In the Senate of the United States, 

December 20 (legislative day, December 19), 2017. 

Resolved, That the report of the Committee of Conference on the disagreeing votes of the two Houses on the 

amendment of the Senate to the bill (H.R. 1) entitled ‘‘An 

Act to provide for reconciliation pursuant to titles II and V 

of the concurrent resolution on the budget for fiscal year 

2018.’’, fails on a point of order. 

Resolved, That the Senate recede from its amendment to 

the above-titled bill with a further amendment as follows: 

SENATE AMENDMENT: 

Strike out all after the enacting clause and insert: 

1 TITLE I 

2 SEC. 11000. SHORT TITLE, ETC. 

3 (a) AMENDMENT OF 1986 CODE.—Except as otherwise 

4 expressly provided, whenever in this title an amendment 

5 or repeal is expressed in terms of an amendment to, or re6 peal of, a section or other provision, the reference shall be 

7 considered to be made to a section or other provision of the 

8 Internal Revenue Code of 1986. 
2 

† HR 1 EAS2 

1 Subtitle A—Individual Tax Reform 

2 PART I—TAX RATE REFORM 

3 SEC. 11001. MODIFICATION OF RATES. 

4 (a) IN GENERAL.—Section 1 is amended by adding 

5 at the end the following new subsection: 

6 ‘‘(j) MODIFICATIONS FOR TAXABLE YEARS 2018 

7 THROUGH 2025.— 

8 ‘‘(1) IN GENERAL.—In the case of a taxable year 

9 beginning after December 31, 2017, and before Janu10 ary 1, 2026— 

11 ‘‘(A) subsection (i) shall not apply, and 

12 ‘‘(B) this section (other than subsection (i)) 

13 shall be applied as provided in paragraphs (2) 

14 through (6). 

15 ‘‘(2) RATE TABLES.— 

16 ‘‘(A) MARRIED INDIVIDUALS FILING JOINT

17 RETURNS AND SURVIVING SPOUSES.—The fol18 lowing table shall be applied in lieu of the table 

19 contained in subsection (a): 

‘‘If taxable income is: The tax is: 

Not over $19,050 ........................................... 10% of taxable income. 

Over $19,050 but not over $77,400 ............. $1,905, plus 12% of the excess over 

$19,050. 

Over $77,400 but not over $165,000 ........... $8,907, plus 22% of the excess over 

$77,400. 

Over $165,000 but not over $315,000 ......... $28,179, plus 24% of the excess over 

$165,000. 

Over $315,000 but not over $400,000 ......... $64,179, plus 32% of the excess over 

$315,000. 

Over $400,000 but not over $600,000 ......... $91,379, plus 35% of the excess over 

$400,000. 
3 

† HR 1 EAS2 

‘‘If taxable income is: The tax is: 

Over $600,000 ............................................... $161,379, plus 37% of the excess 

over $600,000. 

1 ‘‘(B) HEADS OF HOUSEHOLDS.—The fol2 lowing table shall be applied in lieu of the table 

3 contained in subsection (b): 

‘‘If taxable income is: The tax is: 

Not over $13,600 ........................................... 10% of taxable income. 

Over $13,600 but not over $51,800 ............. $1,360, plus 12% of the excess over 

$13,600. 

Over $51,800 but not over $82,500 ............. $5,944, plus 22% of the excess over 

$51,800. 

Over $82,500 but not over $157,500 ........... $12,698, plus 24% of the excess over 

$82,500. 

Over $157,500 but not over $200,000 ......... $30,698, plus 32% of the excess over 

$157,500. 

Over $200,000 but not over $500,000 ......... $44,298, plus 35% of the excess over 

$200,000. 

Over $500,000 ............................................... $149,298, plus 37% of the excess 

over $500,000. 

4 ‘‘(C) UNMARRIED INDIVIDUALS OTHER

5 THAN SURVIVING SPOUSES AND HEADS OF

6 HOUSEHOLDS.—The following table shall be ap7 plied in lieu of the table contained in subsection 

8 (c): 

‘‘If taxable income is: The tax is: 

Not over $9,525 ............................................. 10% of taxable income. 

Over $9,525 but not over $38,700 ............... $952.50, plus 12% of the excess over 

$9,525. 

Over $38,700 but not over $82,500 ............. $4,453.50, plus 22% of the excess 

over $38,700. 

Over $82,500 but not over $157,500 ........... $14,089.50, plus 24% of the excess 

over $82,500. 

Over $157,500 but not over $200,000 ......... $32,089.50, plus 32% of the excess 

over $157,500. 

Over $200,000 but not over $500,000 ......... $45,689.50, plus 35% of the excess 

over $200,000. 

Over $500,000 ............................................... $150,689.50, plus 37% of the excess 

over $500,000. 
4 

† HR 1 EAS2 

1 ‘‘(D) MARRIED INDIVIDUALS FILING SEPA2 RATE RETURNS.—The following table shall be 

3 applied in lieu of the table contained in sub4 section (d): 

‘‘If taxable income is: The tax is: 

Not over $9,525 ............................................. 10% of taxable income. 

Over $9,525 but not over $38,700 ............... $952.50, plus 12% of the excess over 

$9,525. 

Over $38,700 but not over $82,500 ............. $4,453.50, plus 22% of the excess 

over $38,700. 

Over $82,500 but not over $157,500 ........... $14,089.50, plus 24% of the excess 

over $82,500. 

Over $157,500 but not over $200,000 ......... $32,089.50, plus 32% of the excess 

over $157,500. 

Over $200,000 but not over $300,000 ......... $45,689.50, plus 35% of the excess 

over $200,000. 

Over $300,000 ............................................... $80,689.50, plus 37% of the excess 

over $300,000. 

5 ‘‘(E) ESTATES AND TRUSTS.—The following 

6 table shall be applied in lieu of the table con7 tained in subsection (e): 

‘‘If taxable income is: The tax is: 

Not over $2,550 ............................................. 10% of taxable income. 

Over $2,550 but not over $9,150 ................. $255, plus 24% of the excess over 

$2,550. 

Over $9,150 but not over $12,500 ............... $1,839, plus 35% of the excess over 

$9,150. 

Over $12,500 ................................................. $3,011.50, plus 37% of the excess 

over $12,500. 

8 ‘‘(F) REFERENCES TO RATE TABLES.—Any 

9 reference in this title to a rate of tax under sub10 section (c) shall be treated as a reference to the 

11 corresponding rate bracket under subparagraph 

12 (C) of this paragraph, except that the reference 

13 in section 3402(q)(1) to the third lowest rate of 
5 

† HR 1 EAS2 

1 tax applicable under subsection (c) shall be treat2 ed as a reference to the fourth lowest rate of tax 

3 under subparagraph (C). 

4 ‘‘(3) ADJUSTMENTS.— 

5 ‘‘(A) NO ADJUSTMENT IN 2018.—The tables 

6 contained in paragraph (2) shall apply without 

7 adjustment for taxable years beginning after De8 cember 31, 2017, and before January 1, 2019. 

9 ‘‘(B) SUBSEQUENT YEARS.—For taxable 

10 years beginning after December 31, 2018, the 

11 Secretary shall prescribe tables which shall apply 

12 in lieu of the tables contained in paragraph (2) 

13 in the same manner as under paragraphs (1) 

14 and (2) of subsection (f) (applied without regard 

15 to clauses (i) and (ii) of subsection (f)(2)(A)), ex16 cept that in prescribing such tables— 

17 ‘‘(i) subsection (f)(3) shall be applied 

18 by substituting ‘calendar year 2017’ for 

19 ‘calendar year 2016’ in subparagraph 

20 (A)(ii) thereof, 

21 ‘‘(ii) subsection (f)(7)(B) shall apply to 

22 any unmarried individual other than a sur23 viving spouse or head of household, and 

24 ‘‘(iii) subsection (f)(8) shall not apply. 
6 

† HR 1 EAS2 

1 ‘‘(4) SPECIAL RULES FOR CERTAIN CHILDREN

2 WITH UNEARNED INCOME.— 

3 ‘‘(A) IN GENERAL.—In the case of a child to 

4 whom subsection (g) applies for the taxable year, 

5 the rules of subparagraphs (B) and (C) shall 

6 apply in lieu of the rule under subsection (g)(1). 

7 ‘‘(B) MODIFICATIONS TO APPLICABLE RATE

8 BRACKETS.—In determining the amount of tax 

9 imposed by this section for the taxable year on 

10 a child described in subparagraph (A), the in11 come tax table otherwise applicable under this 

12 subsection to the child shall be applied with the 

13 following modifications: 

14 ‘‘(i) 24-PERCENT BRACKET.—The max15 imum taxable income which is taxed at a 

16 rate below 24 percent shall not be more than 

17 the sum of— 

18 ‘‘(I) the earned taxable income of 

19 such child, plus 

20 ‘‘(II) the minimum taxable in21 come for the 24-percent bracket in the 

22 table under paragraph (2)(E) (as ad23 justed under paragraph (3)) for the 

24 taxable year. 
7 

† HR 1 EAS2 

1 ‘‘(ii) 35-PERCENT BRACKET.—The 

2 maximum taxable income which is taxed at 

3 a rate below 35 percent shall not be more 

4 than the sum of— 

5 ‘‘(I) the earned taxable income of 

6 such child, plus 

7 ‘‘(II) the minimum taxable in8 come for the 35-percent bracket in the 

9 table under paragraph (2)(E) (as ad10 justed under paragraph (3)) for the 

11 taxable year. 

12 ‘‘(iii) 37-PERCENT BRACKET.—The 

13 maximum taxable income which is taxed at 

14 a rate below 37 percent shall not be more 

15 than the sum of— 

16 ‘‘(I) the earned taxable income of 

17 such child, plus 

18 ‘‘(II) the minimum taxable in19 come for the 37-percent bracket in the 

20 table under paragraph (2)(E) (as ad21 justed under paragraph (3)) for the 

22 taxable year. 

23 ‘‘(C) COORDINATION WITH CAPITAL GAINS

24 RATES.—For purposes of applying section 1(h) 
8 

† HR 1 EAS2 

1 (after the modifications under paragraph 

2 (5)(A))— 

3 ‘‘(i) the maximum zero rate amount 

4 shall not be more than the sum of— 

5 ‘‘(I) the earned taxable income of 

6 such child, plus 

7 ‘‘(II) the amount in effect under 

8 paragraph (5)(B)(i)(IV) for the taxable 

9 year, and 

10 ‘‘(ii) the maximum 15-percent rate 

11 amount shall not be more than the sum of— 

12 ‘‘(I) the earned taxable income of 

13 such child, plus 

14 ‘‘(II) the amount in effect under 

15 paragraph (5)(B)(ii)(IV) for the tax16 able year. 

17 ‘‘(D) EARNED TAXABLE INCOME.—For pur18 poses of this paragraph, the term ‘earned taxable 

19 income’ means, with respect to any child for any 

20 taxable year, the taxable income of such child re21 duced (but not below zero) by the net unearned 

22 income (as defined in subsection (g)(4)) of such 

23 child. 

24 ‘‘(5) APPLICATION OF CURRENT INCOME TAX

25 BRACKETS TO CAPITAL GAINS BRACKETS.— 
9 

† HR 1 EAS2 

1 ‘‘(A) IN GENERAL.—Section 1(h)(1) shall be 

2 applied— 

3 ‘‘(i) by substituting ‘below the max4 imum zero rate amount’ for ‘which would 

5 (without regard to this paragraph) be taxed 

6 at a rate below 25 percent’ in subparagraph 

7 (B)(i), and 

8 ‘‘(ii) by substituting ‘below the max9 imum 15-percent rate amount’ for ‘which 

10 would (without regard to this paragraph) be 

11 taxed at a rate below 39.6 percent’ in sub12 paragraph (C)(ii)(I). 

13 ‘‘(B) MAXIMUM AMOUNTS DEFINED.—For 

14 purposes of applying section 1(h) with the modi15 fications described in subparagraph (A)— 

16 ‘‘(i) MAXIMUM ZERO RATE AMOUNT.— 

17 The maximum zero rate amount shall be— 

18 ‘‘(I) in the case of a joint return 

19 or surviving spouse, $77,200, 

20 ‘‘(II) in the case of an individual 

21 who is a head of household (as defined 

22 in section 2(b)), $51,700, 

23 ‘‘(III) in the case of any other in24 dividual (other than an estate or 

trust), an amount equal to 1 25 ⁄2 of the 
10 

† HR 1 EAS2 

1 amount in effect for the taxable year 

2 under subclause (I), and 

3 ‘‘(IV) in the case of an estate or 

4 trust, $2,600. 

5 ‘‘(ii) MAXIMUM 15-PERCENT RATE

6 AMOUNT.—The maximum 15-percent rate 

7 amount shall be— 

8 ‘‘(I) in the case of a joint return 

or surviving spouse, $479,000 (1 9 ⁄2 such 

10 amount in the case of a married indi11 vidual filing a separate return), 

12 ‘‘(II) in the case of an individual 

13 who is the head of a household (as de14 fined in section 2(b)), $452,400, 

15 ‘‘(III) in the case of any other in16 dividual (other than an estate or 

17 trust), $425,800, and 

18 ‘‘(IV) in the case of an estate or 

19 trust, $12,700. 

20 ‘‘(C) INFLATION ADJUSTMENT.—In the case 

21 of any taxable year beginning after 2018, each of 

22 the dollar amounts in clauses (i) and (ii) of sub23 paragraph (B) shall be increased by an amount 

24 equal to— 

25 ‘‘(i) such dollar amount, multiplied by 
11 

† HR 1 EAS2 

1 ‘‘(ii) the cost-of-living adjustment de2 termined under subsection (f)(3) for the cal3 endar year in which the taxable year be4 gins, determined by substituting ‘calendar 

5 year 2017’ for ‘calendar year 2016’ in sub6 paragraph (A)(ii) thereof. 

7 If any increase under this subparagraph is not 

8 a multiple of $50, such increase shall be rounded 

9 to the next lowest multiple of $50. 

10 ‘‘(6) SECTION 15 NOT TO APPLY.—Section 15 

11 shall not apply to any change in a rate of tax by rea12 son of this subsection.’’. 

13 (b) DUE DILIGENCE TAX PREPARER REQUIREMENT

14 WITH RESPECT TO HEAD OF HOUSEHOLD FILING STA15 TUS.—Subsection (g) of section 6695 is amended to read 

16 as follows: 

17 ‘‘(g) FAILURE TO BE DILIGENT IN DETERMINING ELI18 GIBILITY FOR CERTAIN TAX BENEFITS.—Any person who 

19 is a tax return preparer with respect to any return or claim 

20 for refund who fails to comply with due diligence require21 ments imposed by the Secretary by regulations with respect 

22 to determining— 

23 ‘‘(1) eligibility to file as a head of household (as 

24 defined in section 2(b)) on the return, or 
12 

† HR 1 EAS2 

1 ‘‘(2) eligibility for, or the amount of, the credit 

2 allowable by section 24, 25A(a)(1), or 32, 

3 shall pay a penalty of $500 for each such failure.’’. 

4 (c) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to taxable years beginning after Decem6 ber 31, 2017. 

7 SEC. 11002. INFLATION ADJUSTMENTS BASED ON CHAINED 

8 CPI. 

9 (a) IN GENERAL.—Subsection (f) of section 1 is 

10 amended by striking paragraph (3) and by inserting after 

11 paragraph (2) the following new paragraph: 

12 ‘‘(3) COST-OF-LIVING ADJUSTMENT.—For pur13 poses of this subsection— 

14 ‘‘(A) IN GENERAL.—The cost-of-living ad15 justment for any calendar year is the percentage 

16 (if any) by which— 

17 ‘‘(i) the C-CPI-U for the preceding cal18 endar year, exceeds 

19 ‘‘(ii) the CPI for calendar year 2016, 

20 multiplied by the amount determined under 

21 subparagraph (B). 

22 ‘‘(B) AMOUNT DETERMINED.—The amount 

23 determined under this clause is the amount ob24 tained by dividing— 
13 

† HR 1 EAS2 

1 ‘‘(i) the C-CPI-U for calendar year 

2 2016, by 

3 ‘‘(ii) the CPI for calendar year 2016. 

4 ‘‘(C) SPECIAL RULE FOR ADJUSTMENTS

5 WITH A BASE YEAR AFTER 2016.—For purposes 

6 of any provision of this title which provides for 

7 the substitution of a year after 2016 for ‘2016’ 

8 in subparagraph (A)(ii), subparagraph (A) shall 

9 be applied by substituting ‘the C-CPI-U for cal10 endar year 2016’ for ‘the CPI for calendar year 

11 2016’ and all that follows in clause (ii) thereof.’’. 

12 (b) C-CPI-U.—Subsection (f) of section 1 is amended 

13 by striking paragraph (7), by redesignating paragraph (6) 

14 as paragraph (7), and by inserting after paragraph (5) the 

15 following new paragraph: 

16 ‘‘(6) C-CPI-U.—For purposes of this sub17 section— 

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

19 means the Chained Consumer Price Index for All 

20 Urban Consumers (as published by the Bureau of 

21 Labor Statistics of the Department of Labor). 

22 The values of the Chained Consumer Price Index 

23 for All Urban Consumers taken into account for 

24 purposes of determining the cost-of-living adjust25 ment for any calendar year under this subsection 
14 

† HR 1 EAS2 

1 shall be the latest values so published as of the 

2 date on which such Bureau publishes the initial 

3 value of the Chained Consumer Price Index for 

4 All Urban Consumers for the month of August 

5 for the preceding calendar year. 

6 ‘‘(B) DETERMINATION FOR CALENDAR

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

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

9 12-month period ending on August 31 of such 

10 calendar year.’’. 

11 (c) APPLICATION TO PERMANENT TAX TABLES.— 

12 (1) IN GENERAL.—Section 1(f)(2)(A) is amended 

13 to read as follows: 

14 ‘‘(A) except as provided in paragraph (8), 

15 by increasing the minimum and maximum dol16 lar amounts for each bracket for which a tax is 

17 imposed under such table by the cost-of-living 

18 adjustment for such calendar year, determined— 

19 ‘‘(i) except as provided in clause (ii), 

20 by substituting ‘1992’ for ‘2016’ in para21 graph (3)(A)(ii), and 

22 ‘‘(ii) in the case of adjustments to the 

23 dollar amounts at which the 36 percent rate 

24 bracket begins or at which the 39.6 percent 
15 

† HR 1 EAS2 

1 rate bracket begins, by substituting ‘1993’ 

2 for ‘2016’ in paragraph (3)(A)(ii),’’. 

3 (2) CONFORMING AMENDMENTS.—Section 1(i) is 

4 amended— 

5 (A) by striking ‘‘for ‘1992’ in subparagraph 

6 (B)’’ in paragraph (1)(C) and inserting ‘‘for 

7 ‘2016’ in subparagraph (A)(ii)’’, and 

8 (B) by striking ‘‘subsection (f)(3)(B) shall 

9 be applied by substituting ‘2012’ for ‘1992’ ’’ in 

10 paragraph (3)(C) and inserting ‘‘subsection 

11 (f)(3)(A)(ii) shall be applied by substituting 

12 ‘2012’ for ‘2016’ ’’. 

13 (d) APPLICATION TO OTHER INTERNAL REVENUE

14 CODE OF 1986 PROVISIONS.— 

15 (1) The following sections are each amended by 

16 striking ‘‘for ‘calendar year 1992’ in subparagraph 

17 (B)’’ and inserting ‘‘for ‘calendar year 2016’ in sub18 paragraph (A)(ii)’’: 

19 (A) Section 23(h)(2). 

20 (B) Paragraphs (1)(A)(ii) and (2)(A)(ii) of 

21 section 25A(h). 

22 (C) Section 25B(b)(3)(B). 

23 (D) Subsection (b)(2)(B)(ii)(II), and clauses 

24 (i) and (ii) of subsection (j)(1)(B), of section 32. 

25 (E) Section 36B(f)(2)(B)(ii)(II). 
16 

† HR 1 EAS2 

1 (F) Section 41(e)(5)(C)(i). 

2 (G) Subsections (e)(3)(D)(ii) and 

3 (h)(3)(H)(i)(II) of section 42. 

4 (H) Section 45R(d)(3)(B)(ii). 

5 (I) Section 55(d)(4)(A)(ii). 

6 (J) Section 62(d)(3)(B). 

7 (K) Section 63(c)(4)(B). 

8 (L) Section 125(i)(2)(B). 

9 (M) Section 135(b)(2)(B)(ii). 

10 (N) Section 137(f)(2). 

11 (O) Section 146(d)(2)(B). 

12 (P) Section 147(c)(2)(H)(ii). 

13 (Q) Section 151(d)(4)(B). 

14 (R) Section 179(b)(6)(A)(ii). 

15 (S) Subsections (b)(5)(C)(i)(II) and 

16 (g)(8)(B) of section 219. 

17 (T) Section 220(g)(2). 

18 (U) Section 221(f)(1)(B). 

19 (V) Section 223(g)(1)(B). 

20 (W) Section 408A(c)(3)(D)(ii). 

21 (X) Section 430(c)(7)(D)(vii)(II). 

22 (Y) Section 512(d)(2)(B). 

23 (Z) Section 513(h)(2)(C)(ii). 

24 (AA) Section 831(b)(2)(D)(ii). 

25 (BB) Section 877A(a)(3)(B)(i)(II). 
17 

† HR 1 EAS2 

1 (CC) Section 2010(c)(3)(B)(ii). 

2 (DD) Section 2032A(a)(3)(B). 

3 (EE) Section 2503(b)(2)(B). 

4 (FF) Section 4261(e)(4)(A)(ii). 

5 (GG) Section 5000A(c)(3)(D)(ii). 

6 (HH) Section 6323(i)(4)(B). 

7 (II) Section 6334(g)(1)(B). 

8 (JJ) Section 6601(j)(3)(B). 

9 (KK) Section 6651(i)(1). 

10 (LL) Section 6652(c)(7)(A). 

11 (MM) Section 6695(h)(1). 

12 (NN) Section 6698(e)(1). 

13 (OO) Section 6699(e)(1). 

14 (PP) Section 6721(f)(1). 

15 (QQ) Section 6722(f)(1). 

16 (RR) Section 7345(f)(2). 

17 (SS) Section 7430(c)(1). 

18 (TT) Section 9831(d)(2)(D)(ii)(II). 

19 (2) Sections 41(e)(5)(C)(ii) and 68(b)(2)(B) are 

20 each amended— 

21 (A) by striking ‘‘1(f)(3)(B)’’ and inserting 

22 ‘‘1(f)(3)(A)(ii)’’, and 

23 (B) by striking ‘‘1992’’ and inserting 

24 ‘‘2016’’. 

25 (3) Section 42(h)(6)(G) is amended— 
18 

† HR 1 EAS2 

1 (A) by striking ‘‘for ‘calendar year 1987’ ’’ 

2 in clause (i)(II) and inserting ‘‘for ‘calendar 

3 year 2016’ in subparagraph (A)(ii) thereof’’, and 

4 (B) by striking ‘‘if the CPI for any cal5 endar year’’ and all that follows in clause (ii) 

6 and inserting ‘‘if the C-CPI-U for any calendar 

7 year (as defined in section 1(f)(6)) exceeds the C8 CPI-U for the preceding calendar year by more 

9 than 5 percent, the C-CPI-U for the base cal10 endar year shall be increased such that such ex11 cess shall never be taken into account under 

12 clause (i). In the case of a base calendar year be13 fore 2017, the C-CPI-U for such year shall be de14 termined by multiplying the CPI for such year 

15 by the amount determined under section 

16 1(f)(3)(B).’’. 

17 (4) Section 59(j)(2)(B) is amended by striking 

18 ‘‘for ‘1992’ in subparagraph (B)’’ and inserting ‘‘for 

19 ‘2016’ in subparagraph (A)(ii)’’. 

20 (5) Section 132(f)(6)(A)(ii) is amended by strik21 ing ‘‘for ‘calendar year 1992’ ’’ and inserting ‘‘for 

22 ‘calendar year 2016’ in subparagraph (A)(ii) there23 of’’. 

24 (6) Section 162(o)(3) is amended by striking 

25 ‘‘adjusted for changes in the Consumer Price Index 
19 

† HR 1 EAS2 

1 (as defined in section 1(f)(5)) since 1991’’ and insert2 ing ‘‘adjusted by increasing any such amount under 

3 the 1991 agreement by an amount equal to— 

4 ‘‘(A) such amount, multiplied by 

5 ‘‘(B) the cost-of-living adjustment deter6 mined under section 1(f)(3) for the calendar year 

7 in which the taxable year begins, by substituting 

8 ‘calendar year 1990’ for ‘calendar year 2016’ in 

9 subparagraph (A)(ii) thereof’’. 

10 (7) So much of clause (ii) of section 

11 213(d)(10)(B) as precedes the last sentence is amend12 ed to read as follows: 

13 ‘‘(ii) MEDICAL CARE COST ADJUST14 MENT.—For purposes of clause (i), the med15 ical care cost adjustment for any calendar 

16 year is the percentage (if any) by which— 

17 ‘‘(I) the medical care component 

18 of the C-CPI-U (as defined in section 

19 1(f)(6)) for August of the preceding cal20 endar year, exceeds 

21 ‘‘(II) such component of the CPI 

22 (as defined in section 1(f)(4)) for Au23 gust of 1996, multiplied by the amount 

24 determined under section 1(f)(3)(B).’’. 
20 

† HR 1 EAS2 

1 (8) Subparagraph (B) of section 280F(d)(7) is 

2 amended to read as follows: 

3 ‘‘(B) AUTOMOBILE PRICE INFLATION AD4 JUSTMENT.—For purposes of this paragraph— 

5 ‘‘(i) IN GENERAL.—The automobile 

6 price inflation adjustment for any calendar 

7 year is the percentage (if any) by which— 

8 ‘‘(I) the C-CPI-U automobile com9 ponent for October of the preceding cal10 endar year, exceeds 

11 ‘‘(II) the automobile component of 

12 the CPI (as defined in section 1(f)(4)) 

13 for October of 1987, multiplied by the 

14 amount determined under 1(f)(3)(B). 

15 ‘‘(ii) C-CPI-U AUTOMOBILE COMPO16 NENT.—The term ‘C-CPI-U automobile 

17 component’ means the automobile compo18 nent of the Chained Consumer Price Index 

19 for All Urban Consumers (as described in 

20 section 1(f)(6)).’’. 

21 (9) Section 911(b)(2)(D)(ii)(II) is amended by 

22 striking ‘‘for ‘1992’ in subparagraph (B)’’ and insert23 ing ‘‘for ‘2016’ in subparagraph (A)(ii)’’. 

24 (10) Paragraph (2) of section 1274A(d) is 

25 amended to read as follows: 
21 

† HR 1 EAS2 

1 ‘‘(2) ADJUSTMENT FOR INFLATION.—In the case 

2 of any debt instrument arising out of a sale or ex3 change during any calendar year after 1989, each 

4 dollar amount contained in the preceding provisions 

5 of this section shall be increased by an amount equal 

6 to— 

7 ‘‘(A) such amount, multiplied by 

8 ‘‘(B) the cost-of-living adjustment deter9 mined under section 1(f)(3) for the calendar year 

10 in which the taxable year begins, by substituting 

11 ‘calendar year 1988’ for ‘calendar year 2016’ in 

12 subparagraph (A)(ii) thereof. 

13 Any increase under the preceding sentence shall be 

14 rounded to the nearest multiple of $100 (or, if such 

15 increase is a multiple of $50, such increase shall be 

16 increased to the nearest multiple of $100).’’. 

17 (11) Section 4161(b)(2)(C)(i)(II) is amended by 

18 striking ‘‘for ‘1992’ in subparagraph (B)’’ and insert19 ing ‘‘for ‘2016’ in subparagraph (A)(ii)’’. 

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

21 striking ‘‘for ‘1992’ in subparagraph (B)’’ and insert22 ing ‘‘for ‘2016’ in subparagraph (A)(ii)’’. 

23 (13) Section 6039F(d) is amended by striking 

24 ‘‘subparagraph (B) thereof shall be applied by sub25 stituting ‘1995’ for ‘1992’ ’’ and inserting ‘‘subpara-
22 

† HR 1 EAS2 

1 graph (A)(ii) thereof shall be applied by substituting 

2 ‘1995’ for ‘2016’ ’’. 

3 (14) Section 7872(g)(5) is amended to read as 

4 follows: 

5 ‘‘(5) ADJUSTMENT OF LIMIT FOR INFLATION.—In 

6 the case of any loan made during any calendar year 

7 after 1986, the dollar amount in paragraph (2) shall 

8 be increased by an amount equal to— 

9 ‘‘(A) such amount, multiplied by 

10 ‘‘(B) the cost-of-living adjustment deter11 mined under section 1(f)(3) for the calendar year 

12 in which the taxable year begins, by substituting 

13 ‘calendar year 1985’ for ‘calendar year 2016’ in 

14 subparagraph (A)(ii) thereof. 

15 Any increase under the preceding sentence shall be 

16 rounded to the nearest multiple of $100 (or, if such 

17 increase is a multiple of $50, such increase shall be 

18 increased to the nearest multiple of $100).’’. 

19 (e) EFFECTIVE DATE.—The amendments made by this 

20 section shall apply to taxable years beginning after Decem21 ber 31, 2017. 
23 

† HR 1 EAS2 

1 PART II—DEDUCTION FOR QUALIFIED BUSINESS 

2 INCOME OF PASS-THRU ENTITIES 

3 SEC. 11011. DEDUCTION FOR QUALIFIED BUSINESS IN4 COME. 

5 (a) IN GENERAL.—Part VI of subchapter B of chapter 

6 1 is amended by adding at the end the following new sec7 tion: 

8 ‘‘SEC. 199A. QUALIFIED BUSINESS INCOME. 

9 ‘‘(a) IN GENERAL.—In the case of a taxpayer other 

10 than a corporation, there shall be allowed as a deduction 

11 for any taxable year an amount equal to the sum of— 

12 ‘‘(1) the lesser of— 

13 ‘‘(A) the combined qualified business income 

14 amount of the taxpayer, or 

15 ‘‘(B) an amount equal to 20 percent of the 

16 excess (if any) of— 

17 ‘‘(i) the taxable income of the taxpayer 

18 for the taxable year, over 

19 ‘‘(ii) the sum of any net capital gain 

20 (as defined in section 1(h)), plus the aggre21 gate amount of the qualified cooperative 

22 dividends, of the taxpayer for the taxable 

23 year, plus 

24 ‘‘(2) the lesser of— 
24 

† HR 1 EAS2 

1 ‘‘(A) 20 percent of the aggregate amount of 

2 the qualified cooperative dividends of the tax3 payer for the taxable year, or 

4 ‘‘(B) taxable income (reduced by the net 

5 capital gain (as so defined)) of the taxpayer for 

6 the taxable year. 

7 The amount determined under the preceding sentence shall 

8 not exceed the taxable income (reduced by the net capital 

9 gain (as so defined)) of the taxpayer for the taxable year. 

10 ‘‘(b) COMBINED QUALIFIED BUSINESS INCOME

11 AMOUNT.—For purposes of this section— 

12 ‘‘(1) IN GENERAL.—The term ‘combined quali13 fied business income amount’ means, with respect to 

14 any taxable year, an amount equal to— 

15 ‘‘(A) the sum of the amounts determined 

16 under paragraph (2) for each qualified trade or 

17 business carried on by the taxpayer, plus 

18 ‘‘(B) 20 percent of the aggregate amount of 

19 the qualified REIT dividends and qualified pub20 licly traded partnership income of the taxpayer 

21 for the taxable year. 

22 ‘‘(2) DETERMINATION OF DEDUCTIBLE AMOUNT

23 FOR EACH TRADE OR BUSINESS.—The amount deter24 mined under this paragraph with respect to any 

25 qualified trade or business is the lesser of— 
25 

† HR 1 EAS2 

1 ‘‘(A) 20 percent of the taxpayer’s qualified 

2 business income with respect to the qualified 

3 trade or business, or 

4 ‘‘(B) the greater of— 

5 ‘‘(i) 50 percent of the W–2 wages with 

6 respect to the qualified trade or business, or 

7 ‘‘(ii) the sum of 25 percent of the W– 

8 2 wages with respect to the qualified trade 

9 or business, plus 2.5 percent of the 

10 unadjusted basis immediately after acquisi11 tion of all qualified property. 

12 ‘‘(3) MODIFICATIONS TO LIMIT BASED ON TAX13 ABLE INCOME.— 

14 ‘‘(A) EXCEPTION FROM LIMIT.—In the case 

15 of any taxpayer whose taxable income for the 

16 taxable year does not exceed the threshold 

17 amount, paragraph (2) shall be applied without 

18 regard to subparagraph (B). 

19 ‘‘(B) PHASE-IN OF LIMIT FOR CERTAIN TAX20 PAYERS.— 

21 ‘‘(i) IN GENERAL.—If— 

22 ‘‘(I) the taxable income of a tax23 payer for any taxable year exceeds the 

24 threshold amount, but does not exceed 

25 the sum of the threshold amount plus 
26 

† HR 1 EAS2 

1 $50,000 ($100,000 in the case of a 

2 joint return), and 

3 ‘‘(II) the amount determined 

4 under paragraph (2)(B) (determined 

5 without regard to this subparagraph) 

6 with respect to any qualified trade or 

7 business carried on by the taxpayer is 

8 less than the amount determined under 

9 paragraph (2)(A) with respect such 

10 trade or business, 

11 then paragraph (2) shall be applied with re12 spect to such trade or business without re13 gard to subparagraph (B) thereof and by re14 ducing the amount determined under sub15 paragraph (A) thereof by the amount deter16 mined under clause (ii). 

17 ‘‘(ii) AMOUNT OF REDUCTION.—The 

18 amount determined under this subpara19 graph is the amount which bears the same 

20 ratio to the excess amount as— 

21 ‘‘(I) the amount by which the tax22 payer’s taxable income for the taxable 

23 year exceeds the threshold amount, 

24 bears to 
27 

† HR 1 EAS2 

1 ‘‘(II) $50,000 ($100,000 in the 

2 case of a joint return). 

3 ‘‘(iii) EXCESS AMOUNT.—For purposes 

4 of clause (ii), the excess amount is the excess 

5 of— 

6 ‘‘(I) the amount determined under 

7 paragraph (2)(A) (determined without 

8 regard to this paragraph), over 

9 ‘‘(II) the amount determined 

10 under paragraph (2)(B) (determined 

11 without regard to this paragraph). 

12 ‘‘(4) WAGES, ETC.— 

13 ‘‘(A) IN GENERAL.—The term ‘W–2 wages’ 

14 means, with respect to any person for any tax15 able year of such person, the amounts described 

16 in paragraphs (3) and (8) of section 6051(a) 

17 paid by such person with respect to employment 

18 of employees by such person during the calendar 

19 year ending during such taxable year. 

20 ‘‘(B) LIMITATION TO WAGES ATTRIBUTABLE

21 TO QUALIFIED BUSINESS INCOME.—Such term 

22 shall not include any amount which is not prop23 erly allocable to qualified business income for 

24 purposes of subsection (c)(1). 
28 

† HR 1 EAS2 

1 ‘‘(C) RETURN REQUIREMENT.—Such term 

2 shall not include any amount which is not prop3 erly included in a return filed with the Social 

4 Security Administration on or before the 60th 

5 day after the due date (including extensions) for 

6 such return. 

7 ‘‘(5) ACQUISITIONS, DISPOSITIONS, AND SHORT

8 TAXABLE YEARS.—The Secretary shall provide for the 

9 application of this subsection in cases of a short tax10 able year or where the taxpayer acquires, or disposes 

11 of, the major portion of a trade or business or the 

12 major portion of a separate unit of a trade or busi13 ness during the taxable year. 

14 ‘‘(6) QUALIFIED PROPERTY.—For purposes of 

15 this section: 

16 ‘‘(A) IN GENERAL.—The term ‘qualified 

17 property’ means, with respect to any qualified 

18 trade or business for a taxable year, tangible 

19 property of a character subject to the allowance 

20 for depreciation under section 167— 

21 ‘‘(i) which is held by, and available for 

22 use in, the qualified trade or business at the 

23 close of the taxable year, 
29 

† HR 1 EAS2 

1 ‘‘(ii) which is used at any point dur2 ing the taxable year in the production of 

3 qualified business income, and 

4 ‘‘(iii) the depreciable period for which 

5 has not ended before the close of the taxable 

6 year. 

7 ‘‘(B) DEPRECIABLE PERIOD.—The term ‘de8 preciable period’ means, with respect to qualified 

9 property of a taxpayer, the period beginning on 

10 the date the property was first placed in service 

11 by the taxpayer and ending on the later of— 

12 ‘‘(i) the date that is 10 years after such 

13 date, or 

14 ‘‘(ii) the last day of the last full year 

15 in the applicable recovery period that would 

16 apply to the property under section 168 (de17 termined without regard to subsection (g) 

18 thereof). 

19 ‘‘(c) QUALIFIED BUSINESS INCOME.—For purposes of 

20 this section— 

21 ‘‘(1) IN GENERAL.—The term ‘qualified business 

22 income’ means, for any taxable year, the net amount 

23 of qualified items of income, gain, deduction, and loss 

24 with respect to any qualified trade or business of the 

25 taxpayer. Such term shall not include any qualified 
30 

† HR 1 EAS2 

1 REIT dividends, qualified cooperative dividends, or 

2 qualified publicly traded partnership income. 

3 ‘‘(2) CARRYOVER OF LOSSES.—If the net amount 

4 of qualified income, gain, deduction, and loss with re5 spect to qualified trades or businesses of the taxpayer 

6 for any taxable year is less than zero, such amount 

7 shall be treated as a loss from a qualified trade or 

8 business in the succeeding taxable year. 

9 ‘‘(3) QUALIFIED ITEMS OF INCOME, GAIN, DE10 DUCTION, AND LOSS.—For purposes of this sub11 section— 

12 ‘‘(A) IN GENERAL.—The term ‘qualified 

13 items of income, gain, deduction, and loss’ 

14 means items of income, gain, deduction, and loss 

15 to the extent such items are— 

16 ‘‘(i) effectively connected with the con17 duct of a trade or business within the 

18 United States (within the meaning of sec19 tion 864(c), determined by substituting 

20 ‘qualified trade or business (within the 

21 meaning of section 199A)’ for ‘nonresident 

22 alien individual or a foreign corporation’ or 

23 for ‘a foreign corporation’ each place it ap24 pears), and 
31 

† HR 1 EAS2 

1 ‘‘(ii) included or allowed in deter2 mining taxable income for the taxable year. 

3 ‘‘(B) EXCEPTIONS.—The following invest4 ment items shall not be taken into account as a 

5 qualified item of income, gain, deduction, or loss: 

6 ‘‘(i) Any item of short-term capital 

7 gain, short-term capital loss, long-term cap8 ital gain, or long-term capital loss. 

9 ‘‘(ii) Any dividend, income equivalent 

10 to a dividend, or payment in lieu of divi11 dends described in section 954(c)(1)(G). 

12 ‘‘(iii) Any interest income other than 

13 interest income which is properly allocable 

14 to a trade or business. 

15 ‘‘(iv) Any item of gain or loss de16 scribed in subparagraph (C) or (D) of sec17 tion 954(c)(1) (applied by substituting 

18 ‘qualified trade or business’ for ‘controlled 

19 foreign corporation’). 

20 ‘‘(v) Any item of income, gain, deduc21 tion, or loss taken into account under sec22 tion 954(c)(1)(F) (determined without re23 gard to clause (ii) thereof and other than 

24 items attributable to notional principal con-
32 

† HR 1 EAS2 

1 tracts entered into in transactions quali2 fying under section 1221(a)(7)). 

3 ‘‘(vi) Any amount received from an 

4 annuity which is not received in connection 

5 with the trade or business. 

6 ‘‘(vii) Any item of deduction or loss 

7 properly allocable to an amount described 

8 in any of the preceding clauses. 

9 ‘‘(4) TREATMENT OF REASONABLE COMPENSA10 TION AND GUARANTEED PAYMENTS.—Qualified busi11 ness income shall not include— 

12 ‘‘(A) reasonable compensation paid to the 

13 taxpayer by any qualified trade or business of 

14 the taxpayer for services rendered with respect to 

15 the trade or business, 

16 ‘‘(B) any guaranteed payment described in 

17 section 707(c) paid to a partner for services ren18 dered with respect to the trade or business, and 

19 ‘‘(C) to the extent provided in regulations, 

20 any payment described in section 707(a) to a 

21 partner for services rendered with respect to the 

22 trade or business. 

23 ‘‘(d) QUALIFIED TRADE OR BUSINESS.—For purposes 

24 of this section— 
33 

† HR 1 EAS2 

1 ‘‘(1) IN GENERAL.—The term ‘qualified trade or 

2 business’ means any trade or business other than— 

3 ‘‘(A) a specified service trade or business, or 

4 ‘‘(B) the trade or business of performing 

5 services as an employee. 

6 ‘‘(2) SPECIFIED SERVICE TRADE OR BUSINESS.— 

7 The term ‘specified service trade or business’ means 

8 any trade or business— 

9 ‘‘(A) which is described in section 

10 1202(e)(3)(A) (applied without regard to the 

11 words ‘engineering, architecture,’) or which 

12 would be so described if the term ‘employees or 

13 owners’ were substituted for ‘employees’ therein, 

14 or 

15 ‘‘(B) which involves the performance of serv16 ices that consist of investing and investment 

17 management, trading, or dealing in securities 

18 (as defined in section 475(c)(2)), partnership in19 terests, or commodities (as defined in section 

20 475(e)(2)). 

21 ‘‘(3) EXCEPTION FOR SPECIFIED SERVICE BUSI22 NESSES BASED ON TAXPAYER’S INCOME.— 

23 ‘‘(A) IN GENERAL.—If, for any taxable 

24 year, the taxable income of any taxpayer is less 

25 than the sum of the threshold amount plus 
34 

† HR 1 EAS2 

1 $50,000 ($100,000 in the case of a joint return), 

2 then— 

3 ‘‘(i) any specified service trade or busi4 ness of the taxpayer shall not fail to be 

5 treated as a qualified trade or business due 

6 to paragraph (1)(A), but 

7 ‘‘(ii) only the applicable percentage of 

8 qualified items of income, gain, deduction, 

9 or loss, and the W–2 wages and the 

10 unadjusted basis immediately after acquisi11 tion of qualified property, of the taxpayer 

12 allocable to such specified service trade or 

13 business shall be taken into account in com14 puting the qualified business income, W–2 

15 wages, and the unadjusted basis imme16 diately after acquisition of qualified prop17 erty of the taxpayer for the taxable year for 

18 purposes of applying this section. 

19 ‘‘(B) APPLICABLE PERCENTAGE.—For pur20 poses of subparagraph (A), the term ‘applicable 

21 percentage’ means, with respect to any taxable 

22 year, 100 percent reduced (not below zero) by the 

23 percentage equal to the ratio of— 
35 

† HR 1 EAS2 

1 ‘‘(i) the taxable income of the taxpayer 

2 for the taxable year in excess of the thresh3 old amount, bears to 

4 ‘‘(ii) $50,000 ($100,000 in the case of 

5 a joint return). 

6 ‘‘(e) OTHER DEFINITIONS.—For purposes of this sec7 tion— 

8 ‘‘(1) TAXABLE INCOME.—Taxable income shall be 

9 computed without regard to the deduction allowable 

10 under this section. 

11 ‘‘(2) THRESHOLD AMOUNT.— 

12 ‘‘(A) IN GENERAL.—The term ‘threshold 

13 amount’ means $157,500 (200 percent of such 

14 amount in the case of a joint return). 

15 ‘‘(B) INFLATION ADJUSTMENT.—In the case 

16 of any taxable year beginning after 2018, the 

17 dollar amount in subparagraph (A) shall be in18 creased by an amount equal to— 

19 ‘‘(i) such dollar amount, multiplied by 

20 ‘‘(ii) the cost-of-living adjustment de21 termined under section 1(f)(3) for the cal22 endar year in which the taxable year be23 gins, determined by substituting ‘calendar 

24 year 2017’ for ‘calendar year 2016’ in sub25 paragraph (A)(ii) thereof. 
36 

† HR 1 EAS2 

1 The amount of any increase under the preceding 

2 sentence shall be rounded as provided in section 

3 1(f)(7). 

4 ‘‘(3) QUALIFIED REIT DIVIDEND.—The term 

5 ‘qualified REIT dividend’ means any dividend from 

6 a real estate investment trust received during the tax7 able year which— 

8 ‘‘(A) is not a capital gain dividend, as de9 fined in section 857(b)(3), and 

10 ‘‘(B) is not qualified dividend income, as 

11 defined in section 1(h)(11). 

12 ‘‘(4) QUALIFIED COOPERATIVE DIVIDEND.—The 

13 term ‘qualified cooperative dividend’ means any pa14 tronage dividend (as defined in section 1388(a)), any 

15 per-unit retain allocation (as defined in section 

16 1388(f)), and any qualified written notice of alloca17 tion (as defined in section 1388(c)), or any similar 

18 amount received from an organization described in 

19 subparagraph (B)(ii), which— 

20 ‘‘(A) is includible in gross income, and 

21 ‘‘(B) is received from— 

22 ‘‘(i) an organization or corporation de23 scribed in section 501(c)(12) or 1381(a), or 

24 ‘‘(ii) an organization which is gov25 erned under this title by the rules applicable 
37 

† HR 1 EAS2 

1 to cooperatives under this title before the en2 actment of subchapter T. 

3 ‘‘(5) QUALIFIED PUBLICLY TRADED PARTNER4 SHIP INCOME.—The term ‘qualified publicly traded 

5 partnership income’ means, with respect to any quali6 fied trade or business of a taxpayer, the sum of— 

7 ‘‘(A) the net amount of such taxpayer’s allo8 cable share of each qualified item of income, 

9 gain, deduction, and loss (as defined in sub10 section (c)(3) and determined after the applica11 tion of subsection (c)(4)) from a publicly traded 

12 partnership (as defined in section 7704(a)) 

13 which is not treated as a corporation under sec14 tion 7704(c), plus 

15 ‘‘(B) any gain recognized by such taxpayer 

16 upon disposition of its interest in such partner17 ship to the extent such gain is treated as an 

18 amount realized from the sale or exchange of 

19 property other than a capital asset under section 

20 751(a). 

21 ‘‘(f) SPECIAL RULES.— 

22 ‘‘(1) APPLICATION TO PARTNERSHIPS AND S COR23 PORATIONS.— 

24 ‘‘(A) IN GENERAL.—In the case of a part25 nership or S corporation— 
38 

† HR 1 EAS2 

1 ‘‘(i) this section shall be applied at the 

2 partner or shareholder level, 

3 ‘‘(ii) each partner or shareholder shall 

4 take into account such person’s allocable 

5 share of each qualified item of income, gain, 

6 deduction, and loss, and 

7 ‘‘(iii) each partner or shareholder shall 

8 be treated for purposes of subsection (b) as 

9 having W–2 wages and unadjusted basis 

10 immediately after acquisition of qualified 

11 property for the taxable year in an amount 

12 equal to such person’s allocable share of the 

13 W–2 wages and the unadjusted basis imme14 diately after acquisition of qualified prop15 erty of the partnership or S corporation for 

16 the taxable year (as determined under regu17 lations prescribed by the Secretary). 

18 For purposes of clause (iii), a partner’s or share19 holder’s allocable share of W–2 wages shall be de20 termined in the same manner as the partner’s or 

21 shareholder’s allocable share of wage expenses. 

22 For purposes of such clause, partner’s or share23 holder’s allocable share of the unadjusted basis 

24 immediately after acquisition of qualified prop25 erty shall be determined in the same manner as 
39 

† HR 1 EAS2 

1 the partner’s or shareholder’s allocable share of 

2 depreciation. For purposes of this subparagraph, 

3 in the case of an S corporation, an allocable 

4 share shall be the shareholder’s pro rata share of 

5 an item. 

6 ‘‘(B) APPLICATION TO TRUSTS AND ES7 TATES.—Rules similar to the rules under section 

8 199(d)(1)(B)(i) (as in effect on December 1, 

9 2017) for the apportionment of W–2 wages shall 

10 apply to the apportionment of W–2 wages and 

11 the apportionment of unadjusted basis imme12 diately after acquisition of qualified property 

13 under this section. 

14 ‘‘(C) TREATMENT OF TRADES OR BUSINESS

15 IN PUERTO RICO.— 

16 ‘‘(i) IN GENERAL.—In the case of any 

17 taxpayer with qualified business income 

18 from sources within the commonwealth of 

19 Puerto Rico, if all such income is taxable 

20 under section 1 for such taxable year, then 

21 for purposes of determining the qualified 

22 business income of such taxpayer for such 

23 taxable year, the term ‘United States’ shall 

24 include the Commonwealth of Puerto Rico. 
40 

† HR 1 EAS2 

1 ‘‘(ii) SPECIAL RULE FOR APPLYING

2 LIMIT.—In the case of any taxpayer de3 scribed in clause (i), the determination of 

4 W–2 wages of such taxpayer with respect to 

5 any qualified trade or business conducted in 

6 Puerto Rico shall be made without regard to 

7 any exclusion under section 3401(a)(8) for 

8 remuneration paid for services in Puerto 

9 Rico. 

10 ‘‘(2) COORDINATION WITH MINIMUM TAX.—For 

11 purposes of determining alternative minimum taxable 

12 income under section 55, qualified business income 

13 shall be determined without regard to any adjust14 ments under sections 56 through 59. 

15 ‘‘(3) DEDUCTION LIMITED TO INCOME TAXES.— 

16 The deduction under subsection (a) shall only be al17 lowed for purposes of this chapter. 

18 ‘‘(4) REGULATIONS.—The Secretary shall pre19 scribe such regulations as are necessary to carry out 

20 the purposes of this section, including regulations— 

21 ‘‘(A) for requiring or restricting the alloca22 tion of items and wages under this section and 

23 such reporting requirements as the Secretary de24 termines appropriate, and 
41 

† HR 1 EAS2 

1 ‘‘(B) for the application of this section in 

2 the case of tiered entities. 

3 ‘‘(g) DEDUCTION ALLOWED TO SPECIFIED AGRICUL4 TURAL OR HORTICULTURAL COOPERATIVES.— 

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

6 year of a specified agricultural or horticultural coop7 erative beginning after December 31, 2017, there shall 

8 be allowed a deduction in an amount equal to the 

9 lesser of— 

10 ‘‘(A) 20 percent of the excess (if any) of— 

11 ‘‘(i) the gross income of a specified ag12 ricultural or horticultural cooperative, over 

13 ‘‘(ii) the qualified cooperative divi14 dends (as defined in subsection (e)(4)) paid 

15 during the taxable year for the taxable year, 

16 or 

17 ‘‘(B) the greater of— 

18 ‘‘(i) 50 percent of the W–2 wages of the 

19 cooperative with respect to its trade or busi20 ness, or 

21 ‘‘(ii) the sum of 25 percent of the W– 

22 2 wages of the cooperative with respect to 

23 its trade or business, plus 2.5 percent of the 

24 unadjusted basis immediately after acquisi-
42 

† HR 1 EAS2 

1 tion of all qualified property of the coopera2 tive. 

3 ‘‘(2) LIMITATION.—The amount determined 

4 under paragraph (1) shall not exceed the taxable in5 come of the specified agricultural or horticultural for 

6 the taxable year. 

7 ‘‘(3) SPECIFIED AGRICULTURAL OR HORTI8 CULTURAL COOPERATIVE.—For purposes of this sub9 section, the term ‘specified agricultural or horti10 cultural cooperative’ means an organization to which 

11 part I of subchapter T applies which is engaged in— 

12 ‘‘(A) the manufacturing, production, 

13 growth, or extraction in whole or significant 

14 part of any agricultural or horticultural prod15 uct, 

16 ‘‘(B) the marketing of agricultural or horti17 cultural products which its patrons have so man18 ufactured, produced, grown, or extracted, or 

19 ‘‘(C) the provision of supplies, equipment, 

20 or services to farmers or to organizations de21 scribed in subparagraph (A) or (B). 

22 ‘‘(h) ANTI-ABUSE RULES.—The Secretary shall— 

23 ‘‘(1) apply rules similar to the rules under sec24 tion 179(d)(2) in order to prevent the manipulation 
43 

† HR 1 EAS2 

1 of the depreciable period of qualified property using 

2 transactions between related parties, and 

3 ‘‘(2) prescribe rules for determining the 

4 unadjusted basis immediately after acquisition of 

5 qualified property acquired in like-kind exchanges or 

6 involuntary conversions. 

7 ‘‘(i) TERMINATION.—This section shall not apply to 

8 taxable years beginning after December 31, 2025.’’. 

9 (b) TREATMENT OF DEDUCTION IN COMPUTING AD10 JUSTED GROSS AND TAXABLE INCOME.— 

11 (1) DEDUCTION NOT ALLOWED IN COMPUTING

12 ADJUSTED GROSS INCOME.—Section 62(a) is amended 

13 by adding at the end the following new sentence: ‘‘The 

14 deduction allowed by section 199A shall not be treated 

15 as a deduction described in any of the preceding 

16 paragraphs of this subsection.’’. 

17 (2) DEDUCTION ALLOWED TO NONITEMIZERS.— 

18 Section 63(b) is amended by striking ‘‘and’’ at the 

19 end of paragraph (1), by striking the period at the 

20 end of paragraph (2) and inserting ‘‘, and’’, and by 

21 adding at the end the following new paragraph: 

22 ‘‘(3) the deduction provided in section 199A.’’. 

23 (3) DEDUCTION ALLOWED TO ITEMIZERS WITH24 OUT LIMITS ON ITEMIZED DEDUCTIONS.—Section 

25 63(d) is amended by striking ‘‘and’’ at the end of 
44 

† HR 1 EAS2 

1 paragraph (1), by striking the period at the end of 

2 paragraph (2) and inserting ‘‘, and’’, and by adding 

3 at the end the following new paragraph: 

4 ‘‘(3) the deduction provided in section 199A.’’. 

5 (4) CONFORMING AMENDMENT.—Section 

6 3402(m)(1) is amended by inserting ‘‘and the esti7 mated deduction allowed under section 199A’’ after 

8 ‘‘chapter 1’’. 

9 (c) ACCURACY-RELATED PENALTY ON DETERMINATION

10 OF APPLICABLE PERCENTAGE.—Section 6662(d)(1) is 

11 amended by inserting at the end the following new subpara12 graph: 

13 ‘‘(C) SPECIAL RULE FOR TAXPAYERS CLAIM14 ING SECTION 199A DEDUCTION.—In the case of 

15 any taxpayer who claims the deduction allowed 

16 under section 199A for the taxable year, sub17 paragraph (A) shall be applied by substituting ‘5 

18 percent’ for ‘10 percent’.’’. 

19 (d) CONFORMING AMENDMENTS.— 

20 (1) Section 172(d) is amended by adding at the 

21 end the following new paragraph: 

22 ‘‘(8) QUALIFIED BUSINESS INCOME DEDUC23 TION.—The deduction under section 199A shall not be 

24 allowed.’’. 
45 

† HR 1 EAS2 

1 (2) Section 246(b)(1) is amended by inserting 

2 ‘‘199A,’’ before ‘‘243(a)(1)’’. 

3 (3) Section 613(a) is amended by inserting ‘‘and 

4 without the deduction under section 199A’’ after ‘‘and 

5 without the deduction under section 199’’. 

6 (4) Section 613A(d)(1) is amended by redesig7 nating subparagraphs (C), (D), and (E) as subpara8 graphs (D), (E), and (F), respectively, and by insert9 ing after subparagraph (B), the following new sub10 paragraph: 

11 ‘‘(C) any deduction allowable under section 

12 199A,’’. 

13 (5) Section 170(b)(2)(D) is amended by striking 

14 ‘‘and’’ in clause (iv), by striking the period at the end 

15 of clause (v), and by adding at the end the following 

16 new clause: 

17 ‘‘(vi) section 199A(g).’’. 

18 (6) The table of sections for part VI of sub19 chapter B of chapter 1 is amended by inserting at the 

20 end the following new item: 

‘‘Sec. 199A. Qualified business income.’’. 

21 (e) EFFECTIVE DATE.—The amendments made by this 

22 section shall apply to taxable years beginning after Decem23 ber 31, 2017. 
46 

† HR 1 EAS2 

1 SEC. 11012. LIMITATION ON LOSSES FOR TAXPAYERS 

2 OTHER THAN CORPORATIONS. 

3 (a) IN GENERAL.—Section 461 is amended by adding 

4 at the end the following new subsection: 

5 ‘‘(l) LIMITATION ON EXCESS BUSINESS LOSSES OF

6 NONCORPORATE TAXPAYERS.— 

7 ‘‘(1) LIMITATION.—In the case of taxable year of 

8 a taxpayer other than a corporation beginning after 

9 December 31, 2017, and before January 1, 2026— 

10 ‘‘(A) subsection (j) (relating to limitation 

11 on excess farm losses of certain taxpayers) shall 

12 not apply, and 

13 ‘‘(B) any excess business loss of the tax14 payer for the taxable year shall not be allowed. 

15 ‘‘(2) DISALLOWED LOSS CARRYOVER.—Any loss 

16 which is disallowed under paragraph (1) shall be 

17 treated as a net operating loss carryover to the fol18 lowing taxable year under section 172. 

19 ‘‘(3) EXCESS BUSINESS LOSS.—For purposes of 

20 this subsection— 

21 ‘‘(A) IN GENERAL.—The term ‘excess busi22 ness loss’ means the excess (if any) of— 

23 ‘‘(i) the aggregate deductions of the 

24 taxpayer for the taxable year which are at25 tributable to trades or businesses of such 

26 taxpayer (determined without regard to 
47 

† HR 1 EAS2 

1 whether or not such deductions are dis2 allowed for such taxable year under para3 graph (1)), over 

4 ‘‘(ii) the sum of— 

5 ‘‘(I) the aggregate gross income or 

6 gain of such taxpayer for the taxable 

7 year which is attributable to such 

8 trades or businesses, plus 

9 ‘‘(II) $250,000 (200 percent of 

10 such amount in the case of a joint re11 turn). 

12 ‘‘(B) ADJUSTMENT FOR INFLATION.—In the 

13 case of any taxable year beginning after Decem14 ber 31, 2018, the $250,000 amount in subpara15 graph (A)(ii)(II) shall be increased by an 

16 amount equal to— 

17 ‘‘(i) such dollar amount, multiplied by 

18 ‘‘(ii) the cost-of-living adjustment de19 termined under section 1(f)(3) for the cal20 endar year in which the taxable year be21 gins, determined by substituting ‘2017’ for 

22 ‘2016’ in subparagraph (A)(ii) thereof. 

23 If any amount as increased under the pre24 ceding sentence is not a multiple of $1,000, 
48 

† HR 1 EAS2 

1 such amount shall be rounded to the nearest 

2 multiple of $1,000. 

3 ‘‘(4) APPLICATION OF SUBSECTION IN CASE OF

4 PARTNERSHIPS AND S CORPORATIONS.—In the case of 

5 a partnership or S corporation— 

6 ‘‘(A) this subsection shall be applied at the 

7 partner or shareholder level, and 

8 ‘‘(B) each partner’s or shareholder’s allo9 cable share of the items of income, gain, deduc10 tion, or loss of the partnership or S corporation 

11 for any taxable year from trades or businesses 

12 attributable to the partnership or S corporation 

13 shall be taken into account by the partner or 

14 shareholder in applying this subsection to the 

15 taxable year of such partner or shareholder with 

16 or within which the taxable year of the partner17 ship or S corporation ends. 

18 For purposes of this paragraph, in the case of an S 

19 corporation, an allocable share shall be the share20 holder’s pro rata share of an item. 

21 ‘‘(5) ADDITIONAL REPORTING.—The Secretary 

22 shall prescribe such additional reporting requirements 

23 as the Secretary determines necessary to carry out the 

24 purposes of this subsection. 
49 

† HR 1 EAS2 

1 ‘‘(6) COORDINATION WITH SECTION 469.—This 

2 subsection shall be applied after the application of 

3 section 469.’’. 

4 (b) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to taxable years beginning after Decem6 ber 31, 2017. 

7 PART III—TAX BENEFITS FOR FAMILIES AND 

8 INDIVIDUALS 

9 SEC. 11021. INCREASE IN STANDARD DEDUCTION. 

10 (a) IN GENERAL.—Subsection (c) of section 63 is 

11 amended by adding at the end the following new paragraph: 

12 ‘‘(7) SPECIAL RULES FOR TAXABLE YEARS 2018

13 THROUGH 2025.—In the case of a taxable year begin14 ning after December 31, 2017, and before January 1, 

15 2026— 

16 ‘‘(A) INCREASE IN STANDARD DEDUC17 TION.—Paragraph (2) shall be applied— 

18 ‘‘(i) by substituting ‘$18,000’ for 

19 ‘$4,400’ in subparagraph (B), and 

20 ‘‘(ii) by substituting ‘$12,000’ for 

21 ‘$3,000’ in subparagraph (C). 

22 ‘‘(B) ADJUSTMENT FOR INFLATION.— 

23 ‘‘(i) IN GENERAL.—Paragraph (4) 

24 shall not apply to the dollar amounts con25 tained in paragraphs (2)(B) and (2)(C). 
50 

† HR 1 EAS2 

1 ‘‘(ii) ADJUSTMENT OF INCREASED

2 AMOUNTS.—In the case of a taxable year be3 ginning after 2018, the $18,000 and 

4 $12,000 amounts in subparagraph (A) shall 

5 each be increased by an amount equal to— 

6 ‘‘(I) such dollar amount, multi7 plied by 

8 ‘‘(II) the cost-of-living adjustment 

9 determined under section 1(f)(3) for 

10 the calendar year in which the taxable 

11 year begins, determined by substituting 

12 ‘2017’ for ‘2016’ in subparagraph 

13 (A)(ii) thereof. 

14 If any increase under this clause is not a 

15 multiple of $50, such increase shall be 

16 rounded to the next lowest multiple of 

17 $50.’’. 

18 (b) EFFECTIVE DATE.—The amendment made by this 

19 section shall apply to taxable years beginning after Decem20 ber 31, 2017. 

21 SEC. 11022. INCREASE IN AND MODIFICATION OF CHILD 

22 TAX CREDIT. 

23 (a) IN GENERAL.—Section 24 is amended by adding 

24 at the end the following new subsection: 
51 

† HR 1 EAS2 

1 ‘‘(h) SPECIAL RULES FOR TAXABLE YEARS 2018 

2 THROUGH 2025.— 

3 ‘‘(1) IN GENERAL.—In the case of a taxable year 

4 beginning after December 31, 2017, and before Janu5 ary 1, 2026, this section shall be applied as provided 

6 in paragraphs (2) through (7). 

7 ‘‘(2) CREDIT AMOUNT.—Subsection (a) shall be 

8 applied by substituting ‘$2,000’ for ‘$1,000’. 

9 ‘‘(3) LIMITATION.—In lieu of the amount deter10 mined under subsection (b)(2), the threshold amount 

11 shall be $400,000 in the case of a joint return 

12 ($200,000 in any other case). 

13 ‘‘(4) PARTIAL CREDIT ALLOWED FOR CERTAIN

14 OTHER DEPENDENTS.— 

15 ‘‘(A) IN GENERAL.—The credit determined 

16 under subsection (a) (after the application of 

17 paragraph (2)) shall be increased by $500 for 

18 each dependent of the taxpayer (as defined in 

19 section 152) other than a qualifying child de20 scribed in subsection (c). 

21 ‘‘(B) EXCEPTION FOR CERTAIN NONCITI22 ZENS.—Subparagraph (A) shall not apply with 

23 respect to any individual who would not be a de24 pendent if subparagraph (A) of section 152(b)(3) 
52 

† HR 1 EAS2 

1 were applied without regard to all that follows 

2 ‘resident of the United States’. 

3 ‘‘(C) CERTAIN QUALIFYING CHILDREN.—In 

4 the case of any qualifying child with respect to 

5 whom a credit is not allowed under this section 

6 by reason of paragraph (7), such child shall be 

7 treated as a dependent to whom subparagraph 

8 (A) applies. 

9 ‘‘(5) MAXIMUM AMOUNT OF REFUNDABLE CRED10 IT.— 

11 ‘‘(A) IN GENERAL.—The amount determined 

12 under subsection (d)(1)(A) with respect to any 

13 qualifying child shall not exceed $1,400, and 

14 such subsection shall be applied without regard 

15 to paragraph (4) of this subsection. 

16 ‘‘(B) ADJUSTMENT FOR INFLATION.—In the 

17 case of a taxable year beginning after 2018, the 

18 $1,400 amount in subparagraph (A) shall be in19 creased by an amount equal to— 

20 ‘‘(i) such dollar amount, multiplied by 

21 ‘‘(ii) the cost-of-living adjustment de22 termined under section 1(f)(3) for the cal23 endar year in which the taxable year be24 gins, determined by substituting ‘2017’ for 

25 ‘2016’ in subparagraph (A)(ii) thereof. 
53 

† HR 1 EAS2 

1 If any increase under this clause is not a mul2 tiple of $100, such increase shall be rounded to 

3 the next lowest multiple of $100. 

4 ‘‘(6) EARNED INCOME THRESHOLD FOR REFUND5 ABLE CREDIT.—Subsection (d)(1)(B)(i) shall be ap6 plied by substituting ‘$2,500’ for ‘$3,000’. 

7 ‘‘(7) SOCIAL SECURITY NUMBER REQUIRED.—No 

8 credit shall be allowed under this section to a tax9 payer with respect to any qualifying child unless the 

10 taxpayer includes the social security number of such 

11 child on the return of tax for the taxable year. For 

12 purposes of the preceding sentence, the term ‘social se13 curity number’ means a social security number issued 

14 to an individual by the Social Security Administra15 tion, but only if the social security number is 

16 issued— 

17 ‘‘(A) to a citizen of the United States or 

18 pursuant to subclause (I) (or that portion of sub19 clause (III) that relates to subclause (I)) of sec20 tion 205(c)(2)(B)(i) of the Social Security Act, 

21 and 

22 ‘‘(B) before the due date for such return.’’. 

23 (b) EFFECTIVE DATE.—The amendment made by this 

24 section shall apply to taxable years beginning after Decem25 ber 31, 2017. 
54 

† HR 1 EAS2 

1 SEC. 11023. INCREASED LIMITATION FOR CERTAIN CHARI2 TABLE CONTRIBUTIONS. 

3 (a) IN GENERAL.—Section 170(b)(1) is amended by 

4 redesignating subparagraph (G) as subparagraph (H) and 

5 by inserting after subparagraph (F) the following new sub6 paragraph: 

7 ‘‘(G) INCREASED LIMITATION FOR CASH

8 CONTRIBUTIONS.— 

9 ‘‘(i) IN GENERAL.—In the case of any 

10 contribution of cash to an organization de11 scribed in subparagraph (A), the total 

12 amount of such contributions which may be 

13 taken into account under subsection (a) for 

14 any taxable year beginning after December 

15 31, 2017, and before January 1, 2026, shall 

16 not exceed 60 percent of the taxpayer’s con17 tribution base for such year. 

18 ‘‘(ii) CARRYOVER.—If the aggregate 

19 amount of contributions described in clause 

20 (i) exceeds the applicable limitation under 

21 clause (i) for any taxable year described in 

22 such clause, such excess shall be treated (in 

23 a manner consistent with the rules of sub24 section (d)(1)) as a charitable contribution 

25 to which clause (i) applies in each of the 5 

26 succeeding years in order of time. 
55 

† HR 1 EAS2 

1 ‘‘(iii) COORDINATION WITH SUBPARA2 GRAPHS (A) AND (B).— 

3 ‘‘(I) IN GENERAL.—Contributions 

4 taken into account under this subpara5 graph shall not be taken into account 

6 under subparagraph (A). 

7 ‘‘(II) LIMITATION REDUCTION.— 

8 For each taxable year described in 

9 clause (i), and each taxable year to 

10 which any contribution under this sub11 paragraph is carried over under clause 

12 (ii), subparagraph (A) shall be applied 

13 by reducing (but not below zero) the 

14 contribution limitation allowed for the 

15 taxable year under such subparagraph 

16 by the aggregate contributions allowed 

17 under this subparagraph for such tax18 able year, and subparagraph (B) shall 

19 be applied by treating any reference to 

20 subparagraph (A) as a reference to 

21 both subparagraph (A) and this sub22 paragraph.’’. 

23 (b) EFFECTIVE DATE.—The amendment made by this 

24 section shall apply to contributions in taxable years begin25 ning after December 31, 2017. 
56 

† HR 1 EAS2 

1 SEC. 11024. INCREASED CONTRIBUTIONS TO ABLE AC2 COUNTS. 

3 (a) INCREASE IN LIMITATION FOR CONTRIBUTIONS

4 FROM COMPENSATION OF INDIVIDUALS WITH DISABIL5 ITIES.— 

6 (1) IN GENERAL.—Section 529A(b)(2)(B) is 

7 amended to read as follows: 

8 ‘‘(B) except in the case of contributions 

9 under subsection (c)(1)(C), if such contribution 

10 to an ABLE account would result in aggregate 

11 contributions from all contributors to the ABLE 

12 account for the taxable year exceeding the sum 

13 of— 

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

15 2503(b) for the calendar year in which the 

16 taxable year begins, plus 

17 ‘‘(ii) in the case of any contribution by 

18 a designated beneficiary described in para19 graph (7) before January 1, 2026, the lesser 

20 of— 

21 ‘‘(I) compensation (as defined by 

22 section 219(f)(1)) includible in the des23 ignated beneficiary’s gross income for 

24 the taxable year, or 

25 ‘‘(II) an amount equal to the pov26 erty line for a one-person household, as 
57 

† HR 1 EAS2 

1 determined for the calendar year pre2 ceding the calendar year in which the 

3 taxable year begins.’’. 

4 (2) RESPONSIBILITY FOR CONTRIBUTION LIMITA5 TION.—Paragraph (2) of section 529A(b) is amended 

6 by adding at the end the following: ‘‘A designated 

7 beneficiary (or a person acting on behalf of such bene8 ficiary) shall maintain adequate records for purposes 

9 of ensuring, and shall be responsible for ensuring, 

10 that the requirements of subparagraph (B)(ii) are 

11 met.’’ 

12 (3) ELIGIBLE DESIGNATED BENEFICIARY.—Sec13 tion 529A(b) is amended by adding at the end the fol14 lowing: 

15 ‘‘(7) SPECIAL RULES RELATED TO CONTRIBU16 TION LIMIT.—For purposes of paragraph (2)(B)(ii)— 

17 ‘‘(A) DESIGNATED BENEFICIARY.—A des18 ignated beneficiary described in this paragraph 

19 is an employee (including an employee within 

20 the meaning of section 401(c)) with respect to 

21 whom— 

22 ‘‘(i) no contribution is made for the 

23 taxable year to a defined contribution plan 

24 (within the meaning of section 414(i)) with 
58 

† HR 1 EAS2 

1 respect to which the requirements of section 

2 401(a) or 403(a) are met, 

3 ‘‘(ii) no contribution is made for the 

4 taxable year to an annuity contract de5 scribed in section 403(b), and 

6 ‘‘(iii) no contribution is made for the 

7 taxable year to an eligible deferred com8 pensation plan described in section 457(b). 

9 ‘‘(B) POVERTY LINE.—The term ‘poverty 

10 line’ has the meaning given such term by section 

11 673 of the Community Services Block Grant Act 

12 (42 U.S.C. 9902).’’. 

13 (b) ALLOWANCE OF SAVER’S CREDIT FOR ABLE CON14 TRIBUTIONS BY ACCOUNT HOLDER.—Section 25B(d)(1) is 

15 amended by striking ‘‘and’’ at the end of subparagraph 

16 (B)(ii), by striking the period at the end of subparagraph 

17 (C) and inserting ‘‘, and’’, and by inserting at the end the 

18 following: 

19 ‘‘(D) the amount of contributions made be20 fore January 1, 2026, by such individual to the 

21 ABLE account (within the meaning of section 

22 529A) of which such individual is the designated 

23 beneficiary.’’. 
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† HR 1 EAS2 

1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to taxable years beginning after the date 

3 of the enactment of this Act. 

4 SEC. 11025. ROLLOVERS TO ABLE PROGRAMS FROM 529 

5 PROGRAMS. 

6 (a) IN GENERAL.—Clause (i) of section 529(c)(3)(C) 

7 is amended by striking ‘‘or’’ at the end of subclause (I), 

8 by striking the period at the end of subclause (II) and in9 serting ‘‘, or’’, and by adding at the end the following: 

10 ‘‘(III) before January 1, 2026, to 

11 an ABLE account (as defined in sec12 tion 529A(e)(6)) of the designated bene13 ficiary or a member of the family of 

14 the designated beneficiary. 

