I 

114TH CONGRESS 

2D SESSION H. R. 5106 

To make college more affordable, reduce student debt, and provide greater 

access to higher education for all students of the United States. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 28, 2016 

Ms. DUCKWORTH (for herself, Mr. SCOTT of Virginia, Mr. HINOJOSA, and Mr. 

COURTNEY) introduced the following bill; which was referred to the Committee on Education and the Workforce, and in addition to the Committees on Ways and Means and Natural Resources, for a period to be subsequently determined by the Speaker, in each case for consideration of 

such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To make college more affordable, reduce student debt, and 

provide greater access to higher education for all students of the United States. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

5 the Red Act of 2016’’. 

6 (b) TABLE OF CONTENTS.—The table of contents for 

7 this Act is as follows: 

Sec. 1. Short title; table of contents. 


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TITLE I—AMERICA’S COLLEGE PROMISE 

Sec. 101. State and Indian tribe grants for community college. 

Sec. 102. Pathways to student success. 

TITLE II—STUDENT LOAN REFINANCING 

Sec. 201. Refinancing programs. 

TITLE III—FEDERAL PELL GRANT PROTECTION 

Sec. 301. Federal Pell Grant protection. 

Sec. 302. Point of order against cutting Federal Pell Grants. 

Sec. 303. Affirming that Federal Pell Grants are a foundational investment in 

affordable higher education. 

TITLE IV—ACCOUNTABILITY 

Sec. 401. Supporting efforts to ensure that institutions of higher education are 

accountable for ensuring the high value of degrees and credentials. 

TITLE V—OFFSETS 

Sec. 501. Amendment of 1986 Code. 

Sec. 502. Fair share tax on high-income taxpayers. 

Sec. 503. Expansion of denial of deduction for certain excessive employee remuneration. 

Sec. 504. Partnership interests transferred in connection with performance of 

services. 

Sec. 505. Special rules for partners providing investment management services 

to partnerships. 

Sec. 506. Consistent treatment of stock options by corporations. 

Sec. 507. Application of executive pay deduction limit. 

Sec. 508. Modifications to rules relating to inverted corporations. 

Sec. 509. Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers. 

Sec. 510. Limitation on section 199 deduction attributable to oil, natural gas, 

or primary products thereof. 

Sec. 511. Limitation on deduction for intangible drilling and development costs; 

amortization of disallowed amounts. 

Sec. 512. Limitation on percentage depletion allowance for oil and gas wells. 

Sec. 513. Limitation on deduction for tertiary injectants. 

Sec. 514. Modification of definition of major integrated oil company. 

Sec. 515. Repeal of outer Continental Shelf deep water and deep gas royalty 

relief. 

Sec. 516. Coordination of American Opportunity Credit and Lifetime Learning 

Credit with Pell Grants not used for qualified tuition and related expenses. 

Sec. 517. Expansion of Pell Grant exclusion from gross income. 


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1 TITLE I—AMERICA’S COLLEGE 

2 PROMISE 

3 SEC. 101. STATE AND INDIAN TRIBE GRANTS FOR COMMU4 NITY COLLEGE. 

5 (a) IN GENERAL.—From amounts appropriated 

6 under subsection (g)(1) for any fiscal year, the Secretary 

7 shall award grants to eligible States and Indian tribes to 

8 pay the Federal share of expenditures needed to carry out 

9 the activities and services described in subsection (e). 

10 (b) FEDERAL SHARE; NON-FEDERAL SHARE.— 

11 (1) FEDERAL SHARE.— 

12 (A) FORMULA.—Subject to subparagraph 

13 (B), the Federal share of a grant under this 

14 section shall be based on a formula, determined 

15 by the Secretary, that— 

16 (i) accounts for the State or Indian 

17 tribe’s share of eligible students; and 

18 (ii) provides, for each eligible student 

19 in the State or Indian tribe, a per-student 

20 amount that is— 

21 (I) not less than 300 percent of 

22 the per-student amount of the State 

23 or Indian tribe share, determined 

24 under paragraph (2), subject to sub25 clause (II); and 


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1 (II) not greater than 75 percent 

2 of— 

3 (aa) for the 2016–2017 

4 award year, the average resident 

5 community college tuition and 

6 fees per student in all States for 

7 the most recent year for which 

8 data are available; and 

9 (bb) for each subsequent 

10 award year, the average resident 

11 community college tuition and 

12 fees per student in all States cal13 culated under this subclause for 

14 the preceding year, increased by 

15 the lesser of— 

16 (AA) the percentage by 

17 which the average resident 

18 community college tuition 

19 and fees per student in all 

20 States for the most recent 

21 year for which data are 

22 available increased as com23 pared to such average for 

24 the preceding year; or 

25 (BB) 3 percent. 


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1 (B) EXCEPTION FOR CERTAIN INDIAN

2 TRIBES.—In any case in which not less than 75 

3 percent of the students at the community col4 leges operated or controlled by an Indian tribe 

5 are low-income students, the amount of the 

6 Federal share for such Indian tribe shall be not 

7 less than 95 percent of the total amount needed 

8 to waive tuition and fees for all eligible students 

9 enrolled in such community colleges. 

10 (2) STATE OR TRIBAL SHARE.— 

11 (A) FORMULA.— 

12 (i) IN GENERAL.—The State or tribal 

13 share of a grant under this section for 

14 each fiscal year shall be the amount needed 

15 to pay 25 percent of the average commu16 nity college resident tuition and fees per 

17 student in all States in the 2016–2017 

18 award year for all eligible students in the 

19 State or Indian tribe, respectively, for such 

20 fiscal year, except as provided in clause 

21 (ii). 

22 (ii) EXCEPTION FOR CERTAIN INDIAN

23 TRIBES.—In a case in which not less than 

24 5 percent of the students at the community 

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1 dian tribe are low-income students, the 

2 amount of such Indian tribe’s tribal share 

3 shall not exceed 5 percent of the total 

4 amount needed to waive tuition and fees 

5 for all eligible students enrolled in such 

6 community colleges. 

7 (B) NEED-BASED AID.—A State or Indian 

8 tribe may include any need-based financial aid 

9 provided through State or tribal funds to eligi10 ble students as part of the State or tribal share. 

11 (C) NO IN-KIND CONTRIBUTIONS.—A 

12 State or Indian tribe shall not include in-kind 

13 contributions for purposes of the State or tribal 

14 share described in subparagraph (A). 

15 (c) ELIGIBILITY.—To be eligible for a grant under 

16 this section, a State or Indian tribe shall agree to waive 

17 community college resident tuition and fees for all eligible 

18 students for each year of the grant. 

19 (d) APPLICATIONS.— 

20 (1) SUBMISSION.—For each fiscal year for 

21 which a State or Indian tribe desires a grant under 

22 this section, an application shall be submitted to the 

23 Secretary at such time, in such manner, and con24 taining such information as the Secretary may re25 quire. Such application shall be submitted by— 


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1 (A) in the case of a State, the Governor, 

2 the State agency with jurisdiction over higher 

3 education, or another agency designated by the 

4 Governor to administer the program under this 

5 section; or 

6 (B) in the case of an Indian tribe, the gov7 erning body of such tribe. 

8 (2) CONTENTS.—Each State or Indian tribe ap9 plication shall include, at a minimum— 

10 (A) an estimate of the number of eligible 

11 students in the State or Indian tribe and the 

12 cost of waiving community college resident tui13 tion and fees for all eligible students for each 

14 fiscal year covered by the grant, with annual in15 creases of an amount that shall not exceed 3 

16 percent of the prior year’s average resident 

17 community college tuition and fees; 

18 (B) an assurance that all community col19 leges in the State or under the jurisdiction of 

20 the Indian tribe, respectively, will waive resident 

21 tuition and fees for eligible students in pro22 grams that are— 

23 (i) academic programs with credits 

24 that can fully transfer via articulation 

25 agreement toward a baccalaureate degree 


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1 or postbaccalaureate degree at any public 

2 institution of higher education in the 

3 State; or 

4 (ii) occupational skills training pro5 grams that lead to a recognized postsec6 ondary credential that is in an in-demand 

7 industry sector or occupation in the State; 

8 (C) a description of the promising and evi9 dence-based institutional reforms and innovative 

10 practices to improve student outcomes, includ11 ing completion or transfer rates, that have been 

12 or will be adopted by the participating commu13 nity colleges, such as— 

14 (i) providing comprehensive academic 

15 and student support services, including 

16 mentoring and advising, especially for 

17 first-generation and minority students; 

18 (ii) providing accelerated learning op19 portunities, such as dual or concurrent en20 rollment programs; 

21 (iii) advancing competency-based edu22 cation; 

23 (iv) strengthening remedial education, 

24 especially for low-income students, first 

25 generation students, adult students, and 


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1 students from other underrepresented 

2 groups in postsecondary education; 

3 (v) implementing course redesigns of 

4 high-enrollment courses to improve student 

5 outcomes and reduce cost; or 

6 (vi) utilizing career pathways or de7 gree pathways; 

8 (D) a description of how the State or In9 dian tribe will promote alignment between its 

10 public secondary school and postsecondary edu11 cation systems, including between 2-year and 4- 

12 year public institutions of higher education and 

13 with minority-serving institutions described in 

14 section 371 of the Higher Education Act of 

15 1965 (20 U.S.C. 1067q), to expand awareness 

16 of and access to postsecondary education, re17 duce the need for remediation and repeated 

18 coursework, and improve student outcomes; 

19 (E) a description of how the State or In20 dian tribe will ensure that programs leading to 

21 a recognized postsecondary credential meet the 

22 quality criteria established by the State under 

23 section 123(a) of the Workforce Innovation and 

24 Opportunity Act (29 U.S.C. 3153(a)) or other 


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1 quality criteria determined appropriate by the 

2 State or Indian tribe; 

3 (F) an assurance that all participating 

4 community colleges in the State or under the 

5 authority of the Indian tribe have entered into 

6 program participation agreements under section 

7 487 of the Higher Education Act of 1965 (20 

8 U.S.C. 1094); 

9 (G) an assurance that, for each year of the 

10 grant, the State or Indian tribe will notify each 

11 eligible student of the student’s remaining eligi12 bility for assistance under this section; and 

13 (H) a description of how the State or In14 dian tribe will promote the improved perform15 ance of public institutions of higher education 

16 through funding reform, including through the 

17 use of a performance-based model that allocates 

18 a portion of the State or Indian tribe’s public 

19 higher education expenditures based on the per20 formance of those institutions on State-specified 

21 metrics, including successful student outcomes. 

22 (e) ALLOWABLE USES OF FUNDS.— 

23 (1) IN GENERAL.—A State or Indian tribe shall 

24 use a grant under this section only to provide funds 

25 to participating community colleges to waive resident 


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1 tuition and fees for eligible students who are en2 rolled in— 

3 (A) academic programs with credits that 

4 can fully transfer via articulation agreement to5 ward a baccalaureate degree or postbaccalaure6 ate degree at any public institution of higher 

7 education in the State; or 

8 (B) occupational skills training programs 

9 that lead to a recognized postsecondary creden10 tial that is in an in-demand industry sector or 

11 occupation in the State. 

12 (2) ADDITIONAL USES.—If a State or Indian 

13 tribe demonstrates to the Secretary that it has grant 

14 funds remaining after meeting the demand for ac15 tivities described in paragraph (1), the State or In16 dian tribe may use those funds to carry out one or 

17 more of the following: 

18 (A) Expanding the waiver of resident tui19 tion and fees at community college to students 

20 who are returning students or otherwise not en21 rolling in postsecondary education for the first 

22 time, and who meet the student eligibility re23 quirements of clauses (ii) through (v) of sub24 section (f)(4)(A). 


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1 (B) Expanding the scope and capacity of 

2 high-quality academic and occupational skills 

3 training programs at community colleges. 

4 (C) Improving postsecondary education 

5 readiness in the State or Indian tribe, through 

6 outreach and early intervention. 

7 (D) Expanding access to dual or concur8 rent enrollment programs. 

9 (E) Improving affordability at 4-year pub10 lic institutions of higher education. 

11 (3) USE OF FUNDS FOR ADMINISTRATIVE PUR12 POSES.—A State or Indian tribe that receives a 

13 grant under this section may not use any funds pro14 vided under this section for administrative purposes 

15 relating to such grant. 

16 (4) MAINTENANCE OF EFFORT.—A State or In17 dian tribe receiving a grant under this section is en18 titled to receive its full allotment of funds under this 

19 section for a fiscal year only if, for each year of the 

20 grant, the State or Indian tribe provides financial 

21 support for public higher education at a level equal 

22 to or exceeding the average amount provided per 

23 full-time equivalent student for public institutions of 

24 higher education for the 3 consecutive preceding 

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1 culation under this paragraph, the State or Indian 

2 tribe shall exclude capital expenses and research and 

3 development costs and include need-based financial 

4 aid for students who attend public institutions of 

5 higher education. 

6 (5) ANNUAL REPORT.—A State or Indian tribe 

7 receiving a grant under this section shall submit an 

8 annual report to the Secretary— 

9 (A) describing the uses of grant funds 

10 under this section, the progress made in ful11 filling the requirements of the grant, and the 

12 rates of graduation, transfer, and attainment of 

13 a recognized postsecondary credential for the 

14 students at participating community colleges; 

15 and 

16 (B) including any other information as the 

17 Secretary may require. 

18 (6) REPORTING BY SECRETARY.—The Sec19 retary annually shall— 

20 (A) compile and analyze the information 

21 described in paragraph (5); and 

22 (B) prepare and submit a report to the 

23 Committee on Health, Education, Labor, and 

24 Pensions of the Senate and the Committee on 

25 Education and the Workforce of the House of 


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1 Representatives containing the analysis de2 scribed in subparagraph (A) and an identifica3 tion of State and Indian tribe best practices for 

4 achieving the purpose of this section. 

5 (7) TECHNICAL ASSISTANCE.—The Secretary 

6 shall provide technical assistance to eligible States 

7 and Indian tribes concerning best practices regard8 ing the promising and evidence-based institutional 

9 reforms and innovative practices to improve student 

10 outcomes as described in subsection (d)(2)(C) and 

11 shall disseminate such best practices among the 

12 States and Indian tribes. 

13 (8) CONTINUATION OF FUNDING.— 

14 (A) IN GENERAL.—A State or Indian tribe 

15 receiving a grant under this section for a fiscal 

16 year may continue to receive funding under this 

17 section for future fiscal years conditioned on 

18 the availability of budget authority and on 

19 meeting the requirements of the grant, as de20 termined by the Secretary. 

21 (B) DISCONTINUATION.—The Secretary 

22 may discontinue funding of the Federal share of 

23 a grant under this section if the State or Indian 

24 tribe has violated the terms of the grant or is 

25 not making adequate progress in implementing 


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1 the reforms described in the application sub2 mitted under subsection (d). 

3 (f) DEFINITIONS.—In this section: 

4 (1) CAREER PATHWAY.—The term ‘‘career 

5 pathway’’ has the meaning given the term in section 

6 3 of the Workforce Innovation and Opportunity Act 

7 (29 U.S.C. 3102). 

8 (2) COMMUNITY COLLEGE.—The term ‘‘commu9 nity college’’ means a public institution of higher 

10 education at which the highest degree that is pre11 dominantly awarded to students is an associate’s de12 gree, including 2-year tribally controlled colleges 

13 under section 316 of the Higher Education Act of 

14 1965 (20 U.S.C. 1059c) and public 2-year State in15 stitutions of higher education. 

16 (3) DUAL OR CONCURRENT ENROLLMENT PRO17 GRAM.—The term ‘‘dual or concurrent enrollment 

18 program’’ means an academic program through 

19 which a secondary school student is able simulta20 neously to earn credit toward a secondary school di21 ploma and a postsecondary degree or other recog22 nized postsecondary credential, including an early 

23 college high school program. 

24 (4) ELIGIBLE STUDENT.— 


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1 (A) DEFINITION.—The term ‘‘eligible stu2 dent’’ means a student who— 

3 (i)(I) enrolls in a community college 

4 for the first time, regardless of age, after 

5 the date of enactment of this Act; or 

6 (II) is enrolled in a community col7 lege, for the first time, as of the date of 

8 enactment of this Act; 

9 (ii) attends the community college on 

10 not less than a half-time basis; 

11 (iii) is maintaining satisfactory 

12 progress, as defined in section 484(c) of 

13 the Higher Education Act of 1965 (20 

14 U.S.C. 1091(c)), in the student’s course of 

15 study; 

16 (iv) qualifies for resident tuition, as 

17 determined by the State or Indian tribe; 

18 and 

19 (v) is enrolled in an eligible program 

20 described in subsection (d)(2)(B). 

21 (B) SPECIAL RULE.—An otherwise eligible 

22 student shall lose eligibility 3 calendar years 

23 after first receiving benefits under this section. 

24 (5) IN-DEMAND INDUSTRY SECTOR OR OCCUPA25 TION.—The term ‘‘in-demand industry sector or ocVerDate Sep 11 2014 00:02 May 04, 2016 Jkt 059200 PO 00000 Frm 00016 Fmt 6652 Sfmt 6201 E:\BILLS\H5106.IH H5106

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1 cupation’’ has the meaning given the term in section 

2 3 of the Workforce Innovation and Opportunity Act 

3 (29 U.S.C. 3102). 

4 (6) INDIAN TRIBE.—The term ‘‘Indian tribe’’ 

5 has the meaning given the term in section 102 of the 

6 Federally Recognized Indian Tribe List Act of 1994 

7 (25 U.S.C. 479a). 

8 (7) INSTITUTION OF HIGHER EDUCATION.—The 

9 term ‘‘institution of higher education’’ has the 

10 meaning given the term in section 101 of the Higher 

11 Education Act of 1965 (20 U.S.C. 1001). 

12 (8) RECOGNIZED POSTSECONDARY CREDEN13 TIAL.—The term ‘‘recognized postsecondary creden14 tial’’ has the meaning as described in section 3 of 

15 the Workforce Innovation and Opportunity Act (29 

16 U.S.C. 3102). 

17 (9) SECRETARY.—The term ‘‘Secretary’’ means 

18 the Secretary of Education. 

