per year, with the deduction phased out for investments exceeding 

$800,000 (with both amounts indexed for inflation). The provision would also would also 

restore and make permanent rules allowing computer software and certain investments in real 

property to qualify for section 179 expensing. In addition, the provision would allow 

investments in air conditioning and heating units to qualify for section 179 expensing. The 

provision would be effective for tax years beginning after 2013. 
Prepared by Ways and Means Committee Majority Tax Staff 58 

Considerations:

Starting in 2014, the expensing levels are now $25,000 and $200,000, respectively, a 

significant reduction from the 2013 levels for small businesses and farms that have 

struggled through the economic challenges of the past six years to build their businesses 

and hire new employees. 

By making permanent the current-law provisions allowing computer software and certain 

investments in real property to qualify for section 179 expensing, this provision would 

significantly expand the pool of eligible assets. 

JCT estimate: According to JCT, the provision would reduce revenues by $54.9 billion over 

2014-2023.

Sec. 3112. Repeal of election to expense certain refineries. 

Current law: Under current law, a taxpayer could elect to expense 50 percent of the cost of any 

qualified property used for processing liquid fuel from crude oil or qualified fuels prior to 2014. 

The remaining 50 percent was recovered under normal depreciation rules. Qualified refinery 

property included assets located in the United States and used in the refining of liquid fuels. The 

expensing election expired for property placed in service after 2013. 

Provision: Under the provision, the deduction would be repealed. The provision would be 

effective for property placed in service after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3113. Repeal of deduction for energy efficient commercial buildings. 

Current law: Under current law, a taxpayer could claim a deduction with respect to certain 

energy-efficient commercial building property expenditures incurred prior to 2014. The 

deduction was limited to an amount equal to $1.80 per square foot of the property for which such 

expenditures were made. The deduction was allowed in the year in which the property was 

placed in service. The deduction expired at the end of 2013. 

Provision: Under the provision, the deduction would be repealed. The provision would be 

effective for property placed in service after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3114. Repeal of election to expense advanced mine safety equipment. 

Current law: Under current law, a taxpayer could deduct immediately, rather than recover 

through annual depreciation deductions, 50 percent of the cost of any qualified advanced mine 
Prepared by Ways and Means Committee Majority Tax Staff 59 

safety equipment property that was placed in service before 2014. The deduction expired at the 

end of 2013. 

Provision: Under the provision, the special rule for immediately deducting 50 percent of the 

cost of advanced mine safety equipment would be repealed. The provision would be effective 

for property placed in service after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3115. Repeal of deduction for expenditures by farmers for fertilizer, etc. 

Current law: Under current law, a taxpayer engaged in the business of farming may elect to 

deduct immediately expenditures for fertilizer, lime, ground limestone, marl, or other materials 

to enrich, neutralize, or condition land used in farming. 

Provision: Under the provision, the special rule for deducting expenditures for fertilizer and 

other farming-related materials would be repealed. The provision would be effective for 

expenses paid or incurred in tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $3.4 billion over 

2014-2023.

Sec. 3116. Repeal of special treatment of certain qualified film and television productions. 

Current law: Under current law, a taxpayer could elect to deduct immediately the cost of a 

qualifying film and television production (up to a maximum deduction of $15 million), 

commencing prior to 2014, rather than capitalizing and recovering the costs through depreciation 

deductions generally in relation to the forecasted income from the production. The threshold 

was increased to $20 million if a significant amount of the production expenditures were 

incurred in certain low-income, distressed or isolated areas in the United States. 

Provision: Under the provision, the special rule allowing an immediate deduction of qualifying 

film and television production costs would be repealed. The provision would be effective for 

productions commencing after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3117. Repeal of special rules for recoveries of damages of antitrust violations, etc. 

Current law: Under current law, a taxpayer who recovers damages from certain antitrust 

violations, patent infringements, or breaches of contract or fiduciary duty and includes the 

damages in income, may claim a special deduction intended to offset any losses relating to such 

antitrust violation, etc. that did not result in a tax benefit to the taxpayer. This rule, enacted in 
Prepared by Ways and Means Committee Majority Tax Staff 60 

1969, addressed cases in which a taxpayer did not have sufficient income to offset the losses 

resulting from the antitrust violation in the year the loss occurred or could not carryover such 

losses to the year in which the litigation damages were recovered due to the limitations on net 

operating loss carryovers (NOLs), which varied between five and seven years until 1981. Under 

current law, NOLs may be carried forward for 20 years. 

Provision: Under the provision, the special deduction for antitrust violations would be repealed. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 3118. Treatment of reforestation expenditures. 

Current law: Under current law, costs incurred to improve property used in a trade or business 

generally must be capitalized and recovered through depreciation deductions over the useful life 

of the property. A taxpayer, however, may elect to amortize reforestation expenditures over 84 

months (i.e., seven years). In addition, a taxpayer may also elect to deduct up to $10,000 of 

certain reforestation expenditures that otherwise would be capitalized. To the extent that 

reforestation expenditures exceed the $10,000 limit, a taxpayer may elect to amortize the 

remaining expenditures over 84 months. The special rule applies to property in the United States 

that generally contains any type of trees in significant commercial quantities and that is held by 

the taxpayer for planting, cultivating, caring for and cutting of trees for sale or use in the 

commercial production of timber products. 

Provision: Under the provision, the election to deduct up to $10,000 for reforestation 

expenditures would be repealed. For purposes of the 84-month amortization election, the 

provision would limit the definition of qualifying timber property to U.S. property that (1) 

contains evergreen trees in commercial quantities that are reasonably expected to be cut down 

after they are more than six years old, and (2) is held for the planting, cultivating, caring for, and 

cutting of such trees for ornamental purposes. The provision would be effective for expenditures 

paid or incurred in tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.4 billion over 

2014-2023.

Sec. 3119. 20-year amortization of goodwill and certain other intangibles. 

Current law: Under current law, when a taxpayer acquires intangible assets held in connection 

with a trade or business, any value properly attributable to such intangible assets is amortizable 

on a straight-line basis over 15 years. For these purposes, intangible assets generally include: 

goodwill; going-concern value; workforce in place; business books and records; any patent, 

copyright, formula, process, design, pattern, know-how, or similar item; any franchise, trademark 

or trade name; customer- and supplier-based intangibles; any license, permit, or other rights 
Prepared by Ways and Means Committee Majority Tax Staff 61 

granted by governmental units; and any other similar item. Certain assets are excluded from the 

rule, such as mortgage servicing rights, which are amortizable over nine years. 

Provision: Under the provision, the amortization period for acquired intangible assets would be 

extended to 20 years. The provision also would treat mortgage servicing rights as intangible 

assets subject to amortization over 20 years. The provision would be effective for property 

acquired after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $13.0 billion over 

2014-2023.

Sec. 3120. Treatment of environmental remediation costs. 

Current law: Under current law, taxpayers generally must capitalize amounts paid or incurred 

for permanent improvements or betterments made to increase the value of any property used in 

carrying on any trade or business. Thus, environmental remediation costs relating to the 

abatement or control of hazardous substances at a qualified contaminated site are capitalized into 

the cost of the land and recovered only when the land is sold. Prior to 2012, taxpayers could 

elect to treat environmental expenditures as deductible in the year paid. 

Provision: Under the provision, environmental remediation costs would be recovered ratably 

over 40 years beginning with the midpoint of the tax year in which the expenditures are paid or 

incurred. The provision would be effective for expenditures paid or incurred after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 3121. Repeal of expensing of qualified disaster expenses. 

Current law: Under current law, taxpayers generally must capitalize amounts paid or incurred 

to acquire property or for permanent improvements or betterments made to increase the value of 

any property used in carrying on any trade or business. A special rule permitted taxpayers to 

deduct qualified disaster expenses in 2008 and 2009 relating to Hurricane Katrina and the Gulf 

Opportunity Zone. 

Provision: Under the provision, the special rule for expensing certain disaster expenses would 

be repealed as obsolete. The provision would be effective for amounts paid or incurred after 

2014.

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 62 

Sec. 3122. Phaseout and repeal of deduction for income attributable to domestic 

production activities. 

Current law: Under current law, taxpayers may claim a deduction equal to 9 percent (6 percent 

in the case of certain oil and gas activities) of the lesser of the taxpayer’s qualified production 

activities income or the taxpayer’s taxable income for the tax year. The deduction is limited to 

50 percent of the W-2 wages paid by the taxpayer during the calendar year. Qualified production 

activities income is equal to domestic production gross receipts less the cost of goods sold and 

expenses properly allocable to such receipts. Qualifying receipts are derived from property that 

was manufactured, produced, grown, or extracted within the United States; qualified film 

productions; production of electricity, natural gas, or potable water; construction activities 

performed in the United States; and certain engineering or architectural services. Qualifying 

receipts do not include gross receipts derived from the sale of food or beverages prepared at a 

retail establishment; the transmission or distribution of electricity, gas, and potable water; or the 

disposition of land. 

Provision: Under the provision, the deduction for domestic production activities would be 

phased out, with the deduction reduced to 6 percent for tax years beginning in 2015 and 3 

percent for tax years beginning in 2016. The deduction would be repealed for tax years 

beginning after 2016. 

JCT estimate: According to JCT, the provision would increase revenues by $115.8 billion over 

2014-2023.

Sec. 3123. Unification of deduction for organizational expenditures. 

Current law: Under current law, new businesses may deduct up to $5,000 of start-up expenses 

(i.e., costs incurred prior to the commencement of the business’ operation). The deduction 

phases out to the extent that start-up expenses exceed $50,000. Start-up expenses that do not 

qualify for the deduction may be amortized over 15 years. Partnerships and C corporations also 

may deduct up to $5,000 of organizational expenses (i.e., expenses relating to the 

commencement of the business). The additional deduction phases out to the extent 

organizational expenses exceed $50,000, with excess expenses amortized over a 15-year period. 

Provision: Under the provision, the various existing provisions for start-up and organizational 

expenses would be combined into a single provision applicable to all businesses. The provision 

would allow a taxpayer to deduct up to $10,000 in start-up and organizational costs, with a 

phase-out beginning at $60,000. The additional deduction for organizational expenses incurred 

by a partnership or C corporation would be repealed. Expenses above the new increased limit 

would continue to be deductible over the 15-year period following the start of the business. The 

provision would be effective for expenses paid or incurred in tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by $0.6 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 63 

Sec. 3124. Prevention of arbitrage of deductible interest expense and tax-exempt interest 

income. 

Current law: Under current law, taxpayers may not deduct interest on indebtedness incurred to 

purchase or carry obligations if the interest income from the obligations is exempt from tax (taxexempt obligations). The rule is intended to prevent taxpayers from engaging in tax arbitrage by 

deducting interest on indebtedness used to purchase tax-exempt obligations. There are two 

methods for determining the amount of the disallowance: The first method, which applies to all 

taxpayers other than financial institutions or dealers in tax-exempt obligations, asks whether a 

taxpayer’s borrowing can be traced to its holding of tax-exempt obligations and disallows an 

interest deduction for that portion used to purchase the tax-exempt obligations. The second 

method, which applies to financial institutions and dealers in exempt obligations, disallows 

interest deductions based on the percentage of the taxpayer’s assets comprised of tax-exempt 

obligations. Under the second method, a special rule excludes certain qualified small issuer taxexempt obligations from the pro rata disallowance rule; instead, 20 percent of the interest 

allocable to such obligations is disallowed. 

Under current law, individuals may not deduct investment interest in excess of net investment 

income. Investment interest generally is the interest paid or accrued on indebtedness with 

respect to property held for investment, excluding home-mortgage interest. Property considered 

held for investment currently does not include property that generates tax-exempt interest. 

Disallowed investment interest deductions may be carried over to the succeeding tax year. 

Provision: Under the provision, C corporations, including financial institutions and dealers in 

tax-exempt obligations, would be required to use the same interest-disallowance method. Thus, 

the interest deduction of any taxpayer would be disallowed based on the percentage of the 

taxpayer’s assets comprised of tax-exempt obligations. The special rule under present law for 

qualified small issuer tax-exempt obligations also would be repealed. 

The provision also would permanently disallow the investment-interest deduction of a taxpayer 

(other than a corporation or financial institution) by the amount of tax-exempt interest received. 

Any remaining interest deduction would still be limited to the taxpayer’s net investment income. 

The provision relating to the interest-disallowance method would be effective for tax years 

ending after and obligations issued after February 26, 2014. The provision relating to the 

investment-interest deduction would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.6 billion over 

2014-2023.

Sec. 3125. Prevention of transfer of certain losses from tax indifferent parties. 

Current law: Under current law, a deduction is generally disallowed for a loss on the sale or 

exchange of property to certain related parties or controlled partnerships. If a loss has been 

disallowed in such a case, the transferee generally may reduce any gain later recognized on a 
Prepared by Ways and Means Committee Majority Tax Staff 64 

disposition of the asset by the amount of loss disallowed to the transferor. In effect, this rule has 

the effect of shifting the benefit of the loss from the transferor to the transferee. Special rules 

apply in the case of transfers of property within a controlled group of businesses. 

Provision: Under the provision, the related-party loss rules would be modified to prevent losses 

from being shifted from a tax-indifferent party (e.g., a foreign person not subject to U.S. tax) to 

another party in whose hands any gain or loss with respect to the property would be subject to 

U.S. tax. The provision would be effective for sales and exchanges after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.7 billion over 

2014-2023.

Sec. 3126. Entertainment, etc. expenses. 

Current law: Under current law, no deduction is allowed for expenses relating to entertainment, 

amusement or recreation activities, or facilities (including membership dues with respect to such 

activities or facilities), unless the taxpayer establishes that the item was directly related to the 

active conduct of the taxpayer’s trade or business, in which case the taxpayer may deduct up to 

50 percent of expenses relating to meals and entertainment. An item is considered directly 

related if it is associated with a substantial and bona fide business discussion. 

A taxpayer also may deduct the cost of certain fringe benefits provided to employees (e.g., 

employee discounts, working condition and transportation fringe benefits), even though such 

benefits are excluded from the employee’s income under Code section 132. Additionally, a 

taxpayer may deduct expenses for goods, services, and facilities to the extent that the expenses 

are reported by the taxpayer as compensation and wages to an employee (or includible in gross 

income of a recipient who is not an employee). 

A taxpayer may deduct certain reimbursed expenses, including reimbursement arrangements in 

which an employer reimburses the expenses incurred by employees of a subcontractor, provided 

such expenses are properly substantiated and not treated as income to the employee. 

Provision: Under the provision, no deduction would be allowed for entertainment, amusement 

or recreation activities, facilities or membership dues relating to such activities or other social 

purposes. In addition, no deduction would be allowed for transportation fringe benefits or for 

amenities provided to an employee that are primarily personal in nature and that involve property 

or services not directly related to the employer’s trade or business, except to the extent that such 

benefits are treated as taxable compensation to an employee (or includible in gross income of a 

recipient who is not an employee). The 50-percent limitation under current law also would apply 

only to expenses for food or beverages and to qualifying business meals under the provision, 

with no deduction allowed for other entertainment expenses. Furthermore, no deduction would 

be allowed for reimbursed entertainment expenses paid as part of a reimbursement arrangement 

that involves a tax-indifferent party such as a foreign person or an entity exempt from tax. The 

provision would be effective for amounts paid or incurred after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 65 

Considerations:

It is difficult for the IRS to determine whether entertainment expenses are directly related 

to a trade or business, creating uncertainty for taxpayers as well as the potential for 

significant abuse. 

The provision aligns the treatment of transportation fringe benefits and amenities 

provided to an employee that are primarily personal in nature and not directly related to a 

trade or business with other similar tax items. 

JCT estimate: According to JCT, the provision would increase revenues by $14.7 billion over 

2014-2023.

Sec. 3127. Repeal of limitation on corporate acquisition indebtedness. 

Current law: Under current law, a corporation’s interest deduction may be limited if it issues 

debt as consideration for the acquisition of stock in another corporation or for the acquisition of 

assets of another corporation. However, there are several exceptions to this general rule. 

Provision: Under the provision, the interest-limitation rule for debt issued with respect to 

corporate acquisitions would be repealed. The provision would be effective for interest paid or 

incurred with respect to indebtedness incurred after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by $0.1 billion over 

2014-2023.

Sec. 3128. Denial of deductions and credits for expenditures in illegal businesses. 

Current law: Under current law, no deduction or credit is allowed for an amount paid or 

incurred in carrying on a trade or business if the activities of the business consist of trafficking in 

controlled substances that are prohibited by Federal law or the State law in which the business is 

conducted. Current law, however, does not generally deny deductions or credits to illegal 

businesses, generally, however. 

Provision: Under the provision, the rule denying deductions and credits would be expanded to 

include any trade or business if carrying out such business is a felony under Federal law or the 

law of any State in which the business is conducted. The provision would be effective for 

amounts paid or incurred after the date of enactment in tax years ending after the date of 

enactment. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 66 

Sec. 3129. Limitation on deduction for FDIC premiums. 

Current law: Under current law, amounts paid by insured depository institutions pursuant to an 

assessment by the Federal Deposit Insurance Corporation (FDIC) to support the Deposit 

Insurance Fund (DIF) are currently deductible as a trade or business expense. 

Provision: Under the provision, a percentage of such assessments would be non-deductible for 

institutions with total consolidated assets in excess of $10 billion. The percentage of nondeductible assessments would be equal to the ratio that total consolidated assets in excess of $10 

billion bears to $40 billion, so that assessments would be completely non-deductible for 

institutions with total consolidated assets in excess of $50 billion. The provision would be 

effective for tax years beginning after 2014. 

Consideration: The provision corrects for the fact that, when the FDIC determines the amount 

of assessments that are necessary to maintain an adequate balance in the DIF, it does so on a pretax basis and does not take into account the deductibility of the premium payments. These 

deductions diminish the General Fund and effectively result in a General Fund transfer to the 

DIF. 

JCT estimate: According to JCT, the provision would increase revenues by $12.2 billion over 

2014-2023.

Sec. 3130. Repeal of percentage depletion. 

Current law: Under current law, depletion, like depreciation, is a form of capital cost recovery. 

In both cases, the taxpayer is allowed a deduction in recognition of the fact that an asset is being 

expended to produce income. Under the percentage-depletion method, a percentage, varying 

from 5 percent to 22 percent (generally 15 percent for certain oil and gas properties), of the 

taxpayer’s gross income from a producing property is allowed as a deduction in each tax year. 

The deduction generally may not exceed 50 percent (100 percent in the case of certain oil and 

gas properties) of the net income from the property in any year (the “net-income limitation”). 

Additionally, the percentage depletion deduction for all oil and gas properties may not exceed 65 

percent of the taxpayer’s overall taxable income for the year. Because percentage depletion, 

unlike cost depletion, is computed without regard to the taxpayer’s basis in the property, 

cumulative depletion deductions may be greater than the amount expended by the taxpayer to 

acquire or develop the property. 

Provision: Under the provision, the percentage-depletion method would be repealed. The 

provision would be effective for tax years beginning after 2014. 

Consideration: All taxpayers are allowed a depreciation deduction for their assets that are being 

used to produce income. However, only extractive industries are allowed to recover more than 

their investment. The provision would create parity among all businesses with respect to 

recovering costs. 
Prepared by Ways and Means Committee Majority Tax Staff 67 

JCT estimate: According to JCT, the provision would increase revenues by $5.3 billion over 

2014-2023.

Sec. 3131. Repeal of passive activity exception for working interests in oil and gas 

property.

Current law: Under current law, the passive loss rules limit deductions and credits from passive 

trade or business activities. Deductions attributable to passive activities, to the extent they 

exceed income from passive activities, generally may not be deducted against other income. 

Deductions and credits that are suspended under these rules are carried forward and treated as 

deductions and credits from passive activities in subsequent years. The suspended losses from a 

passive activity are allowed in full when a taxpayer disposes of his entire interest in the passive 

activity to an unrelated person. Pursuant to a special rule, a passive activity does not include a 

working interest in any oil or gas property that the taxpayer holds directly or through an entity 

that does not limit the liability of the taxpayer with respect to the interest. Thus, losses and 

credits from such interests may be used to offset other income of the taxpayer without limitation 

under the passive loss rule. This special rule applies without regard to whether the taxpayer 

materially participates in the activity. 

Provision: Under the provision, the passive activity exception for working interests in oil and 

gas property would be repealed. The provision would be effective for tax years beginning after 

2014.

Consideration: Generally, individual taxpayers are not allowed to deduct passive losses against 

their active or wage income under current law. However, a special rule exists for taxpayers that 

have an interest in oil and gas property. The provision creates parity among all taxpayers by 

removing this special exception. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3132. Repeal of special rules for gain or loss on timber, coal, or domestic iron ore. 

Current law: Under current law, a taxpayer may elect to treat the cutting of timber for sale or 

use in the taxpayer’s business as a sale or exchange of such timber cut during the year. A 

taxpayer that makes the election converts part of the ordinary gain resulting from the sale of the 

timber into capital gain. To elect this treatment, a taxpayer must have owned the timber or held a 

contract right to cut the timber for more than a year. Under the election, gain equal to the 

difference between the adjusted basis of the timber and the fair market value as of the first day of 

the tax year in which it was cut is treated as capital gain. Any additional gain attributable to the 

difference between the fair market value of the timber on the first day of the tax year and the 

proceeds from the sale of products produced from the timber cut (less ordinary and necessary 

business expenses) is ordinary. A similar election is permitted for the disposal of timber or coal 

or iron ore mined in the United States held for more than one year before the disposal. 
Prepared by Ways and Means Committee Majority Tax Staff 68 

Provision: Under the provision, gain from timber cut by an owner and used in its trade or 

business, and from the disposal of timber or coal or domestic iron ore held for more than one 

year before the disposal, would no longer be treated as capital gain. Thus, all gain in these 

circumstances would be treated as ordinary income. This provision generally would be effective 

for tax years beginning after 2014. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for sections 1001-1003 of the discussion draft. 

Sec. 3133. Repeal of like-kind exchanges. 

Current law: Under current law, an exchange of property, like a sale, generally is a taxable 

transaction. A special rule provides that no gain or loss is recognized to the extent that property 

held for productive use in the taxpayer’s trade or business, or property held for investment 

purposes, is exchanged for property of a like-kind that also is held for productive use in a trade 

or business or for investment. The taxpayer receives a basis in the new property equal to the 

taxpayer’s adjusted basis in the exchanged property. The like-kind exchange rule applies to a 

wide range of property from real estate to tangible personal property. It does not apply, 

however, to exchanges of stock in trade or other property held primarily for sale, stocks, bonds, 

partnership interests, certificates of trust or beneficial interest, other securities or evidences of 

indebtedness or interest, or to certain exchanges involving livestock or involving foreign 

property. A like-kind exchange does not require that the properties be exchanged simultaneously 

– as long as the property to be received in the exchange is identified within 45 days and 

ultimately received within 180 days of the sale of the originally property, gain is deferred. 

Provision: Under the provision, the special rule allowing deferral of gain on like-kind 

exchanges would be repealed. The provision would be effective for transfers after 2014. 

However, a like-kind exchange would be permitted if a written binding contract is entered into 

on or before December 31, 2014, and the exchange under the contract is completed before 

January 1, 2017. 

Considerations:

The like-kind exchange rules currently allow taxpayers to defer tax on the built-in gains 

in property by exchanging it for similar property. With multiple exchanges, gains 

essentially may be deferred for decades, and ultimately escape taxation entirely if the 

property’s basis is stepped up to its fair market value upon the death of the owner. 

The current rules have no precise definition of “like-kind,” which often leads to 

controversy with the IRS and provides significant opportunities for abuse. 

JCT estimate: According to JCT, the provision would increase revenues by $40.9 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 69 

Sec. 3134. Restriction on trade or business property treated as similar or related in service 

to involuntarily converted property in disaster areas. 

Current law: Under current law, gain or loss realized from the sale or other disposition of 

property generally must be recognized at the time of the sale or other disposition. However, a 

special exception applies to certain involuntary or compulsory conversions of property (e.g., the 

property’s destruction is due to a natural disaster, theft, seizure, requisition or condemnation) and 

generally permits such property to be replaced within two years with property that is similar or 

related in service or use to the property converted without recognizing taxable gain. If the trade 

or business is located in a Federally declared disaster area, any tangible property held for 

productive use in the trade or business is treated as similar or related in service or use. Thus, a 

taxpayer could replace lost inventory with a building, and no gain would be recognized. 

Provision: Under the provision, tangible business property that is involuntarily converted in a 

Federally declared disaster area would qualify for deferral of gain recognition only if the 

depreciation class life of replacement property does not exceed that of the converted property. 

The provision would be effective for disasters declared after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3135. Repeal of rollover of publicly traded securities gain into specialized small 

business investment companies. 

Current law: Under current law, gain or loss generally is recognized on any sale, exchange, or 

other disposition of property. A special rule permits an individual or corporation to roll over 

without recognition of income any capital gain realized on the sale of publicly traded securities 

when the proceeds are used to purchase common stock or a partnership interest in a specialized 

small business investment corporation (SSBIC) within 60 days of the sale of the securities. 

SSBICs are a special type of investment fund licensed by the U.S. Small Business 

Administration until 1996 when the program was repealed (though certain existing SSBICs were 

grandfathered). The amount of gain that a taxpayer may roll over in a tax year is limited to the 

lesser of (1) $50,000 ($250,000 for corporations) or (2) $500,000 ($1,000,000 for corporations) 

reduced by the gain previously excluded under the provision. 

Provision: Under the provision, the special rule permitting gains on publicly traded securities to 

be rolled over to an SSBIC would be repealed. The provision would be effective for sales after 

2014.

JCT estimate: According to JCT, the provision would increase revenues by $1.3 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 70 

Sec. 3136. Termination of special rules for gain from certain small business stock. 

Current law: Under current law, a taxpayer (other than a corporation) may exclude 50 percent 

of the gain from the sale of certain small business stock acquired at original issue and held for at 

least five years. For stock acquired in 2009 through 2013, the exclusion is 75 percent or 100 

percent, depending on the timing of the acquisition. The amount of gain eligible for the 

exclusion with respect to the stock of any qualifying domestic C corporation is the greater of ten 

times the taxpayer’s basis in the stock or $10 million (reduced by the amount of gain eligible for 

exclusion in prior years). To qualify, the small business must have aggregate gross assets of $50 

million or less when the stock is issued and meet certain active trade or business requirements. 

A taxpayer may elect to roll over gain from the sale of qualified small business stock held more 

than six months when other qualified small business stock is purchased during the 60-day period 

beginning on the date of sale. 

Provision: Under the provision, the exclusion of gain from the sale of certain small business 

stock would be repealed. The provision would be effective for gains with respect to stock issued 

after the date of enactment. For rollover of gains, the provision would not apply to sales of 

qualifying small business stock acquired before the date of enactment. 

Considerations:

Current law provides this narrow benefit only to investors in small businesses organized 

as C corporations with tradable stock, thereby favoring investors in those types of 

businesses over investors in small businesses organized as S corporations, partnerships, 

or LLCs. Accordingly, the provision repealing this narrow tax benefit would not apply to 

small businesses organized as pass-through entities. 

The current-law benefit would be repealed in favor of broad-based tax rate reductions, 

which will help all types of small businesses as well as the individuals who invest in 

them. 

JCT estimate: According to JCT, the provision would increase revenues by $4.8 billion over 

2014-2023.

Sec. 3137. Certain self-created property not treated as a capital asset. 

Current law: Under current law, a self-created patent, invention, model or design (whether or 

not patented), or secret formula or process is treated as a capital asset. However, the following 

self-created property is not treated as a capital asset: copyrights; literary, musical or artistic 

compositions; and letters or memoranda. Any gain or loss recognized as a result of the sale, 

exchange, or other disposition of such property is generally ordinary in character. The creator of 

musical compositions or copyrights in musical works, however, may elect to treat such property 

as a capital asset. 

Provision: Under the provision, gain or loss from the disposition of a self-created patent, 

invention, model or design (whether or not patented), or secret formula or process would be 

ordinary in character. This would be consistent with the treatment of copyrights under current 
Prepared by Ways and Means Committee Majority Tax Staff 71 

law. In addition, the election to treat musical works as a capital asset would be repealed. The 

provision would be effective for sales, exchanges, and other dispositions of such property after 

2014.

JCT estimate: According to JCT, the provision would increase revenues by $0.6 billion over 

2014-2023.

Sec. 3138. Repeal of special rule for sale or exchange of patents. 

Current law: Under current law, an individual who creates a patent and an unrelated individual 

who acquires a patent from its creator prior to the actual commercial use of the patent may treat 

any gains on the transfer of the patent as long-term capital gains. To qualify, a transfer must be 

of substantially all the rights to the patent (or an undivided interest therein) and cannot be by gift, 

inheritance or devise. 

Provision: Under the provision, the special rule treating the transfer of a patent prior to its 

commercial exploitation as long-term capital gain would be repealed. The provision would be 

effective for transfers after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 3139. Depreciation recapture on gain from disposition of certain depreciable realty. 

Current law: Under current law, the disposition of most property used in a business on which 

depreciation deductions were taken results in gain or loss that is treated as ordinary or capital 

depending on whether there is a net gain or a net loss. A net loss may be deducted fully against 

ordinary income. A net gain generally results in long-term capital gain treatment, subject to the 

depreciation recapture rules. The depreciation recapture rules require taxpayers to recognize 

ordinary income in an amount equal to all or a portion of the gain realized as a result of the basis 

reduction attributable to accumulated depreciation deductions. For depreciable real property 

(e.g., buildings or structural components of buildings) held for more than one year, gain is 

treated as ordinary income, rather than capital gain to the extent that the accelerated depreciation 

taken with respect to the property exceeds the amount of depreciation that would have been 

taken had the straight-line method been used. For depreciable real property held for one year or 

less, all of the depreciation is recaptured. For corporations, the recaptured amount treated as 

ordinary income generally is increased by an amount equal to 20 percent of all of the 

depreciation deductions taken with respect to the asset. 

Provision: Under the provision, the recapture rules with respect to depreciable real property are 

revised to limit the amount treated as ordinary income to the lesser of: (1) the difference 

between the accelerated depreciation and straight-line depreciation attributable to periods before 

2015, plus the total amount of depreciation attributable to periods after 2014, or (2) the excess of 
Prepared by Ways and Means Committee Majority Tax Staff 72 

the amount realized over the adjusted basis. The provision would be effective for dispositions 

after 2014. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for sections 1001-1003 of the discussion draft. 

Sec. 3140. Common deduction conforming amendments. 

Current law: Not applicable. 

Provision: Under the provision, a number of conforming changes that are common to various 

sections in Subtitle B of Title III of the discussion draft would be made. These sections revise or 

repeal business-related exclusions and deductions. The provision generally would be effective 

for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Subtitle C – Reform of Business Credits 

Sec. 3201. Repeal of credit for alcohol, etc., used as fuel. 

Current law: Under current law, a taxpayer could claim per-gallon incentives relating to 

alcohol (including ethanol) and cellulosic biofuels. The ethanol credit expired at the end of 

2011. For alcohol other than ethanol, the amount of the credit was 60 cents per gallon, and for 

ethanol, the credit was 45 cents per gallon, with an extra 10 cents per gallon available for small 

ethanol producers. 

The cellulosic biofuel producer credit was a nonrefundable income tax credit for each gallon of 

qualified cellulosic fuel produced during the tax year. The amount of the credit per gallon is 

$1.01. The credit expired at the end of 2013. 

Provision: Under the provision, these fuel tax credits would be repealed. The provision would 

be effective for fuels sold or used after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3202. Repeal of credit for biodiesel and renewable diesel used as fuel. 

Current law: Under current law, the biodiesel fuels credit was the sum of three credits: (1) the 

biodiesel fuel-mixture credit, (2) the biodiesel credit, and (3) the small agri-biodiesel producer 

credit. Prior to 2014, a taxpayer could claim a credit of $1.00 per gallon for producing a 

biodiesel fuel mixture, biodiesel and renewable diesel. The agri-biodiesel credit was a 10-centsper-gallon credit for up to 15 million gallons of agri-biodiesel produced by small producers, 
Prepared by Ways and Means Committee Majority Tax Staff 73 

defined generally as persons whose agri-biodiesel production capacity did not exceed 60 million 

gallons per year. The credits expired at the end of 2013. 

Provision: Under the provision, these fuel tax credits would be repealed. The provision would 

be effective for fuels sold or used after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3203. Research credit modified and made permanent. 

Current law: Under current law, a taxpayer could claim a credit for qualified, U.S.-based 

research expenses prior to 2014. The research credit had three components, and in general, the 

credit was available for incremental increases in qualified research. First, a taxpayer could claim 

a credit equal to 20 percent of the amount by which the taxpayer’s qualified research expenses 

for a tax year exceeded its base amount for that year. An alternative simplified research credit 

(ASC) could be claimed in lieu of the basic credit. The ASC was equal to 14 percent of the 

qualified research expenses for the tax year that exceeded 50 percent of the average qualified 

research expenses for the three tax years preceding the tax year for which the credit was being 

determined. Under the ASC, if a taxpayer did not have any qualified research expenses in any of 

the three preceding tax years, the taxpayer could claim a research credit equal to 6 percent of 

qualified expenses incurred in the current year. 

Second, a taxpayer also could claim a 20-percent credit for amounts paid (including grants or 

contributions) over a base amount to universities and certain non-profit scientific research 

organizations for basic research. Third, a 20-percent credit could be claimed for all expenses 

(without regard to a base amount) paid to an energy-research consortium for research conducted 

for the taxpayer. The research credit is not available for qualified expenses paid or incurred after 

2013.

A taxpayer’s qualified research expenses included: (1) in-house expenses for wages and supplies 

attributable to qualified research; (2) certain time-sharing costs for computer use in qualified 

research; and (3) 65 percent (higher in certain cases) of amounts paid or incurred to certain other 

entities for qualified research conducted on the taxpayer’s behalf (contract research expenses).