15 Subclause (III) shall not apply to so much 

16 of a distribution which, when added to all 

17 other contributions made to the ABLE ac18 count for the taxable year, exceeds the limi19 tation under section 529A(b)(2)(B)(i).’’. 

20 (b) EFFECTIVE DATE.—The amendments made by this 

21 section shall apply to distributions after the date of the en22 actment of this Act. 
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† HR 1 EAS2 

1 SEC. 11026. TREATMENT OF CERTAIN INDIVIDUALS PER2 FORMING SERVICES IN THE SINAI PENIN3 SULA OF EGYPT. 

4 (a) IN GENERAL.—For purposes of the following provi5 sions of the Internal Revenue Code of 1986, with respect 

6 to the applicable period, a qualified hazardous duty area 

7 shall be treated in the same manner as if it were a combat 

8 zone (as determined under section 112 of such Code): 

9 (1) Section 2(a)(3) (relating to special rule 

10 where deceased spouse was in missing status). 

11 (2) Section 112 (relating to the exclusion of cer12 tain combat pay of members of the Armed Forces). 

13 (3) Section 692 (relating to income taxes of 

14 members of Armed Forces on death). 

15 (4) Section 2201 (relating to members of the 

16 Armed Forces dying in combat zone or by reason of 

17 combat-zone-incurred wounds, etc.). 

18 (5) Section 3401(a)(1) (defining wages relating 

19 to combat pay for members of the Armed Forces). 

20 (6) Section 4253(d) (relating to the taxation of 

21 phone service originating from a combat zone from 

22 members of the Armed Forces). 

23 (7) Section 6013(f)(1) (relating to joint return 

24 where individual is in missing status). 
61 

† HR 1 EAS2 

1 (8) Section 7508 (relating to time for performing 

2 certain acts postponed by reason of service in combat 

3 zone). 

4 (b) QUALIFIED HAZARDOUS DUTY AREA.—For pur5 poses of this section, the term ‘‘qualified hazardous duty 

6 area’’ means the Sinai Peninsula of Egypt, if as of the date 

7 of the enactment of this section any member of the Armed 

8 Forces of the United States is entitled to special pay under 

9 section 310 of title 37, United States Code (relating to spe10 cial pay; duty subject to hostile fire or imminent danger), 

11 for services performed in such location. Such term includes 

12 such location only during the period such entitlement is in 

13 effect. 

14 (c) APPLICABLE PERIOD.— 

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the applicable period is— 

17 (A) the portion of the first taxable year end18 ing after June 9, 2015, which begins on such 

19 date, and 

20 (B) any subsequent taxable year beginning 

21 before January 1, 2026. 

22 (2) WITHHOLDING.—In the case of subsection 

23 (a)(5), the applicable period is— 
62 

† HR 1 EAS2 

1 (A) the portion of the first taxable year end2 ing after the date of the enactment of this Act 

3 which begins on such date, and 

4 (B) any subsequent taxable year beginning 

5 before January 1, 2026. 

6 (d) EFFECTIVE DATE.— 

7 (1) IN GENERAL.—Except as provided in para8 graph (2), the provisions of this section shall take ef9 fect on June 9, 2015. 

10 (2) WITHHOLDING.—Subsection (a)(5) shall 

11 apply to remuneration paid after the date of the en12 actment of this Act. 

13 SEC. 11027. TEMPORARY REDUCTION IN MEDICAL EXPENSE 

14 DEDUCTION FLOOR. 

15 (a) IN GENERAL.—Subsection (f) of section 213 is 

16 amended to read as follows: 

17 ‘‘(f) SPECIAL RULES FOR 2013 THROUGH 2018.—In 

18 the case of any taxable year— 

19 ‘‘(1) beginning after December 31, 2012, and 

20 ending before January 1, 2017, in the case of a tax21 payer if such taxpayer or such taxpayer’s spouse has 

22 attained age 65 before the close of such taxable year, 

23 and 
63 

† HR 1 EAS2 

1 ‘‘(2) beginning after December 31, 2016, and 

2 ending before January 1, 2019, in the case of any 

3 taxpayer, 

4 subsection (a) shall be applied with respect to a taxpayer 

5 by substituting ‘7.5 percent’ for ‘10 percent’.’’. 

6 (b) MINIMUM TAX PREFERENCE NOT TO APPLY.—Sec7 tion 56(b)(1)(B) is amended by adding at the end the fol8 lowing new sentence:‘‘This subparagraph shall not apply to 

9 taxable years beginning after December 31, 2016, and end10 ing before January 1, 2019’’. 

11 (c) EFFECTIVE DATE.—The amendment made by this 

12 section shall apply to taxable years beginning after Decem13 ber 31, 2016. 

14 SEC. 11028. RELIEF FOR 2016 DISASTER AREAS. 

15 (a) IN GENERAL.—For purposes of this section, the 

16 term ‘‘2016 disaster area’’ means any area with respect to 

17 which a major disaster has been declared by the President 

18 under section 401 of the Robert T. Stafford Disaster Relief 

19 and Emergency Assistance Act during calendar year 2016. 

20 (b) SPECIAL RULES FOR USE OF RETIREMENT FUNDS

21 WITH RESPECT TO AREAS DAMAGED BY 2016 DISAS22 TERS.— 

23 (1) TAX-FAVORED WITHDRAWALS FROM RETIRE24 MENT PLANS.— 
64 

† HR 1 EAS2 

1 (A) IN GENERAL.—Section 72(t) of the In2 ternal Revenue Code of 1986 shall not apply to 

3 any qualified 2016 disaster distribution. 

4 (B) AGGREGATE DOLLAR LIMITATION.— 

5 (i) IN GENERAL.—For purposes of this 

6 subsection, the aggregate amount of dis7 tributions received by an individual which 

8 may be treated as qualified 2016 disaster 

9 distributions for any taxable year shall not 

10 exceed the excess (if any) of— 

11 (I) $100,000, over 

12 (II) the aggregate amounts treated 

13 as qualified 2016 disaster distributions 

14 received by such individual for all 

15 prior taxable years. 

16 (ii) TREATMENT OF PLAN DISTRIBU17 TIONS.—If a distribution to an individual 

18 would (without regard to clause (i)) be a 

19 qualified 2016 disaster distribution, a plan 

20 shall not be treated as violating any re21 quirement of this title merely because the 

22 plan treats such distribution as a qualified 

23 2016 disaster distribution, unless the aggre24 gate amount of such distributions from all 

25 plans maintained by the employer (and any 
65 

† HR 1 EAS2 

1 member of any controlled group which in2 cludes the employer) to such individual ex3 ceeds $100,000. 

4 (iii) CONTROLLED GROUP.—For pur5 poses of clause (ii), the term ‘‘controlled 

6 group’’ means any group treated as a single 

7 employer under subsection (b), (c), (m), or 

8 (o) of section 414 of the Internal Revenue 

9 Code of 1986. 

10 (C) AMOUNT DISTRIBUTED MAY BE RE11 PAID.— 

12 (i) IN GENERAL.—Any individual who 

13 receives a qualified 2016 disaster distribu14 tion may, at any time during the 3-year 

15 period beginning on the day after the date 

16 on which such distribution was received, 

17 make one or more contributions in an ag18 gregate amount not to exceed the amount of 

19 such distribution to an eligible retirement 

20 plan of which such individual is a bene21 ficiary and to which a rollover contribution 

22 of such distribution could be made under 

23 section 402(c), 403(a)(4), 403(b)(8), 

24 408(d)(3), or 457(e)(16) of the Internal Rev25 enue Code of 1986, as the case may be. 
66 

† HR 1 EAS2 

1 (ii) TREATMENT OF REPAYMENTS OF

2 DISTRIBUTIONS FROM ELIGIBLE RETIRE3 MENT PLANS OTHER THAN IRAS.—For pur4 poses of the Internal Revenue Code of 1986, 

5 if a contribution is made pursuant to clause 

6 (i) with respect to a qualified 2016 disaster 

7 distribution from an eligible retirement 

8 plan other than an individual retirement 

9 plan, then the taxpayer shall, to the extent 

10 of the amount of the contribution, be treated 

11 as having received the qualified 2016 dis12 aster distribution in an eligible rollover dis13 tribution (as defined in section 402(c)(4) of 

14 the Internal Revenue Code of 1986) and as 

15 having transferred the amount to the eligi16 ble retirement plan in a direct trustee to 

17 trustee transfer within 60 days of the dis18 tribution. 

19 (iii) TREATMENT OF REPAYMENTS FOR

20 DISTRIBUTIONS FROM IRAS.—For purposes 

21 of the Internal Revenue Code of 1986, if a 

22 contribution is made pursuant to clause (i) 

23 with respect to a qualified 2016 disaster 

24 distribution from an individual retirement 

25 plan (as defined by section 7701(a)(37) of 
67 

† HR 1 EAS2 

1 the Internal Revenue Code of 1986), then, to 

2 the extent of the amount of the contribution, 

3 the qualified 2016 disaster distribution 

4 shall be treated as a distribution described 

5 in section 408(d)(3) of such Code and as 

6 having been transferred to the eligible re7 tirement plan in a direct trustee to trustee 

8 transfer within 60 days of the distribution. 

9 (D) DEFINITIONS.—For purposes of this 

10 paragraph— 

11 (i) QUALIFIED 2016 DISASTER DIS12 TRIBUTION.—Except as provided in sub13 paragraph (B), the term ‘‘qualified 2016 

14 disaster distribution’’ means any distribu15 tion from an eligible retirement plan made 

16 on or after January 1, 2016, and before 

17 January 1, 2018, to an individual whose 

18 principal place of abode at any time during 

19 calendar year 2016 was located in a dis20 aster area described in subsection (a) and 

21 who has sustained an economic loss by rea22 son of the events giving rise to the Presi23 dential declaration described in subsection 

24 (a) which was applicable to such area. 
68 

† HR 1 EAS2 

1 (ii) ELIGIBLE RETIREMENT PLAN.— 

2 The term ‘‘eligible retirement plan’’ shall 

3 have the meaning given such term by sec4 tion 402(c)(8)(B) of the Internal Revenue 

5 Code of 1986. 

6 (E) INCOME INCLUSION SPREAD OVER 3- 

7 YEAR PERIOD.— 

8 (i) IN GENERAL.—In the case of any 

9 qualified 2016 disaster distribution, unless 

10 the taxpayer elects not to have this subpara11 graph apply for any taxable year, any 

12 amount required to be included in gross in13 come for such taxable year shall be so in14 cluded ratably over the 3-taxable-year pe15 riod beginning with such taxable year. 

16 (ii) SPECIAL RULE.—For purposes of 

17 clause (i), rules similar to the rules of sub18 paragraph (E) of section 408A(d)(3) of the 

19 Internal Revenue Code of 1986 shall apply. 

20 (F) SPECIAL RULES.— 

21 (i) EXEMPTION OF DISTRIBUTIONS

22 FROM TRUSTEE TO TRUSTEE TRANSFER AND

23 WITHHOLDING RULES.—For purposes of sec24 tions 401(a)(31), 402(f), and 3405 of the 

25 Internal Revenue Code of 1986, qualified 
69 

† HR 1 EAS2 

1 2016 disaster distribution shall not be treat2 ed as eligible rollover distributions. 

3 (ii) QUALIFIED 2016 DISASTER DIS4 TRIBUTIONS TREATED AS MEETING PLAN

5 DISTRIBUTION REQUIREMENTS.—For pur6 poses of the Internal Revenue Code of 1986, 

7 a qualified 2016 disaster distribution shall 

8 be treated as meeting the requirements of 

9 sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 

10 403(b)(11), and 457(d)(1)(A) of the Internal 

11 Revenue Code of 1986. 

12 (2) PROVISIONS RELATING TO PLAN AMEND13 MENTS.— 

14 (A) IN GENERAL.—If this paragraph ap15 plies to any amendment to any plan or annuity 

16 contract, such plan or contract shall be treated 

17 as being operated in accordance with the terms 

18 of the plan during the period described in sub19 paragraph (B)(ii)(I). 

20 (B) AMENDMENTS TO WHICH SUBSECTION

21 APPLIES.— 

22 (i) IN GENERAL.—This paragraph 

23 shall apply to any amendment to any plan 

24 or annuity contract which is made— 
70 

† HR 1 EAS2 

1 (I) pursuant to any provision of 

2 this section, or pursuant to any regula3 tion under any provision of this sec4 tion, and 

5 (II) on or before the last day of 

6 the first plan year beginning on or 

7 after January 1, 2018, or such later 

8 date as the Secretary prescribes. 

9 In the case of a governmental plan (as de10 fined in section 414(d) of the Internal Rev11 enue Code of 1986), subclause (II) shall be 

12 applied by substituting the date which is 2 

13 years after the date otherwise applied under 

14 subclause (II). 

15 (ii) CONDITIONS.—This paragraph 

16 shall not apply to any amendment to a 

17 plan or contract unless such amendment 

18 applies retroactively for such period, and 

19 shall not apply to any such amendment un20 less the plan or contract is operated as if 

21 such amendment were in effect during the 

22 period— 

23 (I) beginning on the date that this 

24 section or the regulation described in 

25 clause (i)(I) takes effect (or in the case 
71 

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1 of a plan or contract amendment not 

2 required by this section or such regula3 tion, the effective date specified by the 

4 plan), and 

5 (II) ending on the date described 

6 in clause (i)(II) (or, if earlier, the date 

7 the plan or contract amendment is 

8 adopted). 

9 (c) SPECIAL RULES FOR PERSONAL CASUALTY LOSSES

10 RELATED TO 2016 MAJOR DISASTER.— 

11 (1) IN GENERAL.—If an individual has a net 

12 disaster loss for any taxable year beginning after De13 cember 31, 2015, and before January 1, 2018— 

14 (A) the amount determined under section 

15 165(h)(2)(A)(ii) of the Internal Revenue Code of 

16 1986 shall be equal to the sum of— 

17 (i) such net disaster loss, and 

18 (ii) so much of the excess referred to in 

19 the matter preceding clause (i) of section 

20 165(h)(2)(A) of such Code (reduced by the 

21 amount in clause (i) of this subparagraph) 

22 as exceeds 10 percent of the adjusted gross 

23 income of the individual, 

24 (B) section 165(h)(1) of such Code shall be 

25 applied by substituting ‘‘$500’’ for ‘‘$500 ($100 
72 

† HR 1 EAS2 

1 for taxable years beginning after December 31, 

2 2009)’’, 

3 (C) the standard deduction determined 

4 under section 63(c) of such Code shall be in5 creased by the net disaster loss, and 

6 (D) section 56(b)(1)(E) of such Code shall 

7 not apply to so much of the standard deduction 

8 as is attributable to the increase under subpara9 graph (C) of this paragraph. 

10 (2) NET DISASTER LOSS.—For purposes of this 

11 subsection, the term ‘‘net disaster loss’’ means the ex12 cess of qualified disaster-related personal casualty 

13 losses over personal casualty gains (as defined in sec14 tion 165(h)(3)(A) of the Internal Revenue Code of 

15 1986). 

16 (3) QUALIFIED DISASTER-RELATED PERSONAL

17 CASUALTY LOSSES.—For purposes of this paragraph, 

18 the term ‘‘qualified disaster-related personal casualty 

19 losses’’ means losses described in section 165(c)(3) of 

20 the Internal Revenue Code of 1986 which arise in a 

21 disaster area described in subsection (a) on or after 

22 January 1, 2016, and which are attributable to the 

23 events giving rise to the Presidential declaration de24 scribed in subsection (a) which was applicable to such 

25 area. 
73 

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1 PART IV—EDUCATION 

2 SEC. 11031. TREATMENT OF STUDENT LOANS DISCHARGED 

3 ON ACCOUNT OF DEATH OR DISABILITY. 

4 (a) IN GENERAL.—Section 108(f) is amended by add5 ing at the end the following new paragraph: 

6 ‘‘(5) DISCHARGES ON ACCOUNT OF DEATH OR

7 DISABILITY.— 

8 ‘‘(A) IN GENERAL.—In the case of an indi9 vidual, gross income does not include any 

10 amount which (but for this subsection) would be 

11 includible in gross income for such taxable year 

12 by reasons of the discharge (in whole or in part) 

13 of any loan described in subparagraph (B) after 

14 December 31, 2017, and before January 1, 2026, 

15 if such discharge was— 

16 ‘‘(i) pursuant to subsection (a) or (d) 

17 of section 437 of the Higher Education Act 

18 of 1965 or the parallel benefit under part D 

19 of title IV of such Act (relating to the re20 payment of loan liability), 

21 ‘‘(ii) pursuant to section 464(c)(1)(F) 

22 of such Act, or 

23 ‘‘(iii) otherwise discharged on account 

24 of the death or total and permanent dis25 ability of the student. 
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1 ‘‘(B) LOANS DESCRIBED.—A loan is de2 scribed in this subparagraph if such loan is— 

3 ‘‘(i) a student loan (as defined in 

4 paragraph (2)), or 

5 ‘‘(ii) a private education loan (as de6 fined in section 140(7) of the Consumer 

7 Credit Protection Act (15 U.S.C. 

8 1650(7))).’’. 

9 (b) EFFECTIVE DATE.—The amendment made by this 

10 section shall apply to discharges of indebtedness after De11 cember 31, 2017. 

12 SEC. 11032. 529 ACCOUNT FUNDING FOR ELEMENTARY AND 

13 SECONDARY EDUCATION. 

14 (a) IN GENERAL.— 

15 (1) IN GENERAL.—Section 529(c) is amended by 

16 adding at the end the following new paragraph: 

17 ‘‘(7) TREATMENT OF ELEMENTARY AND SEC18 ONDARY TUITION.—Any reference in this subsection to 

19 the term ‘qualified higher education expense’ shall in20 clude a reference to expenses for tuition in connection 

21 with enrollment or attendance at an elementary or 

22 secondary public, private, or religious school.’’. 

23 (2) LIMITATION.—Section 529(e)(3)(A) is 

24 amended by adding at the end the following: ‘‘The 

25 amount of cash distributions from all qualified tui-
75 

† HR 1 EAS2 

1 tion programs described in subsection (b)(1)(A)(ii) 

2 with respect to a beneficiary during any taxable year 

3 shall, in the aggregate, include not more than $10,000 

4 in expenses described in subsection (c)(7) incurred 

5 during the taxable year.’’. 

6 (b) EFFECTIVE DATE.—The amendments made by this 

7 section shall apply to distributions made after December 31, 

8 2017. 

9 PART V—DEDUCTIONS AND EXCLUSIONS 

10 SEC. 11041. SUSPENSION OF DEDUCTION FOR PERSONAL 

11 EXEMPTIONS. 

12 (a) IN GENERAL.—Subsection (d) of section 151 is 

13 amended— 

14 (1) by striking ‘‘In the case of’’ in paragraph (4) 

15 and inserting ‘‘Except as provided in paragraph (5), 

16 in the case of’’, and 

17 (2) by adding at the end the following new para18 graph: 

19 ‘‘(5) SPECIAL RULES FOR TAXABLE YEARS 2018

20 THROUGH 2025.—In the case of a taxable year begin21 ning after December 31, 2017, and before January 1, 

22 2026— 

23 ‘‘(A) EXEMPTION AMOUNT.—The term ‘ex24 emption amount’ means zero. 
76 

† HR 1 EAS2 

1 ‘‘(B) REFERENCES.—For purposes of any 

2 other provision of this title, the reduction of the 

3 exemption amount to zero under subparagraph 

4 (A) shall not be taken into account in deter5 mining whether a deduction is allowed or allow6 able, or whether a taxpayer is entitled to a de7 duction, under this section.’’. 

8 (b) APPLICATION TO ESTATES AND TRUSTS.—Section 

9 642(b)(2)(C) is amended by adding at the end the following 

10 new clause: 

11 ‘‘(iii) YEARS WHEN PERSONAL EXEMP12 TION AMOUNT IS ZERO.— 

13 ‘‘(I) IN GENERAL.—In the case of 

14 any taxable year in which the exemp15 tion amount under section 151(d) is 

16 zero, clause (i) shall be applied by sub17 stituting ‘$4,150’ for ‘the exemption 

18 amount under section 151(d)’. 

19 ‘‘(II) INFLATION ADJUSTMENT.— 

20 In the case of any taxable year begin21 ning in a calendar year after 2018, the 

22 $4,150 amount in subparagraph (A) 

23 shall be increased in the same manner 

24 as provided in section 6334(d)(4)(C).’’. 

25 (c) MODIFICATION OF WAGE WITHHOLDING RULES.— 
77 

† HR 1 EAS2 

1 (1) IN GENERAL.—Section 3402(a)(2) is amend2 ed by striking ‘‘means the amount’’ and all that fol3 lows and inserting ‘‘means the amount by which the 

4 wages exceed the taxpayer’s withholding allowance, 

5 prorated to the payroll period.’’. 

6 (2) CONFORMING AMENDMENTS.— 

7 (A) Section 3401 is amended by striking 

8 subsection (e). 

9 (B) Paragraphs (1) and (2) of section 

10 3402(f) are amended to read as follows: 

11 ‘‘(1) IN GENERAL.—Under rules determined by 

12 the Secretary, an employee receiving wages shall on 

13 any day be entitled to a withholding allowance deter14 mined based on— 

15 ‘‘(A) whether the employee is an individual 

16 for whom a deduction is allowable with respect 

17 to another taxpayer under section 151; 

18 ‘‘(B) if the employee is married, whether the 

19 employee’s spouse is entitled to an allowance, or 

20 would be so entitled if such spouse were an em21 ployee receiving wages, under subparagraph (A) 

22 or (D), but only if such spouse does not have in 

23 effect a withholding allowance certificate claim24 ing such allowance; 
78 

† HR 1 EAS2 

1 ‘‘(C) the number of individuals with respect 

2 to whom, on the basis of facts existing at the be3 ginning of such day, there may reasonably be ex4 pected to be allowable a credit under section 

5 24(a) for the taxable year under subtitle A in re6 spect of which amounts deducted and withheld 

7 under this chapter in the calendar year in which 

8 such day falls are allowed as a credit; 

9 ‘‘(D) any additional amounts to which the 

10 employee elects to take into account under sub11 section (m), but only if the employee’s spouse 

12 does not have in effect a withholding allowance 

13 certificate making such an election; 

14 ‘‘(E) the standard deduction allowable to 

15 such employee (one-half of such standard deduc16 tion in the case of an employee who is married 

17 (as determined under section 7703) and whose 

18 spouse is an employee receiving wages subject to 

19 withholding); and 

20 ‘‘(F) whether the employee has withholding 

21 allowance certificates in effect with respect to 

22 more than 1 employer. 

23 ‘‘(2) ALLOWANCE CERTIFICATES.— 

24 ‘‘(A) ON COMMENCEMENT OF EMPLOY25 MENT.—On or before the date of the commence-
79 

† HR 1 EAS2 

1 ment of employment with an employer, the em2 ployee shall furnish the employer with a signed 

3 withholding allowance certificate relating to the 

4 withholding allowance claimed by the employee, 

5 which shall in no event exceed the amount to 

6 which the employee is entitled. 

7 ‘‘(B) CHANGE OF STATUS.—If, on any day 

8 during the calendar year, an employee’s with9 holding allowance is in excess of the withholding 

10 allowance to which the employee would be enti11 tled had the employee submitted a true and accu12 rate withholding allowance certificate to the em13 ployer on that day, the employee shall within 10 

14 days thereafter furnish the employer with a new 

15 withholding allowance certificate. If, on any day 

16 during the calendar year, an employee’s with17 holding allowance is greater than the with18 holding allowance claimed, the employee may 

19 furnish the employer with a new withholding al20 lowance certificate relating to the withholding al21 lowance to which the employee is so entitled, 

22 which shall in no event exceed the amount to 

23 which the employee is entitled on such day. 

24 ‘‘(C) CHANGE OF STATUS WHICH AFFECTS

25 NEXT CALENDAR YEAR.—If on any day during 
80 

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1 the calendar year the withholding allowance to 

2 which the employee will be, or may reasonably be 

3 expected to be, entitled at the beginning of the 

4 employee’s next taxable year under subtitle A is 

5 different from the allowance to which the em6 ployee is entitled on such day, the employee 

7 shall, in such cases and at such times as the Sec8 retary shall by regulations prescribe, furnish the 

9 employer with a withholding allowance certifi10 cate relating to the withholding allowance which 

11 the employee claims with respect to such next 

12 taxable year, which shall in no event exceed the 

13 withholding allowance to which the employee 

14 will be, or may reasonably be expected to be, so 

15 entitled.’’. 

16 (C) Subsections (b)(1), (b)(2), (f)(3), (f)(4), 

17 (f)(5), (f)(7) (including the heading thereof), 

18 (g)(4), (l)(1), (l)(2), and (n) of section 3402 are 

19 each amended by striking ‘‘exemption’’ each 

20 place it appears and inserting ‘‘allowance’’. 

21 (D) The heading of section 3402(f) is 

22 amended by striking ‘‘EXEMPTIONS’’ and insert23 ing ‘‘ALLOWANCE’’. 

24 (E) Section 3402(m) is amended by striking 

25 ‘‘additional withholding allowances or addi-
81 

† HR 1 EAS2 

1 tional reductions in withholding under this sub2 section. In determining the number of additional 

3 withholding allowances’’ and inserting ‘‘an addi4 tional withholding allowance or additional re5 ductions in withholding under this subsection. In 

6 determining the additional withholding allow7 ance’’. 

8 (F) Paragraphs (3) and (4) of section 

9 3405(a) (and the heading for such paragraph 

10 (4)) are each amended by striking ‘‘exemption’’ 

11 each place it appears and inserting ‘‘allowance’’. 

12 (G) Section 3405(a)(4) is amended by strik13 ing ‘‘shall be determined’’ and all that follows 

14 through ‘‘3 withholding exemptions’’ and insert15 ing ‘‘shall be determined under rules prescribed 

16 by the Secretary’’. 

17 (d) EXCEPTION FOR DETERMINING PROPERTY EX18 EMPT FROM LEVY.—Section 6334(d) is amended by adding 

19 at the end the following new paragraph: 

20 ‘‘(4) YEARS WHEN PERSONAL EXEMPTION

21 AMOUNT IS ZERO.— 

22 ‘‘(A) IN GENERAL.—In the case of any tax23 able year in which the exemption amount under 

24 section 151(d) is zero, paragraph (2) shall not 

25 apply and for purposes of paragraph (1) the 
82 

† HR 1 EAS2 

1 term ‘exempt amount’ means an amount equal 

2 to— 

3 ‘‘(i) the sum of the amount determined 

4 under subparagraph (B) and the standard 

5 deduction, divided by 

6 ‘‘(ii) 52. 

7 ‘‘(B) AMOUNT DETERMINED.—For purposes 

8 of subparagraph (A), the amount determined 

9 under this subparagraph is $4,150 multiplied by 

10 the number of the taxpayer’s dependents for the 

11 taxable year in which the levy occurs. 

12 ‘‘(C) INFLATION ADJUSTMENT.—In the case 

13 of any taxable year beginning in a calendar year 

14 after 2018, the $4,150 amount in subparagraph 

15 (B) shall be increased by an amount equal to— 

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

17 ‘‘(ii) the cost-of-living adjustment de18 termined under section 1(f)(3) for the cal19 endar year in which the taxable year be20 gins, determined by substituting ‘2017’ for 

21 ‘2016’ in subparagraph (A)(ii) thereof. 

22 If any increase determined under the preceding 

23 sentence is not a multiple of $100, such increase 

24 shall be rounded to the next lowest multiple of 

25 $100. 
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† HR 1 EAS2 

1 ‘‘(D) VERIFIED STATEMENT.—Unless the 

2 taxpayer submits to the Secretary a written and 

3 properly verified statement specifying the facts 

4 necessary to determine the proper amount under 

5 subparagraph (A), subparagraph (A) shall be ap6 plied as if the taxpayer were a married indi7 vidual filing a separate return with no depend8 ents.’’. 

9 (e) PERSONS REQUIRED TO MAKE RETURNS OF IN10 COME.—Section 6012 is amended by adding at the end the 

11 following new subsection: 

12 ‘‘(f) SPECIAL RULE FOR TAXABLE YEARS 2018 

13 THROUGH 2025.—In the case of a taxable year beginning 

14 after December 31, 2017, and before January 1, 2026, sub15 section (a)(1) shall not apply, and every individual who 

16 has gross income for the taxable year shall be required to 

17 make returns with respect to income taxes under subtitle 

18 A, except that a return shall not be required of— 

19 ‘‘(1) an individual who is not married (deter20 mined by applying section 7703) and who has gross 

21 income for the taxable year which does not exceed the 

22 standard deduction applicable to such individual for 

23 such taxable year under section 63, or 

24 ‘‘(2) an individual entitled to make a joint re25 turn if— 
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† HR 1 EAS2 

1 ‘‘(A) the gross income of such individual, 

2 when combined with the gross income of such in3 dividual’s spouse, for the taxable year does not 

4 exceed the standard deduction which would be 

5 applicable to the taxpayer for such taxable year 

6 under section 63 if such individual and such in7 dividual’s spouse made a joint return, 

8 ‘‘(B) such individual and such individual’s 

9 spouse have the same household as their home at 

10 the close of the taxable year, 

11 ‘‘(C) such individual’s spouse does not make 

12 a separate return, and 

13 ‘‘(D) neither such individual nor such indi14 vidual’s spouse is an individual described in sec15 tion 63(c)(5) who has income (other than earned 

16 income) in excess of the amount in effect under 

17 section 63(c)(5)(A).’’. 

18 (f) EFFECTIVE DATE.— 

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section shall 

21 apply to taxable years beginning after December 31, 

22 2017. 

23 (2) WAGE WITHHOLDING.—The Secretary of the 

24 Treasury may administer section 3402 for taxable 

25 years beginning before January 1, 2019, without re-
85 

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1 gard to the amendments made by subsections (a) and 

2 (c). 

3 SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND 

4 LOCAL, ETC. TAXES. 

5 (a) IN GENERAL.—Subsection (b) of section 164 is 

6 amended by adding at the end the following new paragraph: 

7 ‘‘(6) LIMITATION ON INDIVIDUAL DEDUCTIONS

8 FOR TAXABLE YEARS 2018 THROUGH 2025.—In the case 

9 of an individual and a taxable year beginning after 

10 December 31, 2017, and before January 1, 2026— 

11 ‘‘(A) foreign real property taxes shall not be 

12 taken into account under subsection (a)(1), and 

13 ‘‘(B) the aggregate amount of taxes taken 

14 into account under paragraphs (1), (2), and (3) 

15 of subsection (a) and paragraph (5) of this sub16 section for any taxable year shall not exceed 

17 $10,000 ($5,000 in the case of a married indi18 vidual filing a separate return). 

19 The preceding sentence shall not apply to any foreign 

20 taxes described in subsection (a)(3) or to any taxes 

21 described in paragraph (1) and (2) of subsection (a) 

22 which are paid or accrued in carrying on a trade or 

23 business or an activity described in section 212. For 

24 purposes of subparagraph (B), an amount paid in a 

25 taxable year beginning before January 1, 2018, with 
86 

† HR 1 EAS2 

1 respect to a State or local income tax imposed for a 

2 taxable year beginning after December 31, 2017, shall 

3 be treated as paid on the last day of the taxable year 

4 for which such tax is so imposed.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by this 

6 section shall apply to taxable years beginning after Decem7 ber 31, 2016. 

8 SEC. 11043. LIMITATION ON DEDUCTION FOR QUALIFIED 

9 RESIDENCE INTEREST. 

10 (a) IN GENERAL.—Section 163(h)(3) is amended by 

11 adding at the end the following new subparagraph: 

12 ‘‘(F) SPECIAL RULES FOR TAXABLE YEARS

13 2018 THROUGH 2025.— 

14 ‘‘(i) IN GENERAL.—In the case of tax15 able years beginning after December 31, 

16 2017, and before January 1, 2026— 

17 ‘‘(I) DISALLOWANCE OF HOME EQ18 UITY INDEBTEDNESS INTEREST.—Sub19 paragraph (A)(ii) shall not apply. 

20 ‘‘(II) LIMITATION ON ACQUISITION

21 INDEBTEDNESS.—Subparagraph 

22 (B)(ii) shall be applied by substituting 

23 ‘$750,000 ($375,000’ for ‘$1,000,000 

24 ($500,000’. 
87 

† HR 1 EAS2 

1 ‘‘(III) TREATMENT OF INDEBTED2 NESS INCURRED ON OR BEFORE DE3 CEMBER 15, 2017.—Subclause (II) shall 

4 not apply to any indebtedness incurred 

5 on or before December 15, 2017, and, 

6 in applying such subclause to any in7 debtedness incurred after such date, the 

8 limitation under such subclause shall 

9 be reduced (but not below zero) by the 

10 amount of any indebtedness incurred 

11 on or before December 15, 2017, which 

12 is treated as acquisition indebtedness 

13 for purposes of this subsection for the 

14 taxable year. 

15 ‘‘(IV) BINDING CONTRACT EXCEP16 TION.—In the case of a taxpayer who 

17 enters into a written binding contract 

18 before December 15, 2017, to close on 

19 the purchase of a principal residence 

20 before January 1, 2018, and who pur21 chases such residence before April 1, 

22 2018, subclause (III) shall be applied 

23 by substituting ‘April 1, 2018’ for ‘De24 cember 15, 2017’. 
88 

† HR 1 EAS2 

1 ‘‘(ii) TREATMENT OF LIMITATION IN

2 TAXABLE YEARS AFTER DECEMBER 31, 

3 2025.—In the case of taxable years begin4 ning after December 31, 2025, the limita5 tion under subparagraph (B)(ii) shall be 

6 applied to the aggregate amount of indebt7 edness of the taxpayer described in subpara8 graph (B)(i) without regard to the taxable 

9 year in which the indebtedness was in10 curred. 

11 ‘‘(iii) TREATMENT OF REFINANCINGS

12 OF INDEBTEDNESS.— 

13 ‘‘(I) IN GENERAL.—In the case of 

14 any indebtedness which is incurred to 

15 refinance indebtedness, such refinanced 

16 indebtedness shall be treated for pur17 poses of clause (i)(III) as incurred on 

18 the date that the original indebtedness 

19 was incurred to the extent the amount 

20 of the indebtedness resulting from such 

21 refinancing does not exceed the amount 

22 of the refinanced indebtedness. 

23 ‘‘(II) LIMITATION ON PERIOD OF

24 REFINANCING.—Subclause (I) shall not 

25 apply to any indebtedness after the ex-
89 

† HR 1 EAS2 

1 piration of the term of the original in2 debtedness or, if the principal of such 

3 original indebtedness is not amortized 

4 over its term, the expiration of the 

5 term of the 1st refinancing of such in6 debtedness (or if earlier, the date which 

7 is 30 years after the date of such 1st 

8 refinancing). 

9 ‘‘(iv) COORDINATION WITH EXCLUSION

10 OF INCOME FROM DISCHARGE OF INDEBT11 EDNESS.—Section 108(h)(2) shall be ap12 plied without regard to this subpara13 graph.’’. 

14 (b) EFFECTIVE DATE.—The amendments made by this 

15 section shall apply to taxable years beginning after Decem16 ber 31, 2017. 

17 SEC. 11044. MODIFICATION OF DEDUCTION FOR PERSONAL 

18 CASUALTY LOSSES. 

19 (a) IN GENERAL.—Subsection (h) of section 165 is 

20 amended by adding at the end the following new paragraph: 

21 ‘‘(5) LIMITATION FOR TAXABLE YEARS 2018

22 THROUGH 2025.— 

23 ‘‘(A) IN GENERAL.—In the case of an indi24 vidual, except as provided in subparagraph (B), 

25 any personal casualty loss which (but for this 
90 

† HR 1 EAS2 

1 paragraph) would be deductible in a taxable 

2 year beginning after December 31, 2017, and be3 fore January 1, 2026, shall be allowed as a de4 duction under subsection (a) only to the extent it 

5 is attributable to a Federally declared disaster 

6 (as defined in subsection (i)(5)). 

7 ‘‘(B) EXCEPTION RELATED TO PERSONAL

8 CASUALTY GAINS.—If a taxpayer has personal 

9 casualty gains for any taxable year to which 

10 subparagraph (A) applies— 

11 ‘‘(i) subparagraph (A) shall not apply 

12 to the portion of the personal casualty loss 

13 not attributable to a Federally declared dis14 aster (as so defined) to the extent such loss 

15 does not exceed such gains, and 

16 ‘‘(ii) in applying paragraph (2) for 

17 purposes of subparagraph (A) to the portion 

18 of personal casualty loss which is so attrib19 utable to such a disaster, the amount of per20 sonal casualty gains taken into account 

21 under paragraph (2)(A) shall be reduced by 

22 the portion of such gains taken into account 

23 under clause (i).’’. 
91 

† HR 1 EAS2 

1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall apply to losses incurred in taxable years begin3 ning after December 31, 2017. 

4 SEC. 11045. SUSPENSION OF MISCELLANEOUS ITEMIZED 

5 DEDUCTIONS. 

6 (a) IN GENERAL.—Section 67 is amended by adding 

7 at the end the following new subsection: 

8 ‘‘(g) SUSPENSION FOR TAXABLE YEARS 2018 

9 THROUGH 2025.—Notwithstanding subsection (a), no mis10 cellaneous itemized deduction shall be allowed for any tax11 able year beginning after December 31, 2017, and before 

12 January 1, 2026.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by this 

14 section shall apply to taxable years beginning after Decem15 ber 31, 2017. 

16 SEC. 11046. SUSPENSION OF OVERALL LIMITATION ON 

17 ITEMIZED DEDUCTIONS. 

18 (a) IN GENERAL.—Section 68 is amended by adding 

19 at the end the following new subsection: 

20 ‘‘(f) SECTION NOT TO APPLY.—This section shall not 

21 apply to any taxable year beginning after December 31, 

22 2017, and before January 1, 2026.’’. 

23 (b) EFFECTIVE DATE.—The amendments made by this 

24 section shall apply to taxable years beginning after Decem25 ber 31, 2017. 
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1 SEC. 11047. SUSPENSION OF EXCLUSION FOR QUALIFIED BI2 CYCLE COMMUTING REIMBURSEMENT. 

3 (a) IN GENERAL.—Section 132(f) is amended by add4 ing at the end the following new paragraph: 

5 ‘‘(8) SUSPENSION OF QUALIFIED BICYCLE COM6 MUTING REIMBURSEMENT EXCLUSION.—Paragraph 

7 (1)(D) shall not apply to any taxable year beginning 

8 after December 31, 2017, and before January 1, 

9 2026.’’. 

10 (b) EFFECTIVE DATE.—The amendment made by this 

11 section shall apply to taxable years beginning after Decem12 ber 31, 2017. 

13 SEC. 11048. SUSPENSION OF EXCLUSION FOR QUALIFIED 

14 MOVING EXPENSE REIMBURSEMENT. 

15 (a) IN GENERAL.—Section 132(g) is amended— 

16 (1) by striking ‘‘For purposes of this section, the 

17 term’’ and inserting ‘‘For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term’’, and 

19 (2) by adding at the end the following new para20 graph: 

21 ‘‘(2) SUSPENSION FOR TAXABLE YEARS 2018

22 THROUGH 2025.—Except in the case of a member of 

23 the Armed Forces of the United States on active duty 

24 who moves pursuant to a military order and incident 

25 to a permanent change of station, subsection (a)(6) 
93 

† HR 1 EAS2 

1 shall not apply to any taxable year beginning after 

2 December 31, 2017, and before January 1, 2026.’’. 

3 (b) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to taxable years beginning after Decem5 ber 31, 2017. 

6 SEC. 11049. SUSPENSION OF DEDUCTION FOR MOVING EX7 PENSES. 

8 (a) IN GENERAL.—Section 217 is amended by adding 

9 at the end the following new subsection: 

10 ‘‘(k) SUSPENSION OF DEDUCTION FOR TAXABLE

11 YEARS 2018 THROUGH 2025.—Except in the case of an in12 dividual to whom subsection (g) applies, this section shall 

13 not apply to any taxable year beginning after December 

14 31, 2017, and before January 1, 2026.’’. 

15 (b) EFFECTIVE DATE.—The amendment made by this 

16 section shall apply to taxable years beginning after Decem17 ber 31, 2017. 

18 SEC. 11050. LIMITATION ON WAGERING LOSSES. 

19 (a) IN GENERAL.—Section 165(d) is amended by add20 ing at the end the following: ‘‘For purposes of the preceding 

21 sentence, in the case of taxable years beginning after Decem22 ber 31, 2017, and before January 1, 2026, the term ‘losses 

23 from wagering transactions’ includes any deduction other24 wise allowable under this chapter incurred in carrying on 

25 any wagering transaction.’’. 
94 

† HR 1 EAS2 

1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2017. 

4 SEC. 11051. REPEAL OF DEDUCTION FOR ALIMONY PAY5 MENTS. 

6 (a) IN GENERAL.—Part VII of subchapter B is amend7 ed by striking by striking section 215 (and by striking the 

8 item relating to such section in the table of sections for such 

9 subpart). 

10 (b) CONFORMING AMENDMENTS.— 

11 (1) CORRESPONDING REPEAL OF PROVISIONS

12 PROVIDING FOR INCLUSION OF ALIMONY IN GROSS IN13 COME.— 

14 (A) Subsection (a) of section 61 is amended 

15 by striking paragraph (8) and by redesignating 

16 paragraphs (9) through (15) as paragraphs (8) 

17 through (14), respectively. 

18 (B) Part II of subchapter B of chapter 1 is 

19 amended by striking section 71 (and by striking 

20 the item relating to such section in the table of 

21 sections for such part). 

22 (C) Subpart F of part I of subchapter J of 

23 chapter 1 is amended by striking section 682 

24 (and by striking the item relating to such section 

25 in the table of sections for such subpart). 
95 

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1 (2) RELATED TO REPEAL OF SECTION 215.— 

2 (A) Section 62(a) is amended by striking 

3 paragraph (10). 

4 (B) Section 3402(m)(1) is amended by 

5 striking ‘‘(other than paragraph (10) thereof)’’. 

6 (C) Section 6724(d)(3) is amended by strik7 ing subparagraph (C) and by redesignating sub8 paragraph (D) as subparagraph (C). 

9 (3) RELATED TO REPEAL OF SECTION 71.— 

10 (A) Section 121(d)(3) is amended— 

11 (i) by striking ‘‘(as defined in section 

12 71(b)(2))’’ in subparagraph (B), and 

13 (ii) by adding at the end the following 

14 new subparagraph: 

15 ‘‘(C) DIVORCE OR SEPARATION INSTRU16 MENT.—For purposes of this paragraph, the 

17 term ‘divorce or separation instrument’ means— 

18 ‘‘(i) a decree of divorce or separate 

19 maintenance or a written instrument inci20 dent to such a decree, 

21 ‘‘(ii) a written separation agreement, 

22 or 

23 ‘‘(iii) a decree (not described in clause 

24 (i)) requiring a spouse to make payments 
96 

† HR 1 EAS2 

1 for the support or maintenance of the other 

2 spouse.’’. 

3 (B) Section 152(d)(5) is amended to read as 

4 follows: 

5 ‘‘(5) SPECIAL RULES FOR SUPPORT.— 

6 ‘‘(A) IN GENERAL.—For purposes of this 

7 subsection— 

8 ‘‘(i) payments to a spouse of alimony 

9 or separate maintenance payments shall not 

10 be treated as a payment by the payor 

11 spouse for the support of any dependent, 

12 and 

13 ‘‘(ii) in the case of the remarriage of a 

14 parent, support of a child received from the 

15 parent’s spouse shall be treated as received 

16 from the parent. 

17 ‘‘(B) ALIMONY OR SEPARATE MAINTENANCE

18 PAYMENT.—For purposes of subparagraph (A), 

19 the term ‘alimony or separate maintenance pay20 ment’ means any payment in cash if— 

21 ‘‘(i) such payment is received by (or on 

22 behalf of) a spouse under a divorce or sepa23 ration instrument (as defined in section 

24 121(d)(3)(C)), 
97 

† HR 1 EAS2 

1 ‘‘(ii) in the case of an individual le2 gally separated from the individual’s spouse 

3 under a decree of divorce or of separate 

4 maintenance, the payee spouse and the 

5 payor spouse are not members of the same 

6 household at the time such payment is 

7 made, and 

8 ‘‘(iii) there is no liability to make any 

9 such payment for any period after the death 

10 of the payee spouse and there is no liability 

11 to make any payment (in cash or property) 

12 as a substitute for such payments after the 

13 death of the payee spouse.’’. 

14 (C) Section 219(f)(1) is amended by strik15 ing the third sentence. 

16 (D) Section 220(f)(7) is amended by strik17 ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 

18 inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 

19 (E) Section 223(f)(7) is amended by strik20 ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 

21 inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 

22 (F) Section 382(l)(3)(B)(iii) is amended by 

23 striking ‘‘section 71(b)(2)’’ and inserting ‘‘sec24 tion 121(d)(3)(C)’’. 
98 

† HR 1 EAS2 

1 (G) Section 408(d)(6) is amended by strik2 ing ‘‘subparagraph (A) of section 71(b)(2)’’ and 

3 inserting ‘‘clause (i) of section 121(d)(3)(C)’’. 

4 (4) ADDITIONAL CONFORMING AMENDMENTS.— 

5 Section 7701(a)(17) is amended— 

6 (A) by striking ‘‘sections 682 and 2516’’ 

7 and inserting ‘‘section 2516’’, and 

8 (B) by striking ‘‘such sections’’ each place it 

9 appears and inserting ‘‘such section’’. 

10 (c) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to— 

12 (1) any divorce or separation instrument (as de13 fined in section 71(b)(2) of the Internal Revenue Code 

14 of 1986 as in effect before the date of the enactment 

15 of this Act) executed after December 31, 2018, and 

16 (2) any divorce or separation instrument (as so 

17 defined) executed on or before such date and modified 

18 after such date if the modification expressly provides 

19 that the amendments made by this section apply to 

20 such modification. 
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1 PART VI—INCREASE IN ESTATE AND GIFT TAX 

2 EXEMPTION 

3 SEC. 11061. INCREASE IN ESTATE AND GIFT TAX EXEMP4 TION. 

5 (a) IN GENERAL.—Section 2010(c)(3) is amended by 

6 adding at the end the following new subparagraph: 

7 ‘‘(C) INCREASE IN BASIC EXCLUSION

8 AMOUNT.—In the case of estates of decedents 

9 dying or gifts made after December 31, 2017, 

10 and before January 1, 2026, subparagraph (A) 

11 shall be applied by substituting ‘$10,000,000’ for 

12 ‘$5,000,000’.’’. 

13 (b) CONFORMING AMENDMENT.—Subsection (g) of sec14 tion 2001 is amended to read as follows: 

15 ‘‘(g) MODIFICATIONS TO TAX PAYABLE.— 

16 ‘‘(1) MODIFICATIONS TO GIFT TAX PAYABLE TO

17 REFLECT DIFFERENT TAX RATES.—For purposes of 

18 applying subsection (b)(2) with respect to 1 or more 

19 gifts, the rates of tax under subsection (c) in effect at 

20 the decedent’s death shall, in lieu of the rates of tax 

21 in effect at the time of such gifts, be used both to com22 pute— 

23 ‘‘(A) the tax imposed by chapter 12 with re24 spect to such gifts, and 

25 ‘‘(B) the credit allowed against such tax 

26 under section 2505, including in computing— 
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1 ‘‘(i) the applicable credit amount 

2 under section 2505(a)(1), and 

3 ‘‘(ii) the sum of the amounts allowed 

4 as a credit for all preceding periods under 

5 section 2505(a)(2). 

6 ‘‘(2) MODIFICATIONS TO ESTATE TAX PAYABLE

7 TO REFLECT DIFFERENT BASIC EXCLUSION

8 AMOUNTS.—The Secretary shall prescribe such regula9 tions as may be necessary or appropriate to carry out 

10 this section with respect to any difference between— 

11 ‘‘(A) the basic exclusion amount under sec12 tion 2010(c)(3) applicable at the time of the de13 cedent’s death, and 

14 ‘‘(B) the basic exclusion amount under such 

15 section applicable with respect to any gifts made 

16 by the decedent.’’. 

17 (c) EFFECTIVE DATE.—The amendments made by this 

18 section shall apply to estates of decedents dying and gifts 

19 made after December 31, 2017. 
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1 PART VII—EXTENSION OF TIME LIMIT FOR 

2 CONTESTING IRS LEVY 

3 SEC. 11071. EXTENSION OF TIME LIMIT FOR CONTESTING 

4 IRS LEVY. 

5 (a) EXTENSION OF TIME FOR RETURN OF PROPERTY

6 SUBJECT TO LEVY.—Subsection (b) of section 6343 is 

7 amended by striking ‘‘9 months’’ and inserting ‘‘2 years’’. 

8 (b) PERIOD OF LIMITATION ON SUITS.—Subsection (c) 

9 of section 6532 is amended— 

10 (1) by striking ‘‘9 months’’ in paragraph (1) 

11 and inserting ‘‘2 years’’, and 

12 (2) by striking ‘‘9-month’’ in paragraph (2) and 

13 inserting ‘‘2-year’’. 

14 (c) EFFECTIVE DATE.—The amendments made by this 

15 section shall apply to— 

16 (1) levies made after the date of the enactment 

17 of this Act, and 

18 (2) levies made on or before such date if the 9- 

19 month period has not expired under section 6343(b) 

20 of the Internal Revenue Code of 1986 (without regard 

21 to this section) as of such date. 

22 PART VIII—INDIVIDUAL MANDATE 

23 SEC. 11081. ELIMINATION OF SHARED RESPONSIBILITY 

24 PAYMENT FOR INDIVIDUALS FAILING TO 

25 MAINTAIN MINIMUM ESSENTIAL COVERAGE. 

26 (a) IN GENERAL.—Section 5000A(c) is amended— 
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1 (1) in paragraph (2)(B)(iii), by striking ‘‘2.5 

2 percent’’ and inserting ‘‘Zero percent’’, and 

3 (2) in paragraph (3)— 

4 (A) by striking ‘‘$695’’ in subparagraph 

5 (A) and inserting ‘‘$0’’, and 

6 (B) by striking subparagraph (D). 

7 (b) EFFECTIVE DATE.—The amendments made by this 

8 section shall apply to months beginning after December 31, 

9 2018. 

10 Subtitle B—Alternative Minimum 

11 Tax 

12 SEC. 12001. REPEAL OF TAX FOR CORPORATIONS. 

13 (a) IN GENERAL.—Section 55(a) is amended by strik14 ing ‘‘There’’ and inserting ‘‘In the case of a taxpayer other 

15 than a corporation, there’’. 

16 (b) CONFORMING AMENDMENTS.— 

17 (1) Section 38(c)(6) is amended by adding at the 

18 end the following new subparagraph: 

19 ‘‘(E) CORPORATIONS.—In the case of a cor20 poration, this subsection shall be applied by 

21 treating the corporation as having a tentative 

22 minimum tax of zero.’’. 

23 (2) Section 53(d)(2) is amended by inserting ‘‘, 

24 except that in the case of a corporation, the tentative 
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1 minimum tax shall be treated as zero’’ before the pe2 riod at the end. 

3 (3)(A) Section 55(b)(1) is amended to read as 

4 follows: 

5 ‘‘(1) AMOUNT OF TENTATIVE TAX.— 

6 ‘‘(A) IN GENERAL.—The tentative minimum 

7 tax for the taxable year is the sum of— 

8 ‘‘(i) 26 percent of so much of the tax9 able excess as does not exceed $175,000, plus 

10 ‘‘(ii) 28 percent of so much of the tax11 able excess as exceeds $175,000. 

12 The amount determined under the preceding sen13 tence shall be reduced by the alternative min14 imum tax foreign tax credit for the taxable year. 

15 ‘‘(B) TAXABLE EXCESS.—For purposes of 

16 this subsection, the term ‘taxable excess’ means so 

17 much of the alternative minimum taxable income 

18 for the taxable year as exceeds the exemption 

19 amount. 

20 ‘‘(C) MARRIED INDIVIDUAL FILING SEPA21 RATE RETURN.—In the case of a married indi22 vidual filing a separate return, subparagraph 

23 (A) shall be applied by substituting 50 percent 

24 of the dollar amount otherwise applicable under 

25 clause (i) and clause (ii) thereof. For purposes of 
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1 the preceding sentence, marital status shall be 

2 determined under section 7703.’’. 

3 (B) Section 55(b)(3) is amended by striking 

4 ‘‘paragraph (1)(A)(i)’’ and inserting ‘‘paragraph 

5 (1)(A)’’. 

6 (C) Section 59(a) is amended— 

7 (i) by striking ‘‘subparagraph (A)(i) or 

8 (B)(i) of section 55(b)(1) (whichever applies) in 

9 lieu of the highest rate of tax specified in section 

10 1 or 11 (whichever applies)’’ in paragraph 

11 (1)(C) and inserting ‘‘section 55(b)(1) in lieu of 

12 the highest rate of tax specified in section 1’’, 

13 and 

14 (ii) in paragraph (2), by striking ‘‘means’’ 

15 and all that follows and inserting ‘‘means the 

16 amount determined under the first sentence of 

17 section 55(b)(1)(A).’’. 

18 (D) Section 897(a)(2)(A) is amended by striking 

19 ‘‘section 55(b)(1)(A)’’ and inserting ‘‘section 

20 55(b)(1)’’. 

21 (E) Section 911(f) is amended— 

22 (i) in paragraph (1)(B)— 

23 (I) by striking ‘‘section 

24 55(b)(1)(A)(ii)’’ and inserting ‘‘section 

25 55(b)(1)(B)’’, and 
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1 (II) by striking ‘‘section 

2 55(b)(1)(A)(i)’’ and inserting ‘‘section 

3 55(b)(1)(A)’’, and 

4 (ii) in paragraph (2)(B), by striking ‘‘sec5 tion 55(b)(1)(A)(ii)’’ each place it appears and 

6 inserting ‘‘section 55(b)(1)(B)’’. 

7 (4) Section 55(c)(1) is amended by striking ‘‘, 

8 the section 936 credit allowable under section 27(b), 

9 and the Puerto Rico economic activity credit under 

10 section 30A’’. 

11 (5) Section 55(d), as amended by section 11002, 

12 is amended— 

13 (A) by striking paragraph (2) and redesig14 nating paragraphs (3) and (4) as paragraphs 

15 (2) and (3), respectively, 

16 (B) in paragraph (2) (as so redesignated), 

17 by inserting ‘‘and’’ at the end of subparagraph 

18 (B), by striking ‘‘, and’’ at the end of subpara19 graph (C) and inserting a period, and by strik20 ing subparagraph (D), and 

21 (C) in paragraph (3) (as so redesignated)— 

22 (i) by striking ‘‘(b)(1)(A)(i)’’ in sub23 paragraph (B)(i) and inserting ‘‘(b)(1)(A)’’, 

24 and 
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1 (ii) by striking ‘‘paragraph (3)’’ in 

2 subparagraph (B)(iii) and inserting ‘‘para3 graph (2)’’. 

4 (6) Section 55 is amended by striking subsection 

5 (e). 

6 (7) Section 56(b)(2) is amended by striking sub7 paragraph (C) and by redesignating subparagraph 

8 (D) as subparagraph (C). 

9 (8)(A) Section 56 is amended by striking sub10 sections (c) and (g). 

11 (B) Section 847 is amended by striking the last 

12 sentence of paragraph (9). 

13 (C) Section 848 is amended by striking sub14 section (i). 

15 (9) Section 58(a) is amended by striking para16 graph (3) and redesignating paragraph (4) as para17 graph (3). 

18 (10) Section 59 is amended by striking sub19 sections (b) and (f). 

20 (11) Section 11(d) is amended by striking ‘‘the 

21 taxes imposed by subsection (a) and section 55’’ and 

22 inserting ‘‘the tax imposed by subsection (a)’’. 

23 (12) Section 12 is amended by striking para24 graph (7). 
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1 (13) Section 168(k) is amended by striking para2 graph (4). 

3 (14) Section 882(a)(1) is amended by striking ‘‘, 

4 55,’’. 

5 (15) Section 962(a)(1) is amended by striking 

6 ‘‘sections 11 and 55’’ and inserting ‘‘section 11’’. 

7 (16) Section 1561(a) is amended— 

8 (A) by inserting ‘‘and’’ at the end of para9 graph (1), by striking ‘‘, and’’ at the end of 

10 paragraph (2) and inserting a period, and by 

11 striking paragraph (3), and 

12 (B) by striking the last sentence. 

13 (17) Section 6425(c)(1)(A) is amended to read as 

14 follows: 

15 ‘‘(A) the tax imposed by section 11 or 

16 1201(a), or subchapter L of chapter 1, whichever 

17 is applicable, over’’. 

18 (18) Section 6655(e)(2) is amended by striking 

19 ‘‘and alternative minimum taxable income’’ each 

20 place it appears in subparagraphs (A) and (B)(i). 

21 (19) Section 6655(g)(1)(A) is amended by insert22 ing ‘‘plus’’ at the end of clause (i), by striking clause 

23 (ii), and by redesignating clause (iii) as clause (ii). 
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1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2017. 

4 SEC. 12002. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABIL5 ITY OF CORPORATIONS. 

6 (a) CREDITS TREATED AS REFUNDABLE.—Section 53 

7 is amended by adding at the end the following new sub8 section: 

9 ‘‘(e) PORTION OF CREDIT TREATED AS REFUND10 ABLE.— 

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

12 year of a corporation beginning in 2018, 2019, 2020, 

13 or 2021, the limitation under subsection (c) shall be 

14 increased by the AMT refundable credit amount for 

15 such year. 

16 ‘‘(2) AMT REFUNDABLE CREDIT AMOUNT.—For 

17 purposes of paragraph (1), the AMT refundable credit 

18 amount is an amount equal to 50 percent (100 per19 cent in the case of a taxable year beginning in 2021) 

20 of the excess (if any) of— 

21 ‘‘(A) the minimum tax credit determined 

22 under subsection (b) for the taxable year, over 

23 ‘‘(B) the minimum tax credit allowed under 

24 subsection (a) for such year (before the applica25 tion of this subsection for such year). 
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1 ‘‘(3) CREDIT REFUNDABLE.—For purposes of 

2 this title (other than this section), the credit allowed 

3 by reason of this subsection shall be treated as a cred4 it allowed under subpart C (and not this subpart). 

5 ‘‘(4) SHORT TAXABLE YEARS.—In the case of 

6 any taxable year of less than 365 days, the AMT re7 fundable credit amount determined under paragraph 

8 (2) with respect to such taxable year shall be the 

9 amount which bears the same ratio to such amount 

10 determined without regard to this paragraph as the 

11 number of days in such taxable year bears to 365.’’. 

12 (b) TREATMENT OF REFERENCES.—Section 53(d) is 

13 amended by adding at the end the following new paragraph: 

14 ‘‘(3) AMT TERM REFERENCES.—In the case of a 

15 corporation, any references in this subsection to sec16 tion 55, 56, or 57 shall be treated as a reference to 

17 such section as in effect before the amendments made 

18 by Tax Cuts and Jobs Act.’’. 

19 (c) CONFORMING AMENDMENT.—Section 

20 1374(b)(3)(B) is amended by striking the last sentence 

21 thereof. 

22 (d) EFFECTIVE DATE.— 

23 (1) IN GENERAL.—The amendments made by 

24 this section shall apply to taxable years beginning 

25 after December 31, 2017. 
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1 (2) CONFORMING AMENDMENT.—The amendment 

2 made by subsection (c) shall apply to taxable years 

3 beginning after December 31, 2021. 

4 SEC. 12003. INCREASED EXEMPTION FOR INDIVIDUALS. 

5 (a) IN GENERAL.—Section 55(d), as amended by the 

6 preceding provisions of this Act, is amended by adding at 

7 the end the following new paragraph: 

8 ‘‘(4) SPECIAL RULE FOR TAXABLE YEARS BEGIN9 NING AFTER 2017 AND BEFORE 2026.— 

10 ‘‘(A) IN GENERAL.—In the case of any tax11 able year beginning after December 31, 2017, 

12 and before January 1, 2026— 

13 ‘‘(i) paragraph (1) shall be applied— 

14 ‘‘(I) by substituting ‘$109,400’ for 

15 ‘$78,750’ in subparagraph (A), and 

16 ‘‘(II) by substituting ‘$70,300’ for 

17 ‘$50,600’ in subparagraph (B), and 

18 ‘‘(ii) paragraph (2) shall be applied— 

19 ‘‘(I) by substituting ‘$1,000,000’ 

20 for ‘$150,000’ in subparagraph (A), 

21 ‘‘(II) by substituting ‘50 percent 

22 of the dollar amount applicable under 

23 subparagraph (A)’ for ‘$112,500’ in 

24 subparagraph (B), and 
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1 ‘‘(III) in the case of a taxpayer 

2 described in paragraph (1)(D), without 

3 regard to the substitution under sub4 clause (I). 

5 ‘‘(B) INFLATION ADJUSTMENT.— 

6 ‘‘(i) IN GENERAL.—In the case of any 

7 taxable year beginning in a calendar year 

8 after 2018, the amounts described in clause 

9 (ii) shall each be increased by an amount 

10 equal to— 

11 ‘‘(I) such dollar amount, multi12 plied by 

13 ‘‘(II) the cost-of-living adjustment 

14 determined under section 1(f)(3) for 

15 the calendar year in which the taxable 

16 year begins, determined by substituting 

17 ‘calendar year 2017’ for ‘calendar year 

18 2016’ in subparagraph (A)(ii) thereof. 

19 ‘‘(ii) AMOUNTS DESCRIBED.—The 

20 amounts described in this clause are the 

21 $109,400 amount in subparagraph 

22 (A)(i)(I), the $70,300 amount in subpara23 graph (A)(i)(II), and the $1,000,000 

24 amount in subparagraph (A)(ii)(I). 
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1 ‘‘(iii) ROUNDING.—Any increased 

2 amount determined under clause (i) shall be 

3 rounded to the nearest multiple of $100. 

4 ‘‘(iv) COORDINATION WITH CURRENT

5 ADJUSTMENTS.—In the case of any taxable 

6 year to which subparagraph (A) applies, no 

7 adjustment shall be made under paragraph 

8 (3) to any of the numbers which are sub9 stituted under subparagraph (A) and ad10 justed under this subparagraph.’’. 

11 (b) EFFECTIVE DATE.—The amendments made by this 

12 section shall apply to taxable years beginning after Decem13 ber 31, 2017. 

14 Subtitle C—Business-related 

15 Provisions 

16 PART I—CORPORATE PROVISIONS 

17 SEC. 13001. 21-PERCENT CORPORATE TAX RATE. 

18 (a) IN GENERAL.—Subsection (b) of section 11 is 

19 amended to read as follows: 

20 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im21 posed by subsection (a) shall be 21 percent of taxable in22 come.’’. 

23 (b) CONFORMING AMENDMENTS.— 
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1 (1) The following sections are each amended by 

2 striking ‘‘section 11(b)(1)’’ and inserting ‘‘section 

3 11(b)’’: 

4 (A) Section 280C(c)(3)(B)(ii)(II). 

5 (B) Paragraphs (2)(B) and (6)(A)(ii) of 

6 section 860E(e). 

7 (C) Section 7874(e)(1)(B). 

8 (2)(A) Part I of subchapter P of chapter 1 is 

9 amended by striking section 1201 (and by striking the 

10 item relating to such section in the table of sections 

11 for such part). 

12 (B) Section 12 is amended by striking para13 graphs (4) and (6), and by redesignating paragraph 

14 (5) as paragraph (4). 

15 (C) Section 453A(c)(3) is amended by striking 

16 ‘‘or 1201 (whichever is appropriate)’’. 

17 (D) 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’’. 

22 (E) Sections 594(a) is amended by striking 

23 ‘‘taxes imposed by section 11 or 1201(a)’’ and insert24 ing ‘‘tax imposed by section 11’’. 
114 

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1 (F) Section 691(c)(4) is amended by striking 

2 ‘‘1201,’’. 

3 (G) Section 801(a) is amended— 

4 (i) by striking paragraph (2), and 

5 (ii) by striking all that precedes ‘‘is hereby 

6 imposed’’ and inserting: 

7 ‘‘(a) TAX IMPOSED.—A tax’’. 

8 (H) Section 831(e) is amended by striking para9 graph (1) and by redesignating paragraphs (2) and 

10 (3) as paragraphs (1) and (2), respectively. 

11 (I) Sections 832(c)(5) and 834(b)(1)(D) are each 

12 amended by striking ‘‘sec. 1201 and following,’’. 

13 (J) Section 852(b)(3)(A) is amended by striking 

14 ‘‘section 1201(a)’’ and inserting ‘‘section 11(b)’’. 

15 (K) Section 857(b)(3) is amended— 

16 (i) by striking subparagraph (A) and redes17 ignating subparagraphs (B) through (F) as sub18 paragraphs (A) through (E), respectively, 

19 (ii) in subparagraph (C), as so redesig20 nated— 

21 (I) by striking ‘‘subparagraph (A)(ii)’’ 

22 in clause (i) thereof and inserting ‘‘para23 graph (1)’’, 

24 (II) by striking ‘‘the tax imposed by 

25 subparagraph (A)(ii)’’ in clauses (ii) and 
115 

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1 (iv) thereof and inserting ‘‘the tax imposed 

2 by paragraph (1) on undistributed capital 

3 gain’’, 

4 (iii) in subparagraph (E), as so redesig5 nated, by striking ‘‘subparagraph (B) or (D)’’ 

6 and inserting ‘‘subparagraph (A) or (C)’’, and 

7 (iv) by adding at the end the following new 

8 subparagraph: 

9 ‘‘(F) UNDISTRIBUTED CAPITAL GAIN.—For 

10 purposes of this paragraph, the term ‘undistrib11 uted capital gain’ means the excess of the net 

12 capital gain over the deduction for dividends 

13 paid (as defined in section 561) determined with 

14 reference to capital gain dividends only.’’. 

15 (L) Section 882(a)(1), as amended by section 

16 12001, is further amended by striking ‘‘or 1201(a)’’. 

17 (M) Section 904(b) is amended— 

18 (i) by striking ‘‘or 1201(a)’’ in paragraph 

19 (2)(C), 

20 (ii) by striking paragraph (3)(D) and in21 serting the following: 

22 ‘‘(D) CAPITAL GAIN RATE DIFFERENTIAL.— 

23 There is a capital gain rate differential for any 

24 year if subsection (h) of section 1 applies to such 

25 taxable year.’’, and 
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1 (iii) by striking paragraph (3)(E) and in2 serting the following: 

3 ‘‘(E) RATE DIFFERENTIAL PORTION.—The 

4 rate differential portion of foreign source net 

5 capital gain, net capital gain, or the excess of 

6 net capital gain from sources within the United 

7 States over net capital gain, as the case may be, 

8 is the same proportion of such amount as— 

9 ‘‘(i) the excess of— 

10 ‘‘(I) the highest rate of tax set 

11 forth in subsection (a), (b), (c), (d), or 

12 (e) of section 1 (whichever applies), 

13 over 

14 ‘‘(II) the alternative rate of tax 

15 determined under section 1(h), bears to 

16 ‘‘(ii) that rate referred to in subclause 

17 (I).’’. 

18 (N) Section 1374(b) is amended by striking 

19 paragraph (4). 

20 (O) Section 1381(b) is amended by striking 

21 ‘‘taxes imposed by section 11 or 1201’’ and inserting 

22 ‘‘tax imposed by section 11’’. 

23 (P) Sections 6425(c)(1)(A), as amended by sec24 tion 12001, and 6655(g)(1)(A)(i) are each amended 

25 by striking ‘‘or 1201(a),’’. 
117 

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1 (Q) Section 7518(g)(6)(A) is amended by strik2 ing ‘‘or 1201(a)’’. 

3 (3)(A) Section 1445(e)(1) is amended— 

4 (i) by striking ‘‘35 percent’’ and inserting 

5 ‘‘the highest rate of tax in effect for the taxable 

6 year under section 11(b)’’, and 

7 (ii) by striking ‘‘of the gain’’ and inserting 

8 ‘‘multiplied by the gain’’. 

9 (B) Section 1445(e)(2) is amended by striking 

10 ‘‘35 percent of the amount’’ and inserting ‘‘the highest 

11 rate of tax in effect for the taxable year under section 

12 11(b) multiplied by the amount’’. 

13 (C) Section 1445(e)(6) is amended— 

14 (i) by striking ‘‘35 percent’’ and inserting 

15 ‘‘the highest rate of tax in effect for the taxable 

16 year under section 11(b)’’, and 

17 (ii) by striking ‘‘of the amount’’ and insert18 ing ‘‘multiplied by the amount’’. 

19 (D) Section 1446(b)(2)(B) is amended by strik20 ing ‘‘section 11(b)(1)’’ and inserting ‘‘section 11(b)’’. 

21 (4) Section 852(b)(1) is amended by striking the 

22 last sentence. 

23 (5)(A) Part I of subchapter B of chapter 5 is 

24 amended by striking section 1551 (and by striking the 
118 

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1 item relating to such section in the table of sections 

2 for such part). 

3 (B) Section 535(c)(5) is amended to read as fol4 lows: 

5 ‘‘(5) CROSS REFERENCE.—For limitation on 

6 credit provided in paragraph (2) or (3) in the case 

7 of certain controlled corporations, see section 1561.’’. 

8 (6)(A) Section 1561, as amended by section 

9 12001, is amended to read as follows: 

10 ‘‘SEC. 1561. LIMITATION ON ACCUMULATED EARNINGS 

11 CREDIT IN THE CASE OF CERTAIN CON12 TROLLED CORPORATIONS. 

13 ‘‘(a) IN GENERAL.—The component members of a con14 trolled group of corporations on a December 31 shall, for 

15 their taxable years which include such December 31, be lim16 ited for purposes of this subtitle to one $250,000 ($150,000 

17 if any component member is a corporation described in sec18 tion 535(c)(2)(B)) amount for purposes of computing the 

19 accumulated earnings credit under section 535(c)(2) and 

20 (3). Such amount shall be divided equally among the com21 ponent members of such group on such December 31 unless 

22 the Secretary prescribes regulations permitting an unequal 

23 allocation of such amount. 

24 ‘‘(b) CERTAIN SHORT TAXABLE YEARS.—If a corpora25 tion has a short taxable year which does not include a De-
119 

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1 cember 31 and is a component member of a controlled group 

2 of corporations with respect to such taxable year, then for 

3 purposes of this subtitle, the amount to be used in com4 puting the accumulated earnings credit under section 

5 535(c)(2) and (3) of such corporation for such taxable year 

6 shall be the amount specified in subsection (a) with respect 

7 to such group, divided by the number of corporations which 

8 are component members of such group on the last day of 

9 such taxable year. For purposes of the preceding sentence, 

10 section 1563(b) shall be applied as if such last day were 

11 substituted for December 31.’’. 

12 (B) The table of sections for part II of sub13 chapter B of chapter 5 is amended by striking 

14 the item relating to section 1561 and inserting 

15 the following new item: 

‘‘Sec. 1561. Limitation on accumulated earnings credit in the case of certain controlled corporations.’’. 

16 (7) Section 7518(g)(6)(A) is amended— 

17 (A) by striking ‘‘With respect to the por18 tion’’ and inserting ‘‘In the case of a taxpayer 

19 other than a corporation, with respect to the por20 tion’’, and 

21 (B) by striking ‘‘(34 percent in the case of 

22 a corporation)’’. 

23 (c) EFFECTIVE DATE.— 
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1 (1) IN GENERAL.—Except as otherwise provided 

2 in this subsection, the amendments made by sub3 sections (a) and (b) shall apply to taxable years be4 ginning after December 31, 2017. 

5 (2) WITHHOLDING.—The amendments made by 

6 subsection (b)(3) shall apply to distributions made 

7 after December 31, 2017. 

8 (3) CERTAIN TRANSFERS.—The amendments 

9 made by subsection (b)(6) shall apply to transfers 

10 made after December 31, 2017. 

11 (d) NORMALIZATION REQUIREMENTS.— 

12 (1) IN GENERAL.—A normalization method of 

13 accounting shall not be treated as being used with re14 spect to any public utility property for purposes of 

15 section 167 or 168 of the Internal Revenue Code of 

16 1986 if the taxpayer, in computing its cost of service 

17 for ratemaking purposes and reflecting operating re18 sults in its regulated books of account, reduces the ex19 cess tax reserve more rapidly or to a greater extent 

20 than such reserve would be reduced under the average 

21 rate assumption method. 

22 (2) ALTERNATIVE METHOD FOR CERTAIN TAX23 PAYERS.—If, as of the first day of the taxable year 

24 that includes the date of enactment of this Act— 
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1 (A) the taxpayer was required by a regu2 latory agency to compute depreciation for public 

3 utility property on the basis of an average life 

4 or composite rate method, and 

5 (B) the taxpayer’s books and underlying 

6 records did not contain the vintage account data 

7 necessary to apply the average rate assumption 

8 method, 

9 the taxpayer will be treated as using a normalization 

10 method of accounting if, with respect to such jurisdic11 tion, the taxpayer uses the alternative method for 

12 public utility property that is subject to the regu13 latory authority of that jurisdiction. 

