I 

113TH CONGRESS 

1ST SESSION H. R. 505 

To repeal sequester while achieving balance in deficit reduction between revenue and cuts, and between non-defense cuts and defense cuts, to invest 

in job creation, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 5, 2013 

Mr. ELLISON (for himself, Mr. GRIJALVA, Mr. CONYERS, Mr. MCDERMOTT, 

Ms. CLARKE, Mr. NADLER, Ms. LEE of California, Mr. MARKEY, Ms. 

SCHAKOWSKY, Ms. CHU, Mr. COHEN, Mr. CLAY, Ms. EDDIE BERNICE

JOHNSON of Texas, Mr. GRAYSON, and Mr. GUTIERREZ) introduced the 

following bill; which was referred to the Committee on Ways and Means, 

and in addition to the Committees on the Budget, Oversight and Government Reform, Armed Services, Education and the Workforce, Transportation and Infrastructure, and Financial Services, 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 repeal sequester while achieving balance in deficit reduction between revenue and cuts, and between non-defense 

cuts and defense cuts, to invest in job creation, and 

for other purposes. 

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


srobinson on DSK4SPTVN1PROD with BILLS
2 

•HR 505 IH

1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

3 ‘‘Balancing Act’’. 

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

5 this Act is as follows: 

Sec. 1. Short title; table of contents. 

TITLE I—REPEAL SEQUESTER 

Sec. 101. Repeal of section 251A sequestration to enforce budget goal. 

TITLE II—CLOSE TAX LOOPHOLES TO ACHIEVE BALANCE 

Subtitle A—28 Percent Limitation on Certain Deductions and Exclusions 

Sec. 201. 28 percent limitation on certain deductions and exclusions. 

Subtitle B—Tax Carried Interest in Investment Partnerships as Ordinary 

Income 

Sec. 211. Partnership interests transferred in connection with performance of 

services. 

Sec. 212. Special rules for partners providing investment management services 

to partnerships. 

Subtitle C—Dual Capacity Taxpayers 

Sec. 221. Modifications of foreign tax credit rules applicable to dual capacity 

taxpayers. 

Sec. 222. Separate basket treatment taxes paid on foreign oil and gas income. 

Subtitle D—Close Exclusion of Foreign-Earned Income Loophole 

Sec. 231. Repeal of foreign earned income exclusion. 

Subtitle E—Close S Corporation Loophole 

Sec. 241. Employment tax treatment of professional service businesses. 

Subtitle F—Limitation on Mortgage Interest Deduction With Respect to 

Boats 

Sec. 251. Mortgage interest deduction allowed with respect to boats only if boat 

is used as the principal residence of the taxpayer. 

TITLE III—ENDING CORPORATE SUBSIDIES 

Subtitle A—End Fossil Fuel Subsidies 

Sec. 301. Termination of various tax expenditures relating to fossil fuels. 

Sec. 302. Termination of alternative fuel vehicle refueling property credit with 

respect to fossil fuels. 

Sec. 303. Uniform seven-year amortization for geological and geophysical expenditures. 


srobinson on DSK4SPTVN1PROD with BILLS
3 

•HR 505 IH

Sec. 304. Repeal of domestic manufacturing deduction for hard mineral mining. 

Sec. 305. Limitation on deduction for income attributable to domestic production of oil, natural gas, or primary products thereof. 

Sec. 306. Termination of last-in, first-out method of inventory for oil, natural 

gas, and coal companies. 

Sec. 307. Repeal of percentage depletion for coal and hard mineral fossil fuels. 

Sec. 308. Termination of capital gains treatment for royalties from coal. 

Sec. 309. Increase in oil spill liability trust fund financing rate. 

Sec. 310. Denial of deduction for removal costs and damages for certain oil 

spills. 

Sec. 311. Tax on crude oil and natural gas produced from the outer Continental Shelf in the Gulf of Mexico. 

Subtitle B—Ending Excessive Corporate Tax Deductions for Stock Options 

Sec. 331. Consistent treatment of stock options by corporations. 

Sec. 332. Application of executive pay deduction limit. 

Subtitle C—Reduce Deduction of Corporate Meals and Entertainment 

Sec. 341. Reduction in business meals and entertainment tax deduction. 

TITLE IV—CLOSE INTERNATIONAL TAX SYSTEM LOOPHOLES 

Subtitle A—Reformation of U.S. International Tax System 

Sec. 401. Allocation of expenses and taxes on basis of repatriation of foreign 

income. 

Sec. 402. Excess income from transfers of intangibles to low-taxed affiliates 

treated as subpart F income. 

Sec. 403. Limitations on income shifting through intangible property transfers. 

Sec. 404. Limitation on earnings stripping by expatriated entities. 

Sec. 405. Prevention of avoidance of tax through reinsurance with non-taxed 

affiliates. 

Subtitle B—Reinsurance 

Sec. 411. Prevention of avoidance of tax through reinsurance with non-taxed 

affiliates. 

Subtitle C—Close Loophole for Corporate Jet Depreciation 

Sec. 421. General aviation aircraft treated as 7-year property. 

TITLE V—CLOSE ESTATE TAX LOOPHOLES 

Sec. 501. Valuation rules for certain transfers of nonbusiness assets; limitation 

on minority discounts. 

Sec. 502. Consistent basis reporting between estate and person acquiring property from decedent. 

Sec. 503. Required minimum 10-year term, etc., for grantor retained annuity 

trusts. 

Sec. 504. Limitation on GST exemption of perpetual dynasty trusts. 

TITLE VI—CUT PENTAGON WASTE TO ACHIEVE BALANCE 

Subtitle A—Smarter Approach to Nuclear Expenditures 

Sec. 601. Short title. 


srobinson on DSK4SPTVN1PROD with BILLS
4 

•HR 505 IH

Sec. 602. Findings. 

Sec. 603. Reduction in nuclear forces. 

Sec. 604. Reports required. 

Subtitle B—Limiting Excessive Contractor Compensation 

Sec. 611. Limitation on allowable compensation costs. 

Subtitle C—Relocate Troops From Europe to the United States 

Sec. 615. Relocation to United States military installations of members of the 

United States Armed Forces assigned to permanent duty in 

Europe. 

Subtitle D—Additional Reduction in Armed Forces End Strength Levels 

Sec. 621. Additional Army and Marine Corps end strength reductions through 

retirement and separation. 

Subtitle E—Procurement of Certain Submarines, Carriers, and Aircraft 

Sec. 631. Limitation on procurement of Virginia class submarines. 

Sec. 632. Limitation on procurement of one Ford class aircraft carrier. 

Sec. 633. Authority for procurement of F/A–18E and F/A–18F aircraft. 

Sec. 634. Prohibition on procurement of V–22 Osprey aircraft. 

Subtitle F—Limit Military Bands 

Sec. 641. Limitation on expenditures for military musical units. 

Subtitle G—Reduction in Number of General and Flag Officers 

Sec. 651. Return of maximum number of general and flag officers to Cold War 

levels. 

Subtitle H—Audit the Pentagon 

Sec. 661. Purposes. 

Sec. 662. Findings. 

Sec. 663. Spending reductions for agencies without clean audits. 

Sec. 664. Report on Department of Defense reporting requirements. 

Sec. 665. Sense of Congress in implementation of defense budget reductions. 

TITLE VII—INVEST IN JOB CREATION 

Subtitle A—Making Work Pay Extension 

Sec. 701. One-year extension of making work pay credit. 

Subtitle B—Support for Teachers and School Modernization 

PART I—PREVENTING TEACHER LAYOFFS AND SUPPORTING THE CREATION

OF ADDITIONAL JOBS IN PUBLIC EARLY CHILDHOOD, ELEMENTARY, AND

SECONDARY EDUCATION

Sec. 711. Purpose. 

Sec. 712. Grants for the outlying areas and the Secretary of the Interior; availability of funds. 

Sec. 713. State allocation. 

Sec. 714. State application. 


srobinson on DSK4SPTVN1PROD with BILLS
5 

•HR 505 IH

Sec. 715. State reservation and responsibilities. 

Sec. 716. Local educational agencies. 

Sec. 717. Early learning. 

Sec. 718. Maintenance of effort. 

Sec. 719. Reporting. 

Sec. 720. Definitions. 

Sec. 721. Authorization of appropriations. 

PART II—ELEMENTARY AND SECONDARY SCHOOLS

Sec. 731. Purpose. 

Sec. 732. Authorization of appropriations. 

Sec. 733. Allocation of funds. 

Sec. 734. State use of funds. 

Sec. 735. State and local applications. 

Sec. 736. Use of funds. 

Sec. 737. Private schools. 

Sec. 738. Additional provisions. 

PART III—COMMUNITY COLLEGE MODERNIZATION

Sec. 739. Federal assistance for community college modernization. 

PART IV—GENERAL PROVISIONS

Sec. 740. Definitions. 

Sec. 741. Buy American. 

Subtitle C—Transportation Infrastructure Investments 

PART I—IMMEDIATE TRANSPORTATION INFRASTRUCTURE INVESTMENTS

Sec. 751. Immediate transportation infrastructure investments. 

PART II—BUILDING AND UPGRADING INFRASTRUCTURE FOR LONG-TERM

DEVELOPMENT

SUBPART A—IMMEDIATE TRANSPORTATION INFRASTRUCTURE INVESTMENTS

Sec. 761. Short title. 

Sec. 762. Findings and purpose. 

Sec. 763. Definitions. 

SUBPART B—AMERICAN INFRASTRUCTURE FINANCING AUTHORITY

Sec. 765. Establishment and general authority of AIFA. 

Sec. 766. Voting members of the Board of Directors. 

Sec. 767. Chief executive officer of AIFA. 

Sec. 768. Powers and duties of the Board of Directors. 

Sec. 769. Senior management. 

Sec. 770. Special Inspector General for AIFA. 

Sec. 771. Other personnel. 

Sec. 772. Compliance. 

SUBPART C—TERMS AND LIMITATIONS ON DIRECT LOANS AND LOAN

GUARANTEES

Sec. 773. Eligibility criteria for assistance from AIFA and terms and limitations of loans. 


srobinson on DSK4SPTVN1PROD with BILLS
6 

•HR 505 IH

Sec. 774. Loan terms and repayment. 

Sec. 775. Compliance and enforcement. 

Sec. 776. Audits; reports to the President and Congress. 

SUBPART D—FUNDING OF AIFA

Sec. 777. Administrative fees. 

Sec. 778. Efficiency of AIFA. 

Sec. 779. Funding. 

SUBPART E—EXTENSION OF EXEMPTION FROM ALTERNATIVE MINIMUM TAX

TREATMENT FOR CERTAIN TAX-EXEMPT BONDS

Sec. 780. Extension of exemption from alternative minimum tax treatment for 

certain tax-exempt bonds. 

1 TITLE I—REPEAL SEQUESTER 

2 SEC. 101. REPEAL OF SECTION 251A SEQUESTRATION TO 

3 ENFORCE BUDGET GOAL. 

4 Section 251A of the Balanced Budget and Emer5 gency Deficit Control Act of 1985 is repealed. 

6 TITLE II—CLOSE TAX LOOP7 HOLES TO ACHIEVE BALANCE 

8 Subtitle A—28 Percent Limitation 

9 on Certain Deductions and Ex10 clusions 

11 SEC. 201. 28 PERCENT LIMITATION ON CERTAIN DEDUC12 TIONS AND EXCLUSIONS. 

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

14 1 of the Internal Revenue Code of 1986 is amended by 

15 adding at the end the following new section: 

16 ‘‘SEC. 69. LIMITATION ON CERTAIN DEDUCTIONS AND EX17 CLUSIONS. 

18 ‘‘(a) IN GENERAL.—In the case of an individual for 

19 any taxable year, if— 


srobinson on DSK4SPTVN1PROD with BILLS
7 

•HR 505 IH

1 ‘‘(1) the taxpayer’s adjusted gross income is 

2 above— 

3 ‘‘(A) $250,000 in the case of a joint return 

4 within the meaning of section 6013, 

5 ‘‘(B) $225,000 in the case of a head of 

6 household return, 

7 ‘‘(C) $125,000 in the case of a married fil8 ing separately return, or 

9 ‘‘(D) $200,000 in all other cases; and 

10 ‘‘(2) the taxpayer’s adjusted taxable income for 

11 such taxable year exceeds the minimum marginal 

12 rate amount, then the tax imposed under section 1 

13 with respect to such taxpayer for such taxable year 

14 shall be increased by the amount determined under 

15 subsection (b). If the taxpayer is subject to tax 

16 under section 55, 

17 then in lieu of an increase in tax under section 1, the tax 

18 imposed under section 55 with respect to such taxpayer 

19 for such taxable year shall be increased by the amount 

20 determined under subsection (c). 

21 ‘‘(b) ADDITIONAL AMOUNT.—The amount deter22 mined under this subsection with respect to any taxpayer 

23 for any taxable year is the excess (if any) of— 

24 ‘‘(1) the tax which would be imposed under sec25 tion 1 with respect to such taxpayer for such taxable 


srobinson on DSK4SPTVN1PROD with BILLS
8 

•HR 505 IH

1 year if ‘adjusted taxable income’ were substituted 

2 for ‘taxable income’ each place it appears therein, 

3 over 

4 ‘‘(2) the sum of— 

5 ‘‘(A) the tax which would be imposed 

6 under such section with respect to such tax7 payer for such taxable year on the greater of— 

8 ‘‘(i) taxable income, or 

9 ‘‘(ii) the minimum marginal rate 

10 amount, plus 

11 ‘‘(B) 28 percent of the excess (if any) of 

12 the taxpayer’s adjusted taxable income over the 

13 greater of— 

14 ‘‘(i) the taxpayer’s taxable income, or 

15 ‘‘(ii) the minimum marginal rate 

16 amount. 

17 ‘‘(c) ADDITIONAL AMT AMOUNT.— 

18 ‘‘(1) The amount determined under this sub19 section with respect to any taxpayer for any taxable 

20 year is the additional amount computed under sub21 section (b) multiplied by the ratio that— 

22 ‘‘(A) the result of— 

23 ‘‘(i) all itemized deductions (before 

24 the application of section 68), plus 


srobinson on DSK4SPTVN1PROD with BILLS
9 

•HR 505 IH

1 ‘‘(ii) the specified above-the-line de2 ductions and specified exclusions, minus 

3 ‘‘(iii) the amount of deductions dis4 allowed under section 56(b)(1)(A) and (B), 

5 minus 

6 ‘‘(iv) the non-preference disallowed de7 ductions, bears to— 

8 ‘‘(B) the sum of— 

9 ‘‘(i) the total of itemized deductions 

10 (after the application of section 68), plus 

11 ‘‘(ii) the specified above-the-line de12 ductions and specified exclusions. 

13 ‘‘(2) If the top of the AMT exemption phase14 out range for the taxpayer exceeds the minimum 

15 marginal rate amount for the taxpayer and if the 

16 taxpayer’s alternative minimum taxable income does 

17 not exceed the top of the AMT exemption phase-out 

18 range, the taxpayer must increase its additional 

19 AMT amount by 7 percent of the excess of— 

20 ‘‘(A) the lesser of— 

21 ‘‘(i) the top of the AMT exemption 

22 phase-out range, or 

23 ‘‘(ii) the taxpayer’s alternative min24 imum taxable income, computed— 


srobinson on DSK4SPTVN1PROD with BILLS
10 

•HR 505 IH

1 ‘‘(I) without regard to any 

2 itemized deduction or any specified 

3 above-the-line deduction, and 

4 ‘‘(II) by including the amount of 

5 any specified exclusion; over 

6 ‘‘(B) the greater of— 

7 ‘‘(i) the taxpayer’s alternative min8 imum taxable income, or 

9 ‘‘(ii) the minimum marginal rate 

10 amount. 

11 ‘‘(d) MINIMUM MARGINAL RATE AMOUNT.—For pur12 poses of this section, the term ‘minimum marginal rate 

13 amount’ means, with respect to any taxpayer for any tax14 able year, the highest amount of the taxpayer’s taxable 

15 income which would be subject to a marginal rate of tax 

16 under section 1 that is less than 36 percent with respect 

17 to such taxable year. 

18 ‘‘(e) ADJUSTED TAXABLE INCOME.—For purposes of 

19 this section— 

20 ‘‘(1) IN GENERAL.—The term ‘adjusted taxable 

21 income’ means taxable income computed— 

22 ‘‘(A) without regard to any itemized deduc23 tion or any specified above-the-line deduction, 

24 and 


srobinson on DSK4SPTVN1PROD with BILLS
11 

•HR 505 IH

1 ‘‘(B) by including in gross income any 

2 specified exclusion. 

3 ‘‘(2) SPECIFIED ABOVE-THE-LINE DEDUC4 TION.—The term ‘specified above-the-line deduction’ 

5 means— 

6 ‘‘(A) the deduction provided under section 

7 162(l) (relating to special rules for health insur8 ance costs of self-employed individuals), 

9 ‘‘(B) the deduction provided under section 

10 199 (relating to income attributable to domestic 

11 production activities), and 

12 ‘‘(C) the deductions provided under the fol13 lowing paragraphs of section 62(a): 

14 ‘‘(i) Paragraph (2) (relating to certain 

15 trade and business deductions of employ16 ees), other than subparagraph (A) thereof. 

17 ‘‘(ii) Paragraph (15) (relating to mov18 ing expenses). 

19 ‘‘(iii) Paragraph (16) (relating to Ar20 cher MSAs). 

21 ‘‘(iv) Paragraph (17) (relating to in22 terest on education loans). 

23 ‘‘(v) Paragraph (18) (relating to high24 er education expenses). 


srobinson on DSK4SPTVN1PROD with BILLS
12 

•HR 505 IH

1 ‘‘(vi) Paragraph (19) (relating to 

2 health savings accounts). 

3 ‘‘(3) SPECIFIED EXCLUSION.—The term ‘speci4 fied exclusion’ means— 

5 ‘‘(A) any interest excluded under section 

6 103, 

7 ‘‘(B) any exclusion with respect to the cost 

8 described in section 6051(a)(14) (without re9 gard to subparagraph (B) thereof), and 

10 ‘‘(C) any foreign earned income excluded 

11 under section 911. 

12 ‘‘(f) NON-PREFERENCE DISALLOWED DEDUC13 TIONS.—For purposes of this section, the term ‘AMT-al14 lowed deductions’ means all itemized deductions dis15 allowed by section 68 multiplied by the ratio that— 

16 ‘‘(1) a taxpayer’s itemized deductions for the 

17 taxable year that are subject to section 68 (that is, 

18 not including those excluded under section 68(c)) 

19 and that are not limited under section 56(b)(1)(A) 

20 or (B), bears to 

21 ‘‘(2) the taxpayer’s itemized deductions for the 

22 taxable year that are subject to section 68 (that is, 

23 not including those excluded under section 68(c)). 

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

25 such regulations as may be appropriate to carry out this 


srobinson on DSK4SPTVN1PROD with BILLS
13 

•HR 505 IH

1 section, including regulations which provide appropriate 

2 adjustments to the additional AMT amount.’’. 

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

4 this section shall apply to taxable years beginning on or 

5 after January 1, 2013. 

6 Subtitle B—Tax Carried Interest in 

7 Investment Partnerships as Or8 dinary Income 

9 SEC. 211. PARTNERSHIP INTERESTS TRANSFERRED IN 

10 CONNECTION WITH PERFORMANCE OF SERV11 ICES. 

12 (a) MODIFICATION TO ELECTION TO INCLUDE PART13 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

14 TRANSFER.—Subsection (c) of section 83 of the Internal 

15 Revenue Code of 1986 is amended by redesignating para16 graph (4) as paragraph (5) and by inserting after para17 graph (3) the following new paragraph: 

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

19 provided by the Secretary— 

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

21 transfer of an interest in a partnership in con22 nection with the provision of services to (or for 

23 the benefit of) such partnership— 

24 ‘‘(i) the fair market value of such in25 terest shall be treated for purposes of this 


srobinson on DSK4SPTVN1PROD with BILLS
14 

•HR 505 IH

1 section as being equal to the amount of the 

2 distribution which the partner would re3 ceive if the partnership sold (at the time of 

4 the transfer) all of its assets at fair market 

5 value and distributed the proceeds of such 

6 sale (reduced by the liabilities of the part7 nership) to its partners in liquidation of 

8 the partnership, and 

9 ‘‘(ii) the person receiving such interest 

10 shall be treated as having made the elec11 tion under subsection (b)(1) unless such 

12 person makes an election under this para13 graph to have such subsection not apply. 

14 ‘‘(B) ELECTION.—The election under sub15 paragraph (A)(ii) shall be made under rules 

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

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

18 this section shall apply to interests in partnerships trans19 ferred after December 31, 2012. 

20 SEC. 212. SPECIAL RULES FOR PARTNERS PROVIDING IN21 VESTMENT MANAGEMENT SERVICES TO 

22 PARTNERSHIPS. 

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

24 1 of the Internal Revenue Code of 1986 is amended by 

25 adding at the end the following new section: 


srobinson on DSK4SPTVN1PROD with BILLS
15 

•HR 505 IH

1 ‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN2 VESTMENT MANAGEMENT SERVICES TO 

3 PARTNERSHIPS. 

4 ‘‘(a) TREATMENT OF DISTRIBUTIVE SHARE OF

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

6 case of an investment services partnership interest— 

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

8 702(b)— 

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

10 gain with respect to such interest for any part11 nership taxable year shall be treated as ordi12 nary income, and 

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

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

15 with respect to such interest for any partner16 ship taxable year shall be treated as an ordi17 nary loss. 

18 ‘‘(2) RECHARACTERIZATION OF LOSSES LIM19 ITED TO RECHARACTERIZED GAINS.—The amount 

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

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

22 of— 

23 ‘‘(A) the aggregate amount treated as ordi24 nary income under paragraph (1)(A) with re25 spect to the investment services partnership inVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
16 

•HR 505 IH

1 terest for all preceding partnership taxable 

2 years to which this section applies, over 

3 ‘‘(B) the aggregate amount treated as or4 dinary loss under paragraph (1)(B) with re5 spect to such interest for all preceding partner6 ship taxable years to which this section applies. 

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

8 LOSS.— 

9 ‘‘(A) NET CAPITAL GAIN.—The amount 

10 treated as ordinary income under paragraph 

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

12 items of long-term capital gain taken into ac13 count in determining such net capital gain. 

14 ‘‘(B) NET CAPITAL LOSS.—The amount 

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

16 shall be allocated ratably among the items of 

17 long-term capital loss and short-term capital 

18 loss taken into account in determining such net 

19 capital loss. 

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

21 LOSSES.—For purposes of this section— 

22 ‘‘(A) IN GENERAL.—Net capital gain, long23 term capital gain, and long-term capital loss, 

24 with respect to any investment services partner25 ship interest for any taxable year, shall be deVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00016 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
17 

•HR 505 IH

1 termined under section 1222, except that such 

2 section shall be applied— 

3 ‘‘(i) without regard to the recharacter4 ization of any item as ordinary income or 

5 ordinary loss under this section, 

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

7 of gain and loss taken into account by the 

8 holder of such interest under section 702 

9 with respect to such interest for such tax10 able year, 

11 ‘‘(iii) by treating property which is 

12 taken into account in determining gains 

13 and losses to which section 1231 applies as 

14 capital assets held for more than 1 year, 

15 and 

16 ‘‘(iv) without regard to section 1202. 

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

18 capital loss’ means the excess of the losses from 

19 sales or exchanges of capital assets over the 

20 gains from such sales or exchanges. Rules simi21 lar to the rules of clauses (i) through (iv) of 

22 subparagraph (A) shall apply for purposes of 

23 the preceding sentence. 

24 ‘‘(5) SPECIAL RULES FOR DIVIDENDS.— 


srobinson on DSK4SPTVN1PROD with BILLS
18 

•HR 505 IH

1 ‘‘(A) INDIVIDUALS.—Any dividend allo2 cated to any investment services partnership in3 terest shall not be treated as qualified dividend 

4 income for purposes of section 1(h). 

5 ‘‘(B) CORPORATIONS.—No deduction shall 

6 be allowed under section 243 or 245 with re7 spect to any dividend allocated to any invest8 ment services partnership interest. 

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

10 ‘‘(1) GAIN.— 

11 ‘‘(A) IN GENERAL.—Any gain on the dis12 position of an investment services partnership 

13 interest shall be— 

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

15 ‘‘(ii) recognized notwithstanding any 

16 other provision of this subtitle. 

17 ‘‘(B) EXCEPTIONS; CERTAIN TRANSFERS

18 TO CHARITIES AND RELATED PERSONS.—Sub19 paragraph (A) shall not apply to— 

20 ‘‘(i) a disposition by gift, 

21 ‘‘(ii) a transfer at death, or 

22 ‘‘(iii) other disposition identified by 

23 the Secretary as a disposition with respect 

24 to which it would be inconsistent with the 

25 purposes of this section to apply subparaVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00018 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
19 

•HR 505 IH

1 graph (A), if such gift, transfer, or other 

2 disposition is to an organization described 

3 in section 170(b)(1)(A) (other than any or4 ganization described in section 509(a)(3) 

5 or any fund or account described in section 

6 4966(d)(2)) or a person with respect to 

7 whom the transferred interest is an invest8 ment services partnership interest. 