To be eligible for the credit, qualified research must have been: (1) undertaken for the purpose 

of discovering information that was technological in nature; (2) the application of which was 

intended to be useful in the development of a new or improved business component; and (3) 

substantially all the activities of which constituted elements of a process of experimentation for 

the functional aspects, performance, reliability, or quality of a business component. In general, 

computer software developed by a taxpayer primarily for internal use was not qualified research. 

However, computer software was qualified research if for use in an activity that constituted 

qualified research, or in a production process that met the requirements for qualified research. 

In addition, deductions otherwise allowed a taxpayer (for example for research and development 

expenses under Code section 174) were reduced by the amount of the taxpayer’s research credit 
Prepared by Ways and Means Committee Majority Tax Staff 74 

for the tax year. Alternatively, a taxpayer could elect to claim a reduced research credit in lieu of 

reducing deductions otherwise allowed. 

Provision: Under the provision, a modified research credit would be made permanent. The 

research credit would equal: (1) 15 percent of the qualified research expenses for the tax year 

that exceed 50 percent of the average qualified research expenses for the three tax years 

preceding the tax year for which the credit is determined (thus making the ASC permanent), plus 

(2) 15 percent of the basic research payments for the tax year that exceed 50 percent of the 

average basic research payments for the three tax years preceding the tax year for which the 

credit is determined. The provision would retain the rule under the ASC that allows a taxpayer 

to claim a reduced research credit if the taxpayer has no qualified research expenses in any one 

of the three preceding tax years. The general 20-percent credit would be repealed, as well as the 

20-percent credit for amounts paid for basic research and the 20-percent credit for amounts paid 

to an energy research consortium. 

Under the provision, amounts paid for supplies or with respect to computer software would no 

longer qualify as qualified research expenses. In addition, the special rule allowing 75 percent of 

amounts paid to a qualified research consortium and 100 percent of amounts paid to eligible 

small businesses, universities, and Federal laboratories to qualify as contract research expenses 

would be repealed (though such amounts still would qualify as contract research expenses 

subject to the 65-percent inclusion rule). 

In addition, the provision would repeal the election to claim a reduced research credit in lieu of 

reducing deductions otherwise allowed. 

The provision would be effective for tax years beginning after 2013, and for amounts paid and 

incurred after 2013. 

Considerations: 

For too long, the research credit has been a temporary measure, even expiring in some 

years, resulting in significant uncertainty for innovators and reducing the effectiveness of 

the credit as an incentive. With a permanent research credit, business would have greater 

certainty when committing to investments in research and development. 

Making the ASC the only method for calculating the credit would ease administrative 

burdens for taxpayers and the IRS. Doing so would eliminate substantial amounts of 

recordkeeping, documentation issues, and controversy connected with the historical baseperiod credit. For example, using only the ASC would eliminate the need to document 

gross receipts, a key component to the historic base-period credit, and a source of 

controversy with the IRS. 

Other changes, such as removing the cost of supplies from the credit calculation, would 

reduce controversy with the IRS. 

JCT estimate: According to JCT, the provision would reduce revenues by $34.1 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 75 

Sec. 3204. Low-income housing tax credit. 

Current law: Under current law, owners of certain residential rental property may claim a lowincome housing tax credit (LIHTC) over a ten-year period for the cost of rental housing occupied 

by qualifying low-income tenants. However, rental housing must remain qualified low-income 

housing for a 15-year compliance period, beginning with the first year of the credit period (even 

though the credit period is only ten years). The amount of the credit for any tax year in the credit 

period is the applicable percentage of the qualified basis of each qualified low-income building. 

The applicable percentage is adjusted monthly by the IRS so that the ten annual installments of 

the credit have a present value of either 70 percent or 30 percent of the total qualified basis. 

With certain exceptions, the qualified basis for any tax year equals the eligible basis of the 

building dedicated to low-income housing, based generally on the number of units or floor space 

of such units in the building. 

In general, buildings subject to the 70-percent rule should yield a 9-percent credit, and buildings 

subject to the 30-percent rule should yield a 4-percent credit, although the credit amounts depend 

on the applicable interest rate used for discounting the building’s basis for the particular tax year. 

A temporary provision under current law provided an applicable percentage of 9 percent with 

respect to the 70-percent rule for newly constructed non-Federally subsidized buildings placed in 

service before 2014. 

Housing that qualifies for the 9-percent credit must be either newly constructed or substantially 

rehabilitated, and may not be Federally subsidized (including through tax-exempt bond 

financing). A new building generally is considered Federally subsidized if it also receives taxexempt bond financing. The 4-percent credit is available, in general, for Federally subsidized 

buildings and existing housing. 

To claim the credit, the owner of a qualified building must receive a housing credit allocation 

from the State or local housing credit agency. A State’s available credit allocation has four 

components: (1) the State’s unused housing amount, if any, from the prior calendar year; (2) the 

credit amount for the current year; (3) any credits returned to the State during the calendar year 

from previous allocations; and (4) the State’s share, if any, of the national pool of unused credits 

from other States that failed to use them. Only States that allocated their entire credit authority 

for the preceding calendar year are eligible for a share of the national pool. For calendar year 

2013, each State’s credit authority was $2.25 per resident, with a minimum annual cap of 

$2,590,000 for certain small population States. These amounts are indexed for inflation. Certain 

buildings that also receive financing with proceeds of tax-exempt bonds do not require an 

allocation to qualify for the LIHTC. 

Generally, buildings located in two types of high-cost areas – qualified census tracts and difficult 

development areas – are eligible for an enhanced credit, under which the applicable basis of the 

property is increased from 100 percent to 130 percent. In addition, a building designated by a 

State housing credit agency may qualify if the enhanced credit is required for such building to be 

financially feasible. 
Prepared by Ways and Means Committee Majority Tax Staff 76 

Property subject to the credit generally must continue to be a low-income housing project for a 

compliance period of 15 years, beginning on the first day of the first tax year in which the credit 

is claimed. The penalty for any building failing to remain qualified is the recapture of the 

accelerated portion of the credit, with interest, for all prior years. Generally, a change in 

ownership of a building is a recapture event, subject to an exception if it can reasonably be 

expected that the building will continue to be operated as qualified low-income housing for the 

remainder of the compliance period. 

Current law includes a number of other eligibility criteria for the LIHTC. While the residential 

units in a qualified low-income housing project must be available for use by the general public 

(e.g., the owner complies with certain housing non-discrimination policies and does not restrict 

occupancy based on membership in a social organization or employment by specific employers), 

a project may impose occupancy restrictions or preferences that favor tenants: (1) with special 

needs; (2) who are members of specified group under a Federal program or State program or 

policy that supports housing for such a specified group; or (3) who are involved in artistic and 

literary activities. Additionally, each State must develop a plan for allocating credits, and certain 

selection criteria must be considered when evaluating projects for credit allocations. The criteria 

are: (1) project location; (2) housing needs characteristics; (3) project characteristics (including 

whether the project uses existing housing as part of a community revitalization plan); (4) sponsor 

characteristics; (5) tenant populations with special needs; (6) tenant populations of individuals 

with children; (7) projects intended for eventual tenant ownership; (8) the energy efficiency of 

the project; and (9) the historic nature of the project. The State allocation plan must give 

preference to housing projects that serve the lowest-income tenants, that are obligated to serve 

qualified tenants for the longest periods, and that are located in qualified census tracts and the 

development of which contributes to a concerted community revitalization plan. 

Provision: Under the provision, the LIHTC would be modified in several ways. 

Allocation of basis: Under the provision, State and local housing authorities would allocate 

qualified basis, rather than credit amounts. The annual amount of allocable basis for each State 

would be equal to $31.20 multiplied by the State’s population, with a minimum annual amount 

of $36,300,000. The annual amount would continue to include unused basis allocations from the 

prior year plus basis allocations returned to the State during the calendar year from previous 

allocations. The national pool of unused credits, however, would be eliminated. 

Credit period: Under the provision, the credit period would be extended from 10 years to 15 

years to match the current 15-year compliance period. Because the credit period would be 

aligned with the compliance period, the recapture rules also would be repealed as no longer 

necessary to ensure that the building continues to be a low-income housing project for the 

duration of the tax benefit. 

Credit amount: Under the provision, the 4-percent credit would be repealed. The 9-percent 

credit for newly constructed property and substantial rehabilitations would be retained. In 

addition, Federally funded grants would not be taken into account in determining the eligible 

basis of a building for purposes of the credit. As a result, the credit would apply to private 

funding of low-income housing and not provide an additional subsidy for Federal funding of 
Prepared by Ways and Means Committee Majority Tax Staff 77 

such projects. The amount of the credit would continue to equal the qualified basis in the 

qualified low-income building multiplied by the applicable percentage. Under the provision, the 

IRS would determine the applicable percentage generally for the month that the building is 

placed in service, which would be equal to the percentage that would yield over a 15-year period 

a credit amount that would have a present value equal to 70 percent of the qualified basis of the 

building. 

Other changes: Under the provision, several other rules would be modified. First, the increased 

basis rule for high-cost and difficult development areas would be repealed. Second, the generalpublic-use requirement would be revised to eliminate the special occupancy preference for 

members of specific groups under certain Federal or State programs and the special preference 

for individuals involved in artistic and literary activities. Instead, occupancy preferences would 

only be permitted for individuals with special needs and for veterans. Third, the provision would 

repeal the requirement that States include in their low-income-housing selection criteria the 

energy efficiency of the project and the historic nature of the project. 

The provision would be effective for State basis amounts and allocations of such amounts 

determined for calendar years after 2014. A transition rule would translate credit allocations 

prior to 2015 into equivalent amounts of eligible basis for purposes of determining new 

allocations of basis after 2014. 

Considerations:

The LIHTC provides an important private-sector alternative to Federally financed and 

operated housing for low-income individuals (e.g., Section 8 housing). 

According to the non-partisan Joint Committee on Taxation (JCT), the provision would 

increase the amount of LIHTC-financed projects by more than 5 percent in 2015 (from 

$9.3 billion to $9.8 billion), while reducing the cost to taxpayers. 

By modernizing the credit, the provision would provide a more transparent benefit by 

permitting States to allocate the basis that supports low-income housing units. 

The provision also would align the credit period with the current 15-year compliance 

period to ensure that the housing project continues to meet its low-income purpose for the 

duration of the tax benefit. 

The provision would simplify the current credit, which is the longest section of the Code 

today, by streamlining many complex provisions and eliminating several special rules. 

JCT estimate: According to JCT, the provision would increase revenues by $10.7 billion over 

2014-2023.

Sec. 3205. Repeal of enhanced oil recovery credit. 

Current law: Under current law, taxpayers may claim a credit equal to 15 percent of enhanced 

oil recovery (EOR) costs. The EOR credit is ratably reduced over a $6 phase-out range when the 

reference price for domestic crude oil exceeds $28 per barrel (adjusted for inflation after 1991). 

The EOR credit currently is phased-out based on the current price of a barrel of oil. 
Prepared by Ways and Means Committee Majority Tax Staff 78 

Provision: Under the provision, the enhanced oil recovery credit would be repealed. The 

provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3206. Phaseout and repeal of credit for electricity produced from certain renewable 

resources. 

Current law: Under current law, a taxpayer may claim a credit a credit (the production tax 

credit or PTC) is allowed for the production of electricity from qualified energy resources. 

Qualified energy resources are comprised of wind, closed-loop biomass, open-loop biomass, 

geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified 

hydropower production, and marine and hydrokinetic renewable energy. To be eligible for the 

PTC, electricity produced from qualified energy resources at qualified facilities must be sold by 

the taxpayer to an unrelated person. The base amount of the PTC is 1.5 cents (indexed annually 

for inflation) per kilowatt-hour of electricity produced. The amount of the credit is generally 2.3 

cents per kilowatt-hour for 2013. A taxpayer generally may claim a credit every year during a 

10-year period for projects that begin construction before 2014. 

Provision: Under the provision, the inflation adjustment would be repealed, effective for 

electricity and refined coal produced or sold after 2014. Therefore, taxpayers’ credit amount 

would revert to 1.5 cents per kilowatt-hour for the remaining portion of the 10-year period. The 

entire production tax credit would be repealed, effective for electricity and refined coal produced 

and sold after 2024. 

Consideration: Businesses in the wind industry have represented to the Committee that that the 

industry could survive with a credit worth 60 percent of the current credit, implying that the 

credit provides a windfall that does not serve the intended policy. 

JCT estimate: According to JCT, the provision would increase revenues by $9.6 billion over 

2014-2023.

Sec. 3207. Repeal of Indian employment credit. 

Current law: Under current law, a taxpayer could claim a credit equal to 20 percent of 

qualifying wages and health insurance costs (up to $20,000, for a maximum credit amount of 

$4,000) paid prior to 2014 to enrolled members of an Indian tribe (or spouses) living on or near 

an Indian reservation for services performed on a reservation. The credit was limited to 

employees earning wages of $45,000 or less. The credit expired for tax years beginning after 

2013.

Provision: Under the provision, the Indian employment credit would be repealed. The 

provision would be effective for tax years beginning after 2013. 
Prepared by Ways and Means Committee Majority Tax Staff 79 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3208. Repeal of credit for portion of employer Social Security taxes paid with respect 

to employee cash tips. 

Current law: Under current law, an employer may claim an income tax credit equal to its share 

of FICA taxes attributable to tips received from customers in connection with the provision of 

food or beverages if tipping is customary. The credit is available only to the extent such tips 

exceed the amount of tips that the employer uses to meet the minimum wage requirements for 

the employee under the Fair Labor Standards Act. An employer may not claim a deduction for 

any amount taken into account in determining the credit. 

Provision: Under the provision, the tip credit would be repealed. The provision would be 

effective for tips received for services performed after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $10.1 billion over 

2014-2023.

Sec. 3209. Repeal of credit for clinical testing expenses for certain drugs for rare diseases 

or conditions. 

Current law: Under current law, a taxpayer may claim a credit equal to 50 percent of qualified 

clinical testing expenses incurred in testing certain drugs for rare diseases or conditions, often 

referred to as “orphan drugs.” Expenses taking into account for purposes of the orphan drug 

credit do not qualify for the general research credit. 

Provision: Under the provision, the tax credit for orphan drugs would be repealed. The 

provision would be effective for amounts paid or incurred in tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $9.1 billion over 

2014-2023.

Sec. 3210. Repeal of credit for small employer pension plan startup costs. 

Current law: Under current law, a taxpayer may claim a credit to help offset the start-up costs 

associated with a small employer pension plan. The credit is only available for the first three 

years of the plan and is limited to the lesser of $500 per year or 50 percent of the start-up costs 

for a qualified plan under Code section 401(a), an annuity plan under Code section 403(a), a 

Simplified Employee Pension (SEP) plan, or a SIMPLE retirement plan. 

Provision: Under the provision, the credit for small employer pension plan start-up costs would 

be repealed. The provision would be effective for costs paid or incurred after 2014 with respect 

to qualified employer plans first effective after such date. 
Prepared by Ways and Means Committee Majority Tax Staff 80 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 3211. Repeal of employer-provided child care credit. 

Current law: Under current law, an employer may claim a credit equal to 25 percent of 

qualified expenses for employee child care and 10 percent of qualified expenses for child-care 

resource and referral services. The credit is limited to $150,000 per tax year. 

Provision: Under the provision, the credit for employer-provided child care would be repealed. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 3212. Repeal of railroad track maintenance credit. 

Current law: Under current law, an eligible taxpayer could claim a credit equal to 50 percent of 

qualified railroad track maintenance expenditures paid or incurred in a tax year prior to 2014. 

The credit generally was limited to $3,500 multiplied by the number of miles of railroad track 

owned or leased by the eligible taxpayer as of the close of its tax year. The credit expired at the 

end of 2013. 

Provision: Under the provision, the railroad track maintenance credit would be repealed. The 

provision would be effective for tax years beginning after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3213. Repeal of credit for production of low sulfur diesel fuel. 

Current law: Under current law, a small business refiner may claim, with respect to expenses 

paid or incurred before 2010, a credit of 5 cents per gallon for each gallon of low sulfur diesel 

fuel produced during the tax year. The total production credit claimed by the taxpayer was 

limited to 25 percent of the qualified costs incurred to come into compliance with the EPA diesel 

fuel requirements. The credit for low sulfur diesel fuel expired at the end of 2009. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for expenses paid or incurred in tax years after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 81 

Sec. 3214. Repeal of credit for producing oil and gas from marginal wells. 

Current law: Under current law, producers may claim a $3-per-barrel credit (adjusted for 

inflation) for the production of crude oil and a 50-cents-per-1,000-cubic-feet credit (also adjusted 

for inflation) for the production of qualified natural gas. In both cases, the credit is available 

only for domestic production. The credit is not available for production if the reference price of 

oil exceeds $18 ($2 for natural gas). The credit is reduced proportionately for reference prices 

between $15 and $18 ($1.67 and $2 for natural gas). Currently, the credit is phased out 

completely based on the current price of a barrel of oil. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for tax years after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3215. Repeal of credit for production from advanced nuclear power facilities. 

Current law: Under current law, a taxpayer producing electricity at a qualifying advanced 

nuclear power facility may claim a credit equal to 1.8 cents per kilowatt-hour of electricity 

produced for the eight-year period starting when the facility is placed in service. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for electricity produced and sold after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.6 billion over 

2014-2023.

Sec. 3216. Repeal of credit for producing fuel from a nonconventional source. 

Current law: Under current law, a taxpayer producing coke and coke gas in the United States at 

qualified facilities and sold to unrelated parties could claim a credit equal to $3 (generally 

adjusted for inflation) per Btu oil barrel equivalent. The credit for fuel from a non-conventional 

source expired at the end of 2009. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for fuel produced and sold after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3217. Repeal of new energy efficient home credit. 

Current law: Under current law, an eligible contractor could claim the new energy-efficient 

home credit for the construction of a qualified new energy-efficient home prior to 2014. The 
Prepared by Ways and Means Committee Majority Tax Staff 82 

credit was equal to either $1,000 or $2,000, depending on whether it met the 30-percent or 50-

percent standard as prescribed by the IRS to achieve either a 30-percent or 50-percent reduction 

in heating and cooling energy consumption compared to a comparable dwelling constructed in 

accordance with the standards of chapter 4 of the 2006 International Energy Conservation Code. 

The credit expired at the end of 2013. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for homes acquired after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3218. Repeal of energy efficient appliance credit. 

Current law: Under current law, a taxpayer could claim a credit for the production of certain 

energy-efficient dishwashers, clothes washers, and refrigerators prior to 2014. The amount of 

the credit varied for each appliance depending on when the appliance was manufactured and how 

much energy or water it saved. The credit expired at the end of 2013. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for appliances produced after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3219. Repeal of mine rescue team training credit. 

Current law: Under current law, a taxpayer could claim a credit with respect to employees 

serving on a mine-rescue team prior to 2014. The credit was equal to the lesser of 20 percent of 

the taxpayer’s mine-rescue training program costs (including the wages of the employee while 

attending the program) or $10,000. The credit expired at the end of 2013. 

Provision: Under the provision, the mine rescue team training credit would be repealed. The 

provision would be effective for tax years beginning after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3220. Repeal of agricultural chemicals security credit. 

Current law: Under current law, a taxpayer could claim a credit equal to 30 percent of certain 

chemical security expenditures incurred by qualifying agricultural businesses prior to 2013. The 

credit was limited to $100,000 per facility, reduced by the amount of credits claimed in the prior 

five years, and a taxpayer’s annual credit amount was limited to $2 million. The credit is not 

available for expenses incurred after 2012. 
Prepared by Ways and Means Committee Majority Tax Staff 83 

Provision: Under the provision, the agricultural chemicals security credit would be repealed. 

The provision would be effective for amounts paid or incurred after 2012. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3221. Repeal of credit for carbon dioxide sequestration. 

Current law: Under current law, a taxpayer may claim a credit of $20 per metric ton for 

qualified carbon dioxide captured by the taxpayer at a qualified facility and disposed of by such 

taxpayer in secure geological storage ($10 per metric ton if used by such taxpayer as a tertiary 

injectant in a qualified enhanced oil or natural gas recovery project). Both credit amounts are 

adjusted for inflation after 2009. 

Provision: Under the provision, the carbon dioxide sequestration credit would be repealed. The 

provision would be effective for credits determined for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.1 billion over 

2014-2023.

Sec. 3222. Repeal of credit for employee health insurance expenses of small employers. 

Current law: Under current law, a qualified small business employer may claim a credit for up 

to two years if the small business pays at least half of its employees’ health insurance premiums. 

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small 

businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 

2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small 

business employers and 35 percent of premiums paid by eligible tax-exempt organizations, but 

the credit will only be available for health insurance coverage purchased through a State 

exchange. A qualified small business employer generally is an employer with no more than 25 

full-time equivalent employees (FTEs) during the tax year, with annual full-time equivalent 

wages averaging no more than $50,000 (indexed for inflation beginning in 2014). The full 

amount of the credit is available only to an employer with 10 or fewer FTEs and whose 

employees have average annual full-time equivalent wages of less than $25,000 (indexed for 

inflation beginning in 2014). Tax-exempt organizations generally may apply the credit against 

the organization’s payroll tax liability.

Provision: Under the provision, the credit for employee health insurance expenses of small 

employers would be repealed. The provision would be effective for amounts paid or incurred for 

tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 84 

Considerations:

Enacted as part of the Affordable Care Act (ACA), this credit is overly complex, narrow 

in its application, and short-lived – in contrast to the permanent insurance expenses that 

employers are required to incur under the ACA. 

As a result, very few small businesses have opted to claim the benefit and a number of 

small business advocacy groups have expressed concern over its complexity and narrow 

application.

JCT estimate: According to JCT, the provision would increase revenues by $11.1 billion over 

2014-2023 and would reduce outlays by $1.1 billion over 2014-2023. 

Sec. 3223. Repeal of rehabilitation credit. 

Current law: Under current law, a taxpayer may claim a credit for expenses incurred to 

rehabilitate old and/or historic buildings. A 20-percent credit is allowed for qualified 

rehabilitation expenditures with respect to a certified historic structure, while a 10-percent credit 

is allowed for qualified rehabilitation expenditures with respect to a qualified rehabilitated 

building. To qualify for the 10-percent credit, the rehabilitation expenditures during the 24-

month period selected by the taxpayer and ending within the tax year must exceed the greater of 

the adjusted basis of the building (and its structural components) or $5,000. 

Provision: Under the provision, the rehabilitation credit would be repealed. The provision 

would be effective for amounts paid after 2014. Under a transition rule, the credit would 

continue to apply to expenditures incurred through the end of 2016, to rehabilitate a qualified 

rehabilitated building or a certified historic structure acquired before 2015. However, for a 

qualified rehabilitated building, the 24-month rehabilitation period for claiming the credit must 

also begin on or before January 1, 2015. 

JCT estimate: According to JCT, the provision would increase revenues by $10.5 billion over 

2014-2023.

Sec. 3224. Repeal of energy credit. 

Current law: Under current law, taxpayers may claim up to a 30-percent nonrefundable, 

business energy credit for the cost of certain new equipment that either (1) uses solar energy to 

generate electricity, to heat or cool a structure, or to provide solar process heat, or (2) is used to 

produce, distribute, or use energy derived from a geothermal deposit (but only, in the case of 

electricity generated by geothermal power, up to the electric transmission stage). Property used 

to generate energy for the purposes of heating a swimming pool is not eligible solar energy 

property. The credit expires at the end of 2016. 

Provision: Under the provision, the credit would be repealed. The provision is effective for 

property placed in service after 2016. 
Prepared by Ways and Means Committee Majority Tax Staff 85 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3225. Repeal of qualifying advanced coal project credit.

Current law: Under current law, a taxpayer may claim an investment tax credit for power 

generation projects that use integrated gasification combined cycle (IGCC) or other advanced 

coal-based electricity generation technologies. Credits are available only for projects certified by 

the Secretary of Treasury, in consultation with the Secretary of Energy. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for allocations and reallocations after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.9 billion over 

2014-2023.

Sec. 3226. Repeal of qualifying gasification project credit. 

Current law: Under current law, a taxpayer may claim an investment credit for certain 

qualifying gasification projects. Only property that is part of a qualifying gasification project 

and necessary for the gasification technology of such project is eligible for the gasification 

credit. The maximum amount of credits allocated under the program may not exceed $600 

million. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for allocations and reallocations after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.

Sec. 3227. Repeal of qualifying advanced energy project credit. 

Current law: Under current law, a 30-percent credit is available for investments in certain 

property used in a qualified advanced energy manufacturing project. A qualified advanced 

energy project is a project that re-equips, expands, or establishes a manufacturing facility for 

certain specified green energy uses. Credits are available only for projects certified by the 

Secretary of Treasury, in consultation with the Secretary of Energy. The maximum amount of 

credit allocated under the program may not exceed $2.3 billion. 

Provision: Under the provision, the credit would be repealed. The provision would be effective 

for allocations and reallocations after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 86 

Sec. 3228. Repeal of qualifying therapeutic discovery project credit. 

Current law: Under current law, a taxpayer could claim a credit equal to 50 percent of its 

investments in qualifying therapeutic discovery projects in 2009 and 2010. Under the program, 

the IRS, in consultation with the Secretary of HHS, awarded certifications for qualified 

investments.

Provision: Under the provision, the credit for therapeutic discovery projects would be repealed.

The provision would be effective for allocations and reallocations after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3229. Repeal of work opportunity tax credit. 

Current law: Under current law, an employer could claim the work opportunity tax credit if it 

hired individuals from one or more of nine targeted groups prior to 2014. An employer 

calculated the credit based on the amount of qualified wages paid to the employee. Generally, 

qualified wages consisted of wages attributable to services rendered by a member of a targeted 

group during the one-year period beginning with the day the individual began work for the 

employer. The credit is not available for wages paid or incurred after 2013. 

Provision: Under the provision, the work opportunity tax credit would be repealed. The 

provision would be effective for wages paid or incurred to individuals who begin work after 

2013.

Consideration: Under the now-expired WOTC, it often has not been possible for an employer 

to determine whether an individual is eligible for the credit until well after that individual has 

been hired and certified by the appropriate State agencies. This fact calls into serious question 

whether the WOTC encourages the hiring of individuals from the favored groups. Nevertheless, 

the WOTC has been shown to result in significant compliance costs for employers.

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3230. Repeal of deduction for certain unused business credits. 

Current law: Under current law, a taxpayer may carry unused business credits may be carried 

back one year and carried forward 20 years. However, a taxpayer generally may deduct unused 

credits after the end of the carryforward period or when a business ceases to exist. 

Provision: Under the provision, the deduction for general business credits unused after 20 years 

would be repealed. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 87 

Subtitle D – Accounting Methods 

Sec. 3301. Limitation on use of cash method of accounting. 

Current law: Under current law, taxpayers using the cash method of accounting (“cash 

method”) generally recognize income when actually or constructively received and expenses 

when paid. Taxpayers using an accrual method of accounting (“accrual method”) generally 

accrue income when all the events have occurred that fix the right to receive the income and the 

amount of the income can be determined with reasonable accuracy. Taxpayers using an accrual 

method generally may not deduct expenses before all events have occurred that fix the obligation 

to pay the liability, the amount of the liability can be determined with reasonable accuracy, and 

economic performance has occurred. 

Current law includes an array of rules for determining whether a taxpayer may use the cash 

method, with different kinds of businesses subject to different sets of rules. For example, a C 

corporation or a partnership that has a C corporation as a partner generally may use the cash 

method only if its average annual gross receipts are $5 million or less. A corporation or a 

partnership with a corporate partner engaged in farming generally may only use a cash method of 

accounting if its average annual gross receipts are $1 million or less ($25 million or less for 

family farm corporations). Sole proprietors and qualified personal service corporations (i.e., 

corporations that primarily perform services in the fields of health, law, engineering, 

architecture, accounting, actuarial science, performing arts, or consulting, and that are owned by 

individuals performing such services) are allowed to use the cash method without regard to their 

average annual gross receipts. Additionally, a business generally must use an accrual method of 

accounting if it has inventory. 

Provision: Under the provision, businesses with average annual gross receipts of $10 million or 

less may use the cash method of accounting; whereas businesses with more than $10 million 

would be required to use accrual accounting. The provision would not apply to farming 

businesses, which would continue to be subject to current-law accounting rules. Sole proprietors 

also would continue to be able to use the cash method regardless of the level of gross receipts. 

The provision would be effective for tax years beginning after 2014. A taxpayer generally would 

be permitted to include any positive adjustments to income resulting from the provision over a 

four-year period beginning with its first tax year beginning after 2018 in the following amounts: 

10 percent included in the first year (2019); 15 percent in the second year (2020); 25 percent in 

the third year (2021); and 50 percent in the fourth year (2022). At the election of the taxpayer, 

the four-year inclusion of the adjustment could begin prior to 2019. 

Considerations:

Current law contains an array of complicated tax accounting rules and disjointed 

thresholds for small businesses to determine which method of accounting – the cash 

method or accrual method – they may use for tax purposes. The provision simplifies and 

harmonizes this area of law for many businesses. 

For many small businesses, the cash method is simpler and follows more closely the cash 

flows of their income and expenses. On the other hand, the accrual method provides a 
Prepared by Ways and Means Committee Majority Tax Staff 88 

more accurate reflection of income. The provision strikes a balance between these two 

objectives that respects small businesses’ need for simplicity.

JCT estimate: According to JCT, the provisions would increase revenues by $23.6 billion over 

2014-2023.

Sec. 3302. Rules for determining whether taxpayer has adopted a method of accounting. 

Current law: Under current law, a taxpayer’s method of accounting used to compute taxable 

income must clearly reflect income. A taxpayer generally must secure the consent of the IRS 

Commissioner before changing a method of accounting for Federal income tax purposes. 

Current law does not provide rules for determining whether a taxpayer has adopted a method of 

accounting. The IRS takes the position that if a taxpayer treats an item properly in the first 

return that reflects the item, the taxpayer has adopted a method of accounting. Similarly, under 

IRS guidance, when a taxpayer treats an item in the same erroneous manner on two consecutive 

returns, a taxpayer also has adopted a method of accounting (and any change would require the 

consent of the Commissioner). 

Provision: Under the provision, the IRS guidance with respect to determining whether a 

taxpayer has adopted a method of accounting would be codified. The provision would be 

effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 3303. Certain special rules for taxable year of inclusion. 

Current law: Under current law, a taxpayer is required to include any item of income in the 

taxpayer’s gross income in the year in which the income is received, unless the taxpayer’s 

method of accounting used to compute taxable income permits inclusion in a different period. 

There are, however, numerous exceptions to this rule. For example, cash and accrual method 

taxpayers that receive advance payments for certain goods or services may elect to defer 

inclusion of the income for up to two years. Cash method taxpayers who receive insurance 

proceeds or Federal disaster payments as a result of destruction or damage to crops may elect to 

defer inclusion of such proceeds in income until the following tax year. Similarly, a cash method 

taxpayer may defer until the following tax year income resulting from the sale or exchange of 

livestock if the taxpayer demonstrates that such sales would not have occurred under his normal 

business practices if it were not for drought, flood, or other weather-related conditions occurring 

in a Federally declared disaster area. Another special exception applies to utility companies 

required to sell electric transmission property to an independent transmission company prior to 

January 1, 2008 (January 1, 2014, in the case of a qualified electric utility) to implement certain 

Federal and State electric-restructuring policy. Under the exception, the utility companies that 

use the accrual method of accounting could elect to recognize gain from the sale or exchange of 
Prepared by Ways and Means Committee Majority Tax Staff 89 

qualifying transmission property ratably over an eight-year period if the proceeds are used to 

purchase approved reinvestment property. 

Provision: Under the provision, a taxpayer on the accrual method of accounting for tax 

purposes would be required to include an item of income no later than the tax year in which such 

item is included for financial statement purposes. The provision also would provide that cash 

and accrual method taxpayers may defer the inclusion of advance payments for certain goods and 

services in income for tax purposes up to one year (but not longer than any deferral for financial 

statement purposes). Additionally, the provision would repeal (1) the exceptions for crop 

insurance proceeds and disaster payments (for destruction and damage to crops and natural 

disasters occurring after 2014), (2) the special exception for livestock sales (for sales and 

exchanges after 2014), and (3) the special exception for utility-restructuring transactions (for 

sales and dispositions after 2013). Except as noted, the provision would be effective for tax 

years beginning after 2014, with any adjustments resulting from accounting-method changes 

taken into account over the four years following the effective date. 

JCT estimate: According to JCT, the provision would increase revenues by $10.4 billion over 

2014-2023.

Sec. 3304. Installment sales. 

Current law: Under current law, a taxpayer generally may use the installment method to defer 

inclusion of amounts that are to be received from the disposition of certain types of property until 

payment in cash is received, with the gain from the disposition spread over the series of 

payments. Dealers in property may not use the installment method, except for sales of farm 

property, timeshares, and residential lots. Taxpayers with large installment sales are subject to 

an interest charge on the tax deferral to the extent that the taxpayer’s aggregate installment sales 

exceed $5 million. In determining the $5 million limitation, the taxpayer includes only 

installment sales of more than $150,000 arising during and remaining outstanding at the close of 

any tax year. The interest charge rules do not apply to sales by dealers of farm property, and 

special interest charges apply to sales by dealers of timeshares and residential lots. 

Provision: Under the provision, the interest charge rules would apply to any installment sale in 

excess of $150,000, provided the obligation remains outstanding at the end of the tax year, 

eliminating the aggregate $5 million limitation. The provision also would repeal the exceptions 

and special rules for sales of farm property, timeshares, and residential lots. The provision 

would be effective for sales and other dispositions after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.1 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 90 

Secs. 3305-3306. Repeal of special rule for prepaid subscription income; Repeal of special 

rule for prepaid dues income of certain membership organizations. 

Current law: Under current law, a special rule permits prepaid income from a newspaper, 

magazine or other periodical subscription to be deferred until the year in which the taxpayer 

provides the periodical even if such time is more than a year in the future. A similar rule permits 

a membership organization to defer prepaid dues income until the year in which the organization 

provides the services or other membership privileges for which the dues were prepaid. 