19 (10) STATE.—The term ‘‘State’’ has the mean20 ing given the term in section 103 of the Higher 

21 Education Act of 1965 (20 U.S.C. 1003). 

22 (g) APPROPRIATIONS.— 

23 (1) AUTHORIZATION AND APPROPRIATIONS.— 

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1 tion, there are authorized to be appropriated, and 

2 there are appropriated— 

3 (A) $1,365,000,000 for fiscal year 2016; 

4 (B) $3,020,000,000 for fiscal year 2017; 

5 (C) $3,854,000,000 for fiscal year 2018; 

6 (D) $5,395,000,000 for fiscal year 2019; 

7 (E) $7,061,000,000 for fiscal year 2020; 

8 (F) $8,085,000,000 for fiscal year 2021; 

9 (G) $10,182,000,000 for fiscal year 2022; 

10 (H) $13,019,000,000 for fiscal year 2023; 

11 (I) $13,583,000,000 for fiscal year 2024; 

12 and 

13 (J) $14,171,000,000 for fiscal year 2025 

14 and each succeeding fiscal year. 

15 (2) AVAILABILITY.—Funds appropriated under 

16 paragraph (1) shall remain available to the Sec17 retary until expended. 

18 (3) INSUFFICIENT FUNDS.—If the amount ap19 propriated under paragraph (1) for a fiscal year is 

20 not sufficient to award each participating State and 

21 Indian tribe a grant under this section that is equal 

22 to the minimum amount of the Federal share de23 scribed in subsection (b)(1), the Secretary may rat24 ably reduce the amount of each such grant or take 


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1 other actions necessary to ensure an equitable dis2 tribution of such amount. 

3 SEC. 102. PATHWAYS TO STUDENT SUCCESS. 

4 (a) PATHWAYS TO STUDENT SUCCESS FOR HISTORI5 CALLY BLACK COLLEGES AND UNIVERSITIES.— 

6 (1) IN GENERAL.—From amounts appropriated 

7 under subsection (d)(1) for any fiscal year, the Sec8 retary shall award grants to participating 4-year his9 torically black colleges or universities that meet the 

10 requirements of paragraph (2) to— 

11 (A) encourage students to enroll as first12 time students and successfully complete a bach13 elor’s degree at participating institutions; 

14 (B) provide incentives to community col15 lege students to transfer to participating insti16 tutions through strong transfer pathways to 

17 complete a bachelor’s degree program; and 

18 (C) support participating institutions to 

19 better serve new and existing students by en20 gaging in reforms and innovations designed to 

21 improve completion rates and other student out22 comes. 

23 (2) ELIGIBILITY.—To be eligible to receive a 

24 grant under the program under this subsection, an 


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1 institution shall be a historically black college or uni2 versity that— 

3 (A) has a student body of which not less 

4 than 35 percent are low-income students; 

5 (B) commits to maintaining or adopting 

6 and implementing promising and evidence-based 

7 institutional reforms and innovative practices to 

8 improve the completion rates and other student 

9 outcomes, such as— 

10 (i) providing comprehensive academic 

11 and student support services, including 

12 mentoring and advising; 

13 (ii) providing accelerated learning op14 portunities and degree pathways, such as 

15 dual enrollment and pathways to graduate 

16 and professional degree programs; 

17 (iii) advancing distance and com18 petency-based education; 

19 (iv) partnering with employers, indus20 try, not-for-profit associations, and other 

21 groups to provide opportunities to advance 

22 learning outside the classroom, including 

23 work-based learning opportunities such as 

24 internships or apprenticeships or programs 

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1 ment and personal growth, such as foreign 

2 exchange and study abroad programs; 

3 (v) reforming remedial education, es4 pecially for low-income students, first gen5 eration college students, adult students, 

6 and other underrepresented students; or 

7 (vi) implementing course redesigns of 

8 high-enrollment courses to improve student 

9 outcomes and reduce cost; 

10 (C) sets performance goals for improving 

11 student outcomes for the duration of the grant; 

12 and 

13 (D) if receiving a grant for transfer stu14 dents, has articulation agreements with commu15 nity colleges at the national, State, or local level 

16 to ensure that community college credits can 

17 fully transfer to the participating institution. 

18 (3) GRANT AMOUNT.— 

19 (A) INITIAL AMOUNT.—For the first year 

20 that an eligible institution participates in the 

21 grant program under this subsection and sub22 ject to subparagraph (C), such eligible institu23 tion shall receive a grant in an amount based 

24 on the product of— 


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1 (i) the actual cost of tuition and fees 

2 at the eligible institution in such year (re3 ferred to in this subsection as the ‘‘per-stu4 dent rebate’’); multiplied by 

5 (ii) the number of eligible students en6 rolled in the eligible institution for the pre7 ceding year. 

8 (B) SUBSEQUENT INCREASES.—For each 

9 succeeding year after the first year of the grant 

10 program under this subsection, each partici11 pating eligible institution shall receive a grant 

12 in the amount determined under subparagraph 

13 (A) for such year, except that in no case shall 

14 the amount of the per-student rebate for an eli15 gible institution increase by more than 3 per16 cent as compared to the amount of such rebate 

17 for the preceding year. 

18 (C) LIMITATIONS.— 

19 (i) MAXIMUM PER-STUDENT RE20 BATE.—No eligible institution participating 

21 in the grant program under this subsection 

22 shall receive a per-student rebate amount 

23 for any year that is greater than the na24 tional average of annual tuition and fees at 

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1 cation for such year, as determined by the 

2 Secretary. 

3 (ii) FIRST YEAR TUITION AND

4 FEES.—During the first year of participa5 tion in the grant program under this sub6 section, no eligible institution may increase 

7 tuition and fees at a rate greater than any 

8 annual increase at the eligible institution 

9 in the previous 5 years. 

10 (4) APPLICATION.—An eligible institution that 

11 desires a grant under this subsection shall submit an 

12 application to the Secretary at such time, in such 

13 manner, and containing such information as the Sec14 retary may require. 

15 (5) USE OF FUNDS.—Funds awarded under 

16 this subsection to a participating eligible institution 

17 shall be— 

18 (A) applied in their entirety to student ac19 counts; and 

20 (B) used to waive or significantly reduce 

21 tuition and fees for eligible students in an 

22 amount of not more than up to the annual per23 student rebate amount for each student, for not 

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1 dent enrolls in the participating eligible institu2 tion. 

3 (b) PATHWAYS TO STUDENT SUCCESS FOR HIS4 PANIC-SERVING INSTITUTIONS, ASIAN AMERICAN AND

5 NATIVE AMERICAN PACIFIC ISLANDER-SERVING INSTITU6 TIONS, TRIBAL COLLEGES AND UNIVERSITIES, ALASKA

7 NATIVE-SERVING INSTITUTIONS, NATIVE HAWAIIAN8 SERVING INSTITUTIONS, PREDOMINANTLY BLACK INSTI9 TUTIONS, AND NATIVE AMERICAN-SERVING NONTRIBAL

10 INSTITUTIONS.— 

11 (1) IN GENERAL.—From amounts appropriated 

12 under subsection (d)(1) for any fiscal year, the Sec13 retary shall award grants to participating 4-year mi14 nority-serving institutions to— 

15 (A) encourage students to enroll as first16 time students and successfully complete a bach17 elor’s degree at participating institutions; 

18 (B) provide incentives to community col19 lege students to transfer to participating insti20 tutions through strong transfer pathways to 

21 complete a bachelor’s degree program; and 

22 (C) support participating institutions to 

23 better serve new and existing students by en24 gaging in reforms and innovations designed to 


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1 improve completion rates and other student out2 comes. 

3 (2) INSTITUTIONAL ELIGIBILITY.—To be eligi4 ble to participate and receive a grant under this sub5 section, an institution shall be a minority-serving in6 stitution that— 

7 (A) has a student body of which not less 

8 than 35 percent are low-income students; 

9 (B) commits to maintaining or adopting 

10 and implementing promising and evidence-based 

11 institutional reforms and innovative practices to 

12 improve the completion rates and other student 

13 outcomes, such as— 

14 (i) providing comprehensive academic 

15 and student support services, including 

16 mentoring and advising; 

17 (ii) providing accelerated learning op18 portunities and degree pathways, such as 

19 dual enrollment and pathways to graduate 

20 and professional degree programs; 

21 (iii) advancing distance and com22 petency-based education; 

23 (iv) partnering with employers, indus24 try, not-for-profit associations, and other 

25 groups to provide opportunities to advance 


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1 learning outside the classroom, including 

2 work-based learning opportunities such as 

3 internships or apprenticeships or programs 

4 designed to improve intercultural develop5 ment and personal growth, such as foreign 

6 exchange and study abroad programs; 

7 (v) reforming remedial education, es8 pecially for low-income students, first gen9 eration college students, adult students, 

10 and other underrepresented students; and 

11 (vi) implementing course redesigns of 

12 high-enrollment courses to improve student 

13 outcomes and reduce cost; 

14 (C) sets performance goals for improving 

15 student outcomes for the duration of the grant; 

16 and 

17 (D) if receiving a grant for transfer stu18 dents, has articulation agreements with commu19 nity colleges at the national, State, or local lev20 els to ensure that community college credits can 

21 fully transfer to the participating institution. 

22 (3) GRANT AMOUNT.— 

23 (A) INITIAL AMOUNT.—For the first year 

24 that an eligible institution participates in the 

25 grant program under this subsection and subVerDate Sep 11 2014 00:02 May 04, 2016 Jkt 059200 PO 00000 Frm 00026 Fmt 6652 Sfmt 6201 E:\BILLS\H5106.IH H5106

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1 ject to subparagraph (C), such participating eli2 gible institution shall receive a grant in an 

3 amount based on the product of— 

4 (i) the actual cost of tuition and fees 

5 at the eligible institution in such year (re6 ferred to in this subsection as the ‘‘per-stu7 dent rebate’’); multiplied by 

8 (ii) the number of eligible students en9 rolled in the eligible institution for the pre10 ceding year. 

11 (B) SUBSEQUENT INCREASES.—For each 

12 succeeding year after the first year of the grant 

13 program under this subsection, each partici14 pating eligible institution shall receive a grant 

15 in the amount determined under subparagraph 

16 (A) for such year, except that in no case shall 

17 the amount of the per-student rebate increase 

18 by more than 3 percent as compared to the 

19 amount of such rebate for the preceding year. 

20 (C) LIMITATIONS.— 

21 (i) MAXIMUM PER-STUDENT RE22 BATE.—No eligible institution participating 

23 in the grant program under this subsection 

24 shall receive a per-student rebate amount 

25 for a grant year greater than the national 


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1 average of public 4-year institutional tui2 tion and fees, as determined by the Sec3 retary. 

4 (ii) FIRST YEAR TUITION AND

5 FEES.—During the first year of participa6 tion in the grant program under this sub7 section, no eligible institution may increase 

8 tuition and fees at a rate greater than any 

9 annual increase made by the institution in 

10 the previous 5 years. 

11 (4) APPLICATION.—An eligible institution shall 

12 submit an application to the Secretary at such time, 

13 in such a manner, and containing such information 

14 as determined by the Secretary. 

15 (5) USE OF FUNDS.—Funds awarded under 

16 this subsection to a participating eligible institution 

17 shall be— 

18 (A) applied in their entirety to student ac19 counts; and 

20 (B) used to waive or significantly reduce 

21 tuition and fees for eligible students in an 

22 amount of not more than up to the annual per23 student rebate amount for each student, for not 

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1 dent enrolls in the participating eligible institu2 tion. 

3 (c) DEFINITIONS.—In this section: 

4 (1) ELIGIBLE STUDENT.— 

5 (A) DEFINITION.—The term ‘‘eligible stu6 dent’’ means a student, regardless of age, 

7 who— 

8 (i)(I) enrolls in a historically black 

9 college or university, or minority-serving 

10 institution, for the first time; or 

11 (II) transfers from a community col12 lege into a historically black college or uni13 versity, or minority-serving institution, for 

14 the first time; 

15 (ii) attends the historically black col16 lege or university, or minority serving in17 stitution, on at least a half-time basis; 

18 (iii) maintains satisfactory academic 

19 progress; and 

20 (iv) is a low-income student. 

21 (B) SPECIAL RULES.— 

22 (i) FIRST 3 YEARS.—An otherwise eli23 gible student shall lose eligibility 3 cal24 endar years after first receiving benefits 

25 under this section. 


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1 (ii) SPECIAL RULE FOR CERTAIN STU2 DENTS.—Notwithstanding subparagraph 

3 (A)(i), an otherwise eligible student whose 

4 parent or guardian was denied a PLUS 

5 loan after November 2011 and before 

6 March 29, 2015, and who subsequently 

7 withdrew from a historically black college 

8 or university, or minority-serving institu9 tion, and has not yet completed a program 

10 of study at such historically black college 

11 or university or minority-serving institu12 tion, shall be eligible to participate under 

13 subsection (a) or (b) in order to complete 

14 such program of study, subject to all other 

15 requirements of subsection (a) or (b) (as 

16 the case may be). 

17 (2) HISTORICALLY BLACK COLLEGE OR UNI18 VERSITY.—The term ‘‘historically black college or 

19 university’’ means a part B institution described in 

20 section 322(2) of the Higher Education Act of 1965 

21 (20 U.S.C. 1061(2)). 

22 (3) LOW-INCOME STUDENT.—The term ‘‘low-in23 come student’’ has the meaning given such term by 

24 the Secretary, except that such term shall not ex25 clude any student eligible for a Federal Pell Grant 


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1 under section 401 of the Higher Education Act of 

2 1965 (20 U.S.C. 1070a). 

3 (4) MINORITY-SERVING INSTITUTION.—The 

4 term ‘‘minority-serving institution’’ means any pub5 lic or not-for-profit institution of higher education— 

6 (A) described in paragraphs (2) through 

7 (7) of section 371(a) of the Higher Education 

8 Act of 1965 (20 U.S.C. 1067q(a)); and 

9 (B) designated as a minority-serving insti10 tution by the Secretary. 

11 (d) APPROPRIATIONS.— 

12 (1) AUTHORIZATION AND APPROPRIATIONS FOR

13 HBCU AND MSI GRANTS.—For the purpose of car14 rying out subsections (a) and (b), there are author15 ized to be appropriated, and there are appro16 priated— 

17 (A) $55,000,000 for fiscal year 2016; 

18 (B) $180,000,000 for fiscal year 2017; 

19 (C) $1,072,000,000 for fiscal year 2018; 

20 (D) $1,115,000,000 for fiscal year 2019; 

21 (E) $1,160,000,000 for fiscal year 2020; 

22 (F) $1,206,000,000 for fiscal year 2021; 

23 (G) $1,225,000,000 for fiscal year 2022; 

24 (H) $1,306,000,000 for fiscal year 2023; 


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1 (I) $1,359,000,000 for fiscal year 2024; 

2 and 

3 (J) $1,414,000,000 for fiscal year 2025 

4 and each succeeding fiscal year. 

5 (2) AVAILABILITY.—Funds appropriated under 

6 paragraph (1) are to remain available to the Sec7 retary until expended. 

8 (3) INSUFFICIENT FUNDS.—If the amount ap9 propriated under paragraph (1) for a fiscal year is 

10 not sufficient to award, to each participating institu11 tion in the grant programs under subsections (a) 

12 and (b), a grant under this section equal to 100 per13 cent of the grant amount determined under sub14 section (a)(3) or (b)(3) (as the case may be), the 

15 Secretary may ratably reduce the amount of each 

16 such grant or take other actions necessary to ensure 

17 an equitable distribution of such amount. 

18 TITLE II—STUDENT LOAN 

19 REFINANCING 

20 SEC. 201. REFINANCING PROGRAMS. 

21 (a) PROGRAM AUTHORITY.—Section 451(a) of the 

22 Higher Education Act of 1965 (20 U.S.C. 1087a(a)) is 

23 amended— 

24 (1) by striking ‘‘and (2)’’ and inserting ‘‘(2)’’; 

25 and 


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1 (2) by inserting ‘‘; and (3) to make loans under 

2 section 460A and section 460B’’ after ‘‘section 

3 459A’’. 

4 (b) REFINANCING PROGRAM.—Part D of title IV of 

5 the Higher Education Act of 1965 (20 U.S.C. 1087a et 

6 seq.) is amended by adding at the end the following: 

7 ‘‘SEC. 460A. REFINANCING FFEL AND FEDERAL DIRECT 

8 LOANS. 

9 ‘‘(a) IN GENERAL.—Beginning not later than 180 

10 days after the date of enactment of the In the Red Act 

11 of 2016, the Secretary shall establish a program under 

12 which the Secretary, upon the receipt of an application 

13 from a qualified borrower, makes a loan under this part, 

14 in accordance with the provisions of this section, in order 

15 to permit the borrower to obtain the interest rate provided 

16 under subsection (c). 

17 ‘‘(b) REFINANCING DIRECT LOANS.— 

18 ‘‘(1) FEDERAL DIRECT LOANS.—Upon applica19 tion of a qualified borrower, the Secretary shall 

20 repay a Federal Direct Stafford Loan, a Federal Di21 rect Unsubsidized Stafford Loan, a Federal Direct 

22 PLUS Loan, or a Federal Direct Consolidation 

23 Loan of the qualified borrower, for which the first 

24 disbursement was made, or the application for the 

25 consolidation loan was received, before July 1, 2016, 


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1 with the proceeds of a refinanced Federal Direct 

2 Stafford Loan, a Federal Direct Unsubsidized Staf3 ford Loan, a Federal Direct PLUS Loan, or a Fed4 eral Direct Consolidation Loan, respectively, issued 

5 to the borrower in an amount equal to the sum of 

6 the unpaid principal, accrued unpaid interest, and 

7 late charges of the original loan. 