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

10 investment services partnership interest shall be 

11 treated as an ordinary loss to the extent of the ex12 cess (if any) of— 

13 ‘‘(A) the aggregate amount treated as ordi14 nary income under subsection (a) with respect 

15 to such interest for all partnership taxable 

16 years to which this section applies, over 

17 ‘‘(B) the aggregate amount treated as or18 dinary loss under subsection (a) with respect to 

19 such interest for all partnership taxable years 

20 to which this section applies. 

21 ‘‘(3) ELECTION WITH RESPECT TO CERTAIN EX22 CHANGES.—Paragraph (1)(A)(ii) shall not apply to 

23 the contribution of an investment services partner24 ship interest to a partnership in exchange for an in25 terest in such partnership if— 


srobinson on DSK4SPTVN1PROD with BILLS
20 

•HR 505 IH

1 ‘‘(A) the taxpayer makes an irrevocable 

2 election to treat the partnership interest re3 ceived in the exchange as an investment serv4 ices partnership interest, and 

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

6 such reporting and recordkeeping requirements 

7 as the Secretary may prescribe. 

8 ‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP9 ERTY.— 

10 ‘‘(A) IN GENERAL.—In the case of any dis11 tribution of property by a partnership with re12 spect to any investment services partnership in13 terest held by a partner, the partner receiving 

14 such property shall recognize gain equal to the 

15 excess (if any) of— 

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

17 property at the time of such distribution, 

18 over 

19 ‘‘(ii) the adjusted basis of such prop20 erty in the hands of such partner (deter21 mined without regard to subparagraph 

22 (C)). 

23 ‘‘(B) TREATMENT OF GAIN AS ORDINARY

24 INCOME.—Any gain recognized by such partner 

25 under subparagraph (A) shall be treated as orVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00020 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
21 

•HR 505 IH

1 dinary income to the same extent and in the 

2 same manner as the increase in such partner’s 

3 distributive share of the taxable income of the 

4 partnership would be treated under subsection 

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

6 partnership had sold the distributed property at 

7 fair market value and all of the gain from such 

8 disposition were allocated to such partner. For 

9 purposes of applying paragraphs (2) and (3) of 

10 subsection (a), any gain treated as ordinary in11 come under this subparagraph shall be treated 

12 as an amount treated as ordinary income under 

13 subsection (a)(1)(A). 

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

15 a distribution to which subparagraph (A) ap16 plies, the basis of the distributed property in 

17 the hands of the distributee partner shall be the 

18 fair market value of such property. 

19 ‘‘(D) SPECIAL RULES WITH RESPECT TO

20 MERGERS, DIVISIONS, AND TECHNICAL TERMI21 NATIONS.—In the case of a taxpayer which sat22 isfies requirements similar to the requirements 

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

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

25 not apply to the distribution of a partnership 


srobinson on DSK4SPTVN1PROD with BILLS
22 

•HR 505 IH

1 interest if such distribution is in connection 

2 with a contribution (or deemed contribution) of 

3 any property of the partnership to which sec4 tion 721 applies pursuant to a transaction de5 scribed in paragraph (1)(B) or (2) of section 

6 708(b). 

7 ‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER8 EST.—For purposes of this section— 

9 ‘‘(1) IN GENERAL.—The term ‘investment serv10 ices partnership interest’ means any interest in an 

11 investment partnership acquired or held by any per12 son in connection with the conduct of a trade or 

13 business described in paragraph (2) by such person 

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

15 in an investment partnership held by any person— 

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

17 services partnership interest for any period be18 fore the first date on which it is so held in con19 nection with such a trade or business, 

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

21 services partnership interest merely because 

22 such person holds such interest other than in 

23 connection with such a trade or business, and 

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

25 services partnership interest if acquired from a 


srobinson on DSK4SPTVN1PROD with BILLS
23 

•HR 505 IH

1 related person in whose hands such interest was 

2 an investment services partnership interest. 

3 ‘‘(2) BUSINESSES TO WHICH THIS SECTION AP4 PLIES.—A trade or business is described in this 

5 paragraph if such trade or business primarily in6 volves the performance of any of the following serv7 ices with respect to assets held (directly or indi8 rectly) by the investment partnership referred to in 

9 paragraph (1): 

10 ‘‘(A) Advising as to the advisability of in11 vesting in, purchasing, or selling any specified 

12 asset. 

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

14 any specified asset. 

15 ‘‘(C) Arranging financing with respect to 

16 acquiring specified assets. 

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

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

19 ‘‘(3) INVESTMENT PARTNERSHIP.— 

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

21 partnership’ means any partnership if, at the 

22 end of any calendar quarter ending after De23 cember 31, 2012— 

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

25 the partnership are specified assets (deterVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00023 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
24 

•HR 505 IH

1 mined without regard to any section 197 

2 intangible within the meaning of section 

3 197(d)), and 

4 ‘‘(ii) more than half of the contributed 

5 capital of the partnership is attributable to 

6 contributions of property by one or more 

7 persons in exchange for interests in the 

8 partnership which (in the hands of such 

9 persons) constitute property held for the 

10 production of income. 

11 ‘‘(B) SPECIAL RULES FOR DETERMINING

12 IF PROPERTY HELD FOR THE PRODUCTION OF

13 INCOME.—Except as otherwise provided by the 

14 Secretary, for purposes of determining whether 

15 any interest in a partnership constitutes prop16 erty held for the production of income under 

17 subparagraph (A)(ii)— 

18 ‘‘(i) any election under subsection (e) 

19 or (f) of section 475 shall be disregarded, 

20 and 

21 ‘‘(ii) paragraph (5)(B) shall not apply. 

22 ‘‘(C) ANTIABUSE RULES.—The Secretary 

23 may issue regulations or other guidance which 

24 prevent the avoidance of the purposes of sub25 paragraph (A), including regulations or other 


srobinson on DSK4SPTVN1PROD with BILLS
25 

•HR 505 IH

1 guidance which treat convertible and contingent 

2 debt (and other debt having the attributes of 

3 equity) as a capital interest in the partnership. 

4 ‘‘(D) CONTROLLED GROUPS OF ENTI5 TIES.— 

6 ‘‘(i) IN GENERAL.—In the case of a 

7 controlled group of entities, if an interest 

8 in the partnership received in exchange for 

9 a contribution to the capital of the part10 nership by any member of such controlled 

11 group would (in the hands of such mem12 ber) constitute property not held for the 

13 production of income, then any interest in 

14 such partnership held by any member of 

15 such group shall be treated for purposes of 

16 subparagraph (A) as constituting (in the 

17 hands of such member) property not held 

18 for the production of income. 

19 ‘‘(ii) CONTROLLED GROUP OF ENTI20 TIES.—For purposes of clause (i), the term 

21 ‘controlled group of entities’ means a con22 trolled group of corporations as defined in 

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

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

25 1563. A partnership or any other entity 


srobinson on DSK4SPTVN1PROD with BILLS
26 

•HR 505 IH

1 (other than a corporation) shall be treated 

2 as a member of a controlled group of enti3 ties if such entity is controlled (within the 

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

5 of such group (including any entity treated 

6 as a member of such group by reason of 

7 this sentence). 

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

9 asset’ means securities (as defined in section 

10 475(c)(2) without regard to the last sentence there11 of), real estate held for rental or investment, inter12 ests in partnerships, commodities (as defined in sec13 tion 475(e)(2)), cash or cash equivalents, or options 

14 or derivative contracts with respect to any of the 

15 foregoing. 

16 ‘‘(5) RELATED PERSONS.— 

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

18 treated as related to another person if the rela19 tionship between such persons is described in 

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

21 ‘‘(B) ATTRIBUTION OF PARTNER SERV22 ICES.—Any service described in paragraph (2) 

23 which is provided by a partner of a partnership 

24 shall be treated as also provided by such part25 nership. 


srobinson on DSK4SPTVN1PROD with BILLS
27 

•HR 505 IH

1 ‘‘(d) EXCEPTION FOR CERTAIN CAPITAL INTER2 ESTS.— 

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

4 of an investment services partnership interest which 

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

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

7 qualified capital interest shall not be taken into ac8 count under subsection (a) if— 

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

10 partnership to such qualified capital interest in 

11 the same manner as such allocations are made 

12 to other qualified capital interests held by part13 ners who do not provide any services described 

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

15 the partner holding the qualified capital inter16 est, and 

17 ‘‘(B) the allocations made to such other in18 terests are significant compared to the alloca19 tions made to such qualified capital interest. 

20 ‘‘(2) AUTHORITY TO PROVIDE EXCEPTIONS TO

21 ALLOCATION REQUIREMENTS.—To the extent pro22 vided by the Secretary in regulations or other guid23 ance— 

24 ‘‘(A) ALLOCATIONS TO PORTION OF QUALI25 FIED CAPITAL INTEREST.—Paragraph (1) may 


srobinson on DSK4SPTVN1PROD with BILLS
28 

•HR 505 IH

1 be applied separately with respect to a portion 

2 of a qualified capital interest. 

3 ‘‘(B) NO OR INSIGNIFICANT ALLOCATIONS

4 TO NONSERVICE PROVIDERS.—In any case in 

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

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

7 dividends) shall not be taken into account under 

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

9 properly allocable under such regulations or 

10 other guidance to qualified capital interests. 

11 ‘‘(C) ALLOCATIONS TO SERVICE PRO12 VIDERS’ QUALIFIED CAPITAL INTERESTS WHICH

13 ARE LESS THAN OTHER ALLOCATIONS.—Alloca14 tions shall not be treated as failing to meet the 

15 requirement of paragraph (1)(A) merely be16 cause the allocations to the qualified capital in17 terest represent a lower return than the alloca18 tions made to the other qualified capital inter19 ests referred to in such paragraph. 

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

21 AND CAPITAL CONTRIBUTIONS.—In the case of an 

22 interest in a partnership which was not an invest23 ment services partnership interest and which, by 

24 reason of a change in the services with respect to as25 sets held (directly or indirectly) by the partnership 


srobinson on DSK4SPTVN1PROD with BILLS
29 

•HR 505 IH

1 or by reason of a change in the capital contributions 

2 to such partnership, becomes an investment services 

3 partnership interest, the qualified capital interest of 

4 the holder of such partnership interest immediately 

5 after such change shall not, for purposes of this sub6 section, be less than the fair market value of such 

7 interest (determined immediately before such 

8 change). 

9 ‘‘(4) SPECIAL RULE FOR TIERED PARTNER10 SHIPS.—Except as otherwise provided by the Sec11 retary, in the case of tiered partnerships, all items 

12 which are allocated in a manner which meets the re13 quirements of paragraph (1) to qualified capital in14 terests in a lower-tier partnership shall retain such 

15 character to the extent allocated on the basis of 

16 qualified capital interests in any upper-tier partner17 ship. 

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

19 CARRY AND MANAGEMENT FEE PROVISIONS.—Ex20 cept as otherwise provided by the Secretary, an in21 terest shall not fail to be treated as satisfying the 

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

23 allocations made by the partnership to such interest 

24 do not reflect the cost of services described in sub25 section (c)(2) which are provided (directly or indiVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00029 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
30 

•HR 505 IH

1 rectly) to the partnership by the holder of such in2 terest (or a related person). 

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

4 case of any investment services partnership interest 

5 any portion of which is a qualified capital interest, 

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

7 gain or loss as bears the same proportion to the en8 tire amount of such gain or loss as— 

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

10 that would have been allocated to the qualified 

11 capital interest (consistent with the require12 ments of paragraph (1)) if the partnership had 

13 sold all of its assets at fair market value imme14 diately before the disposition, bears to 

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

16 that would have been so allocated to the invest17 ment services partnership interest of which such 

18 qualified capital interest is a part. 

19 ‘‘(7) QUALIFIED CAPITAL INTEREST.—For pur20 poses of this subsection— 

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

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

23 interest in the capital of the partnership as is 

24 attributable to— 


srobinson on DSK4SPTVN1PROD with BILLS
31 

•HR 505 IH

1 ‘‘(i) the fair market value of any 

2 money or other property contributed to the 

3 partnership in exchange for such interest 

4 (determined without regard to section 

5 752(a)), 

6 ‘‘(ii) any amounts which have been in7 cluded in gross income under section 83 

8 with respect to the transfer of such inter9 est, and 

10 ‘‘(iii) the excess (if any) of— 

11 ‘‘(I) any items of income and 

12 gain taken into account under section 

13 702 with respect to such interest, over 

14 ‘‘(II) any items of deduction and 

15 loss so taken into account. 

16 ‘‘(B) ADJUSTMENT TO QUALIFIED CAPITAL

17 INTEREST.— 

18 ‘‘(i) DISTRIBUTIONS AND LOSSES.— 

19 The qualified capital interest shall be re20 duced by distributions from the partner21 ship with respect to such interest and by 

22 the excess (if any) of the amount described 

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

24 amount described in subparagraph 

25 (A)(iii)(I). 


srobinson on DSK4SPTVN1PROD with BILLS
32 

•HR 505 IH

1 ‘‘(ii) SPECIAL RULE FOR CONTRIBU2 TIONS OF PROPERTY.—In the case of any 

3 contribution of property described in sub4 paragraph (A)(i) with respect to which the 

5 fair market value of such property is not 

6 equal to the adjusted basis of such prop7 erty immediately before such contribution, 

8 proper adjustments shall be made to the 

9 qualified capital interest to take into ac10 count such difference consistent with such 

11 regulations or other guidance as the Sec12 retary may provide. 

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

14 DISREGARDED.—No increase or decrease in the 

15 qualified capital interest of any partner shall re16 sult from a termination, merger, consolidation, 

17 or division described in section 708, or any 

18 similar transaction. 

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

20 ‘‘(A) PROCEEDS OF PARTNERSHIP LOANS

21 NOT TREATED AS QUALIFIED CAPITAL INTER22 EST OF SERVICE PROVIDING PARTNERS.—For 

23 purposes of this subsection, an investment serv24 ices partnership interest shall not be treated as 

25 a qualified capital interest to the extent that 


srobinson on DSK4SPTVN1PROD with BILLS
33 

•HR 505 IH

1 such interest is acquired in connection with the 

2 proceeds of any loan or other advance made or 

3 guaranteed, directly or indirectly, by any other 

4 partner or the partnership (or any person re5 lated to any such other partner or the partner6 ship). The preceding sentence shall not apply to 

7 the extent the loan or other advance is repaid 

8 before January 1, 2013 unless such repayment 

9 is made with the proceeds of a loan or other ad10 vance described in the preceding sentence. 

11 ‘‘(B) REDUCTION IN ALLOCATIONS TO

12 QUALIFIED CAPITAL INTERESTS FOR LOANS

13 FROM NONSERVICE-PROVIDING PARTNERS TO

14 THE PARTNERSHIP.—For purposes of this sub15 section, any loan or other advance to the part16 nership made or guaranteed, directly or indi17 rectly, by a partner not providing services de18 scribed in subsection (c)(2) to the partnership 

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

20 taken into account in determining the qualified 

21 capital interests of the partners in the partner22 ship. 

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

24 WITH INVESTMENT MANAGEMENT SERVICES.— 

25 ‘‘(1) IN GENERAL.—If— 


srobinson on DSK4SPTVN1PROD with BILLS
34 

•HR 505 IH

1 ‘‘(A) a person performs (directly or indi2 rectly) investment management services for any 

3 investment entity, 

4 ‘‘(B) such person holds (directly or indi5 rectly) a disqualified interest with respect to 

6 such entity, and 

7 ‘‘(C) the value of such interest (or pay8 ments thereunder) is substantially related to 

9 the amount of income or gain (whether or not 

10 realized) from the assets with respect to which 

11 the investment management services are per12 formed, any income or gain with respect to such 

13 interest shall be treated as ordinary income. 

14 Rules similar to the rules of subsections (a)(5) 

15 and (d) shall apply for purposes of this sub16 section. 

17 ‘‘(2) DEFINITIONS.—For purposes of this sub18 section— 

19 ‘‘(A) DISQUALIFIED INTEREST.— 

20 ‘‘(i) IN GENERAL.—The term ‘dis21 qualified interest’ means, with respect to 

22 any investment entity— 

23 ‘‘(I) any interest in such entity 

24 other than indebtedness, 


srobinson on DSK4SPTVN1PROD with BILLS
35 

•HR 505 IH

1 ‘‘(II) convertible or contingent 

2 debt of such entity, 

3 ‘‘(III) any option or other right 

4 to acquire property described in sub5 clause (I) or (II), and 

6 ‘‘(IV) any derivative instrument 

7 entered into (directly or indirectly) 

8 with such entity or any investor in 

9 such entity. 

10 ‘‘(ii) EXCEPTIONS.—Such term shall 

11 not include— 

12 ‘‘(I) a partnership interest, 

13 ‘‘(II) except as provided by the 

14 Secretary, any interest in a taxable 

15 corporation, and 

16 ‘‘(III) except as provided by the 

17 Secretary, stock in an S corporation. 

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

19 ‘taxable corporation’ means— 

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

21 ‘‘(ii) a foreign corporation substan22 tially all of the income of which is— 

23 ‘‘(I) effectively connected with 

24 the conduct of a trade or business in 

25 the United States, or 


srobinson on DSK4SPTVN1PROD with BILLS
36 

•HR 505 IH

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) REGULATIONS.—The Secretary shall prescribe 

13 such regulations or other guidance as is necessary or ap14 propriate to carry out the purposes of this section, includ15 ing regulations or other guidance to— 

16 ‘‘(1) provide modifications to the application of 

17 this section (including treating related persons as 

18 not related to one another) to the extent such modi19 fication is consistent with the purposes of this sec20 tion, and 

21 ‘‘(2) coordinate this section with the other pro22 visions of this title. 

23 ‘‘(g) CROSS REFERENCE.—For 40 percent penalty on 

24 certain underpayments due to the avoidance of this sec25 tion, see section 6662.’’. 


srobinson on DSK4SPTVN1PROD with BILLS
37 

•HR 505 IH

1 (b) APPLICATION OF SECTION 751 TO INDIRECT DIS2 POSITIONS OF INVESTMENT SERVICES PARTNERSHIP IN3 TERESTS.— 

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

5 751 of the Internal Revenue Code of 1986 is amend6 ed by striking ‘‘or’’ at the end of paragraph (1), by 

7 inserting ‘‘or’’ at the end of paragraph (2), and by 

8 inserting after paragraph (2) the following new 

9 paragraph: 

10 ‘‘(3) investment services partnership interests 

11 held by the partnership,’’. 

12 (2) CERTAIN DISTRIBUTIONS TREATED AS

13 SALES OR EXCHANGES.—Subparagraph (A) of sec14 tion 751(b)(1) of the Internal Revenue Code of 1986 

15 is amended by striking ‘‘or’’ at the end of clause (i), 

16 by inserting ‘‘or’’ at the end of clause (ii), and by 

17 inserting after clause (ii) the following new clause: 

18 ‘‘(iii) investment services partnership 

19 interests held by the partnership,’’. 

20 (3) APPLICATION OF SPECIAL RULES IN THE

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

22 section 751 of the Internal Revenue Code of 1986 

23 is amended by striking ‘‘or’’ at the end of paragraph 

24 (1), by inserting ‘‘or’’ at the end of paragraph (2), 


srobinson on DSK4SPTVN1PROD with BILLS
38 

•HR 505 IH

1 and by inserting after paragraph (2) the following 

2 new paragraph: 

3 ‘‘(3) investment services partnership interests 

4 held by the partnership,’’. 

5 (4) INVESTMENT SERVICES PARTNERSHIP IN6 TERESTS; QUALIFIED CAPITAL INTERESTS.—Section 

7 751 of the Internal Revenue Code of 1986 is amend8 ed by adding at the end the following new sub9 section: 

10 ‘‘(g) INVESTMENT SERVICES PARTNERSHIP INTER11 ESTS.—For purposes of this section— 

12 ‘‘(1) IN GENERAL.—The term ‘investment serv13 ices partnership interest’ has the meaning given 

14 such term by section 710(c). 

15 ‘‘(2) ADJUSTMENTS FOR QUALIFIED CAPITAL

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

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

18 include so much of such amount as is attributable 

19 to any portion of the investment services partnership 

20 interest which is a qualified capital interest (deter21 mined under rules similar to the rules of section 

22 710(d)). 

23 ‘‘(3) RECOGNITION OF GAINS.—Any gain with 

24 respect to which subsection (a) applies by reason of 


srobinson on DSK4SPTVN1PROD with BILLS
39 

•HR 505 IH

1 paragraph (3) thereof shall be recognized notwith2 standing any other provision of this title. 

3 ‘‘(4) COORDINATION WITH INVENTORY

4 ITEMS.—An investment services partnership interest 

5 held by the partnership shall not be treated as an 

6 inventory item of the partnership. 

7 ‘‘(5) PREVENTION OF DOUBLE COUNTING.— 

8 Under regulations or other guidance prescribed by 

9 the Secretary, subsection (a)(3) shall not apply with 

10 respect to any amount to which section 710 ap11 plies.’’. 

12 (c) TREATMENT FOR PURPOSES OF SECTION

13 7704.—Subsection (d) of section 7704 of the Internal 

14 Revenue Code of 1986 is amended by adding at the end 

15 the following new paragraph: 

16 ‘‘(6) INCOME FROM CERTAIN CARRIED INTER17 ESTS NOT QUALIFIED.— 

18 ‘‘(A) IN GENERAL.—Specified carried in19 terest income shall not be treated as qualifying 

20 income. 

21 ‘‘(B) SPECIFIED CARRIED INTEREST IN22 COME.—For purposes of this paragraph— 

23 ‘‘(i) IN GENERAL.—The term ‘speci24 fied carried interest income’ means— 


srobinson on DSK4SPTVN1PROD with BILLS
40 

•HR 505 IH

1 ‘‘(I) any item of income or gain 

2 allocated to an investment services 

3 partnership interest (as defined in 

4 section 710(c)) held by the partner5 ship, 

6 ‘‘(II) any gain on the disposition 

7 of an investment services partnership 

8 interest (as so defined) or a partner9 ship interest to which (in the hands of 

10 the partnership) section 751 applies, 

11 and 

12 ‘‘(III) any income or gain taken 

13 into account by the partnership under 

14 subsection (b)(4) or (e) of section 

15 710. 

16 ‘‘(ii) EXCEPTION FOR QUALIFIED CAP17 ITAL INTERESTS.—A rule similar to the 

18 rule of section 710(d) shall apply for pur19 poses of clause (i). 

20 ‘‘(C) COORDINATION WITH OTHER PROVI21 SIONS.—Subparagraph (A) shall not apply to 

22 any item described in paragraph (1)(E) (or so 

23 much of paragraph (1)(F) as relates to para24 graph (1)(E)). 


srobinson on DSK4SPTVN1PROD with BILLS
41 

•HR 505 IH

1 ‘‘(D) SPECIAL RULES FOR CERTAIN PART2 NERSHIPS.— 

3 ‘‘(i) CERTAIN PARTNERSHIPS OWNED

4 BY REAL ESTATE INVESTMENT TRUSTS.— 

5 Subparagraph (A) shall not apply in the 

6 case of a partnership which meets each of 

7 the following requirements: 

8 ‘‘(I) Such partnership is treated 

9 as publicly traded under this section 

10 solely by reason of interests in such 

11 partnership being convertible into in12 terests in a real estate investment 

13 trust which is publicly traded. 

14 ‘‘(II) Fifty percent or more of 

15 the capital and profits interests of 

16 such partnership are owned, directly 

17 or indirectly, at all times during the 

18 taxable year by such real estate in19 vestment trust (determined with the 

20 application of section 267(c)). 

21 ‘‘(III) Such partnership meets 

22 the requirements of paragraphs (2), 

23 (3), and (4) of section 856(c). 

24 ‘‘(ii) CERTAIN PARTNERSHIPS OWN25 ING OTHER PUBLICLY TRADED PARTNERVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00041 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
42 

•HR 505 IH

1 SHIPS.—Subparagraph (A) shall not apply 

2 in the case of a partnership which meets 

3 each of the following requirements: 

4 ‘‘(I) Substantially all of the as5 sets of such partnership consist of in6 terests in one or more publicly traded 

7 partnerships (determined without re8 gard to subsection (b)(2)). 

9 ‘‘(II) Substantially all of the in10 come of such partnership is ordinary 

11 income or section 1231 gain (as de12 fined in section 1231(a)(3)). 

13 ‘‘(E) TRANSITIONAL RULE.—Subpara14 graph (A) shall not apply to any taxable year 

15 of the partnership beginning before the date 

16 which is 10 years after January 1, 2013.’’. 