Provision: Under the provision, the special rules for prepaid subscription income and prepaid 

membership dues would be repealed. Taxpayers would still be able to defer the inclusion of 

advanced payments until the following tax year (as provided in section 3303 of the discussion 

draft). The provision would be effective for payments received after 2014. 

JCT estimate: According to JCT, the provisions would increase revenues by $0.4 billion over 

2014-2023.

Sec. 3307. Repeal of special rule for magazines, paperbacks, and records returned after 

close of the taxable year. 

Current law: Under current law, sales of merchandise by a taxpayer on the accrual method of 

accounting generally must be included in income in the tax year when all events have occurred 

that fix the right to receive the income and the amount can be determined with reasonable 

accuracy. In cases where merchandise is returned for a credit or refund, the reduction in income 

generally must be recognized in the tax year in which the merchandise return occurs. A special 

rule permits taxpayers to elect to exclude from gross income sales of any magazine or other 

periodical, paperback book, or record (including discs, tapes, etc.) that is returned within twoand-a-half months (for magazines) or four-and-a-half months (in the case of paperbacks and 

records) after the close of the tax year in which the item was sold. 

Provision: Under the provision, the special rule for magazines, paperbacks, and records 

returned after close of the tax year would be repealed. The provision would be effective for tax 

years beginning after 2014, with any adjustments resulting from accounting-method changes 

taken into account over the four years following the effective date. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 3308. Modification of rules for long-term contracts. 

Current law: Under current law, a taxpayer that produces property pursuant to a long-term 

contract must determine the taxable income from the contract under the percentage-ofcompletion method (PCM), which generally requires the taxpayer to include in gross income the 

portion of the contract price equal to the percentage of the contract completed during the year. 
Prepared by Ways and Means Committee Majority Tax Staff 91 

There is an exception for certain home construction contracts and for other contracts estimated to 

be completed within two years by taxpayers with average gross receipts of $10 million or less 

over a three-year period. Taxpayers qualifying for either exception may use the completedcontract method, under which income is generally not included until the contract is completed. 

Special rules apply to certain construction contracts for multi-unit housing (i.e., more than four 

dwelling units) under which taxpayers generally may treat 70 percent of the construction contract 

under PCM and 30 percent under the completed-contract method. Similarly, taxpayers with 

certain ship-building contracts may elect a blended approach, with 40 percent of the contract 

treated under PCM and 60 percent under the completed-contract method. 

Provision: Under the provision, the completed-contract method would be limited to contracts 

estimated to be completed within two years for taxpayers with average gross receipts of $10 

million or less over a three-year period. The provision also would repeal the special exceptions 

to the PCM rules for multi-unit housing contracts and ship-building contracts. The provision 

would be effective for contracts entered into after 2014. 

Considerations:

Current law generally requires large construction companies with long-term contracts to 

use the PCM, under which revenues and expenses are matched in the applicable 

accounting period based on the extent to which the contract has been completed. 

The completed-contract method was intended to be a simplified method for small 

contractors and home builders. The exception, however, is not limited to small 

businesses in the case of home builders, which enables some very large construction 

companies to avoid the more appropriate matching principles under the PCM. 

The provision would modify the completed-contract method to apply simply to small 

business construction contractors. 

JCT estimate: According to JCT, the provision would increase revenues by $6.5 billion over 

2014-2023.

Sec. 3309. Nuclear decommissioning reserve funds. 

Current law: Under current law, a taxpayer responsible for decommissioning a nuclear power 

plant may establish a nuclear decommissioning reserve fund to resolve certain tort liabilities. 

The income of a nuclear decommissioning reserve fund is taxed at a reduced rate of 20 percent. 

Contributions to nuclear decommissioning reserve funds are generally deductible by an accrual 

method taxpayer in the tax year such contributions are made, even though the fund will not 

perform its obligation to pay the beneficiaries or fund the costs of decommissioning the nuclear 

plant until a subsequent tax year. Contributions to a nuclear decommissioning reserve fund may 

be returned to the contributing company provided such returned funds are included in income. 

Provision: Under the provision, the special 20-percent tax rate for nuclear decommissioning 

reserve funds would be repealed, and the tax rate generally applicable to corporations would 

apply. For distributions by a nuclear decommissioning reserve fund that are used for nonqualified purposes (e.g., return of funds to the contributing company), the provision would 
Prepared by Ways and Means Committee Majority Tax Staff 92 

require the contributing taxpayer to include the balance of the fund in income in the tax year of 

the distribution. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.2 billion over 

2014-2023.

Sec. 3310. Repeal of last-in, first-out method of inventory.

Current law: Under current law, a taxpayer must account for inventories if the production, 

purchase, or sale of merchandise is a material income-producing factor in the taxpayer’s trade or 

business. There are two primary inventory accounting methods: last-in, first-out (LIFO) and 

first-in, first-out (FIFO). Under the LIFO inventory accounting method, it is assumed that the 

last item entered into the inventory is the first item sold. Accordingly, the taxpayer’s cost of 

goods sold is valued at the most recent costs, and any effects of cost fluctuations are reflected in 

the ending inventory, which is valued at historical costs rather than the most recent costs. A 

taxpayer may only use the LIFO method for tax purposes, however, if it reports income for 

financial statement purposes using the LIFO method. Under the FIFO inventory accounting 

method, it is assumed that the first item entered into inventory is the first item sold. Thus, 

ending inventory is valued at its most recent costs rather than at historical costs. Taxpayers that 

use LIFO are required to calculate and track their LIFO reserves, which is the difference between 

the accounting cost of inventory calculated using the FIFO method and the same inventory using 

the LIFO method. The LIFO reserve is the deferred taxable income that results from using the 

most recent inventory costs to calculate cost of goods sold, rather than the lower cost associated 

with historic inventory, and under certain circumstances (e.g., sales exceed purchases, 

dissolution or sale of the business), the deferred income is realized by the taxpayer and is thus 

subject to tax. 

Provision: Under the provision, the LIFO inventory accounting method would no longer be 

permitted. Thus, taxpayers could use FIFO or any other method that conforms to the best 

accounting practice in a particular trade or business and clearly reflects income. A taxpayer 

would include its LIFO reserve in income over a four-year period beginning with its first tax year 

beginning after 2018 in the following amounts: 10 percent included in the first year (2019); 15 

percent in the second year (2020); 25 percent in the third year (2021); and 50 percent in the 

fourth year (2022). Taxpayers could elect to begin the four-year inclusion period in an earlier 

tax year. Closely held entities – generally defined as having no more than 100 owners as of 

February 26, 2014 (using rules similar to those used for S corporations and taking indirect 

ownership into account) – would be subject to a reduced 7-percent tax rate on their LIFO 

reserves. The provision would apply to tax years beginning after 2014. 

Considerations:

The LIFO reserve is an integral component of the LIFO method of accounting. When a 

taxpayer chooses the LIFO method of accounting, they accept that the deferred tax 

liability will have to be recognized at some point. This provision is not a retroactive tax 

increase, but merely triggers the deferred tax liability inherent to the LIFO inventory 

accounting method. 
Prepared by Ways and Means Committee Majority Tax Staff 93 

The provision provides a significant transition rule for all taxpayers, large and small, to 

permit them to delay the inclusion of any LIFO reserves until 2019 and then slowly take 

such reserves into account over a four-year period. 

Additionally, because the repeal of the LIFO method and the inclusion of the LIFO 

reserve in income could have a substantial effect on cash flow for small and familyowned businesses, the provision provides that LIFO reserves of closely held businesses 

would be subject to a reduced tax rate of 7 percent. This transition rule should provide 

critical relief to small businesses in numerous industries across the country. 

JCT estimate: According to JCT, the provision would increase revenues by $79.1 billion over 

2014-2023.

Sec. 3311. Repeal of lower of cost or market method of inventory. 

Current law: Under current law, for Federal income tax purposes, taxpayers generally must 

account for inventories if the production, purchase, or sale of merchandise is a material incomeproducing factor to the taxpayer. Because of the difficulty of accounting for inventory on an 

item-by-item basis, taxpayers often use conventions that assume certain item or cost flows. 

Among these conventions are the “first-in, first-out” (FIFO) method, which assumes that the 

items in ending inventory are those most recently acquired by the taxpayer. Taxpayers that 

maintain inventories under the FIFO method may determine the value of ending inventory under 

the “lower of cost or market” (LCM) method. Under the LCM method, the taxpayer may write 

down the value of ending inventory (and thus take a deduction for the amount of the write-down) 

if its market value is less than its cost. Additionally, under the LCM method, subnormal goods 

(e.g., goods that are unsalable at normal prices or in the normal way because of damage, 

imperfections, shop wear, changes of style, odd or broken lots, or similar causes) may be written 

down to the net selling price. 

Provision: Under the provision, the lower-of-cost-or-market method would be repealed. The 

provision would be effective for tax years beginning after 2014. A taxpayer generally would 

include any positive adjustments to income resulting from the provision over a four-year period 

beginning with its first tax year beginning after 2018 in the following amounts: 10 percent 

included in the first year (2019); 15 percent in the second year (2020); 25 percent in the third 

year (2021); and 50 percent in the fourth year (2022). At the election of the taxpayer, the fouryear inclusion of the adjustment could begin prior to 2019. 

Considerations:

The LCM rule is a special accounting rule that allows qualifying businesses to write 

down certain inventory to a value that is less than what the business paid. This special 

rule allows the business to reduce its taxable income by the write-down amount, even 

though no realization event has occurred (i.e., the item remains in inventory). 

If inventory is written down under LCM, there is no symmetrical requirement that it be 

written up should its value increase before it is sold. In that sense, LCM is a one-sided 

bet: “heads the taxpayer wins; tails the taxpayer ties.”
Prepared by Ways and Means Committee Majority Tax Staff 94 

JCT estimate: According to JCT, the provision would increase revenues by $3.8 billion over 

2014-2023.

Sec. 3312. Modification of rules for capitalization and inclusion in inventory costs of 

certain expenses. 

Current law: Under current law, the uniform capitalization (UNICAP) rules require certain 

direct costs (e.g., materials and labor) and indirect costs (e.g., overhead and administrative 

expenses) allocable to real or tangible personal property produced by the taxpayer to be 

capitalized into the basis of such property or included in inventory, as applicable. For real or 

personal property acquired by the taxpayer for resale, the UNICAP rules generally require direct 

and indirect costs allocable to such property to be included in inventory. However, the UNICAP 

rules do not apply to timber and certain trees; free-lance authors, photographers and artists; and 

businesses with $10 million or less of average annual gross receipts that acquire property for 

resale. 

Provision: Under the provision, the exception to the UNICAP rules for businesses with average 

annual gross receipts of $10 million or less that acquire property for resale would be expanded to 

include all types of property (e.g., real property and tangible personal property), whether 

produced or acquired by the taxpayer. The provision would repeal the special exceptions for 

timber and certain trees, and for free-lance authors, photographers and artists. The provision’s 

expanded exemption from the UNICAP rules for qualifying businesses, however, would apply in 

these cases. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by $4.5 billion over 

2014-2023.

Sec. 3313. Modification of income forecast method. 

Current law: Under current law, the cost of motion picture films, sound recordings, copyrights, 

books, and patents may be recovered using the income-forecast method (IFM). The property’s 

depreciation deduction for a tax year is determined by multiplying the adjusted basis of the 

property by a fraction equal to the gross income generated by the property during the year over 

the total estimated gross income anticipated by the close of the tenth tax year after the property is 

placed in service. A look-back rule requires a recomputation of the forecast based on actual 

income earned in connection with the property before the end of the third and tenth years, with 

interest applicable to any adjustment. Any costs that are not recovered by the end of the tenth 

tax year may be deducted in that year. 

In determining the adjusted basis of property under the IFM, taxpayers may only include 

amounts when economic performance has occurred (e.g., the property is delivered or service is 

performed). A special exception under the IFM applies to participations and residuals (e.g., 

amounts under a film or recording contract that vary according the earnings), which may be 

included in the basis if they are paid with respect to income to be derived from the property 
Prepared by Ways and Means Committee Majority Tax Staff 95 

before the close of the tenth year. Alternatively, a taxpayer may deduct those payments as they 

are paid. 

Under Treasury regulations, the cost of intangible assets may be recovered over the useful life of 

the asset, if such life can be determined with reasonable accuracy. If the useful life cannot be 

estimated with reasonable accuracy or a specific recovery period is not assigned to the property, 

a taxpayer may elect to treat the intangible as having a useful life of 15 years. 

Provision: Under the provision, the forecast period under the IFM would be extended to 20 

years, with required computations based on the income earned before the close of the fifth, tenth, 

fifteenth and twentieth years. The provision also would modify the rule for participations and 

residuals by excluding such costs from the adjusted basis of the property under the IFM and 

require that such costs be deducted in the year paid. As an alternative to the IFM, the provision 

would permit taxpayers to depreciate property otherwise qualifying for the IFM under the 

straight-line method over a 20-year period. Finally, the provision would direct the IRS to revise 

the election under the regulations concerning intangible assets with an unknown useful life to 

conform to the new 20-year period for the IFM. The provision generally would be effective for 

property placed in service after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.5 billion over 

2014-2023.

Sec. 3314. Repeal of averaging for farm income. 

Current law: Under current law, an individual engaged in certain farming or fishing businesses 

may elect to compute his current year tax liability by averaging, over the prior three-year period, 

all or a portion of his taxable income from the trade or business of farming or fishing. 

Provision: Under the provision, the farm income-averaging method would be repealed. The 

provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.

Sec. 3315. Treatment of patent or trademark infringement awards. 

Current law: Under current law, the Code does not provide rules regarding the treatment of 

patent or trademark infringement awards. The courts have held that such infringement awards 

constitute ordinary income as damages relating to lost profits unless the taxpayer can 

demonstrate that such payments reflect damages relating to impairment of capital (e.g., 

goodwill), in which case the payments are treated as a return of capital to the extent of the 

taxpayer’s basis in the patent or trademark.
Prepared by Ways and Means Committee Majority Tax Staff 96 

Provision: Under the provision, the judicial standard for determining the treatment of patent or 

trademark infringement awards would be codified. The provision would be effective for 

payments pursuant to judgments and settlements after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3316. Repeal of redundant rules with respect to carrying charges. 

Current law: Under current law, a taxpayer may elect to capitalize certain taxes and carrying 

charges (e.g., interest) with respect to certain property, and in such a case no deduction is 

permitted for the capitalized costs. This provision is redundant because other provisions of the 

Code permit taxes and carrying charges to be capitalized, even though such costs are otherwise 

deductible. 

Provision: Under the provision, the redundant rules with respect to capitalization of certain 

taxes and carrying charges would be repealed. The provision would be effective for amounts 

paid or incurred after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 3317. Repeal of recurring item exception for spudding of oil or gas wells.

Current law: Under current law, an accrual-method taxpayer generally may deduct an expense 

only when all events have occurred that fix the fact of the liability, the amount of the liability is 

determinable with reasonable accuracy, and economic performance has occurred. An exception 

applies to certain expenses that are recurring in nature (e.g., State and local income taxes that are 

fixed at year-end but generally not paid until the tax return is filed in the following year), which 

is commonly referred to as the “recurring item” exception. To qualify, the expense must be paid 

no later than eight and a half months after the close of the tax year to which it relates. The 

recurring-item exception is not available for a tax shelter, unless the tax shelter involves drilling 

oil or gas wells and the drilling commences within 90 days of the close of the tax year to which 

the expense relate. 

Provision: Under the provision, the special exception for oil or gas well tax shelters would be 

repealed, and the recurring item exception would not apply to any associated drilling expenses. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 97 

Subtitle E – Financial Instruments 

Part 1 – Derivatives and Hedges 

Sec. 3401. Treatment of certain derivatives. 

Current law: Under current law, the tax treatment of gains and losses from entering into 

derivative financial transactions (e.g., futures, forward contracts, swaps, and options) is highly 

dependent upon the type of derivative, the profile of the taxpayer (e.g., dealers vs. non-dealers), 

and other factors. For example, gain or loss from entering into an option generally is not 

recognized until the option is exercised or lapses, and the character of the gain or loss generally 

is determined based upon the character of the optioned property in the hands of the taxpayer. 

However, certain options that are traded on exchanges – non-equity options (i.e., options on 

property other than stock or on an index) and dealer equity options – are marked to market 

(meaning that changes in the value of such options that are outstanding at the end of the tax year 

result in taxable gain or loss), and gain or loss on such options are treated as 60-percent longterm capital gain or loss and 40-percent short-term capital gain or loss. 

Provision: Under the provision, derivative financial transactions generally would be marked to 

market at the end of each tax year, and any gains or losses from marking a derivative to market 

would be treated as ordinary income or loss. The provision would not apply to transactions that 

are properly identified as hedging transactions for tax purposes. The provision also would not 

apply to transactions that require the physical delivery of commodities or to certain specified 

transactions that are commercial (as opposed to financial) or non-speculative in nature. For 

offsetting financial positions that include at least one derivative position, all positions in the 

straddle would be marked to market. The provision would be effective for tax years ending after 

2014, in the case of property acquired and positions established after 2014, and for tax years 

ending after 2019, in the case of any other property or position. 

Considerations:

The current-law tax treatment of gains and losses from entering into derivative 

transactions (e.g., futures, forward contracts, swaps, and options) is highly dependent 

upon the type of derivative, the profile of the taxpayer, and other factors, which can result 

in very different tax consequences for economically similar transactions. 

The provision would level the playing field by updating antiquated tax rules that have not 

kept pace with innovation in the financial products market, and by creating a more 

uniform and transparent tax treatment of financial products, so that all taxpayers are 

playing by the same rules. 

JCT estimate: According to JCT, the provision would increase revenues by $15.7 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 98 

Sec. 3402. Modification of certain rules related to hedges. 

Current law: Under current law, taxpayers are permitted to match the timing and character of 

taxable gains and losses on certain hedging transactions with the gains and losses associated with 

the price, currency or interest rate risk being hedged. Taxpayers are only allowed such hedging 

tax treatment, however, if they properly identify the transaction as a hedge on the day they enter 

into the transaction, regardless of whether the taxpayer is properly treating the transaction as a 

hedge for financial accounting purposes. In addition, hedging tax treatment is available only if 

the risk being hedged relates to ordinary property held (or to be held) by the taxpayer or 

obligations incurred (or to be incurred) by the taxpayer. In practice, insurance companies 

typically acquire debt instruments of varying durations to hedge risks associated with holding 

assets that are used to honor future claims arising from insurance policies that they have written. 

The tax treatment of these transactions under the current-law hedging rules is unclear, however, 

because the assets held by the insurance companies are capital assets, rather than ordinary 

property. 

Provision: Under the provision, taxpayers could rely upon – for tax purposes – an identification 

of a transaction as a hedge that they have made for financial accounting purposes. The provision 

also would modify the hedging tax rules so that the rules would apply when an insurance 

company acquires a debt instrument to hedge risks relating to assets that support the company’s 

ability to honor future insurance claims. The provision would be effective for hedging 

transactions entered into after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Part 2 – Treatment of Debt Instruments 

Sec. 3411. Current inclusion in income of market discount. 

Current law: Under current law, when a borrower issues debt at a discount (i.e., the loan 

proceeds are less than the principal amount to be repaid), the borrower and the lender are 

required to deduct and include in income, respectively, the discount as additional interest over 

the life of the loan. When a bond that already has been issued by the borrower is subsequently 

purchased on the secondary market at a discount, the purchaser is required to include the 

discount in taxable income as additional interest but, unlike discount when a loan is initially 

made, this discount does not have to be included by the purchaser of the bond until the bond is 

retired or the purchaser resells the bond. The amount of secondary market discount that holders 

must include in taxable income appears to include discount associated with deterioration in the 

creditworthiness of the borrower, even though it may have been intended that current law should 

only apply to discount associated with increases in interest rates. 

Provision: Under the provision, purchasers of bonds at a discount on the secondary market 

would be required to include the discount in taxable income over the post-purchase life of the 

bond, rather than only upon retirement of the bond or resale of the bond by the purchaser. Any 
Prepared by Ways and Means Committee Majority Tax Staff 99 

loss that results from the retirement or resale of such a bond would be treated as an ordinary 

(rather than capital) loss to the extent of previously accrued market discount. 

The provision also would limit taxable secondary market discount to an amount that 

approximates increases in interest rates since the loan was originally made. Specifically, the 

provision would limit this amount to the greater of (1) the original yield on the bond plus 5 

percentage points, or (2) the applicable Federal rate plus 10 percentage points. 

The provision would be effective for bonds acquired after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.9 billion over 

2014-2023.

Sec. 3412. Treatment of certain exchanges of debt instruments. 

Current law: Under current law, when the terms of an outstanding debt instrument are 

significantly modified, the issue price of the modified debt instrument (i.e., the principal amount 

of the debt instrument for tax purposes) does not necessarily equal the issue price of the debt 

instrument prior to modification. In particular, the issue price of the modified debt instrument 

can be substantially lower than the issue price of the debt instrument prior to modification if the 

debt instrument has lost significant value since the loan was originally made (e.g., the value of 

real estate or other collateral supporting the loan has declined) – even if the lender has not 

forgiven any actual principal owed by the borrower. The reduction in the issue price resulting 

from the modification of the debt instrument constitutes taxable cancellation of indebtedness 

income to the borrower, although the borrower still owes the same actual principal amount as 

was owed prior to the modification. Conversely, the holder of a modified debt instrument may 

be required to recognize taxable gain as a result of modifying the debt instrument – even when 

the actual principal owed by the borrower has not increased – if the holder purchased the debt 

instrument at a discount. 

Provision: Under the provision, the issue price of a modified debt instrument generally would 

be equal to the lesser of (1) the issue price of the debt instrument before it was modified, or (2) 

the stated principal amount of the modified debt instrument (assuming the modified debt 

instrument has an adequate rate of stated interest). In addition, the holder of a debt instrument 

generally would not recognize taxable gain or loss as a result of modifying a debt instrument. 

The provision would be effective for debt modifications that occur after 2014. 

Considerations:

The current law tax treatment of gains can impose prohibitive tax burdens on taxpayers 

who try to maintain or sell distressed assets by restructuring the debt that is secured by 

the assets – a process necessary to economic recovery. 

The provision would reform the tax rules as they apply to debt restructurings that do not 

involve a forgiveness of principal, and would reduce the prevalence of “phantom” 

cancellation-of-indebtedness income when debt is restructured – a common practice 

during economic downturns. 
Prepared by Ways and Means Committee Majority Tax Staff 100 

JCT estimate: According to JCT, the provision would reduce revenues by $0.8 billion over 

2014-2023.

Sec. 3413. Coordination with rules for inclusion not later than for financial accounting 

purposes. 

Current law: Under current law, the holder of a debt instrument that is issued with original 

issue discount (OID) generally accrues and includes in income (as interest) the OID over the life 

of the obligation, regardless of when the OID income actually is received. In the case of prepaid 

interest, OID treatment results in a deferral of taxable income. Certain fees earned by credit card 

issuers and other financial institutions have been treated as OID income, which allows these 

institutions to postpone the imposition of tax on this income to later tax years. 

Provision: Under the provision, fees and other amounts received by a taxpayer would not be 

treated as OID income to the extent they are subject to section 3303 of the discussion draft, 

which would require taxpayers on the accrual method of accounting to include an item of income 

no later than the tax year in which such item is included for financial statement purposes. The 

provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $9.5 billion over 

2014-2023.

Sec. 3414. Rules regarding certain government debt. 

Current law: Under current law, individuals and other taxpayers who use a cash basis method 

of accounting and who purchase non-interest bearing obligations at a discount may elect to 

include in current income the increase in the value of the obligations as the discount accretes. 

(Absent such an election, the increase in value is not taken into income until maturity or 

disposition of the obligation.) In addition, discount on certain short-term obligations (e.g., 

Treasury bills) does not accrue until the obligation is paid at maturity or otherwise disposed but, 

in the case of taxpayers using an accrual method of accounting and certain other taxpayers, 

discount on short-term obligations is required to be included currently in taxable income. Also, 

any increase in the redemption value of a U.S. savings bond generally is includible in gross 

income in the tax year the bond is redeemed or the tax year of final maturity, whichever is 

earlier. Finally, U.S. obligations may be exchanged without recognition of gain or loss. 

Provision: Under the provision, certain clerical amendments to the current-law rules would be 

made to reflect that some of the rules have been superseded by subsequently enacted tax rules 

relating to the accrual of original issue discount. Similarly, the current-law rule that permits U.S. 

obligations to be exchanged without recognition of gain or loss would be repealed because the 

rule has become obsolete as a result of the Treasury Department no longer issuing Series H or 

HH savings bonds (which were exchangeable for Series E or EE savings bonds). The provision 

would be effective on the date of enactment. 
Prepared by Ways and Means Committee Majority Tax Staff 101 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Part 3 – Certain Rules for Determining Gain and Loss 

Sec. 3421. Cost basis of specified securities determined without regard to identification. 

Current law: Under current law, when a taxpayer purchases shares of a particular company (or 

other substantially identical securities) at multiple times and at different prices, and later sells 

some (but not all) of these shares, the shares generally are deemed to have been sold on a first-in, 

first-out (FIFO) basis. In other words, the earliest acquired shares are treated as having been sold 

for purposes of determining the taxpayer’s basis in the sold shares (and resulting gain or loss 

from the sale). Taxpayers, however, may specifically identify which shares have been sold, and 

such shares could have a basis that is different from the basis in the earliest acquired shares (and 

thus result in a different amount of gain or loss from the sale). 

Provision: Under the provision, taxpayers who sell a portion of their holdings in substantially 

identical stock generally would be required to determine their taxable gain or loss on a FIFO 

basis. The provision generally would be coordinated with the recently enacted basis reporting 

requirements so that taxpayers could continue to determine basis in their stock on an account-byaccount basis, except that multiple accounts with the same broker would be aggregated and 

treated as a single account. The provision would be effective for sales of stock occurring after 

2014.

JCT estimate: According to JCT, the provision would increase revenues by $3.8 billion over 

2014-2023.

Sec. 3422. Wash sales by related parties. 

Current law: Under current law, a taxpayer may not deduct losses from the disposition of stock 

or securities if the taxpayer acquires substantially identical stock or securities during the period 

beginning 30 days before, and ending 30 days after, the date of sale. If a loss is disallowed, the 

basis of the acquired stock or securities is increased to reflect the disallowed loss. 

Provision: Under the provision, losses from the disposition of stock or securities also would be 

disallowed if certain parties that are closely related to the taxpayer acquire substantially identical 

stock or securities within 30 days before or after the disposition. If a loss has been disallowed 

under the provision and the taxpayer reacquires substantially identical stock or securities during 

the period that begins 30 days before the disposition and ends with the close of the first tax year 

that begins after the disposition, then the basis of the reacquired stock or securities would be 

increased to reflect the disallowed loss. The provision would be effective for sales of stock or 

securities occurring after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 102 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3423. Nonrecognition for derivative transactions by a corporation with respect to its 

stock. 

Current law: Under current law, a corporation does not recognize gain or loss on the receipt of 

money or other property in exchange for its own stock. Likewise, a corporation does not 

recognize gain or loss when it redeems its stock with cash for more or less than it received when 

the stock was issued. In addition, a corporation does not recognize gain or loss on any lapse or 

acquisition of an option to buy or sell its stock. 

Provision: Under the provision, a corporation generally would not recognize income, gains, 

losses, or deductions with respect to derivatives that relate to the corporation’s own stock, except 

for certain transactions that involve the corporation acquiring its own stock and entering into a 

forward contract with respect to its own stock. In conjunction with section 3101 of the 

discussion draft, the provision would require a corporation to recognize income to the extent that 

the receipt of a contribution of money or property exceeds the value of stock issued in exchange 

for such money or property, and also would require a corporation to recognize income from the 

receipt of any premium received with respect to an option on its own stock. The provision would 

be effective for transactions entered into after the date of enactment. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Part 4 – Tax Favored Bonds 

Secs. 3431-3432. Termination of private activity bonds; Termination of credit for interest 

on certain home mortgages. 

Current law: Under current law, interest on both governmental bonds and private activity 

bonds (PABs) is excluded from gross income (and thus exempt from tax). Governmental bonds 

typically are issued to finance projects that constitute public goods (e.g., roads, schools, and 

parks). By contrast, the proceeds of PABs finance the activities of, or loans to, private parties, 

with indirect benefits accruing to the State or locality that issues the bond. The exclusion of 

interest on PABs generally is disallowed under the alternative minimum tax (AMT), meaning 

that AMT payers pay tax on such interest. Only specific categories of PABs qualify for the tax 

preference. Those categories include exempt facility bonds, qualified mortgage bonds, qualified 

veterans’ mortgage bonds, qualified small issue bonds, qualified student loan bonds, qualified 

redevelopment bonds, and qualified 501(c)(3) bonds. Most PABs are subject to a single, 

aggregate national volume cap that is allocated annually among States by population, while other 

PABs have separate volume caps. For calendar year 2014, the per-State volume cap is the 

greater of (1) $100 multiplied by the State population, or (2) $296,825,000. These amounts are 

indexed for inflation. 
Prepared by Ways and Means Committee Majority Tax Staff 103 

Some State and local governments issue PABs to finance owner-occupied residences. In lieu of 

issuing such bonds, State and local governments may provide homebuyers a Federal tax credit 

for interest on certain home mortgages by providing them with mortgage credit certificates. 

Provision: Under the provisions, interest on newly issued PABs would be included in income 

and thus subject to tax. Additionally, no Federal tax credits would be allowed for mortgage 

credit certificates issued after 2014. The provisions would be effective for bonds issued after 

2014 with regard to PABs and tax years ending after 2014 with regard to mortgage credit 

certificates.

Considerations:

The Federal government should not subsidize the borrowing costs of private businesses, 

allowing them to pay lower interest rates, while competitors with similar creditworthiness 

but that are unable to avail themselves of PABs must pay a higher interest rate on the 

debt they issue. 

The provisions would not apply to any previously issued bond, nor would the provisions 

prevent State and local governments from issuing PABs in the future; the provisions 

would merely remove the Federal tax subsidy for newly issued bonds. 

JCT estimate: According to JCT, the provisions would increase revenues by $23.9 billion over 

2014-2023.

Sec. 3433. Repeal of advance refunding bonds. 

Current law: Under current law, a refunding bond is any bond used to pay principal, interest, or 

redemption price on a prior bond issue (the refunded bond). A current refunding occurs when 

the refunded bond is redeemed within 90 days of issuance of the refunding bonds. An advance 

refunding is issued more than 90 days before the redemption of the refunded bond. Interest on 

current refunding bonds is generally not taxable. Interest on advanced refunding bonds is 

generally not taxable for governmental bonds but is taxable for PABs. 

Provision: Under the provision, interest on advanced refunding bonds (i.e., refunding bonds 

issued more than 90 days before the redemption of the refunded bonds) would be taxable. 

Interest on current refunding bonds would continue to be tax-exempt. The provision would be 

effective for advance refunding bonds issued after 2014. 

Considerations:

Current-law advanced refunding bonds provide State and local governments with 

incentives to issue two sets of Federally subsidized debt to finance the same activity. 

The provision would not affect the taxation of interest on refunding bonds issued within 

90 days of the redemption of the refunded bond. 

JCT estimate: According to JCT, the provision would increase revenues by $8.3 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 104 

Sec. 3434. Repeal of tax credit bond rules. 

Current law: Under current law, State and local governments and other entities may issue 

various categories of tax credit bonds to finance specific types of projects. Each category of tax 

credit bond has its own set of rules regarding volume cap, if any, and allocation. Holders of tax 

credit bonds receive Federal tax credits fully or partially in lieu of interest payments from the 

issuer, depending on the level of Federal subsidy. For some of these bonds, during 2009 and 

2010, issuers had the option of instead issuing taxable bonds and receiving direct payments from 

the Federal government. 

The authority to issue some types of tax credit bonds has expired, and the volume cap to issue 

some of these bonds has been fully used. There are some types of tax credit bonds for which 

there is still outstanding volume cap and issuing authority has not expired. 

Provision: Under the provision, the rules relating to tax credit bonds generally would be 

repealed. Holders and issuers would continue receiving tax credits and payments for tax credit 

bonds already issued, but no new bonds could be issued. The provision would be effective for 

bonds issued after the date of enactment. 

JCT estimate: According to JCT, the provisions would reduce revenues by $0.4 billion over 

2014-2023, and reduce outlays by $2.6 billion over 2014-2023. 

Subtitle F – Insurance Reforms 

Sec. 3501. Exception to pro rata interest expense disallowance for corporate-owned life 

insurance restricted to 20-percent owners.

Current law: Under current law, business interest deductions are reduced to the extent the 

interest is allocable to insurance policy cash values based on a pro rata formula, unless the 

insurance policy insures the lives of officers, directors, employees, or 20-percent owners of the 

business. A similar rule applies in the case of businesses that are insurance companies. 

Provision: Under the provision, the exception to the pro rata interest expense disallowance rule 

would not apply to officers, directors, or employees, and thus only would apply to 20-percent 

owners of the business that holds the insurance contract. The provision would be effective for 

insurance contracts issued after 2014 with any material increase in the death benefit or other 

material changes to existing contracts being treated as new contracts. 

Considerations:

The provision was included in the Obama Administration’s fiscal year 2014 budget 

proposal.

The provision would further limit the ability of leveraged businesses to fund deductible 

interest expenses with tax-exempt or tax-deferred income credited under life insurance, 

endowment, or annuity contracts insuring certain types of individuals. 
Prepared by Ways and Means Committee Majority Tax Staff 105 

Specifically, the provision would more narrowly target the current-law exception to 

arrangements that are more likely to reflect business succession planning strategies.

JCT estimate: According to JCT, the provision would increase revenues by $7.3 billion over 

2014-2023.

Sec. 3502. Net operating losses of life insurance companies. 

Current law: Under current law, net operating losses of a trade or business generally may be 

carried back up to two tax years or carried forward up to 20 tax years. In the case of life 

insurance companies, however, net operating losses may be carried back up to three tax years or 

carried forward up to 15 tax years. 