8 ‘‘(2) REFINANCING FFEL PROGRAM LOANS AS

9 REFINANCED FEDERAL DIRECT LOANS.—Upon ap10 plication of a qualified borrower for any loan that 

11 was made, insured, or guaranteed under part B and 

12 for which the first disbursement was made, or the 

13 application for the consolidation loan was received, 

14 before July 1, 2010, the Secretary shall make a loan 

15 under this part, in an amount equal to the sum of 

16 the unpaid principal, accrued unpaid interest, and 

17 late charges of the original loan to the borrower in 

18 accordance with the following: 

19 ‘‘(A) The Secretary shall pay the proceeds 

20 of such loan to the eligible lender of the loan 

21 made, insured, or guaranteed under part B, in 

22 order to discharge the borrower from any re23 maining obligation to the lender with respect to 

24 the original loan. 


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1 ‘‘(B) A loan made under this section that 

2 was originally— 

3 ‘‘(i) a loan originally made, insured, 

4 or guaranteed under section 428 shall be a 

5 Federal Direct Stafford Loan; 

6 ‘‘(ii) a loan originally made, insured, 

7 or guaranteed under section 428B shall be 

8 a Federal Direct PLUS Loan; 

9 ‘‘(iii) a loan originally made, insured, 

10 or guaranteed under section 428H shall be 

11 a Federal Direct Unsubsidized Stafford 

12 Loan; and 

13 ‘‘(iv) a loan originally made, insured, 

14 or guaranteed under section 428C shall be 

15 a Federal Direct Consolidation Loan. 

16 ‘‘(C) The interest rate for each loan made 

17 by the Secretary under this paragraph shall be 

18 the rate provided under subsection (c). 

19 ‘‘(c) INTEREST RATES.— 

20 ‘‘(1) IN GENERAL.—The interest rate for the 

21 refinanced Federal Direct Stafford Loans, Federal 

22 Direct Unsubsidized Stafford Loans, Federal Direct 

23 PLUS Loans, and Federal Direct Consolidation 

24 Loans, shall be a rate equal to— 


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1 ‘‘(A) in any case where the original loan 

2 was a loan under section 428 or 428H, a Fed3 eral Direct Stafford loan, or a Federal Direct 

4 Unsubsidized Stafford Loan, that was issued to 

5 an undergraduate student, a rate equal to the 

6 rate for Federal Direct Stafford Loans and 

7 Federal Direct Unsubsidized Stafford Loans 

8 issued to undergraduate students for the 12- 

9 month period beginning on July 1, 2013, and 

10 ending on June 30, 2014; 

11 ‘‘(B) in any case where the original loan 

12 was a loan under section 428 or 428H, a Fed13 eral Direct Stafford Loan, or a Federal Direct 

14 Unsubsidized Stafford Loan, that was issued to 

15 a graduate or professional student, a rate equal 

16 to the rate for Federal Direct Unsubsidized 

17 Stafford Loans issued to graduate or profes18 sional students for the 12-month period begin19 ning on July 1, 2013, and ending on June 30, 

20 2014; 

21 ‘‘(C) in any case where the original loan 

22 was a loan under section 428B or a Federal Di23 rect PLUS Loan, a rate equal to the rate for 

24 Federal Direct PLUS Loans for the 12-month 


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1 period beginning on July 1, 2013, and ending 

2 on June 30, 2014; and 

3 ‘‘(D) in any case where the original loan 

4 was a loan under section 428C or a Federal Di5 rect Consolidation Loan, a rate calculated in ac6 cordance with paragraph (2). 

7 ‘‘(2) INTEREST RATES FOR CONSOLIDATION

8 LOANS.— 

9 ‘‘(A) METHOD OF CALCULATION.—In 

10 order to determine the interest rate for any re11 financed Federal Direct Consolidation Loan 

12 under paragraph (1)(D), the Secretary shall— 

13 ‘‘(i) determine each of the component 

14 loans that were originally consolidated in 

15 the loan under section 428C or the Federal 

16 Direct Consolidation Loan, and calculate 

17 the proportion of the unpaid principal bal18 ance of the loan under section 428C or the 

19 Federal Direct Consolidation Loan that 

20 each component loan represents; 

21 ‘‘(ii) use the proportions determined 

22 in accordance with clause (i) and the inter23 est rate applicable for each component 

24 loan, as determined under subparagraph 

25 (B), to calculate the weighted average of 


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1 the interest rates on the loans consolidated 

2 into the loan under section 428C or the 

3 Federal Direct Consolidation Loan; and 

4 ‘‘(iii) apply the weighted average cal5 culated under clause (ii) as the interest 

6 rate for the refinanced Federal Direct Con7 solidation Loan. 

8 ‘‘(B) INTEREST RATES FOR COMPONENT

9 LOANS.—The interest rates for the component 

10 loans of a loan made under section 428C or a 

11 Federal Direct Consolidation Loan shall be the 

12 following: 

13 ‘‘(i) The interest rate for any loan 

14 under section 428 or 428H, Federal Direct 

15 Stafford Loan, or Federal Direct Unsub16 sidized Stafford Loan issued to an under17 graduate student shall be a rate equal to 

18 the lesser of— 

19 ‘‘(I) the rate for Federal Direct 

20 Stafford Loans and Federal Direct 

21 Unsubsidized Stafford Loans issued 

22 to undergraduate students for the 12- 

23 month period beginning on July 1, 

24 2013, and ending on June 30, 2014; 

25 or 


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1 ‘‘(II) the original interest rate of 

2 the component loan. 

3 ‘‘(ii) The interest rate for any loan 

4 under section 428 or 428H, Federal Direct 

5 Stafford Loan, or Federal Direct Unsub6 sidized Stafford Loan issued to a graduate 

7 or professional student shall be a rate 

8 equal to the lesser of— 

9 ‘‘(I) the rate for Federal Direct 

10 Unsubsidized Stafford Loans issued 

11 to graduate or professional students 

12 for the 12-month period beginning on 

13 July 1, 2013, and ending on June 30, 

14 2014; or 

15 ‘‘(II) the original interest rate of 

16 the component loan. 

17 ‘‘(iii) The interest rate for any loan 

18 under section 428B or Federal Direct 

19 PLUS Loan shall be a rate equal to the 

20 lesser of— 

21 ‘‘(I) the rate for Federal Direct 

22 PLUS Loans for the 12-month period 

23 beginning on July 1, 2013, and end24 ing on June 30, 2014; or 


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1 ‘‘(II) the original interest rate of 

2 the component loan. 

3 ‘‘(iv) The interest rate for any compo4 nent loan that is a loan under section 

5 428C or a Federal Direct Consolidation 

6 Loan shall be the weighted average of the 

7 interest rates that would apply under this 

8 subparagraph for each loan comprising the 

9 component consolidation loan. 

10 ‘‘(v) The interest rate for any eligible 

11 loan that is a component of a loan made 

12 under section 428C or a Federal Direct 

13 Consolidation Loan and is not described in 

14 clauses (i) through (iv) shall be the inter15 est rate on the original component loan. 

16 ‘‘(3) FIXED RATE.—The applicable rate of in17 terest determined under paragraph (1) for a refi18 nanced loan under this section shall be fixed for the 

19 period of the loan. 

20 ‘‘(d) TERMS AND CONDITIONS OF LOANS.— 

21 ‘‘(1) IN GENERAL.—A loan that is refinanced 

22 under this section shall have the same terms and 

23 conditions as the original loan, except as otherwise 

24 provided in this section. 


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1 ‘‘(2) NO AUTOMATIC EXTENSION OF REPAY2 MENT PERIOD.—Refinancing a loan under this sec3 tion shall not result in the extension of the duration 

4 of the repayment period of the loan, and the bor5 rower shall retain the same repayment term that 

6 was in effect on the original loan. Nothing in this 

7 paragraph shall be construed to prevent a borrower 

8 from electing a different repayment plan at any time 

9 in accordance with section 455(d)(3). 

10 ‘‘(e) DEFINITION OF QUALIFIED BORROWER.— 

11 ‘‘(1) IN GENERAL.—For purposes of this sec12 tion, the term ‘qualified borrower’ means a bor13 rower— 

14 ‘‘(A) of a loan under this part or part B 

15 for which the first disbursement was made, or 

16 the application for a consolidation loan was re17 ceived, before July 1, 2016; and 

18 ‘‘(B) who meets the eligibility requirements 

19 based on income or debt-to-income ratio estab20 lished by the Secretary. 

21 ‘‘(2) INCOME REQUIREMENTS.—Not later than 

22 180 days after the date of enactment of the In the 

23 Red Act of 2016, the Secretary shall establish eligi24 bility requirements based on income or debt-to-in25 come ratio that take into consideration providing acVerDate Sep 11 2014 00:02 May 04, 2016 Jkt 059200 PO 00000 Frm 00041 Fmt 6652 Sfmt 6201 E:\BILLS\H5106.IH H5106

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1 cess to refinancing under this section for borrowers 

2 with the greatest financial need. 

3 ‘‘(f) NOTIFICATION TO BORROWERS.—The Secretary, 

4 in coordination with the Director of the Bureau of Con5 sumer Financial Protection, shall undertake a campaign 

6 to alert borrowers of loans that are eligible for refinancing 

7 under this section that the borrowers are eligible to apply 

8 for such refinancing. The campaign shall include the fol9 lowing activities: 

10 ‘‘(1) Developing consumer information mate11 rials about the availability of Federal student loan 

12 refinancing. 

13 ‘‘(2) Requiring servicers of loans under this 

14 part or part B to provide such consumer information 

15 to borrowers in a manner determined appropriate by 

16 the Secretary, in consultation with the Director of 

17 the Bureau of Consumer Financial Protection. 

18 ‘‘SEC. 460B. FEDERAL DIRECT REFINANCED PRIVATE LOAN 

19 PROGRAM. 

20 ‘‘(a) DEFINITIONS.—In this section: 

21 ‘‘(1) ELIGIBLE PRIVATE EDUCATION LOAN.— 

22 The term ‘eligible private education loan’ means a 

23 private education loan, as defined in section 140(a) 

24 of the Truth in Lending Act (15 U.S.C. 1650(a)), 

25 that— 


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1 ‘‘(A) was disbursed to the borrower before 

2 July 1, 2016; and 

3 ‘‘(B) was for the borrower’s own postsec4 ondary educational expenses for an eligible pro5 gram at an institution of higher education par6 ticipating in the loan program under this part, 

7 as of the date that the loan was disbursed. 

8 ‘‘(2) FEDERAL DIRECT REFINANCED PRIVATE

9 LOAN.—The term ‘Federal Direct Refinanced Pri10 vate Loan’ means a loan issued under subsection 

11 (b)(1). 

12 ‘‘(3) PRIVATE EDUCATIONAL LENDER.—The 

13 term ‘private educational lender’ has the meaning 

14 given the term in section 140(a) of the Truth in 

15 Lending Act (15 U.S.C. 1650(a)). 

16 ‘‘(4) QUALIFIED BORROWER.—The term ‘quali17 fied borrower’ means an individual who— 

18 ‘‘(A) has an eligible private education loan; 

19 ‘‘(B) has been current on payments on the 

20 eligible private education loan for the 6 months 

21 prior to the date of the qualified borrower’s ap22 plication for refinancing under this section, and 

23 is in good standing on the loan at the time of 

24 such application; 


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1 ‘‘(C) is not in default on the eligible pri2 vate education loan or on any loan made, in3 sured, or guaranteed under this part or part B 

4 or E; and 

5 ‘‘(D) meets the eligibility requirements de6 scribed in subsection (b)(2). 

7 ‘‘(b) PROGRAM AUTHORIZED.— 

8 ‘‘(1) IN GENERAL.—The Secretary, in consulta9 tion with the Secretary of the Treasury, shall carry 

10 out a program under which the Secretary, upon ap11 plication by a qualified borrower who has an eligible 

12 private education loan, shall issue such borrower a 

13 loan under this part in accordance with the fol14 lowing: 

15 ‘‘(A) The loan issued under this program 

16 shall be in an amount equal to the sum of the 

17 unpaid principal, accrued unpaid interest, and 

18 late charges of the private education loan. 

19 ‘‘(B) The Secretary shall pay the proceeds 

20 of the loan issued under this program to the 

21 private educational lender of the private edu22 cation loan, in order to discharge the qualified 

23 borrower from any remaining obligation to the 

24 lender with respect to the original loan. 


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1 ‘‘(C) The Secretary shall require that the 

2 qualified borrower undergo loan counseling that 

3 provides all of the information and counseling 

4 required under clauses (i) through (viii) of sec5 tion 485(b)(1)(A) before the loan is refinanced 

6 in accordance with this section, and before the 

7 proceeds of such loan are paid to the private 

8 educational lender. 

9 ‘‘(D) The Secretary shall issue the loan as 

10 a Federal Direct Refinanced Private Loan, 

11 which shall have the same terms, conditions, 

12 and benefits as a Federal Direct Unsubsidized 

13 Stafford Loan, except as otherwise provided in 

14 this section. 

15 ‘‘(2) BORROWER ELIGIBILITY.—Not later than 

16 180 days after the date of enactment of the In the 

17 Red Act of 2016, the Secretary, in consultation with 

18 the Secretary of the Treasury and the Director of 

19 the Bureau of Consumer Financial Protection, shall 

20 establish eligibility requirements— 

21 ‘‘(A) based on income or debt-to-income 

22 ratio that take into consideration providing ac23 cess to refinancing under this section for bor24 rowers with the greatest financial need; 


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1 ‘‘(B) to ensure eligibility only for bor2 rowers in good standing; 

3 ‘‘(C) to minimize inequities between Fed4 eral Direct Refinanced Private Loans and other 

5 Federal student loans; 

6 ‘‘(D) to preclude windfall profits for pri7 vate educational lenders; and 

8 ‘‘(E) to ensure full access to the program 

9 authorized in this subsection for borrowers with 

10 private loans who otherwise meet the criteria 

11 established in accordance with subparagraphs 

12 (A) and (B). 

13 ‘‘(c) INTEREST RATE.— 

14 ‘‘(1) IN GENERAL.—The interest rate for a 

15 Federal Direct Refinanced Private Loan is— 

16 ‘‘(A) in the case of a Federal Direct Refi17 nanced Private Loan for a private education 

18 loan originally issued for undergraduate post19 secondary educational expenses, a rate equal to 

20 the rate for Federal Direct Stafford Loans and 

21 Federal Direct Unsubsidized Stafford Loans 

22 issued to undergraduate students for the 12- 

23 month period beginning on July 1, 2013, and 

24 ending on June 30, 2014; and 


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1 ‘‘(B) in the case of a Federal Direct Refi2 nanced Private Loan for a private education 

3 loan originally issued for graduate or profes4 sional degree postsecondary educational ex5 penses, a rate equal to the rate for Federal Di6 rect Unsubsidized Stafford Loans issued to 

7 graduate or professional students for the 12- 

8 month period beginning on July 1, 2013, and 

9 ending on June 30, 2014. 

10 ‘‘(2) COMBINED UNDERGRADUATE AND GRAD11 UATE STUDY LOANS.—If a Federal Direct Refi12 nanced Private Loan is for a private education loan 

13 originally issued for both undergraduate and grad14 uate or professional postsecondary educational ex15 penses, the interest rate shall be a rate equal to the 

16 rate for Federal Direct PLUS Loans for the 12- 

17 month period beginning on July 1, 2013, and ending 

18 on June 30, 2014. 

19 ‘‘(3) FIXED RATE.—The applicable rate of in20 terest determined under this subsection for a Fed21 eral Direct Refinanced Private Loan shall be fixed 

22 for the period of the loan. 

23 ‘‘(d) NO INCLUSION IN AGGREGATE LIMITS.—The 

24 amount of a Federal Direct Refinanced Private Loan, or 

25 a Federal Direct Consolidated Loan to the extent such 


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1 loan was used to repay a Federal Direct Refinanced Pri2 vate Loan, shall not be included in calculating a bor3 rower’s annual or aggregate loan limits under section 428 

4 or 428H. 

5 ‘‘(e) NO ELIGIBILITY FOR SERVICE-RELATED RE6 PAYMENT.—Notwithstanding sections 428K(a)(2)(A), 

7 428L(b)(2), 455(m)(3)(A), and 460(b), a Federal Direct 

8 Refinanced Private Loan, or any Federal Direct Consoli9 dation Loan to the extent such loan was used to repay 

10 a Federal Direct Refinanced Private Loan, shall not be 

11 eligible for any loan repayment or loan forgiveness pro12 gram under section 428K, 428L, or 460 or for the repay13 ment plan for public service employees under section 

14 455(m). 

15 ‘‘(f) PRIVATE EDUCATIONAL LENDER REPORTING

16 REQUIREMENT.— 

17 ‘‘(1) REPORTING REQUIRED.—Not later than 

18 180 days after the date of enactment of the In the 

19 Red Act of 2016, the Secretary, in consultation with 

20 the Secretary of the Treasury and the Director of 

21 the Bureau of Consumer Financial Protection, shall 

22 establish a requirement that private educational 

23 lenders report the data described in paragraph (2) 

24 to the Secretary, to Congress, to the Secretary of 

25 the Treasury, and to the Director of the Bureau of 


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1 Consumer Financial Protection, in order to allow for 

2 an assessment of the private education loan market. 

3 ‘‘(2) CONTENTS OF REPORTING.—The data 

4 that private educational lenders shall report in ac5 cordance with paragraph (1) shall include each of 

6 the following about private education loans (as de7 fined in section 140(a) of the Truth in Lending Act 

8 (15 U.S.C. 1650(a))): 

9 ‘‘(A) The total amount of private education 

10 loan debt the lender holds. 

11 ‘‘(B) The total number of private edu12 cation loan borrowers the lender serves. 

13 ‘‘(C) The average interest rate on the out14 standing private education loan debt held by the 

15 lender. 

16 ‘‘(D) The proportion of private education 

17 loan borrowers who are in default on a loan 

18 held by the lender. 

19 ‘‘(E) The proportion of the outstanding 

20 private education loan volume held by the lend21 er that is in default. 

22 ‘‘(F) The proportions of outstanding pri23 vate education loan borrowers who are 30, 60, 

24 and 90 days delinquent. 


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1 ‘‘(G) The proportions of outstanding pri2 vate education loan volume that is 30, 60, and 

3 90 days delinquent. 