17 (d) IMPOSITION OF PENALTY ON UNDERPAY18 MENTS.— 

19 (1) IN GENERAL.—Subsection (b) of section 

20 6662 of the Internal Revenue Code of 1986 is 

21 amended by inserting after paragraph (7) the fol22 lowing new paragraph: 

23 ‘‘(8) The application of section 710(e) or the 

24 regulations or other guidance prescribed under secVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00042 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
43 

•HR 505 IH

1 tion 710(h) to prevent the avoidance of the purposes 

2 of section 710.’’. 

3 (2) AMOUNT OF PENALTY.— 

4 (A) IN GENERAL.—Section 6662 of the In5 ternal Revenue Code of 1986 is amended by 

6 adding at the end the following new subsection: 

7 ‘‘(k) INCREASE IN PENALTY IN CASE OF PROPERTY

8 TRANSFERRED FOR INVESTMENT MANAGEMENT SERV9 ICES.—In the case of any portion of an underpayment to 

10 which this section applies by reason of subsection (b)(8), 

11 subsection (a) shall be applied with respect to such portion 

12 by substituting ‘40 percent’ for ‘20 percent’.’’. 

13 (B) CONFORMING AMENDMENT.—Subpara14 graph (B) of section 6662A(e)(2) is amended 

15 by striking ‘‘or (i)’’ and inserting ‘‘, (i), or (k)’’. 

16 (3) SPECIAL RULES FOR APPLICATION OF REA17 SONABLE CAUSE EXCEPTION.—Subsection (c) of sec18 tion 6664 is amended— 

19 (A) by redesignating paragraphs (3) and 

20 (4) as paragraphs (4) and (5), respectively; 

21 (B) by striking ‘‘paragraph (3)’’ in para22 graph (5)(A), as so redesignated, and inserting 

23 ‘‘paragraph (4)’’; and 

24 (C) by inserting after paragraph (2) the 

25 following new paragraph: 


srobinson on DSK4SPTVN1PROD with BILLS
44 

•HR 505 IH

1 ‘‘(3) SPECIAL RULE FOR UNDERPAYMENTS AT2 TRIBUTABLE TO INVESTMENT MANAGEMENT SERV3 ICES.— 

4 ‘‘(A) IN GENERAL.—Paragraph (1) shall 

5 not apply to any portion of an underpayment to 

6 which section 6662 applies by reason of sub7 section (b)(8) unless— 

8 ‘‘(i) the relevant facts affecting the 

9 tax treatment of the item are adequately 

10 disclosed, 

11 ‘‘(ii) there is or was substantial au12 thority for such treatment, and 

13 ‘‘(iii) the taxpayer reasonably believed 

14 that such treatment was more likely than 

15 not the proper treatment. 

16 ‘‘(B) RULES RELATING TO REASONABLE

17 BELIEF.—Rules similar to the rules of sub18 section (d)(3) shall apply for purposes of sub19 paragraph (A)(iii).’’. 

20 (e) INCOME AND LOSS FROM INVESTMENT SERVICES

21 PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE22 TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 

23 (1) INTERNAL REVENUE CODE.— 

24 (A) IN GENERAL.—Section 1402(a) of the 

25 Internal Revenue Code of 1986 is amended by 


srobinson on DSK4SPTVN1PROD with BILLS
45 

•HR 505 IH

1 striking ‘‘and’’ at the end of paragraph (16), by 

2 striking the period at the end of paragraph (17) 

3 and inserting ‘‘; and’’, and by inserting after 

4 paragraph (17) the following new paragraph: 

5 ‘‘(18) 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) with respect to any 

9 entity, investment services partnership income or 

10 loss (as defined in subsection (m)) of such individual 

11 with respect to such entity shall be taken into ac12 count in determining the net earnings from self-em13 ployment of such individual.’’. 

14 (B) INVESTMENT SERVICES PARTNERSHIP

15 INCOME OR LOSS.—Section 1402 of the Inter16 nal Revenue Code is amended by adding at the 

17 end the following new subsection: 

18 ‘‘(m) INVESTMENT SERVICES PARTNERSHIP INCOME

19 OR LOSS.—For purposes of subsection (a)— 

20 ‘‘(1) IN GENERAL.—The term ‘investment serv21 ices partnership income or loss’ means, with respect 

22 to any investment services partnership interest (as 

23 defined in section 710(c)), the net of— 


srobinson on DSK4SPTVN1PROD with BILLS
46 

•HR 505 IH

1 ‘‘(A) the amounts treated as ordinary in2 come or ordinary loss under subsections (b) and 

3 (e) of section 710 with respect to such interest, 

4 ‘‘(B) all items of income, gain, loss, and 

5 deduction allocated to such interest, and 

6 ‘‘(C) the amounts treated as realized from 

7 the sale or exchange of property other than a 

8 capital asset under section 751 with respect to 

9 such interest. 

10 ‘‘(2) EXCEPTION FOR QUALIFIED CAPITAL IN11 TERESTS.—A rule similar to the rule of section 

12 710(d) shall apply for purposes of applying para13 graph (1)(B)(ii).’’. 

14 (2) SOCIAL SECURITY ACT.—Section 211(a) of 

15 the Social Security Act is amended by striking 

16 ‘‘and’’ at the end of paragraph (15), by striking the 

17 period at the end of paragraph (16) and inserting ‘‘; 

18 and’’, and by inserting after paragraph (16) the fol19 lowing new paragraph: 

20 ‘‘(17) Notwithstanding the preceding provisions 

21 of this subsection, in the case of any individual en22 gaged in the trade or business of providing services 

23 described in section 710(c)(2) of the Internal Rev24 enue Code of 1986 with respect to any entity, invest25 ment services partnership income or loss (as defined 


srobinson on DSK4SPTVN1PROD with BILLS
47 

•HR 505 IH

1 in section 1402(m) of such Code) shall be taken into 

2 account in determining the net earnings from self3 employment of such individual.’’. 

4 (f) CONFORMING AMENDMENTS.— 

5 (1) Subsection (d) of section 731 of the Inter6 nal Revenue Code of 1986 is amended by inserting 

7 ‘‘section 710(b)(4) (relating to distributions of part8 nership property),’’ after ‘‘to the extent otherwise 

9 provided by’’. 

10 (2) Section 741 of the Internal Revenue Code 

11 of 1986 is amended by inserting ‘‘or section 710 (re12 lating to special rules for partners providing invest13 ment management services to partnerships)’’ before 

14 the period at the end. 

15 (3) The table of sections for part I of sub16 chapter K of chapter 1 of the Internal Revenue Code 

17 of 1986 is amended by adding at the end the fol18 lowing new item: 

‘‘Sec. 710. Special rules for partners providing investment management services 

to partnerships.’’. 

19 (g) EFFECTIVE DATE.— 

20 (1) IN GENERAL.—Except as otherwise pro21 vided in this subsection, the amendments made by 

22 this section shall apply to taxable years ending after 

23 December 31, 2012. 


srobinson on DSK4SPTVN1PROD with BILLS
48 

•HR 505 IH

1 (2) PARTNERSHIP TAXABLE YEARS WHICH IN2 CLUDE EFFECTIVE DATE.—In applying section 

3 710(a) of the Internal Revenue Code of 1986 (as 

4 added by this section) in the case of any partnership 

5 taxable year which includes January 1, 2013, the 

6 amount of the net income referred to in such section 

7 shall be treated as being the lesser of the net income 

8 for the entire partnership taxable year or the net in9 come determined by only taking into account items 

10 attributable to the portion of the partnership taxable 

11 year which is after such date. 

12 (3) DISPOSITIONS OF PARTNERSHIP INTER13 ESTS.— 

14 (A) IN GENERAL.—Section 710(b) of such 

15 Code (as added by this section) shall apply to 

16 dispositions and distributions after December 

17 31, 2012. 

18 (B) INDIRECT DISPOSITIONS.—The amend19 ments made by subsection (b) shall apply to 

20 transactions after December 31, 2012. 

21 (4) OTHER INCOME AND GAIN IN CONNECTION

22 WITH INVESTMENT MANAGEMENT SERVICES.—Sec23 tion 710(e) of such Code (as added by this section) 

24 shall take effect on January 1, 2013. 


srobinson on DSK4SPTVN1PROD with BILLS
49 

•HR 505 IH

1 Subtitle C—Dual Capacity 

2 Taxpayers 

3 SEC. 221. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

4 APPLICABLE TO DUAL CAPACITY TAXPAYERS. 

5 (a) IN GENERAL.—Section 901 of the Internal Rev6 enue Code of 1986 (relating to credit for taxes of foreign 

7 countries and of possessions of the United States) is 

8 amended by redesignating subsection (n) as subsection (o) 

9 and by inserting after subsection (m) the following new 

10 subsection: 

11 ‘‘(n) SPECIAL RULES RELATING TO DUAL CAPACITY

12 TAXPAYERS.— 

13 ‘‘(1) GENERAL RULE.—Notwithstanding any 

14 other provision of this chapter, any amount paid or 

15 accrued by a dual capacity taxpayer or any member 

16 of the worldwide affiliated group of which such dual 

17 capacity taxpayer is also a member to any foreign 

18 country or to any possession of the United States 

19 for any period shall not be considered a tax to the 

20 extent such amount exceeds the amount (determined 

21 in accordance with regulations) which would have 

22 been required to be paid if the taxpayer were not a 

23 dual capacity taxpayer. 

24 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur25 poses of this subsection, the term ‘dual capacity taxVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00049 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
50 

•HR 505 IH

1 payer’ means, with respect to any foreign country or 

2 possession of the United States, a person who— 

3 ‘‘(A) is subject to a levy of such country or 

4 possession, and 

5 ‘‘(B) receives (or will receive) directly or 

6 indirectly a specific economic benefit (as deter7 mined in accordance with regulations) from 

8 such country or possession. 

9 ‘‘(3) REGULATIONS.—The Secretary may issue 

10 such regulations or other guidance as is necessary or 

11 appropriate to carry out the purposes of this sub12 section.’’. 

13 (b) CONTRARY TREATY OBLIGATIONS UPHELD.— 

14 The amendments made by this section shall not apply to 

15 the extent contrary to any treaty obligation of the United 

16 States. 

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

18 this section shall apply to amounts that, if such amounts 

19 were an amount of tax paid or accrued, would be consid20 ered paid or accrued in taxable years beginning after De21 cember 31, 2012. 

22 SEC. 222. SEPARATE BASKET TREATMENT TAXES PAID ON 

23 FOREIGN OIL AND GAS INCOME. 

24 (a) SEPARATE BASKET FOR FOREIGN TAX CRED25 IT.—Paragraph (1) of section 904(d) of the Internal RevVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00050 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
51 

•HR 505 IH

1 enue Code of 1986 is amended by striking ‘‘and’’ at the 

2 end of subparagraph (A), by striking the period at the 

3 end of subparagraph (B) and inserting ‘‘, and’’, and by 

4 adding at the end the following: 

5 ‘‘(C) combined foreign oil and gas income 

6 (as defined in section 907(b)(1)).’’. 

7 (b) COORDINATION.—Section 904(d)(2) of such Code 

8 is amended by redesignating subparagraphs (J) and (K) 

9 as subparagraphs (K) and (L) and by inserting after sub10 paragraph (I) the following: 

11 ‘‘(J) COORDINATION WITH COMBINED FOR12 EIGN OIL AND GAS INCOME.—For purposes of 

13 this section, passive category income and gen14 eral category income shall not include combined 

15 foreign oil and gas income (as defined in section 

16 907(b)(1)).’’. 

17 (c) CONFORMING AMENDMENTS.— 

18 (1) Section 907(a) is hereby repealed. 

19 (2) Section 907(c)(4) is hereby repealed. 

20 (3) Section 907(f) is hereby repealed. 

21 (d) EFFECTIVE DATES.— 

22 (1) IN GENERAL.—The amendments made by 

23 this section shall apply to taxable years beginning 

24 after December 31, 2012. 

25 (2) TRANSITIONAL RULES.— 


srobinson on DSK4SPTVN1PROD with BILLS
52 

•HR 505 IH

1 (A) CARRYOVERS.—Any unused foreign oil 

2 and gas taxes which under section 907(f) of 

3 such Code (as in effect before the amendment 

4 made by subsection (c)(3)) would have been al5 lowable as a carryover to the taxpayer’s first 

6 taxable year beginning after December 31, 

7 2012 (without regard to the limitation of para8 graph (2) of such section 907(f) for first tax9 able year) shall be allowed as carryovers under 

10 section 904(c) of such Code in the same man11 ner as if such taxes were unused taxes under 

12 such section 904(c) with respect to foreign oil 

13 and gas extraction income. 

14 (B) LOSSES.—The amendment made by 

15 subsection (c)(2) shall not apply to foreign oil 

16 and gas extraction losses arising in taxable 

17 years beginning on or before the date of the en18 actment of this Act. 

19 Subtitle D—Close Exclusion of 

20 Foreign-Earned Income Loophole 

21 SEC. 231. REPEAL OF FOREIGN EARNED INCOME EXCLU22 SION. 

23 (a) IN GENERAL.—Subsection (a) of section 911 of 

24 the Internal Revenue Code of 1986 is amended by striking 

25 ‘‘for any taxable year—’’ and all that follows through the 


srobinson on DSK4SPTVN1PROD with BILLS
53 

•HR 505 IH

1 end and inserting ‘‘for any taxable year the housing cost 

2 amount of such individual.’’. 

3 (b) CONFORMING AMENDMENTS.— 

4 (1) Subsection (f) of section 86 of such Code is 

5 amended by inserting ‘‘and’’ at the end of paragraph 

6 (2), by striking ‘‘, and’’ at the end of paragraph (3) 

7 and inserting a period, and by striking paragraph 

8 (4). 

9 (2) Section 1401(a) of such Code is amended 

10 by striking paragraph (11). 

11 (3)(A) Clause (i) of section 1411(a)(1)(B) of 

12 such Code is amended by striking ‘‘modified’’. 

13 (B) Section 1411 of such Code is amended 

14 by striking subsection (d) and by redesignating 

15 subsection (e) as subsection (d). 

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

17 this section shall apply to taxable years beginning after 

18 the date of the enactment of this Act. 

19 Subtitle E—Close S Corporation 

20 Loophole 

21 SEC. 241. EMPLOYMENT TAX TREATMENT OF PROFES22 SIONAL SERVICE BUSINESSES. 

23 (a) IN GENERAL.—Section 1402 of the Internal Rev24 enue Code of 1986 is amended by adding at the end the 

25 following new subsection: 


srobinson on DSK4SPTVN1PROD with BILLS
54 

•HR 505 IH

1 ‘‘(m) SPECIAL RULES FOR PROFESSIONAL SERVICE

2 BUSINESSES.— 

3 ‘‘(1) SHAREHOLDERS PROVIDING SERVICES TO

4 SPECIFIED S CORPORATIONS.— 

5 ‘‘(A) IN GENERAL.—In the case of an ap6 plicable shareholder who provides substantial 

7 services with respect to a professional service 

8 business referred to in subparagraph (C) of a 

9 specified S corporation— 

10 ‘‘(i) such shareholder shall be treated 

11 as engaged in the trade or business of such 

12 professional service business with respect 

13 to items of income or loss described in sec14 tion 1366 which are attributable to such 

15 business, and 

16 ‘‘(ii) such shareholder’s net earnings 

17 from self-employment shall include such 

18 shareholder’s pro rata share of such items 

19 of income or loss, except that in computing 

20 such pro rata share of such items the ex21 ceptions provided in subsection (a) shall 

22 apply. 

23 ‘‘(B) TREATMENT OF FAMILY MEMBERS.— 

24 Except as otherwise provided by the Secretary, 

25 the applicable shareholder’s pro rata share of 


srobinson on DSK4SPTVN1PROD with BILLS
55 

•HR 505 IH

1 items referred to in subparagraph (A) shall be 

2 increased by the pro rata share of such items 

3 of each member of such applicable shareholder’s 

4 family (within the meaning of section 

5 318(a)(1)) who does not provide substantial 

6 services with respect to such professional serv7 ice business. 

8 ‘‘(C) SPECIFIED S CORPORATION.—For 

9 purposes of this subsection, the term ‘specified 

10 S corporation’ means— 

11 ‘‘(i) any S corporation which is a 

12 partner in a partnership which is engaged 

13 in a professional service business if sub14 stantially all of the activities of such S cor15 poration are performed in connection with 

16 such partnership, and 

17 ‘‘(ii) any other S corporation which is 

18 engaged in a professional service business 

19 if 75 percent or more of the gross income 

20 of such business is attributable to service 

21 of 3 or fewer shareholders of such corpora22 tion. 

23 ‘‘(D) APPLICABLE SHAREHOLDER.—For 

24 purposes of this paragraph, the term ‘applicable 

25 shareholder’ means any shareholder whose 


srobinson on DSK4SPTVN1PROD with BILLS
56 

•HR 505 IH

1 modified adjusted gross income for the taxable 

2 year exceeds— 

3 ‘‘(i) in the case of a shareholder mak4 ing a joint return under section 6013 or a 

5 surviving spouse (as defined in section 

6 2(a)), $250,000, 

7 ‘‘(ii) in the case of a married share8 holder (as defined in section 7703) filing a 

9 separate return, half of the dollar amount 

10 determined under clause (i), and 

11 ‘‘(iii) in any other case, $200,000. 

12 ‘‘(2) PARTNERS.— 

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

14 partnership which is engaged in a professional 

15 service business, subsection (a)(13) shall not 

16 apply to any applicable partner who provides 

17 substantial services with respect to such profes18 sional service business. 

19 ‘‘(B) APPLICABLE PARTNER.—For pur20 poses of this paragraph, the term ‘applicable 

21 partner’ means any partner whose modified ad22 justed gross income for the taxable year ex23 ceeds— 

24 ‘‘(i) in the case of a partner making 

25 a joint return under section 6013 or a surVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00056 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
57 

•HR 505 IH

1 viving spouse (as defined in section 2(a)), 

2 $250,000, 

3 ‘‘(ii) in the case of a married partner 

4 (as defined in section 7703) filing a sepa5 rate return, half of the dollar amount de6 termined under clause (i), and 

7 ‘‘(iii) in any other case, $200,000. 

8 ‘‘(3) PROFESSIONAL SERVICE BUSINESS.—For 

9 purposes of this subsection, the term ‘professional 

10 service business’ means any trade or business (or 

11 portion thereof) providing services in the fields of 

12 health, law, lobbying, engineering, architecture, ac13 counting, actuarial science, performing arts, con14 sulting, athletics, investment advice or management, 

15 or brokerage services. 

16 ‘‘(4) MODIFIED ADJUSTED GROSS INCOME.— 

17 For purposes of this subsection, the term ‘modified 

18 adjusted gross income’ means adjusted gross in19 come— 

20 ‘‘(A) determined without regard to any de21 duction allowed under section 164(f), and 

22 ‘‘(B) increased by the amount excluded 

23 from gross income under section 911(a)(1). 

24 ‘‘(5) REGULATIONS.—The Secretary shall pre25 scribe such regulations as may be necessary or apVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00057 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
58 

•HR 505 IH

1 propriate to carry out the purposes of this sub2 section, including regulations which prevent the 

3 avoidance of the purposes of this subsection through 

4 tiered entities or otherwise. 

5 ‘‘(6) CROSS REFERENCE.—For employment tax 

6 treatment of wages paid to shareholders of S cor7 porations, see subtitle C.’’. 

8 (b) CONFORMING AMENDMENT.—Section 211 of the 

9 Social Security Act is amended by adding at the end the 

10 following new subsection: 

11 ‘‘(l) SPECIAL RULES FOR PROFESSIONAL SERVICE

12 BUSINESSES.— 

13 ‘‘(1) SHAREHOLDERS PROVIDING SERVICES TO

14 SPECIFIED S CORPORATIONS.— 

15 ‘‘(A) IN GENERAL.—In the case of an ap16 plicable shareholder who provides substantial 

17 services with respect to a professional service 

18 business referred to in subparagraph (C) of a 

19 specified S corporation— 

20 ‘‘(i) such shareholder shall be treated 

21 as engaged in the trade or business of such 

22 professional service business with respect 

23 to items of income or loss described in sec24 tion 1366 of the Internal Revenue Code of 


srobinson on DSK4SPTVN1PROD with BILLS
59 

•HR 505 IH

1 1986 which are attributable to such busi2 ness, and 

3 ‘‘(ii) such shareholder’s net earnings 

4 from self-employment shall include such 

5 shareholder’s pro rata share of such items 

6 of income or loss, except that in computing 

7 such pro rata share of such items the ex8 ceptions provided in subsection (a) shall 

9 apply. 

10 ‘‘(B) TREATMENT OF FAMILY MEMBERS.— 

11 Except as otherwise provided by the Secretary 

12 of the Treasury, the applicable shareholder’s 

13 pro rata share of items referred to in subpara14 graph (A) shall be increased by the pro rata 

15 share of such items of each member of such ap16 plicable shareholder’s family (within the mean17 ing of section 318(a)(1) of the Internal Revenue 

18 Code of 1986) who does not provide substantial 

19 services with respect to such professional serv20 ice business. 

21 ‘‘(C) SPECIFIED S CORPORATION.—For 

22 purposes of this subsection, the term ‘specified 

23 S corporation’ means— 

24 ‘‘(i) any S corporation (as defined in 

25 section 1361(a) of the Internal Revenue 


srobinson on DSK4SPTVN1PROD with BILLS
60 

•HR 505 IH

1 Code of 1986) which is a partner in a 

2 partnership which is engaged in a profes3 sional service business if substantially all 

4 of the activities of such S corporation are 

5 performed in connection with such partner6 ship, and 

7 ‘‘(ii) any other S corporation (as so 

8 defined) which is engaged in a professional 

9 service business if 75 percent or more of 

10 the gross income of such business is attrib11 utable to service of 3 or fewer shareholders 

12 of such corporation. 

13 ‘‘(D) APPLICABLE SHAREHOLDER.—For 

14 purposes of this paragraph, the term ‘applicable 

15 shareholder’ means any shareholder whose 

16 modified adjusted gross income for the taxable 

17 year exceeds— 

18 ‘‘(i) in the case of a shareholder mak19 ing a joint return under section 6013 of 

20 the Internal Revenue Code of 1986 or a 

21 surviving spouse (as defined in section 2(a) 

22 of such Code), $250,000, 

23 ‘‘(ii) in the case of a married share24 holder (as defined in section 7703 of such 

25 Code) filing a separate return, half of the 


srobinson on DSK4SPTVN1PROD with BILLS
61 

•HR 505 IH

1 dollar amount determined under clause (i), 

2 and 

3 ‘‘(iii) in any other case, $200,000. 

4 ‘‘(2) PARTNERS.— 

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

6 partnership which is engaged in a professional 

7 service business, subsection (a)(12) shall not 

8 apply to any applicable partner who provides 

9 substantial services with respect to such profes10 sional service business. 

11 ‘‘(B) APPLICABLE PARTNER.—For pur12 poses of this paragraph, the term ‘applicable 

13 partner’ means any partner whose modified ad14 justed gross income for the taxable year ex15 ceeds— 

16 ‘‘(i) in the case of a partner making 

17 a joint return under section 6013 of the 

18 Internal Revenue Code of 1986 or a sur19 viving spouse (as defined in section 2(a) of 

20 such Code), $250,000, 

21 ‘‘(ii) in the case of a married partner 

22 (as defined in section 7703 of such Code) 

23 filing a separate return, half of the dollar 

24 amount determined under clause (i), and 

25 ‘‘(iii) in any other case, $200,000. 


srobinson on DSK4SPTVN1PROD with BILLS
62 

•HR 505 IH

1 ‘‘(3) PROFESSIONAL SERVICE BUSINESS.—For 

2 purposes of this subsection, the term ‘professional 

3 service business’ means any trade or business (or 

4 portion thereof) providing services in the fields of 

5 health, law, lobbying, engineering, architecture, ac6 counting, actuarial science, performing arts, con7 sulting, athletics, investment advice or management, 

8 or brokerage services. 

9 ‘‘(4) MODIFIED ADJUSTED GROSS INCOME.— 

10 For purposes of this subsection, the term ‘modified 

11 adjusted gross income’ means adjusted gross income 

12 as determined under section 62 of the Internal Rev13 enue Code of 1986— 

14 ‘‘(A) determined without regard to any de15 duction allowed under section 164(f) of such 

16 Code, and 

17 ‘‘(B) increased by the amount excluded 

18 from gross income under section 911(a)(1) of 

19 such Code.’’. 