Provision: Under the provision, life insurance companies would be allowed to carry net 

operating losses back up to two tax years or forward up to 20 tax years, in conformity with the 

general net operating loss carryover rules. The provision would be effective for losses arising in 

tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.

Sec. 3503. Repeal of small life insurance company deduction. 

Current law: Under current law, life insurance companies may deduct 60 percent of their first 

$3 million of life insurance-related income. The deduction is phased out for companies with 

income between $3 million and $15 million. In addition, the deduction is not available to life 

insurance companies with assets of at least $500 million. 

Provision: Under the provision, the special deduction for small life insurance companies would 

be repealed. The provision would be effective for tax years beginning after 2014. 

Consideration:

The provision would eliminate a tax subsidy for businesses in a particular industry that is 

not available to similar businesses in other industries. 

Eliminating this subsidy also would remove a tax preference that is provided to the 

segment of the insurance industry in which the risk distribution benefits of pooling are 

the weakest. 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 106 

Sec. 3504. Computation of life insurance tax reserves. 

Current law: Under current law, life insurance companies may deduct net increases in life 

insurance company reserves, while net decreases in such reserves are included in gross income. 

In computing changes in reserves, the life insurance reserve for a contract generally is the greater 

of the net surrender value of the contract or the reserve determined under rules provided in the 

Code, which for discounting purposes employ a prescribed interest rate that is equal to the 

greater of the applicable Federal rate or the prevailing State assumed interest rate. The 

“prevailing State assumed interest rate” is equal to the highest assumed interest rate permitted to 

be used in at least 26 States in computing regulatory life insurance reserves. The discount rate 

used by property and casualty (P&C) insurance companies for reserves is the average applicable 

Federal mid-term rate over the 60 months ending before the beginning of the calendar year for 

which the determination is made. 

Provision: Under the provision, the current-law prescribed discount rate for life insurance 

reserves would be replaced with the average applicable Federal mid-term rate over the 60 months 

ending before the beginning of the calendar year for which the determination is made, plus 3.5 

percentage points. The provision would be effective for tax years beginning after 2014. The 

effect of the provision on computing reserves for contracts issued before the effective date would 

be taken into account ratably over the succeeding eight tax years. 

Consideration: Replacing the current-law prescribed interest rate with an interest rate based on 

an enhanced mid-term applicable Federal rate that generally tracks corporate bond rates over the 

long run would better reflect economic reality. The current-law rule that uses a regulatory-based 

measurement generally understates income. 

JCT estimate: According to JCT, the provision would increase revenues by $24.5 billion over 

2014-2023.

Sec. 3505. Adjustment for change in computing reserves. 

Current law: Under current law, taxpayers are required to make adjustments to taxable income 

when they change a tax accounting method, so that the accounting method change does not result 

in an omission or duplication of income or expense. For taxpayers other than life insurance 

companies, an adjustment that reduces taxable income generally is taken into account in the tax 

year during which the accounting method change occurs, while an adjustment that increases 

taxable income generally may be taken into account over the course of four tax years, beginning 

with the tax year during which the accounting method change occurs. For life insurance 

companies, an adjustment in computing reserves (which is similar to a change in tax accounting 

method for other businesses) may be taken into account over ten years (regardless of whether the 

adjustment reduces or increases taxable income). 

Provision: Under the provision, the special 10-year period for adjustments to take into account 

changes in computing reserves by life insurance companies would be repealed. As a result, the 

general rule for making tax accounting method adjustments would apply to changes in 
Prepared by Ways and Means Committee Majority Tax Staff 107 

computing reserves by life insurance companies. The provision would be effective for tax years 

beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $2.5 billion over 

2014-2023.

Sec. 3506. Modification of rules for life insurance proration for purposes of determining 

the dividends received deduction. 

Current law: Under current law, for insurance companies, deductions are limited or disallowed 

in certain circumstances if they are related to the receipt of exempt income. Under so-called 

“proration” rules, life insurance companies are required to reduce deductions, including 

dividends-received deductions and reserve deductions to account for the fact that a portion of 

dividends and tax-exempt interest received is used to fund tax-deductible reserves for the 

companies’ obligations to policyholders. This portion is determined by a formula that computes 

the respective shares of net investment income that belong to the company and to the 

policyholders. Current law is unclear as to what methods companies may use to compute the 

company share. 

Provision: Under the provision, the portion of dividends and tax-exempt interest received that is 

set aside for obligations to policyholders would be determined separately for the company’s 

general account (which supports non-variable insurance products) and for each separate account 

(which supports variable life insurance and annuity contracts). In addition, the formula for 

determining this portion would be modified so that it compares mean reserves to mean assets of 

each account (rather than computing the respective shares of net investment income that belong 

to the company and to the policyholders). The provision would be effective for tax years 

beginning after 2014. 

Consideration: The current-law rules for computing net investment income are essentially 

based on a previous system of life insurance company taxation that was changed over 30 years 

ago, and the provision would provide an updated measure of the company and policyholder 

shares of net investment income that is simpler and more accurate. 

JCT estimate: According to JCT, the provision would increase revenues by $4.5 billion over 

2014-2023.

Sec. 3507. Repeal of special rule for distributions to shareholders from pre-1984 

policyholders surplus account. 

Current law: Tax rules for insurance companies that were enacted in 1959 included a rule that 

half of a life insurer’s operating income was taxed only when the company distributed it, and a 

“policyholders surplus account” kept track of the untaxed income. In 1984, this deferral of 

taxable income was repealed, although existing policyholders’ surplus account balances 

remained untaxed until they were distributed. Legislation enacted in 2004 provided a two-year 
Prepared by Ways and Means Committee Majority Tax Staff 108 

holiday that permitted tax-free distributions of these balances during 2005 and 2006. During this 

period, most companies eliminated or significantly reduced their balances. 

Provision: Under the provision, the rules for policyholders’ surplus accounts would be repealed. 

The provision would generally be effective for tax years beginning after 2014, and any 

remaining balances would be subject to tax, payable in eight annual installments. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 3508. Modification of proration rules for property and casualty insurance companies. 

Current law: Under current law, deductions are limited or disallowed in certain circumstances 

if they are related to the receipt of exempt income. Under so-called “proration” rules that reflect 

the fact that reserves generally are funded in part by certain untaxed income, property and 

casualty (P&C) insurance companies are required to reduce reserve deductions for losses 

incurred by 15 percent of (1) the company’s tax-exempt interest, (2) the deductible portion of 

dividends received, and (3) the increase for the tax year in the cash value of life insurance, 

endowment, or annuity contracts the company owns. 

Provision: Under the provision, the fixed 15-percent reduction in the reserve deduction for P&C 

insurance companies would be replaced with a formula whereby the reserve deduction is reduced 

by a percentage that is equal to the ratio of the tax-exempt assets of the company to all assets of 

the company. The provision would be effective for tax years beginning after 2014. 

Consideration: The provision would replace an arbitrary fixed-percentage reduction in reserve 

deductions with a formula that would result in P&C insurance companies more accurately 

measuring the reserve deduction. 

JCT estimate: According to JCT, the provision would increase revenues by $2.9 billion over 

2014-2023.

Sec. 3509. Repeal of special treatment of Blue Cross and Blue Shield organizations, etc. 

Current law: Under current law, charitable and social welfare organizations are eligible for taxexempt status only if no substantial part of their activities consists of providing commercial-type 

insurance. When this rule was enacted in 1986, special rules were provided for existing, taxexempt Blue Cross and Blue Shield (BCBS) organizations that stood to lose their tax-exempt 

status. These rules also apply to other health insurance organizations that satisfy certain 

requirements. 

The special rules provide a deduction equal to 25 percent of claims incurred and expenses 

incurred in administering such claims, to the extent the amount of claims and expenses incurred 

exceeds the adjusted surplus of the organization at the beginning of the tax year. In addition, 
Prepared by Ways and Means Committee Majority Tax Staff 109 

these rules provide an exception from the application of a 20-percent reduction in the deduction 

for increases in unearned premiums that applies generally to P&C companies. The special rules 

also provide that these organizations are treated as stock insurance companies for purposes of the 

Code.

Provision: Under the provision, the special rules for BCBS and certain other health insurance 

organizations would be repealed. With regard to the 25-percent deduction and the exception 

from the application of the 20-percent reduction in the deduction for increases in unearned 

premiums, the provision would be effective for tax years beginning after 2014. With regard to 

the treatment of these organizations as stock insurance companies, the provision would be 

effective for tax years beginning after 2016. 

Consideration: Special transition rules enacted in 1986 when the BCBS organizations initially 

became subject to tax are no longer necessary and provide preferential tax treatment to some 

health insurance providers over other providers in a market in which health insurance premiums 

are now regulated. 

JCT estimate: According to JCT, the provision would increase revenues by $4.0 billion over 

2014-2023.

Sec. 3510. Modification of discounting rules for property and casualty insurance 

companies. 

Current law: Under current law, a P&C insurance company may deduct unpaid losses that are 

discounted using mid-term applicable Federal rates and based on a loss payment pattern. The 

loss payment pattern for each line of insurance business is determined by reference to the 

industry-wide historical loss payment pattern applicable to such line of business, although 

companies may elect to use their own particular historical loss payment patterns. 

The loss payment pattern is computed based upon the assumption that all losses are paid (1) in 

general, during the accident year and the three calendar years following the accident year, or (2) 

in the case of lines of business relating to auto or other liability, medical malpractice, workers’ 

compensation, multiple peril lines, international coverage, and reinsurance, during the accident 

year and the ten calendar years following the accident year. In the case of long-tail lines of 

business, a special rule extends the loss payment pattern period, so that the amount of losses 

which would have been treated as paid in the tenth year after the accident year is treated as paid 

in the tenth year and in each subsequent year (up to five years) in an amount equal to the amount 

of the losses treated as paid in the ninth year after the accident year. 

Provision: Under the provision, P&C insurance companies would use the corporate bond yield 

curve (as specified by Treasury) to discount the amount of unpaid losses. In addition, the special 

rule that extends the loss payment pattern period for long-tail lines of business would be applied 

similarly to all lines of business (but without the 5-year limitation on the extended period), so 

that (1) in general, the amount of losses that would have been treated as paid in the third year 

after the accident year would be treated as paid in the third year and in each subsequent year in 
Prepared by Ways and Means Committee Majority Tax Staff 110 

an amount equal to the amount of the losses treated as paid in the second year after the accident 

year, and (2) in the case of lines of business relating to auto or other liability, medical 

malpractice, workers’ compensation, multiple peril lines, international coverage, and 

reinsurance, the amount of losses which would have been treated as paid in the tenth year after 

the accident year would be treated as paid in the tenth year and in each subsequent year in an 

amount equal to the amount of the losses treated as paid in the ninth year after the accident year. 

The provision also would repeal the election to use company-specific, rather than industry-wide, 

historical loss payment patterns. The provision generally would be effective for tax years 

beginning after 2014, with a transition rule that would spread adjustments relating to preeffective date losses and expenses over such tax year and the succeeding seven tax years. 

Considerations:

Replacing the mid-term applicable Federal rate with the corporate bond yield would 

result in a more accurate measurement of income for P&C insurance companies. 

In addition, generally applying the rules for determining the loss payment pattern period 

that currently only apply to long-tail lines of business would provide consistent treatment 

for all lines of insurance business. 

JCT estimate: According to JCT, the provision would increase revenues by $17.9 billion over 

2014-2023.

Sec. 3511. Repeal of special estimated tax payments. 

Current law: Under current law, insurance companies may elect to claim a deduction equal to 

the difference between the amount of reserves computed on a discounted basis and the amount 

computed on an undiscounted basis. Companies that make this election are required to make a 

special estimated tax payment equal to the tax benefit attributable to the deduction. In addition, 

the deductions are added to a special loss discount account and, as losses are paid in future years, 

amounts are subtracted from the account and made subject to tax (net of prior special estimated 

tax payments). Amounts added to the special loss discount account are automatically subtracted 

from the account and made subject to tax if they have not already been subtracted after 15 years. 

Provision: Under the provision, the elective deduction and related special estimated tax 

payment rules would be repealed. The provision would be effective for tax years beginning after 

2014.

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 3512. Capitalization of certain policy acquisition expenses. 

Current law: Under current law, the expenses of a life insurance company that are associated 

with earning a stream of premium income generally are required to be spread over ten years 

rather than deducted immediately, to reflect the fact that such income ordinarily is collected over 
Prepared by Ways and Means Committee Majority Tax Staff 111 

a period of years. The expenses that are spread are calculated using a simplified method that 

reflects expense ratios for three broad categories of insurance contracts. The expenses that must 

be spread are the lesser of: (1) a specified percentage of the net premiums received on each of a 

company’s three categories of insurance contracts; or (2) the company’s general deductions. For 

annuity contracts, the specified percentage is 1.75 percent; for group life insurance contracts, it is 

2.05 percent; and for all other specified insurance contracts, it is 7.7 percent. 

Provision: Under the provision, the categories of insurance contracts and the percentages of 

expenses to be spread would be updated to reflect current expense ratios for insurance products. 

The three categories of insurance contracts would be replaced with two categories: (1) group 

contracts; and (2) all other specified contracts. The percentage of net premiums that would be 

spread over ten years would be 5 percent for group insurance contracts and 12 percent for all 

other specified contracts. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $11.7 billion over 

2014-2023.

Secs. 3513-3514. Tax reporting for life settlement transactions; Clarification of tax basis of 

life insurance contracts. 

Current law: Under current law, the seller of a life insurance contract (including a sale back to 

the issuer, or “settlement”) generally must report as taxable income the difference between the 

amount received from the buyer and the adjusted basis in the contract. The IRS has taken the 

position that a taxpayer’s basis in a life insurance contract generally is equal to all premiums paid 

by the taxpayer if the taxpayer settles the contract, but that the taxpayer’s basis must be reduced 

by the cost of insurance (i.e., the non-investment component of the premiums paid) if the 

taxpayer sells the contract to a third party. 

The buyer of a previously issued life insurance contract who subsequently receives a death 

benefit generally is subject to tax on the difference between the death benefit received and the 

sum of the amount paid for the contract and premiums subsequently paid by the buyer. 

Provision: Under the provision, a taxpayer that purchases an interest in an existing life 

insurance contract with a death benefit equal to or exceeding $500,000 would be required to 

report (1) the purchase price, the identity of the buyer and seller, and the issuer and policy 

number to both the IRS and the seller, and (2) the identity of the buyer and seller, and the issuer 

and policy number to the issuing insurance company. Upon the payment of any policy benefits 

to the buyer of a previously issued life insurance contract, the insurance company would be 

required to report the gross benefit payment, the identity of the buyer, and the insurance 

company’s estimate of the buyer’s basis to the IRS and to the payee. This aspect of the provision 

would be effective for reportable sales of life insurance contracts and payments of death benefits 

occurring after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 112 

In addition, a taxpayer’s basis in a life insurance contract would not be reduced by the cost of 

insurance, regardless of whether the taxpayer settles or sells the contract. This aspect of the 

provision would be effective for transactions entered into after August 25, 2009. 

JCT estimate: According to JCT, the provisions, along with section 3515 of the discussion 

draft, would increase revenues by $0.2 billion over 2014-2023. 

Sec. 3515. Exception to transfer for valuable consideration rules. 

Current law: Under current law, a payment received under a life insurance contract upon the 

death of the insured is excluded from income. If the life insurance contract was transferred for 

valuable consideration, however, the recipient must include the payment less the recipient’s basis 

in the contract, unless (1) the contract has a carryover basis, or (2) the contract was transferred to 

the person whose life is insured under the contract or to a partner of the insured, or a partnership 

or corporation in which the insured is a partner or shareholder. 

Provision: Under the provision, the exception for carryover basis transfers and transfers to the 

person whose life is insured (or to a partner of the insured, or a partnership or corporation in 

which the insured is a partner or shareholder) would not apply if the acquirer of the life insurance 

contract has no substantial relationship with the insured apart from the acquirer’s interest in the 

contract (i.e., the acquirer must include the amount of the payment on the death of the insured, 

reduced by the acquirer’s basis in the contract). The provision would be effective for transfers 

after 2014. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for sections 3513-3514 of the discussion draft. 

Subtitle G – Pass-Thru and Certain Other Entities 

Part 1 – S Corporations 

Considerations for Subtitle G, Part 1: 

The S corporation provisions in the discussion draft are intended to encourage C 

corporations to elect S status and provide greater flexibility to current S corporations in 

their day-to-day operations. 

The provisions are drawn from Option 1 of the Committee’s March 12, 2013, discussion 

draft, and reflect the more incremental approach to passthrough reform. 

The S corporation provisions address a number of complexities for S corporations under 

current law, simplifying the rules, eliminating penalties for inadvertent errors, and 

reducing the tax burden on S corporations generally. 
Prepared by Ways and Means Committee Majority Tax Staff 113 

Sec. 3601. Reduced recognition period for built-in gains made permanent. 

Current law: Under current law, an S corporation is subject to an entity-level tax at the highest 

corporate rate on certain built-in gains of property that it held while operating as a C corporation. 

The tax applies to gain recognized within ten years from the date that the C corporation elected 

to be an S corporation. Through 2013, a temporary provision reduced this period to five years. 

Provision: Under the provision, the temporary five-year period would be made permanent. The 

provision would be effective for tax years beginning after 2013. 

JCT estimate: According to JCT, the provision would reduce revenues by $3.0 billion over 

2014-2023.

Sec. 3602. Modifications to S corporation passive investment income rules. 

Current law: Under current law, an S corporation that previously operated as a C corporation 

may be subject to tax at the highest corporate rate on certain passive income if more than 25 

percent of its gross receipts are derived from passive investment income. In addition, if the S 

corporation exceeds the 25-percent passive income threshold for three consecutive years, the 

corporation’s election to be treated as an S corporation is terminated automatically.

Provision: Under the provision, the passive-income threshold would be increased from 25 

percent to 60 percent. The provision also would repeal the current-law provision terminating the 

S corporation election for excessive passive income. The provision would be effective for tax 

years beginning after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by $3.6 billion over 

2014-2023.

Sec. 3603. Expansion of qualifying beneficiaries of an electing small business trust. 

Current law: Under current law, an S corporation is limited to 100 or fewer shareholders, 

which generally must be individuals who are U.S. citizens or residents or certain exempt 

organizations and trusts. Current law also permits special trusts, known as electing small 

business trusts (ESBTs), to be S corporation shareholders. Generally, the eligible beneficiaries 

of an ESBT include individuals, estates, and certain charitable organizations eligible to hold S 

corporation stock directly. A nonresident alien individual may not be a shareholder of an S 

corporation and may not be a potential current beneficiary of an ESBT. The portion of an ESBT 

that consists of the stock of an S corporation is treated as a separate trust. In general, this trust is 

taxed on its share of the S corporation’s income at the highest rate of tax imposed on individual 

taxpayers. Such income (whether or not distributed by the ESBT) is not taxed to the 

beneficiaries of the ESBT. 
Prepared by Ways and Means Committee Majority Tax Staff 114 

Provision: Under the provision, a nonresident alien individual could be a potential current 

beneficiary of an ESBT. Accordingly, a nonresident alien individual would be permitted to own 

shares in an S corporation, provided such ownership is indirect through an ESBT. The provision 

would be effective on January 1, 2015. 

JCT estimate: According to JCT, the provision would reduce revenues by $0.1 billion over 

2014-2023.

Sec. 3604. Charitable contribution deduction for electing small business trusts. 

Current law: Under current law, an electing small business trust (ESBT) may be a shareholder 

of an S corporation. Because an ESBT is a trust, it must follow the rules for deducting charitable 

contributions that are applicable to trusts, rather than those applicable to individuals. Generally, 

a trust is allowed a deduction for charitable contributions without any limitation on the amount 

of the deduction relative to the trust’s gross income. If a trust makes contributions in excess of 

its gross income, no carryover of the excess is allowed as a deduction in a future year. In 

contrast, an individual may deduct charitable contributions up to certain percentages of adjusted 

gross income and is generally permitted to carry forward excess contributions for five years. 

Provision: Under the provision, the charitable contribution rules applicable to individuals, 

rather than to trusts, would apply to ESBTs. Thus, the percentage limitations and carryforward 

provisions applicable to individuals would apply to contributions made by the portion of an 

ESBT holding S corporation stock. The provision would be effective for tax years beginning 

after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by $0.1 billion over 

2014-2023.

Sec. 3605. Permanent rule regarding basis adjustment to stock of S corporations making 

charitable contributions of property. 

Current law: Under current law, if an S corporation contributes money or other property to a 

charity, each shareholder takes into account his pro rata share of the contribution in determining 

his own income tax liability. A shareholder reduces the basis in his S corporation stock by the 

amount of the S corporation’s charitable contribution that flows through to the shareholder. For 

contributions made in tax years beginning before 2014, the basis reduction in the S corporation 

stock is equal to the shareholder’s pro rata share of the adjusted basis of the contributed property. 

For contributions made in tax years beginning after 2013, the amount of the reduction is the 

shareholder’s pro rata share of the fair market value of the contributed property. 

Provision: Under the provision, the pre-2014 basis-adjustment rule would be made permanent.

Thus, an S corporation shareholder would reduce the basis in his S corporation stock by his pro 

rata share of the adjusted basis of the contributed property. This rule would provide consistent 
Prepared by Ways and Means Committee Majority Tax Staff 115 

treatment of charitable contributions between S corporation shareholders and partners in a 

partnership. The provision would be effective for tax years beginning after 2013. 

JCT estimate: According to JCT, the provision would reduce revenues by $1.1 billion over 

2014-2023.

Sec. 3606. Extension of time for making S corporation elections. 

Current law: Under current law, a small business corporation may elect to be treated as an S 

corporation for any tax year at any time during the preceding tax year or by the 15th day of the 

third month of the tax year for which the election is made. An election to be an S corporation 

made by the 15th day of the third month of a corporation’s tax year is effective for that tax year 

if the corporation meets all eligibility requirements for the portion of the tax year prior to filing 

the election and all the required shareholders consent to the election. If these requirements are 

not met, the election becomes effective for the following tax year. An election continues in 

effect for subsequent tax years until it is terminated (including revocation by the taxpayer). 

Similar rules apply to an election to treat an S corporation subsidiary as a qualified S corporation 

subsidiary (QSub) – which allows the S corporation to treat the subsidiary as a division of the S 

corporation and file a single return. In addition, Qualified Subchapter S Trusts (QSST) and 

Electing Small Business Trusts (ESBT) may elect to qualify as S corporation shareholders if the 

election is made by the 15th day of the third month after the transfer of stock to the trust. 

Provision: Under the provision, the election process would be simplified by permitting a small 

business corporation to elect on its income tax return to be treated as an S corporation for the tax 

year to which the return relates, provided that the return is filed not later than the applicable due 

date (with extensions). The provision also would provide that the IRS may accept as timely a 

late filed revocation if there is reasonable cause shown. In addition, the provision would apply 

election procedures to QSubs that are similar to the rules for electing S corporation status. 

Lastly, the provision would permit the IRS to coordinate the election rules for a QSST and ESBT 

with the new election rules for S corporations and QSubs. The provision would apply to 

elections for tax years beginning after 2014. In the case of revocation, the provision would apply 

to revocations after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 3607. Relocation of C corporation definition. 

Current law: Under current law, the definition of a C corporation as being a corporation other 

than an S corporation is located in Subchapter S of the Code. 
Prepared by Ways and Means Committee Majority Tax Staff 116 

Provision: Under the provision, the definition would be moved to Code section 7701, which 

provides generally applicable definitions. The provision would be effective on the date of 

enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Part 2 – Partnerships 

Considerations for Subtitle G, Part 2: 

The partnership provisions are generally drawn from Option 1 of the Committee’s March 

12, 2013, discussion draft, and reflect a more incremental approach to passthrough 

reform. 

The partnership provisions establish additional limits on the use of partnerships as tax 

avoidance structures without interfering with the legitimate business operations of 

partnerships, clarify confusing areas of partnership law, and better align partnership rules 

with the relevant S corporation rules. 

Sec. 3611. Repeal of rules relating to guaranteed payments and liquidating distributions.

Current law: Under current law, guaranteed payments made by a partnership to a partner 

generally are payments made without regard to the income of the partnership and are for services 

or for the use of capital (e.g., loans) provided by the partner. Guaranteed payments are distinct 

from a partnership distribution of income or capital, and from payments by the partnership to a 

partner not acting in his capacity as a partner. Guaranteed payments generally are deductible by 

the partnership and includible in the partner’s taxable income.

Current law also provides rules for treating payments made in the liquidation of a retiring or 

deceased partner’s partnership interest. Such payments are treated either as (1) a distributive 

share or guaranteed payment or (2) payments in exchange for the partner’s interest in partnership 

property. For a deceased partner, income earned prior to death (i.e., income in respect of a 

decedent) is includible in the deceased partner’s gross income in the year of death, and special 

rules apply for determining the basis of the partnership interest in the hands of the successor 

partner. 

Provision: Under the provision, the rules relating to guaranteed payments to partners would be 

repealed. Thus, payments received by partners would constitute either payments in their 

capacity as partners (i.e., part of their distributive shares of partnership income or loss) or in their 

capacity as non-partners (i.e., as an independent third party). In addition, the provision would 

repeal the special rule for deceased or retiring partners that treats certain payments in liquidation 

as guaranteed payments, subjecting such payments to the general rules applicable to the 

transaction (e.g., the provisions relating to payments of deferred compensation) or the applicable 

rules governing income in respect of a decedent. The provision would be effective for tax years 

beginning after 2014 and transfers to decedents made after 2014. In addition, the provision 

would apply to payments made in liquidation to partners retiring or dying after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 117 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.

Sec. 3612-3614. Mandatory adjustments to basis of partnership property in case of 

transfer of partnership interests; Mandatory adjustments to basis of undistributed 

partnership property; Corresponding adjustments to basis of properties held by 

partnership where partnership basis adjusted. 

Current law: Under current law, if a partnership makes a one-time election, or if the 

partnership has a substantial built-in loss (i.e., the partnership’s adjusted basis in its property 

exceeds the fair market value by more than $250,000) immediately after a transfer of a 

partnership interest by a partner, the partnership must make adjustments to the basis of 

partnership property. Similar rules apply in the case of a partnership distribution of property to a 

partner. The adjustments are intended to account for (1) the difference that can arise between a 

partner’s adjusted basis in the partnership property and the partner’s basis in his partnership 

interest and (2) the difference in the partnership’s adjusted basis in its property with respect to 

partners who do not receive distributions of property. Certain securitization partnerships and 

electing investment partnerships are exempt from the basis-adjustment requirement with respect 

to substantial built-in losses in certain instances. When basis adjustments are required under 

current law, no corresponding adjustments are required by upper- or lower-tier partnerships 

owning an interest in the partnership making the basis adjustment. 

Provision: Under the provision, mandatory adjustment of a partnership’s basis in partnership 

property would be required when a partner transfers his interest in a partnership or a partnership 

distributes property to a partner. These rules would also apply to securitization and electing 

investment partnerships. In addition, corresponding adjustments would be required in cases 

involving tiered partnerships. The provision would be effective for transfers and distributions 

after 2014. 

JCT estimate: According to JCT, the provisions would increase revenues by $1.1 billion over 

2014-2023.

Sec. 3615. Charitable contributions and foreign taxes taken into account in determining 

limitation on allowance of partner’s share of loss.

Current law: Under current law, a partner generally may only deduct certain expenditures and 

losses (including capital losses) of a partnership to the extent of the partner’s adjusted basis in his 

partnership interest. Charitable contributions and foreign taxes paid by a partnership are not 

subject to this limitation and, as a result, can be deducted even if they exceed the partner’s basis.

Provision: Under the provision, a partner would be required to take into account charitable 

contributions and foreign taxes paid by a partnership in calculating the limitation on the partner’s 

share of losses, conforming the partnership rules to the S corporation rules and thus preventing a 
Prepared by Ways and Means Committee Majority Tax Staff 118 

partner from deducting losses in excess of basis. The provision would be effective for tax years 

beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.9 billion over 

2014-2023.

Sec. 3616. Revisions related to unrealized receivables and inventory items. 

Current law: Under current law, gain or loss from the sale or exchange of a partnership interest 

generally is treated as gain or loss from a capital asset. Gain is treated as ordinary income, 

however, on the sale or exchange of a partnership interest when the partnership holds unrealized 

receivables (i.e., uncollected payments for goods or services) or appreciated inventory (i.e., 

appreciated more than 120 percent). Certain distributions by a partnership to a partner are also 

treated as sales or exchanges when a partnership holds unrealized receivables or substantially 

appreciated inventory. 

Provision: Under the provision, any distribution of an inventory item would be treated as a sale 

or exchange between the partner and the partnership, eliminating the requirement that inventory 

be substantially appreciated in value to trigger gain recognition. The provision also would 

simplify the definition of an unrealized receivable by providing that the term include any 

property other than an inventory item, but only to the extent of the amount that would be treated 

as ordinary income if the property were sold for its fair market value. The provision would be 

effective for distributions and partnership tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.8 billion over 

2014-2023.

Sec. 3617. Repeal of time limitation on taxing precontribution gain. 

Current law: Under current law, if a partner contributes appreciated property to a partnership, 

the partner does not recognize gain or loss at the time of the contribution, but the precontribution built-in gain or loss is preserved in the contributing partner’s capital account. If the 

partnership subsequently distributes the property to another partner within seven years of the 

contribution, the contributing partner generally recognizes the pre-contribution gain or loss. 

Similar rules apply if the contributing partner receives other property of the partnership within 

seven years in what amounts to a disguised sale of the originally contributed property. 

Provision: Under the provision, a partner who contributes property with pre-contribution builtin gains or losses to a partnership would be required to recognize the pre-contribution gain or 

loss when the partnership distributes such property. No limitation period would apply. The 

provision would be effective for property contributed to a partnership after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.4 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 119 

Sec. 3618. Partnership interests created by gift.

Current law: Under current law, a person is treated as a partner if he owns a capital interest in a 

partnership in which capital is a material income-producing factor, whether such interest was 

obtained by purchase or gift from another person. In the case of a partnership interest purchased 

by one family member from another, the interest is treated as created by gift and the fair market 

value of the interest is treated as donated capital to the partnership. Current law also provides 

special rules to prevent donors of partnership interests from assigning income with respect to 

services that the donor performs for the partnership or with respect to the donor’s contributed 

capital.

Provision: Under the provision, the rule would be clarified to provide that a person is treated as 

a partner in a partnership in which capital is a material income-producing factor whether such 

interest was obtained by purchase or gift and regardless of whether such interest was acquired 

from a family member. The rules preventing assignment of income would continue to apply to 

transfers of partnership interests by gift. The provision would be effective for tax years 

beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.8 billion over 

2014-2023.

Sec. 3619. Repeal of technical termination. 

Current law: Under current law, a partnership terminates only if: (1) no part of any business, 

financial operations, or venture of the partnership continues to be carried on by any of its 

partners, or (2) within a 12-month period there is a sale or exchange of 50 percent or more of the 

total interests in partnership capital and profits. The second type of termination is commonly 

referred to as a technical termination. When a technical termination occurs, the business of the 

partnership continues in the same legal form, but the partnership must make new elections for 

various accounting methods, depreciation lives, and other purposes. 

Provision: Under the provision, the technical termination rule would be repealed. Thus, the 

partnership would be treated as continuing even if more than 50 percent of the total capital and 

profits interests of the partnership are sold or exchanged, and new elections would not be 

required or permitted. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.5 billion over 

2014-2023.

Sec. 3620. Publicly traded partnership exception restricted to mining and natural 

resources partnerships. 

Current law: Under current law, a publicly traded partnership is a partnership the interests in 

which are traded on an established securities market or are readily tradable on a secondary 
Prepared by Ways and Means Committee Majority Tax Staff 120 

market. A publicly traded partnership generally is treated as a C corporation for Federal tax 

purposes. An exception from such treatment applies to a publicly traded partnership (other than 

a regulated investment company, management company or unit investment trust) if 90 percent or 

more of the partnership’s gross income is qualifying income. Qualifying income includes: 

interest, dividends, capital gains, and rents from real property; income and gains from certain 

activities relating to minerals or natural resources (e.g., mining, production, refining, and 

transporting); and income and gains from certain commodities and derivatives. 

Provision: Under the provision, the special exceptions for publicly traded partnerships would be 

repealed other than for partnerships with 90 percent of their income from activities relating to 

mining and natural resources (e.g., mining, production, refining, and transporting). Thus, 

publicly traded partnerships would generally be treated as C corporations. The provision would 

be effective for tax years beginning after 2016. 

JCT estimate: According to JCT, the provision would increase revenues by $4.3 billion over 

2014-2023.

Sec. 3621. Ordinary income treatment in the case of partnership interests held in 

connection with performance of services. 

Current law: Under current law, a partner holding a partnership interest includes in income his 

distributive share of partnership income and gain (whether or not actually distributed). The 

character of partnership items passes through to the partners as if the items were realized directly 

by the partners. A partner’s basis in the partnership interest is increased by any amount of gain 

included in the partner’s income and is decreased by any losses. Money distributed to the 

partner by the partnership is taxed to the extent the amount exceeds the partner’s basis in the 

partnership interest. Similarly, when a partner sells his partnership interest, gain generally is 

recognized to the extent the amount received exceeds the partner’s basis in the partnership 

interest. The extent to which such gain is capital in character depends on the holding period and 

special partnership rules that recharacterize capital gains as ordinary income in certain cases. 

It is common for partnerships to be used for investment purposes. In particular, private equity 

funds are organized as partnerships. In a typical private equity fund, the general partner 

contributes a small amount of capital and manages the assets, typically stock of companies, in 

exchange for a profits interest (or “carried interest”) in the partnership (generally a 20-percent 

profits interest). Limited partners provide the additional capital needed to acquire assets. In 

addition, the general partner is paid regular fees for managing the assets, which generally 

consists of improving the operations, governance, capital structure and strategic position of 

companies. In general, gain from the sale of stock of the companies owned by the fund results in 

capital gain. Thus, the general partner that manages the partnership will receive a distribution of 

capital gain based on his profits interest when the partnership sells the stock of any company 

owned by the partnership. 