4 ‘‘(g) NOTIFICATION TO BORROWERS.—The Sec5 retary, in coordination with the Secretary of the Treasury 

6 and the Director of the Bureau of Consumer Financial 

7 Protection, shall undertake a campaign to alert borrowers 

8 about the availability of private student loan refinancing 

9 under this section.’’. 

10 (c) AMENDMENTS TO PUBLIC SERVICE REPAYMENT

11 PLAN PROVISIONS.—Section 455(m) of the Higher Edu12 cation Act of 1965 (20 U.S.C. 1087e(m)) is amended— 

13 (1) by redesignating paragraphs (3) and (4) as 

14 paragraphs (4) and (5), respectively; 

15 (2) by inserting after paragraph (2) the fol16 lowing: 

17 ‘‘(3) SPECIAL RULES FOR SECTION 460A

18 LOANS.— 

19 ‘‘(A) REFINANCED FEDERAL DIRECT

20 LOANS.—Notwithstanding paragraph (1), in de21 termining the number of monthly payments 

22 that meet the requirements of such paragraph 

23 for an eligible Federal Direct Loan refinanced 

24 under section 460A that was originally a loan 

25 under this part, the Secretary shall include all 


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1 monthly payments made on the original loan 

2 that meet the requirements of such paragraph. 

3 ‘‘(B) REFINANCED FFEL LOANS.—In the 

4 case of an eligible Federal Direct Loan refi5 nanced under section 460A that was originally 

6 a loan under part B, only monthly payments 

7 made after the date on which the loan was refi8 nanced may be included for purposes of para9 graph (1).’’; and 

10 (3) in paragraph (4)(A) (as redesignated by 

11 paragraph (1)), by inserting ‘‘(including any Federal 

12 Direct Stafford Loan, Federal Direct PLUS Loan, 

13 Federal Direct Unsubsidized Stafford Loan, or Fed14 eral Direct Consolidation Loan refinanced under sec15 tion 460A)’’ before the period at the end. 

16 (d) INCOME-BASED REPAYMENT.—Section 493C of 

17 the Higher Education Act of 1965 (20 U.S.C. 1098e) is 

18 amended by adding at the end the following: 

19 ‘‘(f) SPECIAL RULE FOR REFINANCED LOANS.— 

20 ‘‘(1) REFINANCED FEDERAL DIRECT AND FFEL

21 LOANS.—In calculating the period of time during 

22 which a borrower of a loan that is refinanced under 

23 section 460A has made monthly payments for pur24 poses of subsection (b)(7), the Secretary shall deem 

25 the period to include all monthly payments made for 


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1 the original loan, and all monthly payments made 

2 for the refinanced loan, that otherwise meet the re3 quirements of this section. 

4 ‘‘(2) FEDERAL DIRECT REFINANCED PRIVATE

5 LOANS.—In calculating the period of time during 

6 which a borrower of a Federal Direct Refinanced 

7 Private Loan under section 460B has made monthly 

8 payments for purposes of subsection (b)(7), the Sec9 retary shall include only payments— 

10 ‘‘(A) that are made after the date of the 

11 issuance of the Federal Direct Refinanced Pri12 vate Loan; and 

13 ‘‘(B) that otherwise meet the requirements 

14 of this section.’’. 

15 TITLE III—FEDERAL PELL 

16 GRANT PROTECTION 

17 SEC. 301. FEDERAL PELL GRANT PROTECTION. 

18 Section 401(b)(7) of the Higher Education Act of 

19 1965 (20 U.S.C. 1070a(b)(7)) is amended— 

20 (1) in subparagraph (A)(iii), by striking 

21 ‘‘clauses (ii) and (iii) of subparagraph (B)’’ and in22 serting ‘‘subparagraph (B)(ii)’’; and 

23 (2) in subparagraph (C)— 

24 (A) in clause (ii)— 


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1 (i) in the clause heading, by striking 

2 ‘‘AWARD YEARS 2014–2015 THROUGH 2017– 

3 2018’’ and inserting ‘‘AWARD YEAR 2014– 

4 2015 AND SUBSEQUENT AWARD YEARS’’; 

5 (ii) in the matter preceding subclause 

6 (I), by striking ‘‘each of the award years 

7 2014–2015 through 2017–2018’’ and in8 serting ‘‘award year 2014–2015 and each 

9 subsequent award year’’; and 

10 (iii) in subclause (I), by striking 

11 ‘‘clause (iv)(II)’’ and inserting ‘‘clause 

12 (iii)(II)’’; 

13 (B) by striking clause (iii); and 

14 (C) by redesignating clause (iv) as clause 

15 (iii). 

16 SEC. 302. POINT OF ORDER AGAINST CUTTING FEDERAL 

17 PELL GRANTS. 

18 (a) POINT OF ORDER.—It shall not be in order in 

19 the Senate to consider any bill, joint resolution, motion, 

20 amendment, amendment between the Houses, or con21 ference report that would decrease the appropriations pro22 vided for Federal Pell Grants under section 401(b)(7) of 

23 the Higher Education Act of 1965 (20 U.S.C. 

24 1070a(b)(7)) or restrict eligibility for Federal Pell Grants. 


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1 (b) WAIVER AND APPEAL.—Subsection (a) may be 

2 waived or suspended in the Senate only by an affirmative 

3 vote of three-fifths of the Members, duly chosen and 

4 sworn. An affirmative vote of three-fifths of the Members 

5 of the Senate, duly chosen and sworn, shall be required 

6 to sustain an appeal of the ruling of the Chair on a point 

7 of order raised under subsection (a). 

8 SEC. 303. AFFIRMING THAT FEDERAL PELL GRANTS ARE A 

9 FOUNDATIONAL INVESTMENT IN AFFORD10 ABLE HIGHER EDUCATION. 

11 (a) FINDINGS.—Congress finds the following: 

12 (1) Research shows that with higher edu13 cational attainment, individuals are more likely to be 

14 employed, earn higher wages, secure health and re15 tirement benefits, make healthier life choices, and be 

16 more engaged citizens of their communities. 

17 (2) Higher education, whether at a 2- or 4-year 

18 institution, can help people of the United States 

19 from lower income backgrounds climb into the mid20 dle class. 

21 (3) In 2015, more than 20,000,000 students 

22 enrolled in colleges and universities in the United 

23 States—an increase of 4,900,000 since 2000. 

24 (4) Despite the benefits of further education be25 yond high school, many students from low-income 


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1 backgrounds do not attend college. According to the 

2 United States Census Bureau, approximately 80 

3 percent of high school graduates from the wealthiest 

4 families pursue higher education, while only a little 

5 more than half from the lowest income quartile at6 tend college. 

7 (5) Federal Pell Grants provide need-based aid 

8 to students who want to further their education and 

9 are the single largest source of grant aid for helping 

10 students afford college. 

11 (6) In award year 2013–2014, an estimated 73 

12 percent of all Pell Grant recipients had a total fam13 ily income equal to or less than $30,000. 

14 (7) In 2015, more than 8,200,000 students, or 

15 approximately 41 percent of all undergraduates, 

16 used Federal Pell Grants to finance their education. 

17 (b) SENSE OF THE SENATE.—It is the sense of the 

18 Senate that Congress should— 

19 (1) affirm that Federal Pell Grants are a 

20 foundational investment in affordable higher edu21 cation for students and families; and 

22 (2) commit to ensuring that Federal Pell 

23 Grants remain a stable source of financial support 

24 for students and families. 


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1 TITLE IV—ACCOUNTABILITY 

2 SEC. 401. SUPPORTING EFFORTS TO ENSURE THAT INSTI3 TUTIONS OF HIGHER EDUCATION ARE AC4 COUNTABLE FOR ENSURING THE HIGH 

5 VALUE OF DEGREES AND CREDENTIALS. 

6 (a) FINDINGS.—Congress finds the following: 

7 (1) The employment rate for people of the 

8 United States between the ages of 21 to 25 has de9 clined by 12 percent from 2000 through 2012. 

10 (2) The cost of attending a 4-year public insti11 tution of higher education has increased by 32 per12 cent from 2002 through 2012. 

13 (3) More than 1 in 4 student loan borrowers 

14 are now in default or delinquent on a student loan. 

15 (4) There are limited means through which to 

16 ensure that institutions of higher education are held 

17 accountable for the value of the degrees and creden18 tials obtained by students, or the outcomes of those 

19 students. 

20 (5) Student borrowers who obtain a high-value 

21 degree or credential are much more likely to be able 

22 to find a good paying job and repay their student 

23 loan debt. 

24 (b) SENSE OF THE SENATE.—It is the sense of the 

25 Senate that Congress should support efforts to ensure that 


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1 institutions of higher education have strong incentives to 

2 ensure that students graduate with degrees and creden3 tials that have a high value, and that will enable graduates 

4 to secure good-paying employment in their field of study 

5 and enjoy long-term success, by— 

6 (1) enhancing accountability for institutions of 

7 higher education for the quality and cost of degree 

8 programs, including student debt burden; 

9 (2) holding institutions of higher education and 

10 their leaders financially accountable when the insti11 tutions or leaders engage in fraud or misconduct 

12 that violates Federal and State laws; 

13 (3) creating incentives and tools that will allow 

14 State governments and institutions of higher edu15 cation to curb tuition inflation and maintain invest16 ment in higher education; 

17 (4) creating incentives for institutions of higher 

18 education to direct more resources to their academic 

19 programs and to provide pathways to ensure that all 

20 students can complete their degrees and credentials 

21 in a timely manner; and 

22 (5) guaranteeing that the servicing of student 

23 loans made, insured, or guaranteed under part B or 

24 D of title IV of the Higher Education Act of 1965 

25 (20 U.S.C. 1071 et seq., 1087a et seq.) provided 


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1 through these institutions of higher education will 

2 meet the highest standards of quality, customer 

3 service, and compliance with the law to promote bor4 rower success and minimize defaults. 

5 TITLE V—OFFSETS 

6 SEC. 501. AMENDMENT OF 1986 CODE. 

7 Except as otherwise expressly provided, whenever in 

8 this title an amendment or repeal is expressed in terms 

9 of an amendment to, or repeal of, a section or other provi10 sion, the reference shall be considered to be made to a 

11 section or other provision of the Internal Revenue Code 

12 of 1986. 

13 SEC. 502. FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS. 

14 (a) IN GENERAL.—Subchapter A of chapter 1 is 

15 amended by adding at the end the following new part: 

16 ‘‘PART VII—FAIR SHARE TAX ON HIGH-INCOME 

17 TAXPAYERS 

‘‘Sec. 59A. Fair share tax. 

18 ‘‘SEC. 59A. FAIR SHARE TAX. 

19 ‘‘(a) GENERAL RULE.— 

20 ‘‘(1) PHASE-IN OF TAX.—In the case of any 

21 high-income taxpayer, there is hereby imposed for a 

22 taxable year (in addition to any other tax imposed 

23 by this subtitle) a tax equal to the product of— 


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1 ‘‘(A) the amount determined under para2 graph (2), and 

3 ‘‘(B) a fraction (not to exceed 1)— 

4 ‘‘(i) the numerator of which is the ex5 cess of— 

6 ‘‘(I) the taxpayer’s adjusted 

7 gross income, over 

8 ‘‘(II) the dollar amount in effect 

9 under subsection (c)(1), and 

10 ‘‘(ii) the denominator of which is the 

11 dollar amount in effect under subsection 

12 (c)(1). 

13 ‘‘(2) AMOUNT OF TAX.—The amount of tax de14 termined under this paragraph is an amount equal 

15 to the excess (if any) of— 

16 ‘‘(A) the tentative fair share tax for the 

17 taxable year, over 

18 ‘‘(B) the excess of— 

19 ‘‘(i) the sum of— 

20 ‘‘(I) the regular tax liability (as 

21 defined in section 26(b)) for the tax22 able year, determined without regard 

23 to any tax liability determined under 

24 this section, 


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1 ‘‘(II) the tax imposed by section 

2 55 for the taxable year, plus 

3 ‘‘(III) the payroll tax for the tax4 able year, over 

5 ‘‘(ii) the credits allowable under part 

6 IV of subchapter A (other than sections 

7 27(a), 31, and 34). 

8 ‘‘(b) TENTATIVE FAIR SHARE TAX.—For purposes 

9 of this section— 

10 ‘‘(1) IN GENERAL.—The tentative fair share tax 

11 for the taxable year is 30 percent of the excess of— 

12 ‘‘(A) the adjusted gross income of the tax13 payer, over 

14 ‘‘(B) the modified charitable contribution 

15 deduction for the taxable year. 

16 ‘‘(2) MODIFIED CHARITABLE CONTRIBUTION

17 DEDUCTION.—For purposes of paragraph (1)— 

18 ‘‘(A) IN GENERAL.—The modified chari19 table contribution deduction for any taxable 

20 year is an amount equal to the amount which 

21 bears the same ratio to the deduction allowable 

22 under section 170 (section 642(c) in the case of 

23 a trust or estate) for such taxable year as— 

24 ‘‘(i) the amount of itemized deduc25 tions allowable under the regular tax (as 


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1 defined in section 55) for such taxable 

2 year, determined after the application of 

3 section 68, bears to 

4 ‘‘(ii) such amount, determined before 

5 the application of section 68. 

6 ‘‘(B) TAXPAYER MUST ITEMIZE.—In the 

7 case of any individual who does not elect to 

8 itemize deductions for the taxable year, the 

9 modified charitable contribution deduction shall 

10 be zero. 

11 ‘‘(c) HIGH-INCOME TAXPAYER.—For purposes of this 

12 section— 

13 ‘‘(1) IN GENERAL.—The term ‘high-income tax14 payer’ means, with respect to any taxable year, any 

15 taxpayer (other than a corporation) with an adjusted 

16 gross income for such taxable year in excess of 

17 $1,000,000 (50 percent of such amount in the case 

18 of a married individual who files a separate return). 

19 ‘‘(2) INFLATION ADJUSTMENT.— 

20 ‘‘(A) IN GENERAL.—In the case of a tax21 able year beginning after 2016, the $1,000,000 

22 amount under paragraph (1) shall be increased 

23 by an amount equal to— 

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


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

5 year 2015’ for ‘calendar year 1992’ in sub6 paragraph (B) thereof. 

7 ‘‘(B) ROUNDING.—If any amount as ad8 justed under subparagraph (A) is not a multiple 

9 of $10,000, such amount shall be rounded to 

10 the next lowest multiple of $10,000. 

11 ‘‘(d) PAYROLL TAX.—For purposes of this section, 

12 the payroll tax for any taxable year is an amount equal 

13 to the excess of— 

14 ‘‘(1) the taxes imposed on the taxpayer under 

15 sections 1401, 1411, 3101, 3201, and 3211(a) (to 

16 the extent such tax is attributable to the rate of tax 

17 in effect under section 3101) with respect to such 

18 taxable year or wages or compensation received dur19 ing such taxable year, over 

20 ‘‘(2) the deduction allowable under section 

21 164(f) for such taxable year. 

22 ‘‘(e) SPECIAL RULE FOR ESTATES AND TRUSTS.— 

23 For purposes of this section, in the case of an estate or 

24 trust, adjusted gross income shall be computed in the 

25 manner described in section 67(e). 


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1 ‘‘(f) NOT TREATED AS TAX IMPOSED BY THIS CHAP2 TER FOR CERTAIN PURPOSES.—The tax imposed under 

3 this section shall not be treated as tax imposed by this 

4 chapter for purposes of determining the amount of any 

5 credit under this chapter (other than the credit allowed 

6 under section 27(a)) or for purposes of section 55.’’. 

7 (b) CLERICAL AMENDMENT.—The table of parts for 

8 subchapter A of chapter 1 is amended by adding at the 

9 end the following new item: 

‘‘PART VII. FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS’’. 

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

11 this section shall apply to taxable years beginning after 

12 December 31, 2015. 

13 SEC. 503. EXPANSION OF DENIAL OF DEDUCTION FOR CER14 TAIN EXCESSIVE EMPLOYEE REMUNERA15 TION. 

16 (a) APPLICATION TO ALL CURRENT AND FORMER

17 EMPLOYEES.— 

18 (1) IN GENERAL.—Section 162(m) is amend19 ed— 

20 (A) by striking ‘‘covered employee’’ each 

21 place it appears in paragraphs (1) and (4) and 

22 inserting ‘‘covered individual’’, and 

23 (B) by striking ‘‘such employee’’ each 

24 place it appears in subparagraphs (A) and (G) 


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1 of paragraph (4) and inserting ‘‘such indi2 vidual’’. 

3 (2) COVERED INDIVIDUAL.—Paragraph (3) of 

4 section 162(m) is amended to read as follows: 

5 ‘‘(3) COVERED INDIVIDUAL.—For purposes of 

6 this subsection, the term ‘covered individual’ means 

7 any individual who is an officer, director, or em8 ployee of the taxpayer or a former officer, director, 

9 or employee of the taxpayer.’’. 

10 (3) CONFORMING AMENDMENTS.— 

11 (A) Section 48D(b)(3)(A) is amended by 

12 inserting ‘‘(as in effect for taxable years begin13 ning before January 1, 2016)’’ after ‘‘section 

14 162(m)(3)’’. 

15 (B) Section 409A(b)(3)(D)(ii) is amended 

16 by inserting ‘‘(as in effect for taxable years be17 ginning before January 1, 2016)’’ after ‘‘section 

18 162(m)(3)’’. 

19 (b) EXPANSION OF APPLICABLE EMPLOYEE REMU20 NERATION.— 

21 (1) ELIMINATION OF EXCEPTION FOR COMMIS22 SION-BASED PAY.— 

23 (A) IN GENERAL.—Paragraph (4) of sec24 tion 162(m), as amended by subsection (a), is 

25 amended by striking subparagraph (B) and by 


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1 redesignating subparagraphs (C) through (G) 

2 as subparagraphs (B) through (F), respectively. 