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2012. 


srobinson on DSK4SPTVN1PROD with BILLS
63 

•HR 505 IH

1 Subtitle F—Limitation on Mortgage 

2 Interest Deduction With Re3 spect to Boats 

4 SEC. 251. MORTGAGE INTEREST DEDUCTION ALLOWED 

5 WITH RESPECT TO BOATS ONLY IF BOAT IS 

6 USED AS THE PRINCIPAL RESIDENCE OF THE 

7 TAXPAYER. 

8 (a) IN GENERAL.—Subclause (ii) of section 

9 163(h)(4)(A) of the Internal Revenue Code of 1986 is 

10 amended by inserting ‘‘(other than a boat)’’ after ‘‘1 other 

11 residence of the taxpayer’’. 

12 (b) EFFECTIVE DATE.— 

13 (1) IN GENERAL.—The amendment made by 

14 this section shall apply to indebtedness incurred 

15 after the date of the enactment of this Act. 

16 (2) SPECIAL RULE FOR REFINANCINGS.—For 

17 purposes of this subsection, indebtedness resulting 

18 from the refinancing of indebtedness shall be treated 

19 as incurred on the date the refinanced indebtedness 

20 was incurred (taking into account the application of 

21 this paragraph in the case of multiple refinancings) 

22 but only to the extent the indebtedness resulting 

23 from such refinancing does not exceed the refi24 nanced indebtedness. 


srobinson on DSK4SPTVN1PROD with BILLS
64 

•HR 505 IH

1 TITLE III—ENDING CORPORATE 

2 SUBSIDIES 

3 Subtitle A—End Fossil Fuel 

4 Subsidies 

5 SEC. 301. TERMINATION OF VARIOUS TAX EXPENDITURES 

6 RELATING TO FOSSIL FUELS. 

7 (a) IN GENERAL.—Subchapter C of chapter 90 of the 

8 Internal Revenue Code of 1986 is amended by adding at 

9 the end the following new section: 

10 ‘‘SEC. 7875. TERMINATION OF CERTAIN PROVISIONS RELAT11 ING TO FOSSIL FUEL INCENTIVES. 

12 ‘‘(a) IN GENERAL.—The following provisions shall 

13 not apply to taxable years beginning after the date of the 

14 enactment of the Balancing Act: 

15 ‘‘(1) Section 43 (relating to enhanced oil recov16 ery credit). 

17 ‘‘(2) Section 45I (relating to credit for pro18 ducing oil and natural gas from marginal wells). 

19 ‘‘(3) Section 45K (relating to credit for pro20 ducing fuel from a nonconventional source). 

21 ‘‘(4) Section 193 (relating to tertiary 

22 injectants). 

23 ‘‘(5) Section 199(d)(9) (relating to special rule 

24 for taxpayers with oil related qualified production 

25 activities income). 


srobinson on DSK4SPTVN1PROD with BILLS
65 

•HR 505 IH

1 ‘‘(6) Section 461(i)(2) (relating to special rule 

2 for spudding of oil or natural gas wells). 

3 ‘‘(7) Section 469(c)(3) (relating to working in4 terests in oil and natural gas property). 

5 ‘‘(8) Section 613A (relating to limitations on 

6 percentage depletion in case of oil and natural gas 

7 wells). 

8 ‘‘(9) Section 617 (relating to deduction and re9 capture of certain mining exploration expenditures). 

10 ‘‘(10) Section 7704(d)(1)(E) (relating to quali11 fying income). 

12 ‘‘(b) PROVISIONS RELATING TO PROPERTY.—The 

13 following provisions shall not apply to property placed in 

14 service after the date of the enactment of the Balancing 

15 Act: 

16 ‘‘(1) Subparagraphs (C)(iii) and (E)(viii) of 

17 section 168(e)(3) (relating to classification of certain 

18 property). 

19 ‘‘(2) Section 169 (relating to amortization of 

20 pollution control facilities) with respect to any at21 mospheric pollution control facility. 

22 ‘‘(3) Section 179C (relating to election to ex23 pense certain refineries). 

24 ‘‘(c) PROVISIONS RELATING TO COSTS AND EX25 PENSES.—The following provisions shall not apply to costs 


srobinson on DSK4SPTVN1PROD with BILLS
66 

•HR 505 IH

1 or expenses paid or incurred after the date of the enact2 ment of the Balancing Act: 

3 ‘‘(1) Section 179B (relating to deduction for 

4 capital costs incurred in complying with Environ5 mental Protection Agency sulfur regulations). 

6 ‘‘(2) Section 198 (relating to expensing of envi7 ronmental remediation costs). 

8 ‘‘(3) Section 263(c) (relating to intangible drill9 ing and development costs) with respect to costs in 

10 the case of oil and natural gas wells. 

11 ‘‘(4) Section 468 (relating to special rules for 

12 mining and solid waste reclamation and closing 

13 costs). 

14 ‘‘(d) 5-YEAR CARRYBACK FOR MARGINAL OIL AND

15 NATURAL GAS WELL PRODUCTION CREDIT.—Section 

16 39(a)(3) (relating to 5-year carryback for marginal oil and 

17 natural gas well production credit) shall not apply to cred18 its determined in taxable years beginning after the date 

19 of the enactment of the Balancing Act. 

20 ‘‘(e) CREDIT FOR CARBON DIOXIDE SEQUESTRA21 TION.—Section 45Q (relating to credit for carbon dioxide 

22 sequestration) shall not apply to carbon dioxide captured 

23 after the date of the enactment of the Balancing Act. 

24 ‘‘(f) ALLOCATED CREDITS.—No new credits shall be 

25 certified under section 48A (relating to qualifying adVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00066 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
67 

•HR 505 IH

1 vanced coal project credit) or section 48B (relating to 

2 qualifying gasification project credit) after the date of the 

3 enactment of the Balancing Act. 

4 ‘‘(g) ARBITRAGE BONDS.—Section 148(b)(4) (relat5 ing to safe harbor for prepaid natural gas) shall not apply 

6 to obligations issued after the date of the enactment of 

7 the Balancing Act.’’. 

8 (b) CONFORMING AMENDMENT.—The table of sec9 tions for subchapter C of chapter 90 is amended by adding 

10 at the end the following new item: 

‘‘Sec. 7875. Termination of certain provisions.’’. 

11 SEC. 302. TERMINATION OF ALTERNATIVE FUEL VEHICLE 

12 REFUELING PROPERTY CREDIT WITH RE13 SPECT TO FOSSIL FUELS. 

14 (a) IN GENERAL.—Paragraph (2) of section 30C(c) 

15 of the Internal Revenue Code of 1986 is amended— 

16 (1) by striking ‘‘, natural gas, compressed nat17 ural gas, liquefied natural gas, liquefied petroleum 

18 gas,’’ in subparagraph (A), 

19 (2) by striking subparagraph (B), and 

20 (3) by redesignating subparagraph (C) as sub21 paragraph (B). 

22 (b) TECHNICAL AMENDMENT.—Paragraph (2) of 

23 section 30C(g) of the Internal Revenue Code of 1986 is 

24 amended by striking the second period. 


srobinson on DSK4SPTVN1PROD with BILLS
68 

•HR 505 IH

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

2 this section shall apply to property placed in service after 

3 December 31, 2012. 

4 SEC. 303. UNIFORM SEVEN-YEAR AMORTIZATION FOR GEO5 LOGICAL AND GEOPHYSICAL EXPENDITURES. 

6 (a) IN GENERAL.—Section 167(h) of the Internal 

7 Revenue Code of 1986 is amended— 

8 (1) by striking ‘‘24-month period’’ each place it 

9 appears in paragraphs (1) and (4) and inserting ‘‘7- 

10 year period’’, and 

11 (2) by striking paragraph (5). 

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

13 this section shall apply to amounts paid or incurred after 

14 the date of the enactment of this Act. 

15 SEC. 304. REPEAL OF DOMESTIC MANUFACTURING DEDUC16 TION FOR HARD MINERAL MINING. 

17 (a) IN GENERAL.—Subparagraph (B) of section 

18 199(c)(4) of the Internal Revenue Code of 1986 is amend19 ed by striking ‘‘and’’ at the end of clause (ii), by striking 

20 the period at the end of clause (iii) and inserting ‘‘, and’’, 

21 and by adding at the end the following new clause: 

22 ‘‘(iv) the mining of any hard min23 eral.’’. 


srobinson on DSK4SPTVN1PROD with BILLS
69 

•HR 505 IH

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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 305. LIMITATION ON DEDUCTION FOR INCOME AT5 TRIBUTABLE TO DOMESTIC PRODUCTION OF 

6 OIL, NATURAL GAS, OR PRIMARY PRODUCTS 

7 THEREOF. 

8 (a) DENIAL OF DEDUCTION.—Paragraph (4) of sec9 tion 199(c) of the Internal Revenue Code of 1986 is 

10 amended by adding at the end the following new subpara11 graph: 

12 ‘‘(E) SPECIAL RULE FOR OIL, NATURAL

13 GAS, AND COAL INCOME.—The term ‘domestic 

14 production gross receipts’ shall not include 

15 gross receipts from the production, refining, 

16 processing, transportation, or distribution of oil, 

17 natural gas, or coal, or any primary product 

18 (within the meaning of subsection (d)(9)) there19 of.’’. 

20 (b) EFFECTIVE DATE.—The amendment made by 

21 this section shall apply to taxable years beginning after 

22 the date of the enactment of this Act. 


srobinson on DSK4SPTVN1PROD with BILLS
70 

•HR 505 IH

1 SEC. 306. TERMINATION OF LAST-IN, FIRST-OUT METHOD 

2 OF INVENTORY FOR OIL, NATURAL GAS, AND 

3 COAL COMPANIES. 

4 (a) IN GENERAL.—Section 472 of the Internal Rev5 enue Code of 1986 is amended by adding at the end the 

6 following new subsection: 

7 ‘‘(h) TERMINATION FOR OIL, NATURAL GAS, AND

8 COAL COMPANIES.—Subsection (a) shall not apply to any 

9 taxpayer that is in the trade or business of the production, 

10 refining, processing, transportation, or distribution of oil, 

11 natural gas, or coal for any taxable year beginning after 

12 December 31, 2012.’’. 

13 (b) ADDITIONAL TERMINATION.—Section 473 of the 

14 Internal Revenue Code of 1986 is amended by adding at 

15 the end the following new subsection: 

16 ‘‘(h) TERMINATION FOR OIL, NATURAL GAS, AND

17 COAL COMPANIES.—This section shall not apply to any 

18 taxpayer that is in the trade or business of the production, 

19 refining, processing, transportation, or distribution of oil, 

20 natural gas, or coal for any taxable year beginning after 

21 December 31, 2012.’’. 

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

23 this section shall apply to taxable years beginning after 

24 the date of the enactment of this Act. 


srobinson on DSK4SPTVN1PROD with BILLS
71 

•HR 505 IH

1 SEC. 307. REPEAL OF PERCENTAGE DEPLETION FOR COAL 

2 AND HARD MINERAL FOSSIL FUELS. 

3 (a) IN GENERAL.—Section 613 of the Internal Rev4 enue Code of 1986 is amended by adding at the end the 

5 following new subsection: 

6 ‘‘(f) TERMINATION WITH RESPECT TO COAL AND

7 HARD MINERAL FOSSIL FUELS.—In the case of coal, lig8 nite, and oil shale (other than oil shale described in sub9 section (b)(5)), the allowance for depletion shall be com10 puted without reference to this section for any taxable 

11 year beginning after the date of the enactment of the Bal12 ancing Act.’’. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) COAL AND LIGNITE.—Section 613(b)(4) of 

15 the Internal Revenue Code of 1986 is amended by 

16 striking ‘‘coal, lignite,’’. 

17 (2) OIL SHALE.—Section 613(b)(2) of such 

18 Code is amended to read as follows: 

19 ‘‘(2) 15 PERCENT.—If, from deposits in the 

20 United States, gold, silver, copper, and iron ore.’’. 

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

22 this section shall apply to taxable years beginning after 

23 the date of the enactment of this Act. 


srobinson on DSK4SPTVN1PROD with BILLS
72 

•HR 505 IH

1 SEC. 308. TERMINATION OF CAPITAL GAINS TREATMENT 

2 FOR ROYALTIES FROM COAL. 

3 (a) IN GENERAL.—Subsection (c) of section 631 of 

4 the Internal Revenue Code of 1986 is amended— 

5 (1) by striking ‘‘coal (including lignite), or iron 

6 ore’’ and inserting ‘‘iron ore’’, 

7 (2) by striking ‘‘coal or iron ore’’ each place it 

8 appears and inserting ‘‘iron ore’’, 

9 (3) by striking ‘‘iron ore or coal’’ each place it 

10 appears and inserting ‘‘iron ore’’, and 

11 (4) by striking ‘‘COAL OR’’ in the heading. 

12 (b) CONFORMING AMENDMENT.—The heading of sec13 tion 631 of the Internal Revenue Code of 1986 is amended 

14 by striking ‘‘, COAL,’’. 

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

16 this section shall apply to dispositions after the date of 

17 the enactment of this Act. 

18 SEC. 309. INCREASE IN OIL SPILL LIABILITY TRUST FUND 

19 FINANCING RATE. 

20 (a) IN GENERAL.—Subparagraph (B) of section 

21 4611(c)(2) of the Internal Revenue Code of 1986 is 

22 amended to read as follows: 

23 ‘‘(B) the Oil Spill Liability Trust Fund fi24 nancing rate is— 


srobinson on DSK4SPTVN1PROD with BILLS
73 

•HR 505 IH

1 ‘‘(i) in the case of crude oil received 

2 or petroleum products entered before Jan3 uary 1, 2013, 8 cents a barrel, 

4 ‘‘(ii) in the case of crude oil received 

5 or petroleum products entered after De6 cember 31, 2012, and before January 1, 

7 2017, 9 cents a barrel, and 

8 ‘‘(iii) in the case of crude oil received 

9 or petroleum products entered after De10 cember 31, 2016, 10 cents a barrel.’’. 

11 (b) EFFECTIVE DATE.—The amendment made by 

12 this section shall apply to crude oil received and petroleum 

13 products entered after the date of the enactment of this 

14 Act. 

15 SEC. 310. DENIAL OF DEDUCTION FOR REMOVAL COSTS 

16 AND DAMAGES FOR CERTAIN OIL SPILLS. 

17 (a) IN GENERAL.—Part IX of subchapter B of chap18 ter 1 of the Internal Revenue Code of 1986 is amended 

19 by adding at the end the following new section: 

20 ‘‘SEC. 280I. EXPENSES FOR REMOVAL COSTS AND DAMAGES 

21 RELATING TO CERTAIN OIL SPILL LIABILITY. 

22 ‘‘No deduction shall be allowed under this chapter for 

23 any amount paid or incurred with respect to any costs or 

24 damages for which the taxpayer is liable under section 

25 1002 of the Oil Pollution Act of 1990 (33 U.S.C. 2702).’’. 


srobinson on DSK4SPTVN1PROD with BILLS
74 

•HR 505 IH

1 (b) CLERICAL AMENDMENT.—The table of sections 

2 for part IX of subchapter B of chapter 1 of such Code 

3 is amended by adding at the end the following new item: 

‘‘Sec. 280I. Expenses for removal costs and damages relating to certain oil spill 

liability.’’. 

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

5 this section shall apply with respect to any liability arising 

6 in taxable years ending after the date of the enactment 

7 of this Act. 

8 SEC. 311. TAX ON CRUDE OIL AND NATURAL GAS PRO9 DUCED FROM THE OUTER CONTINENTAL 

10 SHELF IN THE GULF OF MEXICO. 

11 (a) IN GENERAL.—Subtitle E of the Internal Rev12 enue Code of 1986 is amended by adding at the end the 

13 following new chapter: 

14 ‘‘CHAPTER 56—TAX ON SEVERANCE OF 

15 CRUDE OIL AND NATURAL GAS FROM 

16 THE OUTER CONTINENTAL SHELF IN 

17 THE GULF OF MEXICO 

‘‘Sec. 5896. Imposition of tax. 

‘‘Sec. 5897. Taxable crude oil or natural gas and removal price. 

‘‘Sec. 5898. Special rules and definitions. 

18 ‘‘SEC. 5896. IMPOSITION OF TAX. 

19 ‘‘(a) IN GENERAL.—In addition to any other tax im20 posed under this title, there is hereby imposed a tax equal 

21 to 13 percent of the removal price of any taxable crude 


srobinson on DSK4SPTVN1PROD with BILLS
75 

•HR 505 IH

1 oil or natural gas removed from the premises during any 

2 taxable period. 

3 ‘‘(b) CREDIT FOR FEDERAL ROYALTIES PAID.— 

4 ‘‘(1) IN GENERAL.—There shall be allowed as a 

5 credit against the tax imposed by subsection (a) with 

6 respect to the production of any taxable crude oil or 

7 natural gas an amount equal to the aggregate 

8 amount of royalties paid under Federal law with re9 spect to such production. 

10 ‘‘(2) LIMITATION.—The aggregate amount of 

11 credits allowed under paragraph (1) to any taxpayer 

12 for any taxable period shall not exceed the amount 

13 of tax imposed by subsection (a) for such taxable pe14 riod. 

15 ‘‘(c) TAX PAID BY PRODUCER.—The tax imposed by 

16 this section shall be paid by the producer of the taxable 

17 crude oil or natural gas. 

18 ‘‘SEC. 5897. TAXABLE CRUDE OIL OR NATURAL GAS AND RE19 MOVAL PRICE. 

20 ‘‘(a) TAXABLE CRUDE OIL OR NATURAL GAS.—For 

21 purposes of this chapter, the term ‘taxable crude oil or 

22 natural gas’ means crude oil or natural gas which is pro23 duced from Federal submerged lands on the outer Conti24 nental Shelf in the Gulf of Mexico pursuant to a lease 


srobinson on DSK4SPTVN1PROD with BILLS
76 

•HR 505 IH

1 entered into with the United States which authorizes the 

2 production. 

3 ‘‘(b) REMOVAL PRICE.—For purposes of this chap4 ter— 

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, the term ‘removal price’ 

7 means— 

8 ‘‘(A) in the case of taxable crude oil, the 

9 amount for which a barrel of such crude oil is 

10 sold, and 

11 ‘‘(B) in the case of taxable natural gas, the 

12 amount per 1,000 cubic feet for which such 

13 natural gas is sold. 

14 ‘‘(2) SALES BETWEEN RELATED PERSONS.—In 

15 the case of a sale between related persons, the re16 moval price shall not be less than the constructive 

17 sales price for purposes of determining gross income 

18 from the property under section 613. 

19 ‘‘(3) OIL OR NATURAL GAS REMOVED FROM

20 PROPERTY BEFORE SALE.—If crude oil or natural 

21 gas is removed from the property before it is sold, 

22 the removal price shall be the constructive sales 

23 price for purposes of determining gross income from 

24 the property under section 613. 


srobinson on DSK4SPTVN1PROD with BILLS
77 

•HR 505 IH

1 ‘‘(4) REFINING BEGUN ON PROPERTY.—If the 

2 manufacture or conversion of crude oil into refined 

3 products begins before such oil is removed from the 

4 property— 

5 ‘‘(A) such oil shall be treated as removed 

6 on the day such manufacture or conversion be7 gins, and 

8 ‘‘(B) the removal price shall be the con9 structive sales price for purposes of determining 

10 gross income from the property under section 

11 613. 

12 ‘‘(5) PROPERTY.—The term ‘property’ has the 

13 meaning given such term by section 614. 

14 ‘‘SEC. 5898. SPECIAL RULES AND DEFINITIONS. 

15 ‘‘(a) ADMINISTRATIVE REQUIREMENTS.— 

16 ‘‘(1) WITHHOLDING AND DEPOSIT OF TAX.— 

17 The Secretary shall provide for the withholding and 

18 deposit of the tax imposed under section 5896 on a 

19 quarterly basis. 

20 ‘‘(2) RECORDS AND INFORMATION.—Each tax21 payer liable for tax under section 5896 shall keep 

22 such records, make such returns, and furnish such 

23 information (to the Secretary and to other persons 

24 having an interest in the taxable crude oil or natural 


srobinson on DSK4SPTVN1PROD with BILLS
78 

•HR 505 IH

1 gas) with respect to such oil as the Secretary may 

2 by regulations prescribe. 

3 ‘‘(3) TAXABLE PERIODS; RETURN OF TAX.— 

4 ‘‘(A) TAXABLE PERIOD.—Except as pro5 vided by the Secretary, each calendar year shall 

6 constitute a taxable period. 

7 ‘‘(B) RETURNS.—The Secretary shall pro8 vide for the filing, and the time for filing, of the 

9 return of the tax imposed under section 5896. 

10 ‘‘(b) DEFINITIONS.—For purposes of this chapter— 

11 ‘‘(1) PRODUCER.—The term ‘producer’ means 

12 the holder of the economic interest with respect to 

13 the crude oil or natural gas. 

14 ‘‘(2) CRUDE OIL.—The term ‘crude oil’ includes 

15 crude oil condensates and natural gasoline. 

16 ‘‘(3) PREMISES AND CRUDE OIL PRODUCT.— 

17 The terms ‘premises’ and ‘crude oil product’ have 

18 the same meanings as when used for purposes of de19 termining gross income from the property under sec20 tion 613. 

21 ‘‘(c) ADJUSTMENT OF REMOVAL PRICE.—In deter22 mining the removal price of oil or natural gas from a prop23 erty in the case of any transaction, the Secretary may ad24 just the removal price to reflect clearly the fair market 

25 value of oil or natural gas removed. 


srobinson on DSK4SPTVN1PROD with BILLS
79 

•HR 505 IH

1 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

2 such regulations as may be necessary or appropriate to 

3 carry out the purposes of this chapter.’’. 

4 (b) DEDUCTIBILITY OF TAX.—The first sentence of 

5 section 164(a) is amended by inserting after paragraph 

6 (6) the following new paragraph: 

7 ‘‘(7) The tax imposed by section 5896(a) (after 

8 application of section 5896(b)) on the severance of 

9 crude oil or natural gas from the outer Continental 

10 Shelf in the Gulf of Mexico.’’. 

11 (c) CLERICAL AMENDMENT.—The table of chapters 

12 for subtitle E is amended by adding at the end the fol13 lowing new item: 

‘‘CHAPTER 56. Tax on severance of crude oil and natural gas 

from the outer Continental Shelf in the Gulf of 

Mexico.’’. 

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

15 this section shall apply to crude oil or natural gas removed 

16 after December 31, 2012. 

17 Subtitle B—Ending Excessive Cor18 porate Tax Deductions for Stock 

19 Options 

20 SEC. 331. CONSISTENT TREATMENT OF STOCK OPTIONS BY 

21 CORPORATIONS. 

22 (a) CONSISTENT TREATMENT FOR WAGE DEDUC23 TION.— 

24 (1) IN GENERAL.—Section 83(h) is amended— 


srobinson on DSK4SPTVN1PROD with BILLS
80 

•HR 505 IH

1 (A) by striking ‘‘In the case of’’ and in2 serting: 

3 ‘‘(1) IN GENERAL.—In the case of’’, and 

4 (B) by adding at the end the following new 

5 paragraph: 

6 ‘‘(2) STOCK OPTIONS.—In the case of property 

7 transferred to a person in connection with a stock 

8 option, any deduction related to such stock option 

9 shall be allowed only under section 162(q) and para10 graph (1) shall not apply.’’. 

11 (2) TREATMENT OF COMPENSATION PAID WITH

12 STOCK OPTIONS.—Section 162 is amended by redes13 ignating subsection (q) as subsection (r) and by in14 serting after subsection (p) the following new sub15 section: 

16 ‘‘(q) TREATMENT OF COMPENSATION PAID WITH

17 STOCK OPTIONS.— 

18 ‘‘(1) IN GENERAL.—In the case of compensa19 tion for personal services that is paid with stock op20 tions, the deduction under subsection (a)(1) shall 

21 not exceed the amount the taxpayer has treated as 

22 compensation cost with respect to such stock options 

23 for the purpose of ascertaining income, profit, or 

24 loss in a report or statement to shareholders, part25 ners, or other proprietors (or to beneficiaries), and 


srobinson on DSK4SPTVN1PROD with BILLS
81 

•HR 505 IH

1 shall be taken into account in the same period that 

2 such compensation cost is recognized for such pur3 pose. 

4 ‘‘(2) SPECIAL RULES FOR CONTROLLED

5 GROUPS.—The Secretary may prescribe rules for the 

6 application of paragraph (1) in cases where the 

7 stock option is granted by— 

8 ‘‘(A) a parent or subsidiary corporation 

9 (within the meaning of section 424) of the tax10 payer, or 

11 ‘‘(B) another corporation.’’. 

12 (b) CONSISTENT TREATMENT FOR RESEARCH TAX

13 CREDIT.—Section 41(b)(2)(D) is amended by inserting at 

14 the end the following new clause: 

15 ‘‘(iv) SPECIAL RULE FOR STOCK OP16 TIONS.—The amount which may be treated 

17 as wages for any taxable year in connec18 tion with the issuance of a stock option 

19 shall not exceed the amount allowed for 

20 such taxable year as a compensation de21 duction under section 162(q) with respect 

22 to such stock option.’’. 