Provision: Under the provision, certain partnership interests held in connection with the 

performance of services would be subject to a rule that characterizes a portion of any capital 
Prepared by Ways and Means Committee Majority Tax Staff 121 

gains as ordinary income. This rule would apply to partnership distributions and dispositions of 

partnership interests. An applicable partnership interest would include any interest transferred, 

directly or indirectly, to a partner in connection with the performance of services by the partner, 

provided that the partnership is engaged in a trade or business conducted on a regular, continuous 

and substantial basis consisting of: (1) raising or returning capital, (2) identifying, investing in, 

or disposing of other trades or businesses, and (3) developing such trades or businesses. The 

provision would not apply to a partnership engaged in a real property trade or business. 

The recharacterization formula generally would treat the service partner’s applicable share of the 

invested capital of the partnership as generating ordinary income by multiplying that share by a 

specified rate of return (the Federal long-term rate plus 10 percentage points), intended to 

approximate the compensation earned by the service partner for managing the capital of the 

partnership. The recharacterization amount would be determined (but not realized) on an annual 

basis and tracked over time. To the extent a service partner contributes capital to the partnership, 

the result would be less capital gain being characterized as ordinary income. Any distribution or 

gain from the sale of a partnership interest (i.e., a realization event) then would be treated as 

ordinary to the extent of the partner’s recharacterization account balance for the tax year. 

Amounts in excess of the recharacterization account balance would be capital gain. The invested 

capital of a partnership is, as of any day, the total cumulative value, determined at the time of 

contribution, of all money and other property contributed to the partnership on or before such 

day. Partner loans to the partnership and indebtedness entitled to share in the equity of the 

partnership would qualify as invested capital. 

If a taxpayer, at any time during a tax year, holds directly or indirectly more than one applicable 

partnership interest in a single partnership interest, all interests in a partnership would be 

aggregated and treated as a single interest. 

The provision would be effective for tax years beginning after 2014. 

Considerations:

Current law generally taxes the profits derived from the development and sale of property 

in the ordinary course of a trade or business as ordinary income, not capital gain. In 

contrast, the inherent enterprise value of a successful business, which is recognized by 

the owners only when the business is sold or liquidated, generally is treated as capital 

gain. 

A partnership (e.g., private equity fund) that is in the business of raising capital, investing 

in other businesses, developing such businesses, and ultimately selling them, is in the 

trade or business of selling businesses. The businesses bought and sold by the 

partnership are its inventory. 

For the tax law to be applied consistently, the profits derived by such an investment 

partnership and paid to its managing partners through management fees and a profits 

interest in the partnership (generally referred to as a carried interest), should be treated as 

ordinary income. 

The provision is intended to provide such consistent treatment by treating a portion of the 

annual earnings of a qualifying partnership as ordinary income. To the extent a 
Prepared by Ways and Means Committee Majority Tax Staff 122 

managing partner invests capital in the partnership or extraordinary gains are realized, the 

earnings would still be taxed as capital gains. 

The provision is designed to clarify a murky area of the tax law to provide consistent 

outcomes for similarly situated taxpayers through rules that are administrable and avoid 

the unintended adverse consequences of previous proposals to address this issue. 

JCT estimate: According to JCT, the provision would increase revenues by $3.1 billion over 

2014-2023.

Sec. 3622. Partnership audits and adjustments. 

Current law: Under current law, three different regimes exist for auditing partnerships. For 

partnerships with 10 or fewer partners, the IRS generally applies the audit procedures for 

individual taxpayers, auditing the partnership and each partner separately. For most large 

partnerships with more than 10 partners, the IRS conducts a single administrative proceeding 

(under the so-called TEFRA rules, which were adopted as part of the Tax Equity and Fiscal 

Responsibility Act of 1982) to resolve audit issues regarding partnership items that are more 

appropriately determined at the partnership level than at the partner level. Under the TEFRA 

rules, once the audit is completed and the resulting adjustments are determined, the IRS must 

recalculate the tax liability of each partner in the partnership for the particular audit year. 

A third audit regime applies to partnerships with 100 or more partners that elect to be treated as 

Electing Large Partnerships (ELPs) for reporting and audit purposes. A distinguishing feature of 

the ELP audit rules is that unlike the TEFRA partnership audit rules, partnership adjustments 

generally flow through to the partners for the year in which the adjustment takes effect, rather 

than the audit year. As a result, the current-year partners’ share of current-year partnership items 

of income, gains, losses, deductions, or credits are adjusted to reflect partnership adjustments 

relating to a prior year audit that take effect in the current year. The adjustments generally do 

not affect prior-year returns of any partners (except in the case of changes to any partner’s 

distributive share). 

Provision: Under the provision, the current TEFRA and ELP rules would be repealed, and the 

partnership audit rules would be streamlined into a single set of rules for auditing partnerships 

and their partners at the partnership level. Similar to the current TEFRA rule excluding 

partnerships with fewer than 10 partners, the provision would permit smaller partnerships with 

100 or fewer partners (other than partners that generally are passthrough entities themselves) to 

opt out of the new rules, in which case the partnership and partners would be audited under the 

general rules applicable to individual taxpayers. 

Under the streamlined audit approach, the IRS would examine the partnership’s items of income, 

gains, losses, deductions, credits and partners’ distributive shares for a particular year of the 

partnership (the “reviewed year”). Any adjustments would be taken into account by the 

partnership (not the individual partners) in the year that the audit or any judicial review is 

completed (the “adjustment year”). Partnerships would have the option of demonstrating that the 

adjustment would be lower if the adjustment included partner-level information from the 
Prepared by Ways and Means Committee Majority Tax Staff 123 

reviewed year rather than imputed amounts based solely on the partnership’s information in such 

year. A partnership would also have the option of initiating an adjustment for a reviewed year, 

such as when it believes additional payment is due, with the adjustment taken into account in the 

adjustment year. In cases in which the partnership believes a refund is due, the partnership 

would continue to file an amended return and provided amended information returns to each 

partner. The provision would be effective for partnership tax years ending after 2014, with 

partnerships permitted to elect to apply the new rules for any partnership tax year beginning after 

the date of enactment. 

JCT estimate: According to JCT, the provision would increase revenues by $13.4 billion over 

2014-2023.

Part 3 – REITs and RICs 

Considerations for Subtitle G, Part 3:

Since 1960, real estate investment trusts (REITs) have provided a tax-efficient vehicle for 

average investors to acquire diversified and passive interests in real estate. 

Recently, several companies that operate as taxable C corporations have explored 

converting into REITs for the purpose of avoiding corporate income tax. 

The REIT rules were not intended to facilitate erosion of the corporate tax base by 

allowing operating companies to convert from taxable C corporations into REITs. 

Some of these provisions would discourage erosion of the corporate tax base by making it 

more difficult for operating companies to convert into REITs, and by limiting REITeligible assets to those assets that are more closely related to real estate. 

At the same time, other provisions would improve the REIT rules as they apply to 

traditional REITs, making the REIT structure a more attractive investment vehicle. 

Sec. 3631. Prevention of tax-free spinoffs involving REITs.

Current law: Under current law, a corporation is permitted to distribute (or spin off) to 

shareholders the stock of a controlled corporation on a tax-free basis if the transaction satisfies 

certain requirements. One such requirement is that both the distributing corporation and the 

controlled corporation must be engaged immediately after the distribution in the active conduct 

of a trade or business that has been conducted for at least five years. In 2001, the IRS ruled that 

a REIT could satisfy the active trade or business requirement for tax-free spin-off transactions, 

even though gain on the sale of property that is stock in trade of a REIT, or property that is 

includible in inventory of a REIT, does not satisfy the REIT income tests. 

Provision: Under the provision, the 2001 IRS ruling would be overturned, so that REITs could 

not satisfy the active trade or business requirement for tax-free spin-off transactions. In addition, 

neither a distributing corporation nor a controlled corporation would be permitted to elect to be 

treated as a REIT for ten years following a tax-free spin-off transaction. The provision generally 

would be effective for distributions after February 26, 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 124 

JCT estimate: According to JCT, the provision, along with section 3647 of the discussion draft, 

would increase revenues by $5.9 billion over 2014-2023. 

Sec. 3632. Extension of period for prevention of REIT election following revocation or 

termination. 

Current law: Under current law, a taxpayer generally may not elect to be treated as a REIT 

within five years after the termination or revocation of a prior REIT election. 

Provision: Under the provision, the five-year waiting period for electing to be treated as a REIT 

following the termination or revocation of a prior REIT election would be extended to ten years. 

The provision would be effective for terminations and revocations after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 3633. Certain short-life property not treated as real property for purposes of REIT 

provisions. 

Current law: Under current law, a REIT must derive at least 95 percent of its income from 

certain specified real-estate-related and other investment income, and 75 percent of its income 

from such specified real-estate-related investment income. Gains from the sale or disposition of 

real property satisfy the 95-percent and 75-percent REIT income tests. In addition, at least 75 

percent of the assets of a REIT must be comprised of real estate assets, cash and cash items, and 

government securities. The term “real estate assets” is defined to include real property and 

interests in real property. 

Provision: Under the provision, the term “real property” would not include tangible property 

with a class life of less than 27.5 years (as defined under the depreciation rules) for purposes of 

the REIT income and asset tests. The provision would be effective for tax years beginning after 

2016.

JCT estimate: According to JCT, the provision would increase revenues by $0.6 billion over 

2014-2023.

Sec. 3634. Repeal of special rules for timber held by REITs. 

Current law: Under current law, the IRS has ruled that gains from the sale or disposition of real 

property that satisfy the REIT income tests (described above) include capital gains from the sale 

of standing timber. Such gains also include capital gains from the cutting and sale of timber 

during tax years that ended after May 22, 2008 and began on or before May 22, 2009. 
Prepared by Ways and Means Committee Majority Tax Staff 125 

In addition, certain gain from the sale of property held by a REIT in connection with the trade or 

business of producing timber qualifies under a safe harbor that protects such gain from being 

classified as prohibited transaction income that otherwise would be subject to a 100-percent 

prohibited transaction excise tax. The excise tax generally is imposed on REIT income derived 

from the sale of property that constitutes stock in trade, inventory, or property held by the REIT 

primarily for sale to customers in the ordinary course of the REIT’s trade or business. Certain 

aspects of the special safe harbor for timber property sales only apply to the first tax year that 

began after May 22, 2008 and before May 22, 2009. 

For certain “timber REITs,” mineral royalty income from real property held in connection with 

the trade or business of producing timber is treated as satisfying the REIT income tests, and up to 

25 percent of the value of a timber REIT’s assets may consist of stock in a taxable REIT 

subsidiary. (This special limitation was enacted at a time when the general limitation on the 

value of such stock was 20 percent, which later was also increased to 25 percent for all REITs.) 

These special rules for timber REITs apply to the first tax year that began after May 22, 2008 

and before May 22, 2009. 

Provision: Under the provision, the term “real property” for purposes of the REIT rules would 

not include timber, consistent with the repeal of capital gains treatment for sales of standing and 

cut timber elsewhere in the discussion draft. In addition, the other temporary special rules for 

timber sales and timber REITs that have expired would be repealed. The provision would be 

effective for tax years beginning after 2016. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 3635. Limitation on fixed percentage rent and interest exceptions for REIT income 

tests. 

Current law: Under current law, rents from real property and interest generally satisfy the 95-

percent and 75-percent REIT income tests. In general, rents from real property and interest do 

not include amounts that are contingent on the income or profits of the tenant or debtor, but do 

include amounts that are based on a fixed percentage of receipts or sales of the tenant or debtor. 

Provision: Under the provision, rents from real property and interest would not include amounts 

that are based on a fixed percentage of receipts or sales to the extent that such amounts are 

received or accrued from a single tenant that is a C corporation and the amounts received or 

accrued from such tenant constitute more than 25 percent of the total amount received or accrued 

by the REIT that is based on a fixed percentage of receipts or sales. The provision would be 

effective for tax years ending after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 126 

Secs. 3636-3637. Repeal of preferential dividend rule for publicly offered REITs; 

Authority for alternative remedies to address certain REIT distribution failures. 

Current law: Under current law, REITs may deduct dividend distributions to their 

shareholders, but they are required to distribute annually as a dividend at least 90 percent of their 

income (other than net capital gain and certain other items). A preferential dividend does not 

qualify for the REIT dividend deduction and does not count toward satisfying the requirement 

that REITs distribute 90 percent of their income every year. A dividend is “preferential” unless 

it is distributed pro rata to all shareholders, with no preference to any share of stock over others 

within the same class of stock, and no preference to one class of stock over other classes of stock 

(except to the extent the class is entitled to a preference). 

Provisions: Under the provisions, the preferential dividend rule would be repealed for publicly 

offered REITs. In addition, the IRS would have authority to provide an appropriate remedy for a 

preferential dividend distribution by non-publicly offered REITs in lieu of treating the dividend 

as not qualifying for the REIT dividend deduction and not counting toward satisfying the 

requirement that REITs distribute 90 percent of their income every year. Such authority would 

apply if the preferential distribution is inadvertent or due to reasonable cause and not due to 

willful neglect. 

The provisions would be effective for distributions in tax years beginning after 2014. 

JCT estimate: According to JCT, the provisions would reduce revenues by less than $50 

million over 2014-2023.

Sec. 3638. Limitations on designation of dividends by REITs. 

Current law: Under current law, a REIT dividend is ordinary income to the REIT shareholder 

rather than a qualified dividend subject to a reduced rate of tax, unless the REIT designates such 

dividends as being attributable to income that is taxed to the REIT at regular corporate tax rates 

because it was not previously distributed, or to qualified dividends received by the REIT from 

other corporations. A REIT also may identify certain dividends as capital gain dividends to the 

extent of the REIT’s net capital gain, which would be subject to tax in the hands of the REIT 

shareholders at the capital gains rate. 

Provision: Under the provision, the aggregate amount of dividends that could be designated by 

a REIT as qualified dividends or capital gain dividends would not be permitted to exceed the 

dividends actually paid by the REIT. The provision would be effective for distributions in tax 

years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 127 

Sec. 3639. Non-REIT earnings and profits required to be distributed by REIT in cash.

Current law: Under current law, REITs that accumulated earnings and profits prior to 

becoming a REIT (e.g., an entity that operated as a taxable C corporation prior to making an 

election to become a REIT) are required to distribute such earnings and profits (e.g., in cash, 

property, or stock) by the end of the first tax year after electing to become a REIT. 

Provision: Under the provision, REITs would be required to distribute their pre-REIT earnings 

and profits in cash. The provision would be effective for distributions after February 26, 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3640. Debt instruments of publicly offered REITs and mortgages treated as real estate 

assets.

Current law: Under current law, a REIT must derive at least 95 percent of its income from 

certain specified real estate-related and other investment income, and 75 percent of its income 

from such specified real estate-related investment income. In addition, at least 75 percent of the 

assets of a REIT must be comprised of real estate assets, cash and cash items, and government 

securities. The term “real estate assets” is defined to include real property and interests in real

property. 

Provision: Under the provision, debt instruments issued by publicly offered REITs, as well as 

interests in mortgages on interests in real property, would be treated as real estate assets for 

purposes of the 75-percent asset test. Income from debt instruments issued by publicly offered 

REITs would be treated as qualified income for purposes of the 95-percent income test, but not 

the 75-percent income test (unless they already are treated as qualified income under current 

law). In addition, not more than 25 percent of the value of a REIT’s assets would be permitted to 

consist of such debt instruments. The provision would be effective for tax years beginning after 

2014.

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023.

Sec. 3641. Asset and income test clarification regarding ancillary personal property. 

Current law: Under current law, a REIT must derive at least 95 percent of its income from 

certain specified real estate-related and other investment income, and 75 percent of its income 

from such specified real estate-related investment income. In addition, at least 75 percent of the 

assets of a REIT must be comprised of real estate assets, cash and cash items, and government 

securities. The term “real estate assets” is defined to include real property and interests in real 

property. 
Prepared by Ways and Means Committee Majority Tax Staff 128 

Provision: Under the provision, certain ancillary personal property that is leased with real 

property would be treated as real property for purposes of the 75-percent asset test (similar to the 

current-law treatment of rents from such property for purposes of the REIT income tests). In 

addition, an obligation secured by a mortgage on such property would be treated as real property 

for purposes of the 75-percent income and asset tests, provided the fair market value of the 

personal property does not exceed 15 percent of the total fair market value of the combined real 

and personal property. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 3642. Hedging provisions. 

Current law: Under current law, a REIT must derive at least 95 percent of its income from 

certain specified real-estate-related and other investment income, and 75 percent of its income 

from such specified real-estate-related investment income. Income from certain REIT hedging 

transactions generally is not included as gross income under either the 95-percent or 75-percent 

income tests. 

Provision: Under the provision, the current-law treatment of REIT hedges would be extended to 

include income from hedges of previously acquired hedges that a REIT entered to manage risk 

associated with liabilities or property that have been extinguished or disposed. The provision 

would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 3643. Modification of REIT earnings and profits calculation to avoid duplicate 

taxation. 

Current law: Under current law, REIT shareholders who receive distributions are treated as 

having received a dividend to the extent of the REIT’s current and accumulated earnings and 

profits. Distributions in excess of earnings and profits are treated as a return of shareholders’ 

capital (reducing the shareholders’ basis on their REIT stock) and as capital gain of the 

shareholders to the extent the distributions exceed shareholders’ stock basis in the REIT. A 

REIT may deduct a distribution to shareholders from its taxable income, and can satisfy the 

requirement that REITs distribute as dividends at least 90 percent of their taxable income, only to 

the extent of distributions that are made out of its earnings and profits. REIT earnings and 

profits are computed in the same manner as earnings and profits of other corporations and can 

differ from taxable income. However, a special rule for REITs provides that current earnings 

and profits are not reduced by any amount that does not reduce REIT taxable income. 

Provision: Under the provision, current (but not accumulated) REIT earnings and profits for 

any tax year would not be reduced by any amount that is not allowable in computing taxable 
Prepared by Ways and Means Committee Majority Tax Staff 129 

income for the tax year and was not allowable in computing its taxable income for any prior tax 

year (e.g., certain amounts resulting from differences in the applicable depreciation rules). The 

provision would apply only for purposes of determining whether REIT shareholders are taxed as 

receiving a REIT dividend or as receiving a return of capital (or capital gain if a distribution 

exceeds a shareholder’s stock basis). The provision would be effective for tax years beginning 

after 2014. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023.

Sec. 3644. Reduction in percentage limitation on assets of REIT which may be taxable 

REIT subsidiaries. 

Current law: Under current law, a REIT generally may not own more than 10 percent of the 

vote or value of a single entity. However, there is an exception for ownership of taxable REIT 

subsidiaries (TRSs) that are taxed as corporations, provided the securities of one or more TRSs 

do not represent more than 25 percent of the value of the REIT’s assets. The 25-percent 

limitation was increased from 20 percent in legislation enacted in 2008. 

Provision: Under the provision, the 25-percent TRS stock limitation would be reduced back to 

20 percent. The provision would be effective for tax years beginning after 2016. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3645. Treatment of certain services provided by taxable REIT subsidiaries. 

Current law: Under current law, certain income from foreclosed real property satisfies the 95-

percent and 75-percent REIT income tests. In addition, REITs are subject to a 100-percent 

prohibited transactions tax that prohibits REITs from being dealers in real property and limits the 

number of real property sales that a REIT may conduct. 

A TRS generally may engage in any kind of business activity, except that it is not permitted to 

operate either a lodging or health care facility, although a TRS is permitted to rent certain 

lodging or health care facilities from its parent REIT and is permitted to hire an independent 

contractor to operate such facilities. A 100-percent excise tax applies to certain non-arm’s length 

transactions between a TRS and its parent REIT. 

Provision: Under the provision, TRSs would be permitted to operate foreclosed real property 

without causing income from the property to fail to satisfy the REIT income tests. In addition, 

TRSs would be permitted to develop and market REIT real property without subjecting the REIT 

to the 100-percent prohibited transactions tax. The provision also would expand the 100-percent 

excise tax on non-arm’s length transactions to include services provided by the TRS to its parent 

REIT. The provision would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 130 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023.

Sec. 3646. Study relating to taxable REIT subsidiaries. 

Current law: Under current law, rents from real property include amounts received or accrued 

from TRSs, provided both the REIT and the TRS satisfy certain requirements. A TRS generally 

is permitted to engage in any kind of business activity, but is subject to corporate tax on its 

taxable income. Legislation enacted in 1999 creating TRSs required the Treasury Department to 

conduct a study and submit a report to Congress regarding the number of TRSs in existence and 

the aggregate amount of taxes paid by TRSs. 

Provision: Under the provision, the Treasury Department would be required to conduct a 

biannual study, and submit a report to the Ways and Means Committee and Senate Finance 

Committee, regarding the number of TRSs in existence, the aggregate amount of taxes paid by 

TRSs, and the amount by which transactions between TRSs and their parent REITs reduce the 

taxable income of the TRSs. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023.

Sec. 3647. C corporation election to become, or transfer assets to, a RIC or REIT. 

Current law: Under current law, a REIT or regulated investment company (RIC) that 

previously operated as a C corporation is subject to an entity-level tax at the highest corporate 

tax rate on certain built-in gains of property that it held while operating as a C corporation. The 

tax applies to gain recognized within ten years from the date that the C corporation elected to be 

a REIT or RIC. For 2013, the period was reduced to five years. 

Provision: Under the provision, the current-law entity-level tax on built-in gains would be 

imposed at the time the C corporation elects to become a REIT or RIC or transfers assets to the 

REIT or RIC in a carryover basis transaction, without regard to when the gain otherwise would 

be recognized by the REIT or RIC. The provision would be effective for elections and transfers 

after February 26, 2014. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 3631 of the discussion draft.

Sec. 3648. Interests in RICs and REITs not excluded from definition of United States real 

property interests. 

Current law: Under current law, the Foreign Investment in Real Property Tax Act of 1980 

(FIRPTA) imposes tax on dispositions by foreign persons of interests in real property that is 
Prepared by Ways and Means Committee Majority Tax Staff 131 

located in the United States. Specifically, FIRPTA treats the gain or loss from such dispositions 

as effectively connected with a U.S. trade or business. In addition, FIRPTA imposes a 10-

percent withholding tax on the gross proceeds from such dispositions. An interest in U.S. real 

property includes an interest in a U.S. corporation the assets of which, at any time during the 

five-year period preceding the disposition, have consisted predominantly of U.S. real property. 

However, an interest in U.S. real property does not include an interest in a U.S. corporation that 

does not hold any interests in U.S. real property at the time of disposition and, during the fiveyear period preceding the disposition of an interest in the U.S. corporation by a foreign person, 

disposed of its interests in U.S. real property in transactions in which the full amount of any gain 

was recognized for tax purposes. 

Provision: Under the provision, the FIRPTA exception for interests in U.S. corporations that 

have disposed of all of their interests in U.S. real property in taxable transactions during the fiveyear period preceding disposition of an interest in the U.S. corporation by a foreign person would 

not apply to interests in REITs or RICs that disposed of their interests in U.S. real property with 

respect to which the REIT or RIC claimed a dividends paid deduction. The provision would be 

effective for dispositions after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 3649. Dividends derived from RICs and REITs ineligible for deduction for United 

States source portion of dividends from certain foreign corporations. 

Current law: Under current law, U.S. corporations generally may claim a deduction for 

dividends received from a 10-percent owned foreign corporation to the extent the dividend is 

attributable to either (1) income of the foreign subsidiary that is effectively connected with the 

conduct of a U.S. trade or business, or (2) dividends received by the foreign subsidiary from a 

U.S. corporation that is at least 80-percent owned by the foreign subsidiary. In addition, RICs 

and REITs may deduct dividend distributions to their shareholders, although shareholders that 

are U.S. corporations generally may not claim a deduction for such dividends. 

Provision: Under the provision, the deduction for dividends received from a foreign subsidiary 

would not apply to dividends that are attributable to dividends received by the foreign subsidiary 

from a RIC or REIT. 

The provision would be effective for distributions after February 26, 2014. 

JCT estimate: According to JCT, the provisions would increase revenues by $0.5 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 132 

Part 4 – Personal Holding Companies 

Sec. 3661. Exclusion of dividends from controlled foreign corporations from the definition 

of personal holding company income for purposes of the personal holding company rules. 

Current law: Under current law, a tax of 20 percent is imposed on the passive income of 

certain corporations (in addition to the regular corporate income tax) to prevent the retention of 

corporate earnings in avoidance of the individual income tax. Corporations are subject to the 

additional tax if five or fewer individuals own more than 50 percent of the corporation’s stock 

and more than 60 percent of the corporation’s income consists of certain types of passive income 

such as dividends, interest, and royalties. The tax is imposed on such passive income only to the 

extent the income has not been distributed as a dividend by the corporation. The passive income 

that is subject to the tax includes dividends that are received by the corporation from any foreign 

subsidiaries, even if such dividends are derived from an active trade or business of the foreign 

subsidiary. 

Provision: Under the provision, dividends received from a foreign subsidiary would not be 

subject to the additional 20-percent tax (although they would continue to be subject to the regular 

corporate income tax). The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Subtitle H – Taxation of Foreign Persons 

Sec. 3701. Prevention of avoidance of tax through reinsurance with non-taxed affiliates. 

Current law: Under current law, insurance companies generally may deduct premiums paid for 

reinsurance. If the reinsurance transaction results in a transfer of reserves and reserve assets to 

the reinsurer, potential tax liability for earnings on those assets is generally shifted to the 

reinsurer as well. While insurance income of a foreign subsidiary of a U.S. insurance company 

generally is subject to current U.S. taxation (absent the temporary exception for active financing 

income), insurance income of a foreign-owned foreign company that is not engaged in a U.S. 

trade or business generally is not subject to U.S. income tax. Instead, insurance and reinsurance 

policies issued by foreign insurers and reinsurers with respect to U.S. risks generally are subject 

to an excise tax, unless waived by treaty. In the case of reinsurance policies, this excise tax is 

equal to 1 percent of the premium paid. 

Provision: Under the provision, U.S. insurance companies would not be permitted to deduct 

reinsurance premiums paid to a related company that is not subject to U.S. taxation on the 

premiums, unless the related company elects to treat the premium income as effectively 

connected to a U.S. trade or business (and thus subject to U.S. tax). However, if the taxpayer 

demonstrates to the IRS that a foreign jurisdiction taxes the reinsurance premiums at a rate as 

high as or higher than the U.S. corporate rate, the deduction for the reinsurance premiums would 

be allowed. Additionally, to match income and deductions, any income from reinsurance 
Prepared by Ways and Means Committee Majority Tax Staff 133 

recovered by the U.S. insurance company, as well as any ceding commissions received in 

connection with a premium deduction that has been disallowed, would not be subject to U.S. tax. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $8.7 billion over 

2014-2023.

Sec. 3702. Taxation of passenger cruise gross income of foreign corporations and 

nonresident alien individuals. 

Current law: Under current law, a foreign individual or corporation generally is subject to U.S. 

tax on income that is effectively connected with the conduct of a U.S. trade or business. 

However, income derived by a foreign individual or corporation from the international operation 

of a ship is exempt from U.S. tax if the country in which the individual or corporation is a 

resident grants an equivalent exemption to U.S. taxpayers. Otherwise, a 4-percent U.S. tax is 

imposed on U.S.-source gross income from regularly scheduled shipping if the foreign individual 

or corporation has a fixed place of business in the United States that is involved in earning such 

income.

Provision: Under the provision, the income of foreign taxpayers that is derived from the 

operation of passenger cruise ships within U.S. territorial waters would be subject to U.S. tax, 

without regard to whether the country in which the taxpayer is a resident grants an equivalent 

exemption to U.S. taxpayers. In addition, the 4-percent U.S. tax on U.S.-source shipping income 

would apply without regard to whether the shipping is regularly scheduled or the foreign 

individual or corporation has a fixed place of business in the United States. The provision would 

be effective for tax years beginning after 2014. 

Considerations:

Over 70 percent of travelers on passenger cruise ships are from the United States, and 

cruise line companies rely heavily on taxpayer-funded U.S. maritime infrastructure and 

Coast Guard resources during both normal operations and in the event of emergencies. 

By flagging their ships in other countries, however, these companies pay little or no U.S. 

Federal income tax under a long-standing exemption that originally was intended to apply 

to the transport of cargo and passengers between the United States and other countries. 

According to the U.S. Department of Transportation Maritime Administration, the overall 

utilization rate for passenger cruise vessels in 2011 exceeded 100 percent, which is 

primarily a function of cruise lines setting fares to fill ships, so it is unlikely that cruise 

ship passengers would be affected by this provision through price increases.

JCT estimate: According to JCT, the provision would increase revenues by $0.9 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 134 

Sec. 3703. Restriction on insurance business exception to passive foreign investment 

company rules. 

Current law: Under current law, U.S. shareholders of a passive foreign investment company 

(PFIC) are taxed currently on the PFIC’s earnings. A PFIC is defined as any foreign corporation 

(1) 75 percent or more of the gross income of which is passive, and (2) at least 50 percent of the 

assets of which produce passive income. Among other exceptions, passive income does not 

include any income that is derived in the active conduct of an insurance business if the PFIC is 

predominantly engaged in an insurance business and would be taxed as an insurance company 

were it a U.S. corporation. 

Provision: Under the provision, the PFIC exception for insurance companies would be amended 

to apply only if (1) the PFIC would be taxed as an insurance company were it a U.S. corporation, 

(2) more than 50 percent of the PFIC’s gross receipts for the tax year consist of premiums, and 

(3) loss and loss adjustment expenses, unearned premiums, and certain reserves constitute more 

than 35 percent of the PFIC’s total assets. The provision would be effective for tax years 

beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.4 billion over 

2014-2023.

Sec. 3704. Modification of limitation on earnings stripping. 

Current law: Under current law, a U.S. corporation generally may deduct interest payments, 

including payments to a related party. However, if the taxpayer’s debt-to-equity ratio exceeds 

1.5 to 1, interest payments to certain related parties that are not subject to U.S. tax (e.g., foreign 

corporations) are disallowed to the extent the taxpayer has “excess interest expense,” – i.e., net 

interest expense (interest expense less interest income) in excess of 50 percent of the taxpayer’s 

adjusted taxable income (defined as taxable income without regard to deductions for net interest 

expense, net operating losses, certain cost recovery, and domestic production activities). Any 

disallowed interest deductions may be carried forward indefinitely, while any “excess limitation” 

(the excess of 50 percent of the corporation’s adjusted taxable income over the corporation’s net 

interest expense) may be carried forward three years. 

Provision: Under the provision, the threshold for excess interest expense would be reduced to 

40 percent of adjusted taxable income. In addition, corporations would no longer be permitted to 

carry forward any excess limitation. The provision would be effective for tax years beginning 

after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $2.9 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 135 

Sec. 3705. Limitation on treaty benefits for certain deductible payments.

Current law: Under current law, certain payments of fixed or determinable, annual or 

periodical (FDAP) income – such as interest, dividends, rents, and annuities – to foreign 

recipients are subject to a statutory 30-percent withholding tax. Income tax treaties between the 

United States and other countries, however, often reduce or eliminate this withholding tax for 

payments from one treaty country to residents of the other treaty country. 

Provision: Under the provision, if a payment of FDAP income is deductible in the United States 

and the payment is made by an entity that is controlled by a foreign parent to another entity in a 

tax treaty jurisdiction that is controlled by the same foreign parent, then the statutory 30-percent 

withholding tax on such income would not be reduced by any treaty unless the withholding tax 

would be reduced by a treaty if the payment were made directly to the foreign parent. The 

provision would be effective for payments made after the date of enactment. 

JCT estimate: According to JCT, the provision would increase revenues by $6.9 billion over 

2014-2023.

Subtitle I – Provisions Related to Compensation 

Part 1 – Executive Compensation 

Sec. 3801. Nonqualified deferred compensation. 

Current law: Under current law, compensation generally is taxable to an employee and 

deductible by an employer in the year earned, with two significant exceptions. First, for 

compensation provided as part of a qualified defined benefit or defined contribution pension 

plan, the employee does not take such compensation into income until the year in which a 

distribution from the plan occurs, while the employer generally may take the deduction in the 

year the compensation is earned. Second, for non-qualified deferred compensation, the 

employee does not take such compensation into income until the year received, but the 

employer’s deduction is postponed until that time. The employee generally must take nonqualified deferred compensation into income, however, if the compensation is put into a trust 

protected from the employer’s creditors in bankruptcy as soon as there is no substantial risk of 

forfeiture with regard to the compensation. In addition, if the employer is located in a 

jurisdiction in which the employer is not effectively subject to income tax (i.e., certain foreign 

jurisdictions), the compensation is immediately taxable as soon as it is not subject to a substantial 

risk of forfeiture. Other rules apply to deferred compensation paid by a State or local 

government or tax-exempt organization, in which case an employee may defer tax so long as the 

deferred compensation is less than the limit on employee contributions for 401(k) plans (i.e., 

$17,500 for 2014). 

Provision: Under the provision, an employee would be taxed on compensation as soon as there 

is no substantial risk of forfeiture with regard to that compensation (i.e., receipt of the 

compensation is not subject to future performance of substantial services). The provision would 
Prepared by Ways and Means Committee Majority Tax Staff 136 

be effective for amounts attributable to services performed after 2014. The current-law rules 

would continue to apply to existing non-qualified deferred compensation arrangements until the 

last tax year beginning before 2023, when such arrangements would become subject to the 

provision.

Considerations:

The provision repeals a current-law tax benefit for which only highly compensated 

employees are generally eligible. 

The provision creates simplicity in an area of taxation that is extremely complex under 

current law. 

JCT estimate: According to JCT, the provision would increase revenues by $9.2 billion over 

2014-2023.

Sec. 3802. Modification of limitation on excessive employee remuneration. 