3 (B) CONFORMING AMENDMENTS.— 

4 (i) Section 162(m)(5) is amended— 

5 (I) by striking ‘‘subparagraphs 

6 (B), (C), and (D) thereof’’ in sub7 paragraph (E) and inserting ‘‘sub8 paragraphs (B) and (C) thereof’’, and 

9 (II) by striking ‘‘subparagraphs 

10 (F) and (G)’’ in subparagraph (G) 

11 and inserting ‘‘subparagraphs (E) and 

12 (F)’’. 

13 (ii) Section 162(m)(6) is amended— 

14 (I) by striking ‘‘subparagraphs 

15 (B), (C), and (D) thereof’’ in sub16 paragraph (D) and inserting ‘‘sub17 paragraphs (B) and (C) thereof’’, and 

18 (II) by striking ‘‘subparagraphs 

19 (F) and (G)’’ in subparagraph (G) 

20 and inserting ‘‘subparagraphs (E) and 

21 (F)’’. 

22 (2) INCLUSION OF PERFORMANCE-BASED COM23 PENSATION.— 

24 (A) IN GENERAL.—Paragraph (4) of sec25 tion 162(m), as amended by subsection (a) and 


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1 paragraph (1) of this subsection, is amended by 

2 striking subparagraph (B) and redesignating 

3 subparagraphs (C) through (F) as subpara4 graphs (B) through (E), respectively. 

5 (B) CONFORMING AMENDMENTS.— 

6 (i) Section 162(m)(5), as amended by 

7 paragraph (1), is amended— 

8 (I) by striking ‘‘subparagraphs 

9 (B) and (C) thereof’’ in subparagraph 

10 (E) and inserting ‘‘subparagraph (B) 

11 thereof’’, and 

12 (II) by striking ‘‘subparagraphs 

13 (E) and (F)’’ in subparagraph (G) 

14 and inserting ‘‘subparagraphs (D) and 

15 (E)’’. 

16 (ii) Section 162(m)(6), as amended by 

17 paragraph (1), is amended— 

18 (I) by striking ‘‘subparagraphs 

19 (B) and (C) thereof’’ in subparagraph 

20 (D) and inserting ‘‘subparagraph (B) 

21 thereof’’, and 

22 (II) by striking ‘‘subparagraphs 

23 (E) and (F)’’ in subparagraph (G) 

24 and inserting ‘‘subparagraphs (D) and 

25 (E)’’. 


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1 (c) EXPANSION OF APPLICABLE EMPLOYER.—Para2 graph (2) of section 162(m) is amended to read as follows: 

3 ‘‘(2) PUBLICLY HELD CORPORATION.—For pur4 poses of this subsection, the term ‘publicly held cor5 poration’ means any corporation which is an issuer 

6 (as defined in section 3 of the Securities Exchange 

7 Act of 1934 (15 U.S.C. 78c))— 

8 ‘‘(A) the securities of which are registered 

9 under section 12 of such Act (15 U.S.C. 78l), 

10 or 

11 ‘‘(B) that is required to file reports under 

12 section 15(d) of such Act (15 U.S.C. 780(d)).’’. 

13 (d) REGULATORY AUTHORITY.— 

14 (1) IN GENERAL.—Section 162(m) is amended 

15 by adding at the end the following new paragraph: 

16 ‘‘(7) REGULATIONS.—The Secretary may pre17 scribe such guidance, rules, or regulations, including 

18 with respect to reporting, as are necessary to carry 

19 out the purposes of this subsection.’’. 

20 (2) CONFORMING AMENDMENT.—Paragraph (6) 

21 of section 162(m) is amended by striking subpara22 graph (H). 

23 (e) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply to taxable years beginning after 

25 December 31, 2015. 


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1 SEC. 504. PARTNERSHIP INTERESTS TRANSFERRED IN 

2 CONNECTION WITH PERFORMANCE OF SERV3 ICES. 

4 (a) MODIFICATION TO ELECTION TO INCLUDE PART5 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

6 TRANSFER.—Subsection (c) of section 83 is amended by 

7 redesignating paragraph (4) as paragraph (5) and by in8 serting after paragraph (3) the following new paragraph: 

9 ‘‘(4) PARTNERSHIP INTERESTS.—Except as 

10 provided by the Secretary— 

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

12 transfer of an interest in a partnership in con13 nection with the provision of services to (or for 

14 the benefit of) such partnership— 

15 ‘‘(i) the fair market value of such in16 terest shall be treated for purposes of this 

17 section as being equal to the amount of the 

18 distribution which the partner would re19 ceive if the partnership sold (at the time of 

20 the transfer) all of its assets at fair market 

21 value and distributed the proceeds of such 

22 sale (reduced by the liabilities of the part23 nership) to its partners in liquidation of 

24 the partnership, and 

25 ‘‘(ii) the person receiving such interest 

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1 tion under subsection (b)(1) unless such 

2 person makes an election under this para3 graph to have such subsection not apply. 

4 ‘‘(B) ELECTION.—The election under sub5 paragraph (A)(ii) shall be made under rules 

6 similar to the rules of subsection (b)(2).’’. 

7 (b) EFFECTIVE DATE.—The amendments made by 

8 this section shall apply to interests in partnerships trans9 ferred after the date of the enactment of this Act. 

10 SEC. 505. SPECIAL RULES FOR PARTNERS PROVIDING IN11 VESTMENT MANAGEMENT SERVICES TO 

12 PARTNERSHIPS. 

13 (a) IN GENERAL.—Part I of subchapter K of chapter 

14 1 is amended by adding at the end the following new sec15 tion: 

16 ‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN17 VESTMENT MANAGEMENT SERVICES TO 

18 PARTNERSHIPS. 

19 ‘‘(a) TREATMENT OF DISTRIBUTIVE SHARE OF

20 PARTNERSHIP ITEMS.—For purposes of this title, in the 

21 case of an investment services partnership interest— 

22 ‘‘(1) IN GENERAL.—Notwithstanding section 

23 702(b)— 

24 ‘‘(A) an amount equal to the net capital 

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1 nership taxable year shall be treated as ordi2 nary income, and 

3 ‘‘(B) subject to the limitation of paragraph 

4 (2), an amount equal to the net capital loss 

5 with respect to such interest for any partner6 ship taxable year shall be treated as an ordi7 nary loss. 

8 ‘‘(2) RECHARACTERIZATION OF LOSSES LIM9 ITED TO RECHARACTERIZED GAINS.—The amount 

10 treated as ordinary loss under paragraph (1)(B) for 

11 any taxable year shall not exceed the excess (if any) 

12 of— 

13 ‘‘(A) the aggregate amount treated as ordi14 nary income under paragraph (1)(A) with re15 spect to the investment services partnership in16 terest for all preceding partnership taxable 

17 years to which this section applies, over 

18 ‘‘(B) the aggregate amount treated as or19 dinary loss under paragraph (1)(B) with re20 spect to such interest for all preceding partner21 ship taxable years to which this section applies. 

22 ‘‘(3) ALLOCATION TO ITEMS OF GAIN AND

23 LOSS.— 

24 ‘‘(A) NET CAPITAL GAIN.—The amount 

25 treated as ordinary income under paragraph 


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1 (1)(A) shall be allocated ratably among the 

2 items of long-term capital gain taken into ac3 count in determining such net capital gain. 

4 ‘‘(B) NET CAPITAL LOSS.—The amount 

5 treated as ordinary loss under paragraph (1)(B) 

6 shall be allocated ratably among the items of 

7 long-term capital loss and short-term capital 

8 loss taken into account in determining such net 

9 capital loss. 

10 ‘‘(4) TERMS RELATING TO CAPITAL GAINS AND

11 LOSSES.—For purposes of this section— 

12 ‘‘(A) IN GENERAL.—Net capital gain, long13 term capital gain, and long-term capital loss, 

14 with respect to any investment services partner15 ship interest for any taxable year, shall be de16 termined under section 1222, except that such 

17 section shall be applied— 

18 ‘‘(i) without regard to the recharacter19 ization of any item as ordinary income or 

20 ordinary loss under this section, 

21 ‘‘(ii) by only taking into account items 

22 of gain and loss taken into account by the 

23 holder of such interest under section 702 

24 (other than subsection (a)(9) thereof) with 


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1 respect to such interest for such taxable 

2 year, and 

3 ‘‘(iii) by treating property which is 

4 taken into account in determining gains 

5 and losses to which section 1231 applies as 

6 capital assets held for more than 1 year. 

7 ‘‘(B) NET CAPITAL LOSS.—The term ‘net 

8 capital loss’ means the excess of the losses from 

9 sales or exchanges of capital assets over the 

10 gains from such sales or exchanges. Rules simi11 lar to the rules of clauses (i) through (iii) of 

12 subparagraph (A) shall apply for purposes of 

13 the preceding sentence. 

14 ‘‘(5) SPECIAL RULE FOR DIVIDENDS.—Any div15 idend allocated with respect to any investment serv16 ices partnership interest shall not be treated as 

17 qualified dividend income for purposes of section 

18 1(h). 

19 ‘‘(6) SPECIAL RULE FOR QUALIFIED SMALL

20 BUSINESS STOCK.—Section 1202 shall not apply to 

21 any gain from the sale or exchange of qualified small 

22 business stock (as defined in section 1202(c)) allo23 cated with respect to any investment services part24 nership interest. 

25 ‘‘(b) DISPOSITIONS OF PARTNERSHIP INTERESTS.— 


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1 ‘‘(1) GAIN.— 

2 ‘‘(A) IN GENERAL.—Any gain on the dis3 position of an investment services partnership 

4 interest shall be— 

5 ‘‘(i) treated as ordinary income, and 

6 ‘‘(ii) recognized notwithstanding any 

7 other provision of this subtitle. 

8 ‘‘(B) GIFT AND TRANSFERS AT DEATH.— 

9 In the case of a disposition of an investment 

10 services partnership interest by gift or by rea11 son of death of the taxpayer— 

12 ‘‘(i) subparagraph (A) shall not apply, 

13 ‘‘(ii) such interest shall be treated as 

14 an investment services partnership interest 

15 in the hands of the person acquiring such 

16 interest, and 

17 ‘‘(iii) any amount that would have 

18 been treated as ordinary income under this 

19 subsection had the decedent sold such in20 terest immediately before death shall be 

21 treated as an item of income in respect of 

22 a decedent under section 691. 

23 ‘‘(2) LOSS.—Any loss on the disposition of an 

24 investment services partnership interest shall be 


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1 treated as an ordinary loss to the extent of the ex2 cess (if any) of— 

3 ‘‘(A) the aggregate amount treated as ordi4 nary income under subsection (a) with respect 

5 to such interest for all partnership taxable 

6 years to which this section applies, over 

7 ‘‘(B) the aggregate amount treated as or8 dinary loss under subsection (a) with respect to 

9 such interest for all partnership taxable years 

10 to which this section applies. 

11 ‘‘(3) ELECTION WITH RESPECT TO CERTAIN EX12 CHANGES.—Paragraph (1)(A)(ii) shall not apply to 

13 the contribution of an investment services partner14 ship interest to a partnership in exchange for an in15 terest in such partnership if— 

16 ‘‘(A) the taxpayer makes an irrevocable 

17 election to treat the partnership interest re18 ceived in the exchange as an investment serv19 ices partnership interest, and 

20 ‘‘(B) the taxpayer agrees to comply with 

21 such reporting and recordkeeping requirements 

22 as the Secretary may prescribe. 

23 ‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP24 ERTY.— 


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1 ‘‘(A) IN GENERAL.—In the case of any dis2 tribution of property by a partnership with re3 spect to any investment services partnership in4 terest held by a partner, the partner receiving 

5 such property shall recognize gain equal to the 

6 excess (if any) of— 

7 ‘‘(i) the fair market value of such 

8 property at the time of such distribution, 

9 over 

10 ‘‘(ii) the adjusted basis of such prop11 erty in the hands of such partner (deter12 mined without regard to subparagraph 

13 (C)). 

14 ‘‘(B) TREATMENT OF GAIN AS ORDINARY

15 INCOME.—Any gain recognized by such partner 

16 under subparagraph (A) shall be treated as or17 dinary income to the same extent and in the 

18 same manner as the increase in such partner’s 

19 distributive share of the taxable income of the 

20 partnership would be treated under subsection 

21 (a) if, immediately prior to the distribution, the 

22 partnership had sold the distributed property at 

23 fair market value and all of the gain from such 

24 disposition were allocated to such partner. For 

25 purposes of applying subsection (a)(2), any gain 


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1 treated as ordinary income under this subpara2 graph shall be treated as an amount treated as 

3 ordinary income under subsection (a)(1)(A). 

4 ‘‘(C) ADJUSTMENT OF BASIS.—In the case 

5 of a distribution to which subparagraph (A) ap6 plies, the basis of the distributed property in 

7 the hands of the distributee partner shall be the 

8 fair market value of such property. 

9 ‘‘(D) SPECIAL RULES WITH RESPECT TO

10 MERGERS, DIVISIONS, AND TECHNICAL TERMI11 NATIONS.—In the case of a taxpayer which sat12 isfies requirements similar to the requirements 

13 of subparagraphs (A) and (B) of paragraph (3), 

14 this paragraph and paragraph (1)(A)(ii) shall 

15 not apply to the distribution of a partnership 

16 interest if such distribution is in connection 

17 with a contribution (or deemed contribution) of 

18 any property of the partnership to which sec19 tion 721 applies pursuant to a transaction de20 scribed in paragraph (1)(B) or (2) of section 

21 708(b). 

22 ‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER23 EST.—For purposes of this section— 

24 ‘‘(1) IN GENERAL.—The term ‘investment serv25 ices partnership interest’ means any interest in an 


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1 investment partnership acquired or held by any per2 son in connection with the conduct of a trade or 

3 business described in paragraph (2) by such person 

4 (or any person related to such person). An interest 

5 in an investment partnership held by any person— 

6 ‘‘(A) shall not be treated as an investment 

7 services partnership interest for any period be8 fore the first date on which it is so held in con9 nection with such a trade or business, 

10 ‘‘(B) shall not cease to be an investment 

11 services partnership interest merely because 

12 such person holds such interest other than in 

13 connection with such a trade or business, and 

14 ‘‘(C) shall be treated as an investment 

15 services partnership interest if acquired from a 

16 related person in whose hands such interest was 

17 an investment services partnership interest. 

18 ‘‘(2) BUSINESSES TO WHICH THIS SECTION AP19 PLIES.—A trade or business is described in this 

20 paragraph if such trade or business primarily in21 volves the performance of any of the following serv22 ices with respect to assets held (directly or indi23 rectly) by one or more investment partnerships re24 ferred to in paragraph (1): 


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1 ‘‘(A) Advising as to the advisability of in2 vesting in, purchasing, or selling any specified 

3 asset. 

4 ‘‘(B) Managing, acquiring, or disposing of 

5 any specified asset. 

6 ‘‘(C) Arranging financing with respect to 

7 acquiring specified assets. 

8 ‘‘(D) Any activity in support of any service 

9 described in subparagraphs (A) through (C). 

10 ‘‘(3) INVESTMENT PARTNERSHIP.— 

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

12 partnership’ means any partnership if, at the 

13 end of any two consecutive calendar quarters 

14 ending after the date of enactment of this sec15 tion— 

16 ‘‘(i) substantially all of the assets of 

17 the partnership are specified assets (deter18 mined without regard to any section 197 

19 intangible within the meaning of section 

20 197(d)), and 

21 ‘‘(ii) less than 75 percent of the cap22 ital of the partnership is attributable to 

23 qualified capital interests which constitute 

24 property held in connection with a trade or 

25 business of the owner of such interest. 


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1 ‘‘(B) LOOK-THROUGH OF CERTAIN WHOL2 LY OWNED ENTITIES FOR PURPOSES OF DETER3 MINING ASSETS OF THE PARTNERSHIP.— 

4 ‘‘(i) IN GENERAL.—For purposes of 

5 determining the assets of a partnership 

6 under subparagraph (A)(i)— 

7 ‘‘(I) any interest in a specified 

8 entity shall not be treated as an asset 

9 of such partnership, and 

10 ‘‘(II) such partnership shall be 

11 treated as holding its proportionate 

12 share of each of the assets of such 

13 specified entity. 

14 ‘‘(ii) SPECIFIED ENTITY.—For pur15 poses of clause (i), the term ‘specified enti16 ty’ means, with respect to any partnership 

17 (hereafter referred to as the upper-tier 

18 partnership), any person which engages in 

19 the same trade or business as the upper20 tier partnership and is— 

21 ‘‘(I) a partnership all of the cap22 ital and profits interests of which are 

23 held directly or indirectly by the 

24 upper-tier partnership, or 


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1 ‘‘(II) a foreign corporation which 

2 does not engage in a trade or business 

3 in the United States and all of the 

4 stock of which is held directly or indi5 rectly by the upper-tier partnership. 

6 ‘‘(C) SPECIAL RULES FOR DETERMINING

7 IF PROPERTY HELD IN CONNECTION WITH

8 TRADE OR BUSINESS.— 

9 ‘‘(i) IN GENERAL.—Except as other10 wise provided by the Secretary, solely for 

11 purposes of determining whether any inter12 est in a partnership constitutes property 

13 held in connection with a trade or business 

14 under subparagraph (A)(ii)— 

15 ‘‘(I) a trade or business of any 

16 person closely related to the owner of 

17 such interest shall be treated as a 

18 trade or business of such owner, 

19 ‘‘(II) such interest shall be treat20 ed as held by a person in connection 

21 with a trade or business during any 

22 taxable year if such interest was so 

23 held by such person during any 3 tax24 able years preceding such taxable 

25 year, and 


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1 ‘‘(III) paragraph (5)(B) shall not 

2 apply. 

3 ‘‘(ii) CLOSELY RELATED PERSONS.— 

4 For purposes of clause (i)(I), a person 

5 shall be treated as closely related to an6 other person if, taking into account the 

7 rules of section 267(c), the relationship be8 tween such persons is described in— 

9 ‘‘(I) paragraph (1) or (9) of sec10 tion 267(b), or 

11 ‘‘(II) section 267(b)(4), but solely 

12 in the case of a trust with respect to 

13 which each current beneficiary is the 

14 grantor or a person whose relationship 

15 to the grantor is described in para16 graph (1) or (9) of section 267(b). 