14 (3) DEFINITIONS.—For purposes of this sub15 section— 

16 (A) EXCESS TAX RESERVE.—The term ‘‘ex17 cess tax reserve’’ means the excess of— 

18 (i) the reserve for deferred taxes (as de19 scribed in section 168(i)(9)(A)(ii) of the In20 ternal Revenue Code of 1986) as of the day 

21 before the corporate rate reductions provided 

22 in the amendments made by this section 

23 take effect, over 

24 (ii) the amount which would be the 

25 balance in such reserve if the amount of 
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1 such reserve were determined by assuming 

2 that the corporate rate reductions provided 

3 in this Act were in effect for all prior peri4 ods. 

5 (B) AVERAGE RATE ASSUMPTION METH6 OD.—The average rate assumption method is the 

7 method under which the excess in the reserve for 

8 deferred taxes is reduced over the remaining lives 

9 of the property as used in its regulated books of 

10 account which gave rise to the reserve for de11 ferred taxes. Under such method, during the time 

12 period in which the timing differences for the 

13 property reverse, the amount of the adjustment to 

14 the reserve for the deferred taxes is calculated by 

15 multiplying— 

16 (i) the ratio of the aggregate deferred 

17 taxes for the property to the aggregate tim18 ing differences for the property as of the be19 ginning of the period in question, by 

20 (ii) the amount of the timing dif21 ferences which reverse during such period. 

22 (C) ALTERNATIVE METHOD.—The ‘‘alter23 native method’’ is the method in which the tax24 payer— 
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1 (i) computes the excess tax reserve on 

2 all public utility property included in the 

3 plant account on the basis of the weighted 

4 average life or composite rate used to com5 pute depreciation for regulatory purposes, 

6 and 

7 (ii) reduces the excess tax reserve rat8 ably over the remaining regulatory life of 

9 the property. 

10 (4) TAX INCREASED FOR NORMALIZATION VIOLA11 TION.—If, for any taxable year ending after the date 

12 of the enactment of this Act, the taxpayer does not use 

13 a normalization method of accounting for the cor14 porate rate reductions provided in the amendments 

15 made by this section— 

16 (A) the taxpayer’s tax for the taxable year 

17 shall be increased by the amount by which it re18 duces its excess tax reserve more rapidly than 

19 permitted under a normalization method of ac20 counting, and 

21 (B) such taxpayer shall not be treated as 

22 using a normalization method of accounting for 

23 purposes of subsections (f)(2) and (i)(9)(C) of 

24 section 168 of the Internal Revenue Code of 

25 1986. 
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1 SEC. 13002. REDUCTION IN DIVIDEND RECEIVED DEDUC2 TIONS TO REFLECT LOWER CORPORATE IN3 COME TAX RATES. 

4 (a) DIVIDENDS RECEIVED BY CORPORATIONS.— 

5 (1) IN GENERAL.—Section 243(a)(1) is amended 

6 by striking ‘‘70 percent’’ and inserting ‘‘50 percent’’. 

7 (2) DIVIDENDS FROM 20-PERCENT OWNED COR8 PORATIONS.—Section 243(c)(1) is amended— 

9 (A) by striking ‘‘80 percent’’ and inserting 

10 ‘‘65 percent’’, and 

11 (B) by striking ‘‘70 percent’’ and inserting 

12 ‘‘50 percent’’. 

13 (3) CONFORMING AMENDMENT.—The heading for 

14 section 243(c) is amended by striking ‘‘RETENTION OF

15 80-PERCENT DIVIDEND RECEIVED DEDUCTION’’ and 

16 inserting ‘‘INCREASED PERCENTAGE’’. 

17 (b) DIVIDENDS RECEIVED FROM FSC.—Section 

18 245(c)(1)(B) is amended— 

19 (1) by striking ‘‘70 percent’’ and inserting ‘‘50 

20 percent’’, and 

21 (2) by striking ‘‘80 percent’’ and inserting ‘‘65 

22 percent’’. 

23 (c) LIMITATION ON AGGREGATE AMOUNT OF DEDUC24 TIONS.—Section 246(b)(3) is amended— 

25 (1) by striking ‘‘80 percent’’ in subparagraph 

26 (A) and inserting ‘‘65 percent’’, and 
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1 (2) by striking ‘‘70 percent’’ in subparagraph 

2 (B) and inserting ‘‘50 percent’’. 

3 (d) REDUCTION IN DEDUCTION WHERE PORTFOLIO

4 STOCK IS DEBT-FINANCED.—Section 246A(a)(1) is amend5 ed— 

6 (1) by striking ‘‘70 percent’’ and inserting ‘‘50 

7 percent’’, and 

8 (2) by striking ‘‘80 percent’’ and inserting ‘‘65 

9 percent’’. 

10 (e) INCOME FROM SOURCES WITHIN THE UNITED

11 STATES.—Section 861(a)(2) is amended— 

12 (1) by striking ‘‘100/70th’’ and inserting ‘‘100/ 

13 50th’’ in subparagraph (B), and 

14 (2) in the flush sentence at the end— 

15 (A) by striking ‘‘100/80th’’ and inserting 

16 ‘‘100/65th’’, and 

17 (B) by striking ‘‘100/70th’’ and inserting 

18 ‘‘100/50th’’. 

19 (f) EFFECTIVE DATE.—The amendments made by this 

20 section shall apply to taxable years beginning after Decem21 ber 31, 2017. 

22 PART II—SMALL BUSINESS REFORMS 

23 SEC. 13101. MODIFICATIONS OF RULES FOR EXPENSING DE24 PRECIABLE BUSINESS ASSETS. 

25 (a) INCREASE IN LIMITATION.— 
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1 (1) DOLLAR LIMITATION.—Section 179(b)(1) is 

2 amended by striking ‘‘$500,000’’ and inserting 

3 ‘‘$1,000,000’’. 

4 (2) REDUCTION IN LIMITATION.—Section 

5 179(b)(2) is amended by striking ‘‘$2,000,000’’ and 

6 inserting ‘‘$2,500,000’’. 

7 (3) INFLATION ADJUSTMENTS.— 

8 (A) IN GENERAL.—Subparagraph (A) of 

9 section 179(b)(6), as amended by section 

10 11002(d), is amended— 

11 (i) by striking ‘‘2015’’ and inserting 

12 ‘‘2018’’, and 

13 (ii) in clause (ii), by striking ‘‘cal14 endar year 2014’’ and inserting ‘‘calendar 

15 year 2017’’. 

16 (B) SPORT UTILITY VEHICLES.—Section 

17 179(b)(6) is amended— 

18 (i) in subparagraph (A), by striking 

19 ‘‘paragraphs (1) and (2)’’ and inserting 

20 ‘‘paragraphs (1), (2), and (5)(A)’’, and 

21 (ii) in subparagraph (B), by inserting 

22 ‘‘($100 in the case of any increase in the 

23 amount under paragraph (5)(A))’’ after 

24 ‘‘$10,000’’. 
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1 (b) Section 179 Property To Include Qualified Real 

2 Property.— 

3 (1) IN GENERAL.—Subparagraph (B) of section 

4 179(d)(1) is amended to read as follows: 

5 ‘‘(B) which is— 

6 ‘‘(i) section 1245 property (as defined 

7 in section 1245(a)(3)), or 

8 ‘‘(ii) at the election of the taxpayer, 

9 qualified real property (as defined in sub10 section (f)), and’’. 

11 (2) QUALIFIED REAL PROPERTY DEFINED.—Sub12 section (f) of section 179 is amended to read as fol13 lows: 

14 ‘‘(f) QUALIFIED REAL PROPERTY.—For purposes of 

15 this section, the term ‘qualified real property’ means— 

16 ‘‘(1) any qualified improvement property de17 scribed in section 168(e)(6), and 

18 ‘‘(2) any of the following improvements to non19 residential real property placed in service after the 

20 date such property was first placed in service: 

21 ‘‘(A) Roofs. 

22 ‘‘(B) Heating, ventilation, and air-condi23 tioning property. 

24 ‘‘(C) Fire protection and alarm systems. 

25 ‘‘(D) Security systems.’’. 
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1 (c) REPEAL OF EXCLUSION FOR CERTAIN PROP2 ERTY.—The last sentence of section 179(d)(1) is amended 

3 by inserting ‘‘(other than paragraph (2) thereof)’’ after 

4 ‘‘section 50(b)’’. 

5 (d) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to property placed in service in taxable 

7 years beginning after December 31, 2017. 

8 SEC. 13102. SMALL BUSINESS ACCOUNTING METHOD RE9 FORM AND SIMPLIFICATION. 

10 (a) MODIFICATION OF LIMITATION ON CASH METHOD

11 OF ACCOUNTING.— 

12 (1) INCREASED LIMITATION.—So much of section 

13 448(c) as precedes paragraph (2) is amended to read 

14 as follows: 

15 ‘‘(c) GROSS RECEIPTS TEST.—For purposes of this 

16 section— 

17 ‘‘(1) IN GENERAL.—A corporation or partnership 

18 meets the gross receipts test of this subsection for any 

19 taxable year if the average annual gross receipts of 

20 such entity for the 3-taxable-year period ending with 

21 the taxable year which precedes such taxable year does 

22 not exceed $25,000,000.’’. 

23 (2) APPLICATION OF EXCEPTION ON ANNUAL

24 BASIS.—Section 448(b)(3) is amended to read as fol25 lows: 
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1 ‘‘(3) ENTITIES WHICH MEET GROSS RECEIPTS

2 TEST.—Paragraphs (1) and (2) of subsection (a) shall 

3 not apply to any corporation or partnership for any 

4 taxable year if such entity (or any predecessor) meets 

5 the gross receipts test of subsection (c) for such taxable 

6 year.’’. 

7 (3) INFLATION ADJUSTMENT.—Section 448(c) is 

8 amended by adding at the end the following new 

9 paragraph: 

10 ‘‘(4) ADJUSTMENT FOR INFLATION.—In the case 

11 of any taxable year beginning after December 31, 

12 2018, the dollar amount in paragraph (1) shall be in13 creased by an amount equal to— 

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

15 ‘‘(B) the cost-of-living adjustment deter16 mined under section 1(f)(3) for the calendar year 

17 in which the taxable year begins, by substituting 

18 ‘calendar year 2017’ for ‘calendar year 2016’ in 

19 subparagraph (A)(ii) thereof. 

20 If any amount as increased under the preceding sen21 tence is not a multiple of $1,000,000, such amount 

22 shall be rounded to the nearest multiple of 

23 $1,000,000.’’. 

24 (4) COORDINATION WITH SECTION 481.—Section 

25 448(d)(7) is amended to read as follows: 
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1 ‘‘(7) COORDINATION WITH SECTION 481.—Any 

2 change in method of accounting made pursuant to 

3 this section shall be treated for purposes of section 481 

4 as initiated by the taxpayer and made with the con5 sent of the Secretary.’’. 

6 (5) APPLICATION OF EXCEPTION TO CORPORA7 TIONS ENGAGED IN FARMING.— 

8 (A) IN GENERAL.—Section 447(c) is amend9 ed— 

10 (i) by inserting ‘‘for any taxable year’’ 

11 after ‘‘not being a corporation’’ in the mat12 ter preceding paragraph (1), and 

13 (ii) by amending paragraph (2) to 

14 read as follows: 

15 ‘‘(2) a corporation which meets the gross receipts 

16 test of section 448(c) for such taxable year.’’. 

17 (B) COORDINATION WITH SECTION 481.— 

18 Section 447(f) is amended to read as follows: 

19 ‘‘(f) COORDINATION WITH SECTION 481.—Any change 

20 in method of accounting made pursuant to this section shall 

21 be treated for purposes of section 481 as initiated by the 

22 taxpayer and made with the consent of the Secretary.’’. 

23 (C) CONFORMING AMENDMENTS.—Section 

24 447 is amended— 
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1 (i) by striking subsections (d), (e), (h), 

2 and (i), and 

3 (ii) by redesignating subsections (f) 

4 and (g) (as amended by subparagraph (B)) 

5 as subsections (d) and (e), respectively. 

6 (b) EXEMPTION FROM UNICAP REQUIREMENTS.— 

7 (1) IN GENERAL.—Section 263A is amended by 

8 redesignating subsection (i) as subsection (j) and by 

9 inserting after subsection (h) the following new sub10 section: 

11 ‘‘(i) EXEMPTION FOR CERTAIN SMALL BUSINESSES.— 

12 ‘‘(1) IN GENERAL.—In the case of any taxpayer 

13 (other than a tax shelter prohibited from using the 

14 cash receipts and disbursements method of accounting 

15 under section 448(a)(3)) which meets the gross re16 ceipts test of section 448(c) for any taxable year, this 

17 section shall not apply with respect to such taxpayer 

18 for such taxable year. 

19 ‘‘(2) APPLICATION OF GROSS RECEIPTS TEST TO

20 INDIVIDUALS, ETC.—In the case of any taxpayer 

21 which is not a corporation or a partnership, the gross 

22 receipts test of section 448(c) shall be applied in the 

23 same manner as if each trade or business of such tax24 payer were a corporation or partnership. 
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1 ‘‘(3) COORDINATION WITH SECTION 481.—Any 

2 change in method of accounting made pursuant to 

3 this subsection shall be treated for purposes of section 

4 481 as initiated by the taxpayer and made with the 

5 consent of the Secretary.’’. 

6 (2) CONFORMING AMENDMENT.—Section 

7 263A(b)(2) is amended to read as follows: 

8 ‘‘(2) PROPERTY ACQUIRED FOR RESALE.—Real 

9 or personal property described in section 1221(a)(1) 

10 which is acquired by the taxpayer for resale.’’. 

11 (c) EXEMPTION FROM INVENTORIES.—Section 471 is 

12 amended by redesignating subsection (c) as subsection (d) 

13 and by inserting after subsection (b) the following new sub14 section: 

15 ‘‘(c) EXEMPTION FOR CERTAIN SMALL BUSINESSES.— 

16 ‘‘(1) IN GENERAL.—In the case of any taxpayer 

17 (other than a tax shelter prohibited from using the 

18 cash receipts and disbursements method of accounting 

19 under section 448(a)(3)) which meets the gross re20 ceipts test of section 448(c) for any taxable year— 

21 ‘‘(A) subsection (a) shall not apply with re22 spect to such taxpayer for such taxable year, and 

23 ‘‘(B) the taxpayer’s method of accounting 

24 for inventory for such taxable year shall not be 
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1 treated as failing to clearly reflect income if such 

2 method either— 

3 ‘‘(i) treats inventory as non-incidental 

4 materials and supplies, or 

5 ‘‘(ii) conforms to such taxpayer’s meth6 od of accounting reflected in an applicable 

7 financial statement of the taxpayer with re8 spect to such taxable year or, if the tax9 payer does not have any applicable finan10 cial statement with respect to such taxable 

11 year, the books and records of the taxpayer 

12 prepared in accordance with the taxpayer’s 

13 accounting procedures. 

14 ‘‘(2) APPLICABLE FINANCIAL STATEMENT.—For 

15 purposes of this subsection, the term ‘applicable fi16 nancial statement’ has the meaning given the term in 

17 section 451(b)(3). 

18 ‘‘(3) APPLICATION OF GROSS RECEIPTS TEST TO

19 INDIVIDUALS, ETC.—In the case of any taxpayer 

20 which is not a corporation or a partnership, the gross 

21 receipts test of section 448(c) shall be applied in the 

22 same manner as if each trade or business of such tax23 payer were a corporation or partnership. 

24 ‘‘(4) COORDINATION WITH SECTION 481.—Any 

25 change in method of accounting made pursuant to 
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1 this subsection shall be treated for purposes of section 

2 481 as initiated by the taxpayer and made with the 

3 consent of the Secretary.’’. 

4 (d) EXEMPTION FROM PERCENTAGE COMPLETION FOR

5 LONG-TERM CONTRACTS.— 

6 (1) IN GENERAL.—Section 460(e)(1)(B) is 

7 amended— 

8 (A) by inserting ‘‘(other than a tax shelter 

9 prohibited from using the cash receipts and dis10 bursements method of accounting under section 

11 448(a)(3))’’ after ‘‘taxpayer’’ in the matter pre12 ceding clause (i), and 

13 (B) by amending clause (ii) to read as fol14 lows: 

15 ‘‘(ii) who meets the gross receipts test 

16 of section 448(c) for the taxable year in 

17 which such contract is entered into.’’. 

18 (2) CONFORMING AMENDMENTS.—Section 460(e) 

19 is amended by striking paragraphs (2) and (3), by re20 designating paragraphs (4), (5), and (6) as para21 graphs (3), (4), and (5), respectively, and by insert22 ing after paragraph (1) the following new paragraph: 

23 ‘‘(2) RULES RELATED TO GROSS RECEIPTS

24 TEST.— 
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1 ‘‘(A) APPLICATION OF GROSS RECEIPTS

2 TEST TO INDIVIDUALS, ETC.—For purposes of 

3 paragraph (1)(B)(ii), in the case of any tax4 payer which is not a corporation or a partner5 ship, the gross receipts test of section 448(c) shall 

6 be applied in the same manner as if each trade 

7 or business of such taxpayer were a corporation 

8 or partnership. 

9 ‘‘(B) COORDINATION WITH SECTION 481.— 

10 Any change in method of accounting made pur11 suant to paragraph (1)(B)(ii) shall be treated as 

12 initiated by the taxpayer and made with the 

13 consent of the Secretary. Such change shall be ef14 fected on a cut-off basis for all similarly classi15 fied contracts entered into on or after the year 

16 of change.’’. 

17 (e) EFFECTIVE DATE.— 

18 (1) IN GENERAL.—Except as otherwise provided 

19 in this subsection, the amendments made by this sec20 tion shall apply to taxable years beginning after De21 cember 31, 2017. 

22 (2) PRESERVATION OF SUSPENSE ACCOUNT

23 RULES WITH RESPECT TO ANY EXISTING SUSPENSE

24 ACCOUNTS.—So much of the amendments made by 

25 subsection (a)(5)(C) as relate to section 447(i) of the 
136 

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1 Internal Revenue Code of 1986 shall not apply with 

2 respect to any suspense account established under 

3 such section before the date of the enactment of this 

4 Act. 

5 (3) EXEMPTION FROM PERCENTAGE COMPLETION

6 FOR LONG-TERM CONTRACTS.—The amendments made 

7 by subsection (d) shall apply to contracts entered into 

8 after December 31, 2017, in taxable years ending 

9 after such date. 

10 PART III—COST RECOVERY AND ACCOUNTING 

11 METHODS 

12 Subpart A—Cost Recovery 

13 SEC. 13201. TEMPORARY 100-PERCENT EXPENSING FOR 

14 CERTAIN BUSINESS ASSETS. 

15 (a) INCREASED EXPENSING.— 

16 (1) IN GENERAL.—Section 168(k) is amended— 

17 (A) in paragraph (1)(A), by striking ‘‘50 

18 percent’’ and inserting ‘‘the applicable percent19 age’’, and 

20 (B) in paragraph (5)(A)(i), by striking ‘‘50 

21 percent’’ and inserting ‘‘the applicable percent22 age’’. 

23 (2) APPLICABLE PERCENTAGE.—Paragraph (6) 

24 of section 168(k) is amended to read as follows: 
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1 ‘‘(6) APPLICABLE PERCENTAGE.—For purposes 

2 of this subsection— 

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

4 provided in this paragraph, the term ‘applicable 

5 percentage’ means— 

6 ‘‘(i) in the case of property placed in 

7 service after September 27, 2017, and before 

8 January 1, 2023, 100 percent, 

9 ‘‘(ii) in the case of property placed in 

10 service after December 31, 2022, and before 

11 January 1, 2024, 80 percent, 

12 ‘‘(iii) in the case of property placed in 

13 service after December 31, 2023, and before 

14 January 1, 2025, 60 percent, 

15 ‘‘(iv) in the case of property placed in 

16 service after December 31, 2024, and before 

17 January 1, 2026, 40 percent, and 

18 ‘‘(v) in the case of property placed in 

19 service after December 31, 2025, and before 

20 January 1, 2027, 20 percent. 

21 ‘‘(B) RULE FOR PROPERTY WITH LONGER

22 PRODUCTION PERIODS.—In the case of property 

23 described in subparagraph (B) or (C) of para24 graph (2), the term ‘applicable percentage’ 

25 means— 
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1 ‘‘(i) in the case of property placed in 

2 service after September 27, 2017, and before 

3 January 1, 2024, 100 percent, 

4 ‘‘(ii) in the case of property placed in 

5 service after December 31, 2023, and before 

6 January 1, 2025, 80 percent, 

7 ‘‘(iii) in the case of property placed in 

8 service after December 31, 2024, and before 

9 January 1, 2026, 60 percent, 

10 ‘‘(iv) in the case of property placed in 

11 service after December 31, 2025, and before 

12 January 1, 2027, 40 percent, and 

13 ‘‘(v) in the case of property placed in 

14 service after December 31, 2026, and before 

15 January 1, 2028, 20 percent. 

16 ‘‘(C) RULE FOR PLANTS BEARING FRUITS

17 AND NUTS.—In the case of a specified plant de18 scribed in paragraph (5), the term ‘applicable 

19 percentage’ means— 

20 ‘‘(i) in the case of a plant which is 

21 planted or grafted after September 27, 2017, 

22 and before January 1, 2023, 100 percent, 

23 ‘‘(ii) in the case of a plant which is 

24 planted or grafted after December 31, 2022, 

25 and before January 1, 2024, 80 percent, 
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1 ‘‘(iii) in the case of a plant which is 

2 planted or grafted after December 31, 2023, 

3 and before January 1, 2025, 60 percent, 

4 ‘‘(iv) in the case of a plant which is 

5 planted or grafted after December 31, 2024, 

6 and before January 1, 2026, 40 percent, 

7 and 

8 ‘‘(v) in the case of a plant which is 

9 planted or grafted after December 31, 2025, 

10 and before January 1, 2027, 20 percent.’’. 

11 (3) CONFORMING AMENDMENT.— 

12 (A) Paragraph (5) of section 168(k) is 

13 amended by striking subparagraph (F). 

14 (B) Section 168(k) is amended by adding at 

15 the end the following new paragraph: 

16 ‘‘(8) PHASE DOWN.—In the case of qualified 

17 property acquired by the taxpayer before September 

18 28, 2017, and placed in service by the taxpayer after 

19 September 27, 2017, paragraph (6) shall be applied 

20 by substituting for each percentage therein— 

21 ‘‘(A) ‘50 percent’ in the case of— 

22 ‘‘(i) property placed in service before 

23 January 1, 2018, and 
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1 ‘‘(ii) property described in subpara2 graph (B) or (C) of paragraph (2) which is 

3 placed in service in 2018, 

4 ‘‘(B) ‘40 percent’ in the case of— 

5 ‘‘(i) property placed in service in 2018 

6 (other than property described in subpara7 graph (B) or (C) of paragraph (2)), and 

8 ‘‘(ii) property described in subpara9 graph (B) or (C) of paragraph (2) which is 

10 placed in service in 2019, 

11 ‘‘(C) ‘30 percent’ in the case of— 

12 ‘‘(i) property placed in service in 2019 

13 (other than property described in subpara14 graph (B) or (C) of paragraph (2)), and 

15 ‘‘(ii) property described in subpara16 graph (B) or (C) of paragraph (2) which is 

17 placed in service in 2020, and 

18 ‘‘(D) ‘0 percent’ in the case of— 

19 ‘‘(i) property placed in service after 

20 2019 (other than property described in sub21 paragraph (B) or (C) of paragraph (2)), 

22 and 

23 ‘‘(ii) property described in subpara24 graph (B) or (C) of paragraph (2) which is 

25 placed in service after 2020.’’. 
141 

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1 (b) EXTENSION.— 

2 (1) IN GENERAL.—Section 168(k) is amended— 

3 (A) in paragraph (2)— 

4 (i) in subparagraph (A)(iii), clauses 

5 (i)(III) and (ii) of subparagraph (B), and 

6 subparagraph (E)(i), by striking ‘‘January 

7 1, 2020’’ each place it appears and insert8 ing ‘‘January 1, 2027’’, and 

9 (ii) in subparagraph (B)— 

10 (I) in clause (i)(II), by striking 

11 ‘‘January 1, 2021’’ and inserting 

12 ‘‘January 1, 2028’’, and 

13 (II) in the heading of clause (ii), 

14 by striking ‘‘PRE-JANUARY 1, 2020’’ and 

15 inserting ‘‘PRE-JANUARY 1, 2027’’, and 

16 (B) in paragraph (5)(A), by striking ‘‘Jan17 uary 1, 2020’’ and inserting ‘‘January 1, 2027’’. 

18 (2) CONFORMING AMENDMENTS.— 

19 (A) Clause (ii) of section 460(c)(6)(B) is 

20 amended by striking ‘‘January 1, 2020 (Janu21 ary 1, 2021’’ and inserting ‘‘January 1, 2027 

22 (January 1, 2028’’. 

23 (B) The heading of section 168(k) is amend24 ed by striking ‘‘ACQUIRED AFTER DECEMBER

25 31, 2007, AND BEFORE JANUARY 1, 2020’’. 
142 

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1 (c) APPLICATION TO USED PROPERTY.— 

2 (1) IN GENERAL.—Section 168(k)(2)(A)(ii) is 

3 amended to read as follows: 

4 ‘‘(ii) the original use of which begins 

5 with the taxpayer or the acquisition of 

6 which by the taxpayer meets the require7 ments of clause (ii) of subparagraph (E), 

8 and’’. 

9 (2) ACQUISITION REQUIREMENTS.—Section 

10 168(k)(2)(E)(ii) is amended to read as follows: 

11 ‘‘(ii) ACQUISITION REQUIREMENTS.— 

12 An acquisition of property meets the re13 quirements of this clause if— 

14 ‘‘(I) such property was not used 

15 by the taxpayer at any time prior to 

16 such acquisition, and 

17 ‘‘(II) the acquisition of such prop18 erty meets the requirements of para19 graphs (2)(A), (2)(B), (2)(C), and (3) 

20 of section 179(d).’’, 

21 (3) ANTI-ABUSE RULES.—Section 168(k)(2)(E) 

22 is further amended by amending clause (iii)(I) to 

23 read as follows: 
143 

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1 ‘‘(I) property is used by a lessor 

2 of such property and such use is the 

3 lessor’s first use of such property,’’. 

4 (d) EXCEPTION FOR CERTAIN PROPERTY.—Section 

5 168(k), as amended by this section, is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(9) EXCEPTION FOR CERTAIN PROPERTY.—The 

8 term ‘qualified property’ shall not include— 

9 ‘‘(A) any property which is primarily used 

10 in a trade or business described in clause (iv) of 

11 section 163(j)(7)(A), or 

12 ‘‘(B) any property used in a trade or busi13 ness that has had floor plan financing indebted14 ness (as defined in paragraph (9) of section 

15 163(j)), if the floor plan financing interest re16 lated to such indebtedness was taken into ac17 count under paragraph (1)(C) of such section.’’. 

18 (e) SPECIAL RULE.—Section 168(k), as amended by 

19 this section, is amended by adding at the end the following 

20 new paragraph: 

21 ‘‘(10) SPECIAL RULE FOR PROPERTY PLACED IN

22 SERVICE DURING CERTAIN PERIODS.— 

23 ‘‘(A) IN GENERAL.—In the case of qualified 

24 property placed in service by the taxpayer dur25 ing the first taxable year ending after September 
144 

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1 27, 2017, if the taxpayer elects to have this para2 graph apply for such taxable year, paragraphs 

3 (1)(A) and (5)(A)(i) shall be applied by sub4 stituting ‘50 percent’ for ‘the applicable percent5 age’. 

6 ‘‘(B) FORM OF ELECTION.—Any election 

7 under this paragraph shall be made at such time 

8 and in such form and manner as the Secretary 

9 may prescribe.’’. 

10 (f) COORDINATION WITH SECTION 280F.—Clause (iii) 

11 of section 168(k)(2)(F) is amended by striking ‘‘placed in 

12 service by the taxpayer after December 31, 2017’’ and in13 serting ‘‘acquired by the taxpayer before September 28, 

14 2017, and placed in service by the taxpayer after September 

15 27, 2017’’. 

16 (g) QUALIFIED FILM AND TELEVISION AND LIVE THE17 ATRICAL PRODUCTIONS.— 

18 (1) IN GENERAL.—Clause (i) of section 

19 168(k)(2)(A), as amended by section 13204, is amend20 ed— 

21 (A) in subclause (II), by striking ‘‘or’’, 

22 (B) in subclause (III), by adding ‘‘or’’ after 

23 the comma, and 

24 (C) by adding at the end the following: 
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1 ‘‘(IV) which is a qualified film or tele2 vision production (as defined in subsection 

3 (d) of section 181) for which a deduction 

4 would have been allowable under section 

5 181 without regard to subsections (a)(2) 

6 and (g) of such section or this subsection, or 

7 ‘‘(V) which is a qualified live theat8 rical production (as defined in subsection 

9 (e) of section 181) for which a deduction 

10 would have been allowable under section 

11 181 without regard to subsections (a)(2) 

12 and (g) of such section or this subsection,’’. 

13 (2) PRODUCTION PLACED IN SERVICE.—Para14 graph (2) of section 168(k) is amended by adding at 

15 the end the following: 

16 ‘‘(H) PRODUCTION PLACED IN SERVICE.— 

17 For purposes of subparagraph (A)— 

18 ‘‘(i) a qualified film or television pro19 duction shall be considered to be placed in 

20 service at the time of initial release or 

21 broadcast, and 

22 ‘‘(ii) a qualified live theatrical produc23 tion shall be considered to be placed in serv24 ice at the time of the initial live staged per25 formance.’’. 
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1 (h) EFFECTIVE DATE.— 

2 (1) IN GENERAL.—Except as provided by para3 graph (2), the amendments made by this section shall 

4 apply to property which— 

5 (A) is acquired after September 27, 2017, 

6 and 

7 (B) is placed in service after such date. 

8 For purposes of the preceding sentence, property shall 

9 not be treated as acquired after the date on which a 

10 written binding contract is entered into for such ac11 quisition. 

12 (2) SPECIFIED PLANTS.—The amendments made 

13 by this section shall apply to specified plants planted 

14 or grafted after September 27, 2017. 

15 SEC. 13202. MODIFICATIONS TO DEPRECIATION LIMITA16 TIONS ON LUXURY AUTOMOBILES AND PER17 SONAL USE PROPERTY. 

18 (a) LUXURY AUTOMOBILES.— 

19 (1) IN GENERAL.—280F(a)(1)(A) is amended— 

20 (A) in clause (i), by striking ‘‘$2,560’’ and 

21 inserting ‘‘$10,000’’, 

22 (B) in clause (ii), by striking ‘‘$4,100’’ and 

23 inserting ‘‘$16,000’’, 

24 (C) in clause (iii), by striking ‘‘$2,450’’ and 

25 inserting ‘‘$9,600’’, and 
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1 (D) in clause (iv), by striking ‘‘$1,475’’ and 

2 inserting ‘‘$5,760’’. 

3 (2) CONFORMING AMENDMENTS.— 

4 (A) Clause (ii) of section 280F(a)(1)(B) is 

5 amended by striking ‘‘$1,475’’ in the text and 

6 heading and inserting ‘‘$5,760’’. 

7 (B) Paragraph (7) of section 280F(d) is 

8 amended— 

9 (i) in subparagraph (A), by striking 

10 ‘‘1988’’ and inserting ‘‘2018’’, and 

11 (ii) in subparagraph (B)(i)(II), by 

12 striking ‘‘1987’’ and inserting ‘‘2017’’. 

13 (b) REMOVAL OF COMPUTER EQUIPMENT FROM LIST14 ED PROPERTY.— 

15 (1) IN GENERAL.—Section 280F(d)(4)(A) is 

16 amended— 

17 (A) by inserting ‘‘and’’ at the end of clause 

18 (iii), 

19 (B) by striking clause (iv), and 

20 (C) by redesignating clause (v) as clause 

21 (iv). 

22 (2) CONFORMING AMENDMENT.—Section 

23 280F(d)(4) is amended by striking subparagraph (B) 

24 and by redesignating subparagraph (C) as subpara25 graph (B). 
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† HR 1 EAS2 

1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to property placed in service after De3 cember 31, 2017, in taxable years ending after such date. 

4 SEC. 13203. MODIFICATIONS OF TREATMENT OF CERTAIN 

5 FARM PROPERTY. 

6 (a) TREATMENT OF CERTAIN FARM PROPERTY AS 5- 

7 YEAR PROPERTY.—Clause (vii) of section 168(e)(3)(B) is 

8 amended by striking ‘‘after December 31, 2008, and which 

9 is placed in service before January 1, 2010’’ and inserting 

10 ‘‘after December 31, 2017’’. 

11 (b) REPEAL OF REQUIRED USE OF 150-PERCENT DE12 CLINING BALANCE METHOD.—Section 168(b)(2) is amend13 ed by striking subparagraph (B) and by redesignating sub14 paragraphs (C) and (D) as subparagraphs (B) and (C), re15 spectively. 

16 (c) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to property placed in service after De18 cember 31, 2017, in taxable years ending after such date. 

19 SEC. 13204. APPLICABLE RECOVERY PERIOD FOR REAL 

20 PROPERTY. 

21 (a) IMPROVEMENTS TO REAL PROPERTY.— 

22 (1) ELIMINATION OF QUALIFIED LEASEHOLD IM23 PROVEMENT, QUALIFIED RESTAURANT, AND QUALI24 FIED RETAIL IMPROVEMENT PROPERTY.—Subsection 

25 (e) of section 168 is amended— 
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1 (A) in subparagraph (E) of paragraph 

2 (3)— 

3 (i) by striking clauses (iv), (v), and 

4 (ix), 

5 (ii) in clause (vii), by inserting ‘‘and’’ 

6 at the end, 

7 (iii) in clause (viii), by striking ‘‘, 

8 and’’ and inserting a period, and 

9 (iv) by redesignating clauses (vi), (vii), 

10 and (viii), as so amended, as clauses (iv), 

11 (v), and (vi), respectively, and 

12 (B) by striking paragraphs (6), (7), and 

13 (8). 

14 (2) APPLICATION OF STRAIGHT LINE METHOD TO

15 QUALIFIED IMPROVEMENT PROPERTY.—Paragraph (3) 

16 of section 168(b) is amended— 

17 (A) by striking subparagraphs (G), (H), 

18 and (I), and 

19 (B) by inserting after subparagraph (F) the 

20 following new subparagraph: 

21 ‘‘(G) Qualified improvement property de22 scribed in subsection (e)(6).’’. 

23 (3) ALTERNATIVE DEPRECIATION SYSTEM.— 
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1 (A) ELECTING REAL PROPERTY TRADE OR

2 BUSINESS.—Subsection (g) of section 168 is 

3 amended— 

4 (i) in paragraph (1)— 

5 (I) in subparagraph (D), by strik6 ing ‘‘and’’ at the end, 

7 (II) in subparagraph (E), by in8 serting ‘‘and’’ at the end, and 

9 (III) by inserting after subpara10 graph (E) the following new subpara11 graph: 

12 ‘‘(F) any property described in paragraph 

13 (8),’’, and 

14 (ii) by adding at the end the following 

15 new paragraph: 

16 ‘‘(8) ELECTING REAL PROPERTY TRADE OR BUSI17 NESS.—The property described in this paragraph 

18 shall consist of any nonresidential real property, resi19 dential rental property, and qualified improvement 

20 property held by an electing real property trade or 

21 business (as defined in 163(j)(7)(B)).’’. 

22 (B) QUALIFIED IMPROVEMENT PROPERTY.— 

23 The table contained in subparagraph (B) of sec24 tion 168(g)(3) is amended— 
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1 (i) by inserting after the item relating 

2 to subparagraph (D)(ii) the following new 

3 item: 

‘‘(D)(v) ................................................................................................ 20’’ 

4 , and 

5 (ii) by striking the item relating to 

6 subparagraph (E)(iv) and all that follows 

7 through the item relating to subparagraph 

8 (E)(ix) and inserting the following: 

‘‘(E)(iv) ............................................................................................... 20

(E)(v) .................................................................................................. 30

(E)(vi) ................................................................................................. 35’’. 

9 (C) APPLICABLE RECOVERY PERIOD FOR

10 RESIDENTIAL RENTAL PROPERTY.—The table 

11 contained in subparagraph (C) of section 

12 168(g)(2) is amended by striking clauses (iii) 

13 and (iv) and inserting the following: 

‘‘(iii) Residential rental property .................................................... 30 years

(iv) Nonresidential real property ..................................................... 40 years

(v) Any railroad grading or tunnel bore or water utility property .................................................................................................. 50 years’’. 

14 (4) CONFORMING AMENDMENTS.— 

15 (A) Clause (i) of section 168(k)(2)(A) is 

16 amended— 

17 (i) in subclause (II), by inserting ‘‘or’’ 

18 after the comma, 

19 (ii) in subclause (III), by striking ‘‘or’’ 

20 at the end, and 

21 (iii) by striking subclause (IV). 

22 (B) Section 168 is amended— 
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† HR 1 EAS2 

1 (i) in subsection (e), as amended by 

2 paragraph (1)(B), by adding at the end the 

3 following: 

4 ‘‘(6) QUALIFIED IMPROVEMENT PROPERTY.— 

5 ‘‘(A) IN GENERAL.—The term ‘qualified im6 provement property’ means any improvement to 

7 an interior portion of a building which is non8 residential real property if such improvement is 

9 placed in service after the date such building was 

10 first placed in service. 

11 ‘‘(B) CERTAIN IMPROVEMENTS NOT IN12 CLUDED.—Such term shall not include any im13 provement for which the expenditure is attrib14 utable to— 

15 ‘‘(i) the enlargement of the building, 

16 ‘‘(ii) any elevator or escalator, or 

17 ‘‘(iii) the internal structural frame18 work of the building.’’, and 

19 (ii) in subsection (k), by striking para20 graph (3). 

21 (b) EFFECTIVE DATE.— 

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section shall 

24 apply to property placed in service after December 

25 31, 2017. 
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1 (2) AMENDMENTS RELATED TO ELECTING REAL

2 PROPERTY TRADE OR BUSINESS.—The amendments 

3 made by subsection (a)(3)(A) shall apply to taxable 

4 years beginning after December 31, 2017. 

5 SEC. 13205. USE OF ALTERNATIVE DEPRECIATION SYSTEM 

6 FOR ELECTING FARMING BUSINESSES. 

7 (a) IN GENERAL.—Section 168(g)(1), as amended by 

8 section 13204, is amended by striking ‘‘and’’ at the end of 

9 subparagraph (E), by inserting ‘‘and’’ at the end of sub10 paragraph (F), and by inserting after subparagraph (F) 

11 the following new subparagraph: 

12 ‘‘(G) any property with a recovery period of 

13 10 years or more which is held by an electing 

14 farming business (as defined in section 

15 163(j)(7)(C)),’’. 

16 (b) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to taxable years beginning after Decem18 ber 31, 2017. 

19 SEC. 13206. AMORTIZATION OF RESEARCH AND EXPERI20 MENTAL EXPENDITURES. 

21 (a) IN GENERAL.—Section 174 is amended to read as 

22 follows: 
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1 ‘‘SEC. 174. AMORTIZATION OF RESEARCH AND EXPERI2 MENTAL EXPENDITURES. 

3 ‘‘(a) IN GENERAL.—In the case of a taxpayer’s speci4 fied research or experimental expenditures for any taxable 

5 year— 

6 ‘‘(1) except as provided in paragraph (2), no de7 duction shall be allowed for such expenditures, and 

8 ‘‘(2) the taxpayer shall— 

9 ‘‘(A) charge such expenditures to capital ac10 count, and 

11 ‘‘(B) be allowed an amortization deduction 

12 of such expenditures ratably over the 5-year pe13 riod (15-year period in the case of any specified 

14 research or experimental expenditures which are 

15 attributable to foreign research (within the 

16 meaning of section 41(d)(4)(F))) beginning with 

17 the midpoint of the taxable year in which such 

18 expenditures are paid or incurred. 

19 ‘‘(b) SPECIFIED RESEARCH OR EXPERIMENTAL EX20 PENDITURES.—For purposes of this section, the term ‘speci21 fied research or experimental expenditures’ means, with re22 spect to any taxable year, research or experimental expendi23 tures which are paid or incurred by the taxpayer during 

24 such taxable year in connection with the taxpayer’s trade 

25 or business. 

26 ‘‘(c) SPECIAL RULES.— 
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1 ‘‘(1) LAND AND OTHER PROPERTY.—This section 

2 shall not apply to any expenditure for the acquisition 

3 or improvement of land, or for the acquisition or im4 provement of property to be used in connection with 

5 the research or experimentation and of a character 

6 which is subject to the allowance under section 167 

7 (relating to allowance for depreciation, etc.) or section 

8 611 (relating to allowance for depletion); but for pur9 poses of this section allowances under section 167, 

10 and allowances under section 611, shall be considered 

11 as expenditures. 

12 ‘‘(2) EXPLORATION EXPENDITURES.—This sec13 tion shall not apply to any expenditure paid or in14 curred for the purpose of ascertaining the existence, 

15 location, extent, or quality of any deposit of ore or 

16 other mineral (including oil and gas). 

17 ‘‘(3) SOFTWARE DEVELOPMENT.—For purposes 

18 of this section, any amount paid or incurred in con19 nection with the development of any software shall be 

20 treated as a research or experimental expenditure. 

21 ‘‘(d) TREATMENT UPON DISPOSITION, RETIREMENT, 

22 OR ABANDONMENT.—If any property with respect to which 

23 specified research or experimental expenditures are paid or 

24 incurred is disposed, retired, or abandoned during the pe25 riod during which such expenditures are allowed as an am-
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1 ortization deduction under this section, no deduction shall 

2 be allowed with respect to such expenditures on account of 

3 such disposition, retirement, or abandonment and such am4 ortization deduction shall continue with respect to such ex5 penditures.’’. 

6 (b) CHANGE IN METHOD OF ACCOUNTING.—The 

7 amendments made by subsection (a) shall be treated as a 

8 change in method of accounting for purposes of section 481 

9 of the Internal Revenue Code of 1986 and— 

10 (1) such change shall be treated as initiated by 

11 the taxpayer, 

12 (2) such change shall be treated as made with the 

13 consent of the Secretary, and 

14 (3) such change shall be applied only on a cut15 off basis for any research or experimental expendi16 tures paid or incurred in taxable years beginning 

17 after December 31, 2021, and no adjustments under 

18 section 481(a) shall be made. 

19 (c) CLERICAL AMENDMENT.—The table of sections for 

20 part VI of subchapter B of chapter 1 is amended by striking 

21 the item relating to section 174 and inserting the following 

22 new item: 

‘‘Sec. 174. Amortization of research and experimental expenditures.’’. 

23 (d) CONFORMING AMENDMENTS.— 

24 (1) Section 41(d)(1)(A) is amended by striking 

25 ‘‘expenses under section 174’’ and inserting ‘‘specified 
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1 research or experimental expenditures under section 

2 174’’. 

3 (2) Subsection (c) of section 280C is amended— 

4 (A) by striking paragraph (1) and inserting 

5 the following: 

6 ‘‘(1) IN GENERAL.—If— 

7 ‘‘(A) the amount of the credit determined 

8 for the taxable year under section 41(a)(1), ex9 ceeds 

10 ‘‘(B) the amount allowable as a deduction 

11 for such taxable year for qualified research ex12 penses or basic research expenses, 

13 the amount chargeable to capital account for the tax14 able year for such expenses shall be reduced by the 

15 amount of such excess.’’, 

16 (B) by striking paragraph (2), 

17 (C) by redesignating paragraphs (3) (as 

18 amended by this Act) and (4) as paragraphs (2) 

19 and (3), respectively, and 

20 (D) in paragraph (2), as redesignated by 

21 subparagraph (C), by striking ‘‘paragraphs (1) 

22 and (2)’’ and inserting ‘‘paragraph (1)’’. 

23 (e) EFFECTIVE DATE.—The amendments made by this 

24 section shall apply to amounts paid or incurred in taxable 

25 years beginning after December 31, 2021. 
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1 SEC. 13207. EXPENSING OF CERTAIN COSTS OF REPLANT2 ING CITRUS PLANTS LOST BY REASON OF 

3 CASUALTY. 

4 (a) IN GENERAL.—Section 263A(d)(2) is amended by 

5 adding at the end the following new subparagraph: 

6 ‘‘(C) SPECIAL TEMPORARY RULE FOR CIT7 RUS PLANTS LOST BY REASON OF CASUALTY.— 

8 ‘‘(i) IN GENERAL.—In the case of the 

9 replanting of citrus plants, subparagraph 

10 (A) shall apply to amounts paid or in11 curred by a person (other than the taxpayer 

12 described in subparagraph (A)) if— 

13 ‘‘(I) the taxpayer described in 

14 subparagraph (A) has an equity inter15 est of not less than 50 percent in the 

16 replanted citrus plants at all times 

17 during the taxable year in which such 

18 amounts were paid or incurred and 

19 such other person holds any part of the 

20 remaining equity interest, or 

21 ‘‘(II) such other person acquired 

22 the entirety of such taxpayer’s equity 

23 interest in the land on which the lost 

24 or damaged citrus plants were located 

25 at the time of such loss or damage, and 

26 the replanting is on such land. 
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1 ‘‘(ii) TERMINATION.—Clause (i) shall 

2 not apply to any cost paid or incurred after 

3 the date which is 10 years after the date of 

4 the enactment of the Tax Cuts and Jobs 

5 Act.’’. 

6 (b) EFFECTIVE DATE.—The amendment made by this 

7 section shall apply to costs paid or incurred after the date 

8 of the enactment of this Act. 

9 Subpart B—Accounting Methods 

10 SEC. 13221. CERTAIN SPECIAL RULES FOR TAXABLE YEAR 

11 OF INCLUSION. 

12 (a) INCLUSION NOT LATER THAN FOR FINANCIAL AC13 COUNTING PURPOSES.—Section 451 is amended by redesig14 nating subsections (b) through (i) as subsections (c) through 

15 (j), respectively, and by inserting after subsection (a) the 

16 following new subsection: 

17 ‘‘(b) INCLUSION NOT LATER THAN FOR FINANCIAL AC18 COUNTING PURPOSES.— 

19 ‘‘(1) INCOME TAKEN INTO ACCOUNT IN FINANCIAL

20 STATEMENT.— 

21 ‘‘(A) IN GENERAL.—In the case of a tax22 payer the taxable income of which is computed 

23 under an accrual method of accounting, the all 

24 events test with respect to any item of gross in25 come (or portion thereof) shall not be treated as 
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1 met any later than when such item (or portion 

2 thereof) is taken into account as revenue in— 

3 ‘‘(i) an applicable financial statement 

4 of the taxpayer, or 

5 ‘‘(ii) such other financial statement as 

6 the Secretary may specify for purposes of 

7 this subsection. 

8 ‘‘(B) EXCEPTION.—This paragraph shall 

9 not apply to— 

10 ‘‘(i) a taxpayer which does not have a 

11 financial statement described in clause (i) 

12 or (ii) of subparagraph (A) for a taxable 

13 year, or 

14 ‘‘(ii) any item of gross income in con15 nection with a mortgage servicing contract. 

16 ‘‘(C) ALL EVENTS TEST.—For purposes of 

17 this section, the all events test is met with respect 

18 to any item of gross income if all the events have 

19 occurred which fix the right to receive such in20 come and the amount of such income can be de21 termined with reasonable accuracy. 

22 ‘‘(2) COORDINATION WITH SPECIAL METHODS OF

23 ACCOUNTING.—Paragraph (1) shall not apply with 

24 respect to any item of gross income for which the tax25 payer uses a special method of accounting provided 
161 

† HR 1 EAS2 

1 under any other provision of this chapter, other than 

2 any provision of part V of subchapter P (except as 

3 provided in clause (ii) of paragraph (1)(B)). 

4 ‘‘(3) APPLICABLE FINANCIAL STATEMENT.—For 

5 purposes of this subsection, the term ‘applicable fi6 nancial statement’ means— 

7 ‘‘(A) a financial statement which is cer8 tified as being prepared in accordance with gen9 erally accepted accounting principles and which 

10 is— 

11 ‘‘(i) a 10–K (or successor form), or an12 nual statement to shareholders, required to 

13 be filed by the taxpayer with the United 

14 States Securities and Exchange Commis15 sion, 

16 ‘‘(ii) an audited financial statement of 

17 the taxpayer which is used for— 

18 ‘‘(I) credit purposes, 

19 ‘‘(II) reporting to shareholders, 

20 partners, or other proprietors, or to 

21 beneficiaries, or 

22 ‘‘(III) any other substantial 

23 nontax purpose, 

24 but only if there is no statement of the tax25 payer described in clause (i), or 
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† HR 1 EAS2 

1 ‘‘(iii) filed by the taxpayer with any 

2 other Federal agency for purposes other 

3 than Federal tax purposes, but only if there 

4 is no statement of the taxpayer described in 

5 clause (i) or (ii), 

6 ‘‘(B) a financial statement which is made 

7 on the basis of international financial reporting 

8 standards and is filed by the taxpayer with an 

9 agency of a foreign government which is equiva10 lent to the United States Securities and Ex11 change Commission and which has reporting 

12 standards not less stringent than the standards 

13 required by such Commission, but only if there 

14 is no statement of the taxpayer described in sub15 paragraph (A), or 

16 ‘‘(C) a financial statement filed by the tax17 payer with any other regulatory or governmental 

18 body specified by the Secretary, but only if there 

19 is no statement of the taxpayer described in sub20 paragraph (A) or (B). 

21 ‘‘(4) ALLOCATION OF TRANSACTION PRICE.—For 

22 purposes of this subsection, in the case of a contract 

23 which contains multiple performance obligations, the 

24 allocation of the transaction price to each perform25 ance obligation shall be equal to the amount allocated 
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† HR 1 EAS2 

1 to each performance obligation for purposes of includ2 ing such item in revenue in the applicable financial 

3 statement of the taxpayer. 

4 ‘‘(5) GROUP OF ENTITIES.—For purposes of 

5 paragraph (1), if the financial results of a taxpayer 

6 are reported on the applicable financial statement (as 

7 defined in paragraph (3)) for a group of entities, such 

8 statement shall be treated as the applicable financial 

9 statement of the taxpayer.’’. 

10 (b) TREATMENT OF ADVANCE PAYMENTS.—Section 

11 451, as amended by subsection (a), is amended by redesig12 nating subsections (c) through (j) as subsections (d) through 

13 (k), respectively, and by inserting after subsection (b) the 

14 following new subsection: 

15 ‘‘(c) TREATMENT OF ADVANCE PAYMENTS.— 

16 ‘‘(1) IN GENERAL.—A taxpayer which computes 

17 taxable income under the accrual method of account18 ing, and receives any advance payment during the 

19 taxable year, shall— 

20 ‘‘(A) except as provided in subparagraph 

21 (B), include such advance payment in gross in22 come for such taxable year, or 

23 ‘‘(B) if the taxpayer elects the application 

24 of this subparagraph with respect to the category 
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1 of advance payments to which such advance pay2 ment belongs, the taxpayer shall— 

3 ‘‘(i) to the extent that any portion of 

4 such advance payment is required under 

5 subsection (b) to be included in gross in6 come in the taxable year in which such pay7 ment is received, so include such portion, 

8 and 

9 ‘‘(ii) include the remaining portion of 

10 such advance payment in gross income in 

11 the taxable year following the taxable year 

12 in which such payment is received. 

13 ‘‘(2) ELECTION.— 

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

15 provided in this paragraph, the election under 

16 paragraph (1)(B) shall be made at such time, in 

17 such form and manner, and with respect to such 

18 categories of advance payments, as the Secretary 

19 may provide. 

20 ‘‘(B) PERIOD TO WHICH ELECTION AP21 PLIES.—An election under paragraph (1)(B) 

22 shall be effective for the taxable year with respect 

23 to which it is first made and for all subsequent 

24 taxable years, unless the taxpayer secures the 

25 consent of the Secretary to revoke such election. 
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1 For purposes of this title, the computation of 

2 taxable income under an election made under 

3 paragraph (1)(B) shall be treated as a method of 

4 accounting. 

5 ‘‘(3) TAXPAYERS CEASING TO EXIST.—Except as 

6 otherwise provided by the Secretary, the election 

7 under paragraph (1)(B) shall not apply with respect 

8 to advance payments received by the taxpayer during 

9 a taxable year if such taxpayer ceases to exist during 

10 (or with the close of) such taxable year. 

11 ‘‘(4) ADVANCE PAYMENT.—For purposes of this 

12 subsection— 

13 ‘‘(A) IN GENERAL.—The term ‘advance pay14 ment’ means any payment— 

15 ‘‘(i) the full inclusion of which in the 

16 gross income of the taxpayer for the taxable 

17 year of receipt is a permissible method of 

18 accounting under this section (determined 

19 without regard to this subsection), 

20 ‘‘(ii) any portion of which is included 

21 in revenue by the taxpayer in a financial 

22 statement described in clause (i) or (ii) of 

23 subsection (b)(1)(A) for a subsequent taxable 

24 year, and 
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1 ‘‘(iii) which is for goods, services, or 

2 such other items as may be identified by the 

3 Secretary for purposes of this clause. 

4 ‘‘(B) EXCLUSIONS.—Except as otherwise 

5 provided by the Secretary, such term shall not 

6 include— 

7 ‘‘(i) rent, 

8 ‘‘(ii) insurance premiums governed by 

9 subchapter L, 

10 ‘‘(iii) payments with respect to finan11 cial instruments, 

12 ‘‘(iv) payments with respect to war13 ranty or guarantee contracts under which a 

14 third party is the primary obligor, 

15 ‘‘(v) payments subject to section 

16 871(a), 881, 1441, or 1442, 

17 ‘‘(vi) payments in property to which 

18 section 83 applies, and 

19 ‘‘(vii) any other payment identified by 

20 the Secretary for purposes of this subpara21 graph. 

22 ‘‘(C) RECEIPT.—For purposes of this sub23 section, an item of gross income is received by 

24 the taxpayer if it is actually or constructively re-
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† HR 1 EAS2 

1 ceived, or if it is due and payable to the tax2 payer. 

3 ‘‘(D) ALLOCATION OF TRANSACTION

4 PRICE.—For purposes of this subsection, rules 

5 similar to subsection (b)(4) shall apply.’’. 

6 (c) EFFECTIVE DATE.—The amendments made by this 

7 section shall apply to taxable years beginning after Decem8 ber 31, 2017. 

9 (d) COORDINATION WITH SECTION 481.— 

10 (1) IN GENERAL.—In the case of any qualified 

11 change in method of accounting for the taxpayer’s 

12 first taxable year beginning after December 31, 

13 2017— 

14 (A) such change shall be treated as initiated 

15 by the taxpayer, and 

16 (B) such change shall be treated as made 

17 with the consent of the Secretary of the Treasury. 

18 (2) QUALIFIED CHANGE IN METHOD OF AC19 COUNTING.—For purposes of this subsection, the term 

20 ‘‘qualified change in method of accounting’’ means 

21 any change in method of accounting which— 

22 (A) is required by the amendments made by 

23 this section, or 

24 (B) was prohibited under the Internal Rev25 enue Code of 1986 prior to such amendments 
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1 and is permitted under such Code after such 

2 amendments. 

3 (e) SPECIAL RULES FOR ORIGINAL ISSUE DIS4 COUNT.—Notwithstanding subsection (c), in the case of in5 come from a debt instrument having original issue dis6 count— 

7 (1) the amendments made by this section shall 

8 apply to taxable years beginning after December 31, 

9 2018, and 

10 (2) the period for taking into account any ad11 justments under section 481 by reason of a qualified 

12 change in method of accounting (as defined in sub13 section (d)) shall be 6 years. 

14 PART IV—BUSINESS-RELATED EXCLUSIONS AND 

15 DEDUCTIONS 

16 SEC. 13301. LIMITATION ON DEDUCTION FOR INTEREST. 

17 (a) IN GENERAL.—Section 163(j) is amended to read 

18 as follows: 

19 ‘‘(j) LIMITATION ON BUSINESS INTEREST.— 

20 ‘‘(1) IN GENERAL.—The amount allowed as a de21 duction under this chapter for any taxable year for 

22 business interest shall not exceed the sum of— 

23 ‘‘(A) the business interest income of such 

24 taxpayer for such taxable year, 
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1 ‘‘(B) 30 percent of the adjusted taxable in2 come of such taxpayer for such taxable year, plus 

3 ‘‘(C) the floor plan financing interest of 

4 such taxpayer for such taxable year. 

5 The amount determined under subparagraph (B) 

6 shall not be less than zero. 

7 ‘‘(2) CARRYFORWARD OF DISALLOWED BUSINESS

8 INTEREST.—The amount of any business interest not 

9 allowed as a deduction for any taxable year by reason 

10 of paragraph (1) shall be treated as business interest 

11 paid or accrued in the succeeding taxable year. 

12 ‘‘(3) EXEMPTION FOR CERTAIN SMALL BUSI13 NESSES.—In the case of any taxpayer (other than a 

14 tax shelter prohibited from using the cash receipts 

15 and disbursements method of accounting under sec16 tion 448(a)(3)) which meets the gross receipts test of 

17 section 448(c) for any taxable year, paragraph (1) 

18 shall not apply to such taxpayer for such taxable 

19 year. In the case of any taxpayer which is not a cor20 poration or a partnership, the gross receipts test of 

21 section 448(c) shall be applied in the same manner as 

22 if such taxpayer were a corporation or partnership. 

23 ‘‘(4) APPLICATION TO PARTNERSHIPS, ETC.— 

24 ‘‘(A) IN GENERAL.—In the case of any part25 nership— 
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1 ‘‘(i) this subsection shall be applied at 

2 the partnership level and any deduction for 

3 business interest shall be taken into account 

4 in determining the non-separately stated 

5 taxable income or loss of the partnership, 

6 and 

7 ‘‘(ii) the adjusted taxable income of 

8 each partner of such partnership— 

9 ‘‘(I) shall be determined without 

10 regard to such partner’s distributive 

11 share of any items of income, gain, de12 duction, or loss of such partnership, 

13 and 

14 ‘‘(II) shall be increased by such 

15 partner’s distributive share of such 

16 partnership’s excess taxable income. 

17 For purposes of clause (ii)(II), a partner’s 

18 distributive share of partnership excess tax19 able income shall be determined in the same 

20 manner as the partner’s distributive share 

21 of nonseparately stated taxable income or 

22 loss of the partnership. 

23 ‘‘(B) SPECIAL RULES FOR

24 CARRYFORWARDS.— 
171 

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1 ‘‘(i) IN GENERAL.—The amount of any 

2 business interest not allowed as a deduction 

3 to a partnership for any taxable year by 

4 reason of paragraph (1) for any taxable 

5 year— 

6 ‘‘(I) shall not be treated under 

7 paragraph (2) as business interest paid 

8 or accrued by the partnership in the 

9 succeeding taxable year, and 

10 ‘‘(II) shall, subject to clause (ii), 

11 be treated as excess business interest 

12 which is allocated to each partner in 

13 the same manner as the non-separately 

14 stated taxable income or loss of the 

15 partnership. 

16 ‘‘(ii) TREATMENT OF EXCESS BUSI17 NESS INTEREST ALLOCATED TO PART18 NERS.—If a partner is allocated any excess 

19 business interest from a partnership under 

20 clause (i) for any taxable year— 

21 ‘‘(I) such excess business interest 

22 shall be treated as business interest 

23 paid or accrued by the partner in the 

24 next succeeding taxable year in which 

25 the partner is allocated excess taxable 
172 

† HR 1 EAS2 

1 income from such partnership, but 

2 only to the extent of such excess taxable 

3 income, and 

4 ‘‘(II) any portion of such excess 

5 business interest remaining after the 

6 application of subclause (I) shall, sub7 ject to the limitations of subclause (I), 

8 be treated as business interest paid or 

9 accrued in succeeding taxable years. 

10 For purposes of applying this paragraph, 

11 excess taxable income allocated to a partner 

12 from a partnership for any taxable year 

13 shall not be taken into account under para14 graph (1)(A) with respect to any business 

15 interest other than excess business interest 

16 from the partnership until all such excess 

17 business interest for such taxable year and 

18 all preceding taxable years has been treated 

19 as paid or accrued under clause (ii). 

20 ‘‘(iii) BASIS ADJUSTMENTS.— 

21 ‘‘(I) IN GENERAL.—The adjusted 

22 basis of a partner in a partnership in23 terest shall be reduced (but not below 

24 zero) by the amount of excess business 
173 

† HR 1 EAS2 

1 interest allocated to the partner under 

2 clause (i)(II). 

3 ‘‘(II) SPECIAL RULE FOR DISPOSI4 TIONS.—If a partner disposes of a 

5 partnership interest, the adjusted basis 

6 of the partner in the partnership inter7 est shall be increased immediately be8 fore the disposition by the amount of 

9 the excess (if any) of the amount of the 

10 basis reduction under subclause (I) 

11 over the portion of any excess business 

12 interest allocated to the partner under 

13 clause (i)(II) which has previously 

14 been treated under clause (ii) as busi15 ness interest paid or accrued by the 

16 partner. The preceding sentence shall 

17 also apply to transfers of the partner18 ship interest (including by reason of 

19 death) in a transaction in which gain 

20 is not recognized in whole or in part. 

21 No deduction shall be allowed to the 

22 transferor or transferee under this 

23 chapter for any excess business interest 

24 resulting in a basis increase under this 

25 subclause. 
174 

† HR 1 EAS2 

1 ‘‘(C) EXCESS TAXABLE INCOME.—The term 

2 ‘excess taxable income’ means, with respect to 

3 any partnership, the amount which bears the 

4 same ratio to the partnership’s adjusted taxable 

5 income as— 

6 ‘‘(i) the excess (if any) of— 

7 ‘‘(I) the amount determined for 

8 the partnership under paragraph 

9 (1)(B), over 

10 ‘‘(II) the amount (if any) by 

11 which the business interest of the part12 nership, reduced by the floor plan fi13 nancing interest, exceeds the business 

14 interest income of the partnership, 

15 bears to 

16 ‘‘(ii) the amount determined for the 

17 partnership under paragraph (1)(B). 

18 ‘‘(D) APPLICATION TO S CORPORATIONS.— 

19 Rules similar to the rules of subparagraphs (A) 

20 and (C) shall apply with respect to any S cor21 poration and its shareholders. 

22 ‘‘(5) BUSINESS INTEREST.—For purposes of this 

23 subsection, the term ‘business interest’ means any in24 terest paid or accrued on indebtedness properly allo25 cable to a trade or business. Such term shall not in-
175 

† HR 1 EAS2 

1 clude investment interest (within the meaning of sub2 section (d)). 

3 ‘‘(6) BUSINESS INTEREST INCOME.—For pur4 poses of this subsection, the term ‘business interest in5 come’ means the amount of interest includible in the 

6 gross income of the taxpayer for the taxable year 

7 which is properly allocable to a trade or business. 

8 Such term shall not include investment income (with9 in the meaning of subsection (d)). 

10 ‘‘(7) TRADE OR BUSINESS.—For purposes of this 

11 subsection— 

12 ‘‘(A) IN GENERAL.—The term ‘trade or 

13 business’ shall not include— 

14 ‘‘(i) the trade or business of performing 

15 services as an employee, 

16 ‘‘(ii) any electing real property trade 

17 or business, 

18 ‘‘(iii) any electing farming business, or 

19 ‘‘(iv) the trade or business of the fur20 nishing or sale of— 

21 ‘‘(I) electrical energy, water, or 

22 sewage disposal services, 

23 ‘‘(II) gas or steam through a local 

24 distribution system, or 
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† HR 1 EAS2 

1 ‘‘(III) transportation of gas or 

2 steam by pipeline, 

3 if the rates for such furnishing or sale, as 

4 the case may be, have been established or 

5 approved by a State or political subdivision 

6 thereof, by any agency or instrumentality of 

7 the United States, by a public service or 

8 public utility commission or other similar 

9 body of any State or political subdivision 

10 thereof, or by the governing or ratemaking 

11 body of an electric cooperative. 

12 ‘‘(B) ELECTING REAL PROPERTY TRADE OR

13 BUSINESS.—For purposes of this paragraph, the 

14 term ‘electing real property trade or business’ 

15 means any trade or business which is described 

16 in section 469(c)(7)(C) and which makes an elec17 tion under this subparagraph. Any such election 

18 shall be made at such time and in such manner 

19 as the Secretary shall prescribe, and, once made, 

20 shall be irrevocable. 

21 ‘‘(C) ELECTING FARMING BUSINESS.—For 

22 purposes of this paragraph, the term ‘electing 

23 farming business’ means— 
177 

† HR 1 EAS2 

1 ‘‘(i) a farming business (as defined in 

2 section 263A(e)(4)) which makes an election 

3 under this subparagraph, or 

4 ‘‘(ii) any trade or business of a speci5 fied agricultural or horticultural coopera6 tive (as defined in section 199A(g)(2)) with 

7 respect to which the cooperative makes an 

8 election under this subparagraph. 

9 Any such election shall be made at such time 

10 and in such manner as the Secretary shall pre11 scribe, and, once made, shall be irrevocable. 

12 ‘‘(8) ADJUSTED TAXABLE INCOME.—For pur13 poses of this subsection, the term ‘adjusted taxable in14 come’ means the taxable income of the taxpayer— 

15 ‘‘(A) computed without regard to— 

16 ‘‘(i) any item of income, gain, deduc17 tion, or loss which is not properly allocable 

18 to a trade or business, 

19 ‘‘(ii) any business interest or business 

20 interest income, 

21 ‘‘(iii) the amount of any net operating 

22 loss deduction under section 172, 

23 ‘‘(iv) the amount of any deduction al24 lowed under section 199A, and 
178 

† HR 1 EAS2 

1 ‘‘(v) in the case of taxable years begin2 ning before January 1, 2022, any deduction 

3 allowable for depreciation, amortization, or 

4 depletion, and 

5 ‘‘(B) computed with such other adjustments 

6 as provided by the Secretary. 

7 ‘‘(9) FLOOR PLAN FINANCING INTEREST DE8 FINED.—For purposes of this subsection— 

9 ‘‘(A) IN GENERAL.—The term ‘floor plan fi10 nancing interest’ means interest paid or accrued 

11 on floor plan financing indebtedness. 

12 ‘‘(B) FLOOR PLAN FINANCING INDEBTED13 NESS.—The term ‘floor plan financing indebted14 ness’ means indebtedness— 

15 ‘‘(i) used to finance the acquisition of 

16 motor vehicles held for sale or lease, and 

17 ‘‘(ii) secured by the inventory so ac18 quired. 

19 ‘‘(C) MOTOR VEHICLE.—The term ‘motor 

20 vehicle’ means a motor vehicle that is any of the 

21 following: 

22 ‘‘(i) Any self-propelled vehicle designed 

23 for transporting persons or property on a 

24 public street, highway, or road. 

25 ‘‘(ii) A boat. 
179 

† HR 1 EAS2 

1 ‘‘(iii) Farm machinery or equipment. 

2 ‘‘(10) CROSS REFERENCES.— 

3 ‘‘(A) For requirement that an electing real 

4 property trade or business use the alternative de5 preciation system, see section 168(g)(1)(F). 

6 ‘‘(B) For requirement that an electing farm7 ing business use the alternative depreciation sys8 tem, see section 168(g)(1)(G).’’. 

9 (b) TREATMENT OF CARRYFORWARD OF DISALLOWED

10 BUSINESS INTEREST IN CERTAIN CORPORATE ACQUISI11 TIONS.— 

12 (1) IN GENERAL.—Section 381(c) is amended by 

13 inserting after paragraph (19) the following new 

14 paragraph: 

15 ‘‘(20) CARRYFORWARD OF DISALLOWED BUSI16 NESS INTEREST.—The carryover of disallowed busi17 ness interest described in section 163(j)(2) to taxable 

18 years ending after the date of distribution or trans19 fer.’’. 

20 (2) APPLICATION OF LIMITATION.—Section 

21 382(d) is amended by adding at the end the following 

22 new paragraph: 

23 ‘‘(3) APPLICATION TO CARRYFORWARD OF DIS24 ALLOWED INTEREST.—The term ‘pre-change loss’ 

25 shall include any carryover of disallowed interest de-
180 

† HR 1 EAS2 

1 scribed in section 163(j)(2) under rules similar to the 

2 rules of paragraph (1).’’. 

3 (3) CONFORMING AMENDMENT.—Section 

4 382(k)(1) is amended by inserting after the first sen5 tence the following: ‘‘Such term shall include any cor6 poration entitled to use a carryforward of disallowed 

7 interest described in section 381(c)(20).’’. 

8 (c) EFFECTIVE DATE.—The amendments made by this 

9 section shall apply to taxable years beginning after Decem10 ber 31, 2017. 

11 SEC. 13302. MODIFICATION OF NET OPERATING LOSS DE12 DUCTION. 

13 (a) LIMITATION ON DEDUCTION.— 

14 (1) IN GENERAL.—Section 172(a) is amended to 

15 read as follows: 

16 ‘‘(a) DEDUCTION ALLOWED.—There shall be allowed 

17 as a deduction for the taxable year an amount equal to the 

18 lesser of— 

19 ‘‘(1) the aggregate of the net operating loss 

20 carryovers to such year, plus the net operating loss 

21 carrybacks to such year, or 

22 ‘‘(2) 80 percent of taxable income computed 

23 without regard to the deduction allowable under this 

24 section. 
181 

† HR 1 EAS2 

1 For purposes of this subtitle, the term ‘net operating loss 

2 deduction’ means the deduction allowed by this subsection.’’. 

3 (2) COORDINATION OF LIMITATION WITH

4 CARRYBACKS AND CARRYOVERS.—Section 172(b)(2) is 

5 amended by striking ‘‘shall be computed—’’ and all 

6 that follows and inserting ‘‘shall— 

7 ‘‘(A) be computed with the modifications 

8 specified in subsection (d) other than paragraphs 

9 (1), (4), and (5) thereof, and by determining the 

10 amount of the net operating loss deduction with11 out regard to the net operating loss for the loss 

12 year or for any taxable year thereafter, 

13 ‘‘(B) not be considered to be less than zero, 

14 and 

15 ‘‘(C) not exceed the amount determined 

16 under subsection (a)(2) for such prior taxable 

17 year.’’. 

18 (3) CONFORMING AMENDMENT.—Section 

19 172(d)(6) is amended by striking ‘‘and’’ at the end of 

20 subparagraph (A), by striking the period at the end 

21 of subparagraph (B) and inserting ‘‘; and’’, and by 

22 adding at the end the following new subparagraph: 

23 ‘‘(C) subsection (a)(2) shall be applied by 

24 substituting ‘real estate investment trust taxable 

25 income (as defined in section 857(b)(2) but with-
182 

† HR 1 EAS2 

1 out regard to the deduction for dividends paid 

2 (as defined in section 561))’ for ‘taxable in3 come’.’’. 

4 (b) REPEAL OF NET OPERATING LOSS CARRYBACK; 

5 INDEFINITE CARRYFORWARD.— 

6 (1) IN GENERAL.—Section 172(b)(1)(A) is 

7 amended— 

8 (A) by striking ‘‘shall be a net operating 

9 loss carryback to each of the 2 taxable years’’ in 

10 clause (i) and inserting ‘‘except as otherwise pro11 vided in this paragraph, shall not be a net oper12 ating loss carryback to any taxable year’’, and 

13 (B) by striking ‘‘to each of the 20 taxable 

14 years’’ in clause (ii) and inserting ‘‘to each tax15 able year’’. 

16 (2) CONFORMING AMENDMENT.—Section 

17 172(b)(1) is amended by striking subparagraphs (B) 

18 through (F). 

19 (c) TREATMENT OF FARMING LOSSES.— 

20 (1) ALLOWANCE OF CARRYBACKS.—Section 

21 172(b)(1), as amended by subsection (b)(2), is amend22 ed by adding at the end the following new subpara23 graph: 

24 ‘‘(B) FARMING LOSSES.— 
183 

† HR 1 EAS2 

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

2 portion of a net operating loss for the tax3 able year which is a farming loss with re4 spect to the taxpayer, such loss shall be a 

5 net operating loss carryback to each of the 

6 2 taxable years preceding the taxable year 

7 of such loss. 

8 ‘‘(ii) FARMING LOSS.—For purposes of 

9 this section, the term ‘farming loss’ means 

10 the lesser of— 

11 ‘‘(I) the amount which would be 

12 the net operating loss for the taxable 

13 year if only income and deductions at14 tributable to farming businesses (as de15 fined in section 263A(e)(4)) are taken 

16 into account, or 

17 ‘‘(II) the amount of the net oper18 ating loss for such taxable year. 