Current law: Under current law, a corporation generally may deduct compensation expenses as 

an ordinary and necessary business expense. The deduction for compensation paid or accrued 

with respect to a covered employee of a publicly traded corporation, however, is limited to no 

more than $1 million per year. The deduction limitation applies to all remuneration paid to a 

covered employee for services, including cash and the cash value of all remuneration (including 

benefits) paid in a medium other than cash, subject to several significant exceptions: (1) 

commissions; (2) performance-based remuneration, including stock options; (3) payments to a 

tax-qualified retirement plan; and (4) amounts that are excludable from the executive’s gross 

income.

A covered employee is the chief executive officer (CEO) and the next four highest compensated 

officers based on the Securities and Exchange Commission (SEC) disclosure rules. Due to 

changes in the applicable SEC disclosure rules, IRS guidance has interpreted “covered 

employee” to mean the principal executive officer and the three highest compensated officers as 

of the close of the tax year. 

Provision: Under the provision, the exceptions to the $1 million deduction limitation for 

commissions and performance-based compensation would be repealed. The provision also 

would revise the definition of “covered employee” to include the CEO, the chief financial 

officer, and the three other highest paid employees, realigning the definition with current SEC 

disclosure rules. Under the modified definition, once an employee qualifies as a covered person, 

the deduction limitation would apply for Federal tax purposes to that person so long as the 

corporation pays remuneration to such person (or to any beneficiaries). The provision would be 

effective for tax years beginning after 2014. 

Considerations:

The significant exceptions to the current limit on the deductible executive compensation 

by publicly traded corporations have resulted in a shift away from cash compensation 

paid to senior executives in favor of stock options and other forms of performance pay. 
Prepared by Ways and Means Committee Majority Tax Staff 137 

This shift has led to perverse consequences as some executives focus on – and could, in 

rare cases, manipulate – quarterly results (off of which their compensation is determined), 

rather than on the long-term success of the company. 

JCT estimate: According to JCT, the provision would increase revenues by $12.1 billion over 

2014-2023.

Sec. 3803. Excise tax on excess tax-exempt organization executive compensation. 

Current law: Under current law, the deduction allowed to publicly traded C corporations for 

compensation paid with respect to chief executive officers and certain highly paid officers is 

limited to no more than $1 million per year. Similarly, current law limits the deductibility of 

certain severance-pay arrangements (“parachute payments”). No parallel limitation applies to 

tax-exempt organizations with respect to executive compensation and severance payments. 

Provision: Under the provision, a tax-exempt organization would be subject to a 25-percent 

excise tax on compensation in excess of $1 million paid to any of its five highest paid employees 

for the tax year. The excise tax would apply to all remuneration paid to a covered person for 

services, including cash and the cash value of all remuneration (including benefits) paid in a 

medium other than cash, except for payments to a tax-qualified retirement plan, and amounts that 

are excludable from the executive’s gross income. 

Once an employee qualifies as a covered person, the excise tax would apply to compensation in 

excess of $1 million paid to that person so long as the organization pays him remuneration. The 

excise tax also would apply to excess parachute payments paid by the organization to such 

individuals. Under the provision, an excess parachute payment generally would be a payment 

contingent on the employee’s separation from employment with an aggregate present value of 

three times the employee’s base compensation or more. The provision would be effective for tax 

years beginning after 2014. 

Considerations:

Current law generally has no limit on excessive compensation paid by a tax-exempt 

organization to its senior management other than the limitation on private inurement, the 

consequence of which can be revocation of the organization’s exemption.

Tax-exempt organizations enjoy a tax subsidy from the Federal government as a result of 

the requirement that they use their resources for specific purposes. Some may question 

whether excessive executive compensation diverts resources from those particular 

purposes. 

The provision is consistent with the limitation on the deductibility of executive 

compensation by taxable publicly traded corporations. 

Given that exemption from Federal income tax constitutes a significant benefit conferred 

upon tax-exempt organizations, the case for discouraging excess compensation paid out 

to such organizations’ executives may be even stronger than it is for publicly traded 

companies. 
Prepared by Ways and Means Committee Majority Tax Staff 138 

JCT estimate: According to JCT, the provision would increase revenues by $4.0 billion over 

2014-2023.

Sec. 3804. Denial of deduction as research expenditure for stock transferred pursuant to 

an incentive stock option. 

Current law: Under current law, an employer that transfers a share of stock to an individual 

pursuant to an incentive stock option plan or employee stock purchase plan may not claim a 

deduction as an ordinary and necessary business expense under Code section 162 for the value of 

such stock. Some taxpayers have taken the position that notwithstanding the foregoing 

prohibition, a deduction is permitted as wages paid with respect to research expenditures under 

Code section 174. 

Provision: Under the provision, the rules with respect to incentive stock option plans and 

employee stock purchase plans would be clarified to deny a deduction under any provision of the 

Code for a transfer of stock to an individual under such plans. The provision would be effective 

for stock transferred after February 26, 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Part 2 – Worker Classification 

Sec. 3811. Determination of worker classification. 

Current law: Under current law, the determination of whether a worker is an employee or an 

independent contractor is generally made under a common-law facts and circumstances test that 

seeks to determine whether the worker is subject to the control of the service recipient, not only 

as to the nature of the work performed, but also as to the circumstances under which it is 

performed. Various provisions under current law, however, specifically classify a worker as an 

employee or an independent contractor. For example, certain real estate agents and direct sellers 

are treated for all tax purposes as independent contractors, while full-time life insurance 

salesmen are treated as employees only for employment tax and employee benefit purposes. In 

some cases, salesmen are treated as employees just for employment tax purposes. Under a 

special safe harbor rule (section 530 of the Revenue Act of 1978), a service recipient may treat a 

worker as an independent contractor for employment tax purposes, even though the worker may 

be an employee, if the service recipient has a reasonable basis for treating the worker as an 

independent contractor and certain other requirements are met. 

Provision: Under the provision, workers qualifying for a safe harbor would not be treated as an 

employee and the service recipient would not be treated as the employer for any Federal tax 

purpose. The safe harbor also would apply to three-party arrangements in which a payor other 

than the service recipient pays the worker. To qualify for the safe harbor, the worker would have 

to satisfy certain sales or service criteria and the worker and service recipient would be required 
Prepared by Ways and Means Committee Majority Tax Staff 139 

to have a written agreement meeting specified requirements. In addition, the service recipient 

would withhold tax on the first $10,000 of payments made to the worker in a year at a rate of 5 

percent. Amounts withheld under the safe harbor would be creditable by the worker against 

quarterly estimated-tax requirements. 

In any case in which the IRS determines that the requirements of the safe harbor were not 

satisfied, the provision generally would limit the IRS to reclassification of the worker as an 

employee and service provider as an employer on a prospective basis. To avoid retroactive 

reclassification, the worker or service provider would have to have satisfied the written 

agreement and the reporting and withholding requirements of the safe harbor and have had a 

reasonable basis for claiming that the safe harbor applied. 

The provision would be effective for services performed and payments made after 2014. 

Considerations:

Under current law, the IRS uses a subjective 20-factor common law test to determine a 

worker’s status. As a result, businesses – especially small businesses – that hire, and 

individuals who want to work as, independent contractors, face considerable uncertainty 

as to whether the IRS will respect that classification. 

In cases where the IRS reclassifies an independent contractor as an employee, often years 

after the contractor and service recipient entered into their business arrangement, the 

result can be significant liability for back taxes, interest, and penalties. 

The provision would provide much-needed certainty by providing a safe harbor under 

which a worker would be classified as an independent contractor if certain objective 

criteria are met, and the IRS generally would be barred from retroactively reclassifying 

the independent contractor if a good faith effort were made to qualify for the safe harbor. 

JCT estimate: According to JCT, the provision would reduce revenues by $2.6 billion over 

2014-2023.

Subtitle J – Zones and Short-Term Regional Benefits 

Sec. 3821. Repeal of provisions relating to Empowerment Zones and Enterprise 

Communities. 

Current law: Under current law, the Secretary of Housing and Urban Development and the 

Secretary of Agriculture were authorized to designate certain urban and rural areas as Enterprise 

Communities and Empowerment Zones. Since 1996, Empowerment Zones have replaced 

Enterprise Communities. The tax benefits available to designated zones included: (1) a 20-

percent wage credit available to employers for the first $15,000 of qualified wages paid to an 

employee who was a resident and performs substantially all employment services within the 

Empowerment Zone; (2) expanded tax-exempt financing by State and local governments for 

certain zone facilities as well as zone academy bonds for certain public schools located in an 

Empowerment Zone; and (3) deferred recognition of gain on the sale of qualified Empowerment 

Zone assets held for more than one year and replaced within 60 days by another qualified asset in 
Prepared by Ways and Means Committee Majority Tax Staff 140 

the same zone. The Enterprise Community designations generally expired at the end of 2004. 

The Empowerment Zones designation expired after 2013. 

Provision: Under the provision, Enterprise Communities and Empowerment Zones and the 

associated special tax benefits would be repealed. The provision generally would be effective on 

the date of enactment, except for sales of qualified Empowerment Zone assets before the date of 

enactment, and bonds issued before 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023.

Sec. 3822. Repeal of DC Zone provisions. 

Current law: Under current law, certain economically depressed census tracts within the 

District of Columbia were designated as the District of Columbia Enterprise Zone (DC Zone). 

Businesses and individual residents within the DC Zone were eligible for special tax incentives 

generally through the end of 2011. The tax benefits included: (1) a zero-percent capital gains 

rate with respect to the sale of certain qualified DC Zone assets, provided that the property was 

held for more than five years; and (2) expanded tax-exempt bond financing for certain zone 

facilities as well as zone academy bonds for certain public schools located in the zone. 

Provision: Under the provision, the DC Zone and the associated special tax incentives would be 

repealed. The provision generally would be effective on the date of enactment, except for 

qualifying capital assets and residences acquired, and bonds issued, before 2012. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3823. Repeal of provisions relating to renewal communities. 

Current law: Under current law, the Community Renewal Tax Relief Act of 2000 authorized 

the designation of 40 “Renewal Communities” within which special tax incentives were 

available generally through the end of 2009. The tax benefits included: (1) up to $12 million to 

be allocated by a State to each Renewal Community for commercial revitalization expenditures 

(i.e., the cost of a new building, or the cost of substantially rehabilitating an existing building, 

used for commercial purposes and located in a Renewal Community), for which the taxpayer 

may elect either to deduct one-half of the commercial revitalization expenditures for the tax year 

the building is placed in service or amortize all the expenditures ratably over a 120-month 

period; (2) a zero-percent capital gains rate with respect to gain from the sale of certain Renewal 

Community assets for gains attributable to the period between 2002 and 2014 (inclusive), 

provided that the property was held for more than five years; and (3) access to zone academy 

bonds for certain public schools located in an Empowerment Zone. 

Provision: Under the provision, the Renewal Communities and the associated special tax 

incentives would be repealed. The provision generally would be effective on the date of 
Prepared by Ways and Means Committee Majority Tax Staff 141 

enactment, except for qualifying assets and property acquired and placed in service, and wages 

paid or incurred, before 2010. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 3824. Repeal of various short-term regional benefits. 

Current law: Under current law, special tax benefits applied to certain designated areas for 

recovery from specific disasters. In 2002, the New York Liberty Zone was designated to assist 

with the recovery from the terrorist attacks on September 11, 2001. The tax benefits for the 

Liberty Zone included: (1) additional 30-percent first-year depreciation for qualified Liberty 

Zone property placed in service before 2006 (2009 for certain real property); (2) enhanced taxexempt bond financing for New York Liberty Bonds issued before 2014; and (3) five-year 

replacement period for compulsory or involuntarily converted Liberty Zone assets as a result of 

the terrorist attacks. 

In 2005, the Gulf Opportunity Zone (GO Zone) was designated to provide relief for areas 

damaged by Hurricanes Katrina, Rita, and Wilma. The primary tax benefits for these areas 

included: (1) enhanced tax-exempt bond financing for Gulf Opportunity Zone Bonds issued 

before 2012; (2) five-year carryback of certain losses resulting from GO Zone damages; (3) 

increased rehabilitation credit for qualifying expenditures before 2012; (4) special education tax 

benefits for individuals attending educational institutions in the GO Zone in 2005 and 2006; and 

(5) certain housing tax benefits for residents of the GO Zone in 2005 and 2006. 

Provision: Under the provision, the Liberty Zone and GO Zone designations and the associated 

special tax benefits would be repealed. The provision generally would be effective on the date of 

enactment or, if earlier, the date on which the particular tax benefit expires or the date by which 

the bonds must be issued under current law. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 142 

Title IV – Participation Exemption System for the Taxation of 

Foreign Income 

Subtitle A – Establishment of Exemption System 

Sec. 4001. Deduction for dividends received by domestic corporations from certain foreign 

corporations.

Current law: Under current law, U.S. citizens, resident individuals, and domestic corporations 

generally are taxed on all income, whether earned in the United States or abroad. Foreign 

income earned by a foreign subsidiary of a U.S. corporation generally is not subject to U.S. tax 

until the income is distributed as a dividend to the U.S. corporation. To mitigate the double 

taxation on earnings of the foreign corporation, the United States allows a credit for foreign 

income taxes paid. The foreign tax credit generally is available to offset, in whole or in part, the 

U.S. tax owed on foreign income. When foreign tax credits are insufficient to offset the U.S. tax 

liability on the repatriated earnings, the additional U.S. tax the U.S. corporation must pay is 

referred to as the “U.S. residual tax.” A U.S. taxpayer may elect to deduct foreign income taxes 

paid rather than claim the credit. 

Provision: Under the provision, the current-law system of taxing U.S. corporations on the 

foreign earnings of their foreign subsidiaries when these earnings are distributed would be 

replaced with a dividend-exemption system. Under the exemption system, 95 percent of 

dividends paid by a foreign corporation to a U.S. corporate shareholder that owns 10 percent or 

more of the foreign corporation would be exempt from U.S. taxation. No foreign tax credit or 

deduction would be allowed for any foreign taxes (including withholding taxes) paid or accrued 

with respect to any exempt dividend. The provision would be effective for tax years of foreign 

corporations beginning after 2014, and for tax years of U.S. shareholders in which or with which 

such tax years of foreign subsidiaries end. 

Considerations:

The provision would allow U.S. companies to compete on a more level playing field 

against foreign multinationals when selling products and services abroad. 

The provision would eliminate the “lock-out” effect that results from the U.S. residual tax 

under current law, which discourages U.S. companies from bringing their foreign 

earnings back into the United States. 

JCT estimate: According to JCT, the provision would reduce revenues by $212.0 billion over 

2014-2023.

Sec. 4002. Limitation on losses with respect to specified 10-percent owned foreign 

corporations.

Current law: Under current law, any gain that is recognized by a U.S. parent corporation on the 

sale or exchange of its stock in a foreign subsidiary generally is treated as a dividend distribution 
Prepared by Ways and Means Committee Majority Tax Staff 143 

by the foreign subsidiary to its U.S. parent to the extent of earnings and profits (E&P) that have 

been accumulated by the foreign subsidiary while it had been owned by the U.S. parent. 

In some cases, U.S. companies may operate businesses in foreign countries directly through a 

branch rather than a separate foreign subsidiary. In these situations, U.S. companies pay U.S. 

taxes on the foreign earnings or deduct losses on a current basis, as if earned directly by the U.S. 

parent. 

Provisions: Under the provision, a U.S. parent would reduce the basis of its stock in a foreign 

subsidiary by the amount of any exempt dividends received by the U.S. parent from its foreign 

subsidiary. Such basis reductions would apply only for purposes of determining the amount of a 

loss (but not the amount of any gain) on any sale or exchange of the foreign subsidiary stock by 

its U.S. parent. The provision would be effective for dividends received in tax years beginning 

after 2014. 

In addition, if a U.S. corporation transfers substantially all of the assets of a foreign branch to a 

foreign subsidiary, the U.S. corporation would be required to include in income the amount of 

any post-2014 losses that previously were incurred by the branch to the extent the U.S. 

corporation receives exempt dividends from any of its foreign subsidiaries. The provision would 

be effective for transfers after 2014. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4001 of the discussion draft. 

Sec. 4003. Treatment of deferred foreign income upon transition to participation 

exemption system of taxation. 

Current law: Under current law, U.S. citizens, resident individuals, and domestic corporations 

generally are taxed on all income, whether earned in the United States or abroad. Foreign 

income earned by a foreign subsidiary that is owned by a U.S. corporation generally is not 

subject to U.S. tax until the income is distributed as a dividend to the U.S. corporation. To 

mitigate the double taxation on earnings of the foreign corporation, the United States allows a 

credit for foreign income taxes paid. The foreign tax credit generally is available to offset, in 

whole or in part, the U.S. tax owed on foreign income 

Provision: Under the provision, U.S. shareholders owning at least 10 percent of a foreign 

subsidiary would include in income for their last tax year beginning before 2015 their pro rata 

share of the post-1986 historical E&P of the foreign subsidiary to the extent such E&P has not 

been previously subject to U.S. tax. The E&P would be bifurcated into E&P retained in the form 

of cash, cash equivalents, or certain other short-term assets, and E&P that has been reinvested in 

the foreign subsidiary’s business (property, plant and equipment). The portion of the E&P that 

consists of cash or cash equivalents would be taxed at a special rate of 8.75 percent, while any 

remaining E&P would be taxed at a special rate of 3.5 percent. Foreign tax credits would be 

partially available to offset the U.S. tax. 
Prepared by Ways and Means Committee Majority Tax Staff 144 

At the election of the U.S. shareholder, the tax liability would be payable over a period of up to 

eight years, based on a schedule of 8 percent of the net tax liability in each of the first 5 years; 15 

percent in the sixth year; 20 percent in the seventh year and 25 percent in the eighth year. The 

tax revenues generated directly by this one-time tax on accumulated E&P would be deposited 

into the Highway Trust Fund (HTF) as the revenues are received from taxpayers. Consistent 

with the current allocation of fuel excise tax revenues between the Highway Account and the 

Mass Transit Account in the HTF, 80 percent of the revenues raised by this provision would be 

allocated to the Highway Account, and 20 percent of the revenues would be allocated to the 

Mass Transit Account. 

If the U.S. shareholder is an S corporation, the provision would not apply until the S corporation 

ceases to be an S corporation, substantially all of the assets of the S corporation are sold or 

liquidated, the S corporation ceases to exist or conduct business, or stock in the S corporation is 

transferred. 

The provision would be effective for tax years of foreign corporations beginning after 2014, and 

for tax years of U.S. shareholders in which or with which such tax years of foreign subsidiaries 

end.

Considerations:

The provision would provide $126.5 billion of revenue for the Highway Trust Fund to 

address the deep funding shortfall that currently exists for Federal transportation 

infrastructure projects, enough to eliminate the cumulative shortfall in the trust fund 

through 2021. 

The provision would eliminate the need for U.S. companies to separately track E&P that 

was accumulated by their foreign subsidiaries prior to adoption of the dividendexemption system, so that all distributions from foreign subsidiaries would be treated in 

the same manner under the dividend-exemption system. 

The provision would moderate the tax burden on illiquid accumulated E&P that has been 

reinvested in the foreign subsidiary’s business.

JCT estimate: According to JCT, the provision would increase revenues by $170.4 billion over 

2014-2023, $126.5 billion of which would be attributable directly to the one-time tax on 

accumulated E&P, with the remainder attributable to indirect revenue effects. 

Sec. 4004. Look-thru rule for related controlled foreign corporations made permanent. 

Current law: Under current law, a U.S. parent of a foreign subsidiary generally is subject to 

current U.S. tax on dividends, interest, royalties, rents, and other types of passive income earned 

by the foreign subsidiary, regardless of whether the foreign subsidiary distributes such income to 

the U.S. parent. However, for tax years of foreign subsidiaries beginning before 2014, and tax 

years of U.S. shareholders in which or with which such tax years of the foreign subsidiary end, a 

special “look-through” rule provided that passive income received by one foreign subsidiary 

from a related foreign subsidiary generally was not includible in the taxable income of the U.S. 
Prepared by Ways and Means Committee Majority Tax Staff 145 

parent, provided such income was not subject to current U.S. tax or effectively connected with a 

U.S. trade or business. 

Provision: Under the provision, the look-through rule would be made permanent. The 

provision would be effective for tax years of foreign corporations beginning after 2013, and for 

tax years of U.S. shareholders in which or with which such tax years of foreign subsidiaries end. 

JCT estimate: According to JCT, the provision would reduce revenues by $13.1 billion over 

2014-2023.

Subtitle B – Modifications Related to Foreign Tax Credit System 

Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 

credit on current year basis. 

Current law: Under current law, foreign income earned by a foreign subsidiary of a U.S. 

corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the 

U.S. corporation. To mitigate the double taxation on earnings of the foreign corporation, the 

United States allows a credit for foreign income taxes paid. The foreign tax credit generally is 

available to offset, in whole or in part, the U.S. tax owed on foreign-source income. 

Under certain circumstances, the U.S. parent corporation is subject to U.S. tax on certain foreign 

income of its foreign subsidiaries (“subpart F income”) even if the income is not repatriated. A 

U.S. parent corporation generally may claim a credit for foreign taxes paid on the subpart F 

income.

Provision: Under the provision, no foreign tax credit or deduction would be allowed for any 

taxes (including withholding taxes) paid or accrued with respect to any dividend to which the 

dividend exemption under section 4001 of the discussion draft would apply. A foreign tax credit 

would be allowed for any subpart F income that is included in the income of the U.S. shareholder 

on a current year basis, without regard to pools of foreign earnings kept abroad. The provision 

would be effective for tax years of foreign corporations beginning after 2014 and for tax years of 

U.S. shareholders in which or with which such tax years of foreign subsidiaries end. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4001 of the discussion draft. 

Sec. 4102. Foreign tax credit limitation applied by allocating only directly allocable 

deductions to foreign source income. 

Current law: Under current law, a portion of expenses incurred in the United States by a U.S. 

parent of a foreign subsidiary that are not directly attributable to income earned by the foreign 

subsidiary must be allocated against foreign-source income for purposes of calculating the U.S. 

parent’s foreign-source income. The allocation of these expenses to foreign-source income 
Prepared by Ways and Means Committee Majority Tax Staff 146 

reduces the amount of foreign tax credits a U.S. parent may use to reduce its U.S. tax on foreignsource income. Some of the expenses that are allocated include stewardship expenses, general 

and administrative expenses, and interest expenses. 

Provision: Under the provision, only expenses that are directly attributable to income earned by 

a foreign subsidiary would be allocated against foreign-source income for purposes of 

calculating the U.S. parent’s foreign-source income and the amount of foreign tax credits the 

U.S. parent may use to reduce its U.S. tax on foreign-source income. Directly allocable 

deductions include items such as salaries of sales personnel, supplies, and shipping expenses 

directly related to the production of foreign-source income. The provision would be effective for 

tax years of foreign corporations beginning after 2014, and for tax years of U.S. shareholders in 

which or with which such tax years of foreign subsidiaries end. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4001 of the discussion draft. 

Sec. 4103. Passive category income expanded to include other mobile income. 

Current law: Under current law, income earned by foreign subsidiaries is categorized as either 

active or passive income. Passive income generally includes (but is not limited to) dividends, 

rents, royalties and capital gains. Additionally, the foreign taxes paid on the income are 

separated into active and passive baskets. Only foreign taxes paid on passive income may be 

taken into account in determining the amount of foreign tax credits that may be claimed against 

U.S. tax on passive income. 

Provision: Under the provision, the use of foreign tax credits would be restricted to two baskets: 

mobile and active. The mobile basket would include certain related-party sales income, foreign 

intangible income, and current-law passive income. The active basket would include all other 

income. The provision would be effective for tax years of foreign corporations beginning after 

2014, and for tax years of U.S. shareholders in which or with which such tax years of foreign 

subsidiaries end. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4211 of the discussion draft. 

Sec. 4104. Source of income from sales of inventory determined solely on basis of 

production activities. 

Current law: Under current law, in determining the source of income for foreign tax credit 

purposes, up to 50 percent of the income from the sale of inventory property that is produced 

within the United States and sold outside the United States (or vice versa) may be treated as 

foreign-source income, even though the production activity takes place entirely within the United 

States.
Prepared by Ways and Means Committee Majority Tax Staff 147 

Provision: Under the provision, income from the sale of inventory property produced within 

and sold outside the United States (or vice versa) would be allocated and apportioned between 

sources within and outside the United States solely on the basis of the production activities with 

respect to the inventory. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.8 billion over 

2014-2023.

Subtitle C – Rules Related to Passive and Mobile Income 

Part 1 – Modification of Subpart F Provisions 

Sec. 4201. Subpart F income to only include low-taxed foreign income. 

Current law: Under current law, a U.S. parent of a foreign subsidiary is subject to current U.S. 

tax on certain income of the foreign subsidiary (“subpart F income”), regardless of whether or 

not the income is distributed to the U.S. parent. Subpart F income generally includes certain 

forms of passive and highly mobile income that are easily transferred to subsidiaries in low-tax 

countries. Examples of subpart F income include dividends, interest, rents, royalties, and certain 

related-party sales or services transactions. If, however, the subpart F income has been taxed at a 

rate that is at least 90 percent of the U.S. tax rate (i.e., 31.5 percent for C corporations), then the 

U.S. parent may elect to treat that income as non-subpart F income. 

Provision: Under the provision, the 90-percent threshold for treating foreign income as subpart 

F income would be increased to 100 percent (i.e., 25 percent for C corporations) for foreign 

personal holding company income. For foreign base company sales income, however, the 

threshold would be reduced to 50 percent of the U.S. rate (i.e., 12.5 percent for C corporations) 

and to 60 percent of the U.S. rate (i.e., 15 percent) for foreign base company intangible income. 

In addition, such treatment would no longer be elective. The provision would be effective for tax 

years of foreign corporations beginning after 2014, and for tax years of U.S. shareholders in 

which or with which such tax years of foreign subsidiaries end. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4211 of the discussion draft. 

Sec. 4202. Foreign base company sales income. 

Current law: Under current law, a U.S. parent of a foreign subsidiary is subject to current U.S. 

tax under subpart F on income earned by the foreign subsidiary from certain related-party sales 

transactions (“foreign base company sales income” or FBCSI), regardless of whether the foreign 

subsidiary distributes such income to the U.S. parent. In general, FBCSI is income earned by a 

foreign subsidiary from buying or selling personal property from or to, or on behalf of, related 

persons if the property is (1) manufactured, produced, grown or extracted outside of the country 
Prepared by Ways and Means Committee Majority Tax Staff 148 

in which the foreign subsidiary is organized, and (2) used, consumed, or disposed of outside of 

such country. 

Provision: Under the provision, FBCSI no longer would include income earned by a foreign 

subsidiary that is incorporated in a country that has a comprehensive income tax treaty with the 

United States, or to income that has been taxed at an effective tax rate of 12.5 percent or greater. 

The provision would be effective for tax years of foreign corporations beginning after 2014, and 

for tax years of U.S. shareholders in which or with which such tax years of foreign subsidiaries 

end.

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4211 of the discussion draft. 

Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income. 

Current law: Under current law, a U.S. parent of a foreign subsidiary is subject to current U.S. 

tax under subpart F on FBCSI and foreign income from issuing (or reinsuring) insurance or 

annuity contracts, regardless of whether the foreign subsidiary distributes such income to the 

U.S. parent. However, a de minimis rule states that if the gross amount of such income is less 

than the lesser of 5 percent of the foreign subsidiary’s gross income or $1 million, then the U.S. 

parent is not subject to current U.S. tax on any of the income. The $1 million threshold is not 

adjusted for inflation. 

Provision: Under the provision, the $1 million threshold would be adjusted for inflation. The 

provision would be effective for tax years of foreign corporations beginning after 2014 and for 

tax years of U.S. shareholders in which or with which such tax years of foreign subsidiaries end. 

JCT estimate: The revenue effect of the provision over 2014-2023 is included in the JCT 

estimate provided for section 4211 of the discussion draft. 

Sec. 4204. Active finance exception extended with limitation for low-taxed foreign income. 

Current law: Under current law, a U.S. parent of a foreign subsidiary generally is subject to 

current U.S. tax under subpart F on dividends, interest, royalties, rents, and other types of passive 

income (collectively “foreign personal holding company income”) earned by the foreign 

subsidiary, regardless of whether the foreign subsidiary distributes such income to the U.S. 

parent. However, for tax years of foreign subsidiaries beginning before 2014, and tax years of 

U.S. shareholders in which or with which such tax years of the foreign subsidiary end, there was 

a temporary exception for such income if it was derived in the active conduct of a banking, 

financing, or similar business, or in the conduct of an insurance business (“active financing 

income”).

Provision: Under the provision, the exception would be extended for five years for active 

financing income that is subject to a foreign effective tax rate of 12.5 percent or higher. Active 
Prepared by Ways and Means Committee Majority Tax Staff 149 

financing income that is subject to a lower foreign tax rate would not be exempt, but would be 

subject to a reduced U.S. tax rate of 12.5 percent, before the application of foreign tax credits. 

The provision would be effective for tax years of foreign corporations beginning after 2013 and 

before 2019, and for tax years of U.S. shareholders in which or with which such tax years of 

foreign subsidiaries end. 

JCT estimate: According to JCT, the provision would reduce revenues by $18.4 billion over 

2014-2023.

Sec. 4205. Repeal of inclusion based on withdrawal of previously excluded subpart F 

income from qualified investment. 

Current law: Foreign shipping income earned between 1976 and 1986 was not subject to 

current U.S. tax under subpart F if the income was reinvested in certain qualified shipping 

investments. Such income becomes subject to current U.S. tax in a subsequent year to the extent 

that there is a net decrease in qualified shipping investments during that subsequent year. 

Provision: Under the provision, the imposition of current U.S. tax on previously excluded 

foreign shipping income of a foreign subsidiary if there is a net decrease in qualified shipping 

investments would be repealed. The provision would be effective for tax years of foreign 

corporations beginning after 2014, and for tax years of U.S. shareholders in which or with which 

such tax years of foreign subsidiaries end. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Part 2 – Prevention of Base Erosion 

Sec. 4211. Foreign intangible income subject to taxation at reduced rate; intangible income 

treated as subpart F income. 

Current law: Under current law, a U.S. parent of a foreign subsidiary is subject to current U.S. 

tax on its pro rata share of the subsidiary’s subpart F income, regardless of whether the income is 

distributed to the U.S. parent. In addition, income earned by the U.S. parent directly for the use 

of its intangibles exploited abroad, usually in the form of royalties, is subject to U.S. tax upon 

receipt of the income. Under the transfer pricing rules, however, if a foreign subsidiary of the 

U.S. parent owns intangible property in a foreign jurisdiction, the U.S. parent generally may 

allocate substantial profits to the foreign subsidiary without violating the subpart F rules, thus 

deferring U.S. tax on those profits until they are distributed to the U.S. parent. 

Provision: Under the provision, a U.S. parent of a foreign subsidiary would be subject to 

current U.S. tax on a new category of subpart F income, “foreign base company intangible 

income” (FBCII). FBCII would equal the excess of the foreign subsidiary’s gross income over 
Prepared by Ways and Means Committee Majority Tax Staff 150 

10 percent of the foreign subsidiary’s adjusted basis in depreciable tangible property (excluding 

income and property that are related to commodities). 

The U.S. parent could claim a deduction equal to a percentage of the foreign subsidiary’s FBCII

that relates to property that is sold for use, consumption, or disposition outside the United States 

or to services that are provided outside the United States. The deduction also would be available 

to U.S. corporations that earn foreign intangible income directly (rather than through a foreign 

subsidiary). The deductible percentage of FBCII and foreign intangible income would be 55 

percent for tax years beginning in 2015, and would phase down (in conjunction with the phase-in 

of the 25-percent corporate rate) to 52 percent in 2016, 48 percent in 2017, 44 percent in 2018, 

and 40 percent for tax years beginning in 2019 or later. 

With regard to the treatment of FBCII as subject to current U.S. tax, the provision would be 

effective for tax years of foreign corporations beginning after 2014, and for tax years of U.S. 

shareholders in which or with which such tax years of foreign subsidiaries end. With regard to 

the deduction of a percentage of such income, the provision would be effective for tax years 

beginning after 2014. 

Considerations:

Under current law, the allocation of income by U.S. companies to intangible property that 

is located in low-tax or no-tax jurisdictions (through migration out of the United States or 

otherwise) is an acute source of erosion of the U.S. tax base. 

The adoption of a dividend exemption international tax system could, on its own and 

without appropriate safeguards, exacerbate this incentive by allowing profits that have 

been shifted to be repatriated with minimal U.S. tax consequences. 

The provision would remove tax incentives to locate intangible property in low-tax or notax jurisdictions by providing neutral tax treatment of income attributable to intangible 

property, regardless of whether such property is located within or outside the United 

States.

At the same time, the provision would provide a reduced U.S. tax rate on such income to 

the extent derived from foreign customers in recognition that it is difficult to identify 

precisely when the allocation of income to intangible property in foreign jurisdictions 

results in erosion of the U.S. tax base. 

The provision includes a significant refinement to the international tax reform discussion 

draft released by the Committee on October 26, 2011 by providing a simplified approach 

to calculating income that is subject to the provision, in effect exempting normal returns 

on investments in tangible property. 

JCT estimate: According to JCT, the provision, along with sections 4103, 4201, 4202, and 

4203 of the discussion draft, would increase revenues by $115.6 billion over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 151 

Sec. 4212. Denial of deduction for interest expense of United States shareholders which are 

members of worldwide affiliated groups with excess domestic indebtedness. 

Current law: Under current law, corporations generally may deduct all of their interest expense 

even if the debt was acquired to capitalize foreign subsidiaries. Expense allocation rules, 

however, may require the interest expense to be allocated against foreign source income, which 

may limit the amount of foreign tax credits the U.S. parent may utilize. 

Provision: Under the provision, the deductible net interest expense of a U.S. parent of one or 

more foreign subsidiaries would be reduced by the lesser of the extent to which (1) the 

indebtedness of the U.S. parent (including other members of the U.S. consolidated group) 

exceeds 110 percent of the combined indebtedness of the worldwide affiliated group (including 

both related domestic and related foreign entities), or (2) net interest expense exceeds 40 percent 

of the adjusted taxable income of the U.S. parent. Any disallowed interest expense could be 

carried forward to a subsequent tax year. The provision would be effective for tax years 

beginning after 2014. 