17 ‘‘(D) ANTI-ABUSE RULES.—The Secretary 

18 may issue regulations or other guidance which 

19 prevent the avoidance of the purposes of sub20 paragraph (A), including regulations or other 

21 guidance which treat convertible and contingent 

22 debt (and other debt having the attributes of 

23 equity) as a capital interest in the partnership. 

24 ‘‘(E) CONTROLLED GROUPS OF ENTI25 TIES.— 


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1 ‘‘(i) IN GENERAL.—In the case of a 

2 controlled group of entities, if an interest 

3 in the partnership received in exchange for 

4 a contribution to the capital of the part5 nership by any member of such controlled 

6 group would (in the hands of such mem7 ber) constitute property held in connection 

8 with a trade or business, then any interest 

9 in such partnership held by any member of 

10 such group shall be treated for purposes of 

11 subparagraph (A) as constituting (in the 

12 hands of such member) property held in 

13 connection with a trade or business. 

14 ‘‘(ii) CONTROLLED GROUP OF ENTI15 TIES.—For purposes of clause (i), the term 

16 ‘controlled group of entities’ means a con17 trolled group of corporations as defined in 

18 section 1563(a)(1), applied without regard 

19 to subsections (a)(4) and (b)(2) of section 

20 1563. A partnership or any other entity 

21 (other than a corporation) shall be treated 

22 as a member of a controlled group of enti23 ties if such entity is controlled (within the 

24 meaning of section 954(d)(3)) by members 

25 of such group (including any entity treated 


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1 as a member of such group by reason of 

2 this sentence). 

3 ‘‘(F) SPECIAL RULE FOR CORPORA4 TIONS.—For purposes of this paragraph, in the 

5 case of a corporation, the determination of 

6 whether property is held in connection with a 

7 trade or business shall be determined as if the 

8 taxpayer were an individual. 

9 ‘‘(4) SPECIFIED ASSET.—The term ‘specified 

10 asset’ means securities (as defined in section 

11 475(c)(2) without regard to the last sentence there12 of), real estate held for rental or investment, inter13 ests in partnerships, commodities (as defined in sec14 tion 475(e)(2)), cash or cash equivalents, or options 

15 or derivative contracts with respect to any of the 

16 foregoing. 

17 ‘‘(5) RELATED PERSONS.— 

18 ‘‘(A) IN GENERAL.—A person shall be 

19 treated as related to another person if the rela20 tionship between such persons is described in 

21 section 267(b) or 707(b). 

22 ‘‘(B) ATTRIBUTION OF PARTNER SERV23 ICES.—Any service described in paragraph (2) 

24 which is provided by a partner of a partnership 


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1 shall be treated as also provided by such part2 nership. 

3 ‘‘(d) EXCEPTION FOR CERTAIN CAPITAL INTER4 ESTS.— 

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

6 of an investment services partnership interest which 

7 is a qualified capital interest, all items of gain and 

8 loss (and any dividends) which are allocated to such 

9 qualified capital interest shall not be taken into ac10 count under subsection (a) if— 

11 ‘‘(A) allocations of items are made by the 

12 partnership to such qualified capital interest in 

13 the same manner as such allocations are made 

14 to other qualified capital interests held by part15 ners who do not provide any services described 

16 in subsection (c)(2) and who are not related to 

17 the partner holding the qualified capital inter18 est, and 

19 ‘‘(B) the allocations made to such other in20 terests are significant compared to the alloca21 tions made to such qualified capital interest. 

22 ‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO

23 ALLOCATION REQUIREMENTS.—To the extent pro24 vided by the Secretary in regulations or other guid25 ance— 


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1 ‘‘(A) ALLOCATIONS TO PORTION OF QUALI2 FIED CAPITAL INTEREST.—Paragraph (1) may 

3 be applied separately with respect to a portion 

4 of a qualified capital interest. 

5 ‘‘(B) NO OR INSIGNIFICANT ALLOCATIONS

6 TO NONSERVICE PROVIDERS.—In any case in 

7 which the requirements of paragraph (1)(B) are 

8 not satisfied, items of gain and loss (and any 

9 dividends) shall not be taken into account under 

10 subsection (a) to the extent that such items are 

11 properly allocable under such regulations or 

12 other guidance to qualified capital interests. 

13 ‘‘(C) ALLOCATIONS TO SERVICE PRO14 VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH

15 ARE LESS THAN OTHER ALLOCATIONS.—Alloca16 tions shall not be treated as failing to meet the 

17 requirement of paragraph (1)(A) merely be18 cause the allocations to the qualified capital in19 terest represent a lower return than the alloca20 tions made to the other qualified capital inter21 ests referred to in such paragraph. 

22 ‘‘(3) SPECIAL RULE FOR CHANGES IN SERVICES

23 AND CAPITAL CONTRIBUTIONS.—In the case of an 

24 interest in a partnership which was not an invest25 ment services partnership interest and which, by 


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1 reason of a change in the services with respect to as2 sets held (directly or indirectly) by the partnership 

3 or by reason of a change in the capital contributions 

4 to such partnership, becomes an investment services 

5 partnership interest, the qualified capital interest of 

6 the holder of such partnership interest immediately 

7 after such change shall not, for purposes of this sub8 section, be less than the fair market value of such 

9 interest (determined immediately before such 

10 change). 

11 ‘‘(4) SPECIAL RULE FOR TIERED PARTNER12 SHIPS.—Except as otherwise provided by the Sec13 retary, in the case of tiered partnerships, all items 

14 which are allocated in a manner which meets the re15 quirements of paragraph (1) to qualified capital in16 terests in a lower-tier partnership shall retain such 

17 character to the extent allocated on the basis of 

18 qualified capital interests in any upper-tier partner19 ship. 

20 ‘‘(5) EXCEPTION FOR NO-SELF-CHARGED

21 CARRY AND MANAGEMENT FEE PROVISIONS.—Ex22 cept as otherwise provided by the Secretary, an in23 terest shall not fail to be treated as satisfying the 

24 requirement of paragraph (1)(A) merely because the 

25 allocations made by the partnership to such interest 


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1 do not reflect the cost of services described in sub2 section (c)(2) which are provided (directly or indi3 rectly) to the partnership by the holder of such in4 terest (or a related person). 

5 ‘‘(6) SPECIAL RULE FOR DISPOSITIONS.—In the 

6 case of any investment services partnership interest 

7 any portion of which is a qualified capital interest, 

8 subsection (b) shall not apply to so much of any 

9 gain or loss as bears the same proportion to the en10 tire amount of such gain or loss as— 

11 ‘‘(A) the distributive share of gain or loss 

12 that would have been allocated to the qualified 

13 capital interest (consistent with the require14 ments of paragraph (1)) if the partnership had 

15 sold all of its assets at fair market value imme16 diately before the disposition, bears to 

17 ‘‘(B) the distributive share of gain or loss 

18 that would have been so allocated to the invest19 ment services partnership interest of which such 

20 qualified capital interest is a part. 

21 ‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur22 poses of this section— 

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

24 capital interest’ means so much of a partner’s 


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1 interest in the capital of the partnership as is 

2 attributable to— 

3 ‘‘(i) the fair market value of any 

4 money or other property contributed to the 

5 partnership in exchange for such interest 

6 (determined without regard to section 

7 752(a)), 

8 ‘‘(ii) any amounts which have been in9 cluded in gross income under section 83 

10 with respect to the transfer of such inter11 est, and 

12 ‘‘(iii) the excess (if any) of— 

13 ‘‘(I) any items of income and 

14 gain taken into account under section 

15 702 with respect to such interest, over 

16 ‘‘(II) any items of deduction and 

17 loss so taken into account. 

18 ‘‘(B) ADJUSTMENT TO QUALIFIED CAPITAL

19 INTEREST.— 

20 ‘‘(i) DISTRIBUTIONS AND LOSSES.— 

21 The qualified capital interest shall be re22 duced by distributions from the partner23 ship with respect to such interest and by 

24 the excess (if any) of the amount described 

25 in subparagraph (A)(iii)(II) over the 


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1 amount described in subparagraph 

2 (A)(iii)(I). 

3 ‘‘(ii) SPECIAL RULE FOR CONTRIBU4 TIONS OF PROPERTY.—In the case of any 

5 contribution of property described in sub6 paragraph (A)(i) with respect to which the 

7 fair market value of such property is not 

8 equal to the adjusted basis of such prop9 erty immediately before such contribution, 

10 proper adjustments shall be made to the 

11 qualified capital interest to take into ac12 count such difference consistent with such 

13 regulations or other guidance as the Sec14 retary may provide. 

15 ‘‘(C) TECHNICAL TERMINATIONS, ETC., 

16 DISREGARDED.—No increase or decrease in the 

17 qualified capital interest of any partner shall re18 sult from a termination, merger, consolidation, 

19 or division described in section 708, or any 

20 similar transaction. 

21 ‘‘(8) TREATMENT OF CERTAIN LOANS.— 

22 ‘‘(A) PROCEEDS OF PARTNERSHIP LOANS

23 NOT TREATED AS QUALIFIED CAPITAL INTER24 EST OF SERVICE PROVIDING PARTNERS.—For 

25 purposes of this subsection, an investment servVerDate Sep 11 2014 00:02 May 04, 2016 Jkt 059200 PO 00000 Frm 00089 Fmt 6652 Sfmt 6201 E:\BILLS\H5106.IH H5106

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1 ices partnership interest shall not be treated as 

2 a qualified capital interest to the extent that 

3 such interest is acquired in connection with the 

4 proceeds of any loan or other advance made or 

5 guaranteed, directly or indirectly, by any other 

6 partner or the partnership (or any person re7 lated to any such other partner or the partner8 ship). The preceding sentence shall not apply to 

9 the extent the loan or other advance is repaid 

10 before the date of the enactment of this section 

11 unless such repayment is made with the pro12 ceeds of a loan or other advance described in 

13 the preceding sentence. 

14 ‘‘(B) REDUCTION IN ALLOCATIONS TO

15 QUALIFIED CAPITAL INTERESTS FOR LOANS

16 FROM NONSERVICE-PROVIDING PARTNERS TO

17 THE PARTNERSHIP.—For purposes of this sub18 section, any loan or other advance to the part19 nership made or guaranteed, directly or indi20 rectly, by a partner not providing services de21 scribed in subsection (c)(2) to the partnership 

22 (or any person related to such partner) shall be 

23 taken into account in determining the qualified 

24 capital interests of the partners in the partner25 ship. 


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1 ‘‘(9) SPECIAL RULE FOR QUALIFIED FAMILY

2 PARTNERSHIPS.— 

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

4 specified family partnership interest, paragraph 

5 (1)(A) shall be applied without regard to the 

6 phrase ‘and who are not related to the partner 

7 holding the qualified capital interest’. 

8 ‘‘(B) SPECIFIED FAMILY PARTNERSHIP IN9 TEREST.—For purposes of this paragraph, the 

10 term ‘specified family partnership interest’ 

11 means any investment services partnership in12 terest if— 

13 ‘‘(i) such interest is an interest in a 

14 qualified family partnership, 

15 ‘‘(ii) such interest is held by a natural 

16 person or by a trust with respect to which 

17 each beneficiary is a grantor or a person 

18 whose relationship to the grantor is de19 scribed in section 267(b)(1), and 

20 ‘‘(iii) all other interests in such quali21 fied family partnership with respect to 

22 which significant allocations are made 

23 (within the meaning of paragraph (1)(B) 

24 and in comparison to the allocations made 


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1 to the interest described in clause (ii)) are 

2 held by persons who— 

3 ‘‘(I) are related to the natural 

4 person or trust referred to in clause 

5 (ii), or 

6 ‘‘(II) provide services described 

7 in subsection (c)(2). 

8 ‘‘(C) QUALIFIED FAMILY PARTNERSHIP.— 

9 For purposes of this paragraph, the term 

10 ‘qualified family partnership’ means any part11 nership if— 

12 ‘‘(i) all of the capital and profits in13 terests of such partnership are held by— 

14 ‘‘(I) specified family members, 

15 ‘‘(II) any person closely related 

16 (within the meaning of subsection 

17 (c)(3)(C)(ii)) to a specified family 

18 member, or 

19 ‘‘(III) any other person (not de20 scribed in subclause (I) or (II)) if 

21 such interest is an investment services 

22 partnership interest with respect to 

23 such person, and 


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1 ‘‘(ii) such partnership does not hold 

2 itself out to the public as an investment 

3 advisor. 

4 ‘‘(D) SPECIFIED FAMILY MEMBERS.—For 

5 purposes of subparagraph (C), individuals shall 

6 be treated as specified family members if such 

7 individuals would be treated as one person 

8 under the rules of section 1361(c)(1) if the ap9 plicable date (within the meaning of subpara10 graph (B)(iii) thereof) were the latest of— 

11 ‘‘(i) the date of the establishment of 

12 the partnership, 

13 ‘‘(ii) the earliest date that the com14 mon ancestor holds a capital or profits in15 terest in the partnership, or 

16 ‘‘(iii) the date of the enactment of this 

17 section. 

18 ‘‘(e) OTHER INCOME AND GAIN IN CONNECTION

19 WITH INVESTMENT MANAGEMENT SERVICES.— 

20 ‘‘(1) IN GENERAL.—If— 

21 ‘‘(A) a person performs (directly or indi22 rectly) investment management services for any 

23 investment entity, 


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1 ‘‘(B) such person holds (directly or indi2 rectly) a disqualified interest with respect to 

3 such entity, and 

4 ‘‘(C) the value of such interest (or pay5 ments thereunder) is substantially related to 

6 the amount of income or gain (whether or not 

7 realized) from the assets with respect to which 

8 the investment management services are per9 formed, 

10 any income or gain with respect to such interest 

11 shall be treated as ordinary income. Rules similar to 

12 the rules of subsections (a)(5) and (d) shall apply 

13 for purposes of this subsection. 

14 ‘‘(2) DEFINITIONS.—For purposes of this sub15 section— 

16 ‘‘(A) DISQUALIFIED INTEREST.— 

17 ‘‘(i) IN GENERAL.—The term ‘dis18 qualified interest’ means, with respect to 

19 any investment entity— 

20 ‘‘(I) any interest in such entity 

21 other than indebtedness, 

22 ‘‘(II) convertible or contingent 

23 debt of such entity, 


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1 ‘‘(III) any option or other right 

2 to acquire property described in sub3 clause (I) or (II), and 

4 ‘‘(IV) any derivative instrument 

5 entered into (directly or indirectly) 

6 with such entity or any investor in 

7 such entity. 

8 ‘‘(ii) EXCEPTIONS.—Such term shall 

9 not include— 

10 ‘‘(I) a partnership interest, 

11 ‘‘(II) except as provided by the 

12 Secretary, any interest in a taxable 

13 corporation, and 

14 ‘‘(III) except as provided by the 

15 Secretary, stock in an S corporation. 

16 ‘‘(B) TAXABLE CORPORATION.—The term 

17 ‘taxable corporation’ means— 

18 ‘‘(i) a domestic C corporation, or 

19 ‘‘(ii) a foreign corporation substan20 tially all of the income of which is— 

21 ‘‘(I) effectively connected with 

22 the conduct of a trade or business in 

23 the United States, or 


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1 ‘‘(II) subject to a comprehensive 

2 foreign income tax (as defined in sec3 tion 457A(d)(2)). 

4 ‘‘(C) INVESTMENT MANAGEMENT SERV5 ICES.—The term ‘investment management serv6 ices’ means a substantial quantity of any of the 

7 services described in subsection (c)(2). 

8 ‘‘(D) INVESTMENT ENTITY.—The term ‘in9 vestment entity’ means any entity which, if it 

10 were a partnership, would be an investment 

11 partnership. 

12 ‘‘(f) EXCEPTION FOR DOMESTIC C CORPORATIONS.— 

13 Except as otherwise provided by the Secretary, in the case 

14 of a domestic C corporation— 

15 ‘‘(1) subsections (a) and (b) shall not apply to 

16 any item allocated to such corporation with respect 

17 to any investment services partnership interest (or 

18 to any gain or loss with respect to the disposition of 

19 such an interest), and 

20 ‘‘(2) subsection (e) shall not apply. 

21 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

22 such regulations or other guidance as is necessary or ap23 propriate to carry out the purposes of this section, includ24 ing regulations or other guidance to— 


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1 ‘‘(1) require such reporting and recordkeeping 

2 by any person in such manner and at such time as 

3 the Secretary may prescribe for purposes of enabling 

4 the partnership to meet the requirements of section 

5 6031 with respect to any item described in section 

6 702(a)(9), 

7 ‘‘(2) provide modifications to the application of 

8 this section (including treating related persons as 

9 not related to one another) to the extent such modi10 fication is consistent with the purposes of this sec11 tion, 

12 ‘‘(3) prevent the avoidance of the purposes of 

13 this section (including through the use of qualified 

14 family partnerships), and 

15 ‘‘(4) coordinate this section with the other pro16 visions of this title. 

17 ‘‘(h) CROSS REFERENCE.—For 40-percent penalty 

18 on certain underpayments due to the avoidance of this sec19 tion, see section 6662.’’. 

20 (b) APPLICATION OF SECTION 751 TO INDIRECT DIS21 POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN22 TERESTS.— 

23 (1) IN GENERAL.—Subsection (a) of section 

24 751 is amended by striking ‘‘or’’ at the end of para25 graph (1), by inserting ‘‘or’’ at the end of paragraph 


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1 (2), and by inserting after paragraph (2) the fol2 lowing new paragraph: 

3 ‘‘(3) investment services partnership interests 

4 held by the partnership,’’. 

5 (2) CERTAIN DISTRIBUTIONS TREATED AS

6 SALES OR EXCHANGES.—Subparagraph (A) of sec7 tion 751(b)(1) is amended by striking ‘‘or’’ at the 

8 end of clause (i), by inserting ‘‘or’’ at the end of 

9 clause (ii), and by inserting after clause (ii) the fol10 lowing new clause: 

11 ‘‘(iii) investment services partnership 

12 interests held by the partnership,’’. 