19 ‘‘(iii) COORDINATION WITH PARA20 GRAPH (2).—For purposes of applying para21 graph (2), a farming loss for any taxable 

22 year shall be treated as a separate net oper23 ating loss for such taxable year to be taken 

24 into account after the remaining portion of 

25 the net operating loss for such taxable year. 
184 

† HR 1 EAS2 

1 ‘‘(iv) ELECTION.—Any taxpayer enti2 tled to a 2-year carryback under clause (i) 

3 from any loss year may elect not to have 

4 such clause apply to such loss year. Such 

5 election shall be made in such manner as 

6 prescribed by the Secretary and shall be 

7 made by the due date (including extensions 

8 of time) for filing the taxpayer’s return for 

9 the taxable year of the net operating loss. 

10 Such election, once made for any taxable 

11 year, shall be irrevocable for such taxable 

12 year.’’. 

13 (2) CONFORMING AMENDMENTS.— 

14 (A) Section 172 is amended by striking sub15 sections (f), (g), and (h), and by redesignating 

16 subsection (i) as subsection (f). 

17 (B) Section 537(b)(4) is amended by insert18 ing ‘‘(as in effect before the date of enactment of 

19 the Tax Cuts and Jobs Act)’’ after ‘‘as defined in 

20 section 172(f)’’. 

21 (d) TREATMENT OF CERTAIN INSURANCE LOSSES.— 

22 (1) TREATMENT OF CARRYFORWARDS AND

23 CARRYBACKS.—Section 172(b)(1), as amended by sub24 sections (b)(2) and (c)(1), is amended by adding at 

25 the end the following new subparagraph: 
185 

† HR 1 EAS2 

1 ‘‘(C) INSURANCE COMPANIES.—In the case 

2 of an insurance company (as defined in section 

3 816(a)) other than a life insurance company, the 

4 net operating loss for any taxable year— 

5 ‘‘(i) shall be a net operating loss 

6 carryback to each of the 2 taxable years pre7 ceding the taxable year of such loss, and 

8 ‘‘(ii) shall be a net operating loss car9 ryover to each of the 20 taxable years fol10 lowing the taxable year of the loss.’’. 

11 (2) EXEMPTION FROM LIMITATION.—Section 172, 

12 as amended by subsection (c)(2)(A), is amended by re13 designating subsection (f) as subsection (g) and in14 serting after subsection (e) the following new sub15 section: 

16 ‘‘(f) SPECIAL RULE FOR INSURANCE COMPANIES.—In 

17 the case of an insurance company (as defined in section 

18 816(a)) other than a life insurance company— 

19 ‘‘(1) the amount of the deduction allowed under 

20 subsection (a) shall be the aggregate of the net oper21 ating loss carryovers to such year, plus the net oper22 ating loss carrybacks to such year, and 

23 ‘‘(2) subparagraph (C) of subsection (b)(2) shall 

24 not apply.’’. 

25 (e) EFFECTIVE DATE.— 
186 

† HR 1 EAS2 

1 (1) NET OPERATING LOSS LIMITATION.—The 

2 amendments made by subsections (a) and (d)(2) shall 

3 apply to losses arising in taxable years beginning 

4 after December 31, 2017. 

5 (2) CARRYFORWARDS AND CARRYBACKS.—The 

6 amendments made by subsections (b), (c), and (d)(1) 

7 shall apply to net operating losses arising in taxable 

8 years ending after December 31, 2017. 

9 SEC. 13303. LIKE-KIND EXCHANGES OF REAL PROPERTY. 

10 (a) IN GENERAL.—Section 1031(a)(1) is amended by 

11 striking ‘‘property’’ each place it appears and inserting 

12 ‘‘real property’’. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1)(A) Paragraph (2) of section 1031(a) is 

15 amended to read as follows: 

16 ‘‘(2) EXCEPTION FOR REAL PROPERTY HELD FOR

17 SALE.—This subsection shall not apply to any ex18 change of real property held primarily for sale.’’. 

19 (B) Section 1031 is amended by striking sub20 section (i). 

21 (2) Section 1031 is amended by striking sub22 section (e). 

23 (3) Section 1031, as amended by paragraph (2), 

24 is amended by inserting after subsection (d) the fol25 lowing new subsection: 
187 

† HR 1 EAS2 

1 ‘‘(e) APPLICATION TO CERTAIN PARTNERSHIPS.—For 

2 purposes of this section, an interest in a partnership which 

3 has in effect a valid election under section 761(a) to be ex4 cluded from the application of all of subchapter K shall be 

5 treated as an interest in each of the assets of such partner6 ship and not as an interest in a partnership.’’. 

7 (4) Section 1031(h) is amended to read as fol8 lows: 

9 ‘‘(h) SPECIAL RULES FOR FOREIGN REAL PROP10 ERTY.—Real property located in the United States and real 

11 property located outside the United States are not property 

12 of a like kind.’’. 

13 (5) The heading of section 1031 is amended by 

14 striking ‘‘PROPERTY’’ and inserting ‘‘REAL PROP15 ERTY’’. 

16 (6) The table of sections for part III of sub17 chapter O of chapter 1 is amended by striking the 

18 item relating to section 1031 and inserting the fol19 lowing new item: 

‘‘Sec. 1031. Exchange of real property held for productive use or investment.’’. 

20 (c) EFFECTIVE DATE.— 

21 (1) IN GENERAL.—Except as otherwise provided 

22 in this subsection, the amendments made by this sec23 tion shall apply to exchanges completed after Decem24 ber 31, 2017. 
188 

† HR 1 EAS2 

1 (2) TRANSITION RULE.—The amendments made 

2 by this section shall not apply to any exchange if— 

3 (A) the property disposed of by the taxpayer 

4 in the exchange is disposed of on or before De5 cember 31 2017, or 

6 (B) the property received by the taxpayer in 

7 the exchange is received on or before December 

8 31, 2017. 

9 SEC. 13304. LIMITATION ON DEDUCTION BY EMPLOYERS OF 

10 EXPENSES FOR FRINGE BENEFITS. 

11 (a) NO DEDUCTION ALLOWED FOR ENTERTAINMENT

12 EXPENSES.— 

13 (1) IN GENERAL.—Section 274(a) is amended— 

14 (A) in paragraph (1)(A), by striking ‘‘un15 less’’ and all that follows through ‘‘trade or busi16 ness,’’, 

17 (B) by striking the flush sentence at the end 

18 of paragraph (1), and 

19 (C) by striking paragraph (2)(C). 

20 (2) CONFORMING AMENDMENTS.— 

21 (A) Section 274(d) is amended— 

22 (i) by striking paragraph (2) and re23 designating paragraphs (3) and (4) as 

24 paragraphs (2) and (3), respectively, and 
189 

† HR 1 EAS2 

1 (ii) in the flush text following para2 graph (3) (as so redesignated)— 

3 (I) by striking ‘‘, entertainment, 

4 amusement, recreation, or use of the fa5 cility or property,’’ in item (B), and 

6 (II) by striking ‘‘(D) the business 

7 relationship to the taxpayer of persons 

8 entertained, using the facility or prop9 erty, or receiving the gift’’ and insert10 ing ‘‘(D) the business relationship to 

11 the taxpayer of the person receiving the 

12 benefit’’, 

13 (B) Section 274 is amended by striking sub14 section (l). 

15 (C) Section 274(n) is amended by striking 

16 ‘‘AND ENTERTAINMENT’’ in the heading. 

17 (D) Section 274(n)(1) is amended to read 

18 as follows: 

19 ‘‘(1) IN GENERAL.—The amount allowable as a 

20 deduction under this chapter for any expense for food 

21 or beverages shall not exceed 50 percent of the amount 

22 of such expense which would (but for this paragraph) 

23 be allowable as a deduction under this chapter.’’. 

24 (E) Section 274(n)(2) is amended— 
190 

† HR 1 EAS2 

1 (i) in subparagraph (B), by striking 

2 ‘‘in the case of an expense for food or bev3 erages,’’, 

4 (ii) by striking subparagraph (C) and 

5 redesignating subparagraphs (D) and (E) 

6 as subparagraphs (C) and (D), respectively, 

7 (iii) by striking ‘‘of subparagraph (E)’’ 

8 the last sentence and inserting ‘‘of subpara9 graph (D)’’, and 

10 (iv) by striking ‘‘in subparagraph (D)’’ 

11 in the last sentence and inserting ‘‘in sub12 paragraph (C)’’. 

13 (F) Clause (iv) of section 7701(b)(5)(A) is 

14 amended to read as follows: 

15 ‘‘(iv) a professional athlete who is tem16 porarily in the United States to compete in 

17 a sports event— 

18 ‘‘(I) which is organized for the 

19 primary purpose of benefiting an orga20 nization which is described in section 

21 501(c)(3) and exempt from tax under 

22 section 501(a), 

23 ‘‘(II) all of the net proceeds of 

24 which are contributed to such organi25 zation, and, 
191 

† HR 1 EAS2 

1 ‘‘(III) which utilizes volunteers for 

2 substantially all of the work performed 

3 in carrying out such event.’’. 

4 (b) ONLY 50 PERCENT OF EXPENSES FOR MEALS PRO5 VIDED ON OR NEAR BUSINESS PREMISES ALLOWED AS DE6 DUCTION.—Paragraph (2) of section 274(n), as amended by 

7 subsection (a), is amended— 

8 (1) by striking subparagraph (B), 

9 (2) by redesignating subparagraphs (C) and (D) 

10 as subparagraphs (B) and (C), respectively, 

11 (3) by striking ‘‘of subparagraph (D)’’ in the last 

12 sentence and inserting ‘‘of subparagraph (C)’’, and 

13 (4) by striking ‘‘in subparagraph (C)’’ in the 

14 last sentence and inserting ‘‘in subparagraph (B)’’. 

15 (c) TREATMENT OF TRANSPORTATION BENEFITS.— 

16 Section 274, as amended by subsection (a), is amended— 

17 (1) in subsection (a)— 

18 (A) in the heading, by striking ‘‘OR RECRE19 ATION’’ and inserting ‘‘RECREATION, OR QUALI20 FIED TRANSPORTATION FRINGES’’, and 

21 (B) by adding at the end the following new 

22 paragraph: 

23 ‘‘(4) QUALIFIED TRANSPORTATION FRINGES.—No 

24 deduction shall be allowed under this chapter for the 

25 expense of any qualified transportation fringe (as de-
192 

† HR 1 EAS2 

1 fined in section 132(f)) provided to an employee of the 

2 taxpayer.’’, and 

3 (2) by inserting after subsection (k) the following 

4 new subsection: 

5 ‘‘(l) TRANSPORTATION AND COMMUTING BENEFITS.— 

6 ‘‘(1) IN GENERAL.—No deduction shall be al7 lowed under this chapter for any expense incurred for 

8 providing any transportation, or any payment or re9 imbursement, to an employee of the taxpayer in con10 nection with travel between the employee’s residence 

11 and place of employment, except as necessary for en12 suring the safety of the employee. 

13 ‘‘(2) EXCEPTION.—In the case of any qualified 

14 bicycle commuting reimbursement (as described in 

15 section 132(f)(5)(F)), this subsection shall not apply 

16 for any amounts paid or incurred after December 31, 

17 2017, and before January 1, 2026.’’. 

18 (d) ELIMINATION OF DEDUCTION FOR MEALS PRO19 VIDED AT CONVENIENCE OF EMPLOYER.—Section 274, as 

20 amended by subsection (c), is amended— 

21 (1) by redesignating subsection (o) as subsection 

22 (p), and 

23 (2) by inserting after subsection (n) the following 

24 new subsection: 
193 

† HR 1 EAS2 

1 ‘‘(o) MEALS PROVIDED AT CONVENIENCE OF EM2 PLOYER.—No deduction shall be allowed under this chapter 

3 for— 

4 ‘‘(1) any expense for the operation of a facility 

5 described in section 132(e)(2), and any expense for 

6 food or beverages, including under section 132(e)(1), 

7 associated with such facility, or 

8 ‘‘(2) any expense for meals described in section 

9 119(a).’’. 

10 (e) EFFECTIVE DATE.— 

11 (1) IN GENERAL.—Except as provided in para12 graph (2), the amendments made by this section shall 

13 apply to amounts incurred or paid after December 

14 31, 2017. 

15 (2) EFFECTIVE DATE FOR ELIMINATION OF DE16 DUCTION FOR MEALS PROVIDED AT CONVENIENCE OF

17 EMPLOYER.—The amendments made by subsection (d) 

18 shall apply to amounts incurred or paid after Decem19 ber 31, 2025. 

20 SEC. 13305. REPEAL OF DEDUCTION FOR INCOME ATTRIB21 UTABLE TO DOMESTIC PRODUCTION ACTIVI22 TIES. 

23 (a) IN GENERAL.—Part VI of subchapter B of chapter 

24 1 is amended by striking section 199 (and by striking the 
194 

† HR 1 EAS2 

1 item relating to such section in the table of sections for such 

2 part). 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Sections 74(d)(2)(B), 86(b)(2)(A), 

5 135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 

6 221(b)(2)(C), 222(b)(2)(C), 246(b)(1), and 

7 469(i)(3)(F)(iii) are each amended by striking 

8 ‘‘199,’’. 

9 (2) Section 170(b)(2)(D), as amended by subtitle 

10 A, is amended by striking clause (iv), and by redesig11 nating clauses (v) and (vi) as clauses (iv) and (v). 

12 (3) Section 172(d) is amended by striking para13 graph (7). 

14 (4) Section 613(a), as amended by section 11011, 

15 is amended by striking ‘‘and without the deduction 

16 under section 199’’. 

17 (5) Section 613A(d)(1), as amended by section 

18 11011, is amended by striking subparagraph (B) and 

19 by redesignating subparagraphs (C), (D), (E), and 

20 (F) as subparagraphs (B), (C), (D), and (E), respec21 tively. 

22 (c) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to taxable years beginning after Decem24 ber 31, 2017. 
195 

† HR 1 EAS2 

1 SEC. 13306. DENIAL OF DEDUCTION FOR CERTAIN FINES, 

2 PENALTIES, AND OTHER AMOUNTS. 

3 (a) DENIAL OF DEDUCTION.— 

4 (1) IN GENERAL.—Subsection (f) of section 162 

5 is amended to read as follows: 

6 ‘‘(f) FINES, PENALTIES, AND OTHER AMOUNTS.— 

7 ‘‘(1) IN GENERAL.—Except as provided in the 

8 following paragraphs of this subsection, no deduction 

9 otherwise allowable shall be allowed under this chap10 ter for any amount paid or incurred (whether by suit, 

11 agreement, or otherwise) to, or at the direction of, a 

12 government or governmental entity in relation to the 

13 violation of any law or the investigation or inquiry 

14 by such government or entity into the potential viola15 tion of any law. 

16 ‘‘(2) EXCEPTION FOR AMOUNTS CONSTITUTING

17 RESTITUTION OR PAID TO COME INTO COMPLIANCE

18 WITH LAW.— 

19 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

20 not apply to any amount that— 

21 ‘‘(i) the taxpayer establishes— 

22 ‘‘(I) constitutes restitution (in23 cluding remediation of property) for 

24 damage or harm which was or may be 

25 caused by the violation of any law or 

26 the potential violation of any law, or 
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1 ‘‘(II) is paid to come into compli2 ance with any law which was violated 

3 or otherwise involved in the investiga4 tion or inquiry described in paragraph 

5 (1), 

6 ‘‘(ii) is identified as restitution or as 

7 an amount paid to come into compliance 

8 with such law, as the case may be, in the 

9 court order or settlement agreement, and 

10 ‘‘(iii) in the case of any amount of res11 titution for failure to pay any tax imposed 

12 under this title in the same manner as if 

13 such amount were such tax, would have 

14 been allowed as a deduction under this 

15 chapter if it had been timely paid. 

16 The identification under clause (ii) alone shall 

17 not be sufficient to make the establishment re18 quired under clause (i). 

19 ‘‘(B) LIMITATION.—Subparagraph (A) shall 

20 not apply to any amount paid or incurred as re21 imbursement to the government or entity for the 

22 costs of any investigation or litigation. 

23 ‘‘(3) EXCEPTION FOR AMOUNTS PAID OR IN24 CURRED AS THE RESULT OF CERTAIN COURT OR25 DERS.—Paragraph (1) shall not apply to any 
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1 amount paid or incurred by reason of any order of 

2 a court in a suit in which no government or govern3 mental entity is a party. 

4 ‘‘(4) EXCEPTION FOR TAXES DUE.—Paragraph 

5 (1) shall not apply to any amount paid or incurred 

6 as taxes due. 

7 ‘‘(5) TREATMENT OF CERTAIN NONGOVERN8 MENTAL REGULATORY ENTITIES.—For purposes of 

9 this subsection, the following nongovernmental entities 

10 shall be treated as governmental entities: 

11 ‘‘(A) Any nongovernmental entity which ex12 ercises self-regulatory powers (including impos13 ing sanctions) in connection with a qualified 

14 board or exchange (as defined in section 

15 1256(g)(7)). 

16 ‘‘(B) To the extent provided in regulations, 

17 any nongovernmental entity which exercises self18 regulatory powers (including imposing sanc19 tions) as part of performing an essential govern20 mental function.’’. 

21 (2) EFFECTIVE DATE.—The amendment made by 

22 this subsection shall apply to amounts paid or in23 curred on or after the date of the enactment of this 

24 Act, except that such amendments shall not apply to 

25 amounts paid or incurred under any binding order or 
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1 agreement entered into before such date. Such excep2 tion shall not apply to an order or agreement requir3 ing court approval unless the approval was obtained 

4 before such date. 

5 (b) REPORTING OF DEDUCTIBLE AMOUNTS.— 

6 (1) IN GENERAL.—Subpart B of part III of sub7 chapter A of chapter 61 is amended by inserting after 

8 section 6050W the following new section: 

9 ‘‘SEC. 6050X. INFORMATION WITH RESPECT TO CERTAIN 

10 FINES, PENALTIES, AND OTHER AMOUNTS. 

11 ‘‘(a) REQUIREMENT OF REPORTING.— 

12 ‘‘(1) IN GENERAL.—The appropriate official of 

13 any government or any entity described in section 

14 162(f)(5) which is involved in a suit or agreement de15 scribed in paragraph (2) shall make a return in such 

16 form as determined by the Secretary setting forth— 

17 ‘‘(A) the amount required to be paid as a 

18 result of the suit or agreement to which para19 graph (1) of section 162(f) applies, 

20 ‘‘(B) any amount required to be paid as a 

21 result of the suit or agreement which constitutes 

22 restitution or remediation of property, and 

23 ‘‘(C) any amount required to be paid as a 

24 result of the suit or agreement for the purpose of 

25 coming into compliance with any law which was 
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1 violated or involved in the investigation or in2 quiry. 

3 ‘‘(2) SUIT OR AGREEMENT DESCRIBED.— 

4 ‘‘(A) IN GENERAL.—A suit or agreement is 

5 described in this paragraph if— 

6 ‘‘(i) it is— 

7 ‘‘(I) a suit with respect to a viola8 tion of any law over which the govern9 ment or entity has authority and with 

10 respect to which there has been a court 

11 order, or 

12 ‘‘(II) an agreement which is en13 tered into with respect to a violation of 

14 any law over which the government or 

15 entity has authority, or with respect to 

16 an investigation or inquiry by the gov17 ernment or entity into the potential 

18 violation of any law over which such 

19 government or entity has authority, 

20 and 

21 ‘‘(ii) the aggregate amount involved in 

22 all court orders and agreements with respect 

23 to the violation, investigation, or inquiry is 

24 $600 or more. 
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1 ‘‘(B) ADJUSTMENT OF REPORTING THRESH2 OLD.—The Secretary shall adjust the $600 

3 amount in subparagraph (A)(ii) as necessary in 

4 order to ensure the efficient administration of the 

5 internal revenue laws. 

6 ‘‘(3) TIME OF FILING.—The return required 

7 under this subsection shall be filed at the time the 

8 agreement is entered into, as determined by the Sec9 retary. 

10 ‘‘(b) STATEMENTS TO BE FURNISHED TO INDIVIDUALS

11 INVOLVED IN THE SETTLEMENT.—Every person required to 

12 make a return under subsection (a) shall furnish to each 

13 person who is a party to the suit or agreement a written 

14 statement showing— 

15 ‘‘(1) the name of the government or entity, and 

16 ‘‘(2) the information supplied to the Secretary 

17 under subsection (a)(1). 

18 The written statement required under the preceding sen19 tence shall be furnished to the person at the same time the 

20 government or entity provides the Secretary with the infor21 mation required under subsection (a). 

22 ‘‘(c) APPROPRIATE OFFICIAL DEFINED.—For purposes 

23 of this section, the term ‘appropriate official’ means the offi24 cer or employee having control of the suit, investigation, 
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1 or inquiry or the person appropriately designated for pur2 poses of this section.’’. 

3 (2) CONFORMING AMENDMENT.—The table of sec4 tions for subpart B of part III of subchapter A of 

5 chapter 61 is amended by inserting after the item re6 lating to section 6050W the following new item: 

‘‘Sec. 6050X. Information with respect to certain fines, penalties, and other 

amounts.’’. 

7 (3) EFFECTIVE DATE.—The amendments made 

8 by this subsection shall apply to amounts paid or in9 curred on or after the date of the enactment of this 

10 Act, except that such amendments shall not apply to 

11 amounts paid or incurred under any binding order or 

12 agreement entered into before such date. Such excep13 tion shall not apply to an order or agreement requir14 ing court approval unless the approval was obtained 

15 before such date. 

16 SEC. 13307. DENIAL OF DEDUCTION FOR SETTLEMENTS 

17 SUBJECT TO NONDISCLOSURE AGREEMENTS 

18 PAID IN CONNECTION WITH SEXUAL HARASS19 MENT OR SEXUAL ABUSE. 

20 (a) DENIAL OF DEDUCTION.—Section 162 is amended 

21 by redesignating subsection (q) as subsection (r) and by in22 serting after subsection (p) the following new subsection: 
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† HR 1 EAS2 

1 ‘‘(q) PAYMENTS RELATED TO SEXUAL HARASSMENT

2 AND SEXUAL ABUSE.—No deduction shall be allowed under 

3 this chapter for— 

4 ‘‘(1) any settlement or payment related to sexual 

5 harassment or sexual abuse if such settlement or pay6 ment is subject to a nondisclosure agreement, or 

7 ‘‘(2) attorney’s fees related to such a settlement 

8 or payment.’’. 

9 (b) EFFECTIVE DATE.—The amendments made by this 

10 section shall apply to amounts paid or incurred after the 

11 date of the enactment of this Act. 

12 SEC. 13308. REPEAL OF DEDUCTION FOR LOCAL LOBBYING 

13 EXPENSES. 

14 (a) IN GENERAL.—Section 162(e) is amended by strik15 ing paragraphs (2) and (7) and by redesignating para16 graphs (3), (4), (5), (6), and (8) as paragraphs (2), (3), 

17 (4), (5), and (6), respectively. 

18 (b) CONFORMING AMENDMENT.—Section 

19 6033(e)(1)(B)(ii) is amended by striking ‘‘section 

20 162(e)(5)(B)(ii)’’ and inserting ‘‘section 162(e)(4)(B)(ii)’’. 

21 (c) EFFECTIVE DATE.—The amendments made by this 

22 section shall apply to amounts paid or incurred on or after 

23 the date of the enactment of this Act. 
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1 SEC. 13309. RECHARACTERIZATION OF CERTAIN GAINS IN 

2 THE CASE OF PARTNERSHIP PROFITS INTER3 ESTS HELD IN CONNECTION WITH PERFORM4 ANCE OF INVESTMENT SERVICES. 

5 (a) IN GENERAL.—Part IV of subchapter O of chapter 

6 1 is amended— 

7 (1) by redesignating section 1061 as section 

8 1062, and 

9 (2) by inserting after section 1060 the following 

10 new section: 

11 ‘‘SEC. 1061. PARTNERSHIP INTERESTS HELD IN CONNEC12 TION WITH PERFORMANCE OF SERVICES. 

13 ‘‘(a) IN GENERAL.—If one or more applicable partner14 ship interests are held by a taxpayer at any time during 

15 the taxable year, the excess (if any) of— 

16 ‘‘(1) the taxpayer’s net long-term capital gain 

17 with respect to such interests for such taxable year, 

18 over 

19 ‘‘(2) the taxpayer’s net long-term capital gain 

20 with respect to such interests for such taxable year 

21 computed by applying paragraphs (3) and (4) of sec22 tions 1222 by substituting ‘3 years’ for ‘1 year’, 

23 shall be treated as short-term capital gain, notwithstanding 

24 section 83 or any election in effect under section 83(b). 

25 ‘‘(b) SPECIAL RULE.—To the extent provided by the 

26 Secretary, subsection (a) shall not apply to income or gain 
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† HR 1 EAS2 

1 attributable to any asset not held for portfolio investment 

2 on behalf of third party investors. 

3 ‘‘(c) APPLICABLE PARTNERSHIP INTEREST.—For pur4 poses of this section— 

5 ‘‘(1) IN GENERAL.—Except as provided in this 

6 paragraph or paragraph (4), the term ‘applicable 

7 partnership interest’ means any interest in a partner8 ship which, directly or indirectly, is transferred to (or 

9 is held by) the taxpayer in connection with the per10 formance of substantial services by the taxpayer, or 

11 any other related person, in any applicable trade or 

12 business. The previous sentence shall not apply to an 

13 interest held by a person who is employed by another 

14 entity that is conducting a trade or business (other 

15 than an applicable trade or business) and only pro16 vides services to such other entity. 

17 ‘‘(2) APPLICABLE TRADE OR BUSINESS.—The 

18 term ‘applicable trade or business’ means any activ19 ity conducted on a regular, continuous, and substan20 tial basis which, regardless of whether the activity is 

21 conducted in one or more entities, consists, in whole 

22 or in part, of— 

23 ‘‘(A) raising or returning capital, and 

24 ‘‘(B) either— 
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1 ‘‘(i) investing in (or disposing of) spec2 ified assets (or identifying specified assets 

3 for such investing or disposition), or 

4 ‘‘(ii) developing specified assets. 

5 ‘‘(3) SPECIFIED ASSET.—The term ‘specified 

6 asset’ means securities (as defined in section 475(c)(2) 

7 without regard to the last sentence thereof), commod8 ities (as defined in section 475(e)(2)), real estate held 

9 for rental or investment, cash or cash equivalents, op10 tions or derivative contracts with respect to any of the 

11 foregoing, and an interest in a partnership to the ex12 tent of the partnership’s proportionate interest in any 

13 of the foregoing. 

14 ‘‘(4) EXCEPTIONS.—The term ‘applicable part15 nership interest’ shall not include— 

16 ‘‘(A) any interest in a partnership directly 

17 or indirectly held by a corporation, or 

18 ‘‘(B) any capital interest in the partnership 

19 which provides the taxpayer with a right to 

20 share in partnership capital commensurate 

21 with— 

22 ‘‘(i) the amount of capital contributed 

23 (determined at the time of receipt of such 

24 partnership interest), or 
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1 ‘‘(ii) the value of such interest subject 

2 to tax under section 83 upon the receipt or 

3 vesting of such interest. 

4 ‘‘(5) THIRD PARTY INVESTOR.—The term ‘third 

5 party investor’ means a person who— 

6 ‘‘(A) holds an interest in the partnership 

7 which does not constitute property held in con8 nection with an applicable trade or business; 

9 and 

10 ‘‘(B) is not (and has not been) actively en11 gaged, and is (and was) not related to a person 

12 so engaged, in (directly or indirectly) providing 

13 substantial services described in paragraph (1) 

14 for such partnership or any applicable trade or 

15 business. 

16 ‘‘(d) TRANSFER OF APPLICABLE PARTNERSHIP INTER17 EST TO RELATED PERSON.— 

18 ‘‘(1) IN GENERAL.—If a taxpayer transfers any 

19 applicable partnership interest, directly or indirectly, 

20 to a person related to the taxpayer, the taxpayer shall 

21 include in gross income (as short term capital gain) 

22 the excess (if any) of— 

23 ‘‘(A) so much of the taxpayer’s long-term 

24 capital gains with respect to such interest for 

25 such taxable year attributable to the sale or ex-
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1 change of any asset held for not more than 3 

2 years as is allocable to such interest, over 

3 ‘‘(B) any amount treated as short term cap4 ital gain under subsection (a) with respect to the 

5 transfer of such interest. 

6 ‘‘(2) RELATED PERSON.—For purposes of this 

7 paragraph, a person is related to the taxpayer if— 

8 ‘‘(A) the person is a member of the tax9 payer’s family within the meaning of section 

10 318(a)(1), or 

11 ‘‘(B) the person performed a service within 

12 the current calendar year or the preceding three 

13 calendar years in any applicable trade or busi14 ness in which or for which the taxpayer per15 formed a service. 

16 ‘‘(e) REPORTING.—The Secretary shall require such re17 porting (at the time and in the manner prescribed by the 

18 Secretary) as is necessary to carry out the purposes of this 

19 section. 

20 ‘‘(f) REGULATIONS.—The Secretary shall issue such 

21 regulations or other guidance as is necessary or appropriate 

22 to carry out the purposes of this section’’. 

23 (b) CLERICAL AMENDMENT.—The table of sections for 

24 part IV of subchapter O of chapter 1 is amended by striking 
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1 the item relating to 1061 and inserting the following new 

2 items: 

‘‘Sec. 1061. Partnership interests held in connection with performance of services. 

‘‘Sec. 1062. Cross references.’’. 

3 (c) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to taxable years beginning after Decem5 ber 31, 2017. 

6 SEC. 13310. PROHIBITION ON CASH, GIFT CARDS, AND 

7 OTHER NON-TANGIBLE PERSONAL PROPERTY 

8 AS EMPLOYEE ACHIEVEMENT AWARDS. 

9 (a) IN GENERAL.—Subparagraph (A) of section 

10 274(j)(3) is amended— 

11 (1) by striking ‘‘The term’’ and inserting the fol12 lowing: 

13 ‘‘(i) IN GENERAL.—The term’’. 

14 (2) by redesignating clauses (i), (ii), and (iii) as 

15 subclauses (I), (II), and (III), respectively, and con16 forming the margins accordingly, and 

17 (3) by adding at the end the following new 

18 clause: 

19 ‘‘(ii) TANGIBLE PERSONAL PROP20 ERTY.—For purposes of clause (i), the term 

21 ‘tangible personal property’ shall not in22 clude— 

23 ‘‘(I) cash, cash equivalents, gift 

24 cards, gift coupons, or gift certificates 
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1 (other than arrangements conferring 

2 only the right to select and receive tan3 gible personal property from a limited 

4 array of such items pre-selected or pre5 approved by the employer), or 

6 ‘‘(II) vacations, meals, lodging, 

7 tickets to theater or sporting events, 

8 stocks, bonds, other securities, and 

9 other similar items.’’. 

10 (b) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to amounts paid or incurred after De12 cember 31, 2017. 

13 SEC. 13311. ELIMINATION OF DEDUCTION FOR LIVING EX14 PENSES INCURRED BY MEMBERS OF CON15 GRESS. 

16 (a) IN GENERAL.—Subsection (a) of section 162 is 

17 amended in the matter following paragraph (3) by striking 

18 ‘‘in excess of $3,000’’. 

19 (b) EFFECTIVE DATE.—The amendment made by this 

20 section shall apply to taxable years beginning after the date 

21 of the enactment of this Act. 

22 SEC. 13312. CERTAIN CONTRIBUTIONS BY GOVERNMENTAL 

23 ENTITIES NOT TREATED AS CONTRIBUTIONS 

24 TO CAPITAL. 

25 (a) IN GENERAL.—Section 118 is amended— 
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† HR 1 EAS2 

1 (1) by striking subsections (b), (c), and (d), 

2 (2) by redesignating subsection (e) as subsection 

3 (d), and 

4 (3) by inserting after subsection (a) the following 

5 new subsections: 

6 ‘‘(b) EXCEPTIONS.—For purposes of subsection (a), the 

7 term ‘contribution to the capital of the taxpayer’ does not 

8 include— 

9 ‘‘(1) any contribution in aid of construction or 

10 any other contribution as a customer or potential cus11 tomer, and 

12 ‘‘(2) any contribution by any governmental enti13 ty or civic group (other than a contribution made by 

14 a shareholder as such). 

15 ‘‘(c) REGULATIONS.—The Secretary shall issue such 

16 regulations or other guidance as may be necessary or appro17 priate to carry out this section, including regulations or 

18 other guidance for determining whether any contribution 

19 constitutes a contribution in aid of construction.’’. 

20 (b) EFFECTIVE DATE.— 

21 (1) IN GENERAL.—Except as provided in para22 graph (2), the amendments made by this section shall 

23 apply to contributions made after the date of enact24 ment of this Act. 
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† HR 1 EAS2 

1 (2) EXCEPTION.—The amendments made by this 

2 section shall not apply to any contribution, made 

3 after the date of enactment of this Act by a govern4 mental entity, which is made pursuant to a master 

5 development plan that has been approved prior to 

6 such date by a governmental entity. 

7 SEC. 13313. REPEAL OF ROLLOVER OF PUBLICLY TRADED 

8 SECURITIES GAIN INTO SPECIALIZED SMALL 

9 BUSINESS INVESTMENT COMPANIES. 

10 (a) IN GENERAL.—Part III of subchapter O of chapter 

11 1 is amended by striking section 1044 (and by striking the 

12 item relating to such section in the table of sections of such 

13 part). 

14 (b) CONFORMING AMENDMENTS.—Section 1016(a)(23) 

15 is amended— 

16 (1) by striking ‘‘1044,’’, and 

17 (2) by striking ‘‘1044(d),’’. 

18 (c) EFFECTIVE DATE.—The amendments made by this 

19 section shall apply to sales after December 31, 2017. 

20 SEC. 13314. CERTAIN SELF-CREATED PROPERTY NOT 

21 TREATED AS A CAPITAL ASSET. 

22 (a) PATENTS, ETC.—Section 1221(a)(3) is amended by 

23 inserting ‘‘a patent, invention, model or design (whether or 

24 not patented), a secret formula or process,’’ before ‘‘a copy25 right’’. 
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† HR 1 EAS2 

1 (b) CONFORMING AMENDMENT.—Section 

2 1231(b)(1)(C) is amended by inserting ‘‘a patent, inven3 tion, model or design (whether or not patented), a secret 

4 formula or process,’’ before ‘‘a copyright’’. 

5 (c) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to dispositions after December 31, 2017. 

7 PART V—BUSINESS CREDITS 

8 SEC. 13401. MODIFICATION OF ORPHAN DRUG CREDIT. 

9 (a) CREDIT RATE.—Subsection (a) of section 45C is 

10 amended by striking ‘‘50 percent’’ and inserting ‘‘25 per11 cent’’. 

12 (b) ELECTION OF REDUCED CREDIT.—Subsection (b) 

13 of section 280C is amended by redesignating paragraph (3) 

14 as paragraph (4) and by inserting after paragraph (2) the 

15 following new paragraph: 

16 ‘‘(3) ELECTION OF REDUCED CREDIT.— 

17 ‘‘(A) IN GENERAL.—In the case of any tax18 able year for which an election is made under 

19 this paragraph— 

20 ‘‘(i) paragraphs (1) and (2) shall not 

21 apply, and 

22 ‘‘(ii) the amount of the credit under 

23 section 45C(a) shall be the amount deter24 mined under subparagraph (B). 
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† HR 1 EAS2 

1 ‘‘(B) AMOUNT OF REDUCED CREDIT.—The 

2 amount of credit determined under this subpara3 graph for any taxable year shall be the amount 

4 equal to the excess of— 

5 ‘‘(i) the amount of credit determined 

6 under section 45C(a) without regard to this 

7 paragraph, over 

8 ‘‘(ii) the product of— 

9 ‘‘(I) the amount described in 

10 clause (i), and 

11 ‘‘(II) the maximum rate of tax 

12 under section 11(b). 

13 ‘‘(C) ELECTION.—An election under this 

14 paragraph for any taxable year shall be made 

15 not later than the time for filing the return of 

16 tax for such year (including extensions), shall be 

17 made on such return, and shall be made in such 

18 manner as the Secretary shall prescribe. Such an 

19 election, once made, shall be irrevocable.’’. 

20 (c) EFFECTIVE DATE.—The amendments made by this 

21 section shall apply to taxable years beginning after Decem22 ber 31, 2017. 
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1 SEC. 13402. REHABILITATION CREDIT LIMITED TO CER2 TIFIED HISTORIC STRUCTURES. 

3 (a) IN GENERAL.—Subsection (a) of section 47 is 

4 amended to read as follows: 

5 ‘‘(a) GENERAL RULE.— 

6 ‘‘(1) IN GENERAL.—For purposes of section 46, 

7 for any taxable year during the 5-year period begin8 ning in the taxable year in which a qualified reha9 bilitated building is placed in service, the rehabilita10 tion credit for such year is an amount equal to the 

11 ratable share for such year. 

12 ‘‘(2) RATABLE SHARE.—For purposes of para13 graph (1), the ratable share for any taxable year dur14 ing the period described in such paragraph is the 

15 amount equal to 20 percent of the qualified rehabili16 tation expenditures with respect to the qualified reha17 bilitated building, as allocated ratably to each year 

18 during such period.’’. 

19 (b) CONFORMING AMENDMENTS.— 

20 (1) Section 47(c) is amended— 

21 (A) in paragraph (1)— 

22 (i) in subparagraph (A), by amending 

23 clause (iii) to read as follows: 

24 ‘‘(iii) such building is a certified his25 toric structure, and’’, 

26 (ii) by striking subparagraph (B), and 
215 

† HR 1 EAS2 

1 (iii) by redesignating subparagraphs 

2 (C) and (D) as subparagraphs (B) and (C), 

3 respectively, and 

4 (B) in paragraph (2)(B), by amending 

5 clause (iv) to read as follows: 

6 ‘‘(iv) CERTIFIED HISTORIC STRUC7 TURE.—Any expenditure attributable to the 

8 rehabilitation of a qualified rehabilitated 

9 building unless the rehabilitation is a cer10 tified rehabilitation (within the meaning of 

11 subparagraph (C)).’’. 

12 (2) Paragraph (4) of section 145(d) is amend13 ed— 

14 (A) by striking ‘‘of section 47(c)(1)(C)’’ each 

15 place it appears and inserting ‘‘of section 

16 47(c)(1)(B)’’, and 

17 (B) by striking ‘‘section 47(c)(1)(C)(i)’’ and 

18 inserting ‘‘section 47(c)(1)(B)(i)’’. 

19 (c) EFFECTIVE DATE.— 

20 (1) IN GENERAL.—Except as provided in para21 graph (2), the amendments made by this section shall 

22 apply to amounts paid or incurred after December 

23 31, 2017. 
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1 (2) TRANSITION RULE.—In the case of qualified 

2 rehabilitation expenditures with respect to any build3 ing— 

4 (A) owned or leased by the taxpayer during 

5 the entirety of the period after December 31, 

6 2017, and 

7 (B) with respect to which the 24-month pe8 riod selected by the taxpayer under clause (i) of 

9 section 47(c)(1)(B) of the Internal Revenue Code 

10 (as amended by subsection (b)), or the 60-month 

11 period applicable under clause (ii) of such sec12 tion, begins not later than 180 days after the 

13 date of the enactment of this Act, 

14 the amendments made by this section shall apply to 

15 such expenditures paid or incurred after the end of 

16 the taxable year in which the 24-month period, or the 

17 60-month period, referred to in subparagraph (B) 

18 ends. 

19 SEC. 13403. EMPLOYER CREDIT FOR PAID FAMILY AND MED20 ICAL LEAVE. 

21 (a) IN GENERAL.— 

22 (1) ALLOWANCE OF CREDIT.—Subpart D of part 

23 IV of subchapter A of chapter 1 is amended by adding 

24 at the end the following new section: 
217 

† HR 1 EAS2 

1 ‘‘SEC. 45S. EMPLOYER CREDIT FOR PAID FAMILY AND MED2 ICAL LEAVE. 

3 ‘‘(a) ESTABLISHMENT OF CREDIT.— 

4 ‘‘(1) IN GENERAL.—For purposes of section 38, 

5 in the case of an eligible employer, the paid family 

6 and medical leave credit is an amount equal to the 

7 applicable percentage of the amount of wages paid to 

8 qualifying employees during any period in which 

9 such employees are on family and medical leave. 

10 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

11 of paragraph (1), the term ‘applicable percentage’ 

12 means 12.5 percent increased (but not above 25 per13 cent) by 0.25 percentage points for each percentage 

14 point by which the rate of payment (as described 

15 under subsection (c)(1)(B)) exceeds 50 percent. 

16 ‘‘(b) LIMITATION.— 

17 ‘‘(1) IN GENERAL.—The credit allowed under 

18 subsection (a) with respect to any employee for any 

19 taxable year shall not exceed an amount equal to the 

20 product of the normal hourly wage rate of such em21 ployee for each hour (or fraction thereof) of actual 

22 services performed for the employer and the number 

23 of hours (or fraction thereof) for which family and 

24 medical leave is taken. 

25 ‘‘(2) NON-HOURLY WAGE RATE.—For purposes of 

26 paragraph (1), in the case of any employee who is not 
218 

† HR 1 EAS2 

1 paid on an hourly wage rate, the wages of such em2 ployee shall be prorated to an hourly wage rate under 

3 regulations established by the Secretary. 

4 ‘‘(3) MAXIMUM AMOUNT OF LEAVE SUBJECT TO

5 CREDIT.—The amount of family and medical leave 

6 that may be taken into account with respect to any 

7 employee under subsection (a) for any taxable year 

8 shall not exceed 12 weeks. 

9 ‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this sec10 tion— 

11 ‘‘(1) IN GENERAL.—The term ‘eligible employer’ 

12 means any employer who has in place a written pol13 icy that meets the following requirements: 

14 ‘‘(A) The policy provides— 

15 ‘‘(i) in the case of a qualifying em16 ployee who is not a part-time employee (as 

17 defined in section 4980E(d)(4)(B)), not less 

18 than 2 weeks of annual paid family and 

19 medical leave, and 

20 ‘‘(ii) in the case of a qualifying em21 ployee who is a part-time employee, an 

22 amount of annual paid family and medical 

23 leave that is not less than an amount which 

24 bears the same ratio to the amount of an25 nual paid family and medical leave that is 
219 

† HR 1 EAS2 

1 provided to a qualifying employee described 

2 in clause (i) as— 

3 ‘‘(I) the number of hours the em4 ployee is expected to work during any 

5 week, bears to 

6 ‘‘(II) the number of hours an 

7 equivalent qualifying employee de8 scribed in clause (i) is expected to work 

9 during the week. 

10 ‘‘(B) The policy requires that the rate of 

11 payment under the program is not less than 50 

12 percent of the wages normally paid to such em13 ployee for services performed for the employer. 

14 ‘‘(2) SPECIAL RULE FOR CERTAIN EMPLOYERS.— 

15 ‘‘(A) IN GENERAL.—An added employer 

16 shall not be treated as an eligible employer un17 less such employer provides paid family and 

18 medical leave in compliance with a written pol19 icy which ensures that the employer— 

20 ‘‘(i) will not interfere with, restrain, or 

21 deny the exercise of or the attempt to exer22 cise, any right provided under the policy, 

23 and 

24 ‘‘(ii) will not discharge or in any other 

25 manner discriminate against any indi-
220 

† HR 1 EAS2 

1 vidual for opposing any practice prohibited 

2 by the policy. 

3 ‘‘(B) ADDED EMPLOYER; ADDED EM4 PLOYEE.—For purposes of this paragraph— 

5 ‘‘(i) ADDED EMPLOYEE.—The term 

6 ‘added employee’ means a qualifying em7 ployee who is not covered by title I of the 

8 Family and Medical Leave Act of 1993, as 

9 amended. 

10 ‘‘(ii) ADDED EMPLOYER.—The term 

11 ‘added employer’ means an eligible em12 ployer (determined without regard to this 

13 paragraph), whether or not covered by that 

14 title I, who offers paid family and medical 

15 leave to added employees. 

16 ‘‘(3) AGGREGATION RULE.—All persons which 

17 are treated as a single employer under subsections (a) 

18 and (b) of section 52 shall be treated as a single tax19 payer. 

20 ‘‘(4) TREATMENT OF BENEFITS MANDATED OR

21 PAID FOR BY STATE OR LOCAL GOVERNMENTS.—For 

22 purposes of this section, any leave which is paid by 

23 a State or local government or required by State or 

24 local law shall not be taken into account in deter-
221 

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1 mining the amount of paid family and medical leave 

2 provided by the employer. 

3 ‘‘(5) NO INFERENCE.—Nothing in this subsection 

4 shall be construed as subjecting an employer to any 

5 penalty, liability, or other consequence (other than in6 eligibility for the credit allowed by reason of sub7 section (a) or recapturing the benefit of such credit) 

8 for failure to comply with the requirements of this 

9 subsection. 

10 ‘‘(d) QUALIFYING EMPLOYEES.—For purposes of this 

11 section, the term ‘qualifying employee’ means any employee 

12 (as defined in section 3(e) of the Fair Labor Standards Act 

13 of 1938, as amended) who— 

14 ‘‘(1) has been employed by the employer for 1 

15 year or more, and 

16 ‘‘(2) for the preceding year, had compensation 

17 not in excess of an amount equal to 60 percent of the 

18 amount applicable for such year under clause (i) of 

19 section 414(q)(1)(B). 

20 ‘‘(e) FAMILY AND MEDICAL LEAVE.— 

21 ‘‘(1) IN GENERAL.—Except as provided in para22 graph (2), for purposes of this section, the term ‘fam23 ily and medical leave’ means leave for any 1 or more 

24 of the purposes described under subparagraph (A), 

25 (B), (C), (D), or (E) of paragraph (1), or paragraph 
222 

† HR 1 EAS2 

1 (3), of section 102(a) of the Family and Medical 

2 Leave Act of 1993, as amended, whether the leave is 

3 provided under that Act or by a policy of the em4 ployer. 

5 ‘‘(2) EXCLUSION.—If an employer provides paid 

6 leave as vacation leave, personal leave, or medical or 

7 sick leave (other than leave specifically for 1 or more 

8 of the purposes referred to in paragraph (1)), that 

9 paid leave shall not be considered to be family and 

10 medical leave under paragraph (1). 

11 ‘‘(3) DEFINITIONS.—In this subsection, the terms 

12 ‘vacation leave’, ‘personal leave’, and ‘medical or sick 

13 leave’ mean those 3 types of leave, within the meaning 

14 of section 102(d)(2) of that Act. 

15 ‘‘(f) DETERMINATIONS MADE BY SECRETARY OF

16 TREASURY.—For purposes of this section, any determina17 tion as to whether an employer or an employee satisfies the 

18 applicable requirements for an eligible employer (as de19 scribed in subsection (c)) or qualifying employee (as de20 scribed in subsection (d)), respectively, shall be made by the 

21 Secretary based on such information, to be provided by the 

22 employer, as the Secretary determines to be necessary or 

23 appropriate. 

24 ‘‘(g) WAGES.—For purposes of this section, the term 

25 ‘wages’ has the meaning given such term by subsection (b) 
223 

† HR 1 EAS2 

1 of section 3306 (determined without regard to any dollar 

2 limitation contained in such section). Such term shall not 

3 include any amount taken into account for purposes of de4 termining any other credit allowed under this subpart. 

5 ‘‘(h) ELECTION TO HAVE CREDIT NOT APPLY.— 

6 ‘‘(1) IN GENERAL.—A taxpayer may elect to 

7 have this section not apply for any taxable year. 

8 ‘‘(2) OTHER RULES.—Rules similar to the rules 

9 of paragraphs (2) and (3) of section 51(j) shall apply 

10 for purposes of this subsection. 

11 ‘‘(i) TERMINATION.—This section shall not apply to 

12 wages paid in taxable years beginning after December 31, 

13 2019.’’. 

14 (b) CREDIT PART OF GENERAL BUSINESS CREDIT.— 

15 Section 38(b) is amended by striking ‘‘plus’’ at the end of 

16 paragraph (35), by striking the period at the end of para17 graph (36) and inserting ‘‘, plus’’, and by adding at the 

18 end the following new paragraph: 

19 ‘‘(37) in the case of an eligible employer (as de20 fined in section 45S(c)), the paid family and medical 

21 leave credit determined under section 45S(a).’’. 

22 (c) CREDIT ALLOWED AGAINST AMT.—Subparagraph 

23 (B) of section 38(c)(4) is amended by redesignating clauses 

24 (ix) through (xi) as clauses (x) through (xii), respectively, 

25 and by inserting after clause (viii) the following new clause: 
224 

† HR 1 EAS2 

1 ‘‘(ix) the credit determined under sec2 tion 45S,’’. 

3 (d) CONFORMING AMENDMENTS.— 

4 (1) DENIAL OF DOUBLE BENEFIT.—Section 

5 280C(a) is amended by inserting ‘‘45S(a),’’ after 

6 ‘‘45P(a),’’. 

7 (2) ELECTION TO HAVE CREDIT NOT APPLY.— 

8 Section 6501(m) is amended by inserting ‘‘45S(h),’’ 

9 after ‘‘45H(g),’’. 

10 (3) CLERICAL AMENDMENT.—The table of sec11 tions for subpart D of part IV of subchapter A of 

12 chapter 1 is amended by adding at the end the fol13 lowing new item: 

‘‘Sec. 45S. Employer credit for paid family and medical leave.’’. 

14 (e) EFFECTIVE DATE.—The amendments made by this 

15 section shall apply to wages paid in taxable years begin16 ning after December 31, 2017. 

17 SEC. 13404. REPEAL OF TAX CREDIT BONDS. 

18 (a) IN GENERAL.—Part IV of subchapter A of chapter 

19 1 is amended by striking subparts H, I, and J (and by 

20 striking the items relating to such subparts in the table of 

21 subparts for such part). 

22 (b) PAYMENTS TO ISSUERS.—Subchapter B of chapter 

23 65 is amended by striking section 6431 (and by striking 

24 the item relating to such section in the table of sections for 

25 such subchapter). 
225 

† HR 1 EAS2 

1 (c) CONFORMING AMENDMENTS.— 

2 (1) Part IV of subchapter U of chapter 1 is 

3 amended by striking section 1397E (and by striking 

4 the item relating to such section in the table of sec5 tions for such part). 

6 (2) Section 54(l)(3)(B) is amended by inserting 

7 ‘‘(as in effect before its repeal by the Tax Cuts and 

8 Jobs Act)’’ after ‘‘section 1397E(I)’’. 

9 (3) Section 6211(b)(4)(A) is amended by striking 

10 ‘‘, and 6431’’ and inserting ‘‘and’’ before ‘‘36B’’. 

11 (4) Section 6401(b)(1) is amended by striking 

12 ‘‘G, H, I, and J’’ and inserting ‘‘and G’’. 

13 (d) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to bonds issued after December 31, 2017. 

15 PART VI—PROVISIONS RELATED TO SPECIFIC 

16 ENTITIES AND INDUSTRIES 

17 Subpart A—Partnership Provisions 

18 SEC. 13501. TREATMENT OF GAIN OR LOSS OF FOREIGN 

19 PERSONS FROM SALE OR EXCHANGE OF IN20 TERESTS IN PARTNERSHIPS ENGAGED IN 

21 TRADE OR BUSINESS WITHIN THE UNITED 

22 STATES. 

23 (a) AMOUNT TREATED AS EFFECTIVELY CON24 NECTED.— 
226 

† HR 1 EAS2 

1 (1) IN GENERAL.—Section 864(c) is amended by 

2 adding at the end the following: 

3 ‘‘(8) GAIN OR LOSS OF FOREIGN PERSONS FROM

4 SALE OR EXCHANGE OF CERTAIN PARTNERSHIP IN5 TERESTS.— 

6 ‘‘(A) IN GENERAL.—Notwithstanding any 

7 other provision of this subtitle, if a nonresident 

8 alien individual or foreign corporation owns, di9 rectly or indirectly, an interest in a partnership 

10 which is engaged in any trade or business within 

11 the United States, gain or loss on the sale or ex12 change of all (or any portion of) such interest 

13 shall be treated as effectively connected with the 

14 conduct of such trade or business to the extent 

15 such gain or loss does not exceed the amount de16 termined under subparagraph (B). 

17 ‘‘(B) AMOUNT TREATED AS EFFECTIVELY

18 CONNECTED.—The amount determined under 

19 this subparagraph with respect to any partner20 ship interest sold or exchanged— 

21 ‘‘(i) in the case of any gain on the sale 

22 or exchange of the partnership interest, is— 

23 ‘‘(I) the portion of the partner’s 

24 distributive share of the amount of 

25 gain which would have been effectively 
227 

† HR 1 EAS2 

1 connected with the conduct of a trade 

2 or business within the United States if 

3 the partnership had sold all of its as4 sets at their fair market value as of the 

5 date of the sale or exchange of such in6 terest, or 

7 ‘‘(II) zero if no gain on such 

8 deemed sale would have been so effec9 tively connected, and 

10 ‘‘(ii) in the case of any loss on the sale 

11 or exchange of the partnership interest, is— 

12 ‘‘(I) the portion of the partner’s 

13 distributive share of the amount of loss 

14 on the deemed sale described in clause 

15 (i)(I) which would have been so effec16 tively connected, or 

17 ‘‘(II) zero if no loss on such 

18 deemed sale would be have been so ef19 fectively connected. 

20 For purposes of this subparagraph, a part21 ner’s distributive share of gain or loss on 

22 the deemed sale shall be determined in the 

23 same manner as such partner’s distributive 

24 share of the non-separately stated taxable 

25 income or loss of such partnership. 
228 

† HR 1 EAS2 

1 ‘‘(C) COORDINATION WITH UNITED STATES

2 REAL PROPERTY INTERESTS.—If a partnership 

3 described in subparagraph (A) holds any United 

4 States real property interest (as defined in sec5 tion 897(c)) at the time of the sale or exchange 

6 of the partnership interest, then the gain or loss 

7 treated as effectively connected income under 

8 subparagraph (A) shall be reduced by the 

9 amount so treated with respect to such United 

10 States real property interest under section 897. 

11 ‘‘(D) SALE OR EXCHANGE.—For purposes of 

12 this paragraph, the term ‘sale or exchange’ 

13 means any sale, exchange, or other disposition. 

14 ‘‘(E) SECRETARIAL AUTHORITY.—The Sec15 retary shall prescribe such regulations or other 

16 guidance as the Secretary determines appro17 priate for the application of this paragraph, in18 cluding with respect to exchanges described in 

19 section 332, 351, 354, 355, 356, or 361.’’. 

20 (2) CONFORMING AMENDMENTS.—Section 

21 864(c)(1) is amended— 

22 (A) by striking ‘‘and (7)’’ in subparagraph 

23 (A), and inserting ‘‘(7), and (8)’’, and 

24 (B) by striking ‘‘or (7)’’ in subparagraph 

25 (B), and inserting ‘‘(7), or (8)’’. 
229 

† HR 1 EAS2 

1 (b) WITHHOLDING REQUIREMENTS.—Section 1446 is 

2 amended by redesignating subsection (f) as subsection (g) 

3 and by inserting after subsection (e) the following: 

4 ‘‘(f) SPECIAL RULES FOR WITHHOLDING ON DISPOSI5 TIONS OF PARTNERSHIP INTERESTS.— 

6 ‘‘(1) IN GENERAL.—Except as provided in this 

7 subsection, if any portion of the gain (if any) on any 

8 disposition of an interest in a partnership would be 

9 treated under section 864(c)(8) as effectively con10 nected with the conduct of a trade or business within 

11 the United States, the transferee shall be required to 

12 deduct and withhold a tax equal to 10 percent of the 

13 amount realized on the disposition. 

14 ‘‘(2) EXCEPTION IF NONFOREIGN AFFIDAVIT FUR15 NISHED.— 

16 ‘‘(A) IN GENERAL.—No person shall be re17 quired to deduct and withhold any amount 

18 under paragraph (1) with respect to any disposi19 tion if the transferor furnishes to the transferee 

20 an affidavit by the transferor stating, under pen21 alty of perjury, the transferor’s United States 

22 taxpayer identification number and that the 

23 transferor is not a foreign person. 

24 ‘‘(B) FALSE AFFIDAVIT.—Subparagraph (A) 

25 shall not apply to any disposition if— 
230 

† HR 1 EAS2 

1 ‘‘(i) the transferee has actual knowl2 edge that the affidavit is false, or the trans3 feree receives a notice (as described in sec4 tion 1445(d)) from a transferor’s agent or 

5 transferee’s agent that such affidavit or 

6 statement is false, or 

7 ‘‘(ii) the Secretary by regulations re8 quires the transferee to furnish a copy of 

9 such affidavit or statement to the Secretary 

10 and the transferee fails to furnish a copy of 

11 such affidavit or statement to the Secretary 

12 at such time and in such manner as re13 quired by such regulations. 

14 ‘‘(C) RULES FOR AGENTS.—The rules of sec15 tion 1445(d) shall apply to a transferor’s agent 

16 or transferee’s agent with respect to any affidavit 

17 described in subparagraph (A) in the same man18 ner as such rules apply with respect to the dis19 position of a United States real property interest 

20 under such section. 

21 ‘‘(3) AUTHORITY OF SECRETARY TO PRESCRIBE

22 REDUCED AMOUNT.—At the request of the transferor 

23 or transferee, the Secretary may prescribe a reduced 

24 amount to be withheld under this section if the Sec25 retary determines that to substitute such reduced 
231 

† HR 1 EAS2 

1 amount will not jeopardize the collection of the tax 

2 imposed under this title with respect to gain treated 

3 under section 864(c)(8) as effectively connected with 

4 the conduct of a trade or business with in the United 

5 States. 

6 ‘‘(4) PARTNERSHIP TO WITHHOLD AMOUNTS NOT

7 WITHHELD BY THE TRANSFEREE.—If a transferee 

8 fails to withhold any amount required to be withheld 

9 under paragraph (1), the partnership shall be re10 quired to deduct and withhold from distributions to 

11 the transferee a tax in an amount equal to the 

12 amount the transferee failed to withhold (plus interest 

13 under this title on such amount). 

14 ‘‘(5) DEFINITIONS.—Any term used in this sub15 section which is also used under section 1445 shall 

16 have the same meaning as when used in such section. 

17 ‘‘(6) REGULATIONS.—The Secretary shall pre18 scribe such regulations or other guidance as may be 

19 necessary to carry out the purposes of this subsection, 

20 including regulations providing for exceptions from 

21 the provisions of this subsection.’’. 

22 (c) EFFECTIVE DATES.— 

23 (1) SUBSECTION (a).—The amendments made by 

24 subsection (a) shall apply to sales, exchanges, and dis25 positions on or after November 27, 2017. 
232 

† HR 1 EAS2 

1 (2) SUBSECTION (b).—The amendment made by 

2 subsection (b) shall apply to sales, exchanges, and dis3 positions after December 31, 2017. 

4 SEC. 13502. MODIFY DEFINITION OF SUBSTANTIAL BUILT-IN 

5 LOSS IN THE CASE OF TRANSFER OF PART6 NERSHIP INTEREST. 

7 (a) IN GENERAL.—Paragraph (1) of section 743(d) is 

8 to read as follows: 

9 ‘‘(1) IN GENERAL.—For purposes of this section, 

10 a partnership has a substantial built-in loss with re11 spect to a transfer of an interest in the partnership 

12 if— 

13 ‘‘(A) the partnership’s adjusted basis in the 

14 partnership property exceeds by more than 

15 $250,000 the fair market value of such property, 

16 or 

17 ‘‘(B) the transferee partner would be allo18 cated a loss of more than $250,000 if the part19 nership assets were sold for cash equal to their 

20 fair market value immediately after such trans21 fer.’’. 

22 (b) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to transfers of partnership interests after 

24 December 31, 2017. 
233 

† HR 1 EAS2 

1 SEC. 13503. CHARITABLE CONTRIBUTIONS AND FOREIGN 

2 TAXES TAKEN INTO ACCOUNT IN DETER3 MINING LIMITATION ON ALLOWANCE OF 

4 PARTNER’S SHARE OF LOSS. 

5 (a) IN GENERAL.—Subsection (d) of section 704 is 

6 amended— 

7 (1) by striking ‘‘A partner’s distributive share’’ 

8 and inserting the following: 

9 ‘‘(1) IN GENERAL.—A partner’s distributive 

10 share’’, 

11 (2) by striking ‘‘Any excess of such loss’’ and in12 serting the following: 

13 ‘‘(2) CARRYOVER.—Any excess of such loss’’, and 

14 (3) by adding at the end the following new para15 graph: 

16 ‘‘(3) SPECIAL RULES.— 

17 ‘‘(A) IN GENERAL.—In determining the 

18 amount of any loss under paragraph (1), there 

19 shall be taken into account the partner’s dis20 tributive share of amounts described in para21 graphs (4) and (6) of section 702(a). 

22 ‘‘(B) EXCEPTION.—In the case of a chari23 table contribution of property whose fair market 

24 value exceeds its adjusted basis, subparagraph 

25 (A) shall not apply to the extent of the partner’s 

26 distributive share of such excess.’’. 
234 

† HR 1 EAS2 

1 (b) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to partnership taxable years beginning 

3 after December 31, 2017. 

4 SEC. 13504. REPEAL OF TECHNICAL TERMINATION OF PART5 NERSHIPS. 

6 (a) IN GENERAL.—Paragraph (1) of section 708(b) is 

7 amended— 

8 (1) by striking ‘‘, or’’ at the end of subparagraph 

9 (A) and all that follows and inserting a period, and 

10 (2) by striking ‘‘only if—’’ and all that follows 

11 through ‘‘no part of any business’’ and inserting the 

12 following: ‘‘only if no part of any business’’. 

13 (b) CONFORMING AMENDMENT.— 

14 (1) Section 168(i)(7)(B) is amended by striking 

15 the second sentence. 

16 (2) Section 743(e) is amended by striking para17 graph (4) and redesignating paragraphs (5), (6), and 

18 (7) as paragraphs (4), (5), and (6). 

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

20 section shall apply to partnership taxable years beginning 

21 after December 31, 2017. 
235 

† HR 1 EAS2 

1 Subpart B—Insurance Reforms 

2 SEC. 13511. NET OPERATING LOSSES OF LIFE INSURANCE 

3 COMPANIES. 

4 (a) IN GENERAL.—Section 805(b) is amended by strik5 ing paragraph (4) and by redesignating paragraph (5) as 

6 paragraph (4). 

7 (b) CONFORMING AMENDMENTS.— 

8 (1) Part I of subchapter L of chapter 1 is 

9 amended by striking section 810 (and by striking the 

10 item relating to such section in the table of sections 

11 for such part). 

12 (2)(A) Part III of subchapter L of chapter 1 is 

13 amended by striking section 844 (and by striking the 

14 item relating to such section in the table of sections 

15 for such part). 

16 (B) Section 831(b)(3) is amended by striking 

17 ‘‘except as provided in section 844,’’ 

18 (3) Section 381 is amended by striking sub19 section (d). 

20 (4) Section 805(a)(4)(B)(ii) is amended to read 

21 as follows: 

22 ‘‘(ii) the deduction allowed under sec23 tion 172,’’. 

24 (5) Section 805(a) is amended by striking para25 graph (5). 
236 

† HR 1 EAS2 

1 (6) Section 805(b)(2)(A)(iv) is amended to read 

2 as follows: 

3 ‘‘(iv) any net operating loss carryback 

4 to the taxable year under section 172, and’’. 

5 (7) Section 953(b)(1)(B) is amended to read as 

6 follows: 

7 ‘‘(B) So much of section 805(a)(8) as relates 

8 to the deduction allowed under section 172.’’. 

9 (8) Section 1351(i)(3) is amended by striking 

10 ‘‘or the operations loss deduction under section 810,’’. 

11 (c) EFFECTIVE DATE.—The amendments made by this 

12 section shall apply to losses arising in taxable years begin13 ning after December 31, 2017. 

14 SEC. 13512. REPEAL OF SMALL LIFE INSURANCE COMPANY 

15 DEDUCTION. 

16 (a) IN GENERAL.—Part I of subchapter L of chapter 

17 1 is amended by striking section 806 (and by striking the 

18 item relating to such section in the table of sections for such 

19 part). 

20 (b) CONFORMING AMENDMENTS.— 

21 (1) Section 453B(e) is amended— 

22 (A) by striking ‘‘(as defined in section 

23 806(b)(3))’’ in paragraph (2)(B), and 

24 (B) by adding at the end the following new 

25 paragraph: 
237 

† HR 1 EAS2 

1 ‘‘(3) NONINSURANCE BUSINESS.— 

2 ‘‘(A) IN GENERAL.—For purposes of this 

3 subsection, the term ‘noninsurance business’ 

4 means any activity which is not an insurance 

5 business. 

6 ‘‘(B) CERTAIN ACTIVITIES TREATED AS IN7 SURANCE BUSINESSES.—For purposes of sub8 paragraph (A), any activity which is not an in9 surance business shall be treated as an insurance 

10 business if— 

11 ‘‘(i) it is of a type traditionally car12 ried on by life insurance companies for in13 vestment purposes, but only if the carrying 

14 on of such activity (other than in the case 

15 of real estate) does not constitute the active 

16 conduct of a trade or business, or 

17 ‘‘(ii) it involves the performance of ad18 ministrative services in connection with 

19 plans providing life insurance, pension, or 

20 accident and health benefits.’’. 

21 (2) Section 465(c)(7)(D)(v)(II) is amended by 

22 striking ‘‘section 806(b)(3)’’ and inserting ‘‘section 

23 453B(e)(3)’’. 

24 (3) Section 801(a)(2) is amended by striking 

25 subparagraph (C). 
238 

† HR 1 EAS2 

1 (4) Section 804 is amended by striking 

2 ‘‘means—’’ and all that follows and inserting ‘‘means 

3 the general deductions provided in section 805.’’. 

4 (5) Section 805(a)(4)(B), as amended by this 

5 Act, is amended by striking clause (i) and by redesig6 nating clauses (ii), (iii), and (iv) as clauses (i), (ii), 

7 and (iii), respectively. 

8 (6) Section 805(b)(2)(A), as amended by this 

9 Act, is amended by striking clause (iii) and by redes10 ignating clauses (iv) and (v) as clauses (iii) and (iv), 

11 respectively. 

12 (7) Section 842(c) is amended by striking para13 graph (1) and by redesignating paragraphs (2) and 

14 (3) as paragraphs (1) and (2), respectively. 

15 (8) Section 953(b)(1), as amended by section 

16 13511, is amended by striking subparagraph (A) and 

17 by redesignating subparagraphs (B) and (C) as sub18 paragraphs (A) and (B), respectively. 

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

20 section shall apply to taxable years beginning after Decem21 ber 31, 2017. 

22 SEC. 13513. ADJUSTMENT FOR CHANGE IN COMPUTING RE23 SERVES. 

24 (a) IN GENERAL.—Paragraph (1) of section 807(f) is 

25 amended to read as follows: 
239 

† HR 1 EAS2 

1 ‘‘(1) TREATMENT AS CHANGE IN METHOD OF AC2 COUNTING.—If the basis for determining any item re3 ferred to in subsection (c) as of the close of any tax4 able year differs from the basis for such determination 

5 as of the close of the preceding taxable year, then so 

6 much of the difference between— 

7 ‘‘(A) the amount of the item at the close of 

8 the taxable year, computed on the new basis, and 

9 ‘‘(B) the amount of the item at the close of 

10 the taxable year, computed on the old basis, 

11 as is attributable to contracts issued before the taxable 

12 year shall be taken into account under section 481 as 

13 adjustments attributable to a change in method of ac14 counting initiated by the taxpayer and made with the 

15 consent of the Secretary.’’. 

16 (b) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to taxable years beginning after Decem18 ber 31, 2017. 

19 SEC. 13514. REPEAL OF SPECIAL RULE FOR DISTRIBUTIONS 

20 TO SHAREHOLDERS FROM PRE-1984 POLICY21 HOLDERS SURPLUS ACCOUNT. 

22 (a) IN GENERAL.—Subpart D of part I of subchapter 

23 L is amended by striking section 815 (and by striking the 

24 item relating to such section in the table of sections for such 

25 subpart). 
240 

† HR 1 EAS2 

1 (b) CONFORMING AMENDMENT.—Section 801 is 

2 amended by striking subsection (c). 

3 (c) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to taxable years beginning after Decem5 ber 31, 2017. 

6 (d) PHASED INCLUSION OF REMAINING BALANCE OF

7 POLICYHOLDERS SURPLUS ACCOUNTS.—In the case of any 

8 stock life insurance company which has a balance (deter9 mined as of the close of such company’s last taxable year 

10 beginning before January 1, 2018) in an existing policy11 holders surplus account (as defined in section 815 of the 

12 Internal Revenue Code of 1986, as in effect before its re13 peal), the tax imposed by section 801 of such Code for the 

14 first 8 taxable years beginning after December 31, 2017, 

15 shall be the amount which would be imposed by such section 

16 for such year on the sum of— 

17 (1) life insurance company taxable income for 

18 such year (within the meaning of such section 801 but 

19 not less than zero), plus 

(2) 1 20 ⁄8 of such balance. 

21 SEC. 13515. MODIFICATION OF PRORATION RULES FOR 

22 PROPERTY AND CASUALTY INSURANCE COM23 PANIES. 

24 (a) IN GENERAL.—Section 832(b)(5)(B) is amended— 
241 

† HR 1 EAS2 

1 (1) by striking ‘‘15 percent’’ and inserting ‘‘the 

2 applicable percentage’’, and 

3 (2) by inserting at the end the following new sen4 tence: ‘‘For purposes of this subparagraph, the appli5 cable percentage is 5.25 percent divided by the highest 

6 rate in effect under section 11(b).’’. 

7 (b) EFFECTIVE DATE.—The amendments made by this 

8 section shall apply to taxable years beginning after Decem9 ber 31, 2017. 

10 SEC. 13516. REPEAL OF SPECIAL ESTIMATED TAX PAY11 MENTS. 

12 (a) IN GENERAL.—Part III of subchapter L of chapter 

13 1 is amended by striking section 847 (and by striking the 

14 item relating to such section in the table of sections for such 

15 part). 

16 (b) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to taxable years beginning after Decem18 ber 31, 2017. 

19 SEC. 13517. COMPUTATION OF LIFE INSURANCE TAX RE20 SERVES. 

21 (a) IN GENERAL.— 

22 (1) APPROPRIATE RATE OF INTEREST.—The sec23 ond sentence of section 807(c) is amended to read as 

24 follows: ‘‘For purposes of paragraph (3), the appro25 priate rate of interest is the highest rate or rates per-
242 

† HR 1 EAS2 

1 mitted to be used to discount the obligations by the 

2 National Association of Insurance Commissioners as 

3 of the date the reserve is determined.’’. 

4 (2) METHOD OF COMPUTING RESERVES.—Sec5 tion 807(d) is amended— 

6 (A) by striking paragraphs (1), (2), (4), 

7 and (5), 

8 (B) by redesignating paragraph (6) as 

9 paragraph (4), 

10 (C) by inserting before paragraph (3) the 

11 following new paragraphs: 

12 ‘‘(1) DETERMINATION OF RESERVE.— 

13 ‘‘(A) IN GENERAL.—For purposes of this 

14 part (other than section 816), the amount of the 

15 life insurance reserves for any contract (other 

16 than a contract to which subparagraph (B) ap17 plies) shall be the greater of— 

18 ‘‘(i) the net surrender value of such 

19 contract, or 

20 ‘‘(ii) 92.81 percent of the reserve deter21 mined under paragraph (2). 

22 ‘‘(B) VARIABLE CONTRACTS.—For purposes 

23 of this part (other than section 816), the amount 

24 of the life insurance reserves for a variable con25 tract shall be equal to the sum of— 
243 

† HR 1 EAS2 

1 ‘‘(i) the greater of— 

2 ‘‘(I) the net surrender value of 

3 such contract, or 

4 ‘‘(II) the portion of the reserve 

5 that is separately accounted for under 

6 section 817, plus 

7 ‘‘(ii) 92.81 percent of the excess (if 

8 any) of the reserve determined under para9 graph (2) over the amount in clause (i). 

10 ‘‘(C) STATUTORY CAP.—In no event shall 

11 the reserves determined under subparagraphs (A) 

12 or (B) for any contract as of any time exceed the 

13 amount which would be taken into account with 

14 respect to such contract as of such time in deter15 mining statutory reserves (as defined in para16 graph (4)). 

17 ‘‘(D) NO DOUBLE COUNTING.—In no event 

18 shall any amount or item be taken into account 

19 more than once in determining any reserve 

20 under this subchapter. 