23 (c) APPLICATION OF AMENDMENTS.—The amend24 ments made by this section shall apply to stock options 


srobinson on DSK4SPTVN1PROD with BILLS
82 

•HR 505 IH

1 exercised after the date of the enactment of this Act, ex2 cept that— 

3 (1) such amendments shall not apply to stock 

4 options that were granted before such date and that 

5 vested in taxable periods beginning on or before 

6 June 15, 2005, 

7 (2) for stock options that were granted before 

8 such date of enactment and vested during taxable 

9 periods beginning after June 15, 2005, and ending 

10 before such date of enactment, a deduction under 

11 section 162(q) of the Internal Revenue Code of 1986 

12 (as added by subsection (a)(2)) shall be allowed in 

13 the first taxable period of the taxpayer that ends 

14 after such date of enactment, 

15 (3) for public entities reporting as small busi16 ness issuers and for non-public entities required to 

17 file public reports of financial condition, paragraphs 

18 (1) and (2) shall be applied by substituting ‘‘Decem19 ber 15, 2005’’ for ‘‘June 15, 2005’’, and 

20 (4) no deduction shall be allowed under section 

21 83(h) or section 162(q) of such Code with respect to 

22 any stock option the vesting date of which is 

23 changed to accelerate the time at which the option 

24 may be exercised in order to avoid the applicability 

25 of such amendments. 


srobinson on DSK4SPTVN1PROD with BILLS
83 

•HR 505 IH

1 SEC. 332. APPLICATION OF EXECUTIVE PAY DEDUCTION 

2 LIMIT. 

3 (a) IN GENERAL.—Subparagraph (D) of section 

4 162(m)(4) of the Internal Revenue Code of 1986 is 

5 amended to read as follows: 

6 ‘‘(D) STOCK OPTION COMPENSATION.— 

7 The term ‘applicable employee remuneration’ 

8 shall include any compensation deducted under 

9 subsection (q), and such compensation shall not 

10 qualify as performance-based compensation 

11 under subparagraph (C).’’. 

12 (b) EFFECTIVE DATE.—The amendment made by 

13 this section shall apply to stock options exercised or grant14 ed after the date of the enactment of this Act. 

15 Subtitle C—Reduce Deduction of 

16 Corporate Meals and Entertain17 ment 

18 SEC. 341. REDUCTION IN BUSINESS MEALS AND ENTER19 TAINMENT TAX DEDUCTION. 

20 (a) IN GENERAL.—Section 274(n)(1) of the Internal 

21 Revenue Code of 1986 (relating to only 50 percent of meal 

22 and entertainment expenses allowed as deduction) is 

23 amended by striking ‘‘50 percent’’ and inserting ‘‘25 per24 cent’’. 


srobinson on DSK4SPTVN1PROD with BILLS
84 

•HR 505 IH

1 (b) CONFORMING AMENDMENT.—Section 274(n) of 

2 the Internal Revenue Code of 1986 is amended by striking 

3 paragraph (3). 

4 (c) CLERICAL AMENDMENT.—The heading for sec5 tion 274(n) of the Internal Revenue Code of 1986 is 

6 amended by striking ‘‘ONLY 50 PERCENT’’ and inserting 

7 ‘‘ONLY 25 PERCENT’’. 

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

9 this section shall apply to taxable years beginning after 

10 December 31, 2012. 

11 TITLE IV—CLOSE INTER12 NATIONAL TAX SYSTEM LOOP13 HOLES 

14 Subtitle A—Reformation of U.S. 

15 International Tax System 

16 SEC. 401. ALLOCATION OF EXPENSES AND TAXES ON BASIS 

17 OF REPATRIATION OF FOREIGN INCOME. 

18 (a) IN GENERAL.—Part III of subchapter N of chap19 ter 1 of the Internal Revenue Code of 1986 is amended 

20 by inserting after subpart G the following new subpart: 

21 ‘‘Subpart H—Special Rules for Allocation of Foreign22 Related Deductions and Foreign Tax Credits 

‘‘Sec. 975. Deductions allocated to deferred foreign income may not offset 

United States source income. 

‘‘Sec. 976. Amount of foreign taxes computed on overall basis. 

‘‘Sec. 977. Application of subpart. 


srobinson on DSK4SPTVN1PROD with BILLS
85 

•HR 505 IH

1 ‘‘SEC. 975. DEDUCTIONS ALLOCATED TO DEFERRED FOR2 EIGN INCOME MAY NOT OFFSET UNITED 

3 STATES SOURCE INCOME. 

4 ‘‘(a) CURRENT YEAR DEDUCTIONS.—For purposes 

5 of this chapter, foreign-related deductions for any taxable 

6 year— 

7 ‘‘(1) shall be taken into account for such tax8 able year only to the extent that such deductions are 

9 allocable to currently-taxed foreign income, and 

10 ‘‘(2) to the extent not so allowed, shall be taken 

11 into account in subsequent taxable years as provided 

12 in subsection (b). 

13 Foreign-related deductions shall be allocated to currently 

14 taxed foreign income in the same proportion which cur15 rently taxed foreign income bears to the sum of currently 

16 taxed foreign income and deferred foreign income. 

17 ‘‘(b) DEDUCTIONS RELATED TO REPATRIATED DE18 FERRED FOREIGN INCOME.— 

19 ‘‘(1) IN GENERAL.—If there is repatriated for20 eign income for a taxable year, the portion of the 

21 previously deferred deductions allocated to the repa22 triated foreign income shall be taken into account 

23 for the taxable year as a deduction allocated to in24 come from sources outside the United States. Any 

25 such amount shall not be included in foreign-related 


srobinson on DSK4SPTVN1PROD with BILLS
86 

•HR 505 IH

1 deductions for purposes of applying subsection (a) to 

2 such taxable year. 

3 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED DE4 DUCTIONS.—For purposes of paragraph (1), the por5 tion of the previously deferred deductions allocated 

6 to repatriated foreign income is— 

7 ‘‘(A) the amount which bears the same 

8 proportion to such deductions, as 

9 ‘‘(B) the repatriated income bears to the 

10 previously deferred foreign income. 

11 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur12 poses of this section— 

13 ‘‘(1) FOREIGN-RELATED DEDUCTIONS.—The 

14 term ‘foreign-related deductions’ means the total 

15 amount of deductions and expenses which would be 

16 allocated or apportioned to gross income from 

17 sources without the United States for the taxable 

18 year if both the currently-taxed foreign income and 

19 deferred foreign income were taken into account. 

20 ‘‘(2) CURRENTLY-TAXED FOREIGN INCOME.— 

21 The term ‘currently-taxed foreign income’ means the 

22 amount of gross income from sources without the 

23 United States for the taxable year (determined with24 out regard to repatriated foreign income for such 

25 year). 


srobinson on DSK4SPTVN1PROD with BILLS
87 

•HR 505 IH

1 ‘‘(3) DEFERRED FOREIGN INCOME.—The term 

2 ‘deferred foreign income’ means the excess of— 

3 ‘‘(A) the amount that would be includible 

4 in gross income under subpart F of this part 

5 for the taxable year if— 

6 ‘‘(i) all controlled foreign corporations 

7 were treated as one controlled foreign cor8 poration, and 

9 ‘‘(ii) all earnings and profits of all 

10 controlled foreign corporations were sub11 part F income (as defined in section 952), 

12 over 

13 ‘‘(B) the sum of— 

14 ‘‘(i) all dividends received during the 

15 taxable year from controlled foreign cor16 porations, plus 

17 ‘‘(ii) amounts includible in gross in18 come under section 951(a). 

19 ‘‘(4) PREVIOUSLY DEFERRED FOREIGN IN20 COME.—The term ‘previously deferred foreign in21 come’ means the aggregate amount of deferred for22 eign income for all prior taxable years to which this 

23 part applies, determined as of the beginning of the 

24 taxable year, reduced by the repatriated foreign in25 come for all such prior taxable years. 


srobinson on DSK4SPTVN1PROD with BILLS
88 

•HR 505 IH

1 ‘‘(5) REPATRIATED FOREIGN INCOME.—The 

2 term ‘repatriated foreign income’ means the amount 

3 included in gross income on account of distributions 

4 out of previously deferred foreign income. 

5 ‘‘(6) PREVIOUSLY DEFERRED DEDUCTIONS.— 

6 The term ‘previously deferred deductions’ means the 

7 aggregate amount of foreign-related deductions not 

8 taken into account under subsection (a) for all prior 

9 taxable years (determined as of the beginning of the 

10 taxable year), reduced by any amounts taken into 

11 account under subsection (b) for such prior taxable 

12 years. 

13 ‘‘(7) TREATMENT OF CERTAIN FOREIGN

14 TAXES.— 

15 ‘‘(A) PAID BY CONTROLLED FOREIGN COR16 PORATION.—Section 78 shall not apply for pur17 poses of determining currently-taxed foreign in18 come and deferred foreign income. 

19 ‘‘(B) PAID BY TAXPAYER.—For purposes 

20 of determining currently-taxed foreign income, 

21 gross income from sources without the United 

22 States shall be reduced by the aggregate 

23 amount of taxes described in the applicable 

24 paragraph of section 901(b) which are paid by 


srobinson on DSK4SPTVN1PROD with BILLS
89 

•HR 505 IH

1 the taxpayer (without regard to sections 902 

2 and 960) during the taxable year. 

3 ‘‘(8) COORDINATION WITH SECTION 976.—In 

4 determining currently-taxed foreign income and de5 ferred foreign income, the amount of deemed foreign 

6 tax credits shall be determined with regard to sec7 tion 976. 

8 ‘‘SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON 

9 OVERALL BASIS. 

10 ‘‘(a) CURRENT YEAR ALLOWANCE.—For purposes of 

11 this chapter, the amount taken into account as foreign in12 come taxes for any taxable year shall be an amount which 

13 bears the same ratio to the total foreign income taxes for 

14 that taxable year as— 

15 ‘‘(1) the currently-taxed foreign income for such 

16 taxable year, bears to 

17 ‘‘(2) the sum of the currently-taxed foreign in18 come and deferred foreign income for such year. 

19 The portion of the total foreign income taxes for any tax20 able year not taken into account under the preceding sen21 tence for a taxable year shall only be taken into account 

22 as provided in subsection (b) (and shall not be taken into 

23 account for purposes of applying sections 902 and 960). 

24 ‘‘(b) ALLOWANCE RELATED TO REPATRIATED DE25 FERRED FOREIGN INCOME.— 


srobinson on DSK4SPTVN1PROD with BILLS
90 

•HR 505 IH

1 ‘‘(1) IN GENERAL.—If there is repatriated for2 eign income for any taxable year, the portion of the 

3 previously deferred foreign income taxes paid or ac4 crued during such taxable year shall be taken into 

5 account for the taxable year as foreign taxes paid or 

6 accrued. Any such taxes so taken into account shall 

7 not be included in foreign income taxes for purposes 

8 of applying subsection (a) to such taxable year. 

9 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED FOR10 EIGN INCOME TAXES.—For purposes of paragraph 

11 (1), the portion of the previously deferred foreign in12 come taxes allocated to repatriated deferred foreign 

13 income is— 

14 ‘‘(A) the amount which bears the same 

15 proportion to such taxes, as 

16 ‘‘(B) the repatriated deferred income bears 

17 to the previously deferred foreign income. 

18 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur19 poses of this section— 

20 ‘‘(1) PREVIOUSLY DEFERRED FOREIGN INCOME

21 TAXES.—The term ‘previously deferred foreign in22 come taxes’ means the aggregate amount of total 

23 foreign income taxes not taken into account under 

24 subsection (a) for all prior taxable years (determined 

25 as of the beginning of the taxable year), reduced by 


srobinson on DSK4SPTVN1PROD with BILLS
91 

•HR 505 IH

1 any amounts taken into account under subsection 

2 (b) for such prior taxable years. 

3 ‘‘(2) TOTAL FOREIGN INCOME TAXES.—The 

4 term ‘total foreign income taxes’ means the sum of 

5 foreign income taxes paid or accrued during the tax6 able year (determined without regard to section 

7 904(c)) plus the increase in foreign income taxes 

8 that would be paid or accrued during the taxable 

9 year under sections 902 and 960 if— 

10 ‘‘(A) all controlled foreign corporations 

11 were treated as one controlled foreign corpora12 tion, and 

13 ‘‘(B) all earnings and profits of all con14 trolled foreign corporations were subpart F in15 come (as defined in section 952). 

16 ‘‘(3) FOREIGN INCOME TAXES.—The term ‘for17 eign income taxes’ means any income, war profits, or 

18 excess profits taxes paid by the taxpayer to any for19 eign country or possession of the United States. 

20 ‘‘(4) CURRENTLY-TAXED FOREIGN INCOME AND

21 DEFERRED FOREIGN INCOME.—The terms ‘cur22 rently-taxed foreign income’ and ‘deferred foreign in23 come’ have the meanings given such terms by sec24 tion 975(c)). 


srobinson on DSK4SPTVN1PROD with BILLS
92 

•HR 505 IH

1 ‘‘SEC. 977. APPLICATION OF SUBPART. 

2 ‘‘This subpart— 

3 ‘‘(1) shall be applied before subpart A, and 

4 ‘‘(2) shall be applied separately with respect to 

5 the categories of income specified in section 

6 904(d)(1).’’. 

7 (b) CLERICAL AMENDMENT.—The table of subparts 

8 for part III of subpart N of chapter 1 of such Code is 

9 amended by inserting after the item relating to subpart 

10 G the following new item: 

‘‘SUBPART H. SPECIAL RULES FOR ALLOCATION OF FOREIGN-RELATED

DEDUCTIONS AND FOREIGN TAX CREDITS.’’. 

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

12 this section shall apply to taxable years beginning after 

13 the date of the enactment of this Act. 

14 SEC. 402. EXCESS INCOME FROM TRANSFERS OF INTANGI15 BLES TO LOW-TAXED AFFILIATES TREATED 

16 AS SUBPART F INCOME. 

17 (a) IN GENERAL.—Subsection (a) of section 954 of 

18 such Code is amended by inserting after paragraph (3) 

19 the following new paragraph: 

20 ‘‘(4) the foreign base company excess intangible 

21 income for the taxable year (determined under sub22 section (f) and reduced as provided in subsection 

23 (b)(5)), and’’. 


srobinson on DSK4SPTVN1PROD with BILLS
93 

•HR 505 IH

1 (b) FOREIGN BASE COMPANY EXCESS INTANGIBLE

2 INCOME.—Section 954 of such Code is amended by insert3 ing after subsection (e) the following new subsection: 

4 ‘‘(f) FOREIGN BASE COMPANY EXCESS INTANGIBLE

5 INCOME.—For purposes of subsection (a)(4) and this sub6 section: 

7 ‘‘(1) FOREIGN BASE COMPANY EXCESS INTAN8 GIBLE INCOME DEFINED.— 

9 ‘‘(A) IN GENERAL.—The term ‘foreign 

10 base company excess intangible income’ means, 

11 with respect to any covered intangible, the ex12 cess of— 

13 ‘‘(i) the sum of— 

14 ‘‘(I) gross income from the sale, 

15 lease, license, or other disposition of 

16 property in which such covered intan17 gible is used directly or indirectly, and 

18 ‘‘(II) gross income from the pro19 vision of services related to such cov20 ered intangible or in connection with 

21 property in which such covered intan22 gible is used directly or indirectly, 

23 over 

24 ‘‘(ii) 150 percent of the costs properly 

25 allocated and apportioned to the gross inVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00093 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
94 

•HR 505 IH

1 come taken into account under clause (i) 

2 other than expenses for interest and taxes 

3 and any expenses which are not directly al4 locable to such gross income. 

5 ‘‘(B) SAME COUNTRY INCOME NOT TAKEN

6 INTO ACCOUNT.—If— 

7 ‘‘(i) the sale, lease, license, or other 

8 disposition of the property referred to in 

9 subparagraph (A)(i)(I) is for use, con10 sumption, or disposition in the country 

11 under the laws of which the controlled for12 eign corporation is created or organized, or 

13 ‘‘(ii) the services referred to in sub14 paragraph (A)(i)(II) are performed in such 

15 country, 

16 the gross income from such sale, lease, license, 

17 or other disposition, or provision of services, 

18 shall not be taken into account under subpara19 graph (A)(i). 

20 ‘‘(2) EXCEPTION BASED ON EFFECTIVE FOR21 EIGN INCOME TAX RATE.— 

22 ‘‘(A) IN GENERAL.—Foreign base company 

23 excess intangible income shall not include the 

24 applicable percentage of any item of income re25 ceived by a controlled foreign corporation if the 


srobinson on DSK4SPTVN1PROD with BILLS
95 

•HR 505 IH

1 taxpayer establishes to the satisfaction of the 

2 Secretary that such income was subject to an 

3 effective rate of income tax imposed by a for4 eign country in excess of 5 percent. 

5 ‘‘(B) APPLICABLE PERCENTAGE.—For 

6 purposes of subparagraph (A), the term ‘appli7 cable percentage’ means the ratio (expressed as 

8 a percentage), not greater than 100 percent, 

9 of— 

10 ‘‘(i) the number of percentage points 

11 by which the effective rate of income tax 

12 referred to in subparagraph (A) exceeds 5 

13 percentage points, over 

14 ‘‘(ii) 10 percentage points. 

15 ‘‘(C) TREATMENT OF LOSSES IN DETER16 MINING EFFECTIVE RATE OF FOREIGN INCOME

17 TAX.—For purposes of determining the effective 

18 rate of income tax imposed by any foreign 

19 country— 

20 ‘‘(i) such effective rate shall be deter21 mined without regard to any losses carried 

22 to the relevant taxable year, and 

23 ‘‘(ii) to the extent the income with re24 spect to such intangible reduces losses in 

25 the relevant taxable year, such effective 


srobinson on DSK4SPTVN1PROD with BILLS
96 

•HR 505 IH

1 rate shall be treated as being the effective 

2 rate which would have been imposed on 

3 such income without regard to such losses. 

4 ‘‘(3) COVERED INTANGIBLE.—The term ‘cov5 ered intangible’ means, with respect to any con6 trolled foreign corporation, any intangible property 

7 (as defined in section 936(h)(3)(B))— 

8 ‘‘(A) which is sold, leased, licensed, or oth9 erwise transferred (directly or indirectly) to 

10 such controlled foreign corporation from a re11 lated person, or 

12 ‘‘(B) with respect to which such controlled 

13 foreign corporation and one or more related 

14 persons has (directly or indirectly) entered into 

15 any shared risk or development agreement (in16 cluding any cost sharing agreement). 

17 ‘‘(4) RELATED PERSON.—The term ‘related 

18 person’ has the meaning given such term in sub19 section (d)(3).’’. 

20 (c) SEPARATE BASKET FOR FOREIGN TAX CRED21 IT.—Subsection (d) of section 904 of such Code is amend22 ed by redesignating paragraph (7) as paragraph (8) and 

23 by inserting after paragraph (6) the following new para24 graph: 


srobinson on DSK4SPTVN1PROD with BILLS
97 

•HR 505 IH

1 ‘‘(6) SEPARATE APPLICATION TO FOREIGN

2 BASE COMPANY EXCESS INTANGIBLE INCOME.— 

3 ‘‘(A) IN GENERAL.—Subsections (a), (b), 

4 and (c) of this section and sections 902, 907, 

5 and 960 shall be applied separately with respect 

6 to each item of income which is taken into ac7 count under section 954(a)(4) as foreign base 

8 company excess intangible income. 

9 ‘‘(B) REGULATIONS.—The Secretary may 

10 issue such regulations or other guidance as is 

11 necessary or appropriate to carry out the pur12 poses of this subsection, including regulations 

13 or other guidance which provides that related 

14 items of income may be aggregated for pur15 poses of this paragraph.’’. 

16 (d) CONFORMING AMENDMENTS.— 

17 (1) Paragraph (4) of section 954(b) of such 

18 Code is amended by inserting ‘‘foreign base company 

19 excess intangible income described in subsection 

20 (a)(4) or’’ before ‘‘foreign base company oil-related 

21 income’’ in the last sentence thereof. 

22 (2) Subsection (b) of section 954 of such Code 

23 is amended by adding at the end the following new 

24 paragraph: 


srobinson on DSK4SPTVN1PROD with BILLS
98 

•HR 505 IH

1 ‘‘(7) FOREIGN BASE COMPANY EXCESS INTAN2 GIBLE INCOME NOT TREATED AS ANOTHER KIND OF

3 BASE COMPANY INCOME.—Income of a corporation 

4 which is foreign base company excess intangible in5 come shall not be considered foreign base company 

6 income of such corporation under paragraph (2), 

7 (3), or (5) of subsection (a).’’. 

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

9 this section shall apply to taxable years beginning after 

10 the date of the enactment of this Act. 

11 SEC. 403. LIMITATIONS ON INCOME SHIFTING THROUGH IN12 TANGIBLE PROPERTY TRANSFERS. 

13 (a) CLARIFICATION OF DEFINITION OF INTANGIBLE

14 ASSET.—Clause (vi) of section 936(h)(3)(B) of such Code 

15 is amended by inserting ‘‘(including any section 197 intan16 gible described in subparagraph (A), (B), or (C)(i) of sub17 section (d)(1) of such section)’’ after ‘‘item’’. 

18 (b) CLARIFICATION OF ALLOWABLE VALUATION

19 METHODS.— 

20 (1) FOREIGN CORPORATIONS.—Paragraph (2) 

21 of section 367(d) of such Code is amended by adding 

22 at the end the following new subparagraph: 

23 ‘‘(D) REGULATORY AUTHORITY.—For pur24 poses of the last sentence of subparagraph (A), 

25 the Secretary may require— 


srobinson on DSK4SPTVN1PROD with BILLS
99 

•HR 505 IH

1 ‘‘(i) the valuation of transfers of in2 tangible property on an aggregate basis, or 

3 ‘‘(ii) the valuation of such a transfer 

4 on the basis of the realistic alternatives to 

5 such a transfer, 

6 in any case in which the Secretary determines 

7 that such basis is the most reliable means of 

8 valuation of such transfers.’’. 

9 (2) ALLOCATION AMONG TAXPAYERS.—Section 

10 482 of such Code is amended by adding at the end 

11 the following: ‘‘For purposes of the preceding sen12 tence, the Secretary may require the valuation of 

13 transfers of intangible property on an aggregate 

14 basis or the valuation of such a transfer on the basis 

15 of the realistic alternatives to such a transfer, in any 

16 case in which the Secretary determines that such 

17 basis is the most reliable means of valuation of such 

18 transfers.’’. 

19 (c) EFFECTIVE DATE.— 

20 (1) IN GENERAL.—The amendments made by 

21 this section shall apply to transfers in taxable years 

22 beginning after the date of the enactment of this 

23 Act. 

24 (2) NO INFERENCE.—Nothing in the amend25 ment made by subsection (a) shall be construed to 


srobinson on DSK4SPTVN1PROD with BILLS
100 

•HR 505 IH

1 create any inference with respect to the application 

2 of section 936(h)(3) of the Internal Revenue Code of 

3 1986, or the authority of the Secretary of the Treas4 ury to provide regulations for such application, on or 

5 before the date of the enactment of such amend6 ment. 

7 SEC. 404. LIMITATION ON EARNINGS STRIPPING BY EXPA8 TRIATED ENTITIES. 

9 (a) IN GENERAL.—Subsection (j) of section 163 of 

10 such Code is amended— 

11 (1) by redesignating paragraph (9) as para12 graph (10), and 

13 (2) by inserting after paragraph (8) the fol14 lowing new paragraph: 

15 ‘‘(9) SPECIAL RULES FOR EXPATRIATED ENTI16 TIES.— 

17 ‘‘(A) IN GENERAL.—In the case of a cor18 poration to which this subsection applies which 

19 is an expatriated entity, this subsection shall 

20 apply to such corporation with the following 

21 modifications: 

22 ‘‘(i) Paragraph (2)(A) shall be applied 

23 without regard to clause (ii) thereof. 

24 ‘‘(ii) Paragraph (1)(B) shall be ap25 plied— 


srobinson on DSK4SPTVN1PROD with BILLS
101 

•HR 505 IH

1 ‘‘(I) without regard to the par2 enthetical, and 

3 ‘‘(II) by substituting ‘in the 1st 

4 succeeding taxable year and in the 

5 2nd through 10th succeeding taxable 

6 years to the extent not previously 

7 taken into account under this sub8 paragraph’ for ‘in the succeeding tax9 able year’. 

10 ‘‘(iii) Paragraph (2)(B) shall be ap11 plied— 

12 ‘‘(I) without regard to clauses (ii) 

13 and (iii), and 

14 ‘‘(II) by substituting ‘25 percent 

15 of the adjusted taxable income of the 

16 corporation for such taxable year’ for 

17 the matter of clause (i)(II) thereof. 