13 (3) APPLICATION OF SPECIAL RULES IN THE

14 CASE OF TIERED PARTNERSHIPS.—Subsection (f) of 

15 section 751 is amended— 

16 (A) by striking ‘‘or’’ at the end of para17 graph (1), by inserting ‘‘or’’ at the end of para18 graph (2), and by inserting after paragraph (2) 

19 the following new paragraph: 

20 ‘‘(3) an investment services partnership interest 

21 held by the partnership,’’, and 

22 (B) by striking ‘‘partner.’’ and inserting 

23 ‘‘partner (other than a partnership in which it 

24 holds an investment services partnership inter25 est).’’. 


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1 (4) INVESTMENT SERVICES PARTNERSHIP IN2 TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 

3 751 is amended by adding at the end the following 

4 new subsection: 

5 ‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER6 ESTS.—For purposes of this section— 

7 ‘‘(1) IN GENERAL.—The term ‘investment serv8 ices partnership interest’ has the meaning given 

9 such term by section 710(c). 

10 ‘‘(2) ADJUSTMENTS FOR QUALIFIED CAPITAL

11 INTERESTS.—The amount to which subsection (a) 

12 applies by reason of paragraph (3) thereof shall not 

13 include so much of such amount as is attributable 

14 to any portion of the investment services partnership 

15 interest which is a qualified capital interest (deter16 mined under rules similar to the rules of section 

17 710(d)). 

18 ‘‘(3) EXCEPTION FOR PUBLICLY TRADED PART19 NERSHIPS.—Except as otherwise provided by the 

20 Secretary, in the case of an exchange of an interest 

21 in a publicly traded partnership (as defined in sec22 tion 7704) to which subsection (a) applies— 

23 ‘‘(A) this section shall be applied without 

24 regard to subsections (a)(3), (b)(1)(A)(iii), and 

25 (f)(3), and 


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1 ‘‘(B) such partnership shall be treated as 

2 owning its proportionate share of the property 

3 of any other partnership in which it is a part4 ner. 

5 ‘‘(4) RECOGNITION OF GAINS.—Any gain with 

6 respect to which subsection (a) applies by reason of 

7 paragraph (3) thereof shall be recognized notwith8 standing any other provision of this title. 

9 ‘‘(5) COORDINATION WITH INVENTORY

10 ITEMS.—An investment services partnership interest 

11 held by the partnership shall not be treated as an 

12 inventory item of the partnership. 

13 ‘‘(6) PREVENTION OF DOUBLE COUNTING.— 

14 Under regulations or other guidance prescribed by 

15 the Secretary, subsection (a)(3) shall not apply with 

16 respect to any amount to which section 710 applies. 

17 ‘‘(7) VALUATION METHODS.—The Secretary 

18 shall prescribe regulations or other guidance which 

19 provide the acceptable methods for valuing invest20 ment services partnership interests for purposes of 

21 this section.’’. 

22 (c) TREATMENT FOR PURPOSES OF SECTION

23 7704.—Subsection (d) of section 7704 is amended by add24 ing at the end the following new paragraph: 


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1 ‘‘(6) INCOME FROM CERTAIN CARRIED INTER2 ESTS NOT QUALIFIED.— 

3 ‘‘(A) IN GENERAL.—Specified carried in4 terest income shall not be treated as qualifying 

5 income. 

6 ‘‘(B) SPECIFIED CARRIED INTEREST IN7 COME.—For purposes of this paragraph— 

8 ‘‘(i) IN GENERAL.—The term ‘speci9 fied carried interest income’ means— 

10 ‘‘(I) any item of income or gain 

11 allocated to an investment services 

12 partnership interest (as defined in 

13 section 710(c)) held by the partner14 ship, 

15 ‘‘(II) any gain on the disposition 

16 of an investment services partnership 

17 interest (as so defined) or a partner18 ship interest to which (in the hands of 

19 the partnership) section 751 applies, 

20 and 

21 ‘‘(III) any income or gain taken 

22 into account by the partnership under 

23 subsection (b)(4) or (e) of section 

24 710. 


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1 ‘‘(ii) EXCEPTION FOR QUALIFIED CAP2 ITAL INTERESTS.—A rule similar to the 

3 rule of section 710(d) shall apply for pur4 poses of clause (i). 

5 ‘‘(C) COORDINATION WITH OTHER PROVI6 SIONS.—Subparagraph (A) shall not apply to 

7 any item described in paragraph (1)(E) (or so 

8 much of paragraph (1)(F) as relates to para9 graph (1)(E)). 

10 ‘‘(D) SPECIAL RULES FOR CERTAIN PART11 NERSHIPS.— 

12 ‘‘(i) CERTAIN PARTNERSHIPS OWNED

13 BY REAL ESTATE INVESTMENT TRUSTS.— 

14 Subparagraph (A) shall not apply in the 

15 case of a partnership which meets each of 

16 the following requirements: 

17 ‘‘(I) Such partnership is treated 

18 as publicly traded under this section 

19 solely by reason of interests in such 

20 partnership being convertible into in21 terests in a real estate investment 

22 trust which is publicly traded. 

23 ‘‘(II) Fifty percent or more of 

24 the capital and profits interests of 

25 such partnership are owned, directly 


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1 or indirectly, at all times during the 

2 taxable year by such real estate in3 vestment trust (determined with the 

4 application of section 267(c)). 

5 ‘‘(III) Such partnership meets 

6 the requirements of paragraphs (2), 

7 (3), and (4) of section 856(c). 

8 ‘‘(ii) CERTAIN PARTNERSHIPS OWN9 ING OTHER PUBLICLY TRADED PARTNER10 SHIPS.—Subparagraph (A) shall not apply 

11 in the case of a partnership which meets 

12 each of the following requirements: 

13 ‘‘(I) Substantially all of the as14 sets of such partnership consist of in15 terests in one or more publicly traded 

16 partnerships (determined without re17 gard to subsection (b)(2)). 

18 ‘‘(II) Substantially all of the in19 come of such partnership is ordinary 

20 income or section 1231 gain (as de21 fined in section 1231(a)(3)). 

22 ‘‘(E) TRANSITIONAL RULE.—Subpara23 graph (A) shall not apply to any taxable year 

24 of the partnership beginning before the date 


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1 which is 10 years after the date of the enact2 ment of this paragraph.’’. 

3 (d) IMPOSITION OF PENALTY ON UNDERPAY4 MENTS.— 

5 (1) IN GENERAL.—Subsection (b) of section 

6 6662 is amended by inserting after paragraph (7) 

7 the following new paragraph: 

8 ‘‘(8) The application of section 710(e) or the 

9 regulations or other guidance prescribed under sec10 tion 710(g) to prevent the avoidance of the purposes 

11 of section 710.’’. 

12 (2) AMOUNT OF PENALTY.— 

13 (A) IN GENERAL.—Section 6662 is amend14 ed by adding at the end the following new sub15 section: 

16 ‘‘(k) INCREASE IN PENALTY IN CASE OF PROPERTY

17 TRANSFERRED FOR INVESTMENT MANAGEMENT SERV18 ICES.—In the case of any portion of an underpayment to 

19 which this section applies by reason of subsection (b)(8), 

20 subsection (a) shall be applied with respect to such portion 

21 by substituting ‘40 percent’ for ‘20 percent’.’’. 

22 (B) CONFORMING AMENDMENT.—Subpara23 graph (B) of section 6662A(e)(2) is amended 

24 by striking ‘‘or (i)’’ and inserting ‘‘, (i), or (k)’’. 


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1 (3) SPECIAL RULES FOR APPLICATION OF REA2 SONABLE CAUSE EXCEPTION.—Subsection (c) of sec3 tion 6664 is amended— 

4 (A) by redesignating paragraphs (3) and 

5 (4) as paragraphs (4) and (5), respectively; 

6 (B) by striking ‘‘paragraph (3)’’ in para7 graph (5)(A), as so redesignated, and inserting 

8 ‘‘paragraph (4)’’; and 

9 (C) by inserting after paragraph (2) the 

10 following new paragraph: 

11 ‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT12 TRIBUTABLE TO INVESTMENT MANAGEMENT SERV13 ICES.— 

14 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

15 not apply to any portion of an underpayment to 

16 which section 6662 applies by reason of sub17 section (b)(8) unless— 

18 ‘‘(i) the relevant facts affecting the 

19 tax treatment of the item are adequately 

20 disclosed, 

21 ‘‘(ii) there is or was substantial au22 thority for such treatment, and 

23 ‘‘(iii) the taxpayer reasonably believed 

24 that such treatment was more likely than 

25 not the proper treatment. 


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1 ‘‘(B) RULES RELATING TO REASONABLE

2 BELIEF.—Rules similar to the rules of sub3 section (d)(3) shall apply for purposes of sub4 paragraph (A)(iii).’’. 

5 (e) INCOME AND LOSS FROM INVESTMENT SERVICES

6 PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE7 TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 

8 (1) INTERNAL REVENUE CODE.— 

9 (A) IN GENERAL.—Section 1402(a) is 

10 amended by striking ‘‘and’’ at the end of para11 graph (16), by striking the period at the end of 

12 paragraph (17) and inserting ‘‘; and’’, and by 

13 inserting after paragraph (17) the following 

14 new paragraph: 

15 ‘‘(18) notwithstanding the preceding provisions 

16 of this subsection, in the case of any individual en17 gaged in the trade or business of providing services 

18 described in section 710(c)(2) with respect to any 

19 entity, investment services partnership income or 

20 loss (as defined in subsection (m)) of such individual 

21 with respect to such entity shall be taken into ac22 count in determining the net earnings from self-em23 ployment of such individual.’’. 


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1 (B) INVESTMENT SERVICES PARTNERSHIP

2 INCOME OR LOSS.—Section 1402 is amended by 

3 adding at the end the following new subsection: 

4 ‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME

5 OR LOSS.—For purposes of subsection (a)— 

6 ‘‘(1) IN GENERAL.—The term ‘investment serv7 ices partnership income or loss’ means, with respect 

8 to any investment services partnership interest (as 

9 defined in section 710(c)) or disqualified interest (as 

10 defined in section 710(e)), the net of— 

11 ‘‘(A) the amounts treated as ordinary in12 come or ordinary loss under subsections (b) and 

13 (e) of section 710 with respect to such interest, 

14 ‘‘(B) all items of income, gain, loss, and 

15 deduction allocated to such interest, and 

16 ‘‘(C) the amounts treated as realized from 

17 the sale or exchange of property other than a 

18 capital asset under section 751 with respect to 

19 such interest. 

20 ‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN21 TERESTS.—A rule similar to the rule of section 

22 710(d) shall apply for purposes of applying para23 graph (1)(B).’’. 

24 (2) SOCIAL SECURITY ACT.—Section 211(a) of 

25 the Social Security Act is amended by striking 


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1 ‘‘and’’ at the end of paragraph (15), by striking the 

2 period at the end of paragraph (16) and inserting ‘‘; 

3 and’’, and by inserting after paragraph (16) the fol4 lowing new paragraph: 

5 ‘‘(17) Notwithstanding the preceding provisions 

6 of this subsection, in the case of any individual en7 gaged in the trade or business of providing services 

8 described in section 710(c)(2) of the Internal Rev9 enue Code of 1986 with respect to any entity, invest10 ment services partnership income or loss (as defined 

11 in section 1402(m) of such Code) shall be taken into 

12 account in determining the net earnings from self13 employment of such individual.’’. 

14 (f) SEPARATE ACCOUNTING BY PARTNER.—Section 

15 702(a) is amended by striking ‘‘and’’ at the end of para16 graph (7), by striking the period at the end of paragraph 

17 (8) and inserting ‘‘, and’’, and by inserting after para18 graph (8) the following: 

19 ‘‘(9) any amount treated as ordinary income or 

20 loss under subsection (a), (b), or (e) of section 

21 710.’’. 

22 (g) CONFORMING AMENDMENTS.— 

23 (1) Subsection (d) of section 731 is amended by 

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1 tions of partnership property),’’ after ‘‘to the extent 

2 otherwise provided by’’. 

3 (2) Section 741 is amended by inserting ‘‘or 

4 section 710 (relating to special rules for partners 

5 providing investment management services to part6 nerships)’’ before the period at the end. 

7 (3) The table of sections for part I of sub8 chapter K of chapter 1 is amended by adding at the 

9 end the following new item: 

‘‘Sec. 710. Special rules for partners providing investment management services 

to partnerships.’’. 

10 (h) EFFECTIVE DATE.— 

11 (1) IN GENERAL.—Except as otherwise pro12 vided in this subsection, the amendments made by 

13 this section shall apply to taxable years ending after 

14 the date of the enactment of this Act. 

15 (2) PARTNERSHIP TAXABLE YEARS WHICH IN16 CLUDE EFFECTIVE DATE.—In applying section 

17 710(a) of the Internal Revenue Code of 1986 (as 

18 added by this section) in the case of any partnership 

19 taxable year which includes the date of the enact20 ment of this Act, the amount of the net capital gain 

21 referred to in such section shall be treated as being 

22 the lesser of the net capital gain for the entire part23 nership taxable year or the net capital gain deter24 mined by only taking into account items attributable 


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1 to the portion of the partnership taxable year which 

2 is after such date. 

3 (3) DISPOSITIONS OF PARTNERSHIP INTER4 ESTS.— 

5 (A) IN GENERAL.—Section 710(b) of such 

6 Code (as added by this section) shall apply to 

7 dispositions and distributions after the date of 

8 the enactment of this Act. 

9 (B) INDIRECT DISPOSITIONS.—The amend10 ments made by subsection (b) shall apply to 

11 transactions after the date of the enactment of 

12 this Act. 

13 (4) OTHER INCOME AND GAIN IN CONNECTION

14 WITH INVESTMENT MANAGEMENT SERVICES.—Sec15 tion 710(e) of such Code (as added by this section) 

16 shall take effect on the date of the enactment of this 

17 Act. 

18 SEC. 506. CONSISTENT TREATMENT OF STOCK OPTIONS BY 

19 CORPORATIONS. 

20 (a) CONSISTENT TREATMENT FOR WAGE DEDUC21 TION.— 

22 (1) IN GENERAL.—Section 83(h) is amended— 

23 (A) by striking ‘‘In the case of’’ and in24 serting: 

25 ‘‘(1) IN GENERAL.—In the case of’’, and 


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1 (B) by adding at the end the following new 

2 paragraph: 

3 ‘‘(2) STOCK OPTIONS.—In the case of property 

4 transferred to a person in connection with a stock 

5 option, any deduction related to such stock option 

6 shall be allowed only under section 162(q) and para7 graph (1) shall not apply.’’. 

8 (2) TREATMENT OF COMPENSATION PAID WITH

9 STOCK OPTIONS.—Section 162 is amended by redes10 ignating subsection (q) as subsection (r) and by in11 serting after subsection (p) the following new sub12 section: 

13 ‘‘(q) TREATMENT OF COMPENSATION PAID WITH

14 STOCK OPTIONS.— 

15 ‘‘(1) IN GENERAL.—In the case of compensa16 tion for personal services that is paid with stock op17 tions, the deduction under subsection (a)(1) shall 

18 not exceed the amount the taxpayer has treated as 

19 compensation cost with respect to such stock options 

20 for the purpose of ascertaining income, profit, or 

21 loss in a report or statement to shareholders, part22 ners, or other proprietors (or to beneficiaries), and 

23 shall be taken into account in the same period that 

24 such compensation cost is recognized for such pur25 pose. 


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1 ‘‘(2) SPECIAL RULES FOR CONTROLLED

2 GROUPS.—The Secretary may prescribe rules for the 

3 application of paragraph (1) in cases where the 

4 stock option is granted by— 

5 ‘‘(A) a parent or subsidiary corporation 

6 (within the meaning of section 424) of the tax7 payer, or 

8 ‘‘(B) another corporation.’’. 

9 (b) CONSISTENT TREATMENT FOR RESEARCH TAX

10 CREDIT.—Section 41(b)(2)(D) is amended by inserting at 

11 the end the following new clause: 

12 ‘‘(iv) SPECIAL RULE FOR STOCK OP13 TIONS.—The amount which may be treated 

14 as wages for any taxable year in connec15 tion with the issuance of a stock option 

16 shall not exceed the amount allowed for 

17 such taxable year as a compensation de18 duction under section 162(q) with respect 

19 to such stock option.’’. 

20 (c) APPLICATION OF AMENDMENTS.—The amend21 ments made by this section shall apply to stock options 

22 exercised after the date of the enactment of this Act, ex23 cept that— 

24 (1) such amendments shall not apply to stock 

25 options that were granted before such date and that 


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1 vested in taxable periods beginning on or before 

2 June 15, 2005, 

3 (2) for stock options that were granted before 

4 such date of enactment and vested during taxable 

5 periods beginning after June 15, 2005, and ending 

6 before such date of enactment, a deduction under 

7 section 162(q) of the Internal Revenue Code of 1986 

8 (as added by subsection (a)(2)) shall be allowed in 

9 the first taxable period of the taxpayer that ends 

10 after such date of enactment, 

11 (3) for public entities reporting as small busi12 ness issuers and for nonpublic entities required to 

13 file public reports of financial condition, paragraphs 

14 (1) and (2) shall be applied by substituting ‘‘Decem15 ber 15, 2005’’ for ‘‘June 15, 2005’’, and 

16 (4) no deduction shall be allowed under section 

17 83(h) or section 162(q) of such Code with respect to 

18 any stock option the vesting date of which is 

19 changed to accelerate the time at which the option 

20 may be exercised in order to avoid the applicability 

21 of such amendments. 

22 SEC. 507. APPLICATION OF EXECUTIVE PAY DEDUCTION 

23 LIMIT. 

24 (a) IN GENERAL.—Subparagraph (B) of section 

25 162(m)(4), as redesignated by paragraphs (1)(A) and 


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1 (2)(A) of section 503(b) of this Act, is amended to read 

2 as follows: 

3 ‘‘(B) STOCK OPTION COMPENSATION.—The 

4 term ‘applicable employee remuneration’ shall 

5 include any compensation deducted under sub6 section (q).’’. 