21 ‘‘(2) AMOUNT OF RESERVE.—The amount of the 

22 reserve determined under this paragraph with respect 

23 to any contract shall be determined by using the tax 

24 reserve method applicable to such contract.’’. 
244 

† HR 1 EAS2 

1 (D) by striking ‘‘(other than a qualified 

2 long-term care insurance contract, as defined in 

3 section 7702B(b)), a 2-year full preliminary 

4 term method’’ in paragraph (3)(A)(iii) and in5 serting ‘‘, the reserve method prescribed by the 

6 National Association of Insurance Commis7 sioners which covers such contract as of the date 

8 the reserve is determined’’, 

9 (E) by striking ‘‘(as of the date of 

10 issuance)’’ in paragraph (3)(A)(iv)(I) and in11 serting ‘‘(as of the date the reserve is deter12 mined)’’, 

13 (F) by striking ‘‘as of the date of the 

14 issuance of’’ in paragraph (3)(A)(iv)(II) and in15 serting ‘‘as of the date the reserve is determined 

16 for’’, 

17 (G) by striking ‘‘in effect on the date of the 

18 issuance of the contract’’ in paragraph (3)(B)(i) 

19 and inserting ‘‘applicable to the contract and in 

20 effect as of the date the reserve is determined’’, 

21 and 

22 (H) by striking ‘‘in effect on the date of the 

23 issuance of the contract’’ in paragraph (3)(B)(ii) 

24 and inserting ‘‘applicable to the contract and in 

25 effect as of the date the reserve is determined’’. 
245 

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1 (3) SPECIAL RULES.—Section 807(e) is amend2 ed— 

3 (A) by striking paragraphs (2) and (5), 

4 (B) by redesignating paragraphs (3), (4), 

5 (6), and (7) as paragraphs (2), (3), (4), and (5), 

6 respectively, 

7 (C) by amending paragraph (2) (as so re8 designated) to read as follows: 

9 ‘‘(2) QUALIFIED SUPPLEMENTAL BENEFITS.— 

10 ‘‘(A) QUALIFIED SUPPLEMENTAL BENEFITS

11 TREATED SEPARATELY.—For purposes of this 

12 part, the amount of the life insurance reserve for 

13 any qualified supplemental benefit shall be com14 puted separately as though such benefit were 

15 under a separate contract. 

16 ‘‘(B) QUALIFIED SUPPLEMENTAL BEN17 EFIT.—For purposes of this paragraph, the term 

18 ‘qualified supplemental benefit’ means any sup19 plemental benefit described in subparagraph (C) 

20 if— 

21 ‘‘(i) there is a separately identified 

22 premium or charge for such benefit, and 

23 ‘‘(ii) any net surrender value under the 

24 contract attributable to any other benefit is 

25 not available to fund such benefit. 
246 

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1 ‘‘(C) SUPPLEMENTAL BENEFITS.—For pur2 poses of this paragraph, the supplemental bene3 fits described in this subparagraph are any— 

4 ‘‘(i) guaranteed insurability, 

5 ‘‘(ii) accidental death or disability 

6 benefit, 

7 ‘‘(iii) convertibility, 

8 ‘‘(iv) disability waiver benefit, or 

9 ‘‘(v) other benefit prescribed by regula10 tions, 

11 which is supplemental to a contract for which 

12 there is a reserve described in subsection (c).’’, 

13 and 

14 (D) by adding at the end the following new 

15 paragraph: 

16 ‘‘(6) REPORTING RULES.—The Secretary shall 

17 require reporting (at such time and in such manner 

18 as the Secretary shall prescribe) with respect to the 

19 opening balance and closing balance of reserves and 

20 with respect to the method of computing reserves for 

21 purposes of determining income.’’. 

22 (4) DEFINITION OF LIFE INSURANCE CON23 TRACT.—Section 7702 is amended— 

24 (A) by striking clause (i) of subsection 

25 (c)(3)(B) and inserting the following: 
247 

† HR 1 EAS2 

1 ‘‘(i) reasonable mortality charges 

2 which meet the requirements prescribed in 

3 regulations to be promulgated by the Sec4 retary or that do not exceed the mortality 

5 charges specified in the prevailing commis6 sioners’ standard tables as defined in sub7 section (f)(10),’’ and 

8 (B) by adding at the end of subsection (f) 

9 the following new paragraph: 

10 ‘‘(10) PREVAILING COMMISSIONERS’ STANDARD

11 TABLES.—For purposes of subsection (c)(3)(B)(i), the 

12 term ‘prevailing commissioners’ standard tables’ 

13 means the most recent commissioners’ standard tables 

14 prescribed by the National Association of Insurance 

15 Commissioners which are permitted to be used in 

16 computing reserves for that type of contract under the 

17 insurance laws of at least 26 States when the contract 

18 was issued. If the prevailing commissioners’ standard 

19 tables as of the beginning of any calendar year (here20 inafter in this paragraph referred to as the ‘year of 

21 change’) are different from the prevailing commis22 sioners’ standard tables as of the beginning of the pre23 ceding calendar year, the issuer may use the pre24 vailing commissioners’ standard tables as of the be25 ginning of the preceding calendar year with respect to 
248 

† HR 1 EAS2 

1 any contract issued after the change and before the 

2 close of the 3-year period beginning on the first day 

3 of the year of change.’’. 

4 (b) CONFORMING AMENDMENTS.— 

5 (1) Section 808 is amended by adding at the end 

6 the following new subsection: 

7 ‘‘(g) PREVAILING STATE ASSUMED INTEREST RATE.— 

8 For purposes of this subchapter— 

9 ‘‘(1) IN GENERAL.—The term ‘prevailing State 

10 assumed interest rate’ means, with respect to any con11 tract, the highest assumed interest rate permitted to 

12 be used in computing life insurance reserves for in13 surance contracts or annuity contracts (as the case 

14 may be) under the insurance laws of at least 26 

15 States. For purposes of the preceding sentence, the ef16 fect of nonforfeiture laws of a State on interest rates 

17 for reserves shall not be taken into account. 

18 ‘‘(2) WHEN RATE DETERMINED.—The prevailing 

19 State assumed interest rate with respect to any con20 tract shall be determined as of the beginning of the 

21 calendar year in which the contract was issued.’’. 

22 (2) 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 rate 
249 

† HR 1 EAS2 

1 in effect under section 807’’ and inserting ‘‘the inter2 est rate in effect under section 808(g)’’. 

3 (3) 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 sub6 section (a)(3) shall apply, and’’. 

7 (4) Section 848(e)(1)(B)(iii) is amended by 

8 striking ‘‘807(e)(4)’’ and inserting ‘‘807(e)(3)’’. 

9 (5) Subparagraph (B) of section 954(i)(5) is 

10 amended by striking ‘‘shall be substituted for the pre11 vailing State assumed interest rate,’’ and inserting 

12 ‘‘shall apply,’’. 

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, 2017. 

17 (2) TRANSITION RULE.—For the first taxable 

18 year beginning after December 31, 2017, the reserve 

19 with respect to any contract (as determined under 

20 section 807(d) of the Internal Revenue Code of 1986) 

21 at the end of the preceding taxable year shall be deter22 mined as if the amendments made by this section had 

23 applied to such reserve in such preceding taxable 

24 year. 

25 (3) TRANSITION RELIEF.— 
250 

† HR 1 EAS2 

1 (A) IN GENERAL.—If— 

2 (i) the reserve determined under section 

3 807(d) of the Internal Revenue Code of 1986 

4 (determined after application of paragraph 

5 (2)) with respect to any contract as of the 

6 close of the year preceding the first taxable 

7 year beginning after December 31, 2017, 

8 differs from 

9 (ii) the reserve which would have been 

10 determined with respect to such contract as 

11 of the close of such taxable year under such 

12 section determined without regard to para13 graph (2), 

14 then the difference between the amount of the re15 serve described in clause (i) and the amount of 

16 the reserve described in clause (ii) shall be taken 

17 into account under the method provided in sub18 paragraph (B). 

19 (B) METHOD.—The method provided in this 

20 subparagraph is as follows: 

21 (i) If the amount determined under 

22 subparagraph (A)(i) exceeds the amount de23 termined under subparagraph (A)(ii), 1/8 of 

24 such excess shall be taken into account, for 

25 each of the 8 succeeding taxable years, as a 
251 

† HR 1 EAS2 

1 deduction under section 805(a)(2) or 

2 832(c)(4) of such Code, as applicable. 

3 (ii) If the amount determined under 

4 subparagraph (A)(ii) exceeds the amount 

5 determined under subparagraph (A)(i), 1/8 

6 of such excess shall be included in gross in7 come, for each of the 8 succeeding taxable 

8 years, under section 803(a)(2) or 

9 832(b)(1)(C) of such Code, as applicable. 

10 SEC. 13518. MODIFICATION OF RULES FOR LIFE INSURANCE 

11 PRORATION FOR PURPOSES OF DETER12 MINING THE DIVIDENDS RECEIVED DEDUC13 TION. 

14 (a) IN GENERAL.—Section 812 is amended to read as 

15 follows: 

16 ‘‘SEC. 812. DEFINITION OF COMPANY’S SHARE AND POLICY17 HOLDER’S SHARE. 

18 ‘‘(a) COMPANY’S SHARE.—For purposes of section 

19 805(a)(4), the term ‘company’s share’ means, with respect 

20 to any taxable year beginning after December 31, 2017, 70 

21 percent. 

22 ‘‘(b) POLICYHOLDER’S SHARE.—For purposes of sec23 tion 807, the term ‘policyholder’s share’ means, with respect 

24 to any taxable year beginning after December 31, 2017, 30 

25 percent.’’. 
252 

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1 (b) CONFORMING AMENDMENT.—Section 817A(e)(2) is 

2 amended by striking ‘‘, 807(d)(2)(B), and 812’’ and insert3 ing ‘‘and 807(d)(2)(B)’’. 

4 (c) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to taxable years beginning after Decem6 ber 31, 2017. 

7 SEC. 13519. CAPITALIZATION OF CERTAIN POLICY ACQUISI8 TION EXPENSES. 

9 (a) IN GENERAL.— 

10 (1) Section 848(a)(2) is amended by striking 

11 ‘‘120-month’’ and inserting ‘‘180-month’’. 

12 (2) Section 848(c)(1) is amended by striking 

13 ‘‘1.75 percent’’ and inserting ‘‘2.09 percent’’. 

14 (3) Section 848(c)(2) is amended by striking 

15 ‘‘2.05 percent’’ and inserting ‘‘2.45 percent’’. 

16 (4) Section 848(c)(3) is amended by striking 

17 ‘‘7.7 percent’’ and inserting ‘‘9.2 percent’’. 

18 (b) CONFORMING AMENDMENTS.—Section 848(b)(1) is 

19 amended by striking ‘‘120-month’’ and inserting ‘‘180- 

20 month’’. 

21 (c) EFFECTIVE DATE.— 

22 (1) IN GENERAL.—The amendments made by 

23 this section shall apply to net premiums for taxable 

24 years beginning after December 31, 2017. 
253 

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1 (2) TRANSITION RULE.—Specified policy acqui2 sition expenses first required to be capitalized in a 

3 taxable year beginning before January 1, 2018, will 

4 continue to be allowed as a deduction ratably over the 

5 120-month period beginning with the first month in 

6 the second half of such taxable year. 

7 SEC. 13520. TAX REPORTING FOR LIFE SETTLEMENT TRANS8 ACTIONS. 

9 (a) IN GENERAL.—Subpart B of part III of subchapter 

10 A of chapter 61, as amended by section 13306, is amended 

11 by adding at the end the following new section: 

12 ‘‘SEC. 6050Y. RETURNS RELATING TO CERTAIN LIFE INSUR13 ANCE CONTRACT TRANSACTIONS. 

14 ‘‘(a) REQUIREMENT OF REPORTING OF CERTAIN PAY15 MENTS.— 

16 ‘‘(1) IN GENERAL.—Every person who acquires a 

17 life insurance contract or any interest in a life insur18 ance contract in a reportable policy sale during any 

19 taxable year shall make a return for such taxable year 

20 (at such time and in such manner as the Secretary 

21 shall prescribe) setting forth— 

22 ‘‘(A) the name, address, and TIN of such 

23 person, 

24 ‘‘(B) the name, address, and TIN of each re25 cipient of payment in the reportable policy sale, 
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1 ‘‘(C) the date of such sale, 

2 ‘‘(D) the name of the issuer of the life insur3 ance contract sold and the policy number of such 

4 contract, and 

5 ‘‘(E) the amount of each payment. 

6 ‘‘(2) STATEMENT TO BE FURNISHED TO PERSONS

7 WITH RESPECT TO WHOM INFORMATION IS RE8 QUIRED.—Every person required to make a return 

9 under this subsection shall furnish to each person 

10 whose name is required to be set forth in such return 

11 a written statement showing— 

12 ‘‘(A) the name, address, and phone number 

13 of the information contact of the person required 

14 to make such return, and 

15 ‘‘(B) the information required to be shown 

16 on such return with respect to such person, ex17 cept that in the case of an issuer of a life insur18 ance contract, such statement is not required to 

19 include the information specified in paragraph 

20 (1)(E). 

21 ‘‘(b) REQUIREMENT OF REPORTING OF SELLER’S

22 BASIS IN LIFE INSURANCE CONTRACTS.— 

23 ‘‘(1) IN GENERAL.—Upon receipt of the state24 ment required under subsection (a)(2) or upon notice 

25 of a transfer of a life insurance contract to a foreign 
255 

† HR 1 EAS2 

1 person, each issuer of a life insurance contract shall 

2 make a return (at such time and in such manner as 

3 the Secretary shall prescribe) setting forth— 

4 ‘‘(A) the name, address, and TIN of the sell5 er who transfers any interest in such contract in 

6 such sale, 

7 ‘‘(B) the investment in the contract (as de8 fined in section 72(e)(6)) with respect to such 

9 seller, and 

10 ‘‘(C) the policy number of such contract. 

11 ‘‘(2) STATEMENT TO BE FURNISHED TO PERSONS

12 WITH RESPECT TO WHOM INFORMATION IS RE13 QUIRED.—Every person required to make a return 

14 under this subsection shall furnish to each person 

15 whose name is required to be set forth in such return 

16 a written statement showing— 

17 ‘‘(A) the name, address, and phone number 

18 of the information contact of the person required 

19 to make such return, and 

20 ‘‘(B) the information required to be shown 

21 on such return with respect to each seller whose 

22 name is required to be set forth in such return. 

23 ‘‘(c) REQUIREMENT OF REPORTING WITH RESPECT TO

24 REPORTABLE DEATH BENEFITS.— 
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† HR 1 EAS2 

1 ‘‘(1) IN GENERAL.—Every person who makes a 

2 payment of reportable death benefits during any tax3 able year shall make a return for such taxable year 

4 (at such time and in such manner as the Secretary 

5 shall prescribe) setting forth— 

6 ‘‘(A) the name, address, and TIN of the per7 son making such payment, 

8 ‘‘(B) the name, address, and TIN of each re9 cipient of such payment, 

10 ‘‘(C) the date of each such payment, 

11 ‘‘(D) the gross amount of each such pay12 ment, and 

13 ‘‘(E) such person’s estimate of the invest14 ment in the contract (as defined in section 

15 72(e)(6)) with respect to the buyer. 

16 ‘‘(2) STATEMENT TO BE FURNISHED TO PERSONS

17 WITH RESPECT TO WHOM INFORMATION IS RE18 QUIRED.—Every person required to make a return 

19 under this subsection shall furnish to each person 

20 whose name is required to be set forth in such return 

21 a written statement showing— 

22 ‘‘(A) the name, address, and phone number 

23 of the information contact of the person required 

24 to make such return, and 
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† HR 1 EAS2 

1 ‘‘(B) the information required to be shown 

2 on such return with respect to each recipient of 

3 payment whose name is required to be set forth 

4 in such return. 

5 ‘‘(d) DEFINITIONS.—For purposes of this section: 

6 ‘‘(1) PAYMENT.—The term ‘payment’ means, 

7 with respect to any reportable policy sale, the amount 

8 of cash and the fair market value of any consider9 ation transferred in the sale. 

10 ‘‘(2) REPORTABLE POLICY SALE.—The term ‘re11 portable policy sale’ has the meaning given such term 

12 in section 101(a)(3)(B). 

13 ‘‘(3) ISSUER.—The term ‘issuer’ means any life 

14 insurance company that bears the risk with respect to 

15 a life insurance contract on the date any return or 

16 statement is required to be made under this section. 

17 ‘‘(4) REPORTABLE DEATH BENEFITS.—The term 

18 ‘reportable death benefits’ means amounts paid by 

19 reason of the death of the insured under a life insur20 ance contract that has been transferred in a report21 able policy sale.’’. 

22 (b) CLERICAL AMENDMENT.—The table of sections for 

23 subpart B of part III of subchapter A of chapter 61, as 

24 amended by section 13306, is amended by inserting after 

25 the item relating to section 6050X the following new item: 

‘‘Sec. 6050Y. Returns relating to certain life insurance contract transactions.’’. 
258 

† HR 1 EAS2 

1 (c) CONFORMING AMENDMENTS.— 

2 (1) Subsection (d) of section 6724 is amended— 

3 (A) by striking ‘‘or’’ at the end of clause 

4 (xxiv) of paragraph (1)(B), by striking ‘‘and’’ at 

5 the end of clause (xxv) of such paragraph and 

6 inserting ‘‘or’’, and by inserting after such clause 

7 (xxv) the following new clause: 

8 ‘‘(xxvi) section 6050Y (relating to re9 turns relating to certain life insurance con10 tract transactions), and’’, and 

11 (B) by striking ‘‘or’’ at the end of subpara12 graph (HH) of paragraph (2), by striking the 

13 period at the end of subparagraph (II) of such 

14 paragraph and inserting ‘‘, or’’, and by insert15 ing after such subparagraph (II) the following 

16 new subparagraph: 

17 ‘‘(JJ) subsection (a)(2), (b)(2), or (c)(2) of 

18 section 6050Y (relating to returns relating to 

19 certain life insurance contract transactions).’’. 

20 (2) Section 6047 is amended— 

21 (A) by redesignating subsection (g) as sub22 section (h), 

23 (B) by inserting after subsection (f) the fol24 lowing new subsection: 
259 

† HR 1 EAS2 

1 ‘‘(g) INFORMATION RELATING TO LIFE INSURANCE

2 CONTRACT TRANSACTIONS.—This section shall not apply to 

3 any information which is required to be reported under sec4 tion 6050Y.’’, and 

5 (C) by adding at the end of subsection (h), 

6 as so redesignated, the following new paragraph: 

7 ‘‘(4) For provisions requiring reporting of infor8 mation relating to certain life insurance contract 

9 transactions, see section 6050Y.’’. 

10 (d) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to— 

12 (1) reportable policy sales (as defined in section 

13 6050Y(d)(2) of the Internal Revenue Code of 1986 (as 

14 added by subsection (a)) after December 31, 2017, 

15 and 

16 (2) reportable death benefits (as defined in sec17 tion 6050Y(d)(4) of such Code (as added by subsection 

18 (a)) paid after December 31, 2017. 

19 SEC. 13521. CLARIFICATION OF TAX BASIS OF LIFE INSUR20 ANCE CONTRACTS. 

21 (a) CLARIFICATION WITH RESPECT TO ADJUST22 MENTS.—Paragraph (1) of section 1016(a) is amended by 

23 striking subparagraph (A) and all that follows and insert24 ing the following: 

25 ‘‘(A) for— 
260 

† HR 1 EAS2 

1 ‘‘(i) taxes or other carrying charges de2 scribed in section 266; or 

3 ‘‘(ii) expenditures described in section 

4 173 (relating to circulation expenditures), 

5 for which deductions have been taken by the tax6 payer in determining taxable income for the tax7 able year or prior taxable years; or 

8 ‘‘(B) for mortality, expense, or other reason9 able charges incurred under an annuity or life 

10 insurance contract;’’. 

11 (b) EFFECTIVE DATE.—The amendment made by this 

12 section shall apply to transactions entered into after August 

13 25, 2009. 

14 SEC. 13522. EXCEPTION TO TRANSFER FOR VALUABLE CON15 SIDERATION RULES. 

16 (a) IN GENERAL.—Subsection (a) of section 101 is 

17 amended by inserting after paragraph (2) the following new 

18 paragraph: 

19 ‘‘(3) EXCEPTION TO VALUABLE CONSIDERATION

20 RULES FOR COMMERCIAL TRANSFERS.— 

21 ‘‘(A) IN GENERAL.—The second sentence of 

22 paragraph (2) shall not apply in the case of a 

23 transfer of a life insurance contract, or any in24 terest therein, which is a reportable policy sale. 
261 

† HR 1 EAS2 

1 ‘‘(B) REPORTABLE POLICY SALE.—For pur2 poses of this paragraph, the term ‘reportable pol3 icy sale’ means the acquisition of an interest in 

4 a life insurance contract, directly or indirectly, 

5 if the acquirer has no substantial family, busi6 ness, or financial relationship with the insured 

7 apart from the acquirer’s interest in such life in8 surance contract. For purposes of the preceding 

9 sentence, the term ‘indirectly’ applies to the ac10 quisition of an interest in a partnership, trust, 

11 or other entity that holds an interest in the life 

12 insurance contract.’’. 

13 (b) CONFORMING AMENDMENT.—Paragraph (1) of sec14 tion 101(a) is amended by striking ‘‘paragraph (2)’’ and 

15 inserting ‘‘paragraphs (2) and (3)’’. 

16 (c) EFFECTIVE DATE.—The amendments made by this 

17 section shall apply to transfers after December 31, 2017. 

18 SEC. 13523. MODIFICATION OF DISCOUNTING RULES FOR 

19 PROPERTY AND CASUALTY INSURANCE COM20 PANIES. 

21 (a) MODIFICATION OF RATE OF INTEREST USED TO

22 DISCOUNT UNPAID LOSSES.—Paragraph (2) of section 

23 846(c) is amended to read as follows: 

24 ‘‘(2) DETERMINATION OF ANNUAL RATE.—The 

25 annual rate determined by the Secretary under this 
262 

† HR 1 EAS2 

1 paragraph for any calendar year shall be a rate de2 termined on the basis of the corporate bond yield 

3 curve (as defined in section 430(h)(2)(D)(i), deter4 mined by substituting ‘60-month period’ for ‘24- 

5 month period’ therein).’’. 

6 (b) MODIFICATION OF COMPUTATIONAL RULES FOR

7 LOSS PAYMENT PATTERNS.—Section 846(d)(3) is amended 

8 by striking subparagraphs (B) through (G) and inserting 

9 the following new subparagraph: 

10 ‘‘(B) TREATMENT OF CERTAIN LOSSES.— 

11 ‘‘(i) 3-YEAR LOSS PAYMENT PAT12 TERN.—In the case of any line of business 

13 not described in subparagraph (A)(ii), losses 

14 paid after the 1st year following the acci15 dent year shall be treated as paid equally in 

16 the 2nd and 3rd year following the accident 

17 year. 

18 ‘‘(ii) 10-YEAR LOSS PAYMENT PAT19 TERN.— 

20 ‘‘(I) IN GENERAL.—The period 

21 taken into account under subpara22 graph (A)(ii) shall be extended to the 

23 extent required under subclause (II). 

24 ‘‘(II) COMPUTATION OF EXTEN25 SION.—The amount of losses which 
263 

† HR 1 EAS2 

1 would have been treated as paid in the 

2 10th year after the accident year shall 

3 be treated as paid in such 10th year 

4 and each subsequent year in an 

5 amount equal to the amount of the av6 erage of the losses treated as paid in 

7 the 7th, 8th, and 9th years after the ac8 cident year (or, if lesser, the portion of 

9 the unpaid losses not theretofore taken 

10 into account). To the extent such un11 paid losses have not been treated as 

12 paid before the 24th year after the ac13 cident year, they shall be treated as 

14 paid in such 24th year.’’. 

15 (c) REPEAL OF HISTORICAL PAYMENT PATTERN

16 ELECTION.—Section 846, as amended by this Act, is 

17 amended by striking subsection (e) and by redesignating 

18 subsections (f) and (g) as subsections (e) and (f), respec19 tively. 

20 (d) EFFECTIVE DATE.—The amendments made by this 

21 section shall apply to taxable years beginning after Decem22 ber 31, 2017. 

23 (e) TRANSITIONAL RULE.—For the first taxable year 

24 beginning after December 31, 2017— 
264 

† HR 1 EAS2 

1 (1) the unpaid losses and the expenses unpaid 

2 (as defined in paragraphs (5)(B) and (6) of section 

3 832(b) of the Internal Revenue Code of 1986) at the 

4 end of the preceding taxable year, and 

5 (2) the unpaid losses as defined in sections 

6 807(c)(2) and 805(a)(1) of such Code at the end of the 

7 preceding taxable year, 

8 shall be determined as if the amendments made by this sec9 tion had applied to such unpaid losses and expenses unpaid 

10 in the preceding taxable year and by using the interest rate 

11 and loss payment patterns applicable to accident years end12 ing with calendar year 2018, and any adjustment shall be 

13 taken into account ratably in such first taxable year and 

14 the 7 succeeding taxable years. For subsequent taxable 

15 years, such amendments shall be applied with respect to 

16 such unpaid losses and expenses unpaid by using the inter17 est rate and loss payment patterns applicable to accident 

18 years ending with calendar year 2018. 

19 Subpart C—Banks and Financial Instruments 

20 SEC. 13531. LIMITATION ON DEDUCTION FOR FDIC PRE21 MIUMS. 

22 (a) IN GENERAL.—Section 162, as amended by sec23 tions 13307, is amended by redesignating subsection (r) as 

24 subsection (s) and by inserting after subsection (q) the fol25 lowing new subsection: 
265 

† HR 1 EAS2 

1 ‘‘(r) DISALLOWANCE OF FDIC PREMIUMS PAID BY

2 CERTAIN LARGE FINANCIAL INSTITUTIONS.— 

3 ‘‘(1) IN GENERAL.—No deduction shall be al4 lowed for the applicable percentage of any FDIC pre5 mium paid or incurred by the taxpayer. 

6 ‘‘(2) EXCEPTION FOR SMALL INSTITUTIONS.— 

7 Paragraph (1) shall not apply to any taxpayer for 

8 any taxable year if the total consolidated assets of 

9 such taxpayer (determined as of the close of such tax10 able year) do not exceed $10,000,000,000. 

11 ‘‘(3) APPLICABLE PERCENTAGE.—For purposes 

12 of this subsection, the term ‘applicable percentage’ 

13 means, with respect to any taxpayer for any taxable 

14 year, the ratio (expressed as a percentage but not 

15 greater than 100 percent) which— 

16 ‘‘(A) the excess of— 

17 ‘‘(i) the total consolidated assets of 

18 such taxpayer (determined as of the close of 

19 such taxable year), over 

20 ‘‘(ii) $10,000,000,000, bears to 

21 ‘‘(B) $40,000,000,000. 

22 ‘‘(4) FDIC PREMIUMS.—For purposes of this 

23 subsection, the term ‘FDIC premium’ means any as24 sessment imposed under section 7(b) of the Federal 

25 Deposit Insurance Act (12 U.S.C. 1817(b)). 
266 

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1 ‘‘(5) TOTAL CONSOLIDATED ASSETS.—For pur2 poses of this subsection, the term ‘total consolidated 

3 assets’ has the meaning given such term under section 

4 165 of the Dodd-Frank Wall Street Reform and Con5 sumer Protection Act (12 U.S.C. 5365). 

6 ‘‘(6) AGGREGATION RULE.— 

7 ‘‘(A) IN GENERAL.—Members of an ex8 panded affiliated group shall be treated as a sin9 gle taxpayer for purposes of applying this sub10 section. 

11 ‘‘(B) EXPANDED AFFILIATED GROUP.— 

12 ‘‘(i) IN GENERAL.—For purposes of 

13 this paragraph, the term ‘expanded affili14 ated group’ means an affiliated group as 

15 defined in section 1504(a), determined— 

16 ‘‘(I) by substituting ‘more than 50 

17 percent’ for ‘at least 80 percent’ each 

18 place it appears, and 

19 ‘‘(II) without regard to para20 graphs (2) and (3) of section 1504(b). 

21 ‘‘(ii) CONTROL OF NON-CORPORATE EN22 TITIES.—A partnership or any other entity 

23 (other than a corporation) shall be treated 

24 as a member of an expanded affiliated 

25 group if such entity is controlled (within 
267 

† HR 1 EAS2 

1 the meaning of section 954(d)(3)) by mem2 bers of such group (including any entity 

3 treated as a member of such group by rea4 son of this clause).’’. 

5 (b) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to taxable years beginning after Decem7 ber 31, 2017. 

8 SEC. 13532. REPEAL OF ADVANCE REFUNDING BONDS. 

9 (a) IN GENERAL.—Paragraph (1) of section 149(d) is 

10 amended by striking ‘‘as part of an issue described in para11 graph (2), (3), or (4).’’ and inserting ‘‘to advance refund 

12 another bond.’’. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) Section 149(d) is amended by striking para15 graphs (2), (3), (4), and (6) and by redesignating 

16 paragraphs (5) and (7) as paragraphs (2) and (3). 

17 (2) Section 148(f)(4)(C) is amended by striking 

18 clause (xiv) and by redesignating clauses (xv) to 

19 (xvii) as clauses (xiv) to (xvi). 

20 (c) EFFECTIVE DATE.—The amendments made by this 

21 section shall apply to advance refunding bonds issued after 

22 December 31, 2017. 
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1 Subpart D—S Corporations 

2 SEC. 13541. EXPANSION OF QUALIFYING BENEFICIARIES OF 

3 AN ELECTING SMALL BUSINESS TRUST. 

4 (a) NO LOOK-THROUGH FOR ELIGIBILITY PUR5 POSES.—Section 1361(c)(2)(B)(v) is amended by adding at 

6 the end the following new sentence: ‘‘This clause shall not 

7 apply for purposes of subsection (b)(1)(C).’’. 

8 (b) EFFECTIVE DATE.—The amendment made by this 

9 section shall take effect on January 1, 2018. 

10 SEC. 13542. CHARITABLE CONTRIBUTION DEDUCTION FOR 

11 ELECTING SMALL BUSINESS TRUSTS. 

12 (a) IN GENERAL.—Section 641(c)(2) is amended by 

13 inserting after subparagraph (D) the following new sub14 paragraph: 

15 ‘‘(E)(i) Section 642(c) shall not apply. 

16 ‘‘(ii) For purposes of section 170(b)(1)(G), 

17 adjusted gross income shall be computed in the 

18 same manner as in the case of an individual, ex19 cept that the deductions for costs which are paid 

20 or incurred in connection with the administra21 tion of the trust and which would not have been 

22 incurred if the property were not held in such 

23 trust shall be treated as allowable in arriving at 

24 adjusted gross income.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2017. 

4 SEC. 13543. MODIFICATION OF TREATMENT OF S CORPORA5 TION CONVERSIONS TO C CORPORATIONS. 

6 (a) ADJUSTMENTS ATTRIBUTABLE TO CONVERSION

7 FROM S CORPORATION TO C CORPORATION.—Section 481 

8 is amended by adding at the end the following new sub9 section: 

10 ‘‘(d) ADJUSTMENTS ATTRIBUTABLE TO CONVERSION

11 FROM S CORPORATION TO C CORPORATION.— 

12 ‘‘(1) IN GENERAL.—In the case of an eligible ter13 minated S corporation, any adjustment required by 

14 subsection (a)(2) which is attributable to such cor15 poration’s revocation described in paragraph 

16 (2)(A)(ii) shall be taken into account ratably during 

17 the 6-taxable year period beginning with the year of 

18 change. 

19 ‘‘(2) ELIGIBLE TERMINATED S CORPORATION.— 

20 For purposes of this subsection, the term ‘eligible ter21 minated S corporation’ means any C corporation— 

22 ‘‘(A) which— 

23 ‘‘(i) was an S corporation on the day 

24 before the date of the enactment of the Tax 

25 Cuts and Jobs Act, and 
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1 ‘‘(ii) during the 2-year period begin2 ning on the date of such enactment makes 

3 a revocation of its election under section 

4 1362(a), and 

5 ‘‘(B) the owners of the stock of which, deter6 mined on the date such revocation is made, are 

7 the same owners (and in identical proportions) 

8 as on the date of such enactment.’’. 

9 (b) CASH DISTRIBUTIONS FOLLOWING POST-TERMI10 NATION TRANSITION PERIOD FROM S CORPORATION STA11 TUS.—Section 1371 is amended by adding at the end the 

12 following new subsection: 

13 ‘‘(f) CASH DISTRIBUTIONS FOLLOWING POST-TERMI14 NATION TRANSITION PERIOD.—In the case of a distribution 

15 of money by an eligible terminated S corporation (as de16 fined in section 481(d)) after the post-termination transi17 tion period, the accumulated adjustments account shall be 

18 allocated to such distribution, and the distribution shall be 

19 chargeable to accumulated earnings and profits, in the same 

20 ratio as the amount of such accumulated adjustments ac21 count bears to the amount of such accumulated earnings 

22 and profits.’’. 
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1 PART VII—EMPLOYMENT 

2 Subpart A—Compensation 

3 SEC. 13601. MODIFICATION OF LIMITATION ON EXCESSIVE 

4 EMPLOYEE REMUNERATION. 

5 (a) REPEAL OF PERFORMANCE-BASED COMPENSATION

6 AND COMMISSION EXCEPTIONS FOR LIMITATION ON EXCES7 SIVE EMPLOYEE REMUNERATION.— 

8 (1) IN GENERAL.—Paragraph (4) of section 

9 162(m) is amended by striking subparagraphs (B) 

10 and (C) and by redesignating subparagraphs (D), 

11 (E), (F), and (G) as subparagraphs (B), (C), (D), 

12 and (E), respectively. 

13 (2) CONFORMING AMENDMENTS.— 

14 (A) Paragraphs (5)(E) and (6)(D) of sec15 tion 162(m) are each amended by striking ‘‘sub16 paragraphs (B), (C), and (D)’’ and inserting 

17 ‘‘subparagraph (B)’’. 

18 (B) Paragraphs (5)(G) and (6)(G) of sec19 tion 162(m) are each amended by striking ‘‘(F) 

20 and (G)’’ and inserting ‘‘(D) and (E)’’. 

21 (b) MODIFICATION OF DEFINITION OF COVERED EM22 PLOYEES.—Paragraph (3) of section 162(m) is amended— 

23 (1) in subparagraph (A), by striking ‘‘as of the 

24 close of the taxable year, such employee is the chief ex25 ecutive officer of the taxpayer or is’’ and inserting 

26 ‘‘such employee is the principal executive officer or 
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1 principal financial officer of the taxpayer at any 

2 time during the taxable year, or was’’, 

3 (2) in subparagraph (B)— 

4 (A) by striking ‘‘4’’ and inserting ‘‘3’’, and 

5 (B) by striking ‘‘(other than the chief execu6 tive officer)’’ and inserting ‘‘(other than any in7 dividual described in subparagraph (A))’’, and 

8 (3) by striking ‘‘or’’ at the end of subparagraph 

9 (A), by striking the period at the end of subparagraph 

10 (B) and inserting ‘‘, or’’, and by adding at the end 

11 the following: 

12 ‘‘(C) was a covered employee of the taxpayer 

13 (or any predecessor) for any preceding taxable 

14 year beginning after December 31, 2016.’’. 

15 (c) EXPANSION OF APPLICABLE EMPLOYER.— 

16 (1) IN GENERAL.—Section 162(m)(2) is amended 

17 to read as follows: 

18 ‘‘(2) PUBLICLY HELD CORPORATION.—For pur19 poses of this subsection, the term ‘publicly held cor20 poration’ means any corporation which is an issuer 

21 (as defined in section 3 of the Securities Exchange 

22 Act of 1934 (15 U.S.C. 78c))— 

23 ‘‘(A) the securities of which are required to 

24 be registered under section 12 of such Act (15 

25 U.S.C. 78l), or 
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1 ‘‘(B) that is required to file reports under 

2 section 15(d) of such Act (15 U.S.C. 78o(d)).’’. 

3 (2) CONFORMING AMENDMENT.—Section 

4 162(m)(3), as amended by subsection (b), is amended 

5 by adding at the end the following flush sentence: 

6 ‘‘Such term shall include any employee who 

7 would be described in subparagraph (B) if the report8 ing described in such subparagraph were required as 

9 so described.’’. 

10 (d) SPECIAL RULE FOR REMUNERATION PAID TO

11 BENEFICIARIES, ETC.—Paragraph (4) of section 162(m), as 

12 amended by subsection (a), is amended by adding at the 

13 end the following new subparagraph: 

14 ‘‘(F) SPECIAL RULE FOR REMUNERATION

15 PAID TO BENEFICIARIES, ETC.—Remuneration 

16 shall not fail to be applicable employee remu17 neration merely because it is includible in the 

18 income of, or paid to, a person other than the 

19 covered employee, including after the death of the 

20 covered employee.’’. 

21 (e) EFFECTIVE DATE.— 

22 (1) IN GENERAL.—Except as provided in para23 graph (2), the amendments made by this section shall 

24 apply to taxable years beginning after December 31, 

25 2017. 
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1 (2) EXCEPTION FOR BINDING CONTRACTS.—The 

2 amendments made by this section shall not apply to 

3 remuneration which is provided pursuant to a writ4 ten binding contract which was in effect on November 

5 2, 2017, and which was not modified in any material 

6 respect on or after such date. 

7 SEC. 13602. EXCISE TAX ON EXCESS TAX-EXEMPT ORGANI8 ZATION EXECUTIVE COMPENSATION. 

9 (a) IN GENERAL.—Subchapter D of chapter 42 is 

10 amended by adding at the end the following new section: 

11 ‘‘SEC. 4960. TAX ON EXCESS TAX-EXEMPT ORGANIZATION 

12 EXECUTIVE COMPENSATION. 

13 ‘‘(a) TAX IMPOSED.—There is hereby imposed a tax 

14 equal to the product of the rate of tax under section 11 and 

15 the sum of— 

16 ‘‘(1) so much of the remuneration paid (other 

17 than any excess parachute payment) by an applicable 

18 tax-exempt organization for the taxable year with re19 spect to employment of any covered employee in ex20 cess of $1,000,000, plus 

21 ‘‘(2) any excess parachute payment paid by such 

22 an organization to any covered employee. 

23 For purposes of the preceding sentence, remuneration shall 

24 be treated as paid when there is no substantial risk of for-
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1 feiture (within the meaning of section 457(f)(3)(B)) of the 

2 rights to such remuneration. 

3 ‘‘(b) LIABILITY FOR TAX.—The employer shall be liable 

4 for the tax imposed under subsection (a). 

5 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur6 poses of this section— 

7 ‘‘(1) APPLICABLE TAX-EXEMPT ORGANIZATION.— 

8 The term ‘applicable tax-exempt organization’ means 

9 any organization which for the taxable year— 

10 ‘‘(A) is exempt from taxation under section 

11 501(a), 

12 ‘‘(B) is a farmers’ cooperative organization 

13 described in section 521(b)(1), 

14 ‘‘(C) has income excluded from taxation 

15 under section 115(1), or 

16 ‘‘(D) is a political organization described in 

17 section 527(e)(1). 

18 ‘‘(2) COVERED EMPLOYEE.—For purposes of this 

19 section, the term ‘covered employee’ means any em20 ployee (including any former employee) of an appli21 cable tax-exempt organization if the employee— 

22 ‘‘(A) is one of the 5 highest compensated 

23 employees of the organization for the taxable 

24 year, or 
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1 ‘‘(B) was a covered employee of the organi2 zation (or any predecessor) for any preceding 

3 taxable year beginning after December 31, 2016. 

4 ‘‘(3) REMUNERATION.—For purposes of this sec5 tion: 

6 ‘‘(A) IN GENERAL.—The term ‘remunera7 tion’ means wages (as defined in section 

8 3401(a)), except that such term shall not include 

9 any designated Roth contribution (as defined in 

10 section 402A(c)) and shall include amounts re11 quired to be included in gross income under sec12 tion 457(f). 

13 ‘‘(B) EXCEPTION FOR REMUNERATION FOR

14 MEDICAL SERVICES.—The term ‘remuneration’ 

15 shall not include the portion of any remunera16 tion paid to a licensed medical professional (in17 cluding a veterinarian) which is for the perform18 ance of medical or veterinary services by such 

19 professional. 

20 ‘‘(4) REMUNERATION FROM RELATED ORGANIZA21 TIONS.— 

22 ‘‘(A) IN GENERAL.—Remuneration of a cov23 ered employee by an applicable tax-exempt orga24 nization shall include any remuneration paid 
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1 with respect to employment of such employee by 

2 any related person or governmental entity. 

3 ‘‘(B) RELATED ORGANIZATIONS.—A person 

4 or governmental entity shall be treated as related 

5 to an applicable tax-exempt organization if such 

6 person or governmental entity— 

7 ‘‘(i) controls, or is controlled by, the 

8 organization, 

9 ‘‘(ii) is controlled by one or more per10 sons which control the organization, 

11 ‘‘(iii) is a supported organization (as 

12 defined in section 509(f)(3)) during the tax13 able year with respect to the organization, 

14 ‘‘(iv) is a supporting organization de15 scribed in section 509(a)(3) during the tax16 able year with respect to the organization, 

17 or 

18 ‘‘(v) in the case of an organization 

19 which is a voluntary employees’ beneficiary 

20 association described in section 501(c)(9), 

21 establishes, maintains, or makes contribu22 tions to such voluntary employees’ bene23 ficiary association. 

24 ‘‘(C) LIABILITY FOR TAX.—In any case in 

25 which remuneration from more than one em-
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1 ployer is taken into account under this para2 graph in determining the tax imposed by sub3 section (a), each such employer shall be liable for 

4 such tax in an amount which bears the same 

5 ratio to the total tax determined under sub6 section (a) with respect to such remuneration 

7 as— 

8 ‘‘(i) the amount of remuneration paid 

9 by such employer with respect to such em10 ployee, bears to 

11 ‘‘(ii) the amount of remuneration paid 

12 by all such employers to such employee. 

13 ‘‘(5) EXCESS PARACHUTE PAYMENT.—For pur14 poses of determining the tax imposed by subsection 

15 (a)(2)— 

16 ‘‘(A) IN GENERAL.—The term ‘excess para17 chute payment’ means an amount equal to the 

18 excess of any parachute payment over the por19 tion of the base amount allocated to such pay20 ment. 

21 ‘‘(B) PARACHUTE PAYMENT.—The term 

22 ‘parachute payment’ means any payment in the 

23 nature of compensation to (or for the benefit of) 

24 a covered employee if— 
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1 ‘‘(i) such payment is contingent on 

2 such employee’s separation from employ3 ment with the employer, and 

4 ‘‘(ii) the aggregate present value of the 

5 payments in the nature of compensation to 

6 (or for the benefit of) such individual which 

7 are contingent on such separation equals or 

8 exceeds an amount equal to 3 times the base 

9 amount. 

10 ‘‘(C) EXCEPTION.—Such term does not in11 clude any payment— 

12 ‘‘(i) described in section 280G(b)(6) 

13 (relating to exemption for payments under 

14 qualified plans), 

15 ‘‘(ii) made under or to an annuity 

16 contract described in section 403(b) or a 

17 plan described in section 457(b), 

18 ‘‘(iii) to a licensed medical professional 

19 (including a veterinarian) to the extent that 

20 such payment is for the performance of 

21 medical or veterinary services by such pro22 fessional, or 

23 ‘‘(iv) to an individual who is not a 

24 highly compensated employee as defined in 

25 section 414(q). 
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1 ‘‘(D) BASE AMOUNT.—Rules similar to the 

2 rules of 280G(b)(3) shall apply for purposes of 

3 determining the base amount. 

4 ‘‘(E) PROPERTY TRANSFERS; PRESENT

5 VALUE.—Rules similar to the rules of para6 graphs (3) and (4) of section 280G(d) shall 

7 apply. 

8 ‘‘(6) COORDINATION WITH DEDUCTION LIMITA9 TION.—Remuneration the deduction for which is not 

10 allowed by reason of section 162(m) shall not be taken 

11 into account for purposes of this section. 

12 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

13 such regulations as may be necessary to prevent avoidance 

14 of the tax under this section, including regulations to pre15 vent avoidance of such tax through the performance of serv16 ices other than as an employee or by providing compensa17 tion through a pass-through or other entity to avoid such 

18 tax.’’. 

19 (b) CLERICAL AMENDMENT.—The table of sections for 

20 subchapter D of chapter 42 is amended by adding at the 

21 end the following new item: 

‘‘Sec. 4960. Tax on excess tax-exempt organization executive compensation.’’. 

22 (c) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to taxable years beginning after Decem24 ber 31, 2017. 
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1 SEC. 13603. TREATMENT OF QUALIFIED EQUITY GRANTS. 

2 (a) IN GENERAL.—Section 83 is amended by adding 

3 at the end the following new subsection: 

4 ‘‘(i) QUALIFIED EQUITY GRANTS.— 

5 ‘‘(1) IN GENERAL.—For purposes of this sub6 title— 

7 ‘‘(A) TIMING OF INCLUSION.—If qualified 

8 stock is transferred to a qualified employee who 

9 makes an election with respect to such stock 

10 under this subsection, subsection (a) shall be ap11 plied by including the amount determined under 

12 such subsection with respect to such stock in in13 come of the employee in the taxable year deter14 mined under subparagraph (B) in lieu of the 

15 taxable year described in subsection (a). 

16 ‘‘(B) TAXABLE YEAR DETERMINED.—The 

17 taxable year determined under this subpara18 graph is the taxable year of the employee which 

19 includes the earliest of— 

20 ‘‘(i) the first date such qualified stock 

21 becomes transferable (including, solely for 

22 purposes of this clause, becoming transfer23 able to the employer), 

24 ‘‘(ii) the date the employee first be25 comes an excluded employee, 
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1 ‘‘(iii) the first date on which any stock 

2 of the corporation which issued the qualified 

3 stock becomes readily tradable on an estab4 lished securities market (as determined by 

5 the Secretary, but not including any market 

6 unless such market is recognized as an es7 tablished securities market by the Secretary 

8 for purposes of a provision of this title other 

9 than this subsection), 

10 ‘‘(iv) the date that is 5 years after the 

11 first date the rights of the employee in such 

12 stock are transferable or are not subject to 

13 a substantial risk of forfeiture, whichever 

14 occurs earlier, or 

15 ‘‘(v) the date on which the employee re16 vokes (at such time and in such manner as 

17 the Secretary provides) the election under 

18 this subsection with respect to such stock. 

19 ‘‘(2) QUALIFIED STOCK.— 

20 ‘‘(A) IN GENERAL.—For purposes of this 

21 subsection, the term ‘qualified stock’ means, with 

22 respect to any qualified employee, any stock in 

23 a corporation which is the employer of such em24 ployee, if— 

25 ‘‘(i) such stock is received— 
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1 ‘‘(I) in connection with the exer2 cise of an option, or 

3 ‘‘(II) in settlement of a restricted 

4 stock unit, and 

5 ‘‘(ii) such option or restricted stock 

6 unit was granted by the corporation— 

7 ‘‘(I) in connection with the per8 formance of services as an employee, 

9 and 

10 ‘‘(II) during a calendar year in 

11 which such corporation was an eligible 

12 corporation. 

13 ‘‘(B) LIMITATION.—The term ‘qualified 

14 stock’ shall not include any stock if the employee 

15 may sell such stock to, or otherwise receive cash 

16 in lieu of stock from, the corporation at the time 

17 that the rights of the employee in such stock first 

18 become transferable or not subject to a substan19 tial risk of forfeiture. 

20 ‘‘(C) ELIGIBLE CORPORATION.—For pur21 poses of subparagraph (A)(ii)(II)— 

22 ‘‘(i) IN GENERAL.—The term ‘eligible 

23 corporation’ means, with respect to any cal24 endar year, any corporation if— 
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1 ‘‘(I) no stock of such corporation 

2 (or any predecessor of such corpora3 tion) is readily tradable on an estab4 lished securities market (as determined 

5 under paragraph (1)(B)(iii)) during 

6 any preceding calendar year, and 

7 ‘‘(II) such corporation has a writ8 ten plan under which, in such calendar 

9 year, not less than 80 percent of all 

10 employees who provide services to such 

11 corporation in the United States (or 

12 any possession of the United States) 

13 are granted stock options, or are grant14 ed restricted stock units, with the same 

15 rights and privileges to receive quali16 fied stock. 

17 ‘‘(ii) SAME RIGHTS AND PRIVILEGES.— 

18 For purposes of clause (i)(II)— 

19 ‘‘(I) except as provided in sub20 clauses (II) and (III), the determina21 tion of rights and privileges with re22 spect to stock shall be made in a simi23 lar manner as under section 423(b)(5), 

24 ‘‘(II) employees shall not fail to be 

25 treated as having the same rights and 
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1 privileges to receive qualified stock 

2 solely because the number of shares 

3 available to all employees is not equal 

4 in amount, so long as the number of 

5 shares available to each employee is 

6 more than a de minimis amount, and 

7 ‘‘(III) rights and privileges with 

8 respect to the exercise of an option 

9 shall not be treated as the same as 

10 rights and privileges with respect to 

11 the settlement of a restricted stock unit. 

12 ‘‘(iii) EMPLOYEE.—For purposes of 

13 clause (i)(II), the term ‘employee’ shall not 

14 include any employee described in section 

15 4980E(d)(4) or any excluded employee. 

16 ‘‘(iv) SPECIAL RULE FOR CALENDAR

17 YEARS BEFORE 2018.—In the case of any 

18 calendar year beginning before January 1, 

19 2018, clause (i)(II) shall be applied without 

20 regard to whether the rights and privileges 

21 with respect to the qualified stock are the 

22 same. 

23 ‘‘(3) QUALIFIED EMPLOYEE; EXCLUDED EM24 PLOYEE.—For purposes of this subsection— 
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1 ‘‘(A) IN GENERAL.—The term ‘qualified em2 ployee’ means any individual who— 

3 ‘‘(i) is not an excluded employee, and 

4 ‘‘(ii) agrees in the election made under 

5 this subsection to meet such requirements as 

6 are determined by the Secretary to be nec7 essary to ensure that the withholding re8 quirements of the corporation under chapter 

9 24 with respect to the qualified stock are 

10 met. 

11 ‘‘(B) EXCLUDED EMPLOYEE.—The term ‘ex12 cluded employee’ means, with respect to any cor13 poration, any individual— 

14 ‘‘(i) who is a 1-percent owner (within 

15 the meaning of section 416(i)(1)(B)(ii)) at 

16 any time during the calendar year or who 

17 was such a 1 percent owner at any time 

18 during the 10 preceding calendar years, 

19 ‘‘(ii) who is or has been at any prior 

20 time— 

21 ‘‘(I) the chief executive officer of 

22 such corporation or an individual act23 ing in such a capacity, or 
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1 ‘‘(II) the chief financial officer of 

2 such corporation or an individual act3 ing in such a capacity, 

4 ‘‘(iii) who bears a relationship de5 scribed in section 318(a)(1) to any indi6 vidual described in subclause (I) or (II) of 

7 clause (ii), or 

8 ‘‘(iv) who is one of the 4 highest com9 pensated officers of such corporation for the 

10 taxable year, or was one of the 4 highest 

11 compensated officers of such corporation for 

12 any of the 10 preceding taxable years, deter13 mined with respect to each such taxable 

14 year on the basis of the shareholder disclo15 sure rules for compensation under the Secu16 rities Exchange Act of 1934 (as if such rules 

17 applied to such corporation). 

18 ‘‘(4) ELECTION.— 

19 ‘‘(A) TIME FOR MAKING ELECTION.—An 

20 election with respect to qualified stock shall be 

21 made under this subsection no later than 30 

22 days after the first date the rights of the em23 ployee in such stock are transferable or are not 

24 subject to a substantial risk of forfeiture, which25 ever occurs earlier, and shall be made in a man-
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1 ner similar to the manner in which an election 

2 is made under subsection (b). 

3 ‘‘(B) LIMITATIONS.—No election may be 

4 made under this section with respect to any 

5 qualified stock if— 

6 ‘‘(i) the qualified employee has made 

7 an election under subsection (b) with respect 

8 to such qualified stock, 

9 ‘‘(ii) any stock of the corporation 

10 which issued the qualified stock is readily 

11 tradable on an established securities market 

12 (as determined under paragraph 

13 (1)(B)(iii)) at any time before the election 

14 is made, or 

15 ‘‘(iii) such corporation purchased any 

16 of its outstanding stock in the calendar year 

17 preceding the calendar year which includes 

18 the first date the rights of the employee in 

19 such stock are transferable or are not subject 

20 to a substantial risk of forfeiture, unless— 

21 ‘‘(I) not less than 25 percent of 

22 the total dollar amount of the stock so 

23 purchased is deferral stock, and 

24 ‘‘(II) the determination of which 

25 individuals from whom deferral stock 
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1 is purchased is made on a reasonable 

2 basis. 

3 ‘‘(C) DEFINITIONS AND SPECIAL RULES RE4 LATED TO LIMITATION ON STOCK REDEMP5 TIONS.— 

6 ‘‘(i) DEFERRAL STOCK.—For purposes 

7 of this paragraph, the term ‘deferral stock’ 

8 means stock with respect to which an elec9 tion is in effect under this subsection. 

10 ‘‘(ii) DEFERRAL STOCK WITH RESPECT

11 TO ANY INDIVIDUAL NOT TAKEN INTO AC12 COUNT IF INDIVIDUAL HOLDS DEFERRAL

13 STOCK WITH LONGER DEFERRAL PERIOD.— 

14 Stock purchased by a corporation from any 

15 individual shall not be treated as deferral 

16 stock for purposes of subparagraph (B)(iii) 

17 if such individual (immediately after such 

18 purchase) holds any deferral stock with re19 spect to which an election has been in effect 

20 under this subsection for a longer period 

21 than the election with respect to the stock so 

22 purchased. 

23 ‘‘(iii) PURCHASE OF ALL OUTSTANDING

24 DEFERRAL STOCK.—The requirements of 

25 subclauses (I) and (II) of subparagraph 
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1 (B)(iii) shall be treated as met if the stock 

2 so purchased includes all of the corpora3 tion’s outstanding deferral stock. 

4 ‘‘(iv) REPORTING.—Any corporation 

5 which has outstanding deferral stock as of 

6 the beginning of any calendar year and 

7 which purchases any of its outstanding 

8 stock during such calendar year shall in9 clude on its return of tax for the taxable 

10 year in which, or with which, such calendar 

11 year ends the total dollar amount of its out12 standing stock so purchased during such 

13 calendar year and such other information 

14 as the Secretary requires for purposes of ad15 ministering this paragraph. 

16 ‘‘(5) CONTROLLED GROUPS.—For purposes of 

17 this subsection, all persons treated as a single em18 ployer under section 414(b) shall be treated as 1 cor19 poration. 

20 ‘‘(6) NOTICE REQUIREMENT.—Any corporation 

21 which transfers qualified stock to a qualified employee 

22 shall, at the time that (or a reasonable period before) 

23 an amount attributable to such stock would (but for 

24 this subsection) first be includible in the gross income 

25 of such employee— 
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1 ‘‘(A) certify to such employee that such 

2 stock is qualified stock, and 

3 ‘‘(B) notify such employee— 

4 ‘‘(i) that the employee may be eligible 

5 to elect to defer income on such stock under 

6 this subsection, and 

7 ‘‘(ii) that, if the employee makes such 

8 an election— 

9 ‘‘(I) the amount of income recog10 nized at the end of the deferral period 

11 will be based on the value of the stock 

12 at the time at which the rights of the 

13 employee in such stock first become 

14 transferable or not subject to substan15 tial risk of forfeiture, notwithstanding 

16 whether the value of the stock has de17 clined during the deferral period, 

18 ‘‘(II) the amount of such income 

19 recognized at the end of the deferral pe20 riod will be subject to withholding 

21 under section 3401(i) at the rate deter22 mined under section 3402(t), and 

23 ‘‘(III) the responsibilities of the 

24 employee (as determined by the Sec-
292 

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1 retary under paragraph (3)(A)(ii)) 

2 with respect to such withholding. 

3 ‘‘(7) RESTRICTED STOCK UNITS.—This section 

4 (other than this subsection), including any election 

5 under subsection (b), shall not apply to restricted 

6 stock units.’’. 

7 (b) WITHHOLDING.— 

8 (1) TIME OF WITHHOLDING.—Section 3401 is 

9 amended by adding at the end the following new sub10 section: 

11 ‘‘(i) QUALIFIED STOCK FOR WHICH AN ELECTION IS

12 IN EFFECT UNDER SECTION 83(I).—For purposes of sub13 section (a), qualified stock (as defined in section 83(i)) with 

14 respect to which an election is made under section 83(i) 

15 shall be treated as wages— 

16 ‘‘(1) received on the earliest date described in 

17 section 83(i)(1)(B), and 

18 ‘‘(2) in an amount equal to the amount included 

19 in income under section 83 for the taxable year which 

20 includes such date.’’. 

21 (2) AMOUNT OF WITHHOLDING.—Section 3402 is 

22 amended by adding at the end the following new sub23 section: 

24 ‘‘(t) RATE OF WITHHOLDING FOR CERTAIN STOCK.— 

25 In the case of any qualified stock (as defined in section 
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1 83(i)(2)) with respect to which an election is made under 

2 section 83(i)— 

3 ‘‘(1) the rate of tax under subsection (a) shall 

4 not be less than the maximum rate of tax in effect 

5 under section 1, and 

6 ‘‘(2) such stock shall be treated for purposes of 

7 section 3501(b) in the same manner as a non-cash 

8 fringe benefit.’’. 

9 (c) COORDINATION WITH OTHER DEFERRED COM10 PENSATION RULES.— 

11 (1) ELECTION TO APPLY DEFERRAL TO STATU12 TORY OPTIONS.— 

13 (A) INCENTIVE STOCK OPTIONS.—Section 

14 422(b) is amended by adding at the end the fol15 lowing: ‘‘Such term shall not include any option 

16 if an election is made under section 83(i) with 

17 respect to the stock received in connection with 

18 the exercise of such option.’’. 

19 (B) EMPLOYEE STOCK PURCHASE PLANS.— 

20 Section 423 is amended— 

21 (i) in subsection (b)(5), by striking 

22 ‘‘and’’ before ‘‘the plan’’ and by inserting ‘‘, 

23 and the rules of section 83(i) shall apply in 

24 determining which employees have a right 
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1 to make an election under such section’’ be2 fore the semicolon at the end, and 

3 (ii) by adding at the end the following 

4 new subsection: 

5 ‘‘(d) COORDINATION WITH QUALIFIED EQUITY

6 GRANTS.—An option for which an election is made under 

7 section 83(i) with respect to the stock received in connection 

8 with its exercise shall not be considered as granted pursuant 

9 an employee stock purchase plan.’’. 

10 (2) EXCLUSION FROM DEFINITION OF NON11 QUALIFIED DEFERRED COMPENSATION PLAN.—Sub12 section (d) of section 409A is amended by adding at 

13 the end the following new paragraph: 

14 ‘‘(7) TREATMENT OF QUALIFIED STOCK.—An ar15 rangement under which an employee may receive 

16 qualified stock (as defined in section 83(i)(2)) shall 

17 not be treated as a nonqualified deferred compensa18 tion plan with respect to such employee solely because 

19 of such employee’s election, or ability to make an elec20 tion, to defer recognition of income under section 

21 83(i).’’. 

22 (d) INFORMATION REPORTING.—Section 6051(a) is 

23 amended by striking ‘‘and’’ at the end of paragraph 

24 (14)(B), by striking the period at the end of paragraph (15) 
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1 and inserting a comma, and by inserting after paragraph 

2 (15) the following new paragraphs: 

3 ‘‘(16) the amount includible in gross income 

4 under subparagraph (A) of section 83(i)(1) with re5 spect to an event described in subparagraph (B) of 

6 such section which occurs in such calendar year, and 

7 ‘‘(17) the aggregate amount of income which is 

8 being deferred pursuant to elections under section 

9 83(i), determined as of the close of the calendar 

10 year.’’. 

11 (e) PENALTY FOR FAILURE OF EMPLOYER TO PROVIDE

12 NOTICE OF TAX CONSEQUENCES.—Section 6652 is amend13 ed by adding at the end the following new subsection: 

14 ‘‘(p) FAILURE TO PROVIDE NOTICE UNDER SECTION

15 83(I).—In the case of each failure to provide a notice as 

16 required by section 83(i)(6), at the time prescribed therefor, 

17 unless it is shown that such failure is due to reasonable 

18 cause and not to willful neglect, there shall be paid, on no19 tice and demand of the Secretary and in the same manner 

20 as tax, by the person failing to provide such notice, an 

21 amount equal to $100 for each such failure, but the total 

22 amount imposed on such person for all such failures during 

23 any calendar year shall not exceed $50,000.’’. 

24 (f) EFFECTIVE DATES.— 
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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section shall 

3 apply to stock attributable to options exercised, or re4 stricted stock units settled, after December 31, 2017. 

5 (2) REQUIREMENT TO PROVIDE NOTICE.—The 

6 amendments made by subsection (e) shall apply to 

7 failures after December 31, 2017. 

8 (g) TRANSITION RULE.—Until such time as the Sec9 retary (or the Secretary’s delegate) issues regulations or 

10 other guidance for purposes of implementing the require11 ments of paragraph (2)(C)(i)(II) of section 83(i) of the In12 ternal Revenue Code of 1986 (as added by this section), or 

13 the requirements of paragraph (6) of such section, a cor14 poration shall be treated as being in compliance with such 

15 requirements (respectively) if such corporation complies 

16 with a reasonable good faith interpretation of such require17 ments. 

18 SEC. 13604. INCREASE IN EXCISE TAX RATE FOR STOCK 

19 COMPENSATION OF INSIDERS IN EXPATRI20 ATED CORPORATIONS. 

21 (a) IN GENERAL.—Section 4985(a)(1) is amended by 

22 striking ‘‘section 1(h)(1)(C)’’ and inserting ‘‘section 

23 1(h)(1)(D)’’. 

24 (b) EFFECTIVE DATE.—The amendment made by this 

25 section shall apply to corporations first becoming expatri-
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1 ated corporations (as defined in section 4985 of the Internal 

2 Revenue Code of 1986) after the date of enactment of this 

3 Act. 

4 Subpart B—Retirement Plans 

5 SEC. 13611. REPEAL OF SPECIAL RULE PERMITTING RE6 CHARACTERIZATION OF ROTH CONVERSIONS. 

7 (a) IN GENERAL.—Section 408A(d)(6)(B) is amended 

8 by adding at the end the following new clause: 

9 ‘‘(iii) CONVERSIONS.—Subparagraph 

10 (A) shall not apply in the case of a quali11 fied rollover contribution to which sub12 section (d)(3) applies (including by reason 

13 of subparagraph (C) thereof).’’. 

14 (b) EFFECTIVE DATE.—The amendments made by this 

15 section shall apply to taxable years beginning after Decem16 ber 31, 2017. 

17 SEC. 13612. MODIFICATION OF RULES APPLICABLE TO 

18 LENGTH OF SERVICE AWARD PLANS. 

19 (a) MAXIMUM DEFERRAL AMOUNT.—Clause (ii) of sec20 tion 457(e)(11)(B) is amended by striking ‘‘$3,000’’ and in21 serting ‘‘$6,000’’. 

22 (b) COST OF LIVING ADJUSTMENT.—Subparagraph 

23 (B) of section 457(e)(11) is amended by adding at the end 

24 the following: 
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1 ‘‘(iii) COST OF LIVING ADJUSTMENT.— 

2 In the case of taxable years beginning after 

3 December 31, 2017, the Secretary shall ad4 just the $6,000 amount under clause (ii) at 

5 the same time and in the same manner as 

6 under section 415(d), except that the base 

7 period shall be the calendar quarter begin8 ning July 1, 2016, and any increase under 

9 this paragraph that is not a multiple of 

10 $500 shall be rounded to the next lowest 

11 multiple of $500.’’. 

12 (c) APPLICATION OF LIMITATION ON ACCRUALS.—Sub13 paragraph (B) of section 457(e)(11), as amended by sub14 section (b), is amended by adding at the end the following: 

15 ‘‘(iv) SPECIAL RULE FOR APPLICATION

16 OF LIMITATION ON ACCRUALS FOR CERTAIN

17 PLANS.—In the case of a plan described in 

18 subparagraph (A)(ii) which is a defined 

19 benefit plan (as defined in section 414(j)), 

20 the limitation under clause (ii) shall apply 

21 to the actuarial present value of the aggre22 gate amount of length of service awards ac23 cruing with respect to any year of service. 

24 Such actuarial present value with respect to 

25 any year shall be calculated using reason-
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1 able actuarial assumptions and methods, 

2 assuming payment will be made under the 

3 most valuable form of payment under the 

4 plan with payment commencing at the later 

5 of the earliest age at which unreduced bene6 fits are payable under the plan or the par7 ticipant’s age at the time of the calcula8 tion.’’. 

9 (d) EFFECTIVE DATE.—The amendments made by this 

10 section shall apply to taxable years beginning after Decem11 ber 31, 2017. 

12 SEC. 13613. EXTENDED ROLLOVER PERIOD FOR PLAN LOAN 

13 OFFSET AMOUNTS. 

14 (a) IN GENERAL.—Paragraph (3) of section 402(c) is 

15 amended by adding at the end the following new subpara16 graph: 

17 ‘‘(C) ROLLOVER OF CERTAIN PLAN LOAN

18 OFFSET AMOUNTS.— 

19 ‘‘(i) IN GENERAL.—In the case of a 

20 qualified plan loan offset amount, para21 graph (1) shall not apply to any transfer of 

22 such amount made after the due date (in23 cluding extensions) for filing the return of 

24 tax for the taxable year in which such 
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1 amount is treated as distributed from a 

2 qualified employer plan. 

3 ‘‘(ii) QUALIFIED PLAN LOAN OFFSET

4 AMOUNT.—For purposes of this subpara5 graph, the term ‘qualified plan loan offset 

6 amount’ means a plan loan offset amount 

7 which is treated as distributed from a 

8 qualified employer plan to a participant or 

9 beneficiary solely by reason of— 

10 ‘‘(I) the termination of the quali11 fied employer plan, or 

12 ‘‘(II) the failure to meet the re13 payment terms of the loan from such 

14 plan because of the severance from em15 ployment of the participant. 

16 ‘‘(iii) PLAN LOAN OFFSET AMOUNT.— 

17 For purposes of clause (ii), the term ‘plan 

18 loan offset amount’ means the amount by 

19 which the participant’s accrued benefit 

20 under the plan is reduced in order to repay 

21 a loan from the plan. 

22 ‘‘(iv) LIMITATION.—This subparagraph 

23 shall not apply to any plan loan offset 

24 amount unless such plan loan offset amount 

25 relates to a loan to which section 72(p)(1) 
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† HR 1 EAS2 

1 does not apply by reason of section 

2 72(p)(2). 

3 ‘‘(v) QUALIFIED EMPLOYER PLAN.— 

4 For purposes of this subsection, the term 

5 ‘qualified employer plan’ has the meaning 

6 given such term by section 72(p)(4).’’. 

7 (b) CONFORMING AMENDMENTS.—Section 402(c)(3) is 

8 amended— 

9 (1) by striking ‘‘TRANSFER MUST BE MADE

10 WITHIN 60 DAYS OF RECEIPT’’ in the heading and in11 serting ‘‘TIME LIMIT ON TRANSFERS’’, and 

12 (2) by striking ‘‘subparagraph (B)’’ in subpara13 graph (A) and inserting ‘‘subparagraphs (B) and 

14 (C)’’. 

15 (c) EFFECTIVE DATE.—The amendments made by this 

16 section shall apply to plan loan offset amounts which are 

17 treated as distributed in taxable years beginning after De18 cember 31, 2017. 

19 PART VIII—EXEMPT ORGANIZATIONS 

20 SEC. 13701. EXCISE TAX BASED ON INVESTMENT INCOME OF 

21 PRIVATE COLLEGES AND UNIVERSITIES. 

22 (a) IN GENERAL.—Chapter 42 is amended by adding 

23 at the end the following new subchapter: 
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1 ‘‘Subchapter H—Excise Tax Based on Invest2 ment Income of Private Colleges and Uni3 versities 

‘‘Sec. 4968. Excise tax based on investment income of private colleges and universities. 

4 ‘‘SEC. 4968. EXCISE TAX BASED ON INVESTMENT INCOME OF 

5 PRIVATE COLLEGES AND UNIVERSITIES. 

6 ‘‘(a) TAX IMPOSED.—There is hereby imposed on each 

7 applicable educational institution for the taxable year a tax 

8 equal to 1.4 percent of the net investment income of such 

9 institution for the taxable year. 

10 ‘‘(b) APPLICABLE EDUCATIONAL INSTITUTION.—For 

11 purposes of this subchapter— 

12 ‘‘(1) IN GENERAL.—The term ‘applicable edu13 cational institution’ means an eligible educational in14 stitution (as defined in section 25A(f)(2))— 

15 ‘‘(A) which had at least 500 students during 

16 the preceding taxable year, 

17 ‘‘(B) more than 50 percent of the students 

18 of which are located in the United States, 

19 ‘‘(C) which is not described in the first sen20 tence of section 511(a)(2)(B) (relating to State 

21 colleges and universities), and 

22 ‘‘(D) the aggregate fair market value of the 

23 assets of which at the end of the preceding tax24 able year (other than those assets which are used 
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1 directly in carrying out the institution’s exempt 

2 purpose) is at least $500,000 per student of the 

3 institution. 

4 ‘‘(2) STUDENTS.—For purposes of paragraph 

5 (1), the number of students of an institution (includ6 ing for purposes of determining the number of stu7 dents at a particular location) shall be based on the 

8 daily average number of full-time students attending 

9 such institution (with part-time students taken into 

10 account on a full-time student equivalent basis). 

11 ‘‘(c) NET INVESTMENT INCOME.—For purposes of this 

12 section, net investment income shall be determined under 

13 rules similar to the rules of section 4940(c). 

14 ‘‘(d) ASSETS AND NET INVESTMENT INCOME OF RE15 LATED ORGANIZATIONS.— 

16 ‘‘(1) IN GENERAL.—For purposes of subsections 

17 (b)(1)(C) and (c), assets and net investment income 

18 of any related organization with respect to an edu19 cational institution shall be treated as assets and net 

20 investment income, respectively, of the educational in21 stitution, except that— 

22 ‘‘(A) no such amount shall be taken into ac23 count with respect to more than 1 educational 

24 institution, and 
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1 ‘‘(B) unless such organization is controlled 

2 by such institution or is described in section 

3 509(a)(3) with respect to such institution for the 

4 taxable year, assets and net investment income 

5 which are not intended or available for the use 

6 or benefit of the educational institution shall not 

7 be taken into account. 

8 ‘‘(2) RELATED ORGANIZATION.—For purposes of 

9 this subsection, the term ‘related organization’ means, 

10 with respect to an educational institution, any orga11 nization which— 

12 ‘‘(A) controls, or is controlled by, such insti13 tution, 

14 ‘‘(B) is controlled by 1 or more persons 

15 which also control such institution, or 

16 ‘‘(C) is a supported organization (as de17 fined in section 509(f)(3)), or an organization 

18 described in section 509(a)(3), during the taxable 

19 year with respect to such institution.’’. 

20 (b) CLERICAL AMENDMENT.—The table of subchapters 

21 for chapter 42 is amended by adding at the end the fol22 lowing new item: 
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‘‘SUBCHAPTER H—EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE

COLLEGES AND UNIVERSITIES’’. 

1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2017. 

4 SEC. 13702. UNRELATED BUSINESS TAXABLE INCOME SEPA5 RATELY COMPUTED FOR EACH TRADE OR 

6 BUSINESS ACTIVITY. 

7 (a) IN GENERAL.—Subsection (a) of section 512 is 

8 amended by adding at the end the following new paragraph: 

9 ‘‘(6) SPECIAL RULE FOR ORGANIZATION WITH

10 MORE THAN 1 UNRELATED TRADE OR BUSINESS.—In 

11 the case of any organization with more than 1 unre12 lated trade or business— 

13 ‘‘(A) unrelated business taxable income, in14 cluding for purposes of determining any net op15 erating loss deduction, shall be computed sepa16 rately with respect to each such trade or business 

17 and without regard to subsection (b)(12), 

18 ‘‘(B) the unrelated business taxable income 

19 of such organization shall be the sum of the unre20 lated business taxable income so computed with 

21 respect to each such trade or business, less a spe22 cific deduction under subsection (b)(12), and 

23 ‘‘(C) for purposes of subparagraph (B), un24 related business taxable income with respect to 
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1 any such trade or business shall not be less than 

2 zero.’’. 

3 (b) EFFECTIVE DATE.— 

4 (1) IN GENERAL.—Except to the extent provided 

5 in paragraph (2), the amendment made by this sec6 tion shall apply to taxable years beginning after De7 cember 31, 2017. 