18 ‘‘(B) EXPATRIATED ENTITY.—For pur19 poses of this paragraph— 

20 ‘‘(i) IN GENERAL.—With respect to a 

21 corporation and a taxable year, the term 

22 ‘expatriated entity’ has the meaning given 

23 such term by section 7874(a)(2), deter24 mined as if such section and the regula25 tions under such section as in effect on the 


srobinson on DSK4SPTVN1PROD with BILLS
102 

•HR 505 IH

1 first day of such taxable year applied to all 

2 taxable years of the corporation beginning 

3 after July 10, 1989. 

4 ‘‘(ii) EXCEPTION FOR SURROGATES

5 TREATED AS A DOMESTIC CORPORATION.— 

6 The term ‘expatriated entity’ does not in7 clude a surrogate foreign corporation 

8 which is treated as a domestic corporation 

9 by reason of section 7874(b).’’. 

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

11 this section shall apply to taxable years beginning after 

12 the date of the enactment of this Act. 

13 SEC. 405. PREVENTION OF AVOIDANCE OF TAX THROUGH 

14 REINSURANCE WITH NON-TAXED AFFILIATES. 

15 (a) IN GENERAL.—Part III of subchapter L of chap16 ter 1 of the Internal Revenue Code of 1986 is amended 

17 by adding at the end the following new section: 

18 ‘‘SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON19 LIFE CONTRACTS WITH NON-TAXED AFFILI20 ATES. 

21 ‘‘(a) IN GENERAL.—The taxable income under sec22 tion 831(a) or the life insurance company taxable income 

23 under section 801(b) (as the case may be) of an insurance 

24 company shall be determined by not taking into account— 

25 ‘‘(1) any non-taxed reinsurance premium, 


srobinson on DSK4SPTVN1PROD with BILLS
103 

•HR 505 IH

1 ‘‘(2) any additional amount paid by such insur2 ance company with respect to the reinsurance for 

3 which such non-taxed reinsurance premium is paid, 

4 to the extent such additional amount is properly al5 locable to such non-taxed reinsurance premium, and 

6 ‘‘(3) any return premium, ceding commission, 

7 reinsurance recovered, or other amount received by 

8 such insurance company with respect to the reinsur9 ance for which such non-taxed reinsurance premium 

10 is paid, to the extent such return premium, ceding 

11 commission, reinsurance recovered, or other amount 

12 is properly allocable to such non-taxed reinsurance 

13 premium. 

14 ‘‘(b) NON-TAXED REINSURANCE PREMIUMS.—For 

15 purposes of this section— 

16 ‘‘(1) IN GENERAL.—The term ‘non-taxed rein17 surance premium’ means any reinsurance premium 

18 paid directly or indirectly to an affiliated corporation 

19 with respect to reinsurance of risks (other than ex20 cepted risks), to the extent that the income attrib21 utable to the premium is not subject to tax under 

22 this subtitle (either as the income of the affiliated 

23 corporation or as amounts included in gross income 

24 by a United States shareholder under section 951). 


srobinson on DSK4SPTVN1PROD with BILLS
104 

•HR 505 IH

1 ‘‘(2) EXCEPTED RISKS.—The term ‘excepted 

2 risks’ means any risk with respect to which reserves 

3 described in section 816(b)(1) are established. 

4 ‘‘(c) AFFILIATED CORPORATIONS.—For purposes of 

5 this section, a corporation shall be treated as affiliated 

6 with an insurance company if both corporations would be 

7 members of the same controlled group of corporations (as 

8 defined in section 1563(a)) if section 1563 were applied— 

9 ‘‘(1) by substituting ‘at least 50 percent’ for ‘at 

10 least 80 percent’ each place it appears in subsection 

11 (a)(1), and 

12 ‘‘(2) without regard to subsections (a)(4), 

13 (b)(2)(C), (b)(2)(D), and (e)(3)(C). 

14 ‘‘(d) ELECTION TO TREAT REINSURANCE INCOME AS

15 EFFECTIVELY CONNECTED.— 

16 ‘‘(1) IN GENERAL.—A specified affiliated cor17 poration may elect for any taxable year to treat 

18 specified reinsurance income as— 

19 ‘‘(A) income effectively connected with the 

20 conduct of a trade or business in the United 

21 States, and 

22 ‘‘(B) for purposes of any treaty between 

23 the United States and any foreign country, in24 come attributable to a permanent establishment 

25 in the United States. 


srobinson on DSK4SPTVN1PROD with BILLS
105 

•HR 505 IH

1 ‘‘(2) EFFECT OF ELECTION.—In the case of 

2 any specified reinsurance income with respect to 

3 which the election under this subsection applies— 

4 ‘‘(A) DEDUCTION ALLOWED FOR REINSUR5 ANCE PREMIUMS.—For exemption from sub6 section (a), see definition of non-taxed reinsur7 ance premiums in subsection (b). 

8 ‘‘(B) EXCEPTION FROM EXCISE TAX.—The 

9 tax imposed by section 4371 shall not apply 

10 with respect to any income treated as effectively 

11 connected with the conduct of a trade or busi12 ness in the United States under paragraph (1). 

13 ‘‘(C) TAXATION UNDER THIS SUB14 CHAPTER.—Such income shall be subject to tax 

15 under this subchapter to the same extent and 

16 in the same manner as if such income were the 

17 income of a domestic insurance company. 

18 ‘‘(D) COORDINATION WITH FOREIGN TAX

19 CREDIT PROVISIONS.—For purposes of subpart 

20 A of part III of subchapter N and sections 78 

21 and 960— 

22 ‘‘(i) such specified reinsurance income 

23 shall be treated as derived from sources 

24 without the United States, and 


srobinson on DSK4SPTVN1PROD with BILLS
106 

•HR 505 IH

1 ‘‘(ii) subsections (a), (b), and (c) of 

2 section 904 and sections 902, 907, and 

3 960 shall be applied separately with re4 spect to each item of such income. 

5 The Secretary may issue regulations or other 

6 guidance which provide that related items of 

7 specified reinsurance income may be aggregated 

8 for purposes of applying clause (ii). 

9 ‘‘(3) SPECIFIED AFFILIATED CORPORATION.— 

10 For purposes of this subsection, the term ‘specified 

11 affiliated corporation’ means any affiliated corpora12 tion which is a foreign corporation and which meets 

13 such requirements as the Secretary shall prescribe to 

14 ensure that tax on the specified reinsurance income 

15 of such corporation is properly determined and paid. 

16 ‘‘(4) SPECIFIED REINSURANCE INCOME.—For 

17 purposes of this paragraph, the term ‘specified rein18 surance income’ means all income of a specified af19 filiated corporation which is attributable to reinsur20 ance with respect to which subsection (a) would (but 

21 for the election under this subsection) apply. 

22 ‘‘(5) RULES RELATED TO ELECTION.—Any 

23 election under paragraph (1) shall— 


srobinson on DSK4SPTVN1PROD with BILLS
107 

•HR 505 IH

1 ‘‘(A) be made at such time and in such 

2 form and manner as the Secretary may provide, 

3 and 

4 ‘‘(B) apply for the taxable year for which 

5 made and all subsequent taxable years unless 

6 revoked with the consent of the Secretary. 

7 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

8 such regulations or other guidance as may be appropriate 

9 to carry out, or to prevent the avoidance of the purposes 

10 of, this section, including regulations or other guidance 

11 which provide for the application of this section to alter12 native reinsurance transactions, fronting transactions, 

13 conduit and reciprocal transactions, and any economically 

14 equivalent transactions.’’. 

15 (b) CLERICAL AMENDMENT.—The table of sections 

16 for part III of subchapter L of chapter 1 of such Code 

17 is amended by adding at the end the following new item: 

‘‘Sec. 849. Special rules for reinsurance of non-life contracts with non-taxed affiliates.’’. 

18 (c) EFFECTIVE DATE.—The amendment made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2012. 


srobinson on DSK4SPTVN1PROD with BILLS
108 

•HR 505 IH

1 Subtitle B—Reinsurance 

2 SEC. 411. PREVENTION OF AVOIDANCE OF TAX THROUGH 

3 REINSURANCE WITH NON-TAXED AFFILIATES. 

4 (a) IN GENERAL.—Part III of subchapter L of chap5 ter 1 of the Internal Revenue Code of 1986 is amended 

6 by adding at the end the following new section: 

7 ‘‘SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON8 LIFE CONTRACTS WITH NON-TAXED AFFILI9 ATES. 

10 ‘‘(a) IN GENERAL.—The taxable income under sec11 tion 831(a) or the life insurance company taxable income 

12 under section 801(b) (as the case may be) of an insurance 

13 company shall be determined by not taking into account— 

14 ‘‘(1) any non-taxed reinsurance premium, 

15 ‘‘(2) any additional amount paid by such insur16 ance company with respect to the reinsurance for 

17 which such non-taxed reinsurance premium is paid, 

18 to the extent such additional amount is properly al19 locable to such non-taxed reinsurance premium, and 

20 ‘‘(3) any return premium, ceding commission, 

21 reinsurance recovered, or other amount received by 

22 such insurance company with respect to the reinsur23 ance for which such non-taxed reinsurance premium 

24 is paid, to the extent such return premium, ceding 

25 commission, reinsurance recovered, or other amount 


srobinson on DSK4SPTVN1PROD with BILLS
109 

•HR 505 IH

1 is properly allocable to such non-taxed reinsurance 

2 premium. 

3 ‘‘(b) NON-TAXED REINSURANCE PREMIUMS.—For 

4 purposes of this section— 

5 ‘‘(1) IN GENERAL.—The term ‘non-taxed rein6 surance premium’ means any reinsurance premium 

7 paid directly or indirectly to an affiliated corporation 

8 with respect to reinsurance of risks (other than ex9 cepted risks), to the extent that the income attrib10 utable to the premium is not subject to tax under 

11 this subtitle (either as the income of the affiliated 

12 corporation or as amounts included in gross income 

13 by a United States shareholder under section 951). 

14 ‘‘(2) EXCEPTED RISKS.—The term ‘excepted 

15 risks’ means any risk with respect to which reserves 

16 described in section 816(b)(1) are established. 

17 ‘‘(c) AFFILIATED CORPORATIONS.—For purposes of 

18 this section, a corporation shall be treated as affiliated 

19 with an insurance company if both corporations would be 

20 members of the same controlled group of corporations (as 

21 defined in section 1563(a)) if section 1563 were applied— 

22 ‘‘(1) by substituting ‘at least 50 percent’ for ‘at 

23 least 80 percent’ each place it appears in subsection 

24 (a)(1), and 


srobinson on DSK4SPTVN1PROD with BILLS
110 

•HR 505 IH

1 ‘‘(2) without regard to subsections (a)(4), 

2 (b)(2)(C), (b)(2)(D), and (e)(3)(C). 

3 ‘‘(d) ELECTION TO TREAT REINSURANCE INCOME AS

4 EFFECTIVELY CONNECTED.— 

5 ‘‘(1) IN GENERAL.—A specified affiliated cor6 poration may elect for any taxable year to treat 

7 specified reinsurance income as— 

8 ‘‘(A) income effectively connected with the 

9 conduct of a trade or business in the United 

10 States, and 

11 ‘‘(B) for purposes of any treaty between 

12 the United States and any foreign country, in13 come attributable to a permanent establishment 

14 in the United States. 

15 ‘‘(2) EFFECT OF ELECTION.—In the case of 

16 any specified reinsurance income with respect to 

17 which the election under this subsection applies— 

18 ‘‘(A) DEDUCTION ALLOWED FOR REINSUR19 ANCE PREMIUMS.—For exemption from sub20 section (a), see definition of non-taxed reinsur21 ance premiums in subsection (b). 

22 ‘‘(B) EXCEPTION FROM EXCISE TAX.—The 

23 tax imposed by section 4371 shall not apply 

24 with respect to any income treated as effectively 


srobinson on DSK4SPTVN1PROD with BILLS
111 

•HR 505 IH

1 connected with the conduct of a trade or busi2 ness in the United States under paragraph (1). 

3 ‘‘(C) TAXATION UNDER THIS SUB4 CHAPTER.—Such income shall be subject to tax 

5 under this subchapter to the same extent and 

6 in the same manner as if such income were the 

7 income of a domestic insurance company. 

8 ‘‘(D) COORDINATION WITH FOREIGN TAX

9 CREDIT PROVISIONS.—For purposes of subpart 

10 A of part III of subchapter N and sections 78 

11 and 960— 

12 ‘‘(i) such specified reinsurance income 

13 shall be treated as derived from sources 

14 without the United States, and 

15 ‘‘(ii) subsections (a), (b), and (c) of 

16 section 904 and sections 902, 907, and 

17 960 shall be applied separately with re18 spect to each item of such income. 

19 The Secretary may issue regulations or other 

20 guidance which provide that related items of 

21 specified reinsurance income may be aggregated 

22 for purposes of applying clause (ii). 

23 ‘‘(3) SPECIFIED AFFILIATED CORPORATION.— 

24 For purposes of this subsection, the term ‘specified 

25 affiliated corporation’ means any affiliated corporaVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00111 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
112 

•HR 505 IH

1 tion which is a foreign corporation and which meets 

2 such requirements as the Secretary shall prescribe to 

3 ensure that tax on the specified reinsurance income 

4 of such corporation is properly determined and paid. 

5 ‘‘(4) SPECIFIED REINSURANCE INCOME.—For 

6 purposes of this paragraph, the term ‘specified rein7 surance income’ means all income of a specified af8 filiated corporation which is attributable to reinsur9 ance with respect to which subsection (a) would (but 

10 for the election under this subsection) apply. 

11 ‘‘(5) RULES RELATED TO ELECTION.—Any 

12 election under paragraph (1) shall— 

13 ‘‘(A) be made at such time and in such 

14 form and manner as the Secretary may provide, 

15 and 

16 ‘‘(B) apply for the taxable year for which 

17 made and all subsequent taxable years unless 

18 revoked with the consent of the Secretary. 

19 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

20 such regulations or other guidance as may be appropriate 

21 to carry out, or to prevent the avoidance of the purposes 

22 of, this section, including regulations or other guidance 

23 which provide for the application of this section to alter24 native reinsurance transactions, fronting transactions, 


srobinson on DSK4SPTVN1PROD with BILLS
113 

•HR 505 IH

1 conduit and reciprocal transactions, and any economically 

2 equivalent transactions.’’. 

3 (b) CLERICAL AMENDMENT.—The table of sections 

4 for part III of subchapter L of chapter 1 of such Code 

5 is amended by adding at the end the following new item: 

‘‘Sec. 849. Special rules for reinsurance of non-life contracts with non-taxed affiliates.’’. 

6 (c) EFFECTIVE DATE.—The amendment made by 

7 this section shall apply to taxable years beginning after 

8 December 31, 2012. 

9 Subtitle C—Close Loophole for 

10 Corporate Jet Depreciation 

11 SEC. 421. GENERAL AVIATION AIRCRAFT TREATED AS 7- 

12 YEAR PROPERTY. 

13 (a) IN GENERAL.—Subparagraph (C) of section 

14 168(e)(3) of the Internal Revenue Code of 1986 (relating 

15 to classification of certain property) is amended by strik16 ing ‘‘and’’ at the end of clause (iv), by redesignating clause 

17 (v) as clause (vi), and by inserting after clause (iv) the 

18 following new clause: 

19 ‘‘(v) any general aviation aircraft, and’’. 

20 (b) CLASS LIFE.—Paragraph (3) of section 168(g) 

21 Internal Revenue Code of 1986 is amended by inserting 

22 after subparagraph (E) the following new subparagraph: 

23 ‘‘(F) General aviation aircraft. In the case 

24 of any general aviation aircraft, the recovery 


srobinson on DSK4SPTVN1PROD with BILLS
114 

•HR 505 IH

1 period used for purposes of paragraph (2) shall 

2 be 12 years.’’. 

3 (c) GENERAL AVIATION AIRCRAFT.—Subsection (i) 

4 of section 168 Internal Revenue Code of 1986 is amended 

5 by inserting after paragraph (19) the following new para6 graph: 

7 ‘‘(20) GENERAL AVIATION AIRCRAFT.—The 

8 term ‘general aviation aircraft’ means any airplane 

9 or helicopter (including airframes and engines) not 

10 used in commercial or contract carrying of pas11 sengers or freight, but which primarily engages in 

12 the carrying of passengers.’’. 

13 (d) EFFECTIVE DATE.—This section shall be effec14 tive for property placed in service after December 31, 

15 2012. 

16 TITLE V—CLOSE ESTATE TAX 

17 LOOPHOLES 

18 SEC. 501. VALUATION RULES FOR CERTAIN TRANSFERS OF 

19 NONBUSINESS ASSETS; LIMITATION ON MI20 NORITY DISCOUNTS. 

21 (a) IN GENERAL.—Section 2031 of the Internal Rev22 enue Code of 1986 is amended by redesignating subsection 

23 (d) as subsection (f) and by inserting after subsection (c) 

24 the following new subsections: 


srobinson on DSK4SPTVN1PROD with BILLS
115 

•HR 505 IH

1 ‘‘(d) VALUATION RULES FOR CERTAIN TRANSFERS

2 OF NONBUSINESS ASSETS.—For purposes of this chapter 

3 and chapter 12— 

4 ‘‘(1) IN GENERAL.—In the case of the transfer 

5 of any interest in an entity other than an interest 

6 which is actively traded (within the meaning of sec7 tion 1092)— 

8 ‘‘(A) the value of any nonbusiness assets 

9 held by the entity shall be determined as if the 

10 transferor had transferred such assets directly 

11 to the transferee (and no valuation discount 

12 shall be allowed with respect to such nonbusi13 ness assets), and 

14 ‘‘(B) the nonbusiness assets shall not be 

15 taken into account in determining the value of 

16 the interest in the entity. 

17 ‘‘(2) NONBUSINESS ASSETS.—For purposes of 

18 this subsection— 

19 ‘‘(A) IN GENERAL.—The term ‘nonbusi20 ness asset’ means any asset which is not used 

21 in the active conduct of 1 or more trades or 

22 businesses. 

23 ‘‘(B) EXCEPTION FOR CERTAIN PASSIVE

24 ASSETS.—Except as provided in subparagraph 

25 (C), a passive asset shall not be treated for purVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00115 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
116 

•HR 505 IH

1 poses of subparagraph (A) as used in the active 

2 conduct of a trade or business unless— 

3 ‘‘(i) the asset is property described in 

4 paragraph (1) or (4) of section 1221(a) or 

5 is a hedge with respect to such property, 

6 or 

7 ‘‘(ii) the asset is real property used in 

8 the active conduct of 1 or more real prop9 erty trades or businesses (within the mean10 ing of section 469(c)(7)(C)) in which the 

11 transferor materially participates and with 

12 respect to which the transferor meets the 

13 requirements of section 469(c)(7)(B)(ii). 

14 For purposes of clause (ii), material participa15 tion shall be determined under the rules of sec16 tion 469(h), except that section 469(h)(3) shall 

17 be applied without regard to the limitation to 

18 farming activity. 

19 ‘‘(C) EXCEPTION FOR WORKING CAP20 ITAL.—Any asset (including a passive asset) 

21 which is held as a part of the reasonably re22 quired working capital needs of a trade or busi23 ness shall be treated as used in the active con24 duct of a trade or business. 


srobinson on DSK4SPTVN1PROD with BILLS
117 

•HR 505 IH

1 ‘‘(3) PASSIVE ASSET.—For purposes of this 

2 subsection, the term ‘passive asset’ means any— 

3 ‘‘(A) cash or cash equivalents, 

4 ‘‘(B) except to the extent provided by the 

5 Secretary, stock in a corporation or any other 

6 equity, profits, or capital interest in any entity, 

7 ‘‘(C) evidence of indebtedness, option, for8 ward or futures contract, notional principal con9 tract, or derivative, 

10 ‘‘(D) asset described in clause (iii), (iv), or 

11 (v) of section 351(e)(1)(B), 

12 ‘‘(E) annuity, 

13 ‘‘(F) real property used in 1 or more real 

14 property trades or businesses (as defined in sec15 tion 469(c)(7)(C)), 

16 ‘‘(G) asset (other than a patent, trade17 mark, or copyright) which produces royalty in18 come, 

19 ‘‘(H) commodity, 

20 ‘‘(I) collectible (within the meaning of sec21 tion 401(m)), or 

22 ‘‘(J) any other asset specified in regula23 tions prescribed by the Secretary. 

24 ‘‘(4) LOOK-THRU RULES.— 


srobinson on DSK4SPTVN1PROD with BILLS
118 

•HR 505 IH

1 ‘‘(A) IN GENERAL.—If a nonbusiness asset 

2 of an entity consists of a 10-percent interest in 

3 any other entity, this subsection shall be ap4 plied by disregarding the 10-percent interest 

5 and by treating the entity as holding directly its 

6 ratable share of the assets of the other entity. 

7 This subparagraph shall be applied successively 

8 to any 10-percent interest of such other entity 

9 in any other entity. 

10 ‘‘(B) 10-PERCENT INTEREST.—The term 

11 ‘10-percent interest’ means— 

12 ‘‘(i) in the case of an interest in a cor13 poration, ownership of at least 10 percent 

14 (by vote or value) of the stock in such cor15 poration, 

16 ‘‘(ii) in the case of an interest in a 

17 partnership, ownership of at least 10 per18 cent of the capital or profits interest in the 

19 partnership, and 

20 ‘‘(iii) in any other case, ownership of 

21 at least 10 percent of the beneficial inter22 ests in the entity. 

23 ‘‘(C) EXCEPTION FOR ACTIVELY TRADED

24 INTERESTS.—Subparagraph (A) shall not apply 

25 to any nonbusiness asset which consists of an 


srobinson on DSK4SPTVN1PROD with BILLS
119 

•HR 505 IH

1 interest which is actively traded (within the 

2 meaning of section 1092). 

3 ‘‘(5) COORDINATION WITH SUBSECTION (b).— 

4 Subsection (b) shall apply after the application of 

5 this subsection. 

6 ‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For 

7 purposes of this chapter and chapter 12, in the case of 

8 the transfer of any interest in an entity other than an in9 terest which is actively traded (within the meaning of sec10 tion 1092), no discount shall be allowed by reason of the 

11 fact that the transferee does not have control of such enti12 ty if the transferee and members of the family (as defined 

13 in section 2032A(e)(2)) of the transferee have control of 

14 such entity (determined immediately after such trans15 fer).’’. 

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

17 this section shall apply to transfers after the date of the 

18 enactment of this Act. 

19 SEC. 502. CONSISTENT BASIS REPORTING BETWEEN ES20 TATE AND PERSON ACQUIRING PROPERTY 

21 FROM DECEDENT. 

22 (a) CONSISTENT USE OF BASIS.— 

23 (1) PROPERTY ACQUIRED FROM A DECE24 DENT.—Section 1014 of the Internal Revenue Code 


srobinson on DSK4SPTVN1PROD with BILLS
120 

•HR 505 IH

1 of 1986 is amended by adding at the end the fol2 lowing new subsection: 

3 ‘‘(f) BASIS MUST BE CONSISTENT WITH ESTATE

4 TAX RETURN.— 

5 ‘‘(1) IN GENERAL.—For purposes of this sec6 tion, the value used to determine the basis of any in7 terest in property in the hands of the person acquir8 ing such property shall not exceed the value of such 

9 interest as finally determined for purposes of chap10 ter 11. 

11 ‘‘(2) SPECIAL RULE WHERE NO FINAL DETER12 MINATION.—In any case in which the final value of 

13 property has not been determined under chapter 11 

14 and there has been a statement furnished under sec15 tion 6035(a), the value used to determine the basis 

16 of any interest in property in the hands of the per17 son acquiring such property shall not exceed the 

18 amount reported on any statement furnished under 

19 section 6035(a). 

20 ‘‘(3) REGULATIONS.—The Secretary may by 

21 regulations provide exceptions to the application of 

22 this subsection.’’. 

23 (2) PROPERTY ACQUIRED BY GIFTS AND

24 TRANSFERS IN TRUST.—Section 1015 of the InterVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00120 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
121 

•HR 505 IH

1 nal Revenue Code of 1986 is amended by adding at 

2 the end the following new subsection: 

3 ‘‘(f) BASIS MUST BE CONSISTENT GIFT TAX RE4 TURN.— 

5 ‘‘(1) IN GENERAL.—For purposes of this sec6 tion, the value used to determine the basis of any in7 terest in property in the hands of the person acquir8 ing such property shall not exceed the value of such 

9 interest as finally determined for purposes of chap10 ter 12. 

11 ‘‘(2) SPECIAL RULE WHERE NO FINAL DETER12 MINATION.—In any case in which the final value of 

13 property has not been determined under chapter 12 

14 and there has been a statement furnished under sec15 tion 6035(b), the value used to determine the basis 

16 of any interest in property in the hands of the per17 son acquiring such property shall not exceed the 

18 amount reported on any statement furnished under 

19 section 6035(b). 