7 (b) EFFECTIVE DATE.—The amendment made by 

8 this section shall apply to stock options exercised or grant9 ed after the date of the enactment of this Act. 

10 SEC. 508. MODIFICATIONS TO RULES RELATING TO IN11 VERTED CORPORATIONS. 

12 (a) IN GENERAL.—Subsection (b) of section 7874 of 

13 the Internal Revenue Code of 1986 is amended to read 

14 as follows: 

15 ‘‘(b) INVERTED CORPORATIONS TREATED AS DO16 MESTIC CORPORATIONS.— 

17 ‘‘(1) IN GENERAL.—Notwithstanding section 

18 7701(a)(4), a foreign corporation shall be treated for 

19 purposes of this title as a domestic corporation if— 

20 ‘‘(A) such corporation would be a surro21 gate foreign corporation if subsection (a)(2) 

22 were applied by substituting ‘80 percent’ for 

23 ‘60 percent’, or 

24 ‘‘(B) such corporation is an inverted do25 mestic corporation. 


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1 ‘‘(2) INVERTED DOMESTIC CORPORATION.—For 

2 purposes of this subsection, a foreign corporation 

3 shall be treated as an inverted domestic corporation 

4 if, pursuant to a plan (or a series of related trans5 actions)— 

6 ‘‘(A) the entity completes after February 

7 10, 2016, the direct or indirect acquisition of— 

8 ‘‘(i) substantially all of the properties 

9 held directly or indirectly by a domestic 

10 corporation, or 

11 ‘‘(ii) substantially all of the assets of, 

12 or substantially all of the properties consti13 tuting a trade or business of, a domestic 

14 partnership, and 

15 ‘‘(B) after the acquisition, more than 50 

16 percent of the stock (by vote or value) of the 

17 entity is held— 

18 ‘‘(i) in the case of an acquisition with 

19 respect to a domestic corporation, by 

20 former shareholders of the domestic cor21 poration by reason of holding stock in the 

22 domestic corporation, or 

23 ‘‘(ii) in the case of an acquisition with 

24 respect to a domestic partnership, by 

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1 ship by reason of holding a capital or prof2 its interest in the domestic partnership. 

3 ‘‘(3) EXCEPTION FOR CORPORATIONS WITH

4 SUBSTANTIAL BUSINESS ACTIVITIES IN FOREIGN

5 COUNTRY OF ORGANIZATION.—A foreign corporation 

6 described in paragraph (2) shall not be treated as an 

7 inverted domestic corporation if after the acquisition 

8 the expanded affiliated group which includes the en9 tity has substantial business activities in the foreign 

10 country in which or under the law of which the enti11 ty is created or organized when compared to the 

12 total business activities of such expanded affiliated 

13 group. For purposes of subsection (a)(2)(B)(iii) and 

14 the preceding sentence, the term ‘substantial busi15 ness activities’ shall have the meaning given such 

16 term under regulations in effect on February 10, 

17 2016, except that the Secretary may issue regula18 tions increasing the threshold percent in any of the 

19 tests under such regulations for determining if busi20 ness activities constitute substantial business activi21 ties for purposes of this paragraph.’’. 

22 (b) CONFORMING AMENDMENTS.— 

23 (1) Clause (i) of section 7874(a)(2)(B) of such 

24 Code is amended by striking ‘‘after March 4, 2003,’’ 


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1 and inserting ‘‘after March 4, 2003, and before Feb2 ruary 11, 2016,’’. 

3 (2) Subsection (c) of section 7874 of such Code 

4 is amended— 

5 (A) in paragraph (2)— 

6 (i) by striking ‘‘subsection 

7 (a)(2)(B)(ii)’’ and inserting ‘‘subsections 

8 (a)(2)(B)(ii) and (b)(2)(B)’’, and 

9 (ii) by inserting ‘‘or (b)(2)(A)’’ after 

10 ‘‘(a)(2)(B)(i)’’ in subparagraph (B), 

11 (B) in paragraph (3), by inserting ‘‘or 

12 (b)(2)(B), as the case may be,’’ after 

13 ‘‘(a)(2)(B)(ii)’’, 

14 (C) in paragraph (5), by striking ‘‘sub15 section (a)(2)(B)(ii)’’ and inserting ‘‘sub16 sections (a)(2)(B)(ii) and (b)(2)(B)’’, and 

17 (D) in paragraph (6), by inserting ‘‘or in18 verted domestic corporation, as the case may 

19 be,’’ after ‘‘surrogate foreign corporation’’. 

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

21 this section shall apply to taxable years ending after Feb22 ruary 10, 2016. 


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1 SEC. 509. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

2 APPLICABLE TO MAJOR INTEGRATED OIL 

3 COMPANIES WHICH ARE DUAL CAPACITY 

4 TAXPAYERS. 

5 (a) IN GENERAL.—Section 901 of the Internal Rev6 enue Code of 1986 is amended by redesignating subsection 

7 (n) as subsection (o) and by inserting after subsection (m) 

8 the following new subsection: 

9 ‘‘(n) SPECIAL RULES RELATING TO MAJOR INTE10 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

11 TAXPAYERS.— 

12 ‘‘(1) GENERAL RULE.—Notwithstanding any 

13 other provision of this chapter, any amount paid or 

14 accrued by a dual capacity taxpayer which is a 

15 major integrated oil company (within the meaning of 

16 section 167(h)(5)) to a foreign country or possession 

17 of the United States for any period shall not be con18 sidered a tax— 

19 ‘‘(A) if, for such period, the foreign coun20 try or possession does not impose a generally 

21 applicable income tax, or 

22 ‘‘(B) to the extent such amount exceeds 

23 the amount (determined in accordance with reg24 ulations) which— 

25 ‘‘(i) is paid by such dual capacity tax26 payer pursuant to the generally applicable 


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1 income tax imposed by the country or pos2 session, or 

3 ‘‘(ii) would be paid if the generally ap4 plicable income tax imposed by the country 

5 or possession were applicable to such dual 

6 capacity taxpayer. 

7 Nothing in this paragraph shall be construed to 

8 imply the proper treatment of any such amount not 

9 in excess of the amount determined under subpara10 graph (B). 

11 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur12 poses of this subsection, the term ‘dual capacity tax13 payer’ means, with respect to any foreign country or 

14 possession of the United States, a person who— 

15 ‘‘(A) is subject to a levy of such country or 

16 possession, and 

17 ‘‘(B) receives (or will receive) directly or 

18 indirectly a specific economic benefit (as deter19 mined in accordance with regulations) from 

20 such country or possession. 

21 ‘‘(3) GENERALLY APPLICABLE INCOME TAX.— 

22 For purposes of this subsection— 

23 ‘‘(A) IN GENERAL.—The term ‘generally 

24 applicable income tax’ means an income tax (or 

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1 posed under the laws of a foreign country or 

2 possession on income derived from the conduct 

3 of a trade or business within such country or 

4 possession. 

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

6 include a tax unless it has substantial applica7 tion, by its terms and in practice, to— 

8 ‘‘(i) persons who are not dual capacity 

9 taxpayers, and 

10 ‘‘(ii) persons who are citizens or resi11 dents of the foreign country or posses12 sion.’’. 

13 (b) EFFECTIVE DATE.— 

14 (1) IN GENERAL.—The amendments made by 

15 this section shall apply to taxes paid or accrued in 

16 taxable years beginning after the date of the enact17 ment of this Act. 

18 (2) CONTRARY TREATY OBLIGATIONS

19 UPHELD.—The amendments made by this section 

20 shall not apply to the extent contrary to any treaty 

21 obligation of the United States. 


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1 SEC. 510. LIMITATION ON SECTION 199 DEDUCTION ATTRIB2 UTABLE TO OIL, NATURAL GAS, OR PRIMARY 

3 PRODUCTS THEREOF. 

4 (a) DENIAL OF DEDUCTION.—Paragraph (4) of sec5 tion 199(c) of the Internal Revenue Code of 1986 is 

6 amended by adding at the end the following new subpara7 graph: 

8 ‘‘(E) SPECIAL RULE FOR CERTAIN OIL

9 AND GAS INCOME.—In the case of any taxpayer 

10 who is a major integrated oil company (within 

11 the meaning of section 167(h)(5)) for the tax12 able year, the term ‘domestic production gross 

13 receipts’ shall not include gross receipts from 

14 the production, refining, processing, transpor15 tation, or distribution of oil, gas, or any pri16 mary product (within the meaning of subsection 

17 (d)(9)) thereof.’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2015. 

21 SEC. 511. LIMITATION ON DEDUCTION FOR INTANGIBLE 

22 DRILLING AND DEVELOPMENT COSTS; AMOR23 TIZATION OF DISALLOWED AMOUNTS. 

24 (a) IN GENERAL.—Section 263(c) of the Internal 

25 Revenue Code of 1986 is amended to read as follows: 


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1 ‘‘(c) INTANGIBLE DRILLING AND DEVELOPMENT

2 COSTS IN THE CASE OF OIL AND GAS WELLS AND GEO3 THERMAL WELLS.— 

4 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

5 (a), and except as provided in subsection (i), regula6 tions shall be prescribed by the Secretary under this 

7 subtitle corresponding to the regulations which 

8 granted the option to deduct as expenses intangible 

9 drilling and development costs in the case of oil and 

10 gas wells and which were recognized and approved 

11 by the Congress in House Concurrent Resolution 50, 

12 Seventy-ninth Congress. Such regulations shall also 

13 grant the option to deduct as expenses intangible 

14 drilling and development costs in the case of wells 

15 drilled for any geothermal deposit (as defined in sec16 tion 613(e)(2)) to the same extent and in the same 

17 manner as such expenses are deductible in the case 

18 of oil and gas wells. This subsection shall not apply 

19 with respect to any costs to which any deduction is 

20 allowed under section 59(e) or 291. 

21 ‘‘(2) EXCLUSION.— 

22 ‘‘(A) IN GENERAL.—This subsection shall 

23 not apply to amounts paid or incurred by a tax24 payer in any taxable year in which such taxVerDate Sep 11 2014 00:02 May 04, 2016 Jkt 059200 PO 00000 Frm 00122 Fmt 6652 Sfmt 6201 E:\BILLS\H5106.IH H5106

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1 payer is a major integrated oil company (within 

2 the meaning of section 167(h)(5)). 

3 ‘‘(B) AMORTIZATION OF AMOUNTS NOT AL4 LOWABLE AS DEDUCTIONS UNDER SUBPARA5 GRAPH (A).—The amount not allowable as a de6 duction for any taxable year by reason of sub7 paragraph (A) shall be allowable as a deduction 

8 ratably over the 60-month period beginning 

9 with the month in which the costs are paid or 

10 incurred. For purposes of section 1254, any de11 duction under this subparagraph shall be treat12 ed as a deduction under this subsection.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 this section shall apply to amounts paid or incurred in tax15 able years beginning after December 31, 2015. 

16 SEC. 512. LIMITATION ON PERCENTAGE DEPLETION AL17 LOWANCE FOR OIL AND GAS WELLS. 

18 (a) IN GENERAL.—Section 613A of the Internal Rev19 enue Code of 1986 is amended by adding at the end the 

20 following new subsection: 

21 ‘‘(f) APPLICATION WITH RESPECT TO MAJOR INTE22 GRATED OIL COMPANIES.—In the case of any taxable year 

23 in which the taxpayer is a major integrated oil company 

24 (within the meaning of section 167(h)(5)), the allowance 

25 for percentage depletion shall be zero.’’. 


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1 (b) EFFECTIVE DATE.—The amendment made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2015. 

4 SEC. 513. LIMITATION ON DEDUCTION FOR TERTIARY 

5 INJECTANTS. 

6 (a) IN GENERAL.—Section 193 of the Internal Rev7 enue Code of 1986 is amended by adding at the end the 

8 following new subsection: 

9 ‘‘(d) APPLICATION WITH RESPECT TO MAJOR INTE10 GRATED OIL COMPANIES.— 

11 ‘‘(1) IN GENERAL.—This section shall not apply 

12 to amounts paid or incurred by a taxpayer in any 

13 taxable year in which such taxpayer is a major inte14 grated oil company (within the meaning of section 

15 167(h)(5)). 

16 ‘‘(2) AMORTIZATION OF AMOUNTS NOT ALLOW17 ABLE AS DEDUCTIONS UNDER PARAGRAPH (1).—The 

18 amount not allowable as a deduction for any taxable 

19 year by reason of paragraph (1) shall be allowable 

20 as a deduction ratably over the 60-month period be21 ginning with the month in which the costs are paid 

22 or incurred.’’. 

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

24 this section shall apply to amounts paid or incurred in tax25 able years beginning after December 31, 2015. 


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1 SEC. 514. MODIFICATION OF DEFINITION OF MAJOR INTE2 GRATED OIL COMPANY. 

3 (a) IN GENERAL.—Paragraph (5) of section 167(h) 

4 of the Internal Revenue Code of 1986 is amended by add5 ing at the end the following new subparagraph: 

6 ‘‘(C) CERTAIN SUCCESSORS IN INTER7 EST.—For purposes of this paragraph, the term 

8 ‘major integrated oil company’ includes any 

9 successor in interest of a company that was de10 scribed in subparagraph (B) in any taxable 

11 year, if such successor controls more than 50 

12 percent of the crude oil production or natural 

13 gas production of such company.’’. 

14 (b) CONFORMING AMENDMENTS.— 

15 (1) IN GENERAL.—Subparagraph (B) of section 

16 167(h)(5) of the Internal Revenue Code of 1986 is 

17 amended by inserting ‘‘except as provided in sub18 paragraph (C),’’ after ‘‘For purposes of this para19 graph,’’. 

20 (2) TAXABLE YEARS TESTED.—Clause (iii) of 

21 section 167(h)(5)(B) of such Code is amended— 

22 (A) by striking ‘‘does not apply by reason 

23 of paragraph (4) of section 613A(d)’’ and in24 serting ‘‘did not apply by reason of paragraph 

25 (4) of section 613A(d) for any taxable year 

26 after 2004’’, and 


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1 (B) by striking ‘‘does not apply’’ in sub2 clause (II) and inserting ‘‘did not apply for the 

3 taxable year’’. 

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

5 this section shall apply to taxable years beginning after 

6 December 31, 2015. 

7 SEC. 515. REPEAL OF OUTER CONTINENTAL SHELF DEEP 

8 WATER AND DEEP GAS ROYALTY RELIEF. 

9 (a) IN GENERAL.—Sections 344 and 345 of the En10 ergy Policy Act of 2005 (42 U.S.C. 15904, 15905) are 

11 repealed. 

12 (b) ADMINISTRATION.—The Secretary of the Interior 

13 shall not be required to provide for royalty relief in the 

14 lease sale terms beginning with the first lease sale held 

15 on or after the date of enactment of this Act for which 

16 a final notice of sale has not been published. 

17 SEC. 516. COORDINATION OF AMERICAN OPPORTUNITY 

18 CREDIT AND LIFETIME LEARNING CREDIT 

19 WITH PELL GRANTS NOT USED FOR QUALI20 FIED TUITION AND RELATED EXPENSES. 

21 (a) IN GENERAL.—Section 25A(g)(2) of the Internal 

22 Revenue Code of 1986 is amended to read as follows: 

23 ‘‘(2) ADJUSTMENT FOR CERTAIN SCHOLAR24 SHIPS, ETC.— 


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1 ‘‘(A) IN GENERAL.—The amount of quali2 fied tuition and related expenses otherwise 

3 taken into account under subsection (a) with re4 spect to an individual for an academic period 

5 shall be reduced (before the application of sub6 sections (b), (c), and (d)) by the sum of any 

7 amounts paid for the benefit of such individual 

8 which are allocable to such period as— 

9 ‘‘(i) a qualified scholarship which is 

10 excludable from gross income under section 

11 117, 

12 ‘‘(ii) an educational assistance allow13 ance under chapter 30, 31, 32, 34, or 35 

14 of title 38, United States Code, or under 

15 chapter 1606 of title 10, United States 

16 Code, and 

17 ‘‘(iii) a payment (other than a gift, 

18 bequest, devise, or inheritance within the 

19 meaning of section 102(a)) for such indi20 vidual’s educational expenses, or attrib21 utable to such individual’s enrollment at an 

22 eligible educational institution, which is ex23 cludable from gross income under any law 

24 of the United States. 


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1 ‘‘(B) COORDINATION WITH PELL GRANTS

2 NOT USED FOR QUALIFIED TUITION AND RE3 LATED EXPENSES.—For purposes of subpara4 graph (A), the amount of any Federal Pell 

5 Grant under section 401 of the Higher Edu6 cation Act of 1965 (20 U.S.C. 1070a) shall be 

7 reduced (but not below zero) by the amount of 

8 expenses (other than qualified tuition and re9 lated expenses) which are taken into account in 

10 determining the cost of attendance (as defined 

11 in section 472 of the Higher Education Act of 

12 1965, as in effect on the date of the enactment 

13 of this subparagraph) of such individual at an 

14 eligible educational institution for the academic 

15 period for which the credit under this section is 

16 being determined.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2015. 

20 SEC. 517. EXPANSION OF PELL GRANT EXCLUSION FROM 

21 GROSS INCOME. 

22 (a) IN GENERAL.—Paragraph (1) of section 117(b) 

23 of the Internal Revenue Code of 1986 is amended— 

24 (1) by striking the period at the end and insert25 ing ‘‘, or’’, 


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1 (2) by striking ‘‘received by an individual as a 

2 scholarship’’ and inserting the following: ‘‘received 

3 by an individual— 

4 ‘‘(A) as a scholarship’’, and 

5 (3) by adding at the end the following new sub6 paragraph: 

7 ‘‘(B) as a Federal Pell Grant under section 

8 401 of the Higher Education Act of 1965 (20 

9 U.S.C. 1070a).’’. 

10 (b) EFFECTIVE DATE.—The amendments made by 

11 this section shall apply to taxable years beginning after 

12 December 31, 2015. 

Æ 


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