8 (2) CARRYOVERS OF NET OPERATING LOSSES.— 

9 If any net operating loss arising in a taxable year be10 ginning before January 1, 2018, is carried over to a 

11 taxable year beginning on or after such date— 

12 (A) subparagraph (A) of section 512(a)(6) 

13 of the Internal Revenue Code of 1986, as added 

14 by this Act, shall not apply to such net operating 

15 loss, and 

16 (B) the unrelated business taxable income of 

17 the organization, after the application of sub18 paragraph (B) of such section, shall be reduced 

19 by the amount of such net operating loss. 
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1 SEC. 13703. UNRELATED BUSINESS TAXABLE INCOME IN2 CREASED BY AMOUNT OF CERTAIN FRINGE 

3 BENEFIT EXPENSES FOR WHICH DEDUCTION 

4 IS DISALLOWED. 

5 (a) IN GENERAL.—Section 512(a), as amended by this 

6 Act, is further amended by adding at the end the following 

7 new paragraph: 

8 ‘‘(7) INCREASE IN UNRELATED BUSINESS TAX9 ABLE INCOME BY DISALLOWED FRINGE.—Unrelated 

10 business taxable income of an organization shall be 

11 increased by any amount for which a deduction is not 

12 allowable under this chapter by reason of section 274 

13 and which is paid or incurred by such organization 

14 for any qualified transportation fringe (as defined in 

15 section 132(f)), any parking facility used in connec16 tion with qualified parking (as defined in section 

17 132(f)(5)(C)), or any on-premises athletic facility (as 

18 defined in section 132(j)(4)(B)). The preceding sen19 tence shall not apply to the extent the amount paid 

20 or incurred is directly connected with an unrelated 

21 trade or business which is regularly carried on by the 

22 organization. The Secretary shall issue such regula23 tions or other guidance as may be necessary or appro24 priate to carry out the purposes of this paragraph, 

25 including regulations or other guidance providing for 

26 the appropriate allocation of depreciation and other 
308 

† HR 1 EAS2 

1 costs with respect to facilities used for parking or for 

2 on-premises athletic facilities.’’. 

3 (b) EFFECTIVE DATE.—The amendment made by this 

4 section shall apply to amounts paid or incurred after De5 cember 31, 2017. 

6 SEC. 13704. REPEAL OF DEDUCTION FOR AMOUNTS PAID IN 

7 EXCHANGE FOR COLLEGE ATHLETIC EVENT 

8 SEATING RIGHTS. 

9 (a) IN GENERAL.—Section 170(l) is amended— 

10 (1) by striking paragraph (1) and inserting the 

11 following: 

12 ‘‘(1) IN GENERAL.—No deduction shall be al13 lowed under this section for any amount described in 

14 paragraph (2).’’, and 

15 (2) in paragraph (2)(B), by striking ‘‘such 

16 amount would be allowable as a deduction under this 

17 section but for the fact that’’. 

18 (b) EFFECTIVE DATE.—The amendments made by this 

19 section shall apply to contributions made in taxable years 

20 beginning after December 31, 2017. 
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1 SEC. 13705. REPEAL OF SUBSTANTIATION EXCEPTION IN 

2 CASE OF CONTRIBUTIONS REPORTED BY 

3 DONEE. 

4 (a) IN GENERAL.—Section 170(f)(8) is amended by 

5 striking subparagraph (D) and by redesignating subpara6 graph (E) as subparagraph (D). 

7 (b) EFFECTIVE DATE.—The amendments made by this 

8 section shall apply to contributions made in taxable years 

9 beginning after December 31, 2016. 

10 PART IX—OTHER PROVISIONS 

11 Subpart A—Craft Beverage Modernization and Tax 

12 Reform 

13 SEC. 13801. PRODUCTION PERIOD FOR BEER, WINE, AND 

14 DISTILLED SPIRITS. 

15 (a) IN GENERAL.—Section 263A(f) is amended— 

16 (1) by redesignating paragraph (4) as para17 graph (5), and 

18 (2) by inserting after paragraph (3) the fol19 lowing new paragraph: 

20 ‘‘(4) EXEMPTION FOR AGING PROCESS OF BEER, 

21 WINE, AND DISTILLED SPIRITS.— 

22 ‘‘(A) IN GENERAL.—For purposes of this 

23 subsection, the production period shall not in24 clude the aging period for— 

25 ‘‘(i) beer (as defined in section 

26 5052(a)), 
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1 ‘‘(ii) wine (as described in section 

2 5041(a)), or 

3 ‘‘(iii) distilled spirits (as defined in 

4 section 5002(a)(8)), except such spirits that 

5 are unfit for use for beverage purposes. 

6 ‘‘(B) TERMINATION.—This paragraph shall 

7 not apply to interest costs paid or accrued after 

8 December 31, 2019.’’. 

9 (b) CONFORMING AMENDMENT.—Paragraph (5)(B)(ii) 

10 of section 263A(f), as redesignated by this section, is amend11 ed by inserting ‘‘except as provided in paragraph (4),’’ be12 fore ‘‘ending on the date’’. 

13 (c) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to interest costs paid or accrued in cal15 endar years beginning after December 31, 2017. 

16 SEC. 13802. REDUCED RATE OF EXCISE TAX ON BEER. 

17 (a) IN GENERAL.—Paragraph (1) of section 5051(a) 

18 is amended to read as follows: 

19 ‘‘(1) IN GENERAL.— 

20 ‘‘(A) IMPOSITION OF TAX.—A tax is hereby 

21 imposed on all beer brewed or produced, and re22 moved for consumption or sale, within the 

23 United States, or imported into the United 

24 States. Except as provided in paragraph (2), the 
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1 rate of such tax shall be the amount determined 

2 under this paragraph. 

3 ‘‘(B) RATE.—Except as provided in sub4 paragraph (C), the rate of tax shall be $18 for 

5 per barrel. 

6 ‘‘(C) SPECIAL RULE.—In the case of beer re7 moved after December 31, 2017, and before Jan8 uary 1, 2020, the rate of tax shall be— 

9 ‘‘(i) $16 on the first 6,000,000 barrels 

10 of beer— 

11 ‘‘(I) brewed by the brewer and re12 moved during the calendar year for 

13 consumption or sale, or 

14 ‘‘(II) imported by the importer 

15 into the United States during the cal16 endar year, and 

17 ‘‘(ii) $18 on any barrels of beer to 

18 which clause (i) does not apply. 

19 ‘‘(D) BARREL.—For purposes of this sec20 tion, a barrel shall contain not more than 31 

21 gallons of beer, and any tax imposed under this 

22 section shall be applied at a like rate for any 

23 other quantity or for fractional parts of a bar24 rel.’’. 
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1 (b) REDUCED RATE FOR CERTAIN DOMESTIC PRODUC2 TION.—Subparagraph (A) of section 5051(a)(2) is amend3 ed— 

4 (1) in the heading, by striking ‘‘$7 A BARREL’’, 

5 and 

6 (2) by inserting ‘‘($3.50 in the case of beer re7 moved after December 31, 2017, and before January 

8 1, 2020)’’ after ‘‘$7’’. 

9 (c) APPLICATION OF REDUCED TAX RATE FOR FOR10 EIGN MANUFACTURERS AND IMPORTERS.—Subsection (a) 

11 of section 5051 is amended— 

12 (1) in subparagraph (C)(i)(II) of paragraph (1), 

13 as amended by subsection (a), by inserting ‘‘but only 

14 if the importer is an electing importer under para15 graph (4) and the barrels have been assigned to the 

16 importer pursuant to such paragraph’’ after ‘‘during 

17 the calendar year’’, and 

18 (2) by adding at the end the following new para19 graph: 

20 ‘‘(4) REDUCED TAX RATE FOR FOREIGN MANU21 FACTURERS AND IMPORTERS.— 

22 ‘‘(A) IN GENERAL.—In the case of any bar23 rels of beer which have been brewed or produced 

24 outside of the United States and imported into 

25 the United States, the rate of tax applicable 
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† HR 1 EAS2 

1 under clause (i) of paragraph (1)(C) (referred to 

2 in this paragraph as the ‘reduced tax rate’) may 

3 be assigned by the brewer (provided that the 

4 brewer makes an election described in subpara5 graph (B)(ii)) to any electing importer of such 

6 barrels pursuant to the requirements established 

7 by the Secretary under subparagraph (B). 

8 ‘‘(B) ASSIGNMENT.—The Secretary shall, 

9 through such rules, regulations, and procedures 

10 as are determined appropriate, establish proce11 dures for assignment of the reduced tax rate pro12 vided under this paragraph, which shall in13 clude— 

14 ‘‘(i) a limitation to ensure that the 

15 number of barrels of beer for which the re16 duced tax rate has been assigned by a brew17 er— 

18 ‘‘(I) to any importer does not ex19 ceed the number of barrels of beer 

20 brewed or produced by such brewer 

21 during the calendar year which were 

22 imported into the United States by 

23 such importer, and 
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1 ‘‘(II) to all importers does not ex2 ceed the 6,000,000 barrels to which the 

3 reduced tax rate applies, 

4 ‘‘(ii) procedures that allow the election 

5 of a brewer to assign and an importer to re6 ceive the reduced tax rate provided under 

7 this paragraph, 

8 ‘‘(iii) requirements that the brewer 

9 provide any information as the Secretary 

10 determines necessary and appropriate for 

11 purposes of carrying out this paragraph, 

12 and 

13 ‘‘(iv) procedures that allow for revoca14 tion of eligibility of the brewer and the im15 porter for the reduced tax rate provided 

16 under this paragraph in the case of any er17 roneous or fraudulent information provided 

18 under clause (iii) which the Secretary 

19 deems to be material to qualifying for such 

20 reduced rate. 

21 ‘‘(C) CONTROLLED GROUP.—For purposes 

22 of this section, any importer making an election 

23 described in subparagraph (B)(ii) shall be 

24 deemed to be a member of the controlled group 
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† HR 1 EAS2 

1 of the brewer, as described under paragraph 

2 (5).’’. 

3 (d) CONTROLLED GROUP AND SINGLE TAXPAYER

4 RULES.—Subsection (a) of section 5051, as amended by this 

5 section, is amended— 

6 (1) in paragraph (2)— 

7 (A) by striking subparagraph (B), and 

8 (B) by redesignating subparagraph (C) as 

9 subparagraph (B), and 

10 (2) by adding at the end the following new para11 graph: 

12 ‘‘(5) CONTROLLED GROUP AND SINGLE TAXPAYER

13 RULES.— 

14 ‘‘(A) IN GENERAL.—Except as provided in 

15 subparagraph (B), in the case of a controlled 

16 group, the 6,000,000 barrel quantity specified in 

17 paragraph (1)(C)(i) and the 2,000,000 barrel 

18 quantity specified in paragraph (2)(A) shall be 

19 applied to the controlled group, and the 

20 6,000,000 barrel quantity specified in paragraph 

21 (1)(C)(i) and the 60,000 barrel quantity speci22 fied in paragraph (2)(A) shall be apportioned 

23 among the brewers who are members of such 

24 group in such manner as the Secretary or their 

25 delegate shall by regulations prescribe. For pur-
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1 poses of the preceding sentence, the term ‘con2 trolled group’ has the meaning assigned to it by 

3 subsection (a) of section 1563, except that for 

4 such purposes the phrase ‘more than 50 percent’ 

5 shall be substituted for the phrase ‘at least 80 

6 percent’ in each place it appears in such sub7 section. Under regulations prescribed by the Sec8 retary, principles similar to the principles of the 

9 preceding two sentences shall be applied to a 

10 group of brewers under common control where 

11 one or more of the brewers is not a corporation. 

12 ‘‘(B) FOREIGN MANUFACTURERS AND IM13 PORTERS.—For purposes of paragraph (4), in 

14 the case of a controlled group, the 6,000,000 bar15 rel quantity specified in paragraph (1)(C)(i) 

16 shall be applied to the controlled group and ap17 portioned among the members of such group in 

18 such manner as the Secretary shall by regula19 tions prescribe. For purposes of the preceding 

20 sentence, the term ‘controlled group’ has the 

21 meaning given such term under subparagraph 

22 (A). Under regulations prescribed by the Sec23 retary, principles similar to the principles of the 

24 preceding two sentences shall be applied to a 
317 

† HR 1 EAS2 

1 group of brewers under common control where 

2 one or more of the brewers is not a corporation. 

3 ‘‘(C) SINGLE TAXPAYER.—Pursuant to rules 

4 issued by the Secretary, two or more entities 

5 (whether or not under common control) that 

6 produce beer marketed under a similar brand, li7 cense, franchise, or other arrangement shall be 

8 treated as a single taxpayer for purposes of the 

9 application of this subsection.’’. 

10 (e) EFFECTIVE DATE.—The amendments made by this 

11 section shall apply to beer removed after December 31, 2017. 

12 SEC. 13803. TRANSFER OF BEER BETWEEN BONDED FACILI13 TIES. 

14 (a) IN GENERAL.—Section 5414 is amended— 

15 (1) by striking ‘‘Beer may be removed’’ and in16 serting ‘‘(a) IN GENERAL—Beer may be removed’’, 

17 and 

18 (2) by adding at the end the following: 

19 ‘‘(b) TRANSFER OF BEER BETWEEN BONDED FACILI20 TIES.— 

21 ‘‘(1) IN GENERAL.—Beer may be removed from 

22 one bonded brewery to another bonded brewery, with23 out payment of tax, and may be mingled with beer 

24 at the receiving brewery, subject to such conditions, 

25 including payment of the tax, and in such containers, 
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1 as the Secretary by regulations shall prescribe, which 

2 shall include— 

3 ‘‘(A) any removal from one brewery to an4 other brewery belonging to the same brewer, 

5 ‘‘(B) any removal from a brewery owned by 

6 one corporation to a brewery owned by another 

7 corporation when— 

8 ‘‘(i) one such corporation owns the con9 trolling interest in the other such corpora10 tion, or 

11 ‘‘(ii) the controlling interest in each 

12 such corporation is owned by the same per13 son or persons, and 

14 ‘‘(C) any removal from one brewery to an15 other brewery when— 

16 ‘‘(i) the proprietors of transferring and 

17 receiving premises are independent of each 

18 other and neither has a proprietary interest, 

19 directly or indirectly, in the business of the 

20 other, and 

21 ‘‘(ii) the transferor has divested itself 

22 of all interest in the beer so transferred and 

23 the transferee has accepted responsibility for 

24 payment of the tax. 
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1 ‘‘(2) TRANSFER OF LIABILITY FOR TAX.—For 

2 purposes of paragraph (1)(C), such relief from liabil3 ity shall be effective from the time of removal from the 

4 transferor’s bonded premises, or from the time of di5 vestment of interest, whichever is later. 

6 ‘‘(3) TERMINATION.—This subsection shall not 

7 apply to any calendar quarter beginning after Decem8 ber 31, 2019.’’. 

9 (b) REMOVAL FROM BREWERY BY PIPELINE.—Section 

10 5412 is amended by inserting ‘‘pursuant to section 5414 

11 or’’ before ‘‘by pipeline’’. 

12 (c) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to any calendar quarters beginning after 

14 December 31, 2017. 

15 SEC. 13804. REDUCED RATE OF EXCISE TAX ON CERTAIN 

16 WINE. 

17 (a) IN GENERAL.—Section 5041(c) is amended by add18 ing at the end the following new paragraph: 

19 ‘‘(8) SPECIAL RULE FOR 2018 AND 2019.— 

20 ‘‘(A) IN GENERAL.—In the case of wine re21 moved after December 31, 2017, and before Jan22 uary 1, 2020, paragraphs (1) and (2) shall not 

23 apply and there shall be allowed as a credit 

24 against any tax imposed by this title (other than 
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1 chapters 2, 21, and 22) an amount equal to the 

2 sum of— 

3 ‘‘(i) $1 per wine gallon on the first 

4 30,000 wine gallons of wine, plus 

5 ‘‘(ii) 90 cents per wine gallon on the 

6 first 100,000 wine gallons of wine to which 

7 clause (i) does not apply, plus 

8 ‘‘(iii) 53.5 cents per wine gallon on the 

9 first 620,000 wine gallons of wine to which 

10 clauses (i) and (ii) do not apply, 

11 which are produced by the producer and removed 

12 during the calendar year for consumption or 

13 sale, or which are imported by the importer into 

14 the United States during the calendar year. 

15 ‘‘(B) ADJUSTMENT OF CREDIT FOR HARD

16 CIDER.—In the case of wine described in sub17 section (b)(6), subparagraph (A) of this para18 graph shall be applied— 

19 ‘‘(i) in clause (i) of such subparagraph, 

20 by substituting ‘6.2 cents’ for ‘$1’, 

21 ‘‘(ii) in clause (ii) of such subpara22 graph, by substituting ‘5.6 cents’ for ‘90 

23 cents’, and 
321 

† HR 1 EAS2 

1 ‘‘(iii) in clause (iii) of such subpara2 graph, by substituting ‘3.3 cents’ for ‘53.5 

3 cents’.’’, 

4 (b) CONTROLLED GROUP AND SINGLE TAXPAYER

5 RULES.—Paragraph (4) of section 5041(c) is amended by 

6 striking ‘‘section 5051(a)(2)(B)’’ and inserting ‘‘section 

7 5051(a)(5)’’. 

8 (c) ALLOWANCE OF CREDIT FOR FOREIGN MANUFAC9 TURERS AND IMPORTERS.—Subsection (c) of section 5041, 

10 as amended by subsection (a), is amended— 

11 (1) in subparagraph (A) of paragraph (8), by 

12 inserting ‘‘but only if the importer is an electing im13 porter under paragraph (9) and the wine gallons of 

14 wine have been assigned to the importer pursuant to 

15 such paragraph’’ after ‘‘into the United States during 

16 the calendar year’’, and 

17 (2) by adding at the end the following new para18 graph: 

19 ‘‘(9) ALLOWANCE OF CREDIT FOR FOREIGN MAN20 UFACTURERS AND IMPORTERS.— 

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

22 gallons of wine which have been produced outside 

23 of the United States and imported into the 

24 United States, the credit allowable under para25 graph (8) (referred to in this paragraph as the 
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1 ‘tax credit’) may be assigned by the person who 

2 produced such wine (referred to in this para3 graph as the ‘foreign producer’), provided that 

4 such person makes an election described in sub5 paragraph (B)(ii), to any electing importer of 

6 such wine gallons pursuant to the requirements 

7 established by the Secretary under subparagraph 

8 (B). 

9 ‘‘(B) ASSIGNMENT.—The Secretary shall, 

10 through such rules, regulations, and procedures 

11 as are determined appropriate, establish proce12 dures for assignment of the tax credit provided 

13 under this paragraph, which shall include— 

14 ‘‘(i) a limitation to ensure that the 

15 number of wine gallons of wine for which 

16 the tax credit has been assigned by a foreign 

17 producer— 

18 ‘‘(I) to any importer does not ex19 ceed the number of wine gallons of 

20 wine produced by such foreign pro21 ducer during the calendar year which 

22 were imported into the United States 

23 by such importer, and 
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† HR 1 EAS2 

1 ‘‘(II) to all importers does not ex2 ceed the 750,000 wine gallons of wine 

3 to which the tax credit applies, 

4 ‘‘(ii) procedures that allow the election 

5 of a foreign producer to assign and an im6 porter to receive the tax credit provided 

7 under this paragraph, 

8 ‘‘(iii) requirements that the foreign 

9 producer provide any information as the 

10 Secretary determines necessary and appro11 priate for purposes of carrying out this 

12 paragraph, and 

13 ‘‘(iv) procedures that allow for revoca14 tion of eligibility of the foreign producer 

15 and the importer for the tax credit provided 

16 under this paragraph in the case of any er17 roneous or fraudulent information provided 

18 under clause (iii) which the Secretary 

19 deems to be material to qualifying for such 

20 credit. 

21 ‘‘(C) CONTROLLED GROUP.—For purposes 

22 of this section, any importer making an election 

23 described in subparagraph (B)(ii) shall be 

24 deemed to be a member of the controlled group 
324 

† HR 1 EAS2 

1 of the foreign producer, as described under para2 graph (4).’’. 

3 (d) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to wine removed after December 31, 

5 2017. 

6 SEC. 13805. ADJUSTMENT OF ALCOHOL CONTENT LEVEL 

7 FOR APPLICATION OF EXCISE TAX RATES. 

8 (a) IN GENERAL.—Paragraphs (1) and (2) of section 

9 5041(b) are each amended by inserting ‘‘(16 percent in the 

10 case of wine removed after December 31, 2017, and before 

11 January 1, 2020’’ after ‘‘14 percent’’. 

12 (b) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to wine removed after December 31, 

14 2017. 

15 SEC. 13806. DEFINITION OF MEAD AND LOW ALCOHOL BY 

16 VOLUME WINE. 

17 (a) IN GENERAL.—Section 5041 is amended— 

18 (1) in subsection (a), by striking ‘‘Still wines’’ 

19 and inserting ‘‘Subject to subsection (h), still wines’’, 

20 and 

21 (2) by adding at the end the following new sub22 section: 

23 ‘‘(h) MEAD AND LOW ALCOHOL BY VOLUME WINE.— 

24 ‘‘(1) IN GENERAL.—For purposes of subsections 

25 (a) and (b)(1), mead and low alcohol by volume wine 
325 

† HR 1 EAS2 

1 shall be deemed to be still wines containing not more 

2 than 16 percent of alcohol by volume. 

3 ‘‘(2) DEFINITIONS.— 

4 ‘‘(A) MEAD.—For purposes of this section, 

5 the term ‘mead’ means a wine— 

6 ‘‘(i) containing not more than 0.64 

7 gram of carbon dioxide per hundred milli8 liters of wine, except that the Secretary 

9 shall by regulations prescribe such toler10 ances to this limitation as may be reason11 ably necessary in good commercial practice, 

12 ‘‘(ii) which is derived solely from 

13 honey and water, 

14 ‘‘(iii) which contains no fruit product 

15 or fruit flavoring, and 

16 ‘‘(iv) which contains less than 8.5 per17 cent alcohol by volume. 

18 ‘‘(B) LOW ALCOHOL BY VOLUME WINE.— 

19 For purposes of this section, the term ‘low alco20 hol by volume wine’ means a wine— 

21 ‘‘(i) containing not more than 0.64 

22 gram of carbon dioxide per hundred milli23 liters of wine, except that the Secretary 

24 shall by regulations prescribe such toler-
326 

† HR 1 EAS2 

1 ances to this limitation as may be reason2 ably necessary in good commercial practice, 

3 ‘‘(ii) which is derived— 

4 ‘‘(I) primarily from grapes, or 

5 ‘‘(II) from grape juice concentrate 

6 and water, 

7 ‘‘(iii) which contains no fruit product 

8 or fruit flavoring other than grape, and 

9 ‘‘(iv) which contains less than 8.5 per10 cent alcohol by volume. 

11 ‘‘(3) TERMINATION.—This subsection shall not 

12 apply to wine removed after December 31, 2019.’’. 

13 (b) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to wine removed after December 31, 

15 2017. 

16 SEC. 13807. REDUCED RATE OF EXCISE TAX ON CERTAIN 

17 DISTILLED SPIRITS. 

18 (a) IN GENERAL.—Section 5001 is amended by redes19 ignating subsection (c) as subsection (d) and by inserting 

20 after subsection (b) the following new subsection: 

21 ‘‘(c) REDUCED RATE FOR 2018 AND 2019.— 

22 ‘‘(1) IN GENERAL.—In the case of a distilled 

23 spirits operation, the otherwise applicable tax rate 

24 under subsection (a)(1) shall be— 
327 

† HR 1 EAS2 

1 ‘‘(A) $2.70 per proof gallon on the first 

2 100,000 proof gallons of distilled spirits, and 

3 ‘‘(B) $13.34 per proof gallon on the first 

4 22,130,000 of proof gallons of distilled spirits to 

5 which subparagraph (A) does not apply, 

6 which have been distilled or processed by such oper7 ation and removed during the calendar year for con8 sumption or sale, or which have been imported by the 

9 importer into the United States during the calendar 

10 year. 

11 ‘‘(2) CONTROLLED GROUPS.— 

12 ‘‘(A) IN GENERAL.—In the case of a con13 trolled group, the proof gallon quantities speci14 fied under subparagraphs (A) and (B) of para15 graph (1) shall be applied to such group and ap16 portioned among the members of such group in 

17 such manner as the Secretary or their delegate 

18 shall by regulations prescribe. 

19 ‘‘(B) DEFINITION.—For purposes of sub20 paragraph (A), the term ‘controlled group’ shall 

21 have the meaning given such term by subsection 

22 (a) of section 1563, except that ‘more than 50 

23 percent’ shall be substituted for ‘at least 80 per24 cent’ each place it appears in such subsection. 
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† HR 1 EAS2 

1 ‘‘(C) RULES FOR NON-CORPORATIONS.— 

2 Under regulations prescribed by the Secretary, 

3 principles similar to the principles of subpara4 graphs (A) and (B) shall be applied to a group 

5 under common control where one or more of the 

6 persons is not a corporation. 

7 ‘‘(D) SINGLE TAXPAYER.—Pursuant to rules 

8 issued by the Secretary, two or more entities 

9 (whether or not under common control) that 

10 produce distilled spirits marketed under a simi11 lar brand, license, franchise, or other arrange12 ment shall be treated as a single taxpayer for 

13 purposes of the application of this subsection. 

14 ‘‘(3) TERMINATION.—This subsection shall not 

15 apply to distilled spirits removed after December 31, 

16 2019.’’. 

17 (b) CONFORMING AMENDMENT.—Section 7652(f)(2) is 

18 amended by striking ‘‘section 5001(a)(1)’’ and inserting 

19 ‘‘subsection (a)(1) of section 5001, determined as if sub20 section (c)(1) of such section did not apply’’. 

21 (c) APPLICATION OF REDUCED TAX RATE FOR FOR22 EIGN MANUFACTURERS AND IMPORTERS.—Subsection (c) of 

23 section 5001, as added by subsection (a), is amended— 

24 (1) in paragraph (1), by inserting ‘‘but only if 

25 the importer is an electing importer under paragraph 
329 

† HR 1 EAS2 

1 (3) and the proof gallons of distilled spirits have been 

2 assigned to the importer pursuant to such paragraph’’ 

3 after ‘‘into the United States during the calendar 

4 year’’, and 

5 (2) by redesignating paragraph (3) as para6 graph (4) and by inserting after paragraph (2) the 

7 following new paragraph: 

8 ‘‘(3) REDUCED TAX RATE FOR FOREIGN MANU9 FACTURERS AND IMPORTERS.— 

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

11 gallons of distilled spirits which have been pro12 duced outside of the United States and imported 

13 into the United States, the rate of tax applicable 

14 under paragraph (1) (referred to in this para15 graph as the ‘reduced tax rate’) may be assigned 

16 by the distilled spirits operation (provided that 

17 such operation makes an election described in 

18 subparagraph (B)(ii)) to any electing importer 

19 of such proof gallons pursuant to the require20 ments established by the Secretary under sub21 paragraph (B). 

22 ‘‘(B) ASSIGNMENT.—The Secretary shall, 

23 through such rules, regulations, and procedures 

24 as are determined appropriate, establish proce25 dures for assignment of the reduced tax rate pro-
330 

† HR 1 EAS2 

1 vided under this paragraph, which shall in2 clude— 

3 ‘‘(i) a limitation to ensure that the 

4 number of proof gallons of distilled spirits 

5 for which the reduced tax rate has been as6 signed by a distilled spirits operation— 

7 ‘‘(I) to any importer does not ex8 ceed the number of proof gallons pro9 duced by such operation during the 

10 calendar year which were imported 

11 into the United States by such im12 porter, and 

13 ‘‘(II) to all importers does not ex14 ceed the 22,230,000 proof gallons of 

15 distilled spirits to which the reduced 

16 tax rate applies, 

17 ‘‘(ii) procedures that allow the election 

18 of a distilled spirits operation to assign and 

19 an importer to receive the reduced tax rate 

20 provided under this paragraph, 

21 ‘‘(iii) requirements that the distilled 

22 spirits operation provide any information 

23 as the Secretary determines necessary and 

24 appropriate for purposes of carrying out 

25 this paragraph, and 
331 

† HR 1 EAS2 

1 ‘‘(iv) procedures that allow for revoca2 tion of eligibility of the distilled spirits op3 eration and the importer for the reduced tax 

4 rate provided under this paragraph in the 

5 case of any erroneous or fraudulent infor6 mation provided under clause (iii) which 

7 the Secretary deems to be material to quali8 fying for such reduced rate. 

9 ‘‘(C) CONTROLLED GROUP.— 

10 ‘‘(i) IN GENERAL.—For purposes of 

11 this section, any importer making an elec12 tion described in subparagraph (B)(ii) shall 

13 be deemed to be a member of the controlled 

14 group of the distilled spirits operation, as 

15 described under paragraph (2). 

16 ‘‘(ii) APPORTIONMENT.—For purposes 

17 of this paragraph, in the case of a con18 trolled group, rules similar to section 

19 5051(a)(5)(B) shall apply.’’. 

20 (d) EFFECTIVE DATE.—The amendments made by this 

21 section shall apply to distilled spirits removed after Decem22 ber 31, 2017. 

23 SEC. 13808. BULK DISTILLED SPIRITS. 

24 (a) IN GENERAL.—Section 5212 is amended by adding 

25 at the end the following sentence: ‘‘In the case of distilled 
332 

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1 spirits transferred in bond after December 31, 2017, and 

2 before January 1, 2020, this section shall be applied with3 out regard to whether distilled spirits are bulk distilled 

4 spirits.’’. 

5 (b) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply distilled spirits transferred in bond after 

7 December 31, 2017. 

8 Subpart B—Miscellaneous Provisions 

9 SEC. 13821. MODIFICATION OF TAX TREATMENT OF ALASKA 

10 NATIVE CORPORATIONS AND SETTLEMENT 

11 TRUSTS. 

12 (a) EXCLUSION FOR ANCSA PAYMENTS ASSIGNED TO

13 ALASKA NATIVE SETTLEMENT TRUSTS.— 

14 (1) IN GENERAL.—Part III of subchapter B of 

15 chapter 1 is amended by inserting before section 140 

16 the following new section: 

17 ‘‘SEC. 139G. ASSIGNMENTS TO ALASKA NATIVE SETTLE18 MENT TRUSTS. 

19 ‘‘(a) IN GENERAL.—In the case of a Native Corpora20 tion, gross income shall not include the value of any pay21 ments that would otherwise be made, or treated as being 

22 made, to such Native Corporation pursuant to, or as re23 quired by, any provision of the Alaska Native Claims Set24 tlement Act (43 U.S.C. 1601 et seq.), including any pay25 ment that would otherwise be made to a Village Corporation 
333 

† HR 1 EAS2 

1 pursuant to section 7(j) of the Alaska Native Claims Settle2 ment Act (43 U.S.C. 1606(j)), provided that any such pay3 ments— 

4 ‘‘(1) are assigned in writing to a Settlement 

5 Trust, and 

6 ‘‘(2) were not received by such Native Corpora7 tion prior to the assignment described in paragraph 

8 (1). 

9 ‘‘(b) INCLUSION IN GROSS INCOME.—In the case of a 

10 Settlement Trust which has been assigned payments de11 scribed in subsection (a), gross income shall include such 

12 payments when received by such Settlement Trust pursuant 

13 to the assignment and shall have the same character as if 

14 such payments were received by the Native Corporation. 

15 ‘‘(c) AMOUNT AND SCOPE OF ASSIGNMENT.—The 

16 amount and scope of any assignment under subsection (a) 

17 shall be described with reasonable particularity and may 

18 either be in a percentage of one or more such payments or 

19 in a fixed dollar amount. 

20 ‘‘(d) DURATION OF ASSIGNMENT; REVOCABILITY.— 

21 Any assignment under subsection (a) shall specify— 

22 ‘‘(1) a duration either in perpetuity or for a pe23 riod of time, and 

24 ‘‘(2) whether such assignment is revocable. 
334 

† HR 1 EAS2 

1 ‘‘(e) PROHIBITION ON DEDUCTION.—Notwithstanding 

2 section 247, no deduction shall be allowed to a Native Cor3 poration for purposes of any amounts described in sub4 section (a). 

5 ‘‘(f) DEFINITIONS.—For purposes of this section, the 

6 terms ‘Native Corporation’ and ‘Settlement Trust’ have the 

7 same meaning given such terms under section 646(h).’’. 

8 (2) CONFORMING AMENDMENT.—The table of sec9 tions for part III of subchapter B of chapter 1 is 

10 amended by inserting before the item relating to sec11 tion 140 the following new item: 

‘‘Sec. 139G. Assignments to Alaska Native Settlement Trusts.’’. 

12 (3) EFFECTIVE DATE.—The amendments made 

13 by this subsection shall apply to taxable years begin14 ning after December 31, 2016. 

15 (b) DEDUCTION OF CONTRIBUTIONS TO ALASKA NA16 TIVE SETTLEMENT TRUSTS.— 

17 (1) IN GENERAL.—Part VIII of subchapter B of 

18 chapter 1 is amended by inserting before section 248 

19 the following new section: 

20 ‘‘SEC. 247. CONTRIBUTIONS TO ALASKA NATIVE SETTLE21 MENT TRUSTS. 

22 ‘‘(a) IN GENERAL.—In the case of a Native Corpora23 tion, there shall be allowed a deduction for any contribu24 tions made by such Native Corporation to a Settlement 

25 Trust (regardless of whether an election under section 646 
335 

† HR 1 EAS2 

1 is in effect for such Settlement Trust) for which the Native 

2 Corporation has made an annual election under subsection 

3 (e). 

4 ‘‘(b) AMOUNT OF DEDUCTION.—The amount of the de5 duction under subsection (a) shall be equal to— 

6 ‘‘(1) in the case of a cash contribution (regard7 less of the method of payment, including currency, 

8 coins, money order, or check), the amount of such con9 tribution, or 

10 ‘‘(2) in the case of a contribution not described 

11 in paragraph (1), the lesser of— 

12 ‘‘(A) the Native Corporation’s adjusted basis 

13 in the property contributed, or 

14 ‘‘(B) the fair market value of the property 

15 contributed. 

16 ‘‘(c) LIMITATION AND CARRYOVER.— 

17 ‘‘(1) IN GENERAL.—Subject to paragraph (2), the 

18 deduction allowed under subsection (a) for any tax19 able year shall not exceed the taxable income (as de20 termined without regard to such deduction) of the Na21 tive Corporation for the taxable year in which the 

22 contribution was made. 

23 ‘‘(2) CARRYOVER.—If the aggregate amount of 

24 contributions described in subsection (a) for any tax25 able year exceeds the limitation under paragraph (1), 
336 

† HR 1 EAS2 

1 such excess shall be treated as a contribution described 

2 in subsection (a) in each of the 15 succeeding years 

3 in order of time. 

4 ‘‘(d) DEFINITIONS.—For purposes of this section, the 

5 terms ‘Native Corporation’ and ‘Settlement Trust’ have the 

6 same meaning given such terms under section 646(h). 

7 ‘‘(e) MANNER OF MAKING ELECTION.— 

8 ‘‘(1) IN GENERAL.—For each taxable year, a Na9 tive Corporation may elect to have this section apply 

10 for such taxable year on the income tax return or an 

11 amendment or supplement to the return of the Native 

12 Corporation, with such election to have effect solely 

13 for such taxable year. 

14 ‘‘(2) REVOCATION.—Any election made by a Na15 tive Corporation pursuant to this subsection may be 

16 revoked pursuant to a timely filed amendment or sup17 plement to the income tax return of such Native Cor18 poration. 

19 ‘‘(f) ADDITIONAL RULES.— 

20 ‘‘(1) EARNINGS AND PROFITS.—Notwithstanding 

21 section 646(d)(2), in the case of a Native Corporation 

22 which claims a deduction under this section for any 

23 taxable year, the earnings and profits of such Native 

24 Corporation for such taxable year shall be reduced by 

25 the amount of such deduction. 
337 

† HR 1 EAS2 

1 ‘‘(2) GAIN OR LOSS.—No gain or loss shall be 

2 recognized by the Native Corporation with respect to 

3 a contribution of property for which a deduction is 

4 allowed under this section. 

5 ‘‘(3) INCOME.—Subject to subsection (g), a Set6 tlement Trust shall include in income the amount of 

7 any deduction allowed under this section in the tax8 able year in which the Settlement Trust actually re9 ceives such contribution. 

10 ‘‘(4) PERIOD.—The holding period under section 

11 1223 of the Settlement Trust shall include the period 

12 the property was held by the Native Corporation. 

13 ‘‘(5) BASIS.—The basis that a Settlement Trust 

14 has for which a deduction is allowed under this sec15 tion shall be equal to the lesser of— 

16 ‘‘(A) the adjusted basis of the Native Cor17 poration in such property immediately before 

18 such contribution, or 

19 ‘‘(B) the fair market value of the property 

20 immediately before such contribution. 

21 ‘‘(6) PROHIBITION.—No deduction shall be al22 lowed under this section with respect to any contribu23 tions made to a Settlement Trust which are in viola24 tion of subsection (a)(2) or (c)(2) of section 39 of the 
338 

† HR 1 EAS2 

1 Alaska Native Claims Settlement Act (43 U.S.C. 

2 1629e). 

3 ‘‘(g) ELECTION BY SETTLEMENT TRUST TO DEFER IN4 COME RECOGNITION.— 

5 ‘‘(1) IN GENERAL.—In the case of a contribution 

6 which consists of property other than cash, a Settle7 ment Trust may elect to defer recognition of any in8 come related to such property until the sale or ex9 change of such property, in whole or in part, by the 

10 Settlement Trust. 

11 ‘‘(2) TREATMENT.—In the case of property de12 scribed in paragraph (1), any income or gain realized 

13 on the sale or exchange of such property shall be 

14 treated as— 

15 ‘‘(A) for such amount of the income or gain 

16 as is equal to or less than the amount of income 

17 which would be included in income at the time 

18 of contribution under subsection (f)(3) but for the 

19 taxpayer’s election under this subsection, ordi20 nary income, and 

21 ‘‘(B) for any amounts of the income or gain 

22 which are in excess of the amount of income 

23 which would be included in income at the time 

24 of contribution under subsection (f)(3) but for the 

25 taxpayer’s election under this subsection, having 
339 

† HR 1 EAS2 

1 the same character as if this subsection did not 

2 apply. 

3 ‘‘(3) ELECTION.— 

4 ‘‘(A) IN GENERAL.—For each taxable year, 

5 a Settlement Trust may elect to apply this sub6 section for any property described in paragraph 

7 (1) which was contributed during such year. Any 

8 property to which the election applies shall be 

9 identified and described with reasonable particu10 larity on the income tax return or an amend11 ment or supplement to the return of the Settle12 ment Trust, with such election to have effect sole13 ly for such taxable year. 

14 ‘‘(B) REVOCATION.—Any election made by 

15 a Settlement Trust pursuant to this subsection 

16 may be revoked pursuant to a timely filed 

17 amendment or supplement to the income tax re18 turn of such Settlement Trust. 

19 ‘‘(C) CERTAIN DISPOSITIONS.— 

20 ‘‘(i) IN GENERAL.—In the case of any 

21 property for which an election is in effect 

22 under this subsection and which is disposed 

23 of within the first taxable year subsequent 

24 to the taxable year in which such property 

25 was contributed to the Settlement Trust— 
340 

† HR 1 EAS2 

1 ‘‘(I) this section shall be applied 

2 as if the election under this subsection 

3 had not been made, 

4 ‘‘(II) any income or gain which 

5 would have been included in the year 

6 of contribution under subsection (f)(3) 

7 but for the taxpayer’s election under 

8 this subsection shall be included in in9 come for the taxable year of such con10 tribution, and 

11 ‘‘(III) the Settlement Trust shall 

12 pay any increase in tax resulting from 

13 such inclusion, including any applica14 ble interest, and increased by 10 per15 cent of the amount of such increase 

16 with interest. 

17 ‘‘(ii) ASSESSMENT.—Notwithstanding 

18 section 6501(a), any amount described in 

19 subclause (III) of clause (i) may be assessed, 

20 or a proceeding in court with respect to 

21 such amount may be initiated without as22 sessment, within 4 years after the date on 

23 which the return making the election under 

24 this subsection for such property was filed.’’. 
341 

† HR 1 EAS2 

1 (2) CONFORMING AMENDMENT.—The table of sec2 tions for part VIII of subchapter B of chapter 1 is 

3 amended by inserting before the item relating to sec4 tion 248 the following new item: 

‘‘Sec. 247. Contributions to Alaska Native Settlement Trusts.’’. 

5 (3) EFFECTIVE DATE.— 

6 (A) IN GENERAL.—The amendments made 

7 by this subsection shall apply to taxable years 

8 for which the period of limitation on refund or 

9 credit under section 6511 of the Internal Rev10 enue Code of 1986 has not expired. 

11 (B) ONE-YEAR WAIVER OF STATUTE OF LIM12 ITATIONS.—If the period of limitation on a cred13 it or refund resulting from the amendments 

14 made by paragraph (1) expires before the end of 

15 the 1-year period beginning on the date of the 

16 enactment of this Act, refund or credit of such 

17 overpayment (to the extent attributable to such 

18 amendments) may, nevertheless, be made or al19 lowed if claim therefor is filed before the close of 

20 such 1-year period. 

21 (c) INFORMATION REPORTING FOR DEDUCTIBLE CON22 TRIBUTIONS TO ALASKA NATIVE SETTLEMENT TRUSTS.— 

23 (1) IN GENERAL.—Section 6039H is amended— 

24 (A) in the heading, by striking ‘‘SPON25 SORING’’, and 
342 

† HR 1 EAS2 

1 (B) by adding at the end the following new 

2 subsection: 

3 ‘‘(e) DEDUCTIBLE CONTRIBUTIONS BY NATIVE COR4 PORATIONS TO ALASKA NATIVE SETTLEMENT TRUSTS.— 

5 ‘‘(1) IN GENERAL.—Any Native Corporation (as 

6 defined in subsection (m) of section 3 of the Alaska 

7 Native Claims Settlement Act (43 U.S.C. 1602(m))) 

8 which has made a contribution to a Settlement Trust 

9 (as defined in subsection (t) of such section) to which 

10 an election under subsection (e) of section 247 applies 

11 shall provide such Settlement Trust with a statement 

12 regarding such election not later than January 31 of 

13 the calendar year subsequent to the calendar year in 

14 which the contribution was made. 

15 ‘‘(2) CONTENT OF STATEMENT.—The statement 

16 described in paragraph (1) shall include— 

17 ‘‘(A) the total amount of contributions to 

18 which the election under subsection (e) of section 

19 247 applies, 

20 ‘‘(B) for each contribution, whether such 

21 contribution was in cash, 

22 ‘‘(C) for each contribution which consists of 

23 property other than cash, the date that such 

24 property was acquired by the Native Corporation 

25 and the adjusted basis and fair market value of 
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† HR 1 EAS2 

1 such property on the date such property was con2 tributed to the Settlement Trust, 

3 ‘‘(D) the date on which each contribution 

4 was made to the Settlement Trust, and 

5 ‘‘(E) such information as the Secretary de6 termines to be necessary or appropriate for the 

7 identification of each contribution and the accu8 rate inclusion of income relating to such con9 tributions by the Settlement Trust.’’. 

10 (2) CONFORMING AMENDMENT.—The item relat11 ing to section 6039H in the table of sections for sub12 part A of part III of subchapter A of chapter 61 is 

13 amended to read as follows: 

‘‘Sec. 6039H. Information With Respect to Alaska Native Settlement Trusts and 

Native Corporations.’’. 

14 (3) EFFECTIVE DATE.—The amendments made 

15 by this subsection shall apply to taxable years begin16 ning after December 31, 2016. 

17 SEC. 13822. AMOUNTS PAID FOR AIRCRAFT MANAGEMENT 

18 SERVICES. 

19 (a) IN GENERAL.—Subsection (e) of section 4261 is 

20 amended by adding at the end the following new paragraph: 

21 ‘‘(5) AMOUNTS PAID FOR AIRCRAFT MANAGE22 MENT SERVICES.— 

23 ‘‘(A) IN GENERAL.—No tax shall be imposed 

24 by this section or section 4271 on any amounts 
344 

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1 paid by an aircraft owner for aircraft manage2 ment services related to— 

3 ‘‘(i) maintenance and support of the 

4 aircraft owner’s aircraft, or 

5 ‘‘(ii) flights on the aircraft owner’s air6 craft. 

7 ‘‘(B) AIRCRAFT MANAGEMENT SERVICES.— 

8 For purposes of subparagraph (A), the term ‘air9 craft management services’ includes— 

10 ‘‘(i) assisting an aircraft owner with 

11 administrative and support services, such 

12 as scheduling, flight planning, and weather 

13 forecasting, 

14 ‘‘(ii) obtaining insurance, 

15 ‘‘(iii) maintenance, storage and fueling 

16 of aircraft, 

17 ‘‘(iv) hiring, training, and provision of 

18 pilots and crew, 

19 ‘‘(v) establishing and complying with 

20 safety standards, and 

21 ‘‘(vi) such other services as are nec22 essary to support flights operated by an air23 craft owner. 

24 ‘‘(C) LESSEE TREATED AS AIRCRAFT

25 OWNER.— 
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† HR 1 EAS2 

1 ‘‘(i) IN GENERAL.—For purposes of 

2 this paragraph, the term ‘aircraft owner’ 

3 includes a person who leases the aircraft 

4 other than under a disqualified lease. 

5 ‘‘(ii) DISQUALIFIED LEASE.—For pur6 poses of clause (i), the term ‘disqualified 

7 lease’ means a lease from a person pro8 viding aircraft management services with 

9 respect to such aircraft (or a related person 

10 (within the meaning of section 

11 465(b)(3)(C)) to the person providing such 

12 services), if such lease is for a term of 31 

13 days or less. 

14 ‘‘(D) PRO RATA ALLOCATION.—In the case 

15 of amounts paid to any person which (but for 

16 this subsection) are subject to the tax imposed by 

17 subsection (a), a portion of which consists of 

18 amounts described in subparagraph (A), this 

19 paragraph shall apply on a pro rata basis only 

20 to the portion which consists of amounts de21 scribed in such subparagraph.’’. 

22 (b) EFFECTIVE DATE.—The amendment made by this 

23 section shall apply to amounts paid after the date of the 

24 enactment of this Act. 
346 

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1 SEC. 13823. OPPORTUNITY ZONES. 

2 (a) IN GENERAL.—Chapter 1 is amended by adding 

3 at the end the following: 

4 ‘‘Subchapter Z—Opportunity Zones 

‘‘Sec. 1400Z–1. Designation. 

‘‘Sec. 1400Z–2. Special rules for capital gains invested in opportunity zones. 

5 ‘‘SEC. 1400Z–1. DESIGNATION. 

6 ‘‘(a) QUALIFIED OPPORTUNITY ZONE DEFINED.—For 

7 the purposes of this subchapter, the term ‘qualified oppor8 tunity zone’ means a population census tract that is a low9 income community that is designated as a qualified oppor10 tunity zone. 

11 ‘‘(b) DESIGNATION.— 

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

13 (a), a population census tract that is a low-income 

14 community is designated as a qualified opportunity 

15 zone if— 

16 ‘‘(A) not later than the end of the deter17 mination period, the chief executive officer of the 

18 State in which the tract is located— 

19 ‘‘(i) nominates the tract for designa20 tion as a qualified opportunity zone, and 

21 ‘‘(ii) notifies the Secretary in writing 

22 of such nomination, and 

23 ‘‘(B) the Secretary certifies such nomina24 tion and designates such tract as a qualified op-
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1 portunity zone before the end of the consideration 

2 period. 

3 ‘‘(2) EXTENSION OF PERIODS.—A chief executive 

4 officer of a State may request that the Secretary ex5 tend either the determination or consideration period, 

6 or both (determined without regard to this subpara7 graph), for an additional 30 days. 

8 ‘‘(c) OTHER DEFINITIONS.—For purposes of this sub9 section— 

10 ‘‘(1) LOW-INCOME COMMUNITIES.—The term 

11 ‘low-income community’ has the same meaning as 

12 when used in section 45D(e). 

13 ‘‘(2) DEFINITION OF PERIODS.— 

14 ‘‘(A) CONSIDERATION PERIOD.—The term 

15 ‘consideration period’ means the 30-day period 

16 beginning on the date on which the Secretary re17 ceives notice under subsection (b)(1)(A)(ii), as 

18 extended under subsection (b)(2). 

19 ‘‘(B) DETERMINATION PERIOD.—The term 

20 ‘determination period’ means the 90-day period 

21 beginning on the date of the enactment of the 

22 Tax Cuts and Jobs Act, as extended under sub23 section (b)(2). 
348 

† HR 1 EAS2 

1 ‘‘(3) STATE.—For purposes of this section, the 

2 term ‘State’ includes any possession of the United 

3 States. 

4 ‘‘(d) NUMBER OF DESIGNATIONS.— 

5 ‘‘(1) IN GENERAL.—Except as provided by para6 graph (2), the number of population census tracts in 

7 a State that may be designated as qualified oppor8 tunity zones under this section may not exceed 25 

9 percent of the number of low-income communities in 

10 the State. 

11 ‘‘(2) EXCEPTION.—If the number of low-income 

12 communities in a State is less than 100, then a total 

13 of 25 of such tracts may be designated as qualified 

14 opportunity zones. 

15 ‘‘(e) DESIGNATION OF TRACTS CONTIGUOUS WITH

16 LOW-INCOME COMMUNITIES.— 

17 ‘‘(1) IN GENERAL.—A population census tract 

18 that is not a low-income community may be des19 ignated as a qualified opportunity zone under this 

20 section if— 

21 ‘‘(A) the tract is contiguous with the low-in22 come community that is designated as a quali23 fied opportunity zone, and 

24 ‘‘(B) the median family income of the tract 

25 does not exceed 125 percent of the median family 
349 

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1 income of the low-income community with which 

2 the tract is contiguous. 

3 ‘‘(2) LIMITATION.—Not more than 5 percent of 

4 the population census tracts designated in a State as 

5 a qualified opportunity zone may be designated under 

6 paragraph (1). 

7 ‘‘(f) PERIOD FOR WHICH DESIGNATION IS IN EF8 FECT.—A designation as a qualified opportunity zone shall 

9 remain in effect for the period beginning on the date of the 

10 designation and ending at the close of the 10th calendar 

11 year beginning on or after such date of designation. 

12 ‘‘SEC. 1400Z–2. SPECIAL RULES FOR CAPITAL GAINS IN13 VESTED IN OPPORTUNITY ZONES. 

14 ‘‘(a) IN GENERAL.— 

15 ‘‘(1) TREATMENT OF GAINS.—In the case of gain 

16 from the sale to, or exchange with, an unrelated per17 son of any property held by the taxpayer, at the elec18 tion of the taxpayer— 

19 ‘‘(A) gross income for the taxable year shall 

20 not include so much of such gain as does not ex21 ceed the aggregate amount invested by the tax22 payer in a qualified opportunity fund during 

23 the 180-day period beginning on the date of such 

24 sale or exchange, 
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1 ‘‘(B) the amount of gain excluded by sub2 paragraph (A) shall be included in gross income 

3 as provided by subsection (b), and 

4 ‘‘(C) subsection (c) shall apply. 

5 ‘‘(2) ELECTION.—No election may be made 

6 under paragraph (1)— 

7 ‘‘(A) with respect to a sale or exchange if an 

8 election previously made with respect to such 

9 sale or exchange is in effect, or 

10 ‘‘(B) with respect to any sale or exchange 

11 after December 31, 2026. 

12 ‘‘(b) DEFERRAL OF GAIN INVESTED IN OPPORTUNITY

13 ZONE PROPERTY.— 

14 ‘‘(1) YEAR OF INCLUSION.—Gain to which sub15 section (a)(1)(B) applies shall be included in income 

16 in the taxable year which includes the earlier of— 

17 ‘‘(A) the date on which such investment is 

18 sold or exchanged, or 

19 ‘‘(B) December 31, 2026. 

20 ‘‘(2) AMOUNT INCLUDIBLE.— 

21 ‘‘(A) IN GENERAL.—The amount of gain in22 cluded in gross income under subsection 

23 (a)(1)(A) shall be the excess of— 

24 ‘‘(i) the lesser of the amount of gain ex25 cluded under paragraph (1) or the fair 
351 

† HR 1 EAS2 

1 market value of the investment as deter2 mined as of the date described in paragraph 

3 (1), over 

4 ‘‘(ii) the taxpayer’s basis in the invest5 ment. 

6 ‘‘(B) DETERMINATION OF BASIS.— 

7 ‘‘(i) IN GENERAL.—Except as otherwise 

8 provided in this clause or subsection (c), the 

9 taxpayer’s basis in the investment shall be 

10 zero. 

11 ‘‘(ii) INCREASE FOR GAIN RECOGNIZED

12 UNDER SUBSECTION (a)(1)(B).—The basis 

13 in the investment shall be increased by the 

14 amount of gain recognized by reason of sub15 section (a)(1)(B) with respect to such prop16 erty. 

17 ‘‘(iii) INVESTMENTS HELD FOR 5

18 YEARS.—In the case of any investment held 

19 for at least 5 years, the basis of such invest20 ment shall be increased by an amount equal 

21 to 10 percent of the amount of gain deferred 

22 by reason of subsection (a)(1)(A). 

23 ‘‘(iv) INVESTMENTS HELD FOR 7

24 YEARS.—In the case of any investment held 

25 by the taxpayer for at least 7 years, in ad-
352 

† HR 1 EAS2 

1 dition to any adjustment made under clause 

2 (iii), the basis of such property shall be in3 creased by an amount equal to 5 percent of 

4 the amount of gain deferred by reason of 

5 subsection (a)(1)(A). 

6 ‘‘(c) SPECIAL RULE FOR INVESTMENTS HELD FOR AT

7 LEAST 10 YEARS.—In the case of any investment held by 

8 the taxpayer for at least 10 years and with respect to which 

9 the taxpayer makes an election under this clause, the basis 

10 of such property shall be equal to the fair market value of 

11 such investment on the date that the investment is sold or 

12 exchanged. 

13 ‘‘(d) QUALIFIED OPPORTUNITY FUND.—For purposes 

14 of this section— 

15 ‘‘(1) IN GENERAL.—The term ‘qualified oppor16 tunity fund’ means any investment vehicle which is 

17 organized as a corporation or a partnership for the 

18 purpose of investing in qualified opportunity zone 

19 property (other than another qualified opportunity 

20 fund) that holds at least 90 percent of its assets in 

21 qualified opportunity zone property, determined by 

22 the average of the percentage of qualified opportunity 

23 zone property held in the fund as measured— 

24 ‘‘(A) on the last day of the first 6-month pe25 riod of the taxable year of the fund, and 
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1 ‘‘(B) on the last day of the taxable year of 

2 the fund. 

3 ‘‘(2) QUALIFIED OPPORTUNITY ZONE PROP4 ERTY.— 

5 ‘‘(A) IN GENERAL.—The term ‘qualified op6 portunity zone property’ means property which 

7 is— 

8 ‘‘(i) qualified opportunity zone stock, 

9 ‘‘(ii) qualified opportunity zone part10 nership interest, or 

11 ‘‘(iii) qualified opportunity zone busi12 ness property. 

13 ‘‘(B) QUALIFIED OPPORTUNITY ZONE

14 STOCK.— 

15 ‘‘(i) IN GENERAL.—Except as provided 

16 in clause (ii), the term ‘qualified oppor17 tunity zone stock’ means any stock in a do18 mestic corporation if— 

19 ‘‘(I) such stock is acquired by the 

20 qualified opportunity fund after De21 cember 31, 2017, at its original issue 

22 (directly or through an underwriter) 

23 from the corporation solely in exchange 

24 for cash, 
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1 ‘‘(II) as of the time such stock was 

2 issued, such corporation was a quali3 fied opportunity zone business (or, in 

4 the case of a new corporation, such cor5 poration was being organized for pur6 poses of being a qualified opportunity 

7 zone business), and 

8 ‘‘(III) during substantially all of 

9 the qualified opportunity fund’s hold10 ing period for such stock, such corpora11 tion qualified as a qualified oppor12 tunity zone business. 

13 ‘‘(ii) REDEMPTIONS.—A rule similar 

14 to the rule of section 1202(c)(3) shall apply 

15 for purposes of this paragraph. 

16 ‘‘(C) QUALIFIED OPPORTUNITY ZONE PART17 NERSHIP INTEREST.—The term ‘qualified oppor18 tunity zone partnership interest’ means any cap19 ital or profits interest in a domestic partnership 

20 if— 

21 ‘‘(i) such interest is acquired by the 

22 qualified opportunity fund after December 

23 31, 2017, from the partnership solely in ex24 change for cash, 
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1 ‘‘(ii) as of the time such interest was 

2 acquired, such partnership was a qualified 

3 opportunity zone business (or, in the case of 

4 a new partnership, such partnership was 

5 being organized for purposes of being a 

6 qualified opportunity zone business), and 

7 ‘‘(iii) during substantially all of the 

8 qualified opportunity fund’s holding period 

9 for such interest, such partnership qualified 

10 as a qualified opportunity zone business. 

11 ‘‘(D) QUALIFIED OPPORTUNITY ZONE BUSI12 NESS PROPERTY.— 

13 ‘‘(i) IN GENERAL.—The term ‘qualified 

14 opportunity zone business property’ means 

15 tangible property used in a trade or busi16 ness of the qualified opportunity fund if— 

17 ‘‘(I) such property was acquired 

18 by the qualified opportunity fund by 

19 purchase (as defined in section 

20 179(d)(2)) after December 31, 2017, 

21 ‘‘(II) the original use of such 

22 property in the qualified opportunity 

23 zone commences with the qualified op24 portunity fund or the qualified oppor-
356 

† HR 1 EAS2 

1 tunity fund substantially improves the 

2 property, and 

3 ‘‘(III) during substantially all of 

4 the qualified opportunity fund’s hold5 ing period for such property, substan6 tially all of the use of such property 

7 was in a qualified opportunity zone. 

8 ‘‘(ii) SUBSTANTIAL IMPROVEMENT.— 

9 For purposes of subparagraph (A)(ii), prop10 erty shall be treated as substantially im11 proved by the qualified opportunity fund 

12 only if, during any 30-month period begin13 ning after the date of acquisition of such 

14 property, additions to basis with respect to 

15 such property in the hands of the qualified 

16 opportunity fund exceed an amount equal 

17 to the adjusted basis of such property at the 

18 beginning of such 30-month period in the 

19 hands of the qualified opportunity fund. 

20 ‘‘(iii) RELATED PARTY.—For purposes 

21 of subparagraph (A)(i), the related person 

22 rule of section 179(d)(2) shall be applied 

23 pursuant to paragraph (8) of this sub24 section in lieu of the application of such 

25 rule in section 179(d)(2)(A). 
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1 ‘‘(3) QUALIFIED OPPORTUNITY ZONE BUSI2 NESS.— 

3 ‘‘(A) IN GENERAL.—The term ‘qualified op4 portunity zone business’ means a trade or busi5 ness— 

6 ‘‘(i) in which substantially all of the 

7 tangible property owned or leased by the 

8 taxpayer is qualified opportunity zone busi9 ness property (determined by substituting 

10 ‘qualified opportunity zone business’ for 

11 ‘qualified opportunity fund’ each place it 

12 appears in paragraph (2)(D)), 

13 ‘‘(ii) which satisfies the requirements of 

14 paragraphs (2), (4), and (8) of section 

15 1397C(b), and 

16 ‘‘(iii) which is not described in section 

17 144(c)(6)(B). 

18 ‘‘(B) SPECIAL RULE.—For purposes of sub19 paragraph (A), tangible property that ceases to 

20 be a qualified opportunity zone business prop21 erty shall continue to be treated as a qualified 

22 opportunity zone business property for the lesser 

23 of— 
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1 ‘‘(i) 5 years after the date on which 

2 such tangible property ceases to be so quali3 fied, or 

4 ‘‘(ii) the date on which such tangible 

5 property is no longer held by the qualified 

6 opportunity zone business. 

7 ‘‘(e) APPLICABLE RULES.— 

8 ‘‘(1) TREATMENT OF INVESTMENTS WITH MIXED

9 FUNDS.—In the case of any investment in a qualified 

10 opportunity fund only a portion of which consists of 

11 investments of gain to which an election under sub12 section (a) is in effect— 

13 ‘‘(A) such investment shall be treated as 2 

14 separate investments, consisting of— 

15 ‘‘(i) one investment that only includes 

16 amounts to which the election under sub17 section (a) applies, and 

18 ‘‘(ii) a separate investment consisting 

19 of other amounts, and 

20 ‘‘(B) subsections (a), (b), and (c) shall only 

21 apply to the investment described in subpara22 graph (A)(i). 

23 ‘‘(2) RELATED PERSONS.—For purposes of this 

24 section, persons are related to each other if such per25 sons are described in section 267(b) or 707(b)(1), de-
359 

† HR 1 EAS2 

1 termined by substituting ‘20 percent’ for ‘50 percent’ 

2 each place it occurs in such sections. 

3 ‘‘(3) DECEDENTS.—In the case of a decedent, 

4 amounts recognized under this section shall, if not 

5 properly includible in the gross income of the dece6 dent, be includible in gross income as provided by sec7 tion 691. 

8 ‘‘(4) REGULATIONS.—The Secretary shall pre9 scribe such regulations as may be necessary or appro10 priate to carry out the purposes of this section, in11 cluding— 

12 ‘‘(A) rules for the certification of qualified 

13 opportunity funds for the purposes of this sec14 tion, 

15 ‘‘(B) rules to ensure a qualified opportunity 

16 fund has a reasonable period of time to reinvest 

17 the return of capital from investments in quali18 fied opportunity zone stock and qualified oppor19 tunity zone partnership interests, and to reinvest 

20 proceeds received from the sale or disposition of 

21 qualified opportunity zone property, and 

22 ‘‘(C) rules to prevent abuse. 

23 ‘‘(f) FAILURE OF QUALIFIED OPPORTUNITY FUND TO

24 MAINTAIN INVESTMENT STANDARD.— 
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† HR 1 EAS2 

1 ‘‘(1) IN GENERAL.—If a qualified opportunity 

2 fund fails to meet the 90-percent requirement of sub3 section (c)(1), the qualified opportunity fund shall 

4 pay a penalty for each month it fails to meet the re5 quirement in an amount equal to the product of— 

6 ‘‘(A) the excess of— 

7 ‘‘(i) the amount equal to 90 percent of 

8 its aggregate assets, over 

9 ‘‘(ii) the aggregate amount of qualified 

10 opportunity zone property held by the fund, 

11 multiplied by 

12 ‘‘(B) the underpayment rate established 

13 under section 6621(a)(2) for such month. 

14 ‘‘(2) SPECIAL RULE FOR PARTNERSHIPS.—In the 

15 case that the qualified opportunity fund is a partner16 ship, the penalty imposed by paragraph (1) shall be 

17 taken into account proportionately as part of the dis18 tributive share of each partner of the partnership. 

19 ‘‘(3) REASONABLE CAUSE EXCEPTION.—No pen20 alty shall be imposed under this subsection with re21 spect to any failure if it is shown that such failure 

22 is due to reasonable cause.’’. 

23 (b) BASIS ADJUSTMENTS.—Section 1016(a) is amend24 ed by striking ‘‘and’’ at the end of paragraph (36), by strik25 ing the period at the end of paragraph (37) and inserting 
361 

† HR 1 EAS2 

1 ‘‘, and’’, and by inserting after paragraph (37) the fol2 lowing: 

3 ‘‘(38) to the extent provided in subsections (b)(2) 

4 and (c) of section 1400Z–2.’’. 

5 (c) CLERICAL AMENDMENT.—The table of subchapters 

6 for chapter 1 is amended by adding at the end the following 

7 new item: 

‘‘SUBCHAPTER Z. OPPORTUNITY ZONES’’. 

8 (d) EFFECTIVE DATE.—The amendments made by this 

9 section shall take effect on the date of the enactment of this 

10 Act. 

11 Subtitle D—International Tax 

12 Provisions 

13 PART I—OUTBOUND TRANSACTIONS 

14 Subpart A—Establishment of Participation 

15 Exemption System for Taxation of Foreign Income 

16 SEC. 14101. DEDUCTION FOR FOREIGN-SOURCE PORTION 

17 OF DIVIDENDS RECEIVED BY DOMESTIC COR18 PORATIONS FROM SPECIFIED 10-PERCENT 

19 OWNED FOREIGN CORPORATIONS. 

20 (a) IN GENERAL.—Part VIII of subchapter B of chap21 ter 1 is amended by inserting after section 245 the following 

22 new section: 
362 

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1 ‘‘SEC. 245A. DEDUCTION FOR FOREIGN SOURCE-PORTION 

2 OF DIVIDENDS RECEIVED BY DOMESTIC COR3 PORATIONS FROM SPECIFIED 10-PERCENT 

4 OWNED FOREIGN CORPORATIONS. 

5 ‘‘(a) IN GENERAL.—In the case of any dividend re6 ceived from a specified 10-percent owned foreign corpora7 tion by a domestic corporation which is a United States 

8 shareholder with respect to such foreign corporation, there 

9 shall be allowed as a deduction an amount equal to the for10 eign-source portion of such dividend. 

11 ‘‘(b) SPECIFIED 10-PERCENT OWNED FOREIGN COR12 PORATION.—For purposes of this section— 

13 ‘‘(1) IN GENERAL.—The term ‘specified 10-per14 cent owned foreign corporation’ means any foreign 

15 corporation with respect to which any domestic cor16 poration is a United States shareholder with respect 

17 to such corporation. 

18 ‘‘(2) EXCLUSION OF PASSIVE FOREIGN INVEST19 MENT COMPANIES.—Such term shall not include any 

20 corporation which is a passive foreign investment 

21 company (as defined in section 1297) with respect to 

22 the shareholder and which is not a controlled foreign 

23 corporation. 

24 ‘‘(c) FOREIGN-SOURCE PORTION.—For purposes of this 

25 section— 
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† HR 1 EAS2 

1 ‘‘(1) IN GENERAL.—The foreign-source portion of 

2 any dividend from a specified 10-percent owned for3 eign corporation is an amount which bears the same 

4 ratio to such dividend as— 

5 ‘‘(A) the undistributed foreign earnings of 

6 the specified 10-percent owned foreign corpora7 tion, bears to 

8 ‘‘(B) the total undistributed earnings of 

9 such foreign corporation. 

10 ‘‘(2) UNDISTRIBUTED EARNINGS.—The term ‘un11 distributed earnings’ means the amount of the earn12 ings and profits of the specified 10-percent owned for13 eign corporation (computed in accordance with sec14 tions 964(a) and 986)— 

15 ‘‘(A) as of the close of the taxable year of the 

16 specified 10-percent owned foreign corporation in 

17 which the dividend is distributed, and 

18 ‘‘(B) without diminution by reason of divi19 dends distributed during such taxable year. 

20 ‘‘(3) UNDISTRIBUTED FOREIGN EARNINGS.—The 

21 term ‘undistributed foreign earnings’ means the por22 tion of the undistributed earnings which is attrib23 utable to neither— 

24 ‘‘(A) income described in subparagraph (A) 

25 of section 245(a)(5), nor 
364 

† HR 1 EAS2 

1 ‘‘(B) dividends described in subparagraph 

2 (B) of such section (determined without regard to 

3 section 245(a)(12)). 

4 ‘‘(d) DISALLOWANCE OF FOREIGN TAX CREDIT, ETC.— 

5 ‘‘(1) IN GENERAL.—No credit shall be allowed 

6 under section 901 for any taxes paid or accrued (or 

7 treated as paid or accrued) with respect to any divi8 dend for which a deduction is allowed under this sec9 tion. 

10 ‘‘(2) DENIAL OF DEDUCTION.—No deduction 

11 shall be allowed under this chapter for any tax for 

12 which credit is not allowable under section 901 by 

13 reason of paragraph (1) (determined by treating the 

14 taxpayer as having elected the benefits of subpart A 

15 of part III of subchapter N). 

16 ‘‘(e) SPECIAL RULES FOR HYBRID DIVIDENDS.— 

17 ‘‘(1) IN GENERAL.—Subsection (a) shall not 

18 apply to any dividend received by a United States 

19 shareholder from a controlled foreign corporation if 

20 the dividend is a hybrid dividend. 

21 ‘‘(2) HYBRID DIVIDENDS OF TIERED CORPORA22 TIONS.—If a controlled foreign corporation with re23 spect to which a domestic corporation is a United 

24 States shareholder receives a hybrid dividend from 

25 any other controlled foreign corporation with respect 
365 

† HR 1 EAS2 

1 to which such domestic corporation is also a United 

2 States shareholder, then, notwithstanding any other 

3 provision of this title— 

4 ‘‘(A) the hybrid dividend shall be treated for 

5 purposes of section 951(a)(1)(A) as subpart F in6 come of the receiving controlled foreign corpora7 tion for the taxable year of the controlled foreign 

8 corporation in which the dividend was received, 

9 and 

10 ‘‘(B) the United States shareholder shall in11 clude in gross income an amount equal to the 

12 shareholder’s pro rata share (determined in the 

13 same manner as under section 951(a)(2)) of the 

14 subpart F income described in subparagraph 

15 (A). 

16 ‘‘(3) DENIAL OF FOREIGN TAX CREDIT, ETC.— 

17 The rules of subsection (d) shall apply to any hybrid 

18 dividend received by, or any amount included under 

19 paragraph (2) in the gross income of, a United States 

20 shareholder. 

21 ‘‘(4) HYBRID DIVIDEND.—The term ‘hybrid divi22 dend’ means an amount received from a controlled 

23 foreign corporation— 
366 

† HR 1 EAS2 

1 ‘‘(A) for which a deduction would be al2 lowed under subsection (a) but for this sub3 section, and 

4 ‘‘(B) for which the controlled foreign cor5 poration received a deduction (or other tax ben6 efit) with respect to any income, war profits, or 

7 excess profits taxes imposed by any foreign coun8 try or possession of the United States. 

9 ‘‘(f) SPECIAL RULE FOR PURGING DISTRIBUTIONS OF

10 PASSIVE FOREIGN INVESTMENT COMPANIES.—Any amount 

11 which is treated as a dividend under section 1291(d)(2)(B) 

12 shall not be treated as a dividend for purposes of this sec13 tion. 

14 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

15 such regulations or other guidance as may be necessary or 

16 appropriate to carry out the provisions of this section, in17 cluding regulations for the treatment of United States 

18 shareholders owning stock of a specified 10 percent owned 

19 foreign corporation through a partnership.’’. 

20 (b) APPLICATION OF HOLDING PERIOD REQUIRE21 MENT.—Subsection (c) of section 246 is amended— 

22 (1) by striking ‘‘or 245’’ in paragraph (1) and 

23 inserting ‘‘245, or 245A’’, and 

24 (2) by adding at the end the following new para25 graph: 
367 

† HR 1 EAS2 

1 ‘‘(5) SPECIAL RULES FOR FOREIGN SOURCE POR2 TION OF DIVIDENDS RECEIVED FROM SPECIFIED 10- 

3 PERCENT OWNED FOREIGN CORPORATIONS.— 

4 ‘‘(A) 1-YEAR HOLDING PERIOD REQUIRE5 MENT.—For purposes of section 245A— 

6 ‘‘(i) paragraph (1)(A) shall be ap7 plied— 

8 ‘‘(I) by substituting ‘365 days’ for 

9 ‘45 days’ each place it appears, and 

10 ‘‘(II) by substituting ‘731-day pe11 riod’ for ‘91-day period’, and 

12 ‘‘(ii) paragraph (2) shall not apply. 

13 ‘‘(B) STATUS MUST BE MAINTAINED DURING

14 HOLDING PERIOD.—For purposes of applying 

15 paragraph (1) with respect to section 245A, the 

16 taxpayer shall be treated as holding the stock re17 ferred to in paragraph (1) for any period only 

18 if— 

19 ‘‘(i) the specified 10-percent owned for20 eign corporation referred to in section 

21 245A(a) is a specified 10-percent owned for22 eign corporation at all times during such 

23 period, and 

24 ‘‘(ii) the taxpayer is a United States 

25 shareholder with respect to such specified 
368 

† HR 1 EAS2 

1 10-percent owned foreign corporation at all 

2 times during such period.’’. 

3 (c) APPLICATION OF RULES GENERALLY APPLICABLE

4 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) COORDINATION WITH SECTION 1059.—Sub10 paragraph (B) of section 1059(b)(2) is amended by 

11 striking ‘‘or 245’’ and inserting ‘‘245, or 245A’’. 