20 ‘‘(3) REGULATIONS.—The Secretary may by 

21 regulations provide exceptions to the application of 

22 this subsection.’’. 

23 (b) INFORMATION REPORTING.— 

24 (1) IN GENERAL.—Subpart A of part III of 

25 subchapter A of chapter 61 of the Internal Revenue 


srobinson on DSK4SPTVN1PROD with BILLS
122 

•HR 505 IH

1 Code of 1986 is amended by inserting after section 

2 6034A the following new section: 

3 ‘‘SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING 

4 PROPERTY FROM DECEDENT OR BY GIFT. 

5 ‘‘(a) INFORMATION WITH RESPECT TO PROPERTY

6 ACQUIRED FROM DECEDENTS.— 

7 ‘‘(1) IN GENERAL.—The executor of any estate 

8 required to file a return under section 6018(a) shall 

9 furnish to the Secretary and to each person acquir10 ing any interest in property included in the dece11 dent’s gross estate for Federal estate tax purposes 

12 a statement identifying the value of each interest in 

13 such property as reported on such return and such 

14 other information with respect to such interest as 

15 the Secretary may prescribe. 

16 ‘‘(2) STATEMENTS BY BENEFICIARIES.—Each 

17 person required to file a return under section 

18 6018(b) shall furnish to the Secretary and to each 

19 other person who holds a legal or beneficial interest 

20 in the property to which such return relates a state21 ment identifying the information described in para22 graph (1). 

23 ‘‘(3) TIME FOR FURNISHING STATEMENT.— 

24 ‘‘(A) IN GENERAL.—Each statement re25 quired to be furnished under paragraph (1) or 


srobinson on DSK4SPTVN1PROD with BILLS
123 

•HR 505 IH

1 (2) shall be furnished at such time as the Sec2 retary may prescribe, but in no case at a time 

3 later than the earlier of— 

4 ‘‘(i) the date which is 30 days after 

5 the date on which the return under section 

6 6018 was required to be filed (including 

7 extensions, if any), or 

8 ‘‘(ii) the date which is 30 days after 

9 the date such return is filed. 

10 ‘‘(B) ADJUSTMENTS.—In any case in 

11 which there is an adjustment to the information 

12 required to be included on a statement filed 

13 under paragraph (1) or (2) after such state14 ment has been filed, a supplemental statement 

15 under such paragraph shall be filed not later 

16 than the date which is 30 days after such ad17 justment is made. 

18 ‘‘(b) INFORMATION WITH RESPECT TO PROPERTY

19 ACQUIRED BY GIFT.— 

20 ‘‘(1) IN GENERAL.—Each person making a 

21 transfer by gift who is required to file a return 

22 under section 6019 with respect to such transfer 

23 shall furnish to the Secretary and to each person ac24 quiring any interest in property by reason of such 

25 transfer a statement identifying the value of each inVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00123 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
124 

•HR 505 IH

1 terest in such property as reported on such return 

2 and such other information with respect to such in3 terest as the Secretary may prescribe. 

4 ‘‘(2) TIME FOR FURNISHING STATEMENT.— 

5 ‘‘(A) IN GENERAL.—Each statement re6 quired to be furnished under paragraph (1) 

7 shall be furnished at such time as the Secretary 

8 may prescribe, but in no case at a time later 

9 than the earlier of— 

10 ‘‘(i) the date which is 30 days after 

11 the date on which the return under section 

12 6019 was required to be filed (including 

13 extensions, if any), or 

14 ‘‘(ii) the date which is 30 days after 

15 the date such return is filed. 

16 ‘‘(B) ADJUSTMENTS.—In any case in 

17 which there is an adjustment to the information 

18 required to be included on a statement filed 

19 under paragraph (1) after such statement has 

20 been filed, a supplemental statement under 

21 such paragraph shall be filed not later than the 

22 date which is 30 days after such adjustment is 

23 made. 


srobinson on DSK4SPTVN1PROD with BILLS
125 

•HR 505 IH

1 ‘‘(c) REGULATIONS.—The Secretary shall prescribe 

2 such regulations as necessary to carry out this section, in3 cluding regulations relating to— 

4 ‘‘(1) the application of this section to property 

5 with regard to which no estate or gift tax return is 

6 required to be filed, and 

7 ‘‘(2) situations in which the surviving joint ten8 ant or other recipient may have better information 

9 than the executor regarding the basis or fair market 

10 value of the property.’’. 

11 (2) PENALTY FOR FAILURE TO FILE.— 

12 (A) RETURN.—Section 6724(d)(1) of the 

13 Internal Revenue Code of 1986 is amended by 

14 striking ‘‘and’’ at the end of subparagraph (B), 

15 by striking the period at the end of subpara16 graph (C) and inserting ‘‘, and’’, and by adding 

17 at the end the following new subparagraph: 

18 ‘‘(D) any statement required to be filed 

19 with the Secretary under section 6035.’’. 

20 (B) STATEMENT.—Section 6724(d)(2) of 

21 such Code is amended by striking ‘‘or’’ at the 

22 end of subparagraph (GG), by striking the pe23 riod at the end of subparagraph (HH) and in24 serting ‘‘, or’’, and by adding at the end the fol25 lowing new subparagraph: 


srobinson on DSK4SPTVN1PROD with BILLS
126 

•HR 505 IH

1 ‘‘(II) section 6035 (other than a statement 

2 described in paragraph (1)(D)).’’. 

3 (3) CLERICAL AMENDMENT.—The table of sec4 tions for subpart A of part III of subchapter A of 

5 chapter 61 of the Internal Revenue Code of 1986 is 

6 amended by inserting after the item relating to sec7 tion 6034A the following new item: 

‘‘Sec. 6035. Basis information to persons acquiring property from decedent or 

by gift.’’. 

8 (c) PENALTY FOR INCONSISTENT REPORTING.— 

9 (1) IN GENERAL.—Subsection (b) of section 

10 6662 of the Internal Revenue Code of 1986 is 

11 amended by inserting after paragraph (7) the fol12 lowing new paragraph: 

13 ‘‘(8) Any inconsistent estate or gift basis.’’. 

14 (2) INCONSISTENT BASIS REPORTING.—Section 

15 6662 of such Code is amended by adding at the end 

16 the following new subsection: 

17 ‘‘(k) INCONSISTENT ESTATE OR GIFT BASIS RE18 PORTING.—For purposes of this section, the term ‘incon19 sistent estate or gift basis’ means the portion of the under20 statement which is attributable to— 

21 ‘‘(1) in the case of property acquired from a de22 cedent, a basis determination with respect to such 

23 property which is not consistent with the value of 


srobinson on DSK4SPTVN1PROD with BILLS
127 

•HR 505 IH

1 such property as determined under section 1014(f), 

2 and 

3 ‘‘(2) in the case of property acquired by gift, a 

4 basis determination with respect to such property 

5 which is not consistent with the value of such prop6 erty as determined under section 1015(f).’’. 

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

8 this section shall apply to transfers for which returns are 

9 filed after the date of the enactment of this Act. 

10 SEC. 503. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR 

11 GRANTOR RETAINED ANNUITY TRUSTS. 

12 (a) IN GENERAL.—Subsection (b) of section 2702 of 

13 the Internal Revenue Code of 1986 is amended— 

14 (1) by redesignating paragraphs (1), (2) and 

15 (3) as subparagraphs (A), (B), and (C), respectively, 

16 and by moving such subparagraphs (as so redesig17 nated) 2 ems to the right; 

18 (2) by striking ‘‘For purposes of’’ and inserting 

19 the following: 

20 ‘‘(1) IN GENERAL.—For purposes of’’; 

21 (3) by striking ‘‘paragraph (1) or (2)’’ in para22 graph (1)(C) (as so redesignated) and inserting 

23 ‘‘subparagraph (A) or (B)’’; and 

24 (4) by adding at the end the following new 

25 paragraph: 


srobinson on DSK4SPTVN1PROD with BILLS
128 

•HR 505 IH

1 ‘‘(2) ADDITIONAL REQUIREMENTS WITH RE2 SPECT TO GRANTOR RETAINED ANNUITIES.—For 

3 purposes of subsection (a), in the case of an interest 

4 described in paragraph (1)(A) (determined without 

5 regard to this paragraph) which is retained by the 

6 transferor, such interest shall be treated as de7 scribed in such paragraph only if— 

8 ‘‘(A) the right to receive the fixed amounts 

9 referred to in such paragraph is for a term of 

10 not less than 10 years, 

11 ‘‘(B) such fixed amounts, when determined 

12 on an annual basis, do not decrease relative to 

13 any prior year during the first 10 years of the 

14 term referred to in subparagraph (A), and 

15 ‘‘(C) the remainder interest has a value 

16 greater than zero determined as of the time of 

17 the transfer.’’. 

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

19 this section shall apply to transfers made after the date 

20 of the enactment of this Act. 

21 SEC. 504. LIMITATION ON GST EXEMPTION OF PERPETUAL 

22 DYNASTY TRUSTS. 

23 (a) IN GENERAL.—Section 2642 of the Internal Rev24 enue Code of 1986 is amended by adding at the end the 

25 following new subsection: 


srobinson on DSK4SPTVN1PROD with BILLS
129 

•HR 505 IH

1 ‘‘(h) EXPIRATION OF GST EXEMPTION 90 YEARS

2 AFTER ESTABLISHMENT OF TRUST.— 

3 ‘‘(1) IN GENERAL.—In the case of any genera4 tion-skipping transfer made from a trust after the 

5 date which is 90 years after the date on which such 

6 trust is created, the inclusion ratio with respect to 

7 any property transferred in such transfer shall be 1. 

8 ‘‘(2) SPECIAL RULES.—For purposes of this 

9 subsection— 

10 ‘‘(A) DATE OF CREATION OF CERTAIN

11 DEEMED SEPARATE TRUSTS.—In the case of 

12 any portion of a trust which is treated as a sep13 arate trust under section 2654(b)(1), such sep14 arate trust shall be treated as created on the 

15 date of the first transfer described in such sec16 tion with respect to such separate trust. 

17 ‘‘(B) DATE OF CREATION OF POUR-OVER

18 TRUSTS.—In the case of any generation-skip19 ping transfer of property which involves the 

20 transfer of property from 1 trust to another 

21 trust, the date of the creation of the transferee 

22 trust shall be treated as being the earlier of— 

23 ‘‘(i) the date of the creation of such 

24 transferee trust, or 


srobinson on DSK4SPTVN1PROD with BILLS
130 

•HR 505 IH

1 ‘‘(ii) the date of the creation of the 

2 transferor trust. 

3 In the case of multiple transfers to which the 

4 preceding sentence applies, the date of the cre5 ation of the transferor trust shall be determined 

6 under the preceding sentence before the appli7 cation of the preceding sentence to determine 

8 the date of the creation of the transferee trust. 

9 ‘‘(C) EXCEPTION FOR CERTAIN TRANS10 FERS FOR EDUCATION AND MEDICAL EX11 PENSES.—Subparagraph (B) shall not apply to 

12 the transfer of property from 1 trust to another 

13 trust if— 

14 ‘‘(i) such transfer is described in sec15 tion 2642(c)(2), and 

16 ‘‘(ii) the individual referred to in such 

17 section with respect to the transferee trust 

18 was also a beneficiary of the transferor 

19 trust. 

20 ‘‘(3) REGULATIONS.—The Secretary may pre21 scribe such regulations or other guidance as may be 

22 necessary or appropriate to carry out this sub23 section.’’. 

24 (b) EFFECTIVE DATE.— 


srobinson on DSK4SPTVN1PROD with BILLS
131 

•HR 505 IH

1 (1) IN GENERAL.—The amendments made this 

2 section shall apply to— 

3 (A) trusts created after the date of the en4 actment of this Act, and 

5 (B) generation-skipping transfers made 

6 from trusts created on or before such date, but 

7 only to the extent such transfer is made out of 

8 corpus added to the trust after such date (or 

9 out of income attributable to corpus so added). 

10 (2) DETERMINATION OF DATE OF CREATION.— 

11 For purposes of this subsection, the rules of sections 

12 2642(h)(2) (as added by this section) and 2654(b) 

13 of the Internal Revenue Code of 1986 shall apply for 

14 purposes of determining the date of the creation of 

15 any trust. 

16 (3) EXCEPTIONS.—The Secretary of the Treas17 ury, or his designee, shall issue regulations or other 

18 guidance which provide exceptions to the application 

19 of the amendments made by this section which are 

20 substantially similar to the relevant exceptions under 

21 paragraph (2) of section 1433(b) of the Tax Reform 

22 Act of 1986. 


srobinson on DSK4SPTVN1PROD with BILLS
132 

•HR 505 IH

1 TITLE VI—CUT PENTAGON 

2 WASTE TO ACHIEVE BALANCE 

3 Subtitle A—Smarter Approach to 

4 Nuclear Expenditures 

5 SEC. 601. SHORT TITLE. 

6 This title may be cited as the ‘‘Smarter Approach to 

7 Nuclear Expenditures Act’’. 

8 SEC. 602. FINDINGS. 

9 Congress finds the following: 

10 (1) The Berlin Wall fell in 1989, the U.S.S.R. 

11 no longer exists, and the Cold War is over. The na12 ture of threats to the national security and military 

13 interests of the United States has changed. How14 ever, the United States continues to maintain an 

15 enormous arsenal of nuclear weapons and delivery 

16 systems that were devised with the Cold War in 

17 mind. 

18 (2) The current nuclear arsenal of the United 

19 States includes approximately 5,000 total nuclear 

20 warheads, of which approximately 2,000 are de21 ployed with three delivery components: long-range 

22 strategic bomber aircraft, land-based interconti23 nental ballistic missiles, and submarine-launched 

24 ballistic missiles. The bomber fleet of the United 

25 States comprises 93 B–52 and 20 B–2 aircraft. The 


srobinson on DSK4SPTVN1PROD with BILLS
133 

•HR 505 IH

1 United States maintains 450 intercontinental bal2 listic missiles. The United States also maintains 14 

3 Ohio-class submarines, up to 12 of which are de4 ployed at sea. Each of these submarines is armed 

5 with up to 96 independently targetable nuclear war6 heads. 

7 (3) This Cold War-based approach to nuclear 

8 security comes at significant cost. Over the next 10 

9 years, the United States will spend hundreds of bil10 lions of dollars maintaining its nuclear force. A sub11 stantial decrease in the nuclear arsenal of the 

12 United States is prudent for both the budget and 

13 national security. 

14 (4) The national security interests of the 

15 United States can be well served by reducing the 

16 total number of deployed nuclear warheads and their 

17 delivery systems, as suggested by the Department of 

18 Defense’s January 2012 strategic guidance titled 

19 ‘‘Sustaining U.S. Global Leadership: Priorities for 

20 21st Century Defense’’. Furthermore, a number of 

21 arms control, nuclear, and national security experts 

22 have urged the United States to reduce the number 

23 of deployed nuclear warheads to no more than 

24 1,000. 


srobinson on DSK4SPTVN1PROD with BILLS
134 

•HR 505 IH

1 (5) Economic security and national security are 

2 linked and both will be well served by smart defense 

3 spending. Admiral Mike Mullen, Chairman of the 

4 Joint Chiefs of Staff, stated on June 24, 2010, that 

5 ‘‘Our national debt is our biggest national security 

6 threat’’ and on August 2, 2011, stated that ‘‘I 

7 haven’t changed my view that the continually in8 creasing debt is the biggest threat we have to our 

9 national security.’’. 

10 (6) The Government Accountability Office has 

11 found that there is significant waste in the construc12 tion of the nuclear facilities of the National Nuclear 

13 Security Administration of the Department of En14 ergy. 

15 SEC. 603. REDUCTION IN NUCLEAR FORCES. 

16 (a) PROHIBITION ON USE OF B–2 AND B–52 AIR17 CRAFT FOR NUCLEAR MISSIONS.—Notwithstanding any 

18 other provision of law, none of the funds authorized to 

19 be appropriated or otherwise made available for fiscal year 

20 2014 or any fiscal year thereafter for the Department of 

21 Defense may be obligated or expended to arm a B–2 or 

22 B–52 aircraft with a nuclear weapon. 

23 (b) PROHIBITION ON NEW LONG-RANGE PENE24 TRATING BOMBER AIRCRAFT.—Notwithstanding any 

25 other provision of law, none of the funds authorized to 


srobinson on DSK4SPTVN1PROD with BILLS
135 

•HR 505 IH

1 be appropriated or otherwise made available for any of fis2 cal years 2014 through 2024 for the Department of De3 fense may be obligated or expended for the research, devel4 opment, test, and evaluation or procurement of a long5 range penetrating bomber aircraft. 

6 (c) PROHIBITION ON F–35 NUCLEAR MISSION.— 

7 Notwithstanding any other provision of law, none of the 

8 funds authorized to be appropriated or otherwise made 

9 available for fiscal year 2014 or any fiscal year thereafter 

10 for the Department of Defense or the Department of En11 ergy may be used to make the F–35 Joint Strike Fighter 

12 aircraft capable of carrying nuclear weapons. 

13 (d) TERMINATION OF B61 LEP.—Notwithstanding 

14 any other provision of law, none of the funds authorized 

15 to be appropriated or otherwise made available for fiscal 

16 year 2014 or any fiscal year thereafter for the Department 

17 of Defense or the Department of Energy may be obligated 

18 or expended for the B61 life extension program. 

19 (e) TERMINATION OF W78 LEP.—Notwithstanding 

20 any other provision of law, none of the funds authorized 

21 to be appropriated or otherwise made available for fiscal 

22 year 2014 or any fiscal year thereafter for the Department 

23 of Defense or the Department of Energy may be obligated 

24 or expended for the W78 life extension program. 


srobinson on DSK4SPTVN1PROD with BILLS
136 

•HR 505 IH

1 (f) REDUCTION OF NUCLEAR-ARMED SUB2 MARINES.—Notwithstanding any other provision of law, 

3 beginning in fiscal year 2014, the forces of the Navy shall 

4 include not more than eight operational ballistic-missile 

5 submarines available for deployment. 

6 (g) LIMITATION ON SSBN–X SUBMARINES.—Not7 withstanding any other provision of law— 

8 (1) none of the funds authorized to be appro9 priated or otherwise made available for any of fiscal 

10 years 2014 through 2024 for the Department of De11 fense may be obligated or expended for the procure12 ment of an SSBN–X submarine; and 

13 (2) none of the funds authorized to be appro14 priated or otherwise made available for fiscal year 

15 2025 or any fiscal year thereafter for the Depart16 ment of Defense may be obligated or expended for 

17 the procurement of more than eight such sub18 marines. 

19 (h) REDUCTION OF ICBMS.—Notwithstanding any 

20 other provision of law, none of the funds authorized to 

21 be appropriated or otherwise made available for fiscal year 

22 2014 or any fiscal year thereafter for the Department of 

23 Defense may be obligated or expended to maintain more 

24 than 200 intercontinental ballistic missiles. 


srobinson on DSK4SPTVN1PROD with BILLS
137 

•HR 505 IH

1 (i) REDUCTION OF SLBMS.—Notwithstanding any 

2 other provision of law, none of the funds authorized to 

3 be appropriated or otherwise made available for fiscal year 

4 2014 or any fiscal year thereafter for the Department of 

5 Defense may be obligated or expended to maintain more 

6 than 250 submarine-launched ballistic missiles. 

7 (j) PROHIBITION ON NEW ICBM.—Notwithstanding 

8 any other provision of law, none of the funds authorized 

9 to be appropriated or otherwise made available for fiscal 

10 year 2014 or any fiscal year thereafter for the Department 

11 of Defense may be obligated or expended for the research, 

12 development, test, and evaluation or procurement of a new 

13 intercontinental ballistic missile. 

14 (k) TERMINATION OF MOX FUEL PLANT

15 PROJECT.—Notwithstanding any other provision of law, 

16 none of the funds authorized to be appropriated or other17 wise made available for fiscal year 2014 or any fiscal year 

18 thereafter for the Department of Defense or the Depart19 ment of Energy may be obligated or expended for the 

20 Mixed Oxide (MOX) Fuel Fabrication Facility project. 

21 (l) TERMINATION OF CMRR PROJECT.—Notwith22 standing section 4215 of the Atomic Energy Defense Act 

23 or any other provision of law, none of the funds authorized 

24 to be appropriated or otherwise made available for fiscal 

25 year 2014 or any fiscal year thereafter for the Department 


srobinson on DSK4SPTVN1PROD with BILLS
138 

•HR 505 IH

1 of Defense or the Department of Energy may be obligated 

2 or expended for the Chemistry and Metallurgy Research 

3 Replacement nuclear facility. 

4 (m) TERMINATION OF UPF.—Notwithstanding any 

5 other provision of law, none of the funds authorized to 

6 be appropriated or otherwise made available for fiscal year 

7 2014 or any fiscal year thereafter for the Department of 

8 Defense or the Department of Energy may be obligated 

9 or expended for the Uranium Processing Facility located 

10 at the Y–12 National Security Complex. 

11 (n) TERMINATION OF MEADS.—Notwithstanding 

12 any other provision of law, none of the funds authorized 

13 to be appropriated or otherwise made available for fiscal 

14 year 2014 or any fiscal year thereafter for the Department 

15 of Defense may be obligated or expended for the medium 

16 extended air defense system. 

17 SEC. 604. REPORTS REQUIRED. 

18 (a) INITIAL REPORT.—Not later than 180 days after 

19 the date of the enactment of this Act, the Secretary of 

20 Defense and the Secretary of Energy shall jointly submit 

21 to the appropriate committees of Congress a report out22 lining the plan of each Secretary to carry out section 603. 

23 (b) ANNUAL REPORT.—Not later than March 1, 

24 2014, and each year thereafter, the Secretary of Defense 

25 and the Secretary of Energy shall jointly submit to the 


srobinson on DSK4SPTVN1PROD with BILLS
139 

•HR 505 IH

1 appropriate committees of Congress a report outlining the 

2 plan of each Secretary to carry out section 603, including 

3 any updates to previously submitted reports. 

4 (c) ANNUAL NUCLEAR WEAPONS ACCOUNTING.— 

5 Not later than September 30, 2014, and each year there6 after, the President shall transmit to the appropriate com7 mittees of Congress a report containing a comprehensive 

8 accounting by the Director of the Office of Management 

9 and Budget of the amounts obligated and expended by the 

10 Federal Government for each nuclear weapon and related 

11 nuclear program during— 

12 (1) the fiscal year covered by the report; and 

13 (2) the life cycle of such weapon or program. 

14 (d) APPROPRIATE COMMITTEES OF CONGRESS DE15 FINED.—In this section, the term ‘‘appropriate commit16 tees of Congress’’ means— 

17 (1) the Committee on Armed Services, the 

18 Committee on Foreign Relations, the Committee on 

19 Appropriations, and the Committee on Energy and 

20 Natural Resources of the Senate; and 

21 (2) the Committee on Armed Services, the 

22 Committee on Foreign Affairs, the Committee on 

23 Appropriations, the Committee on Energy and Com24 merce, and the Committee on Natural Resources of 

25 the House of Representatives. 


srobinson on DSK4SPTVN1PROD with BILLS
140 

•HR 505 IH

1 Subtitle B—Limiting Excessive 

2 Contractor Compensation 

3 SEC. 611. LIMITATION ON ALLOWABLE COMPENSATION 

4 COSTS. 

5 (a) LIMITATION.— 

6 (1) CIVILIAN CONTRACTS.—Section 

7 4304(a)(16) of title 41, United States Code, is 

8 amended to read as follows: 

9 ‘‘(16) Costs of compensation of contractor and 

10 subcontractor employees for a fiscal year, regardless 

11 of the contract funding source, to the extent that 

12 such compensation exceeds the rate payable for level 

13 I of the Executive Schedule under section 5312 of 

14 title 5.’’. 

15 (2) DEFENSE CONTRACTS.—Section 

16 2324(e)(1)(P) of title 10, United States Code, is 

17 amended to read as follows: 

18 ‘‘(P) Costs of compensation of contractor and 

19 subcontractor employees for a fiscal year, regardless 

20 of the contract funding source, to the extent that 

21 such compensation exceeds the rate payable for level 

22 I of the Executive Schedule under section 5312 of 

23 title 5.’’. 

24 (b) CONFORMING AMENDMENTS.— 


srobinson on DSK4SPTVN1PROD with BILLS
141 

•HR 505 IH

1 (1) IN GENERAL.—Section 1127 of title 41, 

2 United States Code, is hereby repealed. 

3 (2) CLERICAL AMENDMENT.—The table of sec4 tions at the beginning of chapter 11 of title 41, 

5 United States Code, is amended by striking the item 

6 relating to section 1127. 