Considerations:

While reducing the corporate tax rate would reduce the incentive for U.S. companies to 

maintain excessive leverage, it is important to provide measures to discourage excessive 

leverage directly in conjunction with the adoption of a dividend-exemption system. 

The provision would prevent U.S. companies from generating excessive interest 

deductions in the United States on debt that is incurred to produce exempt foreign income 

in a dividend-exemption system. 

The provision recognizes standard non-tax business practices that involve parent 

corporations incurring debt to finance the acquisition or establishment of foreign 

subsidiaries by (1) allowing the U.S. group to have 10 percent more leverage than the 

worldwide group, and (2) providing an indefinite carryforward of disallowed interest 

expense. 

JCT estimate: According to JCT, the provision would increase revenues by $24.0 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 152 

Title V – Tax Exempt Entities 

Considerations for Title V: 

The Ways and Means Oversight Subcommittee, in numerous hearings in the 112th and 

113th Congresses, has explored a variety of issues involving tax-exempt entities and 

public charities. In particular, the Subcommittee has learned that public charities are 

engaging in more commercial activities than ever before and are using more complex 

organizational structures to do so. Many organizations, such as AARP, are now earning 

significant profits licensing their own names to for-profit businesses (which is not taxable 

to an exempt organization) to avoid engaging in an active trade or business themselves. 

In addition, the IRS issued a report detailing how colleges and universities were abusing 

the unrelated business income tax (UBIT) rules by using loss-generating business 

activities to shelter gain from profitable businesses. The discussion draft would modify 

the UBIT rules to address these and similar loopholes. 

Another issue that has arisen in testimony is the potential for non-compliance within the 

tax-exempt sector. The discussion draft would address these issues by clarifying that a 

tax-exempt organization should, in general, either be a private foundation or a public 

charity. This would encourage greater transparency while still preserving diversity and 

innovation in the tax-exempt sector. 

The net investment excise tax on private foundations has long been a source of confusion 

and frustration for taxpayers. Private foundations, both large and small, recommended to 

the Committee’s Tax Reform Working Group on Charitable/Exempt Organizations that 

the net investment tax be reduced to a flat 1 percent to ease compliance. The discussion 

draft would adopt this recommendation to ease the administrative burden on foundations 

and encourage more funding of charitable activities. 

Subtitle A – Unrelated Business Income Tax 

Sec. 5001. Clarification of unrelated business income tax treatment of entities treated as 

exempt from taxation under section 501(a). 

Current law: Under current law, income derived from a trade or business regularly carried on 

by an organization exempt from tax under Code section 501(a) (including pension plans) that is 

not substantially related to the performance of the organization’s tax-exempt functions is subject 

to the unrelated business income tax (UBIT). The highest corporate rate is applied to unrelated 

business income. A college or university that is an agency or instrumentality of a State 

government (or political subdivision) generally is subject to UBIT on any unrelated business 

taxable income. It is unclear, however, whether certain State and local entities (such as public 

pension plans) that are exempt under Code section 115(l) as government-sponsored entities as 

well as section 501(a) are subject to the UBIT rules. 

Provision: Under the provision, all entities exempt from tax under section 501(a), 

notwithstanding the entity’s exemption under any other provision of the Code, would be subject 

to the UBIT rules. The provision would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 153 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 5002. Name and logo royalties treated as unrelated business taxable income. 

Current law: Current law designates certain activities as per se unrelated trades or businesses 

for UBIT purposes, including advertising activities and debt management plan services. 

Provision: Under the provision, any sale or licensing by a tax-exempt organization of its name 

or logo (including any related trademark or copyright) would be treated as a per se unrelated 

trade or business, and royalties paid with respect to such licenses would be subject to UBIT. The 

provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.8 billion over 

2014-2023.

Sec. 5003. Unrelated business taxable income separately computed for each trade or 

business activity. 

Current law: Under current law, income subject to UBIT is based on the gross income of any 

unrelated trade or business less the deductions directly connected with carrying on such activity. 

In cases where a tax-exempt organization conducts two or more unrelated trades or businesses, 

the unrelated business taxable income is the aggregate gross income of all the unrelated trades or 

businesses less the aggregate deductions allowed with respect to all such unrelated trades or 

businesses. As a result, losses generated by one unrelated trade or business may be used to offset 

income derived from another unrelated trade or business. 

Provision: Under the provision, a tax-exempt organization would be required to calculate 

separately the net unrelated taxable income of each unrelated trade or business. In addition, any 

loss derived from an unrelated trade or business could only be used to offset income from that 

unrelated trade or business, with any unused loss subject to the general rules for net operating 

losses – i.e., such losses may be carried back two years and carried forward 20 years. Thus, 

losses generated by one unrelated trade or business could not be used to offset income derived 

from another unrelated trade or business. The provision would generally be effective for tax 

years beginning after 2014. However, NOLs generated prior to 2015 may be carried forward to 

offset income from any unrelated trade or business, but NOLs generated after 2014 may only be 

carried back to offset income with respect to the unrelated trade or business from which the net 

operating loss arose. 

JCT estimate: According to JCT, the provision would increase revenues by $3.2 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 154 

Sec. 5004. Exclusion of research income limited to publicly available research. 

Current law: Under current law, income derived from a research trade or business is exempt 

from UBIT in the following cases: (1) research performed for the United States (including 

agencies and instrumentalities) or any State (or political subdivision); (2) research performed by 

a college, university or hospital for any person; and (3) research performed by an organization 

operated primarily for the purposes of carrying on fundamental research the results of which are 

freely available to the general public. 

Provision: Under the provision, the exception from the UBIT rules for fundamental research 

would be limited to income derived from the research made available to the public. Thus, 

income from research not made publicly available would be treated as unrelated trade or business 

income and subject to the UBIT rules. The provision would be effective for tax years beginning 

after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.7 billion over 

2014-2023.

Sec. 5005. Parity of charitable contribution limitation between trusts and corporations. 

Current law: Under current law, for purposes of determining unrelated business taxable income 

subject to UBIT, an organization may deduct contributions made to other organizations. If the 

contributing tax-exempt entity is organized as a corporation, the charitable contribution 

deduction is limited to 10 percent of the entity’s unrelated business taxable income – the same 

limitation that applies to corporations. But, if the contributing tax-exempt entity is organized as 

a trust, the deduction is limited to 50 percent of the entity’s unrelated business taxable income –

the same limitation that applies to individuals.

Provision: Under the provision, charitable contributions for purposes of determining UBIT 

would be limited to 10 percent of the unrelated business taxable income whether the contributing 

entity is organized as a corporation or a trust. The provision would be effective for tax years 

beginning after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 5006. Increased specific deduction. 

Current law: Under current law, UBIT is based on the gross income of any unrelated trade or 

business less the deductions directly connected with carrying on such activity. However, all taxexempt organizations may claim a $1,000 deduction against gross income subject to UBIT. 

Provision: Under the provision, the deduction would be increased to $10,000. The provision 

would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 155 

JCT estimate: According to JCT, the provision would reduce revenues by $0.3 billion over 

2014-2023.

Sec. 5007. Repeal of exclusion of gain or loss from disposition of distressed property. 

Current law: Under current law, UBIT is based on the gross income of any unrelated trade or 

business, including gains or losses from the sale, exchange, or other disposition of inventory. An 

exception to the inclusion of such gains or losses applies to certain real property acquired by the 

tax-exempt organization from a bank or savings and loan association that held the property in 

receivership or conservatorship or as a result of a foreclosure. To qualify, the tax-exempt 

organization generally may not expend substantial amounts to improve or develop the distressed 

property and must dispose of such property within 30 months of acquisition. 

Provision: Under the provision, the UBIT exception for acquisitions of distressed property 

would be repealed. Accordingly, a tax-exempt organization would be required to include in its 

unrelated trade or business income gain or loss resulting from the sale of such property to 

customers. The provision would be effective for property acquired after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 5008. Qualified sponsorship payments. 

Current law: Under current law, for purposes of the UBIT rules, an unrelated trade or business 

does not include the activity of soliciting and receiving qualified sponsorship payments. A 

qualified sponsorship payment generally is any payment made by a business sponsor with 

respect to which the business receives no substantial return benefit other than the use or 

acknowledgment of the name or logo (or product lines) of the business in connection with the 

tax-exempt organization’s activities. Such a use or acknowledgment does not include 

advertising of such sponsor’s products or services (i.e., qualitative or comparative language, 

price information or other indications of savings or value, or an endorsement or other 

inducement to purchase, sell, or use such products or services). 

Provision: Under the provision, the UBIT exception for qualified sponsorship payments would 

be modified in two respects. First, if the use or acknowledgement refers to any of the business 

sponsor’s product lines, the payment would not be a qualified sponsorship payment, and, 

therefore, would be treated by the tax-exempt organization as income from an advertising trade 

or business – which is a per se unrelated trade or business. Second, if a tax-exempt organization 

receives more than $25,000 of qualified sponsorship payments for any one event, any use or 

acknowledgement of a sponsor’s name or logo may only appear with, and, in substantially the 

same manner as, the names of a significant portion of the other donors to the event. Whether the 

number of donors is a significant portion is determined based on the total number of donors and 

the total contributions to the event, but in no event shall fewer than 2 other donors be treated as a 
Prepared by Ways and Means Committee Majority Tax Staff 156 

significant portion of other donors. Thus, a single business could not be listed as an exclusive 

sponsor of an event that generates more the $25,000 in qualified sponsorship payments. Such a 

contribution would be treated as advertising income by the tax-exempt organization and subject 

to UBIT. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Subtitle B – Penalties 

Sec. 5101. Increase in information return penalties. 

Current law: Under current law, tax-exempt organizations are required to file certain 

information returns each year depending on their exempt status. If a tax-exempt organization 

does not timely and completely file a required information return (e.g., Form 990) or does not 

furnish the correct information, it must pay $20 for each day the failure continues ($100 a day for 

organizations with annual gross receipts exceeding $1 million). The maximum penalty for each 

return may not exceed the lesser of $10,000 ($50,000 for a large organization) or 5 percent of the 

gross receipts of the organization for the year. Penalties also apply to information required of 

tax-exempt trusts and in certain other cases, such as when a tax-exempt organization dissolves or 

liquidates all or part of its assets. Exceptions from these penalties apply where the organization 

can show the failure was due to reasonable cause. There also are penalties for willful failures 

and for filing fraudulent returns and statements. A manager of an organization subject to these 

penalties who fails to respond to a written demand from the IRS to file an information return by a 

date certain is required to pay a penalty of $10 for each day after the deadline has passed, limited 

to a maximum of $5,000. 

A manager or other person who fails to allow for the public inspection of a tax-exempt 

organization’s annual returns and other publicly available documents is subject to a penalty of 

$20 for each day the failure continues, limited to a maximum of $10,000. An identical penalty 

and overall limitation also applies to a section 527 organization that fails to make required 

disclosures or fails to show any information required to be shown by such disclosures or to show 

the correct information. In addition, a person who fails to allow the public inspection of an 

entity’s exempt status application materials or notice materials is subject to a penalty of $20 for 

each day such failure continues, with no overall limitation. 

In addition, a trust is subject a penalty of $10 a day for failure to file an information return. Any 

organization that was tax exempt in any of the five years preceding a liquidation, dissolution, 

termination, or substantial contraction is subject to a penalty of $10 a day for failure to file a 

final return. In both cases, the maximum penalty cannot exceed $5,000. However, a trust with 

gross income in excess of $250,000 is subject to a penalty of $100 a day and a maximum fine of 

$50,000. Furthermore, a manager of an organization subject to these penalties who fails to 

respond to a written demand from the IRS to file a required return by a date certain is subject to a 

fine of $10 for each day after the deadline has passed, limited to maximum of $5,000. 
Prepared by Ways and Means Committee Majority Tax Staff 157 

A tax-exempt organization also is subject to a penalty of $100 per day for each day the entity 

fails to file the required disclosure of its participation in any prohibited tax shelter transaction 

and the identity of any other known party to such transaction. 

Provision: Under the provision, the penalties for failure to file various returns, disclosures, or 

public documents on organizations and managers would be increased. The penalty for a taxexempt organization’s failure to file an information return would be increased from $20 to $40 

per day. For an organization with more than $1 million in gross receipts, the penalty would be 

increased from $100 to $200 per day. For a manager of such an organization, the penalty would 

be increased from $10 to $20 per day. In the case of a person who fails to allow for the public 

inspection of a tax-exempt organization’s annual returns and other publicly available documents, 

the penalty would be increased from $20 to $40 per day. The penalty for failure to allow for the 

public inspection of an entity’s exempt status application or notice materials would also be 

increased from $20 to $40 per day. In the case of trust or a terminating tax-exempt organization, 

the penalty would be increased from $10 to $20 per day. The penalty for a trust with gross 

income in excess of $250,000 would be increased from $100 to $200 per day, and the penalty for 

the manager of a trust or terminating exempt entity would also be increased from $10 to $20 per 

day. The penalty for failure to file a tax-shelter disclosure form would be increased from $100 to 

$200 per day. The provision would be effective for information returns required to be filed on or 

after January 1, 2015. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 5102. Manager-level accuracy-related penalty on underpayment of unrelated business 

income tax. 

Current law: Under current law, individuals and corporations are subject to a 20-percent 

accuracy-related penalty with respect to the portion of an underpayment that is attributable to any 

substantial understatement of income tax. The accuracy-related penalty may be reduced or 

abated in certain cases. 

A separate accuracy-related penalty applies to a reportable transaction or a listed transaction. A 

reportable transaction is defined as one that the IRS determines must be disclosed because it has 

a potential for tax avoidance or evasion. A listed transaction is a reportable transaction that is 

specifically identified by the IRS as a tax avoidance transaction (or substantially similar to such a 

tax avoidance transaction). The penalty rate for reportable and listed transactions that are 

disclosed by the taxpayer is 20 percent, while the penalty rate for an undisclosed transaction is 

30 percent. Defenses available to avoid the penalty vary depending on whether the transaction 

was adequately disclosed. 

Tax-exempt organizations subject to UBIT must file a return each year (Form 990-T), reporting 

unrelated business taxable income. Under current law, the 20-percent accuracy-related penalty 

and the penalty for reportable transactions and listed transactions apply to tax-exempt 

organizations, but only at the entity level. No manager-level penalty applies in such cases, 
Prepared by Ways and Means Committee Majority Tax Staff 158 

unlike other penalties under current law that impose a penalty on both the tax-exempt 

organization and its managers (e.g., penalties applicable to public charities with respect to 

excess-benefit transactions and penalties on private foundations relating to self-dealing). 

Provision: Under the provision, a 5-percent penalty would apply to managers of a tax-exempt 

organization when an accuracy-related penalty is applied to the organization for any substantial 

understatement of UBIT. The manager-level penalty would be limited to $20,000. The 

provision also would apply a 10-percent penalty on managers of a tax-exempt organization for an 

understatement of UBIT relating to a reportable transaction or listed transaction. The managerlevel penalty for reportable transactions and listed transactions would be limited to $40,000. The 

provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Subtitle C – Excise Taxes 

Sec. 5201. Modification of intermediate sanctions. 

Current law: Under current law, disqualified persons and managers who engage in excess 

benefit transactions with tax-exempt organizations (other than private foundations) are subject to 

an excise tax on the amount of the economic benefit that exceeds the value of the consideration 

(including the performance of services) received for providing the benefit. A disqualified person 

(other than a manager acting only in that capacity) is subject to a 25-percent excise tax, and, if 

such tax is imposed, a manager who knowingly participated in the transaction (unless such 

participation was not willful and due to reasonable cause) is subject to a 10-percent excise tax. 

However, under Treasury regulations, a manager may avoid the excise tax for knowingly 

participating in an excess-benefit transaction if the manager relies on advice provided by an 

appropriate professional, including legal counsel, certified public accountants, and independent 

valuation experts. 

A disqualified person generally is any person in a position to exercise substantial influence over 

the affairs of the public charity (e.g., officers, directors, or trustees) at any time in the five-year 

period before the excess-benefit transaction occurred. In the case of donor advised funds, the 

donor and donor advisors are specifically designated as disqualified persons, and in the case of a 

supporting organization, its investment advisors are disqualified persons. A disqualified person 

also includes certain family members of such a person, and certain entities that satisfy a control 

test with respect to such persons. 

Under Treasury regulations, a tax-exempt organization in certain cases may avail itself of a 

rebuttable presumption with respect to compensation arrangements and property transfers for 

purposes of determining if the excise tax applies. If the requirements of the rebuttable 

presumption are met, the IRS may overcome the presumption of reasonableness if it develops 

sufficient contrary evidence to rebut the comparability data relied upon by the authorized body. 
Prepared by Ways and Means Committee Majority Tax Staff 159 

Provision: Under the provision, the excise tax on excess-benefit transaction would be expanded 

to apply not only to public charities, but also to labor, agricultural, and horticultural 

organizations (under Code section 501(c)(5)) and business leagues, chambers of commerce, realestate boards, and boards of trade (under Code section 501(c)(6)). 

The provision would impose an excise tax of 10 percent on the tax-exempt organization when 

the excess-benefit excise tax is imposed on a disqualified person. The entity-level tax would be 

avoidable if the organization follows minimum standards of due diligence or other procedures to 

ensure that no excess benefit is provided by the organization to a disqualified person. The 

minimum standards of due diligence would be satisfied if the transaction was approved by an 

independent body of the organization that relied on comparability data prior to approval and 

documented the basis for approving the transaction. The provision would overrule the Treasury 

regulations by providing that no presumption of reasonableness is created by the organization 

satisfying the minimum standards of due diligence for purposes of imposing the excise tax on 

disqualified persons and managers. 

Additionally, managers would no longer be able to rely on the professional advice safe harbor 

under Treasury regulations. Thus, a manager’s reliance on professional advice, by itself, would 

not preclude the manager from being subject to the excise tax for participating in an excessbenefit transaction. 

The provision also would expand the definition disqualified persons to include athletic coaches 

and investment advisors regardless of whether the investment advisor provides services to a 

supporting organization. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 5202. Modification of taxes on self-dealing. 

Current law: Under current law, disqualified persons and managers who engage in self-dealing 

transactions with private foundations are subject to an excise tax. Self-dealing transactions 

between a private foundation and a disqualified person generally include: (1) a sale or exchange, 

or leasing, of property; (2) lending of money or other extension of credit; and (3) the transfer to, 

or use by or for the benefit of, a disqualified person of the income or assets of the private 

foundation. The excise tax is imposed on the very act of self-dealing, irrespective of whether fair 

market value is paid (except for the payment of compensation, which is permitted at fair market 

value). The tax is imposed on the entire amount involved in the transaction (except for the 

payment of compensation, with respect to which the tax is imposed on compensation in excess of 

fair market value). 

A disqualified person is subject to an excise tax of 10 percent of the value of a self-dealing 

transaction. If such a tax is imposed on a disqualified person, a tax of 5 percent of the amount 
Prepared by Ways and Means Committee Majority Tax Staff 160 

involved is imposed on a foundation manager who knowingly participated in the act of selfdealing (unless such participation was not willful and was due to reasonable cause) up to $10,000 

per act. If the act of self-dealing is not corrected, a tax of 200 percent of the amount involved is 

imposed on the disqualified person and a tax of 50 percent of the amount involved (up to 

$10,000 per act) is imposed on a foundation manager who refused to agree to correct the act of 

self-dealing. However, under Treasury regulations, a private foundation manager may avoid the 

excise tax for knowingly participating in a self-dealing transaction if the manager relies on 

advice provided by an appropriate professional, including legal counsel, certified public 

accountants, and independent valuation experts. 

A disqualified person generally is any person in a position to exercise substantial influence over 

the affairs of the private foundation (e.g., officers, directors, or trustees). A disqualified person 

also includes certain family members of such a person, and certain entities that satisfy a control 

test with respect to such persons. 

Provision: Under the provision, an excise tax of 2.5 percent would be imposed on a private 

foundation when the self-dealing tax is imposed on a disqualified person. The tax rate would be 

10 percent for cases in which the self-dealing involves the payment of compensation. 

Additionally, foundation managers would no longer be able to rely on the professional advice 

safe harbor. Thus, a manager’s reliance on professional advice, by itself, would not preclude the 

manager from being subject to the excise tax for participating in a self-dealing transaction. 

The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 5203. Excise tax on failure to distribute within 5 years contribution to donor advised 

fund. 

Current law: Under current law, public charities (including community foundations) exempt 

from tax under Code section 501(c)(3) are permitted to establish accounts to which donors may 

contribute and thereafter provide nonbinding advice or recommendations with regard to 

distributions from the fund or the investment of assets in the fund. Such accounts are commonly 

referred to as “donor advised funds.” Donors who make contributions to charities sponsoring 

such funds generally may claim a charitable contribution deduction at the time of the 

contribution, even though the contributed funds may be held in the account without distribution 

for significant periods. While the sponsoring charities generally must have legal ownership and 

control over the funds held in a donor advised fund, there is no requirement that the funds be 

distributed to other charitable organizations within any period of time. Donor advised funds also 

are not subject to the private foundation net investment excise tax. 

Provision: Under the provision, donor advised funds would be required to distribute 

contributions within five years of receipt. An eligible distribution is a distribution made to a 
Prepared by Ways and Means Committee Majority Tax Staff 161 

public charity. Failure to make an eligible distribution would subject the sponsoring charitable 

organization to an annual excise tax equal to 20 percent of the undistributed funds. The 

provision would be effective for contributions made after 2014. For contributions made before, 

and remaining in the donor advised fund on, January 1, 2015, the five-year distribution period 

would begin on January 1, 2015. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 5204. Simplification of excise tax on private foundation investment income. 

Current law: Under current law, private foundations and certain charitable trusts are subject to 

a 2-percent excise tax on their net investment income. However, an organization may reduce the 

excise tax rate to 1 percent by meeting certain requirements regarding distributions to qualifying 

tax-exempt organizations during a tax year. 

A special rule excludes “exempt operating foundations” from the excise tax. To be an exempt 

operating foundation, an organization must: (1) be an operating foundation, which is an 

organization that spends at least 85 percent of its adjusted net income or its minimum investment 

return, whichever is less, directly for the active conduct of its exempt activities, (2) be publicly 

supported for at least ten tax 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. A disqualified person generally is any person in a position 

to exercise substantial influence over the affairs of the organization (e.g., officers, directors, or 

trustees). 

Provision: Under the provision, the excise tax rate on net investment income would be reduced 

to 1 percent. The rules providing for a reduction in the excise tax rate from 2 percent to 1 

percent would be repealed. The provision also would repeal the exception from the excise tax 

for exempt operating foundations. The provision would be effective for tax years beginning after 

2014.

JCT estimate: According to JCT, the provision would reduce revenues by $1.6 billion over 

2014-2023.

Sec. 5205. Repeal of exception for private operating foundation failure to distribute 

income. 

Current law: Under current law, private foundations generally are required to pay out a 

minimum amount each year in distributions to accomplish one or more of the organization’s 

exempt purposes, including reasonable and necessary administrative expenses. Failure to pay 

out the minimum amount results in an initial excise tax on the foundation of 30 percent of the 

undistributed amount. An additional tax of 100 percent of the undistributed amount applies if an 

initial tax is imposed and the required distributions generally have not been made within the 
Prepared by Ways and Means Committee Majority Tax Staff 162 

following year. Private operating foundations are not subject to the payout requirements. To 

qualify as a private operating foundation, the organization must spend at least 85 percent of its 

adjusted net income or its minimum investment return, whichever is less, directly for the active 

conduct of its exempt activities. 

Provision: Under the provision, the special exclusion for private operating foundations would 

be repealed. Thus, private operating foundations would be subject to the excise tax for failure to 

distribute income like private foundations generally. The provision would be effective for tax 

years beginning after 2014. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 5206. Excise tax based on investment income of private colleges and universities. 

Current law: Under current law, private foundations and certain charitable trusts are subject to 

a 2-percent excise tax on their net investment income. The excise tax on net investment income 

does not apply to public charities, including colleges and universities, even though some such 

organizations may have substantial investment income similar to private foundations. 

Provision: Under the provision, certain private colleges and universities would be subject to a 

1-percent excise tax on net investment income. The provision would only apply to private 

colleges and universities with assets (other than those used directly in carrying out the 

institution’s educational purposes) valued at the close of the preceding tax year of at least 

$100,000 per full-time student. State colleges and universities would not be subject to the 

provision. The provision would be effective for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $1.7 billion over 

2014-2023.

Subtitle D – Requirements for Organizations Exempt from Tax 

Sec. 5301. Repeal of tax-exempt status for professional sports leagues. 

Current law: Under current law, a professional football league is specifically granted taxexempt status as a 501(c)(6) organization, an exemption that generally applies to trade or 

professional associations. The IRS has interpreted the exemption for “professional football 

leagues” to include all professional sports leagues.

Provision: Under the provision, professional sports leagues would not be eligible for taxexempt status as a trade or professional association under Code section 501(c)(6). The provision 

would not apply to amateur sports leagues, which would continue to qualify as tax-exempt 

entities. The provision would be effective for tax years beginning after 2014. 
Prepared by Ways and Means Committee Majority Tax Staff 163 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 5302. Repeal of exemption from tax for certain insurance companies and co-op health 

insurance issuers. 

Current law: Under current law, a property and casualty insurance company generally is 

exempt from tax if its gross receipts for the tax year do not exceed $600,000 and its premiums 

constitute more than 50 percent of gross receipts. A mutual property and casualty insurance 

company is exempt from tax if its gross receipts for the tax year do not exceed $150,000 and 

more than 35 percent of such gross receipts consist of premiums. A qualified nonprofit health 

insurance issuer under the Affordable Care Act (ACA), which has received a loan or grant under 

the ACA’s co-op program, also is exempt from tax. 

Provision: Under the provision, the exemption would be repealed for qualified property and 

casualty insurance companies and for qualified health insurance issuers. The provision would be 

effective for tax years beginning after 2014. Affected companies would not be required to make 

an adjustment for a change in accounting method for their first tax year beginning after 

December 31, 2014, and the basis of any asset held on the first day of such tax year would be 

equal to its fair market value on such day. 

JCT estimate: According to JCT, the provision would increase revenues by $0.7 billion over 

2014-2023.

Sec. 5303. In-State requirement for workmen’s compensation insurance organizations.

Current law: Under current law, organizations created by, and organized and operated under, 

State law exclusively to provide workmen’s compensation insurance required by State law (or if 

an employer faces significant disincentives for not purchasing such insurance), or coverage 

incidental to such insurance, and meeting other requirements related to such organizations 

having strong connections to State governments are exempt from tax. Current law does not 

preclude exempt workmen’s compensation insurance organizations from providing benefits to 

employees outside of the State under the laws of which it is created, organized and operated. 

Provision: Under the provision, an exempt workmen’s compensation insurance organization 

would be exempt from tax only if it provides no insurance coverage other than workmen’s 

compensation insurance required by State law (or if an employer faces significant disincentives 

for not purchasing such insurance), or coverage incidental to such insurance. The provision 

would apply to insurance policies issued, and renewals, after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 164 

Sec. 5304. Repeal of Type II and Type III supporting organizations. 

Current law: Under current law, organizations exempt from tax under Code section 501(c)(3) 

are classified either as public charities, if publicly supported, or private foundations. Certain 

organizations that provide support to another public charity may also be classified as public 

charities rather than private foundations, even if not publicly supported. To qualify as a 

supporting organization, an organization must meet all three of the following tests: (1) the 

organizational-and-operational test, (2) the lack-of-outside-control test, and (3) the relationship 

test. Under the relationship test, a supporting organization must hold one of three relationships 

with the supported public charity. The organization must be: (1) operated, supervised, or 

controlled by a publicly supported organization (commonly referred to as a Type I supporting 

organization); (2) supervised or controlled in connection with a publicly supported organization 

(a Type II supporting organization); or (3) operated in connection with a publicly supported 

organization (a Type III supporting organization). In effect, the classification of a supporting 

organization depends on how close its relationship is to the supported organization, with Type I 

supporting organizations having the closest relationship (akin to a parent-subsidiary 

relationship). 

Provision: Under the provision, Type II and Type III supporting organizations would be 

repealed. Thus, organizations that support public charities would need to qualify as a supporting 

organization that is operated, supervised, or controlled by a publicly supported organization (i.e., 

a Type I supporting organization), or they would be treated as private foundations. The 

provision would generally be effective for entities organized after the date of enactment. Type II 

and III supporting organizations existing on the date of enactment would have until the end of 

2015, to qualify as a public charity or a supporting organization (previously a Type I supporting 

organization) or be treated as a private foundation. 

JCT estimate: According to JCT, the provision would increase revenues by $1.4 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 165 

Title VI – Tax Administration and Compliance 

Subtitle A – IRS Investigation-Related Reforms 

Considerations for Subtitle A: 

The IRS investigation-related reforms in the discussion draft would address problems 

identified thus far during the course of the Committee’s ongoing IRS investigation. The 

provisions offer simple, commonsense administrative solutions to prevent the future 

abuse of taxpayers and to increase access to the courts for aggrieved organizations. 

The streamlined notification process to operate as a 501(c)(4) organization draws from 

the Committee’s in-depth analysis of the internal IRS processes and its review of all 

501(c)(4) applicants over a two-year period. The Committee has found that a significant 

percentage of the Exempt Organizations Division’s time and budget is currently spent 

analyzing Form 1024, an expensive exemption application that many small organizations 

do not understand is optional.

Moreover, the Committee has found that the IRS is allocating a significant amount of 

time attempting to predict future activities of 501(c)(4) organizations with miniscule 

operating budgets, while allocating virtually no resources to compliance audits based on 

actual activities that risk tax-revenue losses. 

The new streamlined notification process for 501(c)(4) organizations would save small 

groups unnecessary filing costs and would allow a risk-based approach for the IRS to 

monitor compliance in this area. 

The investigation-related provisions also respond to the Committee’s ongoing 

investigatory work involving unauthorized disclosures of confidential donor information 

by the IRS. The provisions would reduce the opportunities for unlawful disclosures of 

certain taxpayer information by the IRS, limit reporting of donor information where no 

tax administration interest exists, and restrict IRS employee use of personal e-mail for 

official business. 

Based on the Committee’s ongoing investigation, which has found significant instances 

where taxpayer rights had been violated by the IRS, the provisions would enhance 

taxpayer rights by requiring new IRS reporting and employee training. 

Stand-alone pieces of legislation making several of these proposed changes (including 

those in sections 6005, 6006, and 6010 of the discussion draft) have previously passed the 

House of Representatives but have not yet been taken up by the Senate. 

Sec. 6001. Organizations required to notify Secretary of intent to operate as 501(c)(4). 

Current law: Under current law, social welfare organizations described in Code section 

501(c)(4) are not required to obtain a determination of their exempt status from the IRS before 

commencing operations. Rather, such organizations are exempt if they are not organized for 

profit but operated exclusively for the promotion of social welfare, and if no part of the net 

earnings of which inures to the benefit of any private shareholder or individual. However, such 

organizations may request a formal determination of exempt status by filing Form 1024, 

Application for Recognition of Exemption under Section 501(a). An organization typically files 

a Form 1024 to be recognized formally as a tax-exempt organization and to obtain certain 
Prepared by Ways and Means Committee Majority Tax Staff 166 

benefits such as exemption from certain State taxes and nonprofit mailing privileges. Once a 

social welfare organization commences operations (whether or not it applies or is formally 

approved for exempt status), the organization is required to file an annual information return, 

Form 990, Return of Organization Exempt from Income Tax. 

Recent investigations of the IRS’ handling of applications for exemption by section 501(c)(4) 

organizations have raised concerns about the extent of human resources the IRS dedicates to 

processing elective Form 1024 applications for exemption and the vulnerabilities for abuse in the 

current approval process. 

Provision: Under the provision, any organization seeking to be recognized as exempt under 

Code section 501(c)(4) would be required, within 60 days of formation, to notify the IRS that it 

has commenced operations as a social welfare organization. Within 60 days of receiving the 

notification, the IRS would be required to issue an acknowledgement of the organization’s intent 

to operate as such an exempt organization. A social welfare organization that fails to file the 

required notification of commencement of operations by the deadline would be subject to a 

penalty of $20 per day up to $5,000 and a manager-level penalty if the organization fails to file 

after a request from the IRS. With its first Form 990 information return, the organization would 

be required to provide such information as the IRS may require supporting the organization’s 

qualification for exempt status. It is anticipated that this information would be similar to the 

information provided currently on Form 1024. If an organization wishes to receive a formal 

determination of exempt status, it would be able to request a ruling from the IRS. 

The provision would apply to section 501(c)(4) organizations that are organized after 2014. 

Current organizations that have not filed a Form 1024 or a Form 990 would be required within 

180 days of the date of enactment to meet the new notification requirement and provide the 

required information supporting the organization’s qualification for exempt status with the Form 

990 for the tax year in which the notice is filed. 

JCT estimate: According to JCT, the provision would increase revenues by less than $50 

million over 2014-2023. 

Sec. 6002. Declaratory judgments for 501(c)(4) organizations. 

Current law: Under current law, an organization that has qualified for tax exemption under 

Code section 501(c)(3) or section 521, or has applied for such status, may seek judicial relief if 

the IRS challenges the organization’s initial or continuing qualification for tax exemption. Such 

declaratory judgment relief may be granted by the U.S. Tax Court, U.S. Court of Federal Claims, 

or the U.S. District Court for the District of Columbia. However, similar relief is not available 

for a section 501(c)(4) social welfare organization. 

Provision: Under the provision, declaratory judgment relief would be extended to controversies 

involving the initial or continuing qualification of section 501(c)(4) social-welfare organizations. 

The provision would be effective for pleadings filed after the date of enactment. 
Prepared by Ways and Means Committee Majority Tax Staff 167 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 6003. Restriction on donation reporting for certain 501(c)(4) organizations. 