12 (d) COORDINATION WITH FOREIGN TAX CREDIT LIMI13 TATION.—Subsection (b) of section 904 is amended by add14 ing at the end the following new paragraph: 

15 ‘‘(5) TREATMENT OF DIVIDENDS FOR WHICH DE16 DUCTION IS ALLOWED UNDER SECTION 245A.—For 

17 purposes of subsection (a), in the case of a domestic 

18 corporation which is a United States shareholder with 

19 respect to a specified 10-percent owned foreign cor20 poration, such shareholder’s taxable income from 

21 sources without the United States (and entire taxable 

22 income) shall be determined without regard to— 

23 ‘‘(A) the foreign-source portion of any divi24 dend received from such foreign corporation, and 
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1 ‘‘(B) any deductions properly allocable or 

2 apportioned to— 

3 ‘‘(i) income (other than amounts in4 cludible under section 951(a)(1) or 951A(a)) 

5 with respect to stock of such specified 10- 

6 percent owned foreign corporation, or 

7 ‘‘(ii) such stock to the extent income 

8 with respect to such stock is other than 

9 amounts includible under section 951(a)(1) 

10 or 951A(a). 

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) Subsection (b) of section 951 is amended by 

16 striking ‘‘subpart’’ and inserting ‘‘title’’. 

17 (2) Subsection (a) of section 957 is amended by 

18 striking ‘‘subpart’’ in the matter preceding paragraph 

19 (1) and inserting ‘‘title’’. 

20 (3) The table of sections for part VIII of sub21 chapter B of chapter 1 is amended by inserting after 

22 the item relating to section 245 the following new 

23 item: 

‘‘Sec. 245A. Deduction for foreign source-portion of dividends received by domestic corporations from certain 10-percent owned foreign corporations.’’. 
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1 (f) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to distributions made after (and, in the 

3 case of the amendments made by subsection (d), deductions 

4 with respect to taxable years ending after) December 31, 

5 2017. 

6 SEC. 14102. SPECIAL RULES RELATING TO SALES OR TRANS7 FERS INVOLVING SPECIFIED 10-PERCENT 

8 OWNED FOREIGN CORPORATIONS. 

9 (a) SALES BY UNITED STATES PERSONS OF STOCK.— 

10 (1) IN GENERAL.—Section 1248 is amended by 

11 redesignating subsection (j) as subsection (k) and by 

12 inserting after subsection (i) the following new sub13 section: 

14 ‘‘(j) COORDINATION WITH DIVIDENDS RECEIVED DE15 DUCTION.—In the case of the sale or exchange by a domestic 

16 corporation of stock in a foreign corporation held for 1 year 

17 or more, any amount received by the domestic corporation 

18 which is treated as a dividend by reason of this section shall 

19 be treated as a dividend for purposes of applying section 

20 245A.’’. 

21 (2) EFFECTIVE DATE.—The amendments made 

22 by this subsection shall apply to sales or exchanges 

23 after December 31, 2017. 
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1 (b) BASIS IN SPECIFIED 10-PERCENT OWNED FOREIGN

2 CORPORATION REDUCED BY NONTAXED PORTION OF DIVI3 DEND FOR PURPOSES OF DETERMINING LOSS.— 

4 (1) IN GENERAL.—Section 961 is amended by 

5 adding at the end the following new subsection: 

6 ‘‘(d) BASIS IN SPECIFIED 10-PERCENT OWNED FOR7 EIGN CORPORATION REDUCED BY NONTAXED PORTION OF

8 DIVIDEND FOR PURPOSES OF DETERMINING LOSS.—If a 

9 domestic corporation received a dividend from a specified 

10 10-percent owned foreign corporation (as defined in section 

11 245A) in any taxable year, solely for purposes of deter12 mining loss on any disposition of stock of such foreign cor13 poration in such taxable year or any subsequent taxable 

14 year, the basis of such domestic corporation in such stock 

15 shall be reduced (but not below zero) by the amount of any 

16 deduction allowable to such domestic corporation under sec17 tion 245A with respect to such stock except to the extent 

18 such basis was reduced under section 1059 by reason of a 

19 dividend for which such a deduction was allowable.’’. 

20 (2) EFFECTIVE DATE.—The amendments made 

21 by this subsection shall apply to distributions made 

22 after December 31, 2017. 

23 (c) SALE BY A CFC OF A LOWER TIER CFC.— 

24 (1) IN GENERAL.—Section 964(e) is amended by 

25 adding at the end the following new paragraph: 
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† HR 1 EAS2 

1 ‘‘(4) COORDINATION WITH DIVIDENDS RECEIVED

2 DEDUCTION.— 

3 ‘‘(A) IN GENERAL.—If, for any taxable year 

4 of a controlled foreign corporation beginning 

5 after December 31, 2017, any amount is treated 

6 as a dividend under paragraph (1) by reason of 

7 a sale or exchange by the controlled foreign cor8 poration of stock in another foreign corporation 

9 held for 1 year or more, then, notwithstanding 

10 any other provision of this title— 

11 ‘‘(i) the foreign-source portion of such 

12 dividend shall be treated for purposes of sec13 tion 951(a)(1)(A) as subpart F income of 

14 the selling controlled foreign corporation for 

15 such taxable year, 

16 ‘‘(ii) a United States shareholder with 

17 respect to the selling controlled foreign cor18 poration shall include in gross income for 

19 the taxable year of the shareholder with or 

20 within which such taxable year of the con21 trolled foreign corporation ends an amount 

22 equal to the shareholder’s pro rata share 

23 (determined in the same manner as under 

24 section 951(a)(2)) of the amount treated as 

25 subpart F income under clause (i), and 
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1 ‘‘(iii) the deduction under section 

2 245A(a) shall be allowable to the United 

3 States shareholder with respect to the sub4 part F income included in gross income 

5 under clause (ii) in the same manner as if 

6 such subpart F income were a dividend re7 ceived by the shareholder from the selling 

8 controlled foreign corporation. 

9 ‘‘(B) APPLICATION OF BASIS OR SIMILAR

10 ADJUSTMENT.—For purposes of this title, in the 

11 case of a sale or exchange by a controlled foreign 

12 corporation of stock in another foreign corpora13 tion in a taxable year of the selling controlled 

14 foreign corporation beginning after December 31, 

15 2017, rules similar to the rules of section 961(d) 

16 shall apply. 

17 ‘‘(C) FOREIGN-SOURCE PORTION.—For pur18 poses of this paragraph, the foreign-source por19 tion of any amount treated as a dividend under 

20 paragraph (1) shall be determined in the same 

21 manner as under section 245A(c).’’. 

22 (2) EFFECTIVE DATE.—The amendments made 

23 by this subsection shall apply to sales or exchanges 

24 after December 31, 2017. 
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† HR 1 EAS2 

1 (d) TREATMENT OF FOREIGN BRANCH LOSSES TRANS2 FERRED TO SPECIFIED 10-PERCENT OWNED FOREIGN COR3 PORATIONS.— 

4 (1) IN GENERAL.—Part II of subchapter B of 

5 chapter 1 is amended by adding at the end the fol6 lowing new section: 

7 ‘‘SEC. 91. CERTAIN FOREIGN BRANCH LOSSES TRANS8 FERRED TO SPECIFIED 10-PERCENT OWNED 

9 FOREIGN CORPORATIONS. 

10 ‘‘(a) IN GENERAL.—If a domestic corporation trans11 fers substantially all of the assets of a foreign branch (with12 in the meaning of section 367(a)(3)(C), as in effect before 

13 the date of the enactment of the Tax Cuts and Jobs Act) 

14 to a specified 10-percent owned foreign corporation (as de15 fined in section 245A) with respect to which it is a United 

16 States shareholder after such transfer, such domestic cor17 poration shall include in gross income for the taxable year 

18 which includes such transfer an amount equal to the trans19 ferred loss amount with respect to such transfer. 

20 ‘‘(b) TRANSFERRED LOSS AMOUNT.—For purposes of 

21 this section, the term ‘transferred loss amount’ means, with 

22 respect to any transfer of substantially all of the assets of 

23 a foreign branch, the excess (if any) of— 

24 ‘‘(1) the sum of losses— 
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† HR 1 EAS2 

1 ‘‘(A) which were incurred by the foreign 

2 branch after December 31, 2017, and before the 

3 transfer, and 

4 ‘‘(B) with respect to which a deduction was 

5 allowed to the taxpayer, over 

6 ‘‘(2) the sum of— 

7 ‘‘(A) any taxable income of such branch for 

8 a taxable year after the taxable year in which 

9 the loss was incurred and through the close of the 

10 taxable year of the transfer, and 

11 ‘‘(B) any amount which is recognized under 

12 section 904(f)(3) on account of the transfer. 

13 ‘‘(c) REDUCTION FOR RECOGNIZED GAINS.—The 

14 transferred loss amount shall be reduced (but not below 

15 zero) by the amount of gain recognized by the taxpayer on 

16 account of the transfer (other than amounts taken into ac17 count under subsection (b)(2)(B)). 

18 ‘‘(d) SOURCE OF INCOME.—Amounts included in gross 

19 income under this section shall be treated as derived from 

20 sources within the United States. 

21 ‘‘(e) BASIS ADJUSTMENTS.—Consistent with such reg22 ulations or other guidance as the Secretary shall prescribe, 

23 proper adjustments shall be made in the adjusted basis of 

24 the taxpayer’s stock in the specified 10-percent owned for25 eign corporation to which the transfer is made, and in the 
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† HR 1 EAS2 

1 transferee’s adjusted basis in the property transferred, to 

2 reflect amounts included in gross income under this sec3 tion.’’. 

4 (2) CLERICAL AMENDMENT.—The table of sec5 tions for part II of subchapter B of chapter 1 is 

6 amended by adding at the end the following new item: 

‘‘Sec. 91. Certain foreign branch losses transferred to specified 10-percent owned 

foreign corporations.’’. 

7 (3) EFFECTIVE DATE.—The amendments made 

8 by this subsection shall apply to transfers after De9 cember 31, 2017. 

10 (4) TRANSITION RULE.—The amount of gain 

11 taken into account under section 91(c) of the Internal 

12 Revenue Code of 1986, as added by this subsection, 

13 shall be reduced by the amount of gain which would 

14 be recognized under section 367(a)(3)(C) (determined 

15 without regard to the amendments made by subsection 

16 (e)) with respect to losses incurred before January 1, 

17 2018. 

18 (e) REPEAL OF ACTIVE TRADE OR BUSINESS EXCEP19 TION UNDER SECTION 367.— 

20 (1) IN GENERAL.—Section 367(a) is amended by 

21 striking paragraph (3) and redesignating paragraphs 

22 (4), (5), and (6) as paragraphs (3), (4), and (5), re23 spectively. 
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† HR 1 EAS2 

1 (2) CONFORMING AMENDMENTS.—Section 

2 367(a)(4), as redesignated by paragraph (1), is 

3 amended— 

4 (A) by striking ‘‘Paragraphs (2) and (3)’’ 

5 and inserting ‘‘Paragraph (2)’’, and 

6 (B) by striking ‘‘PARAGRAPHS (2) AND (3)’’ 

7 in the heading and inserting ‘‘PARAGRAPH (2)’’. 

8 (3) EFFECTIVE DATE.—The amendments made 

9 by this subsection shall apply to transfers after De10 cember 31, 2017. 

11 SEC. 14103. TREATMENT OF DEFERRED FOREIGN INCOME 

12 UPON TRANSITION TO PARTICIPATION EX13 EMPTION SYSTEM OF TAXATION. 

14 (a) IN GENERAL.—Section 965 is amended to read as 

15 follows: 

16 ‘‘SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME 

17 UPON TRANSITION TO PARTICIPATION EX18 EMPTION SYSTEM OF TAXATION. 

19 ‘‘(a) TREATMENT OF DEFERRED FOREIGN INCOME AS

20 SUBPART F INCOME.—In the case of the last taxable year 

21 of a deferred foreign income corporation which begins before 

22 January 1, 2018, the subpart F income of such foreign cor23 poration (as otherwise determined for such taxable year 

24 under section 952) shall be increased by the greater of— 
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† HR 1 EAS2 

1 ‘‘(1) the accumulated post-1986 deferred foreign 

2 income of such corporation determined as of Novem3 ber 2, 2017, or 

4 ‘‘(2) the accumulated post-1986 deferred foreign 

5 income of such corporation determined as of December 

6 31, 2017. 

7 ‘‘(b) REDUCTION IN AMOUNTS INCLUDED IN GROSS IN8 COME OF UNITED STATES SHAREHOLDERS OF SPECIFIED

9 FOREIGN CORPORATIONS WITH DEFICITS IN EARNINGS

10 AND PROFITS.— 

11 ‘‘(1) IN GENERAL.—In the case of a taxpayer 

12 which is a United States shareholder with respect to 

13 at least one deferred foreign income corporation and 

14 at least one E&P deficit foreign corporation, the 

15 amount which would (but for this subsection) be taken 

16 into account under section 951(a)(1) by reason of sub17 section (a) as such United States shareholder’s pro 

18 rata share of the subpart F income of each deferred 

19 foreign income corporation shall be reduced by the 

20 amount of such United States shareholder’s aggregate 

21 foreign E&P deficit which is allocated under para22 graph (2) to such deferred foreign income corporation. 

23 ‘‘(2) ALLOCATION OF AGGREGATE FOREIGN E&P

24 DEFICIT.—The aggregate foreign E&P deficit of any 

25 United States shareholder shall be allocated among 
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† HR 1 EAS2 

1 the deferred foreign income corporations of such 

2 United States shareholder in an amount which bears 

3 the same proportion to such aggregate as— 

4 ‘‘(A) such United States shareholder’s pro 

5 rata share of the accumulated post-1986 deferred 

6 foreign income of each such deferred foreign in7 come corporation, bears to 

8 ‘‘(B) the aggregate of such United States 

9 shareholder’s pro rata share of the accumulated 

10 post-1986 deferred foreign income of all deferred 

11 foreign income corporations of such United 

12 States shareholder. 

13 ‘‘(3) DEFINITIONS RELATED TO E&P DEFICITS.— 

14 For purposes of this subsection— 

15 ‘‘(A) AGGREGATE FOREIGN E&P DEFICIT.— 

16 ‘‘(i) IN GENERAL.—The term ‘aggre17 gate foreign E&P deficit’ means, with re18 spect to any United States shareholder, the 

19 lesser of— 

20 ‘‘(I) the aggregate of such share21 holder’s pro rata shares of the specified 

22 E&P deficits of the E&P deficit foreign 

23 corporations of such shareholder, or 

24 ‘‘(II) the amount determined 

25 under paragraph (2)(B). 
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† HR 1 EAS2 

1 ‘‘(ii) ALLOCATION OF DEFICIT.—If the 

2 amount described in clause (i)(II) is less 

3 than the amount described in clause (i)(I), 

4 then the shareholder shall designate, in such 

5 form and manner as the Secretary deter6 mines— 

7 ‘‘(I) the amount of the specified 

8 E&P deficit which is to be taken into 

9 account for each E&P deficit corpora10 tion with respect to the taxpayer, and 

11 ‘‘(II) in the case of an E&P def12 icit corporation which has a qualified 

13 deficit (as defined in section 952), the 

14 portion (if any) of the deficit taken 

15 into account under subclause (I) which 

16 is attributable to a qualified deficit, 

17 including the qualified activities to 

18 which such portion is attributable. 

19 ‘‘(B) E&P DEFICIT FOREIGN CORPORA20 TION.—The term ‘E&P deficit foreign corpora21 tion’ means, with respect to any taxpayer, any 

22 specified foreign corporation with respect to 

23 which such taxpayer is a United States share24 holder, if, as of November 2, 2017— 
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† HR 1 EAS2 

1 ‘‘(i) such specified foreign corporation 

2 has a deficit in post-1986 earnings and 

3 profits, 

4 ‘‘(ii) such corporation was a specified 

5 foreign corporation, and 

6 ‘‘(iii) such taxpayer was a United 

7 States shareholder of such corporation. 

8 ‘‘(C) SPECIFIED E&P DEFICIT.—The term 

9 ‘specified E&P deficit’ means, with respect to 

10 any E&P deficit foreign corporation, the amount 

11 of the deficit referred to in subparagraph (B). 

12 ‘‘(4) TREATMENT OF EARNINGS AND PROFITS IN

13 FUTURE YEARS.— 

14 ‘‘(A) REDUCED EARNINGS AND PROFITS

15 TREATED AS PREVIOUSLY TAXED INCOME WHEN

16 DISTRIBUTED.—For purposes of applying section 

17 959 in any taxable year beginning with the tax18 able year described in subsection (a), with re19 spect to any United States shareholder of a de20 ferred foreign income corporation, an amount 

21 equal to such shareholder’s reduction under para22 graph (1) which is allocated to such deferred for23 eign income corporation under this subsection 

24 shall be treated as an amount which was in-
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† HR 1 EAS2 

1 cluded in the gross income of such United States 

2 shareholder under section 951(a). 

3 ‘‘(B) E&P DEFICITS.—For purposes of this 

4 title, with respect to any taxable year beginning 

5 with the taxable year described in subsection (a), 

6 a United States shareholder’s pro rata share of 

7 the earnings and profits of any E&P deficit for8 eign corporation under this subsection shall be 

9 increased by the amount of the specified E&P 

10 deficit of such corporation taken into account by 

11 such shareholder under paragraph (1), and, for 

12 purposes of section 952, such increase shall be at13 tributable to the same activity to which the def14 icit so taken into account was attributable. 

15 ‘‘(5) NETTING AMONG UNITED STATES SHARE16 HOLDERS IN SAME AFFILIATED GROUP.— 

17 ‘‘(A) IN GENERAL.—In the case of any af18 filiated group which includes at least one E&P 

19 net surplus shareholder and one E&P net deficit 

20 shareholder, the amount which would (but for 

21 this paragraph) be taken into account under sec22 tion 951(a)(1) by reason of subsection (a) by 

23 each such E&P net surplus shareholder shall be 

24 reduced (but not below zero) by such share-
383 

† HR 1 EAS2 

1 holder’s applicable share of the affiliated group’s 

2 aggregate unused E&P deficit. 

3 ‘‘(B) E&P NET SURPLUS SHAREHOLDER.— 

4 For purposes of this paragraph, the term ‘E&P 

5 net surplus shareholder’ means any United 

6 States shareholder which would (determined 

7 without regard to this paragraph) take into ac8 count an amount greater than zero under section 

9 951(a)(1) by reason of subsection (a). 

10 ‘‘(C) E&P NET DEFICIT SHAREHOLDER.— 

11 For purposes of this paragraph, the term ‘E&P 

12 net deficit shareholder’ means any United States 

13 shareholder if— 

14 ‘‘(i) the aggregate foreign E&P deficit 

15 with respect to such shareholder (as defined 

16 in paragraph (3)(A) without regard to 

17 clause (i)(II) thereof), exceeds 

18 ‘‘(ii) the amount which would (but for 

19 this subsection) be taken into account by 

20 such shareholder under section 951(a)(1) by 

21 reason of subsection (a). 

22 ‘‘(D) AGGREGATE UNUSED E&P DEFICIT.— 

23 For purposes of this paragraph— 
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† HR 1 EAS2 

1 ‘‘(i) IN GENERAL.—The term ‘aggre2 gate unused E&P deficit’ means, with re3 spect to any affiliated group, the lesser of— 

4 ‘‘(I) the sum of the excesses de5 scribed in subparagraph (C), deter6 mined with respect to each E&P net 

7 deficit shareholder in such group, or 

8 ‘‘(II) the amount determined 

9 under subparagraph (E)(ii). 

10 ‘‘(ii) REDUCTION WITH RESPECT TO

11 E&P NET DEFICIT SHAREHOLDERS WHICH

12 ARE NOT WHOLLY OWNED BY THE AFFILI13 ATED GROUP.—If the group ownership per14 centage of any E&P net deficit shareholder 

15 is less than 100 percent, the amount of the 

16 excess described in subparagraph (C) which 

17 is taken into account under clause (i)(I) 

18 with respect to such E&P net deficit share19 holder shall be such group ownership per20 centage of such amount. 

21 ‘‘(E) APPLICABLE SHARE.—For purposes of 

22 this paragraph, the term ‘applicable share’ 

23 means, with respect to any E&P net surplus 

24 shareholder in any affiliated group, the amount 
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† HR 1 EAS2 

1 which bears the same proportion to such group’s 

2 aggregate unused E&P deficit as— 

3 ‘‘(i) the product of— 

4 ‘‘(I) such shareholder’s group own5 ership percentage, multiplied by 

6 ‘‘(II) the amount which would 

7 (but for this paragraph) be taken into 

8 account under section 951(a)(1) by 

9 reason of subsection (a) by such share10 holder, bears to 

11 ‘‘(ii) the aggregate amount determined 

12 under clause (i) with respect to all E&P net 

13 surplus shareholders in such group. 

14 ‘‘(F) GROUP OWNERSHIP PERCENTAGE.— 

15 For purposes of this paragraph, the term ‘group 

16 ownership percentage’ means, with respect to 

17 any United States shareholder in any affiliated 

18 group, the percentage of the value of the stock of 

19 such United States shareholder which is held by 

20 other includible corporations in such affiliated 

21 group. Notwithstanding the preceding sentence, 

22 the group ownership percentage of the common 

23 parent of the affiliated group is 100 percent. 

24 Any term used in this subparagraph which is 
386 

† HR 1 EAS2 

1 also used in section 1504 shall have the same 

2 meaning as when used in such section. 

3 ‘‘(c) APPLICATION OF PARTICIPATION EXEMPTION TO

4 INCLUDED INCOME.— 

5 ‘‘(1) IN GENERAL.—In the case of a United 

6 States shareholder of a deferred foreign income cor7 poration, there shall be allowed as a deduction for the 

8 taxable year in which an amount is included in the 

9 gross income of such United States shareholder under 

10 section 951(a)(1) by reason of this section an amount 

11 equal to the sum of— 

12 ‘‘(A) the United States shareholder’s 8 per13 cent rate equivalent percentage of the excess (if 

14 any) of— 

15 ‘‘(i) the amount so included as gross 

16 income, over 

17 ‘‘(ii) the amount of such United States 

18 shareholder’s aggregate foreign cash posi19 tion, plus 

20 ‘‘(B) the United States shareholder’s 15.5 

21 percent rate equivalent percentage of so much of 

22 the amount described in subparagraph (A)(ii) as 

23 does not exceed the amount described in subpara24 graph (A)(i). 
387 

† HR 1 EAS2 

1 ‘‘(2) 8 AND 15.5 PERCENT RATE EQUIVALENT

2 PERCENTAGES.—For purposes of this subsection— 

3 ‘‘(A) 8 PERCENT RATE EQUIVALENT PER4 CENTAGE.—The term ‘8 percent rate equivalent 

5 percentage’ means, with respect to any United 

6 States shareholder for any taxable year, the per7 centage which would result in the amount to 

8 which such percentage applies being subject to a 

9 8 percent rate of tax determined by only taking 

10 into account a deduction equal to such percent11 age of such amount and the highest rate of tax 

12 specified in section 11 for such taxable year. In 

13 the case of any taxable year of a United States 

14 shareholder to which section 15 applies, the high15 est rate of tax under section 11 before the effec16 tive date of the change in rates and the highest 

17 rate of tax under section 11 after the effective 

18 date of such change shall each be taken into ac19 count under the preceding sentence in the same 

20 proportions as the portion of such taxable year 

21 which is before and after such effective date, re22 spectively. 

23 ‘‘(B) 15.5 PERCENT RATE EQUIVALENT PER24 CENTAGE.—The term ‘15.5 percent rate equiva25 lent percentage’ means, with respect to any 
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† HR 1 EAS2 

1 United States shareholder for any taxable year, 

2 the percentage determined under subparagraph 

3 (A) applied by substituting ‘15.5 percent rate of 

4 tax’ for ‘8 percent rate of tax’. 

5 ‘‘(3) AGGREGATE FOREIGN CASH POSITION.—For 

6 purposes of this subsection— 

7 ‘‘(A) IN GENERAL.—The term ‘aggregate 

8 foreign cash position’ means, with respect to any 

9 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 taxable 

15 year of such specified foreign corporation 

16 which begins before January 1, 2018, or 

17 ‘‘(ii) one half of the sum of— 

18 ‘‘(I) the aggregate described in 

19 clause (i) determined as of the close of 

20 the last taxable year of each such speci21 fied foreign corporation which ends be22 fore November 2, 2017, plus 

23 ‘‘(II) the aggregate described in 

24 clause (i) determined as of the close of 

25 the taxable year of each such specified 
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† HR 1 EAS2 

1 foreign corporation which precedes the 

2 taxable year referred to in subclause 

3 (I). 

4 ‘‘(B) CASH POSITION.—For purposes of this 

5 paragraph, the cash position of any specified for6 eign corporation is the sum of— 

7 ‘‘(i) cash held by such foreign corpora8 tion, 

9 ‘‘(ii) the net accounts receivable of such 

10 foreign corporation, plus 

11 ‘‘(iii) the fair market value of the fol12 lowing assets held by such corporation: 

13 ‘‘(I) Personal property which is of 

14 a type that is actively traded and for 

15 which there is an established financial 

16 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 foreign currency. 

22 ‘‘(IV) Any obligation with a term 

23 of less than one year. 

24 ‘‘(V) Any asset which the Sec25 retary identifies as being economically 
390 

† HR 1 EAS2 

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 receiv9 able, over 

10 ‘‘(ii) such corporation’s accounts pay11 able (determined consistent with the rules of 

12 section 461). 

13 ‘‘(D) PREVENTION OF DOUBLE COUNTING.— 

14 Cash positions of a specified foreign corporation 

15 described in clause (ii), (iii)(I), or (iii)(IV) of 

16 subparagraph (B) shall not be taken into ac17 count by a United States shareholder under sub18 paragraph (A) to the extent that such United 

19 States shareholder demonstrates to the satisfac20 tion of the Secretary that such amount is so 

21 taken into account by such United States share22 holder with respect to another specified foreign 

23 corporation. 

24 ‘‘(E) CASH POSITIONS OF CERTAIN NON25 CORPORATE ENTITIES TAKEN INTO ACCOUNT.— 
391 

† HR 1 EAS2 

1 An entity (other than a corporation) shall be 

2 treated as a specified foreign corporation of a 

3 United States shareholder for purposes of deter4 mining such United States shareholder’s aggre5 gate foreign cash position if any interest in such 

6 entity is held by a specified foreign corporation 

7 of such United States shareholder (determined 

8 after application of this subparagraph) and such 

9 entity would be a specified foreign corporation of 

10 such United States shareholder if such entity 

11 were a foreign corporation. 

12 ‘‘(F) ANTI-ABUSE.—If the Secretary deter13 mines that a principal purpose of any trans14 action was to reduce the aggregate foreign cash 

15 position taken into account under this sub16 section, such transaction shall be disregarded for 

17 purposes of this subsection. 

18 ‘‘(d) DEFERRED FOREIGN INCOME CORPORATION; AC19 CUMULATED POST-1986 DEFERRED FOREIGN INCOME.— 

20 For purposes of this section— 

21 ‘‘(1) DEFERRED FOREIGN INCOME CORPORA22 TION.—The term ‘deferred foreign income corporation’ 

23 means, with respect to any United States shareholder, 

24 any specified foreign corporation of such United 

25 States shareholder which has accumulated post-1986 
392 

† HR 1 EAS2 

1 deferred foreign income (as of the date referred to in 

2 paragraph (1) or (2) of subsection (a)) greater than 

3 zero. 

4 ‘‘(2) ACCUMULATED POST-1986 DEFERRED FOR5 EIGN INCOME.—The term ‘accumulated post-1986 de6 ferred foreign income’ means the post-1986 earnings 

7 and profits except to the extent such earnings— 

8 ‘‘(A) are attributable to income of the speci9 fied foreign corporation which is effectively con10 nected with the conduct of a trade or business 

11 within the United States and subject to tax 

12 under this chapter, or 

13 ‘‘(B) in the case of a controlled foreign cor14 poration, if distributed, would be excluded from 

15 the gross income of a United States shareholder 

16 under section 959. 

17 To the extent provided in regulations or other guid18 ance prescribed by the Secretary, in the case of any 

19 controlled foreign corporation which has shareholders 

20 which are not United States shareholders, accumu21 lated post-1986 deferred foreign income shall be ap22 propriately reduced by amounts which would be de23 scribed in subparagraph (B) if such shareholders were 

24 United States shareholders. 
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† HR 1 EAS2 

1 ‘‘(3) POST-1986 EARNINGS AND PROFITS.—The 

2 term ‘post-1986 earnings and profits’ means the earn3 ings and profits of the foreign corporation (computed 

4 in accordance with sections 964(a) and 986, and by 

5 only taking into account periods when the foreign cor6 poration was a specified foreign corporation) accumu7 lated in taxable years beginning after December 31, 

8 1986, and determined— 

9 ‘‘(A) as of the date referred to in paragraph 

10 (1) or (2) of subsection (a), whichever is applica11 ble with respect to such foreign corporation, and 

12 ‘‘(B) without diminution by reason of divi13 dends distributed during the taxable year de14 scribed in subsection (a) other than dividends 

15 distributed to another specified foreign corpora16 tion. 

17 ‘‘(e) SPECIFIED FOREIGN CORPORATION.— 

18 ‘‘(1) IN GENERAL.—For purposes of this section, 

19 the term ‘specified foreign corporation’ means— 

20 ‘‘(A) any controlled foreign corporation, 

21 and 

22 ‘‘(B) any foreign corporation with respect 

23 to which one or more domestic corporations is a 

24 United States shareholder. 
394 

† HR 1 EAS2 

1 ‘‘(2) APPLICATION TO CERTAIN FOREIGN COR2 PORATIONS.—For purposes of sections 951 and 961, a 

3 foreign corporation described in paragraph (1)(B) 

4 shall be treated as a controlled foreign corporation 

5 solely for purposes of taking into account the subpart 

6 F income of such corporation under subsection (a) 

7 (and for purposes of applying subsection (f)). 

8 ‘‘(3) EXCLUSION OF PASSIVE FOREIGN INVEST9 MENT COMPANIES.—Such term shall not include any 

10 corporation which is a passive foreign investment 

11 company (as defined in section 1297) with respect to 

12 the shareholder and which is not a controlled foreign 

13 corporation. 

14 ‘‘(f) DETERMINATIONS OF PRO RATA SHARE.— 

15 ‘‘(1) IN GENERAL.—For purposes of this section, 

16 the determination of any United States shareholder’s 

17 pro rata share of any amount with respect to any 

18 specified foreign corporation shall be determined 

19 under rules similar to the rules of section 951(a)(2) 

20 by treating such amount in the same manner as sub21 part F income (and by treating such specified foreign 

22 corporation as a controlled foreign corporation). 

23 ‘‘(2) SPECIAL RULES.—The portion which is in24 cluded in the income of a United States shareholder 

25 under section 951(a)(1) by reason of subsection (a) 
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1 which is equal to the deduction allowed under sub2 section (c) by reason of such inclusion— 

3 ‘‘(A) shall be treated as income exempt from 

4 tax for purposes of sections 705(a)(1)(B) and 

5 1367(a)(1)(A), and 

6 ‘‘(B) shall not be treated as income exempt 

7 from tax for purposes of determining whether an 

8 adjustment shall be made to an accumulated ad9 justment account under section 1368(e)(1)(A). 

10 ‘‘(g) DISALLOWANCE OF FOREIGN TAX CREDIT, ETC.— 

11 ‘‘(1) IN GENERAL.—No credit shall be allowed 

12 under section 901 for the applicable percentage of any 

13 taxes paid or accrued (or treated as paid or accrued) 

14 with respect to any amount for which a deduction is 

15 allowed under this section. 

16 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes 

17 of this subsection, the term ‘applicable percentage’ 

18 means the amount (expressed as a percentage) equal 

19 to the sum of— 

20 ‘‘(A) 0.771 multiplied by the ratio of— 

21 ‘‘(i) the excess to which subsection 

22 (c)(1)(A) applies, divided by 

23 ‘‘(ii) the sum of such excess plus the 

24 amount to which subsection (c)(1)(B) ap25 plies, plus 
396 

† HR 1 EAS2 

1 ‘‘(B) 0.557 multiplied by the ratio of— 

2 ‘‘(i) the amount to which subsection 

3 (c)(1)(B) applies, divided by 

4 ‘‘(ii) the sum described in subpara5 graph (A)(ii). 

6 ‘‘(3) DENIAL OF DEDUCTION.—No deduction 

7 shall be allowed under this chapter for any tax for 

8 which credit is not allowable under section 901 by 

9 reason of paragraph (1) (determined by treating the 

10 taxpayer as having elected the benefits of subpart A 

11 of part III of subchapter N). 

12 ‘‘(4) COORDINATION WITH SECTION 78.—With re13 spect to the taxes treated as paid or accrued by a do14 mestic corporation with respect to amounts which are 

15 includible in gross income of such domestic corpora16 tion by reason of this section, section 78 shall apply 

17 only to so much of such taxes as bears the same pro18 portion to the amount of such taxes as— 

19 ‘‘(A) the excess of— 

20 ‘‘(i) the amounts which are includible 

21 in gross income of such domestic corpora22 tion by reason of this section, over 

23 ‘‘(ii) the deduction allowable under 

24 subsection (c) with respect to such amounts, 

25 bears to 
397 

† HR 1 EAS2 

1 ‘‘(B) such amounts. 

2 ‘‘(h) ELECTION TO PAY LIABILITY IN INSTALL3 MENTS.— 

4 ‘‘(1) IN GENERAL.—In the case of a United 

5 States shareholder of a deferred foreign income cor6 poration, such United States shareholder may elect to 

7 pay the net tax liability under this section in 8 in8 stallments of the following amounts: 

9 ‘‘(A) 8 percent of the net tax liability in the 

10 case of each of the first 5 of such installments, 

11 ‘‘(B) 15 percent of the net tax liability in 

12 the case of the 6th such installment, 

13 ‘‘(C) 20 percent of the net tax liability in 

14 the case of the 7th such installment, and 

15 ‘‘(D) 25 percent of the net tax liability in 

16 the case of the 8th such installment. 

17 ‘‘(2) DATE FOR PAYMENT OF INSTALLMENTS.—If 

18 an election is made under paragraph (1), the first in19 stallment shall be paid on the due date (determined 

20 without regard to any extension of time for filing the 

21 return) for the return of tax for the taxable year de22 scribed in subsection (a) and each succeeding install23 ment shall be paid on the due date (as so determined) 

24 for the return of tax for the taxable year following the 
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† HR 1 EAS2 

1 taxable year with respect to which the preceding in2 stallment was made. 

3 ‘‘(3) ACCELERATION OF PAYMENT.—If there is 

4 an addition to tax for failure to timely pay any in5 stallment required under this subsection, a liquida6 tion or sale of substantially all the assets of the tax7 payer (including in a title 11 or similar case), a ces8 sation of business by the taxpayer, or any similar cir9 cumstance, then the unpaid portion of all remaining 

10 installments shall be due on the date of such event (or 

11 in the case of a title 11 or similar case, the day before 

12 the petition is filed). The preceding sentence shall not 

13 apply to the sale of substantially all the assets of a 

14 taxpayer to a buyer if such buyer enters into an 

15 agreement with the Secretary under which such buyer 

16 is liable for the remaining installments due under 

17 this subsection in the same manner as if such buyer 

18 were the taxpayer. 

19 ‘‘(4) PRORATION OF DEFICIENCY TO INSTALL20 MENTS.—If an election is made under paragraph (1) 

21 to pay the net tax liability under this section in in22 stallments and a deficiency has been assessed with re23 spect to such net tax liability, the deficiency shall be 

24 prorated to the installments payable under paragraph 

25 (1). The part of the deficiency so prorated to any in-
399 

† HR 1 EAS2 

1 stallment the date for payment of which has not ar2 rived shall be collected at the same time as, and as 

3 a part of, such installment. The part of the deficiency 

4 so prorated to any installment the date for payment 

5 of which has arrived shall be paid upon notice and 

6 demand from the Secretary. This subsection shall not 

7 apply if the deficiency is due to negligence, to inten8 tional disregard of rules and regulations, or to fraud 

9 with intent to evade tax. 

10 ‘‘(5) ELECTION.—Any election under paragraph 

11 (1) shall be made not later than the due date for the 

12 return of tax for the taxable year described in sub13 section (a) and shall be made in such manner as the 

14 Secretary shall provide. 

15 ‘‘(6) NET TAX LIABILITY UNDER THIS SEC16 TION.—For purposes of this subsection— 

17 ‘‘(A) IN GENERAL.—The net tax liability 

18 under this section with respect to any United 

19 States shareholder is the excess (if any) of— 

20 ‘‘(i) such taxpayer’s net income tax for 

21 the taxable year in which an amount is in22 cluded in the gross income of such United 

23 States shareholder under section 951(a)(1) 

24 by reason of this section, over 
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† HR 1 EAS2 

1 ‘‘(ii) such taxpayer’s net income tax 

2 for such taxable year determined— 

3 ‘‘(I) without regard to this sec4 tion, and 

5 ‘‘(II) without regard to any in6 come or deduction properly attrib7 utable to a dividend received by such 

8 United States shareholder from any de9 ferred foreign income corporation. 

10 ‘‘(B) NET INCOME TAX.—The term ‘net in11 come tax’ means the regular tax liability reduced 

12 by the credits allowed under subparts A, B, and 

13 D of part IV of subchapter A. 

14 ‘‘(i) SPECIAL RULES FOR S CORPORATION SHARE15 HOLDERS.— 

16 ‘‘(1) IN GENERAL.—In the case of any S cor17 poration which is a United States shareholder of a 

18 deferred foreign income corporation, each shareholder 

19 of such S corporation may elect to defer payment of 

20 such shareholder’s net tax liability under this section 

21 with respect to such S corporation until the share22 holder’s taxable year which includes the triggering 

23 event with respect to such liability. Any net tax li24 ability payment of which is deferred under the pre25 ceding sentence shall be assessed on the return of tax 
401 

† HR 1 EAS2 

1 as an addition to tax in the shareholder’s taxable 

2 year which includes such triggering event. 

3 ‘‘(2) TRIGGERING EVENT.— 

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

5 shareholder’s net tax liability under this section 

6 with respect to any S corporation, the triggering 

7 event with respect to such liability is whichever 

8 of the following occurs first: 

9 ‘‘(i) Such corporation ceases to be an S 

10 corporation (determined as of the first day 

11 of the first taxable year that such corpora12 tion is not an S corporation). 

13 ‘‘(ii) A liquidation or sale of substan14 tially all the assets of such S corporation 

15 (including in a title 11 or similar case), a 

16 cessation of business by such S corporation, 

17 such S corporation ceases to exist, or any 

18 similar circumstance. 

19 ‘‘(iii) A transfer of any share of stock 

20 in such S corporation by the taxpayer (in21 cluding by reason of death, or otherwise). 

22 ‘‘(B) PARTIAL TRANSFERS OF STOCK.—In 

23 the case of a transfer of less than all of the tax24 payer’s shares of stock in the S corporation, such 

25 transfer shall only be a triggering event with re-
402 

† HR 1 EAS2 

1 spect to so much of the taxpayer’s net tax liabil2 ity under this section with respect to such S cor3 poration as is properly allocable to such stock. 

4 ‘‘(C) TRANSFER OF LIABILITY.—A transfer 

5 described in clause (iii) of subparagraph (A) 

6 shall not be treated as a triggering event if the 

7 transferee enters into an agreement with the Sec8 retary under which such transferee is liable for 

9 net tax liability with respect to such stock in the 

10 same manner as if such transferee were the tax11 payer. 

12 ‘‘(3) NET TAX LIABILITY.—A shareholder’s net 

13 tax liability under this section with respect to any S 

14 corporation is the net tax liability under this section 

15 which would be determined under subsection (h)(6) if 

16 the only subpart F income taken into account by such 

17 shareholder by reason of this section were allocations 

18 from such S corporation. 

19 ‘‘(4) ELECTION TO PAY DEFERRED LIABILITY IN

20 INSTALLMENTS.—In the case of a taxpayer which 

21 elects to defer payment under paragraph (1)— 

22 ‘‘(A) subsection (h) shall be applied sepa23 rately with respect to the liability to which such 

24 election applies, 
403 

† HR 1 EAS2 

1 ‘‘(B) an election under subsection (h) with 

2 respect to such liability shall be treated as timely 

3 made if made not later than the due date for the 

4 return of tax for the taxable year in which the 

5 triggering event with respect to such liability oc6 curs, 

7 ‘‘(C) the first installment under subsection 

8 (h) with respect to such liability shall be paid 

9 not later than such due date (but determined 

10 without regard to any extension of time for filing 

11 the return), and 

12 ‘‘(D) if the triggering event with respect to 

13 any net tax liability is described in paragraph 

14 (2)(A)(ii), an election under subsection (h) with 

15 respect to such liability may be made only with 

16 the consent of the Secretary. 

17 ‘‘(5) JOINT AND SEVERAL LIABILITY OF S COR18 PORATION.—If any shareholder of an S corporation 

19 elects to defer payment under paragraph (1), such S 

20 corporation shall be jointly and severally liable for 

21 such payment and any penalty, addition to tax, or 

22 additional amount attributable thereto. 

23 ‘‘(6) EXTENSION OF LIMITATION ON COLLEC24 TION.—Any limitation on the time period for the col25 lection of a liability deferred under this subsection 
404 

† HR 1 EAS2 

1 shall not be treated as beginning before the date of the 

2 triggering event with respect to such liability. 

3 ‘‘(7) ANNUAL REPORTING OF NET TAX LIABIL4 ITY.— 

5 ‘‘(A) IN GENERAL.—Any shareholder of an 

6 S corporation which makes an election under 

7 paragraph (1) shall report the amount of such 

8 shareholder’s deferred net tax liability on such 

9 shareholder’s return of tax for the taxable year 

10 for which such election is made and on the re11 turn of tax for each taxable year thereafter until 

12 such amount has been fully assessed on such re13 turns. 

14 ‘‘(B) DEFERRED NET TAX LIABILITY.—For 

15 purposes of this paragraph, the term ‘deferred 

16 net tax liability’ means, with respect to any tax17 able year, the amount of net tax liability pay18 ment of which has been deferred under para19 graph (1) and which has not been assessed on a 

20 return of tax for any prior taxable year. 

21 ‘‘(C) FAILURE TO REPORT.—In the case of 

22 any failure to report any amount required to be 

23 reported under subparagraph (A) with respect to 

24 any taxable year before the due date for the re25 turn of tax for such taxable year, there shall be 
405 

† HR 1 EAS2 

1 assessed on such return as an addition to tax 5 

2 percent of such amount. 

3 ‘‘(8) ELECTION.—Any election under paragraph 

4 (1)— 

5 ‘‘(A) shall be made by the shareholder of the 

6 S corporation not later than the due date for 

7 such shareholder’s return of tax for the taxable 

8 year which includes the close of the taxable year 

9 of such S corporation in which the amount de10 scribed in subsection (a) is taken into account, 

11 and 

12 ‘‘(B) shall be made in such manner as the 

13 Secretary shall provide. 

14 ‘‘(j) REPORTING BY S CORPORATION.—Each S cor15 poration which is a United States shareholder of a specified 

16 foreign corporation shall report in its return of tax under 

17 section 6037(a) the amount includible in its gross income 

18 for such taxable year by reason of this section and the 

19 amount of the deduction allowable by subsection (c). Any 

20 copy provided to a shareholder under section 6037(b) shall 

21 include a statement of such shareholder’s pro rata share of 

22 such amounts. 

23 ‘‘(k) EXTENSION OF LIMITATION ON ASSESSMENT.— 

24 Notwithstanding section 6501, the limitation on the time 

25 period for the assessment of the net tax liability under this 
406 

† HR 1 EAS2 

1 section (as defined in subsection (h)(6)) shall not expire be2 fore the date that is 6 years after the return for the taxable 

3 year described in such subsection was filed. 

4 ‘‘(l) RECAPTURE FOR EXPATRIATED ENTITIES.— 

5 ‘‘(1) IN GENERAL.—If a deduction is allowed 

6 under subsection (c) to a United States shareholder 

7 and such shareholder first becomes an expatriated en8 tity at any time during the 10-year period beginning 

9 on the date of the enactment of the Tax Cuts and Jobs 

10 Act (with respect to a surrogate foreign corporation 

11 which first becomes a surrogate foreign corporation 

12 during such period), then— 

13 ‘‘(A) the tax imposed by this chapter shall 

14 be increased for the first taxable year in which 

15 such taxpayer becomes an expatriated entity by 

16 an amount equal to 35 percent of the amount of 

17 the deduction allowed under subsection (c), and 

18 ‘‘(B) no credits shall be allowed against the 

19 increase in tax under subparagraph (A). 

20 ‘‘(2) EXPATRIATED ENTITY.—For purposes of 

21 this subsection, the term ‘expatriated entity’ has the 

22 same meaning given such term under section 

23 7874(a)(2), except that such term shall not include an 

24 entity if the surrogate foreign corporation with re-
407 

† HR 1 EAS2 

1 spect to the entity is treated as a domestic corpora2 tion under section 7874(b). 

3 ‘‘(3) SURROGATE FOREIGN CORPORATION.—For 

4 purposes of this subsection, the term ‘surrogate foreign 

5 corporation’ has the meaning given such term in sec6 tion 7874(a)(2)(B). 

7 ‘‘(m) SPECIAL RULES FOR UNITED STATES SHARE8 HOLDERS WHICH ARE REAL ESTATE INVESTMENT

9 TRUSTS.— 

10 ‘‘(1) IN GENERAL.—If a real estate investment 

11 trust is a United States shareholder in 1 or more de12 ferred foreign income corporations— 

13 ‘‘(A) any amount required to be taken into 

14 account under section 951(a)(1) by reason of this 

15 section shall not be taken into account as gross 

16 income of the real estate investment trust for 

17 purposes of applying paragraphs (2) and (3) of 

18 section 856(c) to any taxable year for which such 

19 amount is taken into account under section 

20 951(a)(1), and 

21 ‘‘(B) if the real estate investment trust elects 

22 the application of this subparagraph, notwith23 standing subsection (a), any amount required to 

24 be taken into account under section 951(a)(1) by 

25 reason of this section shall, in lieu of the taxable 
408 

† HR 1 EAS2 

1 year in which it would otherwise be included in 

2 gross income (for purposes of the computation of 

3 real estate investment trust taxable income under 

4 section 857(b)), be included in gross income as 

5 follows: 

6 ‘‘(i) 8 percent of such amount in the 

7 case of each of the taxable years in the 5- 

8 taxable year period beginning with the tax9 able year in which such amount would oth10 erwise be included. 

11 ‘‘(ii) 15 percent of such amount in the 

12 case of the 1st taxable year following such 

13 period. 

14 ‘‘(iii) 20 percent of such amount in the 

15 case of the 2nd taxable year following such 

16 period. 

17 ‘‘(iv) 25 percent of such amount in the 

18 case of the 3rd taxable year following such 

19 period. 

20 ‘‘(2) RULES FOR TRUSTS ELECTING DEFERRED

21 INCLUSION.— 

22 ‘‘(A) ELECTION.—Any election under para23 graph (1)(B) shall be made not later than the 

24 due date for the first taxable year in the 5-tax25 able year period described in clause (i) of para-
409 

† HR 1 EAS2 

1 graph (1)(B) and shall be made in such manner 

2 as the Secretary shall provide. 

3 ‘‘(B) SPECIAL RULES.—If an election under 

4 paragraph (1)(B) is in effect with respect to any 

5 real estate investment trust, the following rules 

6 shall apply: 

7 ‘‘(i) APPLICATION OF PARTICIPATION

8 EXEMPTION.—For purposes of subsection 

9 (c)(1)— 

10 ‘‘(I) the aggregate amount to 

11 which subparagraph (A) or (B) of sub12 section (c)(1) applies shall be deter13 mined without regard to the election, 

14 ‘‘(II) each such aggregate amount 

15 shall be allocated to each taxable year 

16 described in paragraph (1)(B) in the 

17 same proportion as the amount in18 cluded in the gross income of such 

19 United States shareholder under sec20 tion 951(a)(1) by reason of this section 

21 is allocated to each such taxable year. 

22 ‘‘(III) NO INSTALLMENT PAY23 MENTS.—The real estate investment 

24 trust may not make an election under 
410 

† HR 1 EAS2 

1 subsection (g) for any taxable year de2 scribed in paragraph (1)(B). 

3 ‘‘(ii) ACCELERATION OF INCLUSION.— 

4 If there is a liquidation or sale of substan5 tially all the assets of the real estate invest6 ment trust (including in a title 11 or simi7 lar case), a cessation of business by such 

8 trust, or any similar circumstance, then 

9 any amount not yet included in gross in10 come under paragraph (1)(B) shall be in11 cluded in gross income as of the day before 

12 the date of the event and the unpaid portion 

13 of any tax liability with respect to such in14 clusion shall be due on the date of such 

15 event (or in the case of a title 11 or similar 

16 case, the day before the petition is filed). 

17 ‘‘(n) ELECTION NOT TO APPLY NET OPERATING LOSS

18 DEDUCTION.— 

19 ‘‘(1) IN GENERAL.—If a United States share20 holder of a deferred foreign income corporation elects 

21 the application of this subsection for the taxable year 

22 described in subsection (a), then the amount described 

23 in paragraph (2) shall not be taken into account— 
411 

† HR 1 EAS2 

1 ‘‘(A) in determining the amount of the net 

2 operating loss deduction under section 172 of 

3 such shareholder for such taxable year, or 

4 ‘‘(B) in determining the amount of taxable 

5 income for such taxable year which may be re6 duced by net operating loss carryovers or 

7 carrybacks to such taxable year under section 

8 172. 

9 ‘‘(2) AMOUNT DESCRIBED.—The amount de10 scribed in this paragraph is the sum of— 

11 ‘‘(A) the amount required to be taken into 

12 account under section 951(a)(1) by reason of this 

13 section (determined after the application of sub14 section (c)), plus 

15 ‘‘(B) in the case of a domestic corporation 

16 which chooses to have the benefits of subpart A 

17 of part III of subchapter N for the taxable year, 

18 the taxes deemed to be paid by such corporation 

19 under subsections (a) and (b) of section 960 for 

20 such taxable year with respect to the amount de21 scribed in subparagraph (A) which are treated 

22 as a dividends under section 78. 

23 ‘‘(3) ELECTION.—Any election under this sub24 section shall be made not later than the due date (in25 cluding extensions) for filing the return of tax for the 
412 

† HR 1 EAS2 

1 taxable year and shall be made in such manner as the 

2 Secretary shall prescribe. 

3 ‘‘(o) REGULATIONS.—The Secretary shall prescribe 

4 such regulations or other guidance as may be necessary or 

5 appropriate to carry out the provisions of this section, in6 cluding— 

7 ‘‘(1) regulations or other guidance to provide ap8 propriate basis adjustments, and 

9 ‘‘(2) regulations or other guidance to prevent the 

10 avoidance of the purposes of this section, including 

11 through a reduction in earnings and profits, through 

12 changes in entity classification or accounting meth13 ods, or otherwise.’’. 

14 (b) CLERICAL AMENDMENT.—The table of sections for 

15 subpart F of part III of subchapter N of chapter 1 is 

16 amended by striking the item relating to section 965 and 

17 inserting the following: 

‘‘Sec. 965. Treatment of deferred foreign income upon transition to participation 

exemption system of taxation.’’. 
413 

† HR 1 EAS2 

1 Subpart B—Rules Related to Passive and Mobile 

2 Income 

3 CHAPTER 1—TAXATION OF FOREIGN-DE4 RIVED INTANGIBLE INCOME AND 

5 GLOBAL INTANGIBLE LOW-TAXED IN6 COME 

7 SEC. 14201. CURRENT YEAR INCLUSION OF GLOBAL INTAN8 GIBLE LOW-TAXED INCOME BY UNITED 

9 STATES SHAREHOLDERS. 

10 (a) IN GENERAL.—Subpart F of part III of subchapter 

11 N of chapter 1 is amended by inserting after section 951 

12 the following new section: 

13 ‘‘SEC. 951A. GLOBAL INTANGIBLE LOW-TAXED INCOME IN14 CLUDED IN GROSS INCOME OF UNITED 

15 STATES SHAREHOLDERS. 

16 ‘‘(a) IN GENERAL.—Each person who is a United 

17 States shareholder of any controlled foreign corporation for 

18 any taxable year of such United States shareholder shall 

19 include in gross income such shareholder’s global intangible 

20 low-taxed income for such taxable year. 

21 ‘‘(b) GLOBAL INTANGIBLE LOW-TAXED INCOME.—For 

22 purposes of this section— 

23 ‘‘(1) IN GENERAL.—The term ‘global intangible 

24 low-taxed income’ means, with respect to any United 

25 States shareholder for any taxable year of such 

26 United States shareholder, the excess (if any) of— 
414 

† HR 1 EAS2 

1 ‘‘(A) such shareholder’s net CFC tested in2 come for such taxable year, over 

3 ‘‘(B) such shareholder’s net deemed tangible 

4 income return for such taxable year. 

5 ‘‘(2) NET DEEMED TANGIBLE INCOME RETURN.— 

6 The term ‘net deemed tangible income return’ means, 

7 with respect to any United States shareholder for any 

8 taxable year, the excess of— 

9 ‘‘(A) 10 percent of the aggregate of such 

10 shareholder’s pro rata share of the qualified busi11 ness asset investment of each controlled foreign 

12 corporation with respect to which such share13 holder is a United States shareholder for such 

14 taxable year (determined for each taxable year of 

15 each such controlled foreign corporation which 

16 ends in or with such taxable year of such United 

17 States shareholder), over 

18 ‘‘(B) the amount of interest expense taken 

19 into account under subsection (c)(2)(A)(ii) in de20 termining the shareholder’s net CFC tested in21 come for the taxable year to the extent the inter22 est income attributable to such expense is not 

23 taken into account in determining such share24 holder’s net CFC tested income. 
415 

† HR 1 EAS2 

1 ‘‘(c) NET CFC TESTED INCOME.—For purposes of this 

2 section— 

3 ‘‘(1) IN GENERAL.—The term ‘net CFC tested in4 come’ means, with respect to any United States share5 holder for any taxable year of such United States 

6 shareholder, the excess (if any) of— 

7 ‘‘(A) the aggregate of such shareholder’s pro 

8 rata share of the tested income of each controlled 

9 foreign corporation with respect to which such 

10 shareholder is a United States shareholder for 

11 such taxable year of such United States share12 holder (determined for each taxable year of such 

13 controlled foreign corporation which ends in or 

14 with such taxable year of such United States 

15 shareholder), over 

16 ‘‘(B) the aggregate of such shareholder’s pro 

17 rata share of the tested loss of each controlled for18 eign corporation with respect to which such 

19 shareholder is a United States shareholder for 

20 such taxable year of such United States share21 holder (determined for each taxable year of such 

22 controlled foreign corporation which ends in or 

23 with such taxable year of such United States 

24 shareholder). 
416 

† HR 1 EAS2 

1 ‘‘(2) TESTED INCOME; TESTED LOSS.—For pur2 poses of this section— 

3 ‘‘(A) TESTED INCOME.—The term ‘tested in4 come’ means, with respect to any controlled for5 eign corporation for any taxable year of such 

6 controlled foreign corporation, the excess (if any) 

7 of— 

8 ‘‘(i) the gross income of such corpora9 tion determined without regard to— 

10 ‘‘(I) any item of income described 

11 in section 952(b), 

12 ‘‘(II) any gross income taken into 

13 account in determining the subpart F 

14 income of such corporation, 

15 ‘‘(III) any gross income excluded 

16 from the foreign base company income 

17 (as defined in section 954) and the in18 surance income (as defined in section 

19 953) of such corporation by reason of 

20 section 954(b)(4), 

21 ‘‘(IV) any dividend received from 

22 a related person (as defined in section 

23 954(d)(3)), and 
417 

† HR 1 EAS2 

1 ‘‘(V) any foreign oil and gas ex2 traction income (as defined in section 

3 907(c)(1)) of such corporation, over 

4 ‘‘(ii) the deductions (including taxes) 

5 properly allocable to such gross income 

6 under rules similar to the rules of section 

7 954(b)(5) (or to which such deductions 

8 would be allocable if there were such gross 

9 income). 

10 ‘‘(B) TESTED LOSS.— 

11 ‘‘(i) IN GENERAL.—The term ‘tested 

12 loss’ means, with respect to any controlled 

13 foreign corporation for any taxable year of 

14 such controlled foreign corporation, the ex15 cess (if any) of the amount described in sub16 paragraph (A)(ii) over the amount de17 scribed in subparagraph (A)(i). 

18 ‘‘(ii) COORDINATION WITH SUBPART F

19 TO DENY DOUBLE BENEFIT OF LOSSES.— 

20 Section 952(c)(1)(A) shall be applied by in21 creasing the earnings and profits of the con22 trolled foreign corporation by the tested loss 

23 of such corporation. 

24 ‘‘(d) QUALIFIED BUSINESS ASSET INVESTMENT.—For 

25 purposes of this section— 
418 

† HR 1 EAS2 

1 ‘‘(1) IN GENERAL.—The term ‘qualified business 

2 asset investment’ means, with respect to any con3 trolled foreign corporation for any taxable year, the 

4 average of such corporation’s aggregate adjusted bases 

5 as of the close of each quarter of such taxable year in 

6 specified tangible property— 

7 ‘‘(A) used in a trade or business of the cor8 poration, and 

9 ‘‘(B) of a type with respect to which a de10 duction is allowable under section 167. 

11 ‘‘(2) SPECIFIED TANGIBLE PROPERTY.— 

12 ‘‘(A) IN GENERAL.—The term ‘specified tan13 gible property’ means, except as provided in sub14 paragraph (B), any tangible property used in 

15 the production of tested income. 

16 ‘‘(B) DUAL USE PROPERTY.—In the case of 

17 property used both in the production of tested in18 come and income which is not tested income, 

19 such property shall be treated as specified tan20 gible property in the same proportion that the 

21 gross income described in subsection (c)(1)(A) 

22 produced with respect to such property bears to 

23 the total gross income produced with respect to 

24 such property. 
419 

† HR 1 EAS2 

1 ‘‘(3) DETERMINATION OF ADJUSTED BASIS.—For 

2 purposes of this subsection, notwithstanding any pro3 vision of this title (or any other provision of law) 

4 which is enacted after the date of the enactment of 

5 this section, the adjusted basis in any property shall 

6 be determined— 

7 ‘‘(A) by using the alternative depreciation 

8 system under section 168(g), and 

9 ‘‘(B) by allocating the depreciation deduc10 tion with respect to such property ratably to 

11 each day during the period in the taxable year 

12 to which such depreciation relates. 

13 ‘‘(3) PARTNERSHIP PROPERTY.—For purposes of 

14 this subsection, if a controlled foreign corporation 

15 holds an interest in a partnership at the close of such 

16 taxable year of the controlled foreign corporation, 

17 such controlled foreign corporation shall take into ac18 count under paragraph (1) the controlled foreign cor19 poration’s distributive share of the aggregate of the 

20 partnership’s adjusted bases (determined as of such 

21 date in the hands of the partnership) in tangible 

22 property held by such partnership to the extent such 

23 property— 

24 ‘‘(A) is used in the trade or business of the 

25 partnership, 
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† HR 1 EAS2 

1 ‘‘(B) is of a type with respect to which a de2 duction is allowable under section 167, and 

3 ‘‘(C) is used in the production of tested in4 come (determined with respect to such controlled 

5 foreign corporation’s distributive share of income 

6 with respect to such property). 

7 For purposes of this paragraph, the controlled foreign 

8 corporation’s distributive share of the adjusted basis 

9 of any property shall be the controlled foreign cor10 poration’s distributive share of income with respect to 

11 such property. 

12 ‘‘(4) REGULATIONS.—The Secretary shall issue 

13 such regulations or other guidance as the Secretary 

14 determines appropriate to prevent the avoidance of 

15 the purposes of this subsection, including regulations 

16 or other guidance which provide for the treatment of 

17 property if— 

18 ‘‘(A) such property is transferred, or held, 

19 temporarily, or 

20 ‘‘(B) the avoidance of the purposes of this 

21 paragraph is a factor in the transfer or holding 

22 of such property. 

23 ‘‘(e) DETERMINATION OF PRO RATA SHARE, ETC.— 

24 For purposes of this section— 
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1 ‘‘(1) IN GENERAL.—The pro rata shares referred 

2 to in subsections (b), (c)(1)(A), and (c)(1)(B), respec3 tively, shall be determined under the rules of section 

4 951(a)(2) in the same manner as such section applies 

5 to subpart F income and shall be taken into account 

6 in the taxable year of the United States shareholder 

7 in which or with which the taxable year of the con8 trolled foreign corporation ends. 

9 ‘‘(2) TREATMENT AS UNITED STATES SHARE10 HOLDER.—A person shall be treated as a United 

11 States shareholder of a controlled foreign corporation 

12 for any taxable year of such person only if such per13 son owns (within the meaning of section 958(a)) stock 

14 in such foreign corporation on the last day in the tax15 able year of such foreign corporation on which such 

16 foreign corporation is a controlled foreign corpora17 tion. 

18 ‘‘(3) TREATMENT AS CONTROLLED FOREIGN COR19 PORATION.—A foreign corporation shall be treated as 

20 a controlled foreign corporation for any taxable year 

21 if such foreign corporation is a controlled foreign cor22 poration at any time during such taxable year. 

23 ‘‘(f) TREATMENT AS SUBPART F INCOME FOR CERTAIN

24 PURPOSES.— 

25 ‘‘(1) IN GENERAL.— 
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1 ‘‘(A) APPLICATION.—Except as provided in 

2 subparagraph (B), any global intangible low3 taxed income included in gross income under 

4 subsection (a) shall be treated in the same man5 ner as an amount included under section 

6 951(a)(1)(A) for purposes of applying sections 

7 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 

8 961, 962, 993(a)(1)(E), 996(f)(1), 1248(b)(1), 

9 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 

10 6655(e)(4). 

11 ‘‘(B) EXCEPTION.—The Secretary shall pro12 vide rules for the application of subparagraph 

13 (A) to other provisions of this title in any case 

14 in which the determination of subpart F income 

15 is required to be made at the level of the con16 trolled foreign corporation. 

17 ‘‘(2) ALLOCATION OF GLOBAL INTANGIBLE LOW18 TAXED INCOME TO CONTROLLED FOREIGN CORPORA19 TIONS.—For purposes of the sections referred to in 

20 paragraph (1), with respect to any controlled foreign 

21 corporation any pro rata amount from which is taken 

22 into account in determining the global intangible low23 taxed income included in gross income of a United 

24 States shareholder under subsection (a), the portion of 

25 such global intangible low-taxed income which is 
423 

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1 treated as being with respect to such controlled foreign 

2 corporation is— 

3 ‘‘(A) in the case of a controlled foreign cor4 poration with no tested income, zero, and 

5 ‘‘(B) in the case of a controlled foreign cor6 poration with tested income, the portion of such 

7 global intangible low-taxed income which bears 

8 the same ratio to such global intangible low9 taxed income as— 

10 ‘‘(i) such United States shareholder’s 

11 pro rata amount of the tested income of 

12 such controlled foreign corporation, bears to 

13 ‘‘(ii) the aggregate amount described in 

14 subsection (c)(1)(A) with respect to such 

15 United States shareholder.’’. 

16 (b) FOREIGN TAX CREDIT.— 

17 (1) APPLICATION OF DEEMED PAID FOREIGN TAX

18 CREDIT.—Section 960 is amended adding at the end 

19 the following new subsection: 

20 ‘‘(d) DEEMED PAID CREDIT FOR TAXES PROPERLY

21 ATTRIBUTABLE TO TESTED INCOME.— 

22 ‘‘(1) IN GENERAL.—For purposes of subpart A of 

23 this part, if any amount is includible in the gross in24 come of a domestic corporation under section 951A, 

25 such domestic corporation shall be deemed to have 
424 

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1 paid foreign income taxes equal to 80 percent of the 

2 product of— 

3 ‘‘(A) such domestic corporation’s inclusion 

4 percentage, multiplied by 

5 ‘‘(B) the aggregate tested foreign income 

6 taxes paid or accrued by controlled foreign cor7 porations. 

8 ‘‘(2) INCLUSION PERCENTAGE.—For purposes of 

9 paragraph (1), the term ‘inclusion percentage’ means, 

10 with respect to any domestic corporation, the ratio 

11 (expressed as a percentage) of— 

12 ‘‘(A) such corporation’s global intangible 

13 low-taxed income (as defined in section 951A(b)), 

14 divided by 

15 ‘‘(B) the aggregate amount described in sec16 tion 951A(c)(1)(A) with respect to such corpora17 tion. 

18 ‘‘(3) TESTED FOREIGN INCOME TAXES.—For 

19 purposes of paragraph (1), the term ‘tested foreign in20 come taxes’ means, with respect to any domestic cor21 poration which is a United States shareholder of a 

22 controlled foreign corporation, the foreign income 

23 taxes paid or accrued by such foreign corporation 

24 which are properly attributable to the tested income 
425 

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1 of such foreign corporation taken into account by such 

2 domestic corporation under section 951A.’’. 

3 (2) APPLICATION OF FOREIGN TAX CREDIT LIMI4 TATION.— 

5 (A) SEPARATE BASKET FOR GLOBAL INTAN6 GIBLE LOW-TAXED INCOME.—Section 904(d)(1) 

7 is amended by redesignating subparagraphs (A) 

8 and (B) as subparagraphs (B) and (C), respec9 tively, and by inserting before subparagraph (B) 

10 (as so redesignated) the following new subpara11 graph: 

12 ‘‘(A) any amount includible in gross income 

13 under section 951A (other than passive category 

14 income),’’. 

15 (B) EXCLUSION FROM GENERAL CATEGORY

16 INCOME.—Section 904(d)(2)(A)(ii) is amended 

17 by inserting ‘‘income described in paragraph 

18 (1)(A) and’’ before ‘‘passive category income’’. 

19 (C) NO CARRYOVER OR CARRYBACK OF EX20 CESS TAXES.—Section 904(c) is amended by 

21 adding at the end the following: ‘‘This subsection 

22 shall not apply to taxes paid or accrued with re23 spect to amounts described in subsection 

24 (d)(1)(A).’’. 
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1 (c) CLERICAL AMENDMENT.—The table of sections for 

2 subpart F of part III of subchapter N of chapter 1 is 

3 amended by inserting after the item relating to section 951 

4 the following new item: 

‘‘Sec. 951A. Global intangible low-taxed income included in gross income of 

United States shareholders.’’. 

5 (d) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to taxable years of foreign corporations 

7 beginning after December 31, 2017, and to taxable years 

8 of United States shareholders in which or with which such 

9 taxable years of foreign corporations end. 

10 SEC. 14202. DEDUCTION FOR FOREIGN-DERIVED INTAN11 GIBLE INCOME AND GLOBAL INTANGIBLE 

12 LOW-TAXED INCOME. 

13 (a) IN GENERAL.—Part VIII of subchapter B of chap14 ter 1 is amended by adding at the end the following new 

15 section: 

16 ‘‘SEC. 250. FOREIGN-DERIVED INTANGIBLE INCOME AND 

17 GLOBAL INTANGIBLE LOW-TAXED INCOME. 

18 ‘‘(a) ALLOWANCE OF DEDUCTION.— 

19 ‘‘(1) IN GENERAL.—In the case of a domestic 

20 corporation for any taxable year, there shall be al21 lowed as a deduction an amount equal to the sum 

22 of— 
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1 ‘‘(A) 37.5 percent of the foreign-derived in2 tangible income of such domestic corporation for 

3 such taxable year, plus 

4 ‘‘(B) 50 percent of— 

5 ‘‘(i) the global intangible low-taxed in6 come amount (if any) which is included in 

7 the gross income of such domestic corpora8 tion under section 951A for such taxable 

9 year, and 

10 ‘‘(ii) the amount treated as a dividend 

11 received by such corporation under section 

12 78 which is attributable to the amount de13 scribed in clause (i). 

14 ‘‘(2) LIMITATION BASED ON TAXABLE INCOME.— 

15 ‘‘(A) IN GENERAL.—If, for any taxable 

16 year— 

17 ‘‘(i) the sum of the foreign-derived in18 tangible income and the global intangible 

19 low-taxed income amount otherwise taken 

20 into account by the domestic corporation 

21 under paragraph (1), exceeds 

22 ‘‘(ii) the taxable income of the domestic 

23 corporation (determined without regard to 

24 this section), 
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1 then the amount of the foreign-derived intangible 

2 income and the global intangible low-taxed in3 come amount so taken into account shall be re4 duced as provided in subparagraph (B). 

5 ‘‘(B) REDUCTION.—For purposes of sub6 paragraph (A)— 

7 ‘‘(i) foreign-derived intangible income 

8 shall be reduced by an amount which bears 

9 the same ratio to the excess described in 

10 subparagraph (A) as such foreign-derived 

11 intangible income bears to the sum de12 scribed in subparagraph (A)(i), and 

13 ‘‘(ii) the global intangible low-taxed 

14 income amount shall be reduced by the re15 mainder of such excess. 

16 ‘‘(3) REDUCTION IN DEDUCTION FOR TAXABLE

17 YEARS AFTER 2025.—In the case of any taxable year 

18 beginning after December 31, 2025, paragraph (1) 

19 shall be applied by substituting— 

20 ‘‘(A) ‘21.875 percent’ for ‘37.5 percent’ in 

21 subparagraph (A), and 

22 ‘‘(B) ‘37.5 percent’ for ‘50 percent’ in sub23 paragraph (B). 

24 ‘‘(b) FOREIGN-DERIVED INTANGIBLE INCOME.—For 

25 purposes of this section— 
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1 ‘‘(1) IN GENERAL.—The foreign-derived intan2 gible income of any domestic corporation is the 

3 amount which bears the same ratio to the deemed in4 tangible income of such corporation as— 

5 ‘‘(A) the foreign-derived deduction eligible 

6 income of such corporation, bears to 

7 ‘‘(B) the deduction eligible income of such 

8 corporation. 

9 ‘‘(2) DEEMED INTANGIBLE INCOME.—For pur10 poses of this subsection— 

11 ‘‘(A) IN GENERAL.—The term ‘deemed in12 tangible income’ means the excess (if any) of— 

13 ‘‘(i) the deduction eligible income of the 

14 domestic corporation, over 

15 ‘‘(ii) the deemed tangible income re16 turn of the corporation. 

17 ‘‘(B) DEEMED TANGIBLE INCOME RE18 TURN.—The term ‘deemed tangible income re19 turn’ means, with respect to any corporation, an 

20 amount equal to 10 percent of the corporation’s 

21 qualified business asset investment (as defined in 

22 section 951A(d), determined by substituting ‘de23 duction eligible income’ for ‘tested income’ in 

24 paragraph (2) thereof and without regard to 
430 

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1 whether the corporation is a controlled foreign 

2 corporation). 

3 ‘‘(3) DEDUCTION ELIGIBLE INCOME.— 

4 ‘‘(A) IN GENERAL.—The term ‘deduction el5 igible income’ means, with respect to any domes6 tic corporation, the excess (if any) of— 

7 ‘‘(i) gross income of such corporation 

8 determined without regard to— 

9 ‘‘(I) any amount included in the 

10 gross income of such corporation under 

11 section 951(a)(1), 

12 ‘‘(II) the global intangible low13 taxed income included in the gross in14 come of such corporation under section 

15 951A, 

16 ‘‘(III) any financial services in17 come (as defined in section 

18 904(d)(2)(D)) of such corporation, 

19 ‘‘(IV) any dividend received from 

20 a corporation which is a controlled for21 eign corporation of such domestic cor22 poration, 

23 ‘‘(V) any domestic oil and gas ex24 traction income of such corporation, 

25 and 
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1 ‘‘(VI) any foreign branch income 

2 (as defined in section 904(d)(2)(J)), 

3 over 

4 ‘‘(ii) the deductions (including taxes) 

5 properly allocable to such gross income. 

6 ‘‘(B) DOMESTIC OIL AND GAS EXTRACTION

7 INCOME.—For purposes of subparagraph (A), the 

8 term ‘domestic oil and gas extraction income’ 

9 means income described in section 907(c)(1), de10 termined by substituting ‘within the United 

11 States’ for ‘without the United States’. 

12 ‘‘(4) FOREIGN-DERIVED DEDUCTION ELIGIBLE

13 INCOME.—The term ‘foreign-derived deduction eligible 

14 income’ means, with respect to any taxpayer for any 

15 taxable year, any deduction eligible income of such 

16 taxpayer which is derived in connection with— 

17 ‘‘(A) property— 

18 ‘‘(i) which is sold by the taxpayer to 

19 any person who is not a United States per20 son, and 

21 ‘‘(ii) which the taxpayer establishes to 

22 the satisfaction of the Secretary is for a for23 eign use, or 

24 ‘‘(B) services provided by the taxpayer 

25 which the taxpayer establishes to the satisfaction 
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1 of the Secretary are provided to any person, or 

2 with respect to property, not located within the 

3 United States. 

4 ‘‘(5) RULES RELATING TO FOREIGN USE PROP5 ERTY OR SERVICES.—For purposes of this sub6 section— 

7 ‘‘(A) FOREIGN USE.—The term ‘foreign use’ 

8 means any use, consumption, or disposition 

9 which is not within the United States. 

10 ‘‘(B) PROPERTY OR SERVICES PROVIDED TO

11 DOMESTIC INTERMEDIARIES.— 

12 ‘‘(i) PROPERTY.—If a taxpayer sells 

13 property to another person (other than a re14 lated party) for further manufacture or 

15 other modification within the United States, 

16 such property shall not be treated as sold 

17 for a foreign use even if such other person 

18 subsequently uses such property for a for19 eign use. 

20 ‘‘(ii) SERVICES.—If a taxpayer pro21 vides services to another person (other than 

22 a related party) located within the United 

23 States, such services shall not be treated as 

24 described in paragraph (4)(B) even if such 
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1 other person uses such services in providing 

2 services which are so described. 

3 ‘‘(C) SPECIAL RULES WITH RESPECT TO RE4 LATED PARTY TRANSACTIONS.— 

5 ‘‘(i) SALES TO RELATED PARTIES.—If 

6 property is sold to a related party who is 

7 not a United States person, such sale shall 

8 not be treated as for a foreign use unless— 

9 ‘‘(I) such property is ultimately 

10 sold by a related party, or used by a 

11 related party in connection with prop12 erty which is sold or the provision of 

13 services, to another person who is an 

14 unrelated party who is not a United 

15 States person, and 

16 ‘‘(II) the taxpayer establishes to 

17 the satisfaction of the Secretary that 

18 such property is for a foreign use. 

19 For purposes of this clause, a sale of prop20 erty shall be treated as a sale of each of the 

21 components thereof. 

22 ‘‘(ii) SERVICE PROVIDED TO RELATED

23 PARTIES.—If a service is provided to a re24 lated party who is not located in the United 

25 States, such service shall not be treated de-
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† HR 1 EAS2 

1 scribed in subparagraph (A)(ii) unless the 

2 taxpayer established to the satisfaction of 

3 the Secretary that such service is not sub4 stantially similar to services provided by 

5 such related party to persons located within 

6 the United States. 

7 ‘‘(D) RELATED PARTY.—For purposes of 

8 this paragraph, the term ‘related party’ means 

9 any member of an affiliated group as defined in 

10 section 1504(a), determined— 

11 ‘‘(i) by substituting ‘more than 50 per12 cent’ for ‘at least 80 percent’ each place it 

13 appears, and 

14 ‘‘(ii) without regard to paragraphs (2) 

15 and (3) of section 1504(b). 

16 Any person (other than a corporation) shall be 

17 treated as a member of such group if such person 

18 is controlled by members of such group (includ19 ing any entity treated as a member of such 

20 group by reason of this sentence) or controls any 

21 such member. For purposes of the preceding sen22 tence, control shall be determined under the rules 

23 of section 954(d)(3). 

24 ‘‘(E) SOLD.—For purposes of this sub25 section, the terms ‘sold’, ‘sells’, and ‘sale’ shall 
435 

† HR 1 EAS2 

1 include any lease, license, exchange, or other dis2 position. 

3 ‘‘(c) REGULATIONS.—The Secretary shall prescribe 

4 such regulations or other guidance as may be necessary or 

5 appropriate to carry out the provisions of this section.’’. 

6 (b) CONFORMING AMENDMENTS.— 

7 (1) Section 172(d), as amended by this Act, is 

8 amended by adding at the end the following new 

9 paragraph: 

10 ‘‘(9) DEDUCTION FOR FOREIGN-DERIVED INTAN11 GIBLE INCOME.—The deduction under section 250 

12 shall not be allowed.’’. 

13 (2) Section 246(b)(1) is amended— 

14 (A) by striking ‘‘and subsection (a) and (b) 

15 of section 245’’ the first place it appears and in16 serting ‘‘, subsection (a) and (b) of section 245, 

17 and section 250’’, 

18 (B) by striking ‘‘and subsection (a) and (b) 

19 of section 245’’ the second place it appears and 

20 inserting ‘‘subsection (a) and (b) of section 245, 

21 and 250’’. 

22 (3) Section 469(i)(3)(F)(iii) is amended by strik23 ing ‘‘and 222’’ and inserting ‘‘222, and 250’’. 
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† HR 1 EAS2 

1 (4) The table of sections for part VIII of sub2 chapter B of chapter 1 is amended by adding at the 

3 end the following new item: 

‘‘Sec. 250. Foreign-derived intangible income and global intangible low-taxed income.’’. 

4 (c) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to taxable years beginning after Decem6 ber 31, 2017. 

7 CHAPTER 2—OTHER MODIFICATIONS OF 

8 SUBPART F PROVISIONS 

9 SEC. 14211. ELIMINATION OF INCLUSION OF FOREIGN BASE 

10 COMPANY OIL RELATED INCOME. 

11 (a) REPEAL.—Subsection (a) of section 954 is amend12 ed— 

13 (1) by inserting ‘‘and’’ at the end of paragraph 

14 (2), 

15 (2) by striking the comma at the end of para16 graph (3) and inserting a period, and 

17 (3) by striking paragraph (5). 

18 (b) CONFORMING AMENDMENTS.— 

19 (1) Section 952(c)(1)(B)(iii) is amended by 

20 striking subclause (I) and redesignating subclauses 

21 (II) through (V) as subclauses (I) through (IV), re22 spectively. 

23 (2) Section 954(b) is amended— 
437 

† HR 1 EAS2 

1 (A) by striking the second sentence of para2 graph (4), 

3 (B) by striking ‘‘the foreign base company 

4 services income, and the foreign base company 

5 oil related income’’ in paragraph (5) and insert6 ing ‘‘and the foreign base company services in7 come’’, and 

8 (C) by striking paragraph (6). 

9 (3) Section 954 is amended by striking sub10 section (g). 

11 (c) EFFECTIVE DATE.—The amendments made by this 

12 section shall apply to taxable years of foreign corporations 

13 beginning after December 31, 2017, and to taxable years 

14 of United States shareholders with or within which such 

15 taxable years of foreign corporations end. 

16 SEC. 14212. REPEAL OF INCLUSION BASED ON WITHDRAWAL 

17 OF PREVIOUSLY EXCLUDED SUBPART F IN18 COME FROM QUALIFIED INVESTMENT. 

19 (a) IN GENERAL.—Subpart F of part III of subchapter 

20 N of chapter 1 is amended by striking section 955. 

21 (b) CONFORMING AMENDMENTS.— 

22 (1)(A) Section 951(a)(1)(A) is amended to read 

23 as follows: 
438 

† HR 1 EAS2 

1 ‘‘(A) his pro rata share (determined under 

2 paragraph (2)) of the corporation’s subpart F 

3 income for such year, and’’. 

4 (B) Section 851(b) is amended by striking ‘‘sec5 tion 951(a)(1)(A)(i)’’ in the flush language at the end 

6 and inserting ‘‘section 951(a)(1)(A)’’. 

7 (C) Section 952(c)(1)(B)(i) is amended by strik8 ing ‘‘section 951(a)(1)(A)(i)’’ and inserting ‘‘section 

9 951(a)(1)(A)’’. 

10 (D) Section 953(c)(1)(C) is amended by striking 

11 ‘‘section 951(a)(1)(A)(i)’’ and inserting ‘‘section 

12 951(a)(1)(A)’’. 

13 (2) Section 951(a) is amended by striking para14 graph (3). 

15 (3) Section 953(d)(4)(B)(iv)(II) is amended by 

16 striking ‘‘or amounts referred to in clause (ii) or (iii) 

17 of section 951(a)(1)(A)’’. 

18 (4) Section 964(b) is amended by striking ‘‘, 

19 955,’’. 

20 (5) Section 970 is amended by striking sub21 section (b). 

22 (6) The table of sections for subpart F of part III 

23 of subchapter N of chapter 1 is amended by striking 

24 the item relating to section 955. 
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† HR 1 EAS2 

1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to taxable years of foreign corporations 

3 beginning after December 31, 2017, and to taxable years 

4 of United States shareholders in which or with which such 

5 taxable years of foreign corporations end. 

6 SEC. 14213. MODIFICATION OF STOCK ATTRIBUTION RULES 

7 FOR DETERMINING STATUS AS A CON8 TROLLED FOREIGN CORPORATION. 

9 (a) IN GENERAL.—Section 958(b) is amended— 

10 (1) by striking paragraph (4), and 

11 (2) by striking ‘‘Paragraphs (1) and (4)’’ in the 

12 last sentence and inserting ‘‘Paragraph (1)’’. 

13 (b) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to— 

15 (1) the last taxable year of foreign corporations 

16 beginning before January 1, 2018, and each subse17 quent taxable year of such foreign corporations, and 

18 (2) taxable years of United States shareholders 

19 in which or with which such taxable years of foreign 

20 corporations end. 

21 SEC. 14214. MODIFICATION OF DEFINITION OF UNITED 

22 STATES SHAREHOLDER. 

23 (a) IN GENERAL.—Section 951(b) is amended by in24 serting ‘‘, or 10 percent or more of the total value of shares 
440 

† HR 1 EAS2 

1 of all classes of stock of such foreign corporation’’ after 

2 ‘‘such foreign corporation’’. 

3 (b) EFFECTIVE DATE.—The amendment made by this 

4 section shall apply to taxable years of foreign corporations 

5 beginning after December 31, 2017, and to taxable years 

6 of United States shareholders with or within which such 

7 taxable years of foreign corporations end. 

8 SEC. 14215. ELIMINATION OF REQUIREMENT THAT COR9 PORATION MUST BE CONTROLLED FOR 30 

10 DAYS BEFORE SUBPART F INCLUSIONS 

11 APPLY. 

12 (a) IN GENERAL.—Section 951(a)(1) is amended by 

13 striking ‘‘for an uninterrupted period of 30 days or more’’ 

14 and inserting ‘‘at any time’’. 

15 (b) EFFECTIVE DATE.—The amendment made by this 

16 section shall apply to taxable years of foreign corporations 

17 beginning after December 31, 2017, and to taxable years 

18 of United States shareholders with or within which such 

19 taxable years of foreign corporations end. 

20 CHAPTER 3—PREVENTION OF BASE 

21 EROSION 

22 SEC. 14221. LIMITATIONS ON INCOME SHIFTING THROUGH 

23 INTANGIBLE PROPERTY TRANSFERS. 

24 (a) DEFINITION OF INTANGIBLE ASSET.—Section 

25 936(h)(3)(B) is amended— 
441 

† HR 1 EAS2 

1 (1) by striking ‘‘or’’ at the end of clause (v), 

2 (2) by striking clause (vi) and inserting the fol3 lowing: 

4 ‘‘(vi) any goodwill, going concern 

5 value, or workforce in place (including its 

6 composition and terms and conditions (con7 tractual or otherwise) of its employment); or 

8 ‘‘(vii) any other item the value or po9 tential value of which is not attributable to 

10 tangible property or the services of any in11 dividual.’’, and 

12 (3) by striking the flush language after clause 

13 (vii), as added by paragraph (2). 

14 (b) CLARIFICATION OF ALLOWABLE VALUATION METH15 ODS.— 

16 (1) FOREIGN CORPORATIONS.—Section 367(d)(2) 

17 is amended by adding at the end the following new 

18 subparagraph: 

19 ‘‘(D) REGULATORY AUTHORITY.—For pur20 poses of the last sentence of subparagraph (A), 

21 the Secretary shall require— 

22 ‘‘(i) the valuation of transfers of intan23 gible property, including intangible prop24 erty transferred with other property or serv25 ices, on an aggregate basis, or 
442 

† HR 1 EAS2 

1 ‘‘(ii) the valuation of such a transfer 

2 on the basis of the realistic alternatives to 

3 such a transfer, 

4 if the Secretary determines that such basis is the 

5 most reliable means of valuation of such trans6 fers.’’. 

7 (2) ALLOCATION AMONG TAXPAYERS.—Section 

8 482 is amended by adding at the end the following: 

9 ‘‘For purposes of this section, the Secretary shall re10 quire the valuation of transfers of intangible property 

11 (including intangible property transferred with other 

12 property or services) on an aggregate basis or the 

13 valuation of such a transfer on the basis of the real14 istic alternatives to such a transfer, if the Secretary 

15 determines that such basis is the most reliable means 

16 of valuation of such transfers.’’. 

17 (c) EFFECTIVE DATE.— 

18 (1) IN GENERAL.—The amendments made by 

19 this section shall apply to transfers in taxable years 

20 beginning after December 31, 2017. 

21 (2) NO INFERENCE.—Nothing in the amendment 

22 made by subsection (a) shall be construed to create 

23 any inference with respect to the application of sec24 tion 936(h)(3) of the Internal Revenue Code of 1986, 

25 or the authority of the Secretary of the Treasury to 
443 

† HR 1 EAS2 

1 provide regulations for such application, with respect 

2 to taxable years beginning before January 1, 2018. 

3 SEC. 14222. CERTAIN RELATED PARTY AMOUNTS PAID OR 

4 ACCRUED IN HYBRID TRANSACTIONS OR 

5 WITH HYBRID ENTITIES. 

6 (a) IN GENERAL.—Part IX of subchapter B of chapter 

7 1 is amended by inserting after section 267 the following: 

8 ‘‘SEC. 267A. CERTAIN RELATED PARTY AMOUNTS PAID OR 

9 ACCRUED IN HYBRID TRANSACTIONS OR 

10 WITH HYBRID ENTITIES. 

11 ‘‘(a) IN GENERAL.—No deduction shall be allowed 

12 under this chapter for any disqualified related party 

13 amount paid or accrued pursuant to a hybrid transaction 

14 or by, or to, a hybrid entity. 

15 ‘‘(b) DISQUALIFIED RELATED PARTY AMOUNT.—For 

16 purposes of this section— 

17 ‘‘(1) DISQUALIFIED RELATED PARTY AMOUNT.— 

18 The term ‘disqualified related party amount’ means 

19 any interest or royalty paid or accrued to a related 

20 party to the extent that— 

21 ‘‘(A) such amount is not included in the in22 come of such related party under the tax law of 

23 the country of which such related party is a resi24 dent for tax purposes or is subject to tax, or 
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† HR 1 EAS2 

1 ‘‘(B) such related party is allowed a deduc2 tion with respect to such amount under the tax 

3 law of such country. 

4 Such term shall not include any payment to the ex5 tent such payment is included in the gross income of 

6 a United States shareholder under section 951(a). 

7 ‘‘(2) RELATED PARTY.—The term ‘related party’ 

8 means a related person as defined in section 

9 954(d)(3), except that such section shall be applied 

10 with respect to the person making the payment de11 scribed in paragraph (1) in lieu of the controlled for12 eign corporation otherwise referred to in such section. 

13 ‘‘(c) HYBRID TRANSACTION.—For purposes of this sec14 tion, the term ‘hybrid transaction’ means any transaction, 

15 series of transactions, agreement, or instrument one or more 

16 payments with respect to which are treated as interest or 

17 royalties for purposes of this chapter and which are not so 

18 treated for purposes the tax law of the foreign country of 

19 which the recipient of such payment is resident for tax pur20 poses or is subject to tax. 

21 ‘‘(d) HYBRID ENTITY.—For purposes of this section, 

22 the term ‘hybrid entity’ means any entity which is either— 

23 ‘‘(1) treated as fiscally transparent for purposes 

24 of this chapter but not so treated for purposes of the 
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1 tax law of the foreign country of which the entity is 

2 resident for tax purposes or is subject to tax, or 

3 ‘‘(2) treated as fiscally transparent for purposes 

4 of such tax law but not so treated for purposes of this 

5 chapter. 

6 ‘‘(e) REGULATIONS.—The Secretary shall issue such 

7 regulations or other guidance as may be necessary or appro8 priate to carry out the purposes of this section, including 

9 regulations or other guidance providing for— 

10 ‘‘(1) rules for treating certain conduit arrange11 ments which involve a hybrid transaction or a hybrid 

12 entity as subject to subsection (a), 

13 ‘‘(2) rules for the application of this section to 

14 branches or domestic entities, 

15 ‘‘(3) rules for treating certain structured trans16 actions as subject to subsection (a), 

17 ‘‘(4) rules for treating a tax preference as an ex18 clusion from income for purposes of applying sub19 section (b)(1) if such tax preference has the effect of 

20 reducing the generally applicable statutory rate by 25 

21 percent or more, 

22 ‘‘(5) rules for treating the entire amount of in23 terest or royalty paid or accrued to a related party 

24 as a disqualified related party amount if such 

25 amount is subject to a participation exemption sys-
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† HR 1 EAS2 

1 tem or other system which provides for the exclusion 

2 or deduction of a substantial portion of such amount, 

3 ‘‘(6) rules for determining the tax residence of a 

4 foreign entity if the entity is otherwise considered a 

5 resident of more than one country or of no country, 

6 ‘‘(7) exceptions from subsection (a) with respect 

7 to— 

8 ‘‘(A) cases in which the disqualified related 

9 party amount is taxed under the laws of a for10 eign country other than the country of which the 

11 related party is a resident for tax purposes, and 

12 ‘‘(B) other cases which the Secretary deter13 mines do not present a risk of eroding the Fed14 eral tax base, 

15 ‘‘(8) requirements for record keeping and infor16 mation reporting in addition to any requirements 

17 imposed by section 6038A.’’. 

18 (b) CONFORMING AMENDMENT.—The table of sections 

19 for part IX of subchapter B of chapter 1 is amended by 

20 inserting after the item relating to section 267 the following 

21 new item: 

‘‘Sec. 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities.’’. 

22 (c) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to taxable years beginning after Decem24 ber 31, 2017. 
447 

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1 SEC. 14223. SHAREHOLDERS OF SURROGATE FOREIGN COR2 PORATIONS NOT ELIGIBLE FOR REDUCED 

3 RATE ON DIVIDENDS. 

4 (a) IN GENERAL.—Section 1(h)(11)(C)(iii) is amend5 ed— 

6 (1) by striking ‘‘shall not include any foreign 

7 corporation’’ and inserting ‘‘shall not include— 

8 ‘‘(I) any foreign corporation’’, 

9 (2) by striking the period at the end and insert10 ing ‘‘, and’’, and 

11 (3) by adding at the end the following new sub12 clause: 

13 ‘‘(II) any corporation which first 

14 becomes a surrogate foreign corpora15 tion (as defined in section 

16 7874(a)(2)(B)) after the date of the en17 actment of this subclause, other than a 

18 foreign corporation which is treated as 

19 a domestic corporation under section 

20 7874(b).’’. 

21 (b) EFFECTIVE DATE.—The amendments made by this 

22 section shall apply to dividends received after the date of 

23 the enactment of this Act. 
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1 Subpart C—Modifications Related to Foreign Tax 

2 Credit System 

3 SEC. 14301. REPEAL OF SECTION 902 INDIRECT FOREIGN 

4 TAX CREDITS; DETERMINATION OF SECTION 

5 960 CREDIT ON CURRENT YEAR BASIS. 

6 (a) REPEAL OF SECTION 902 INDIRECT FOREIGN TAX

7 CREDITS.—Subpart A of part III of subchapter N of chap8 ter 1 is amended by striking section 902. 

9 (b) DETERMINATION OF SECTION 960 CREDIT ON CUR10 RENT YEAR BASIS.—Section 960, as amended by section 

11 14201, is amended— 

12 (1) by striking subsection (c), by redesignating 

13 subsection (b) as subsection (c), by striking all that 

14 precedes subsection (c) (as so redesignated) and in15 serting the following: 

16 ‘‘SEC. 960. DEEMED PAID CREDIT FOR SUBPART F INCLU17 SIONS. 

18 ‘‘(a) IN GENERAL.—For purposes of subpart A of this 

19 part, if there is included in the gross income of a domestic 

20 corporation any item of income under section 951(a)(1) 

21 with respect to any controlled foreign corporation with re22 spect to which such domestic corporation is a United States 

23 shareholder, such domestic corporation shall be deemed to 

24 have paid so much of such foreign corporation’s foreign in25 come taxes as are properly attributable to such item of in26 come. 
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1 ‘‘(b) SPECIAL RULES FOR DISTRIBUTIONS FROM PRE2 VIOUSLY TAXED EARNINGS AND PROFITS.—For purposes of 

3 subpart A of this part— 

4 ‘‘(1) IN GENERAL.—If any portion of a distribu5 tion from a controlled foreign corporation to a domes6 tic corporation which is a United States shareholder 

7 with respect to such controlled foreign corporation is 

8 excluded from gross income under section 959(a), such 

9 domestic corporation shall be deemed to have paid so 

10 much of such foreign corporation’s foreign income 

11 taxes as— 

12 ‘‘(A) are properly attributable to such por13 tion, and 

14 ‘‘(B) have not been deemed to have to been 

15 paid by such domestic corporation under this 

16 section for the taxable year or any prior taxable 

17 year. 

18 ‘‘(2) TIERED CONTROLLED FOREIGN CORPORA19 TIONS.—If section 959(b) applies to any portion of a 

20 distribution from a controlled foreign corporation to 

21 another controlled foreign corporation, such controlled 

22 foreign corporation shall be deemed to have paid so 

23 much of such other controlled foreign corporation’s 

24 foreign income taxes as— 
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† HR 1 EAS2 

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 the taxable year or any prior taxable 

6 year.’’, 

7 (2) and by adding after subsection (d) (as added 

8 by section 14201) the following new subsections: 

9 ‘‘(e) FOREIGN INCOME TAXES.—The term ‘foreign in10 come taxes’ means any income, war profits, or excess profits 

11 taxes paid or accrued to any foreign country or possession 

12 of the United States. 

13 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

14 such regulations or other guidance as may be necessary or 

15 appropriate to carry out the provisions of this section.’’. 

16 (c) CONFORMING AMENDMENTS.— 

17 (1) Section 78 is amended to read as follows: 

18 ‘‘SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX CRED19 IT. 

20 ‘‘If a domestic corporation chooses to have the benefits 

21 of subpart A of part III of subchapter N (relating to foreign 

22 tax credit) for any taxable year, an amount equal to the 

23 taxes deemed to be paid by such corporation under sub24 sections (a), (b), and (d) of section 960 (determined without 

25 regard to the phrase ‘80 percent of’ in subsection (d)(1) 
451 

† HR 1 EAS2 

1 thereof) for such taxable year shall be treated for purposes 

2 of this title (other than sections 245 and 245A) as a divi3 dend received by such domestic corporation from the foreign 

4 corporation.’’. 

5 (2) Paragraph (4) of section 245(a) is amended 

6 to read as follows: 

7 ‘‘(4) POST-1986 UNDISTRIBUTED EARNINGS.—The 

8 term ‘post-1986 undistributed earnings’ means the 

9 amount of the earnings and profits of the foreign cor10 poration (computed in accordance with sections 

11 964(a) and 986) accumulated in taxable years begin12 ning after December 31, 1986— 

13 ‘‘(A) as of the close of the taxable year of the 

14 foreign corporation in which the dividend is dis15 tributed, and 

16 ‘‘(B) without diminution by reason of divi17 dends distributed during such taxable year.’’. 

18 (3) Section 245(a)(10)(C) is amended by striking 

19 ‘‘902, 907, and 960’’ and inserting ‘‘907 and 960’’. 

20 (4) Sections 535(b)(1) and 545(b)(1) are each 

21 amended by striking ‘‘section 902(a) or 960(a)(1)’’ 

22 and inserting ‘‘section 960’’. 

23 (5) Section 814(f)(1) is amended— 

24 (A) by striking subparagraph (B), and 
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1 (B) by striking all that precedes ‘‘No in2 come’’ and inserting the following: 

3 ‘‘(1) TREATMENT OF FOREIGN TAXES.—’’. 

4 (6) Section 865(h)(1)(B) is amended by striking 

5 ‘‘902, 907,’’ and inserting ‘‘907’’. 

6 (7) Section 901(a) is amended by striking ‘‘sec7 tions 902 and 960’’ and inserting ‘‘section 960’’. 

8 (8) Section 901(e)(2) is amended by striking 

9 ‘‘but is not limited to—’’ and all that follows through 

10 ‘‘that portion’’ and inserting ‘‘but is not limited to 

11 that portion’’. 

12 (9) Section 901(f) is amended by striking ‘‘sec13 tions 902 and 960’’ and inserting ‘‘section 960’’. 

14 (10) Section 901(j)(1)(A) is amended by striking 

15 ‘‘902 or’’. 

16 (11) Section 901(j)(1)(B) is amended by striking 

17 ‘‘sections 902 and 960’’ and inserting ‘‘section 960’’. 

18 (12) Section 901(k)(2) is amended by striking ‘‘, 

19 902,’’. 

20 (13) Section 901(k)(6) is amended by striking 

21 ‘‘902 or’’. 

22 (14) Section 901(m)(1)(B) is amended to read as 

23 follows: 
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1 ‘‘(B) in the case of a foreign income tax 

2 paid by a foreign corporation, shall not be taken 

3 into account for purposes of section 960.’’. 

4 (15) Section 904(d)(2)(E) is amended— 

5 (A) by amending clause (i) to read as fol6 lows: 

7 ‘‘(i) NONCONTROLLED 10-PERCENT

8 OWNED FOREIGN CORPORATION.—The term 

9 ‘noncontrolled 10-percent owned foreign cor10 poration’ means any foreign corporation 

11 which is— 

12 ‘‘(I) a specified 10-percent owned 

13 foreign corporation (as defined in sec14 tion 245A(b)), or 

15 ‘‘(II) a passive foreign investment 

16 company (as defined in section 

17 1297(a)) with respect to which the tax18 payer meets the stock ownership re19 quirements of section 902(a) (or, for 

20 purposes of applying paragraphs (3) 

21 and (4), the requirements of section 

22 902(b)). 

23 A controlled foreign corporation shall not be 

24 treated as a noncontrolled 10-percent owned 

25 foreign corporation with respect to any dis-
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1 tribution out of its earnings and profits for 

2 periods during which it was a controlled 

3 foreign corporation. Any reference to section 

4 902 in this clause shall be treated as a ref5 erence to such section as in effect before its 

6 repeal.’’, and 

7 (B) by striking ‘‘non-controlled section 902 

8 corporation’’ in clause (ii) and inserting ‘‘non9 controlled 10-percent owned foreign corporation’’. 

10 (16) Section 904(d)(4) is amended— 

11 (A) by striking ‘‘noncontrolled section 902 

12 corporation’’ each place it appears and inserting 

13 ‘‘noncontrolled 10-percent owned foreign corpora14 tion’’, 

15 (B) by striking ‘‘NONCONTROLLED SECTION

16 902 CORPORATIONS’’ in the heading thereof and 

17 inserting ‘‘NONCONTROLLED 10-PERCENT OWNED

18 FOREIGN CORPORATIONS’’. 

19 (17) Section 904(d)(6)(A) is amended by striking 

20 ‘‘902, 907,’’ and inserting ‘‘907’’. 

21 (18) Section 904(h)(10)(A) is amended by strik22 ing ‘‘sections 902, 907, and 960’’ and inserting ‘‘sec23 tions 907 and 960’’. 

24 (19) Section 904(k) is amended to read as fol25 lows: 
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1 ‘‘(k) CROSS REFERENCES.—For increase of limitation 

2 under subsection (a) for taxes paid with respect to amounts 

3 received which were included in the gross income of the tax4 payer for a prior taxable year as a United States share5 holder with respect to a controlled foreign corporation, see 

6 section 960(c).’’. 

7 (20) Section 905(c)(1) is amended by striking 

8 the last sentence. 

9 (21) Section 905(c)(2)(B)(i) is amended to read 

10 as follows: 

11 ‘‘(i) shall be taken into account for the 

12 taxable year to which such taxes relate, 

13 and’’. 

14 (22) Section 906(a) is amended by striking ‘‘(or 

15 deemed, under section 902, paid or accrued during 

16 the taxable year)’’. 

17 (23) Section 906(b) is amended by striking para18 graphs (4) and (5). 

19 (24) Section 907(b)(2)(B) is amended by striking 

20 ‘‘902 or’’. 

21 (25) Section 907(c)(3)(A) is amended— 

22 (A) by striking subparagraph (A) and in23 serting the following: 
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† HR 1 EAS2 

1 ‘‘(A) interest, to the extent the category of 

2 income of such interest is determined under sec3 tion 904(d)(3),’’, and 

4 (B) by striking ‘‘section 960(a)’’ in sub5 paragraph (B) and inserting ‘‘section 960’’. 

6 (26) Section 907(c)(5) is amended by striking 

7 ‘‘902 or’’. 

8 (27) Section 907(f)(2)(B)(i) is amended by strik9 ing ‘‘902 or’’. 

10 (28) Section 908(a) is amended by striking ‘‘902 

11 or’’. 

12 (29) Section 909(b) is amended— 

13 (A) by striking ‘‘section 902 corporation’’ in 

14 the matter preceding paragraph (1) and insert15 ing ‘‘specified 10-percent owned foreign corpora16 tion (as defined in section 245A(b) without re17 gard to paragraph (2) thereof)’’, 

18 (B) by striking ‘‘902 or’’ in paragraph (1), 

19 (C) by striking ‘‘by such section 902 cor20 poration’’ and all that follows in the matter fol21 lowing paragraph (2) and inserting ‘‘by such 

22 specified 10-percent owned foreign corporation or 

23 a domestic corporation which is a United States 

24 shareholder with respect to such specified 10-per25 cent owned foreign corporation.’’, and 
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† HR 1 EAS2 

1 (D) by striking ‘‘SECTION 902 CORPORA2 TIONS’’ in the heading thereof and inserting 

3 ‘‘SPECIFIED 10-PERCENT OWNED FOREIGN COR4 PORATIONS’’. 

5 (30) Section 909(d) is amended by striking 

6 paragraph (5). 

7 (31) Section 958(a)(1) is amended by striking 

8 ‘‘960(a)(1)’’ and inserting ‘‘960’’. 

9 (32) Section 959(d) is amended by striking ‘‘Ex10 cept as provided in section 960(a)(3), any’’ and in11 serting ‘‘Any’’. 

12 (33) Section 959(e) is amended by striking ‘‘sec13 tion 960(b)’’ and inserting ‘‘section 960(c)’’. 

14 (34) Section 1291(g)(2)(A) is amended by strik15 ing ‘‘any distribution—’’ and all that follows through 

16 ‘‘but only if’’ and inserting ‘‘any distribution, any 

17 withholding tax imposed with respect to such dis18 tribution, but only if’’. 

19 (35) Section 1293(f) is amended by striking 

20 ‘‘and’’ at the end of paragraph (1), by striking the pe21 riod at the end of paragraph (2) and inserting ‘‘, 

22 and’’, and by adding at the end the following new 

23 paragraph: 

24 ‘‘(3) a domestic corporation which owns (or is 

25 treated under section 1298(a) as owning) stock of a 
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† HR 1 EAS2 

1 qualified electing fund shall be treated in the same 

2 manner as a United States shareholder of a controlled 

3 foreign corporation (and such qualified electing fund 

4 shall be treated in the same manner as such controlled 

5 foreign corporation) if such domestic corporation 

6 meets the stock ownership requirements of subsection 

7 (a) or (b) of section 902 (as in effect before its repeal) 

8 with respect to such qualified electing fund.’’. 

9 (36) Section 6038(c)(1)(B) is amended by strik10 ing ‘‘sections 902 (relating to foreign tax credit for 

11 corporate stockholder in foreign corporation) and 960 

12 (relating to special rules for foreign tax credit)’’ and 

13 inserting ‘‘section 960’’. 

14 (37) Section 6038(c)(4) is amended by striking 

15 subparagraph (C). 

16 (38) The table of sections for subpart A of part 

17 III of subchapter N of chapter 1 is amended by strik18 ing the item relating to section 902. 

19 (39) The table of sections for subpart F of part 

20 III of subchapter N of chapter 1 is amended by strik21 ing the item relating to section 960 and inserting the 

22 following: 

‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’. 

23 (d) EFFECTIVE DATE.—The amendments made by this 

24 section shall apply to taxable years of foreign corporations 

25 beginning after December 31, 2017, and to taxable years 
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1 of United States shareholders in which or with which such 

2 taxable years of foreign corporations end. 

3 SEC. 14302. SEPARATE FOREIGN TAX CREDIT LIMITATION 

4 BASKET FOR FOREIGN BRANCH INCOME. 

5 (a) IN GENERAL.—Section 904(d)(1), as amended by 

6 section 14201, is amended by redesignating subparagraphs 

7 (B) and (C) as subparagraphs (C) and (D), respectively, 

8 and by inserting after subparagraph (A) the following new 

9 subparagraph: 

10 ‘‘(B) foreign branch income,’’. 

11 (b) FOREIGN BRANCH INCOME.— 

12 (1) IN GENERAL.—Section 904(d)(2) is amended 

13 by inserting after subparagraph (I) the following new 

14 subparagraph: 

15 ‘‘(J) FOREIGN BRANCH INCOME.— 

16 ‘‘(i) IN GENERAL.—The term ‘foreign 

17 branch income’ means the business profits of 

18 such United States person which are attrib19 utable to 1 or more qualified business units 

20 (as defined in section 989(a)) in 1 or more 

21 foreign countries. For purposes of the pre22 ceding sentence, the amount of business 

23 profits attributable to a qualified business 

24 unit shall be determined under rules estab25 lished by the Secretary. 
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1 ‘‘(ii) EXCEPTION.—Such term shall not 

2 include any income which is passive cat3 egory income.’’. 

4 (2) CONFORMING AMENDMENT.—Section 

5 904(d)(2)(A)(ii), as amended by section 14201, is 

6 amended by striking ‘‘income described in paragraph 

7 (1)(A) and’’ and inserting ‘‘income described in para8 graph (1)(A), foreign branch income, and’’. 

9 (c) EFFECTIVE DATE.—The amendments made by this 

10 section shall apply to taxable years beginning after Decem11 ber 31, 2017. 

12 SEC. 14303. SOURCE OF INCOME FROM SALES OF INVEN13 TORY DETERMINED SOLELY ON BASIS OF 

14 PRODUCTION ACTIVITIES. 

15 (a) IN GENERAL.—Section 863(b) is amended by add16 ing at the end the following: ‘‘Gains, profits, and income 

17 from the sale or exchange of inventory property described 

18 in paragraph (2) shall be allocated and apportioned be19 tween sources within and without the United States solely 

20 on the basis of the production activities with respect to the 

21 property.’’. 

22 (b) EFFECTIVE DATE.—The amendment made by this 

23 section shall apply to taxable years beginning after Decem24 ber 31, 2017. 
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1 SEC. 14304. ELECTION TO INCREASE PERCENTAGE OF DO2 MESTIC TAXABLE INCOME OFFSET BY OVER3 ALL DOMESTIC LOSS TREATED AS FOREIGN 

4 SOURCE. 

5 (a) IN GENERAL.—Section 904(g) is amended by add6 ing at the end the following new paragraph: 

7 ‘‘(5) ELECTION TO INCREASE PERCENTAGE OF

8 TAXABLE INCOME TREATED AS FOREIGN SOURCE.— 

9 ‘‘(A) IN GENERAL.—If any pre-2018 unused 

10 overall domestic loss is taken into account under 

11 paragraph (1) for any applicable taxable year, 

12 the taxpayer may elect to have such paragraph 

13 applied to such loss by substituting a percentage 

14 greater than 50 percent (but not greater than 

15 100 percent) for 50 percent in subparagraph (B) 

16 thereof. 

17 ‘‘(B) PRE-2018 UNUSED OVERALL DOMESTIC

18 LOSS.—For purposes of this paragraph, the term 

19 ‘pre-2018 unused overall domestic loss’ means 

20 any overall domestic loss which— 

21 ‘‘(i) arises in a qualified taxable year 

22 beginning before January 1, 2018, and 

23 ‘‘(ii) has not been used under para24 graph (1) for any taxable year beginning 

25 before such date. 
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1 ‘‘(C) APPLICABLE TAXABLE YEAR.—For 

2 purposes of this paragraph, the term ‘applicable 

3 taxable year’ means any taxable year of the tax4 payer beginning after December 31, 2017, and 

5 before January 1, 2028.’’. 

6 (b) EFFECTIVE DATE.—The amendment made by this 

7 section shall apply to taxable years beginning after Decem8 ber 31, 2017. 

9 PART II—INBOUND TRANSACTIONS 

10 SEC. 14401. BASE EROSION AND ANTI-ABUSE TAX. 

11 (a) IMPOSITION OF TAX.—Subchapter A of chapter 1 

12 is amended by adding at the end the following new part: 

13 ‘‘PART VII—BASE EROSION AND ANTI-ABUSE TAX 

‘‘Sec. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts. 

14 ‘‘SEC. 59A. TAX ON BASE EROSION PAYMENTS OF TAX15 PAYERS WITH SUBSTANTIAL GROSS RE16 CEIPTS. 

17 ‘‘(a) IMPOSITION OF TAX.—There is hereby imposed on 

18 each applicable taxpayer for any taxable year a tax equal 

19 to the base erosion minimum tax amount for the taxable 

20 year. Such tax shall be in addition to any other tax imposed 

21 by this subtitle. 

22 ‘‘(b) BASE EROSION MINIMUM TAX AMOUNT.—For 

23 purposes of this section— 
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graphs (2) and (3), the term ‘base erosion minimum 

3 tax amount’ means, with respect to any applicable 

4 taxpayer for any taxable year, the excess (if any) of— 

5 ‘‘(A) an amount equal to 10 percent (5 per6 cent in the case of taxable years beginning in 

7 calendar year 2018) of the modified taxable in8 come of such taxpayer for the taxable year, over 

9 ‘‘(B) an amount equal to the regular tax li10 ability (as defined in section 26(b)) of the tax11 payer for the taxable year, reduced (but not 

12 below zero) by the excess (if any) of— 

13 ‘‘(i) the credits allowed under this 

14 chapter against such regular tax liability, 

15 over 

16 ‘‘(ii) the sum of— 

17 ‘‘(I) the credit allowed under sec18 tion 38 for the taxable year which is 

19 properly allocable to the research credit 

20 determined under section 41(a), plus 

21 ‘‘(II) the portion of the applicable 

22 section 38 credits not in excess of 80 

23 percent of the lesser of the amount of 

24 such credits or the base erosion min-
464 

† HR 1 EAS2 

1 imum tax amount (determined without 

2 regard to this subclause). 

3 ‘‘(2) MODIFICATIONS FOR TAXABLE YEARS BE4 GINNING AFTER 2025.—In the case of any taxable year 

5 beginning after December 31, 2025, paragraph (1) 

6 shall be applied— 

7 ‘‘(A) by substituting ‘12.5 percent’ for ‘10 

8 percent’ in subparagraph (A) thereof, and 

9 ‘‘(B) by reducing (but not below zero) the 

10 regular tax liability (as defined in section 26(b)) 

11 for purposes of subparagraph (B) thereof by the 

12 aggregate amount of the credits allowed under 

13 this chapter against such regular tax liability 

14 rather than the excess described in such subpara15 graph. 

16 ‘‘(3) INCREASED RATE FOR CERTAIN BANKS AND

17 SECURITIES DEALERS.— 

18 ‘‘(A) IN GENERAL.—In the case of a tax19 payer described in subparagraph (B) who is an 

20 applicable taxpayer for any taxable year, the 

21 percentage otherwise in effect under paragraphs 

22 (1)(A) and (2)(A) shall each be increased by one 

23 percentage point. 

24 ‘‘(B) TAXPAYER DESCRIBED.—A taxpayer 

25 is described in this subparagraph if such tax-
465 

† HR 1 EAS2 

1 payer is a member of an affiliated group (as de2 fined in section 1504(a)(1)) which includes— 

3 ‘‘(i) a bank (as defined in section 581), 

4 or 

5 ‘‘(ii) a registered securities dealer 

6 under section 15(a) of the Securities Ex7 change Act of 1934. 

8 ‘‘(4) APPLICABLE SECTION 38 CREDITS.—For 

9 purposes of paragraph (1)(B)(ii)(II), the term ‘appli10 cable section 38 credits’ means the credit allowed 

11 under section 38 for the taxable year which is prop12 erly allocable to— 

13 ‘‘(A) the low-income housing credit deter14 mined under section 42(a), 

15 ‘‘(B) the renewable electricity production 

16 credit determined under section 45(a), and 

17 ‘‘(C) the investment credit determined under 

18 section 46, but only to the extent properly allo19 cable to the energy credit determined under sec20 tion 48. 

21 ‘‘(c) MODIFIED TAXABLE INCOME.—For purposes of 

22 this section— 

23 ‘‘(1) IN GENERAL.—The term ‘modified taxable 

24 income’ means the taxable income of the taxpayer 
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† HR 1 EAS2 

1 computed under this chapter for the taxable year, de2 termined without regard to— 

3 ‘‘(A) any base erosion tax benefit with re4 spect to any base erosion payment, or 

5 ‘‘(B) the base erosion percentage of any net 

6 operating loss deduction allowed under section 

7 172 for the taxable year. 

8 ‘‘(2) BASE EROSION TAX BENEFIT.— 

9 ‘‘(A) IN GENERAL.—The term ‘base erosion 

10 tax benefit’ means— 

11 ‘‘(i) any deduction described in sub12 section (d)(1) which is allowed under this 

13 chapter for the taxable year with respect to 

14 any base erosion payment, 

15 ‘‘(ii) in the case of a base erosion pay16 ment described in subsection (d)(2), any de17 duction allowed under this chapter for the 

18 taxable year for depreciation (or amortiza19 tion in lieu of depreciation) with respect to 

20 the property acquired with such payment, 

21 ‘‘(iii) in the case of a base erosion pay22 ment described in subsection (d)(3)— 

23 ‘‘(I) any reduction under section 

24 803(a)(1)(B) in the gross amount of 

25 premiums and other consideration on 
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† HR 1 EAS2 

1 insurance and annuity contracts for 

2 premiums and other consideration 

3 arising out of indemnity insurance, 

4 and 

5 ‘‘(II) any deduction under section 

6 832(b)(4)(A) from the amount of gross 

7 premiums written on insurance con8 tracts during the taxable year for pre9 miums paid for reinsurance, and 

10 ‘‘(iv) in the case of a base erosion pay11 ment described in subsection (d)(4), any re12 duction in gross receipts with respect to 

13 such payment in computing gross income of 

14 the taxpayer for the taxable year for pur15 poses of this chapter. 

16 ‘‘(B) TAX BENEFITS DISREGARDED IF TAX

17 WITHHELD ON BASE EROSION PAYMENT.— 

18 ‘‘(i) IN GENERAL.—Except as provided 

19 in clause (ii), any base erosion tax benefit 

20 attributable to any base erosion payment— 

21 ‘‘(I) on which tax is imposed by 

22 section 871 or 881, and 

23 ‘‘(II) with respect to which tax 

24 has been deducted and withheld under 

25 section 1441 or 1442, 
468 

† HR 1 EAS2 

1 shall not be taken into account in com2 puting modified taxable income under para3 graph (1)(A) or the base erosion percentage 

4 under paragraph (4). 

5 ‘‘(ii) EXCEPTION.—The amount not 

6 taken into account in computing modified 

7 taxable income by reason of clause (i) shall 

8 be reduced under rules similar to the rules 

9 under section 163(j)(5)(B) (as in effect be10 fore the date of the enactment of the Tax 

11 Cuts and Jobs Act). 

12 ‘‘(3) SPECIAL RULES FOR DETERMINING INTER13 EST FOR WHICH DEDUCTION ALLOWED.—For pur14 poses of applying paragraph (1), in the case of a tax15 payer to which section 163(j) applies for the taxable 

16 year, the reduction in the amount of interest for 

17 which a deduction is allowed by reason of such sub18 section shall be treated as allocable first to interest 

19 paid or accrued to persons who are not related parties 

20 with respect to the taxpayer and then to such related 

21 parties. 

22 ‘‘(4) BASE EROSION PERCENTAGE.—For pur23 poses of paragraph (1)(B)— 
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1 ‘‘(A) IN GENERAL.—The term ‘base erosion 

2 percentage’ means, for any taxable year, the per3 centage determined by dividing— 

4 ‘‘(i) the aggregate amount of base ero5 sion tax benefits of the taxpayer for the tax6 able year, by 

7 ‘‘(ii) the sum of— 

8 ‘‘(I) the aggregate amount of the 

9 deductions (including deductions de10 scribed in clauses (i) and (ii) of para11 graph (2)(A)) allowable to the taxpayer 

12 under this chapter for the taxable year, 

13 plus 

14 ‘‘(II) the base erosion tax benefits 

15 described in clauses (iii) and (iv) of 

16 paragraph (2)(A) allowable to the tax17 payer for the taxable year. 

18 ‘‘(B) CERTAIN ITEMS NOT TAKEN INTO AC19 COUNT.—The amount under subparagraph 

20 (A)(ii) shall be determined by not taking into ac21 count— 

22 ‘‘(i) any deduction allowed under sec23 tion 172, 245A, or 250 for the taxable year, 
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† HR 1 EAS2 

1 ‘‘(ii) any deduction for amounts paid 

2 or accrued for services to which the excep3 tion under subsection (d)(5) applies, and 

4 ‘‘(iii) any deduction for qualified de5 rivative payments which are not treated as 

6 a base erosion payment by reason of sub7 section (h). 

8 ‘‘(d) BASE EROSION PAYMENT.—For purposes of this 

9 section— 

10 ‘‘(1) IN GENERAL.—The term ‘base erosion pay11 ment’ means any amount paid or accrued by the tax12 payer to a foreign person which is a related party of 

13 the taxpayer and with respect to which a deduction 

14 is allowable under this chapter. 

15 ‘‘(2) PURCHASE OF DEPRECIABLE PROPERTY.— 

16 Such term shall also include any amount paid or ac17 crued by the taxpayer to a foreign person which is a 

18 related party of the taxpayer in connection with the 

19 acquisition by the taxpayer from such person of prop20 erty of a character subject to the allowance for depre21 ciation (or amortization in lieu of depreciation). 

22 ‘‘(3) REINSURANCE PAYMENTS.—Such term shall 

23 also include any premium or other consideration paid 

24 or accrued by the taxpayer to a foreign person which 

25 is a related party of the taxpayer for any reinsurance 
471 

† HR 1 EAS2 

1 payments which are taken into account under sections 

2 803(a)(1)(B) or 832(b)(4)(A). 

3 ‘‘(4) CERTAIN PAYMENTS TO EXPATRIATED ENTI4 TIES.— 

5 ‘‘(A) IN GENERAL.—Such term shall also 

6 include any amount paid or accrued by the tax7 payer with respect to a person described in sub8 paragraph (B) which results in a reduction of 

9 the gross receipts of the taxpayer. 

10 ‘‘(B) PERSON DESCRIBED.—A person is de11 scribed in this subparagraph if such person is 

12 a— 

13 ‘‘(i) surrogate foreign corporation 

14 which is a related party of the taxpayer, 

15 but only if such person first became a surro16 gate foreign corporation after November 9, 

17 2017, or 

18 ‘‘(ii) foreign person which is a member 

19 of the same expanded affiliated group as the 

20 surrogate foreign corporation. 

21 ‘‘(C) DEFINITIONS.—For purposes of this 

22 paragraph— 

23 ‘‘(i) SURROGATE FOREIGN CORPORA24 TION.—The term ‘surrogate foreign corpora25 tion’ has the meaning given such term by 
472 

† HR 1 EAS2 

1 section 7874(a)(2)(B) but does not include a 

2 foreign corporation treated as a domestic 

3 corporation under section 7874(b). 

4 ‘‘(ii) EXPANDED AFFILIATED GROUP.— 

5 The term ‘expanded affiliated group’ has the 

6 meaning given such term by section 

7 7874(c)(1). 

8 ‘‘(5) EXCEPTION FOR CERTAIN AMOUNTS WITH

9 RESPECT TO SERVICES.—Paragraph (1) shall not 

10 apply to any amount paid or accrued by a taxpayer 

11 for services if— 

12 ‘‘(A) such services are services which meet 

13 the requirements for eligibility for use of the 

14 services cost method under section 482 (deter15 mined without regard to the requirement that the 

16 services not contribute significantly to funda17 mental risks of business success or failure), and 

18 ‘‘(B) such amount constitutes the total serv19 ices cost with no markup component. 

20 ‘‘(e) APPLICABLE TAXPAYER.—For purposes of this 

21 section— 

22 ‘‘(1) IN GENERAL.—The term ‘applicable tax23 payer’ means, with respect to any taxable year, a tax24 payer— 
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† HR 1 EAS2 

1 ‘‘(A) which is a corporation other than a 

2 regulated investment company, a real estate in3 vestment trust, or an S corporation, 

4 ‘‘(B) the average annual gross receipts of 

5 which for the 3-taxable-year period ending with 

6 the preceding taxable year are at least 

7 $500,000,000, and 

8 ‘‘(C) the base erosion percentage (as deter9 mined under subsection (c)(4)) of which for the 

10 taxable year is 3 percent (2 percent in the case 

11 of a taxpayer described in subsection (b)(3)(B)) 

12 or higher. 

13 ‘‘(2) GROSS RECEIPTS.— 

14 ‘‘(A) SPECIAL RULE FOR FOREIGN PER15 SONS.—In the case of a foreign person the gross 

16 receipts of which are taken into account for pur17 poses of paragraph (1)(B), only gross receipts 

18 which are taken into account in determining in19 come which is effectively connected with the con20 duct of a trade or business within the United 

21 States shall be taken into account. In the case of 

22 a taxpayer which is a foreign person, the pre23 ceding sentence shall not apply to the gross re24 ceipts of any United States person which are ag-
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† HR 1 EAS2 

1 gregated with the taxpayer’s gross receipts by 

2 reason of paragraph (3). 

3 ‘‘(B) OTHER RULES MADE APPLICABLE.— 

4 Rules similar to the rules of subparagraphs (B), 

5 (C), and (D) of section 448(c)(3) shall apply in 

6 determining gross receipts for purposes of this 

7 section. 

8 ‘‘(3) AGGREGATION RULES.—All persons treated 

9 as a single employer under subsection (a) of section 

10 52 shall be treated as 1 person for purposes of this 

11 subsection and subsection (c)(4), except that in apply12 ing section 1563 for purposes of section 52, the excep13 tion for foreign corporations under section 

14 1563(b)(2)(C) shall be disregarded. 

15 ‘‘(f) FOREIGN PERSON.—For purposes of this section, 

16 the term ‘foreign person’ has the meaning given such term 

17 by section 6038A(c)(3). 

18 ‘‘(g) RELATED PARTY.—For purposes of this section— 

19 ‘‘(1) IN GENERAL.—The term ‘related party’ 

20 means, with respect to any applicable taxpayer— 

21 ‘‘(A) any 25-percent owner of the taxpayer, 

22 ‘‘(B) any person who is related (within the 

23 meaning of section 267(b) or 707(b)(1)) to the 

24 taxpayer or any 25-percent owner of the tax25 payer, and 
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† HR 1 EAS2 

1 ‘‘(C) any other person who is related (with2 in the meaning of section 482) to the taxpayer. 

3 ‘‘(2) 25-PERCENT OWNER.—The term ‘25-percent 

4 owner’ means, with respect to any corporation, any 

5 person who owns at least 25 percent of— 

6 ‘‘(A) the total voting power of all classes of 

7 stock of a corporation entitled to vote, or 

8 ‘‘(B) the total value of all classes of stock of 

9 such corporation. 

10 ‘‘(3) SECTION 318 TO APPLY.—Section 318 shall 

11 apply for purposes of paragraphs (1) and (2), except 

12 that— 

13 ‘‘(A) ‘10 percent’ shall be substituted for ‘50 

14 percent’ in section 318(a)(2)(C), and 

15 ‘‘(B) subparagraphs (A), (B), and (C) of 

16 section 318(a)(3) shall not be applied so as to 

17 consider a United States person as owning stock 

18 which is owned by a person who is not a United 

19 States person. 

20 ‘‘(h) EXCEPTION FOR CERTAIN PAYMENTS MADE IN

21 THE ORDINARY COURSE OF TRADE OR BUSINESS.—For 

22 purposes of this section— 

23 ‘‘(1) IN GENERAL.—Except as provided in para24 graph (3), any qualified derivative payment shall not 

25 be treated as a base erosion payment. 
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1 ‘‘(2) QUALIFIED DERIVATIVE PAYMENT.— 

2 ‘‘(A) IN GENERAL.—The term ‘qualified de3 rivative payment’ means any payment made by 

4 a taxpayer pursuant to a derivative with respect 

5 to which the taxpayer— 

6 ‘‘(i) recognizes gain or loss as if such 

7 derivative were sold for its fair market 

8 value on the last business day of the taxable 

9 year (and such additional times as required 

10 by this title or the taxpayer’s method of ac11 counting), 

12 ‘‘(ii) treats any gain or loss so recog13 nized as ordinary, and 

14 ‘‘(iii) treats the character of all items 

15 of income, deduction, gain, or loss with re16 spect to a payment pursuant to the deriva17 tive as ordinary. 

18 ‘‘(B) REPORTING REQUIREMENT.—No pay19 ments shall be treated as qualified derivative 

20 payments under subparagraph (A) for any tax21 able year unless the taxpayer includes in the in22 formation required to be reported under section 

23 6038B(b)(2) with respect to such taxable year 

24 such information as is necessary to identify the 

25 payments to be so treated and such other infor-
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1 mation as the Secretary determines necessary to 

2 carry out the provisions of this subsection. 

3 ‘‘(3) EXCEPTIONS FOR PAYMENTS OTHERWISE

4 TREATED AS BASE EROSION PAYMENTS.—This sub5 section shall not apply to any qualified derivative 

6 payment if— 

7 ‘‘(A) the payment would be treated as a 

8 base erosion payment if it were not made pursu9 ant to a derivative, including any interest, roy10 alty, or service payment, or 

11 ‘‘(B) in the case of a contract which has de12 rivative and nonderivative components, the pay13 ment is properly allocable to the nonderivative 

14 component. 

15 ‘‘(4) DERIVATIVE DEFINED.—For purposes of 

16 this subsection— 

17 ‘‘(A) IN GENERAL.—The term ‘derivative’ 

18 means any contract (including any option, for19 ward contract, futures contract, short position, 

20 swap, or similar contract) the value of which, or 

21 any payment or other transfer with respect to 

22 which, is (directly or indirectly) determined by 

23 reference to one or more of the following: 

24 ‘‘(i) Any share of stock in a corpora25 tion. 
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† HR 1 EAS2 

1 ‘‘(ii) Any evidence of indebtedness. 

2 ‘‘(iii) Any commodity which is actively 

3 traded. 

4 ‘‘(iv) Any currency. 

5 ‘‘(v) Any rate, price, amount, index, 

6 formula, or algorithm. 

7 Such term shall not include any item described 

8 in clauses (i) through (v). 

9 ‘‘(B) TREATMENT OF AMERICAN DEPOSI10 TORY RECEIPTS AND SIMILAR INSTRUMENTS.— 

11 Except as otherwise provided by the Secretary, 

12 for purposes of this part, American depository 

13 receipts (and similar instruments) with respect 

14 to shares of stock in foreign corporations shall be 

15 treated as shares of stock in such foreign cor16 porations. 

17 ‘‘(C) EXCEPTION FOR CERTAIN CON18 TRACTS.—Such term shall not include any in19 surance, annuity, or endowment contract issued 

20 by an insurance company to which subchapter L 

21 applies (or issued by any foreign corporation to 

22 which such subchapter would apply if such for23 eign corporation were a domestic corporation). 

24 ‘‘(i) REGULATIONS.—The Secretary shall prescribe 

25 such regulations or other guidance as may be necessary or 
479 

† HR 1 EAS2 

1 appropriate to carry out the provisions of this section, in2 cluding regulations— 

3 ‘‘(1) providing for such adjustments to the appli4 cation of this section as are necessary to prevent the 

5 avoidance of the purposes of this section, including 

6 through— 

7 ‘‘(A) the use of unrelated persons, conduit 

8 transactions, or other intermediaries, or 

9 ‘‘(B) transactions or arrangements designed, 

10 in whole or in part— 

11 ‘‘(i) to characterize payments otherwise 

12 subject to this section as payments not sub13 ject to this section, or 

14 ‘‘(ii) to substitute payments not subject 

15 to this section for payments otherwise sub16 ject to this section and 

17 ‘‘(2) for the application of subsection (g), includ18 ing rules to prevent the avoidance of the exceptions 

19 under subsection (g)(3).’’. 

20 (b) REPORTING REQUIREMENTS AND PENALTIES.— 

21 (1) IN GENERAL.—Subsection (b) of section 

22 6038A is amended to read as follows: 

23 ‘‘(b) REQUIRED INFORMATION.— 

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

25 (a), the information described in this subsection is 
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† HR 1 EAS2 

1 such information as the Secretary prescribes by regu2 lations relating to— 

3 ‘‘(A) the name, principal place of business, 

4 nature of business, and country or countries in 

5 which organized or resident, of each person 

6 which— 

7 ‘‘(i) is a related party to the reporting 

8 corporation, and 

9 ‘‘(ii) had any transaction with the re10 porting corporation during its taxable year, 

11 ‘‘(B) the manner in which the reporting 

12 corporation is related to each person referred to 

13 in subparagraph (A), and 

14 ‘‘(C) transactions between the reporting cor15 poration and each foreign person which is a re16 lated party to the reporting corporation. 

17 ‘‘(2) ADDITIONAL INFORMATION REGARDING

18 BASE EROSION PAYMENTS.—For purposes of sub19 section (a) and section 6038C, if the reporting cor20 poration or the foreign corporation to whom section 

21 6038C applies is an applicable taxpayer, the informa22 tion described in this subsection shall include— 

23 ‘‘(A) such information as the Secretary de24 termines necessary to determine the base erosion 

25 minimum tax amount, base erosion payments, 
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1 and base erosion tax benefits of the taxpayer for 

2 purposes of section 59A for the taxable year, and 

3 ‘‘(B) such other information as the Sec4 retary determines necessary to carry out such 

5 section. 

6 For purposes of this paragraph, any term used in this 

7 paragraph which is also used in section 59A shall 

8 have the same meaning as when used in such sec9 tion.’’. 

10 (2) INCREASE IN PENALTY.—Paragraphs (1) and 

11 (2) of section 6038A(d) are each amended by striking 

12 ‘‘$10,000’’ and inserting ‘‘$25,000’’. 

13 (c) DISALLOWANCE OF CREDITS AGAINST BASE ERO14 SION TAX.—Paragraph (2) of section 26(b) is amended by 

15 inserting after subparagraph (A) the following new sub16 paragraph: 

17 ‘‘(B) section 59A (relating to base erosion 

18 and anti-abuse tax),’’. 

19 (d) CONFORMING AMENDMENTS.— 

20 (1) The table of parts for subchapter A of chapter 

21 1 is amended by adding after the item relating to 

22 part VI the following new item: 

‘‘PART VII. BASE EROSION AND ANTI-ABUSE TAX’’. 

23 (2) Paragraph (1) of section 882(a), as amended 

24 by this Act, is amended by inserting ‘‘ or 59A,’’ after 

25 ‘‘section 11,’’. 
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† HR 1 EAS2 

1 (3) Subparagraph (A) of section 6425(c)(1), as 

2 amended by section 13001, is amended to read as fol3 lows: 

4 ‘‘(A) the sum of— 

5 ‘‘(i) the tax imposed by section 11, or 

6 subchapter L of chapter 1, whichever is ap7 plicable, plus 

8 ‘‘(ii) the tax imposed by section 59A, 

9 over’’. 

10 (4)(A) Subparagraph (A) of section 6655(g)(1), 

11 as amended by sections 12001 and 13001, is amended 

12 by striking ‘‘plus’’ at the end of clause (i), by redesig13 nating clause (ii) as clause (iii), and by inserting 

14 after clause (i) the following new clause: 

15 ‘‘(ii) the tax imposed by section 59A, 

16 plus’’. 

17 (B) Subparagraphs (A)(i) and (B)(i) of section 

18 6655(e)(2), as amended by sections 12001 and 13001, 

19 are each amended by inserting ‘‘and modified taxable 

20 income’’ after ‘‘taxable income’’. 

21 (C) Subparagraph (B) of section 6655(e)(2) is 

22 amended by adding at the end the following new 

23 clause: 

24 ‘‘(iii) MODIFIED TAXABLE INCOME.— 

25 The term ‘modified taxable income’ has the 
483 

† HR 1 EAS2 

1 meaning given such term by section 

2 59A(c)(1).’’. 

3 (e) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to base erosion payments (as defined in 

5 section 59A(d) of the Internal Revenue Code of 1986, as 

6 added by this section) paid or accrued in taxable years be7 ginning after December 31, 2017. 

8 PART III—OTHER PROVISIONS 

9 SEC. 14501. RESTRICTION ON INSURANCE BUSINESS EXCEP10 TION TO PASSIVE FOREIGN INVESTMENT 

11 COMPANY RULES. 

12 (a) IN GENERAL.—Section 1297(b)(2)(B) is amended 

13 to read as follows: 

14 ‘‘(B) derived in the active conduct of an in15 surance business by a qualifying insurance cor16 poration (as defined in subsection (f)),’’. 

17 (b) QUALIFYING INSURANCE CORPORATION DE18 FINED.—Section 1297 is amended by adding at the end the 

19 following new subsection: 

20 ‘‘(f) QUALIFYING INSURANCE CORPORATION.—For 

21 purposes of subsection (b)(2)(B)— 

22 ‘‘(1) IN GENERAL.—The term ‘qualifying insur23 ance corporation’ means, with respect to any taxable 

24 year, a foreign corporation— 
484 

† HR 1 EAS2 

1 ‘‘(A) which would be subject to tax under 

2 subchapter L if such corporation were a domestic 

3 corporation, and 

4 ‘‘(B) the applicable insurance liabilities of 

5 which constitute more than 25 percent of its 

6 total assets, determined on the basis of such li7 abilities and assets as reported on the corpora8 tion’s applicable financial statement for the last 

9 year ending with or within the taxable year. 

10 ‘‘(2) ALTERNATIVE FACTS AND CIRCUMSTANCES

11 TEST FOR CERTAIN CORPORATIONS.—If a corporation 

12 fails to qualify as a qualified insurance corporation 

13 under paragraph (1) solely because the percentage de14 termined under paragraph (1)(B) is 25 percent or 

15 less, a United States person that owns stock in such 

16 corporation may elect to treat such stock as stock of 

17 a qualifying insurance corporation if— 

18 ‘‘(A) the percentage so determined for the 

19 corporation is at least 10 percent, and 

20 ‘‘(B) under regulations provided by the Sec21 retary, based on the applicable facts and cir22 cumstances— 

23 ‘‘(i) the corporation is predominantly 

24 engaged in an insurance business, and 
485 

† HR 1 EAS2 

1 ‘‘(ii) such failure is due solely to run2 off-related or rating-related circumstances 

3 involving such insurance business. 

4 ‘‘(3) APPLICABLE INSURANCE LIABILITIES.—For 

5 purposes of this subsection— 

6 ‘‘(A) IN GENERAL.—The term ‘applicable 

7 insurance liabilities’ means, with respect to any 

8 life or property and casualty insurance busi9 ness— 

10 ‘‘(i) loss and loss adjustment expenses, 

11 and 

12 ‘‘(ii) reserves (other than deficiency, 

13 contingency, or unearned premium reserves) 

14 for life and health insurance risks and life 

15 and health insurance claims with respect to 

16 contracts providing coverage for mortality 

17 or morbidity risks. 

18 ‘‘(B) LIMITATIONS ON AMOUNT OF LIABIL19 ITIES.—Any amount determined under clause (i) 

20 or (ii) of subparagraph (A) shall not exceed the 

21 lesser of such amount— 

22 ‘‘(i) as reported to the applicable in23 surance regulatory body in the applicable 

24 financial statement described in paragraph 
486 

† HR 1 EAS2 

1 (4)(A) (or, if less, the amount required by 

2 applicable law or regulation), or 

3 ‘‘(ii) as determined under regulations 

4 prescribed by the Secretary. 

5 ‘‘(4) OTHER DEFINITIONS AND RULES.—For 

6 purposes of this subsection— 

7 ‘‘(A) APPLICABLE FINANCIAL STATEMENT.— 

8 The term ‘applicable financial statement’ means 

9 a statement for financial reporting purposes 

10 which— 

11 ‘‘(i) is made on the basis of generally 

12 accepted accounting principles, 

13 ‘‘(ii) is made on the basis of inter14 national financial reporting standards, but 

15 only if there is no statement that meets the 

16 requirement of clause (i), or 

17 ‘‘(iii) except as otherwise provided by 

18 the Secretary in regulations, is the annual 

19 statement which is required to be filed with 

20 the applicable insurance regulatory body, 

21 but only if there is no statement which 

22 meets the requirements of clause (i) or (ii). 

23 ‘‘(B) APPLICABLE INSURANCE REGULATORY

24 BODY.—The term ‘applicable insurance regu25 latory body’ means, with respect to any insur-
487 

† HR 1 EAS2 

1 ance business, the entity established by law to li2 cense, authorize, or regulate such business and to 

3 which the statement described in subparagraph 

4 (A) is provided.’’. 

5 (c) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to taxable years beginning after Decem7 ber 31, 2017. 

8 SEC. 14502. REPEAL OF FAIR MARKET VALUE METHOD OF 

9 INTEREST EXPENSE APPORTIONMENT. 

10 (a) IN GENERAL.—Paragraph (2) of section 864(e) is 

11 amended to read as follows: 

12 ‘‘(2) GROSS INCOME AND FAIR MARKET VALUE

13 METHODS MAY NOT BE USED FOR INTEREST.—All al14 locations and apportionments of interest expense shall 

15 be determined using the adjusted bases of assets rather 

16 than on the basis of the fair market value of the assets 

17 or gross income.’’. 

18 (b) EFFECTIVE DATE.—The amendment made by this 

19 section shall apply to taxable years beginning after Decem20 ber 31, 2017. 

21 TITLE II 

22 SEC. 20001. OIL AND GAS PROGRAM. 

23 (a) DEFINITIONS.—In this section: 

24 (1) COASTAL PLAIN.—The term ‘‘Coastal Plain’’ 

25 means the area identified as the 1002 Area on the 
488 

† HR 1 EAS2 

1 plates prepared by the United States Geological Sur2 vey entitled ‘‘ANWR Map – Plate 1’’ and ‘‘ANWR 

3 Map – Plate 2’’, dated October 24, 2017, and on file 

4 with the United States Geological Survey and the Of5 fice of the Solicitor of the Department of the Interior. 

6 (2) SECRETARY.—The term ‘‘Secretary’’ means 

7 the Secretary of the Interior, acting through the Bu8 reau of Land Management. 

9 (b) OIL AND GAS PROGRAM.— 

10 (1) IN GENERAL.—Section 1003 of the Alaska 

11 National Interest Lands Conservation Act (16 U.S.C. 

12 3143) shall not apply to the Coastal Plain. 

13 (2) ESTABLISHMENT.— 

14 (A) IN GENERAL.—The Secretary shall es15 tablish and administer a competitive oil and gas 

16 program for the leasing, development, produc17 tion, and transportation of oil and gas in and 

18 from the Coastal Plain. 

19 (B) PURPOSES.—Section 303(2)(B) of the 

20 Alaska National Interest Lands Conservation Act 

21 (Public Law 96–487; 94 Stat. 2390) is amend22 ed— 

23 (i) in clause (iii), by striking ‘‘and’’ at 

24 the end; 
489 

† HR 1 EAS2 

1 (ii) in clause (iv), by striking the pe2 riod at the end and inserting ‘‘; and’’; and 

3 (iii) by adding at the end the fol4 lowing: 

5 ‘‘(v) to provide for an oil and gas pro6 gram on the Coastal Plain.’’. 

7 (3) MANAGEMENT.—Except as otherwise pro8 vided in this section, the Secretary shall manage the 

9 oil and gas program on the Coastal Plain in a man10 ner similar to the administration of lease sales under 

11 the Naval Petroleum Reserves Production Act of 1976 

12 (42 U.S.C. 6501 et seq.) (including regulations). 

13 (4) ROYALTIES.—Notwithstanding the Mineral 

14 Leasing Act (30 U.S.C. 181 et seq.), the royalty rate 

15 for leases issued pursuant to this section shall be 

16 16.67 percent. 

17 (5) RECEIPTS.—Notwithstanding the Mineral 

18 Leasing Act (30 U.S.C. 181 et seq.), of the amount of 

19 adjusted bonus, rental, and royalty receipts derived 

20 from the oil and gas program and operations on Fed21 eral land authorized under this section— 

22 (A) 50 percent shall be paid to the State of 

23 Alaska; and 

24 (B) the balance shall be deposited into the 

25 Treasury as miscellaneous receipts. 
490 

† HR 1 EAS2 

1 (c) 2 LEASE SALES WITHIN 10 YEARS.— 

2 (1) REQUIREMENT.— 

3 (A) IN GENERAL.—Subject to subparagraph 

4 (B), the Secretary shall conduct not fewer than 

5 2 lease sales area-wide under the oil and gas 

6 program under this section by not later than 10 

7 years after the date of enactment of this Act. 

8 (B) SALE ACREAGES; SCHEDULE.— 

9 (i) ACREAGES.—The Secretary shall 

10 offer for lease under the oil and gas pro11 gram under this section— 

12 (I) not fewer than 400,000 acres 

13 area-wide in each lease sale; and 

14 (II) those areas that have the 

15 highest potential for the discovery of 

16 hydrocarbons. 

17 (ii) SCHEDULE.—The Secretary shall 

18 offer— 

19 (I) the initial lease sale under the 

20 oil and gas program under this section 

21 not later than 4 years after the date of 

22 enactment of this Act; and 

23 (II) a second lease sale under the 

24 oil and gas program under this section 
491 

† HR 1 EAS2 

1 not later than 7 years after the date of 

2 enactment of this Act. 

3 (2) RIGHTS-OF-WAY.—The Secretary shall issue 

4 any rights-of-way or easements across the Coastal 

5 Plain for the exploration, development, production, or 

6 transportation necessary to carry out this section. 

7 (3) SURFACE DEVELOPMENT.—In administering 

8 this section, the Secretary shall authorize up to 2,000 

9 surface acres of Federal land on the Coastal Plain to 

10 be covered by production and support facilities (in11 cluding airstrips and any area covered by gravel 

12 berms or piers for support of pipelines) during the 

13 term of the leases under the oil and gas program 

14 under this section. 

15 SEC. 20002. LIMITATIONS ON AMOUNT OF DISTRIBUTED 

16 QUALIFIED OUTER CONTINENTAL SHELF 

17 REVENUES. 

18 Section 105(f)(1) of the Gulf of Mexico Energy Secu19 rity Act of 2006 (43 U.S.C. 1331 note; Public Law 109– 

20 432) is amended by striking ‘‘exceed $500,000,000 for each 

21 of fiscal years 2016 through 2055.’’ and inserting the fol22 lowing: ‘‘exceed— 

23 ‘‘(A) $500,000,000 for each of fiscal years 

24 2016 through 2019; 
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† HR 1 EAS2 

1 ‘‘(B) $650,000,000 for each of fiscal years 

2 2020 and 2021; and 

3 ‘‘(C) $500,000,000 for each of fiscal years 

4 2022 through 2055.’’. 

5 SEC. 20003. STRATEGIC PETROLEUM RESERVE DRAWDOWN 

6 AND SALE. 

7 (a) DRAWDOWN AND SALE.— 

8 (1) IN GENERAL.—Notwithstanding section 161 

9 of the Energy Policy and Conservation Act (42 U.S.C. 

10 6241), except as provided in subsections (b) and (c), 

11 the Secretary of Energy shall draw down and sell 

12 from the Strategic Petroleum Reserve 7,000,000 bar13 rels of crude oil during the period of fiscal years 2026 

14 through 2027. 

15 (2) DEPOSIT OF AMOUNTS RECEIVED FROM

16 SALE.—Amounts received from a sale under para17 graph (1) shall be deposited in the general fund of the 

18 Treasury during the fiscal year in which the sale oc19 curs. 

20 (b) EMERGENCY PROTECTION.—The Secretary of En21 ergy shall not draw down and sell crude oil under sub22 section (a) in a quantity that would limit the authority 

23 to sell petroleum products under subsection (h) of section 

24 161 of the Energy Policy and Conservation Act (42 U.S.C. 

25 6241) in the full quantity authorized by that subsection. 
493 

† HR 1 EAS2 

1 (c) LIMITATION.—The Secretary of Energy shall not 

2 drawdown or conduct sales of crude oil under subsection 

3 (a) after the date on which a total of $600,000,000 has been 

4 deposited in the general fund of the Treasury from sales 

5 authorized under that subsection. 

Attest: 

Secretary. 
115TH CONGRESS 

1ST SESSION H.R. 1 

SENATE AMENDMENT