Current law: Under current law, organizations exempt from tax under Code section 501(c) 

generally are required to file an annual information return, Form 990, Return of Organization 

Exempt from Income Tax, with the IRS reflecting contributions, income, expenses and other 

information. Certain organizations, including social welfare organizations exempt under Code 

section 501(c)(4), must include Schedule B, Schedule of Contributors, listing any donor who 

contributes $5,000 or more (in money or property) during the year. The IRS is required to make 

information returns filed by exempt organizations available to the public. However, Schedule B 

is excluded from disclosure to protect donor personal information required by the schedule. 

Recent investigations of the IRS’ handling of applications for exemption by section 501(c)(4) 

organizations have raised concerns about improper disclosure of Schedule B donor information 

to the public.

Provision: Under the provision, a social welfare organization exempt under Code section 

501(c)(4) would be required to include on Schedule B only information concerning a donor who 

both (1) contributes $5,000 or more (in money or property) during the current tax year and (2) is 

either an officer or director of the organization or one of the five highest compensated employees 

of the organization for the current or any preceding tax year. Schedule B would continue to be 

excluded from the public disclosure requirement for information returns filed by exempt 

organizations. The provision would be effective for returns for tax years beginning after 2013. 

JCT estimate: According to JCT, the provision would reduce revenues by less than $50 million 

over 2014-2023. 

Sec. 6004. Mandatory electronic filing for annual returns of exempt organizations. 

Current law: Under current law, a tax-exempt organization generally must file its annual tax 

return (i.e., Form 990) electronically only if the organization files at least 250 returns (e.g., Form 

W-2 for employees, Form 1099 for certain service providers) during the calendar year. 

Organizations that are not required to file a Form 990 or Form 990-EZ, generally because their 

gross receipts are normally less than $50,000 annually, must file an annual notice (Form 990-N) 

in electronic format. Certain tax-exempt organizations with unrelated business taxable income 

must report such income and associated tax on Form 990-T, which currently cannot be filed 

electronically. Current law limits the authority of the Treasury Department to require electronic 

filing of returns. As a result, only very small and very large tax-exempt organizations are 

required to file electronically. 

Current law also requires the IRS to make available to the public information from the annual 

returns filed by tax-exempt organizations. Certain information relating to donors to such 
Prepared by Ways and Means Committee Majority Tax Staff 168 

organizations is excluded. The IRS currently makes the required data available only in a 

restricted format that limits the usefulness of the data to the public. 

Provision: Under the provision, all tax-exempt organizations that file Form 990 series returns 

would be required to file electronically. The provision also would require the IRS to make the 

electronically filed Form 990 returns data publicly available in a machine readable format in a 

timely manner, after ensuring that any donor or other taxpayer information is redacted. The 

provision would be effective for tax years beginning after the date of enactment, with transition 

relief for smaller organizations that are not currently required to file electronically. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 6005. Duty to ensure that IRS employees are familiar with and act in accord with 

certain taxpayer rights. 

Current law: Under current law, the Commissioner of Internal Revenue has such duties and 

powers as the Treasury Secretary prescribes, including the power to administer, manage, 

conduct, direct, and supervise the execution and application of the tax laws and related statutes. 

Provision: Under the provision, the Commissioner’s duties would be expanded to include 

ensuring that IRS employees are familiar with and act in accordance with taxpayer rights under 

the tax laws, including the right to be informed, the right to be assisted, the right to be heard, the 

right to pay no more than the correct amount of tax, the right of appeal, the right to certainty, the 

right to privacy, the right to confidentiality, the right to representation, and the right to a fair and 

just tax system. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023.

Sec. 6006. Termination of employment of IRS employees for taking official actions for 

political purposes. 

Current law: Under current law, there are ten enumerated acts or omissions that, if committed 

by an IRS employee, will result in mandatory termination of the employee (also known as the 

“ten deadly sins”). These acts or omissions include threatening to audit a taxpayer for the 

purpose of extracting personal gain or benefit. 

Provision: Under the provision, the enumerated acts or omissions that result in mandatory 

termination of an IRS employee would be expanded to include performing, delaying, or failing to 

perform (or threatening to perform, delay, or fail to perform) any official action or audit with 

respect to a taxpayer for the purpose of extracting personal gain or benefit or for political 

purposes. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 169 

Sec. 6007. Release of information regarding the status of certain investigations. 

Current law: Under current law, it is unlawful for Federal employees to disclose certain 

taxpayer information or inspect taxpayer returns or records without authorization. Current law 

also limits the lawful disclosure of taxpayer information by employees of the Treasury 

Department (including the IRS and the Treasury Inspector General for Tax Administration) to 

certain enumerated circumstances. Because of these restrictions, in cases in which a taxpayer 

makes a complaint regarding unlawful disclosure of information, current law does not permit the 

Treasury Department to provide the affected taxpayer with information concerning the status or 

resolution of the complaint. 

Provision: Under the provision, the enumerated circumstances in which taxpayer information 

may be lawfully disclosed by the Treasury Department would be expanded to include disclosure 

to certain complainants (or their representatives) of information regarding the status and results 

of any investigation initiated by their complaint. The provision would be effective on the date of 

enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 6008. Review of IRS examination selection procedures. 

Current law: Under current law, the IRS’ four operating divisions (wage and investment, small 

business/self-employed, large business and international, and tax-exempt and government 

entities) have discretion to develop and implement criteria for selection of cases for enforcement 

action. Concerns have been raised regarding the impartiality and appropriateness of such 

enforcement actions, especially with respect to certain tax-exempt organizations. 

Provision: Under the provision, the Comptroller General would be directed to undertake an 

initial review of each IRS operating division to assess the processes used to determine how 

enforcement cases are selected and worked, and would be directed to report to Congress and the 

Treasury Secretary the results of the initial review and any recommendations to improve the case 

selection and case work processes for each division. The Comptroller General also would be 

directed to conduct a follow-up review to determine whether the recommendations included in 

the initial report have been implemented. Following the initial and follow-up reviews, the 

Comptroller General would be directed to conduct further reviews of each IRS division every 

four years, and would be directed to report to Congress and the Treasury Secretary the results of 

these reviews. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 170 

Sec. 6009. IRS employees prohibited from using personal email accounts for official 

business. 

Current law: Under current law, there is no statutory prohibition against the use of personal 

email accounts by IRS employees to conduct official agency business. The Internal Revenue 

Manual restricts IRS employees from sending emails that contain “sensitive but unclassified” 

data outside the IRS network, unless approved by senior agency management, but the manual 

does not specifically reference the use of personal email accounts. 

Provision: Under the provision, IRS employees would be prohibited by statute from using any 

personal email account to conduct official agency business. The provision would be effective on 

the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 6010. Moratorium on IRS conferences. 

Current law: Under current law, the IRS has discretion to hold conferences relating to 

employee training and other management purposes, and to incur travel expenses relating to such 

conferences. On May 31, 2013, the Treasury Inspector General for Tax Administration (TIGTA) 

issued a report titled, “Review of the August 2010 Small Business/Self-Employed Division’s 

Conference in Anaheim, California,” which identified excessive spending on IRS conferences 

and other deficiencies in management procedures. 

Provision: Under the provision, the IRS would be precluded from holding any conference until 

TIGTA submits a report to Congress certifying that the IRS has implemented all of the 

recommendations included in TIGTA’s May 31, 2013 report. The provision would be effective 

on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 6011. Applicable standard for determinations of whether an organization is operated 

exclusively for the promotion of social welfare. 

Current law: Under current law, Code section 501(c)(4) provides a tax exemption for 

organizations not organized for profit but operated exclusively for the promotion of social 

welfare. Treasury regulations provide that an organization is operated exclusively for the 

promotion of social welfare if it is engaged primarily in promoting in some way the common 

good and general welfare of the people of a community. Social welfare organizations are 

permitted to engage in “direct or indirect participation or intervention in political campaigns on 

behalf of or in opposition to any candidate for public office” (“political campaign intervention”) 

so long as the organization is primarily engaged in activities that promote social welfare. 
Prepared by Ways and Means Committee Majority Tax Staff 171 

Under current Treasury regulations, whether an activity constitutes political campaign 

intervention (and thus does not promote social welfare), and the measurement of the 

organization’s social welfare activities relative to its total activities, depends on all the facts and 

circumstances of the particular case. The rules concerning political campaign intervention apply 

only to activities involving candidates for elective public office; the rules do not apply to 

activities involving officials who are selected or appointed, such as executive branch officials 

and judges. The lobbying and advocacy activities of a section 501(c)(4) organization generally 

are not limited, provided the activities are in furtherance of the organization’s exempt purpose.

On November 29, 2013, the Department of the Treasury and the IRS published proposed 

regulations regarding the political campaign activities of section 501(c)(4) organizations. The 

proposed regulations, once finalized, would replace the present-law facts-and-circumstances test 

used in determining whether a section 501(c)(4) organization has engaged in political campaign 

intervention with an enumerated list of activities that constitute political campaign activities (and 

which therefore do not promote social welfare). 

Provision: The provision would require the IRS to apply the standards and definitions in effect 

on January 1, 2010, to determine whether an organization is operated exclusively for the 

promotion of social welfare for purposes of Code section 501(c)(4). The provision also would 

prohibit the Secretary or his delegate from issuing, revising, or finalizing any regulation 

(including the proposed regulations issued on November 29, 2013), revenue ruling, or other 

guidance that is not limited to a particular taxpayer relating to the standards or definitions used to 

determining whether an organization is operated exclusively for the promotion of social welfare 

for purposes of Code section 501(c)(4). The provision would be effective on the date of 

enactment and expire one year after such date. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Subtitle B – Taxpayer Protection and Service Reforms 

Sec. 6101. Extension of IRS authority to require truncated Social Security numbers on 

Form W-2. 

Current law: Under current law, employers are required to furnish annual written statements to 

their employees containing certain information regarding wages and benefits (i.e., Form W-2). 

Current law requires that the statement include the employee’s Social Security number (SSN). 

Other statements provided to taxpayers (e.g., Forms 1099) are subject to more general rules that 

require the filer to include the taxpayer’s “identifying number” on the form. For some 

statements, the Treasury Department and IRS have regulatory authority to require or permit filers 

to use a number other than the taxpayer’s SSN. Concerns have been raised that a taxpayer’s SSN 

could be stolen from a Form W-2 or other paper payee statement and used to file false or 

fraudulent tax returns. 
Prepared by Ways and Means Committee Majority Tax Staff 172 

Provision: Under the provision, employers would be required to include an “identifying 

number” for each employee, rather than an employee’s SSN, on Form W-2. Thus, the Treasury 

Department and the IRS would have the regulatory authority to require or permit a truncated 

SSN on Form W-2 as well as Form 1099 to reduce the potential for identity theft and the filing of 

false or fraudulent tax returns. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 6102. Free electronic filing. 

Current law: Under current law, the IRS has entered into arrangements with commercial return 

preparation service providers (known as the Free File Alliance) to provide free tax preparation 

and electronic filing services to eligible low-income or elderly taxpayers. This arrangement is 

commonly known as the Free File Program. Taxpayers generally must select a designated 

service provider through the IRS’ website to access commercial online software provided by

Free File Alliance companies to prepare and file their tax returns. To qualify, taxpayers must 

have adjusted gross income (AGI) of $58,000 or less (for 2013 returns). Each participating 

company sets its own eligibility requirements and not all taxpayers will qualify to use the 

software of all companies. There is no fee for taxpayers using the Free File Program, and Free 

File Alliance companies also do not pay any fee to the IRS to participate in the program. 

Provision: Under the provision, the IRS would be directed to continue working cooperatively 

with the private-sector technology industry to maintain a program that provides free individual 

income tax preparation and individual income tax electronic filing services to lower-income and 

elderly taxpayers. (The current Free File Program would satisfy this requirement.) The IRS 

would be required to provide regulations or other guidance with respect to the program, 

including (1) the qualifications, selection process, terms of participation, and any other 

procedures with respect to businesses seeking to participate in the program; (2) a process for 

periodic review of participants approved for the program; and (3) a procedure for removal of any 

participant that no longer qualifies for the program or has failed to comply with the program’s 

rules and procedures. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Sec. 6103. Pre-populated returns prohibited. 

Current law: Under current law, a taxpayer generally has responsibility for preparing and filing 

a tax return if the taxpayer has taxable gross income for a tax year. Certain taxpayers may elect 

to have the IRS prepare the return based on information provided by the taxpayer. Similarly, 

under the substitute for return program, the IRS may make a return based on information 

available to or obtained by the IRS for a taxpayer who fails to prepare and file a return by the 

required due date or for a taxpayer who makes, willfully or otherwise, a false or fraudulent 
Prepared by Ways and Means Committee Majority Tax Staff 173 

return. The IRS has an obligation under current law to make reasonable efforts to verify any 

third-party information upon which the agency relies under the substitute for return program or 

bear the burden of proof if such information is subject to judicial review. If the IRS ultimately 

determines that a non-filing taxpayer had no filing requirement, any tax, penalty, and interest 

assessed generally is abated. 

Provision: Under the provision, the IRS would be prohibited from instituting any program 

under which it prepares or otherwise provides taxpayers with proposed or final returns or 

statements intended to be used by the taxpayer to satisfy his reporting obligation under the Code. 

Thus, the IRS would not have authority to implement a broad-based program under which it prepopulates a return with third-party information supplied to the agency (e.g., Form W-2 wage 

statements, Form 1099s for interest, dividends or capital gains) and provides such return to a 

taxpayer for filing. The provision would be effective on the date of enactment. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 

Sec. 6104. Form 1040SR for seniors. 

Current law: Under current law, a taxpayer generally is responsible for preparing and filing a 

tax return if the taxpayer has taxable gross income for a tax year. The IRS has broad discretion 

under current law to provide all necessary forms to enable taxpayers to satisfy their return-filing 

obligations. Taxpayers with relatively uncomplicated financial circumstances and modest 

income are generally eligible to file their taxes using the simplest tax form – Form 1040EZ. 

However, individuals who are age 65 or older are expressly prohibited from using Form 1040EZ, 

thereby requiring them to use other more complicated forms. 

Provision: Under the provision, the IRS would be required to develop a simple tax return to be 

known as Form 1040SR, which would be as similar as practicable to the current Form 1040EZ. 

The new form would be available for use by individuals over the age of 65 who receive common 

types of retirement income. The provision would be effective for tax years beginning after 2014. 

Consideration: Under current IRS rules, taxpayers with relatively uncomplicated financial lives 

are generally eligible to file their taxes using the simplest tax return – Form 1040EZ. However, 

no matter how simple and straightforward their returns, seniors are expressly denied the 

opportunity to use the most convenient tax form simply because they are over the age of 65. As 

a result, seniors must use other more complicated forms, forcing them to struggle through the 

myriad pages of instructions, worksheets, and schedules to file their taxes or spend their 

retirement income on a professional tax preparer to do so. The provision would correct this 

inequity and require the IRS to make available a simple tax form specifically for seniors.

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 174 

Sec. 6105. Increased refund and credit threshold for Joint Committee on Taxation review 

of C corporation return. 

Current law: Under current law, the IRS may not issue a refund or credit of any income or 

certain other taxes in excess of $2 million until 30 days after the IRS provides a report regarding 

the refund or credit to the Joint Committee on Taxation (JCT). As a matter of administrative 

practice, JCT staff reviews the facts surrounding the proposed refund or credit and communicates 

any concerns back to the IRS, which can then modify the refund or credit at its discretion. 

Provision: Under the provision, the threshold for JCT review of refunds or credits with respect 

to returns filed by C corporations would be increased to $5 million. The provision would be 

effective on the date of enactment, except with respect to pending refund or credit reports that 

have been transmitted by the IRS to JCT prior to such date. 

JCT estimate: According to JCT, the provision would have negligible revenue effect over 

2014-2023.

Subtitle C – Tax Return Due Date Simplification 

Secs. 6201-6203. Due dates for returns of partnerships, S corporations, and C 

corporations; Modification of due dates by regulation; Corporations permitted statutory 

automatic 6-month extension of income tax returns. 

Current law: Under current law, taxpayers required to file income tax returns must file such 

returns in the manner prescribed by the IRS and subject to the due dates established in the Code 

(if any) or by regulations. Accordingly, a C corporation or an S corporation is required to file its 

tax return by March 15 (or within two and a half months after the close of its tax year). A 

partnership is required to file its returns by April 15 (or within three and a half months after the 

close of its tax year), the same date that applies to individuals and sole proprietors. 

Current law provides corporations with an automatic three-month extension of the filing due 

date, with corporations permitted to apply for an additional three-month extension (for a total of 

six months). 

Provision: Under the provision, the schedule for filing tax returns would be modified as 

follows:

A partnership or S corporation would be required to file by March 15 (or two and a half 

months after the close of its tax year). 

A C corporation would be required to file by April 15 (or three and a half months after 

the close of its tax year). 

The provision also would provide C corporations with an automatic six-month extension of the 

applicable filing date. Similarly, the provision would codify certain extensions currently 

provided by regulations. 
Prepared by Ways and Means Committee Majority Tax Staff 175 

The provision generally would be effective for tax years beginning after 2014. For C 

corporations with fiscal years ending on June 30, the new filing date would not apply to any tax 

year beginning in 2022. 

JCT estimate: According to JCT, the provisions would increase revenues by $0.1 billion over 

2014-2023.

Subtitle D – Compliance Reforms 

Sec. 6301. Penalty for failure to file. 

Current law: Under current law, a taxpayer who fails to file a tax return within 60 days of the 

due date is subject to a minimum penalty equal to the lesser of $135 or 100 percent of the 

amount required to be shown on the return. 

Provision: Under the provision, the minimum penalty for failure to file a tax return would be 

increased to $400. The provision would be effective for tax returns the due date for the filing of 

which (including extensions) is after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.3 billion over 

2014-2023.

Sec. 6302. Penalty for failure to file correct information returns and provide payee 

statements.

Current law: Under current law, a multi-tier penalty structure applies to a taxpayer that fails to 

file correct information returns (e.g., IRS Form 1099) with the IRS. The penalties are based on 

the duration of the delinquency, the size of the taxpayer, and the taxpayer’s intent. A separate, 

but parallel, penalty regime applies to taxpayers that fail to provide the payee with a correct copy 

of the information return (e.g., IRS Form 1099) filed with the IRS. The current amount for both 

penalty regimes is $100 for each information return not corrected before August 1st following 

the filing due date, with a maximum for each penalty of $1.5 million for any taxpayer in a 

calendar year. If the failure is corrected within 30 days of the due date, the penalty is reduced to 

$30 per return, with a maximum of $250,000 for each penalty. If the failure is corrected after 30 

days but before August 1st, the penalty is $60 per return with a maximum of $500,000 for each 

penalty. For taxpayers with gross receipts of not more than $5 million, the maximum amount of 

the general penalty is $500,000, the maximum for corrected returns within 30 days is $75,000, 

and the maximum for corrected returns after 30 days, but before August 1st, is $200,000. For 

taxpayers who intentionally disregard the filing requirements, the penalty is $250 per return with 

no maximum. 

Provision: Under the provision, the penalty for failure to file correct information returns and the 

penalty for failure to furnish correct payee statements would be adjusted as follows: 
Prepared by Ways and Means Committee Majority Tax Staff 176 

Level of Culpability Amount per 

Return

Maximum per Year Maximum for Small 

Business 

Corrected within 30 

days of due date 

Current: $30 

Provision: $50 

Current: $250,000 

Provision: $500,000 

Current: $75,000 

Provision: $175,000 

Corrected after 30 days 

but before August 1st 

Current: $60 

Provision: $100 

Current: $500,000 

Provision: $1,500,000 

Current: $200,000 

Provision: $500,000 

Continuing delinquency 

on or after August 1st 

Current: $100 

Provision: $250 

Current: $1,500,000 

Provision: $3,000,000 

Current: $500,000 

Provision: $1,000,000 

Intentional failure Current: $250 

Provision: $500 

Current: No limit 

Provision: No limit 

Current: No limit 

Provision: No limit 

The provisions would be effective for information returns and payee statements required to be 

filed after 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.

Sec. 6303. Clarification of 6-year statute of limitations in case of overstatement of basis. 

Current law: Under current law, taxes generally are required to be assessed within three years 

after the date on which the taxpayer filed the return. However, if a taxpayer omits substantial 

income on a return (i.e., in excess of 25 percent of the amount of gross income that was stated in 

the return), any tax with respect to that return generally may be assessed within six years of the 

date on which the return was filed. The Supreme Court has ruled that the six-year statute of 

limitations does not apply to a return on account of the taxpayer having substantially overstated 

the adjusted basis of property, the sale or exchange of which results in an understatement of gain. 

Provision: Under the provision, the six-year statute of limitations would apply to a return on 

which the taxpayer claims an adjusted basis for any property that is more than 125 percent of the 

correct adjusted basis. The provision would be effective for returns filed after the date of 

enactment and for returns filed on or before the date of enactment if the general statute of 

limitations has not expired. 

JCT estimate: According to JCT, the provision would increase revenues by $1.1 billion over 

2014-2023.

Sec. 6304. Reform of rules related to qualified tax collection contracts. 

Current law: Under current law, the IRS has authority to enter into qualified tax collection 

contracts with private debt collection companies to locate and contact taxpayers owing 

outstanding tax liabilities of any type, and to arrange payment of such taxes by the taxpayers. 

Qualified tax collection contracts are subject to a number of administrative safeguards: (1) 

provisions of the Fair Debt Collection Practices Act apply; (2) taxpayer protections that are 

statutorily applicable to the IRS and its employees are applicable to the private-sector debt 
Prepared by Ways and Means Committee Majority Tax Staff 177 

collection companies and to their employees; and (3) subcontractors of the private debt 

collection companies are subject to a number of restrictions regarding their contact with 

taxpayers. 

Provision: Under the provision, the IRS would be required to use qualified tax collection 

contracts to collect certain inactive tax receivables. These receivables would include accounts 

removed from active inventory due to lack of IRS resources, accounts for which more than a 

third of the statute of limitations has expired without being assigned to an IRS employee for 

collection, and assigned accounts that have gone more than 365 days without interaction between 

the IRS and the taxpayer. However, certain receivables would not be assigned to private debt 

collection companies, including accounts subject to a pending or active offer-in-compromise or 

installment agreement, accounts relating to innocent spouse cases and taxpayers in combat zones, 

accounts of minors, deceased taxpayers or victims of identity theft, and accounts under 

examination, litigation, criminal investigation, levy, or subject to a right of appeal. The 

provision also would permit taxpayers in a presidentially declared disaster area to request that the 

private debt collector suspend collections and return the account to the IRS. The provision 

would be effective for tax receivables identified by the IRS after the date of enactment. 

Considerations:

From 2006 to 2009, the IRS conducted a pilot private debt collection program to help the 

agency collect certain tax debts that the agency did not have the resources to pursue. 

Despite successfully collecting $98.2 million through the private debt collection program, 

the Obama Administration terminated the pilot program in 2009. 

The provision would require the IRS to restore the private debt collection program to 

collect specific types of inactive tax debts that the agency is never going to collect due to 

resource constraints. 

With the current fiscal constraints and personnel limitations facing the IRS, the provision 

would ensure that the IRS uses every tool at its disposal to collect delinquent tax debts 

that otherwise will go uncollected and eventually become uncollectable once the statute 

of limitations expires. 

At the same time, the private debt collection program would be subject to numerous 

critical safeguards to ensure that the rights of taxpayers from whom such tax debts would 

be collected are carefully protected. 

JCT estimate: According to JCT, the provision would increase revenues by $4.4 billion over 

2014-2023, and increase outlays by $2.2 billion over 2014-2023. 

Sec. 6305. 100 percent continuous levy on payments to Medicare providers and suppliers. 

Current law: Under current law, the Treasury Department is authorized to continuously levy up 

to 15 percent of a payment to a Medicare provider to collect delinquent tax debt. Through the 

Federal Payment Levy Program, the Treasury Department deducts (levies) a portion of a 

government payment to an individual or business to collect unpaid taxes. 
Prepared by Ways and Means Committee Majority Tax Staff 178 

Provision: Under the provision, the Treasury Department would be authorized to levy up to 100 

percent of a payment to a Medicare provider to collect unpaid taxes. The provision would be 

effective for levies issued after the date of enactment. 

JCT estimate: According to JCT, the provision would increase revenues by $0.7 billion over 

2014-2023.

Sec. 6306. Treatment of refundable credits for purposes of certain penalties. 

Current law: Under current law, a 20-percent accuracy-related penalty applies to the 

underpayment of tax. There is uncertainty as to the extent to which refundable credits are taken 

into account when determining the amount of the underpayment subject to the penalty. The Tax 

Court recently held that refundable credits count toward the underpayment of tax but only to the 

extent that tax liability is reduced to zero, but not to the extent that the credits produce a tax 

refund. 

A separate 20-percent penalty applies when taxpayers make erroneous claims for refunds or 

credits. This penalty does not apply under current law to the earned income tax credit 

(EITC). The IRS may only assert either the penalty for erroneous claims for refund or credit or 

the penalty for underpayment of tax described above, but not both. 

Provision: Under the provision, the penalty for underpayment of tax would take into account 

the full amount of refundable credits. The provision would be effective for returns filed after 

February 26, 2014 and returns filed on or before such date if the general statute of limitations has 

not expired. 

The provision also would amend the penalty for erroneous claims for refunds or credits to apply 

to taxpayers who erroneously claim the new credit for employment-related taxes (section 1103 of 

the discussion draft). The provision would be effective for claims filed after February 26, 2014. 

JCT estimate: According to JCT, the provision would increase revenues by $0.1 billion over 

2014-2023.
Prepared by Ways and Means Committee Majority Tax Staff 179 

Title VII – Excise Taxes 

Sec. 7001. Repeal of medical device excise tax. 

Current law: Under current law, the manufacturer, producer, or importer of any taxable 

medical device must pay an excise tax equal to 2.3 percent of the sales price of such device. The 

excise tax does not apply to eyeglasses, contact lenses, hearing aids, and any other medical 

device determined by the Secretary to be of a type that is generally purchased by the general 

public at retail for individual use. 

Provision: Under the provision, the medical device excise tax would be repealed. The 

provision would apply to sales after the date of enactment. 

JCT estimate: According to JCT, the provision would reduce revenues by $29.5 billion over 

2014-2023.

Sec. 7002. Modifications relating to oil spill liability trust fund. 

Current law: Under current law, an excise tax is imposed on crude oil (including crude oil 

condensates and natural gasoline) that is received at a U.S. refinery and on petroleum products 

that are imported into the United States. These excise tax revenues are deposited into the Oil 

Spill Liability Trust Fund. The excise tax rate is 8 cents per barrel through 2016 and 9 cents per 

barrel for 2017, but the tax expires after 2017. In 2011, the IRS issued administrative guidance 

concluding that tar sands are not subject to the excise tax because tar sands are not included in 

the definition of “crude oil” or “petroleum products” for purposes of the excise tax.

Provision: Under the provision, the excise tax would continue to be imposed at a rate of 9 cents 

per barrel for 2018 through 2023. In addition, the definitions of “crude oil” and “petroleum 

products” to which the excise tax applies would be modified to include crude oil condensates, 

natural gasoline, any bitumen or bituminous mixture, any oil derived from a bitumen or 

bituminous mixture, shale oil, and any oil derived from kerogen-bearing sources. The provision 

would be effective for oil and petroleum products received at U.S. refineries or imported into the 

United States during calendar quarters beginning more than 60 days after the date of enactment. 

JCT estimate: According to JCT, the provision would increase revenues by $1.2 billion over 

2014-2023.

Sec. 7003. Modification relating to inland waterways trust fund financing rate. 

Current law: Under current law, an excise tax of 20 cents per gallon is imposed on fuel used in 

powering commercial cargo vessels on inland or intra-coastal waterways. These excise tax 

revenues are deposited into the Inland Waterways Trust Fund. 
Prepared by Ways and Means Committee Majority Tax Staff 180 

Provision: Under the provision, the excise tax rate would be increased to 26 cents per gallon. 

The provision would be effective for fuel used after 2014. 

Consideration: In a letter dated September 24, 2013, to the Ways and Means Committee, the 

Waterways Council and a coalition of nearly 40 stakeholders expressed support for increasing 

the excise tax that supports the Inland Waterways Trust Fund to at least 26 cents per gallon, in 

conjunction with spending reforms included in the Water Resources Reform and Development 

Act, which passed the House of Representatives on October 23, 2013. 

JCT estimate: According to JCT, the provision would increase revenues by $0.2 billion over 

2014-2023.

Sec. 7004. Excise tax on systemically important financial institutions. 

Current law: Under current law, sections 113 and 165 of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act define a systemically important financial institution (SIFI) as (1) 

any bank holding company with at least $50 billion in total consolidated assets, or (2) any nonbank financial institution designated for SIFI treatment by the Financial Stability Oversight 

Council and thus subject to oversight by the Federal Reserve. SIFI status subjects a financial 

institution to more stringent prudential standards than apply to non-SIFIs, and such status also 

requires regulators and the financial institution to agree on a resolution plan to ensure an orderly 

process in the event that the financial institution fails or suffers financial distress. The Federal 

Reserve and other agencies conduct annual stress tests on SIFIs to ensure that the SIFIs have 

adequate capital to absorb losses that result from economic downturns. 

Currently, there is no excise tax that applies to the assets of SIFIs. 

Provision: Under the provision, every SIFI would be required to pay a quarterly excise tax of 

0.035 percent of the SIFI’s total consolidated assets (as reported to the Federal Reserve) in 

excess of $500 billion. After calendar year 2015, the $500 billion threshold would be indexed 

for increases in the gross domestic product (GDP). The provision would apply to calendar 

quarters beginning after 2014. 

Considerations:

Many commentators and academic studies have suggested that policies such as DoddFrank’s SIFI designation actually contribute to the financial markets’ view that certain

financial institutions are “too big to fail” and may, therefore, be deserving of additional 

taxpayer bailouts in the future. 

The provision would address the significant implicit subsidy bestowed on big Wall Street 

banks and other financial institutions under Dodd-Frank. By deeming SIFIs to be “too 

big to fail,” Dodd-Frank effectively subsidizes these big banks and financial institutions, 

providing them lower borrowing costs than they would face without that special 

designation. While tax reform cannot undo Dodd-Frank, it can and should help recapture 

a portion of that implicit subsidy. 
Prepared by Ways and Means Committee Majority Tax Staff 181 

The SIFI designation applies to financial institutions with over $50 billion in assets. To 

avoid affecting smaller, regional banks that were not at the center of the recent financial 

crisis, the provision would be carefully targeted to apply to the largest of Wall Street 

firms – those having more than $500 billion in worldwide consolidated assets. 

On March 22, 2013, the Senate approved, by a unanimous vote of 99-0, a bipartisan 

amendment to the Senate budget resolution endorsing legislation to end subsidies and 

funding advantages received by “too big to fail” banks with total assets over $500 billion. 

So this concept has strong bipartisan, bicameral support. 

JCT estimate: According to JCT, the provision would increase revenues by $86.4 billion over 

2014-2023.

Sec. 7005. Clarification of orphan drug exception to annual fee on branded prescription 

pharmaceutical manufacturers and importers. 

Current law: Under current law, an annual tax is imposed on covered entities engaged in the 

business of manufacturing or importing branded prescription drugs for sale to any specified 

government program or pursuant to coverage under any such program. Taxes collected are 

credited to the Medicare Part B trust fund. The aggregate annual tax imposed on all covered 

entities is $2.5 billion for calendar year 2011, $2.8 billion for calendar years 2012 and 2013, $3 

billion for calendar years 2014 through 2016, $4 billion for calendar year 2017, $4.1 billion for 

calendar year 2018, and $2.8 billion for calendar year 2019 and thereafter. The aggregate tax is 

apportioned among the covered entities each year based on their relative share of branded 

prescription drug sales taken into account during the previous calendar year. 

Branded prescription drug sales do not include sales of any drug or biological product with 

respect to which an orphan drug tax credit was allowed for any tax year under Code section 45C. 

The exception for orphan drug sales does not apply to any drug or biological product after such 

drug or biological product is approved by the Food and Drug Administration (FDA) for 

marketing for any indication other than the rare disease or condition with respect to which the 

section 45C credit was allowed. 

Provision: Under the provision, eligibility for the orphan drug exemption would be expanded to 

include any drug or biological product that is approved or licensed by the FDA for marketing 

solely for one or more rare diseases or conditions, regardless of whether the section 45C credit 

was ever allowed. A disease or condition would be considered “rare” if either it affects less than 

200,000 U.S. persons, or there is no reasonable expectation that the cost of developing and 

making the drug available will be recovered from sales. The provision would be effective for 

calendar years after 2013. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023. 
Prepared by Ways and Means Committee Majority Tax Staff 182 

Title VIII – Deadwood and Technical Provisions 

Subtitle A – Repeal of Deadwood 

Secs. 8001-8084. Repeal of Deadwood. 

Current law: Under current law, there are numerous provisions that relate to past tax years (and 

generally are no longer applied in computing taxes for open tax years), involve situations that 

were narrowly defined and unlikely to recur, or otherwise have outlived their usefulness. These 

types of provisions are often referred to as “deadwood” provisions.

Provisions: Under these provisions, current-law provisions that are deadwood would be 

repealed. (Note that other provisions in other titles of the discussion draft would repeal other 

current-law provisions that would become deadwood as a result of those other provisions.) 

These provisions generally would be effective on the date of enactment, although the tax 

treatment of any transaction occurring before that date, of any property acquired before that date, 

or of any item taken into account before that date, would not be affected by these provisions. 

JCT estimate: According to JCT, the provisions would have no revenue effect over 2014-2023. 

Subtitle B – Conforming Amendments Related to Multiple Sections 

Sec. 8101. Conforming amendments related to multiple sections. 

Current law: Under current law, there are numerous provisions that would be affected by 

multiple provisions in the discussion draft and, therefore, require technical changes to conform 

these current-law provisions to the provisions in the discussion draft. 

Provision: Under the provision, several conforming changes that are common to various 

provisions of the discussion draft would be made. The provision generally would be effective 

for tax years beginning after 2014. 

JCT estimate: According to JCT, the provision would have no revenue effect over 2014-2023.