7 Subtitle C—Relocate Troops From 

8 Europe to the United States 

9 SEC. 615. RELOCATION TO UNITED STATES MILITARY IN10 STALLATIONS OF MEMBERS OF THE UNITED 

11 STATES ARMED FORCES ASSIGNED TO PER12 MANENT DUTY IN EUROPE. 

13 (a) RELOCATION REQUIRED.—Not later than one 

14 year after the date of the enactment of this Act, the Sec15 retary of Defense shall complete the relocation to military 

16 installations in the United States of at least 10,000 mem17 bers of the Armed Forces of the United States who, as 

18 of the date of the enactment of this Act, are assigned to 

19 permanent duty ashore in Europe. The members relocated 

20 shall not be replaced by the assignment of other members 

21 of the Armed Forces of the United States to permanent 

22 duty ashore in Europe. 

23 (b) EXCLUSION OF CERTAIN MEMBERS.—For pur24 poses of complying with this section, the Secretary of De25 fense shall not select members of the Armed Forces perVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00141 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
142 

•HR 505 IH

1 forming the following assignments for relocation to the 

2 United States: 

3 (1) Members assigned to permanent duty 

4 ashore in Iceland, Greenland, and the Azores. 

5 (2) Members performing duties in Europe for 

6 more than 179 days under a military-to-military 

7 contact program under section 168 of title 10, 

8 United States Code. 

9 (c) EXCEPTIONS; WAIVER.—This section shall not 

10 apply in the event of a declaration of war or an armed 

11 attack on any European member nation of the North At12 lantic Treaty Organization. The President may waive op13 eration of this section if the President declares an emer14 gency and immediately informs the Congress of the waiver 

15 and the reasons therefor. 

16 (d) CONFORMING AMENDMENT TO PERMANENT

17 CEILING ON UNITED STATES MILITARY PRESENCE IN

18 EUROPE.—Section 1002(c)(1) of the Department of De19 fense Authorization Act, 1985 (22 U.S.C. 1928 note) is 

20 amended by striking ‘‘100,000’’ and inserting ‘‘60,000’’. 


srobinson on DSK4SPTVN1PROD with BILLS
143 

•HR 505 IH

1 Subtitle D—Additional Reduction 

2 in Armed Forces End Strength 

3 Levels 

4 SEC. 621. ADDITIONAL ARMY AND MARINE CORPS END 

5 STRENGTH REDUCTIONS THROUGH RETIRE6 MENT AND SEPARATION. 

7 (a) ARMY.—In addition to the reductions in end 

8 strength levels of active duty members of the Army other9 wise required to be achieved during fiscal years 2013 

10 through 2017, the Secretary of the Army shall reduce the 

11 end strength numbers for active duty personnel as of the 

12 end of fiscal year 2017 by an additional 20,000. 

13 (b) MARINE CORPS.—In addition to the reductions 

14 in end strength levels of active duty members of the Ma15 rine Corps otherwise required to be achieved during fiscal 

16 years 2013 through 2017, the Secretary of the Navy shall 

17 reduce the end strength numbers for active duty personnel 

18 as of the end of fiscal year 2017 by an additional 7,000. 

19 (c) METHODS OF ACHIEVING REDUCTIONS.—To 

20 achieve the personnel reductions required by subsections 

21 (a) and (b), the Secretary of the Army and the Secretary 

22 of the Navy shall rely on the retirement and separation 

23 of members of the Army and Marine Corps, including as 

24 a result of the use of enhanced selective early retirement 

25 boards and early discharges under section 638a of title 


srobinson on DSK4SPTVN1PROD with BILLS
144 

•HR 505 IH

1 10, United States Code, as reinstated by section 502 of 

2 the National Defense Authorization Act for Fiscal Year 

3 2013 (Public Law 112–239). 

4 Subtitle E—Procurement of Cer5 tain Submarines, Carriers, and 

6 Aircraft 

7 SEC. 631. LIMITATION ON PROCUREMENT OF VIRGINIA 

8 CLASS SUBMARINES. 

9 Notwithstanding any other provision of law, none of 

10 the funds authorized to be appropriated or otherwise made 

11 available for fiscal years 2014 through 2024 for the De12 partment of Defense may be obligated or expended to pro13 cure more than one Virginia class submarine per fiscal 

14 year. 

15 SEC. 632. LIMITATION ON PROCUREMENT OF ONE FORD 

16 CLASS AIRCRAFT CARRIER. 

17 (a) LIMITATION.—Notwithstanding any other provi18 sion of law, none of the funds authorized to be appro19 priated or otherwise made available for fiscal year 2014 

20 or any fiscal year thereafter for the Department of De21 fense may be obligated or expended to procure the Ford 

22 class aircraft carrier designated CVN–80. 

23 (b) EFFECT ON REQUIREMENT FOR 11 OPER24 ATIONAL AIRCRAFT CARRIERS.—Subsection (a) applies 

25 even in the event that the number of operational aircraft 


srobinson on DSK4SPTVN1PROD with BILLS
145 

•HR 505 IH

1 carriers for the naval combat forces of the Navy becomes 

2 less than 11, notwithstanding section 5065(b) of title 10, 

3 United States Code. 

4 SEC. 633. AUTHORITY FOR PROCUREMENT OF F/A–18E AND 

5 F/A–18F AIRCRAFT. 

6 (a) REPLACEMENT OF PLANNED PROCUREMENT OF

7 F–35C AIRCRAFT.— 

8 (1) LIMITATION ON PROCUREMENT.—Notwith9 standing any other provision of law, none of the 

10 funds authorized to be appropriated or otherwise 

11 made available for fiscal year 2014 or any fiscal year 

12 thereafter for the Department of Defense may be 

13 obligated or expended to procure the 237 F–35C air14 craft that the Secretary of the Navy planned to pro15 cure as of the date on which the budget of the Presi16 dent was submitted to Congress under section 

17 1105(a) of title 31, United States Code, for fiscal 

18 year 2013. 

19 (2) AUTHORITY FOR PROCUREMENT.—Of the 

20 funds authorized to be appropriated or otherwise 

21 made available for fiscal year 2014 or any fiscal year 

22 thereafter for the Department of Defense, the Sec23 retary of the Navy may procure not more than a 

24 total of 240 F/A–18E and F/A–18F aircraft. 


srobinson on DSK4SPTVN1PROD with BILLS
146 

•HR 505 IH

1 (b) REPLACEMENT OF PROCUREMENT OF F–35B 

2 AIRCRAFT.— 

3 (1) LIMITATION ON PROCUREMENT.—Notwith4 standing any other provision of law, none of the 

5 funds authorized to be appropriated or otherwise 

6 made available for fiscal year 2014 or any fiscal year 

7 thereafter for the Department of Defense may be 

8 obligated or expended to procure more than 200 F– 

9 35B aircraft. 

10 (2) AUTHORITY FOR PROCUREMENT.—Of the 

11 funds authorized to be appropriated or otherwise 

12 made available for fiscal year 2014 or any fiscal year 

13 thereafter for the Department of Defense, the Sec14 retary of the Navy may procure not more than a 

15 total of 220 F/A–18E and F/A–18F aircraft. 

16 SEC. 634. PROHIBITION ON PROCUREMENT OF V–22 OS17 PREY AIRCRAFT. 

18 Notwithstanding any other provision of law, none of 

19 the funds authorized to be appropriated or otherwise made 

20 available for fiscal year 2014 or any fiscal year thereafter 

21 for the Department of Defense may be obligated or ex22 pended for the procurement of V–22 Osprey aircraft. 


srobinson on DSK4SPTVN1PROD with BILLS
147 

•HR 505 IH

1 Subtitle F—Limit Military Bands 

2 SEC. 641. LIMITATION ON EXPENDITURES FOR MILITARY 

3 MUSICAL UNITS. 

4 Amounts expended for any fiscal year for military 

5 musical units (as defined in section 974 of title 10, United 

6 States Code) may not exceed $200,000,000. 

7 Subtitle G—Reduction in Number 

8 of General and Flag Officers 

9 SEC. 651. RETURN OF MAXIMUM NUMBER OF GENERAL 

10 AND FLAG OFFICERS TO COLD WAR LEVELS. 

11 Section 526 of title 10, United States Code, is 

12 amended by adding at the end the following new sub13 section: 

14 ‘‘(i) ADDITIONAL LIMITATION STATED AS RATIO OF

15 MEMBERS ON ACTIVE DUTY.—Notwithstanding any other 

16 provision of this section, the number of general officers 

17 on active duty in the Army, Air Force, or Marine Corps, 

18 and the number of flag officers on active duty in the Navy, 

19 may not exceed six general officers or flag officers for each 

20 10,000 members of that armed force on active duty.’’. 

21 Subtitle H—Audit the Pentagon 

22 SEC. 661. PURPOSES. 

23 The purposes of this subtitle are as follows: 

24 (1) To strengthen American national security 

25 by ensuring that— 


srobinson on DSK4SPTVN1PROD with BILLS
148 

•HR 505 IH

1 (A) military planning, operations, weapons 

2 development, and a long-term national security 

3 strategy are connected to sound financial con4 trols; and 

5 (B) defense dollars are spent efficiently. 

6 (2) To instill a culture of accountability at the 

7 Department of Defense that supports the vast ma8 jority of dedicated members of the Armed Forces 

9 and civilians who want to ensure proper accounting 

10 and prevent waste, fraud, and abuse. 

11 SEC. 662. FINDINGS. 

12 Congress finds the following: 

13 (1) The 2011 Financial Report of the United 

14 States Government found that 32 of 35 major Fed15 eral agencies received clean audit opinions. Two 

16 more, the Department of Homeland Security and 

17 the Department of State, received ‘‘qualified’’ audit 

18 opinions but are making progress. Only the Depart19 ment of Defense had a ‘‘disclaimer’’ because it 

20 lacked any auditable reporting or accounting avail21 able for independent review. 

22 (2) The financial management of the Depart23 ment of Defense has been on the ‘‘High-Risk’’ list 

24 of the Government Accountability Office (GAO). The 

25 GAO found that the Department is not consistently 


srobinson on DSK4SPTVN1PROD with BILLS
149 

•HR 505 IH

1 able to ‘‘control costs; ensure basic accountability; 

2 anticipate future costs and claims on the budget; 

3 measure performance; maintain funds control; and 

4 prevent and detect fraud, waste, and abuse’’. 

5 (3) At a September 2010 hearing of the Senate, 

6 the Government Accountability Office stated that 

7 past expenditures by the Department of Defense of 

8 $5,800,000,000 to improve financial information, 

9 and billions of dollars more of anticipated expendi10 tures on new information technology systems for 

11 that purpose, may not suffice to achieve full audit 

12 readiness of the financial statement of the Depart13 ment. At that hearing, the Government Account14 ability Office could not predict when the Department 

15 would achieve full audit readiness of such state16 ments. 

17 (4) Section 9 of article I of the Constitution of 

18 the United States requires all agencies of the Fed19 eral Government, including the Department of De20 fense, to publish ‘‘a regular statement and account 

21 of the receipts and expenditures of all public 

22 money’’. 

23 (5) Section 303(d) of the Chief Financial Offi24 cers Act of 1990 (Public Law 101–576) required 

25 that financial statements be prepared and independVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00149 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
150 

•HR 505 IH

1 ently audited for the Department of the Army by 

2 March 31, 1992, and for the Department of the Air 

3 Force by March 31, 1993. Neither the Department 

4 of the Army nor the Department of the Air Force 

5 has complied. 

6 (6) Section 3515 of title 31, United States 

7 Code, requires the agencies of the Federal Govern8 ment, including the Department of Defense, to 

9 present auditable financial statements beginning not 

10 later than March 1, 1997. The Department has not 

11 complied with this law. 

12 (7) The Federal Financial Management Im13 provement Act of 1996 (31 U.S.C. 3512 note) re14 quires financial systems acquired by the Federal 

15 Government, including the Department of Defense, 

16 to be able to provide information to leaders to man17 age and control the cost of government. The Depart18 ment has not complied with this law. 

19 (8) The National Defense Authorization Act for 

20 Fiscal Year 2002 (Public Law 107–107) requires 

21 the Secretary of Defense to report to Congress an22 nually on the reliability of the financial statements 

23 of the Department of Defense, to minimize resources 

24 spent on producing unreliable financial statements, 


srobinson on DSK4SPTVN1PROD with BILLS
151 

•HR 505 IH

1 and to use resources saved to improve financial man2 agement policies, procedures, and internal controls. 

3 (9) In 2005, the Department of Defense cre4 ated a Financial Improvement and Audit Readiness 

5 (FIAR) Plan, overseen by a directorate within the 

6 office of the Under Secretary of Defense (Comp7 troller), to improve Department business processes 

8 with the goal of producing timely, reliable, and accu9 rate financial information that could generate an 

10 audit-ready annual financial statement. In December 

11 2005, that directorate, known as the FIAR Direc12 torate, issued the first of a series of semiannual re13 ports on the status of the Financial Improvement 

14 and Audit Readiness Plan. 

15 (10) The National Defense Authorization Act 

16 for Fiscal Year 2010 (Public Law 111–84) requires 

17 regular status reports on the Financial Improvement 

18 and Audit Readiness Plan described in paragraph 

19 (9), and codified as a statutory requirement the goal 

20 of the Plan in ensuring that Department of Defense 

21 financial statements are validated as ready for audit 

22 not later than September 30, 2017. 

23 SEC. 663. SPENDING REDUCTIONS FOR AGENCIES WITHOUT 

24 CLEAN AUDITS. 

25 (a) APPLICABILITY.— 


srobinson on DSK4SPTVN1PROD with BILLS
152 

•HR 505 IH

1 (1) IN GENERAL.—Subject to paragraph (2), 

2 this section applies to each Federal agency identified 

3 by the Director of the Office of Management and 

4 Budget as required to have an audited financial 

5 statement under section 3515 of title 31, United 

6 States Code. 

7 (2) APPLICABILITY TO MILITARY DEPARTMENTS

8 AND DEFENSE AGENCIES.—For purposes of para9 graph (1), in the case of the Department of Defense, 

10 each military department and each Defense Agency 

11 shall be treated as a separate Federal agency. 

12 (b) DEFINITIONS.—In this section, the terms ‘‘finan13 cial statement’’ and ‘‘external independent auditor’’ have 

14 the meanings given those terms in section 3521(e) of title 

15 31, United States Code. 

16 (c) ADJUSTMENTS FOR FINANCIAL ACCOUNT17 ABILITY.— 

18 (1) REDUCTION REQUIRED.—If a Federal agen19 cy has not submitted a financial statement for a fis20 cal year by March 1 of the next fiscal year, or if 

21 such financial statement has not received either an 

22 unqualified or a qualified audit opinion by an inde23 pendent external auditor by such date, the discre24 tionary budget authority available for the Federal 

25 agency for the then current fiscal year is reduced by 


srobinson on DSK4SPTVN1PROD with BILLS
153 

•HR 505 IH

1 5 percent, with the reduction applied proportionately 

2 to each account (other than an account listed in sub3 section (d) or an account for which a waiver is made 

4 under subsection (e)). 

5 (2) TREATMENT OF REDUCTION.—An amount 

6 equal to the total amount of any reduction made 

7 under paragraph (2) shall be retained in the general 

8 fund of the Treasury for the purposes of deficit re9 duction. 

10 (d) ACCOUNTS EXCLUDED.—The following accounts 

11 are excluded from any reductions referred to in subsection 

12 (c)(1): 

13 (1) Military personnel, reserve personnel, and 

14 National Guard personnel accounts of the Depart15 ment of Defense. 

16 (2) The Defense Health Program account of 

17 the Department of Defense. 

18 (e) WAIVER.—The President may waive subsection 

19 (c)(1) with respect to an account if the President certifies 

20 that applying the subsection to that account would harm 

21 national security or members of the Armed Forces who 

22 are serving in a combat zone. 

23 (f) REPORT.—Not later than 60 days after an adjust24 ment is made under subsection (c), the Director of the 

25 Office of Management and Budget shall submit to ConVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00153 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
154 

•HR 505 IH

1 gress a report describing the amount of the adjustment 

2 and the affected accounts. 

3 SEC. 664. REPORT ON DEPARTMENT OF DEFENSE REPORT4 ING REQUIREMENTS. 

5 Not later than 180 days after the date of the enact6 ment of this Act, the Under Secretary of Defense (Comp7 troller) shall submit to Congress a report setting forth the 

8 following: 

9 (1) A list of each report of the Department of 

10 Defense required by law to be submitted to Congress 

11 which, in the opinion of the Under Secretary, would 

12 no longer be necessary if the financial statements of 

13 the Department of Defense were audited with an un14 qualified opinion. 

15 (2) A list of each report of the Department re16 quired by law to be submitted to Congress which, in 

17 the opinion of the Under Secretary, interferes with 

18 the capacity of the Department to achieve an audit 

19 of the financial statements of the Department with 

20 an unqualified opinion. 

21 SEC. 665. SENSE OF CONGRESS IN IMPLEMENTATION OF 

22 DEFENSE BUDGET REDUCTIONS. 

23 It is the sense of Congress that— 

24 (1) as the overall defense budget is cut, con25 gressional defense committees and the Department 


srobinson on DSK4SPTVN1PROD with BILLS
155 

•HR 505 IH

1 of Defense should not endanger members of the 

2 Armed Forces by reducing wounded warrior ac3 counts or vital protection (such as body armor) for 

4 members of the Armed Forces in harm’s way; 

5 (2) the valuation of legacy assets by the De6 partment of Defense should be simplified without 

7 compromising essential controls or generally accept8 ed government auditing standards; and 

9 (3) nothing in this subtitle should be construed 

10 to require or permit the declassification of account11 ing details about classified defense programs, and, 

12 as required by law, the Department of Defense 

13 should ensure financial accountability in such pro14 grams using proven practices, including using audi15 tors with security clearances. 

16 TITLE VII—INVEST IN JOB 

17 CREATION 

18 Subtitle A—Making Work Pay 

19 Extension 

20 SEC. 701. ONE-YEAR EXTENSION OF MAKING WORK PAY 

21 CREDIT. 

22 (a) IN GENERAL.—Subsection (e) of section 36A of 

23 the Internal Revenue Code of 1986 is amended to read 

24 as follows: 


srobinson on DSK4SPTVN1PROD with BILLS
156 

•HR 505 IH

1 ‘‘(e) TERMINATION.—This section shall not apply to 

2 taxable years— 

3 ‘‘(1) beginning after December 31, 2010, and 

4 before January 1, 2013, or 

5 ‘‘(2) beginning after December 31, 2013.’’. 

6 (b) TREATMENT OF POSSESSIONS.—Paragraph (1) 

7 of section 1001(b) of the American Recovery and Rein8 vestment Tax Act of 2009 is amended by striking ‘‘2009 

9 and 2010’’ both places it appears and inserting ‘‘2009, 

10 2010, and 2013’’. 

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

12 this section shall apply to taxable years beginning after 

13 December 31, 2012. 

14 Subtitle B—Support for Teachers 

15 and School Modernization 

16 PART I—PREVENTING TEACHER LAYOFFS AND 

17 SUPPORTING THE CREATION OF ADDI18 TIONAL JOBS IN PUBLIC EARLY CHILDHOOD, 

19 ELEMENTARY, AND SECONDARY EDUCATION 

20 SEC. 711. PURPOSE. 

21 The purpose of this part is to provide funds to States 

22 to prevent teacher layoffs and support the creation of ad23 ditional jobs in public early childhood, elementary, and 

24 secondary education in the 2012–2013 and 2013–2014 

25 school years. 


srobinson on DSK4SPTVN1PROD with BILLS
157 

•HR 505 IH

1 SEC. 712. GRANTS FOR THE OUTLYING AREAS AND THE 

2 SECRETARY OF THE INTERIOR; AVAILABILITY 

3 OF FUNDS. 

4 (a) RESERVATION OF FUNDS.—From the amount ap5 propriated to carry out this subtitle under section 721, 

6 the Secretary— 

7 (1) shall reserve up to one-half of one percent 

8 to provide assistance to the outlying areas on the 

9 basis of their respective needs, as determined by the 

10 Secretary, for activities consistent with this part 

11 under such terms and conditions as the Secretary 

12 may determine; 

13 (2) shall reserve up to one-half of one percent 

14 to provide assistance to the Secretary of the Interior 

15 to carry out activities consistent with this part, in 

16 schools operated or funded by the Bureau of Indian 

17 Education; and 

18 (3) may reserve up to $2,000,000 for adminis19 tration and oversight of this subtitle, including pro20 gram evaluation. 

21 (b) AVAILABILITY OF FUNDS.—Funds made avail22 able under section 721 shall remain available to the Sec23 retary until September 30, 2014. 

24 SEC. 713. STATE ALLOCATION. 

25 (a) ALLOCATION.—After reserving funds under sec26 tion section 712(a), the Secretary shall allocate the reVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00157 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
158 

•HR 505 IH

1 maining funds appropriated under section 721 to States, 

2 of which— 

3 (1) 60 percent shall be allocated to States on 

4 the basis of their relative population of individuals 

5 aged 5 through 17; and 

6 (2) 40 percent shall be allocated to States on 

7 the basis of their relative total population. 

8 (b) AWARDS.—The Secretary shall award a State’s 

9 allocation under subsection (a) to the Governor of the 

10 State only if the Secretary has approved the State’s appli11 cation under section 714. 

12 (c) ALTERNATE DISTRIBUTION OF FUNDS.— 

13 (1) IN GENERAL.—If, within 30 days after the 

14 date of enactment of this Act, a Governor has not 

15 submitted an approvable application to the Sec16 retary, the Secretary shall, consistent with para17 graph (2), provide for funds allocated to that State 

18 to be distributed to another entity or other entities 

19 in the State for the support of early childhood, ele20 mentary, and secondary education, under such terms 

21 and conditions as the Secretary may establish. 

22 (2) MAINTENANCE OF EFFORT.— 

23 (A) GOVERNOR ASSURANCE.—The Sec24 retary shall not allocate funds under paragraph 

25 (1) unless the Governor of the State provides 


srobinson on DSK4SPTVN1PROD with BILLS
159 

•HR 505 IH

1 an assurance to the Secretary that the State 

2 will for fiscal years 2013 and 2014 meet the re3 quirements of section 718. 

4 (B) ALLOCATIONS TO OTHER ENTITIES.— 

5 Notwithstanding subparagraph (A), the Sec6 retary may allocate up to 50 percent of the 

7 funds that are available to the State under 

8 paragraph (1) to another entity or entities in 

9 the State, provided that the State educational 

10 agency submits data to the Secretary dem11 onstrating that the State will for fiscal year 

12 2013 meet the requirements of section 718(a) 

13 or the Secretary otherwise determines that the 

14 State will meet those requirements, or such 

15 comparable requirements as the Secretary may 

16 establish, for that year. 

17 (3) REQUIREMENTS.—An entity that receives 

18 funds under paragraph (1) shall use those funds in 

19 accordance with the requirements of this subtitle. 

20 (d) REALLOCATION.—If a State does not receive 

21 funding under this part or only receives a portion of its 

22 allocation under subsection (c), the Secretary shall reallo23 cate the State’s entire allocation or the remaining portion 

24 of its allocation, as the case may be, to the remaining 

25 States in accordance with subsection (a). 


srobinson on DSK4SPTVN1PROD with BILLS
160 

•HR 505 IH

1 SEC. 714. STATE APPLICATION. 

2 The Governor of a State desiring to receive a grant 

3 under this subtitle shall submit an application to the Sec4 retary within 30 days of the date of enactment of this Act, 

5 in such manner, and containing such information as the 

6 Secretary may reasonably require to determine the State’s 

7 compliance with applicable provisions of law. 

8 SEC. 715. STATE RESERVATION AND RESPONSIBILITIES. 

9 (a) RESERVATION.—Each State receiving a grant 

10 under section 713(b) may reserve— 

11 (1) not more than 10 percent of the grant 

12 funds for awards to State-funded early learning pro13 grams; and 

14 (2) not more than 2 percent of the grant funds 

15 for the administrative costs of carrying out its re16 sponsibilities under this subtitle. 

17 (b) STATE RESPONSIBILITIES.—Each State receiving 

18 a grant under this part shall, after reserving any funds 

19 under subsection (a)— 

20 (1) use the remaining grant funds only for 

21 awards to local educational agencies for the support 

22 of early childhood, elementary, and secondary edu23 cation; and 

24 (2) distribute those funds, through subgrants, 

25 to its local educational agencies by distributing— 


srobinson on DSK4SPTVN1PROD with BILLS
161 

•HR 505 IH

1 (A) 60 percent on the basis of the local 

2 educational agencies’ relative shares of enroll3 ment; and 

4 (B) 40 percent on the basis of the local 

5 educational agencies’ relative shares of funds 

6 received under part A of title I of the Elemen7 tary and Secondary Education Act of 1965 for 

8 fiscal year 2012; and 

9 (3) make those funds available to local edu10 cational agencies no later than 100 days after receiv11 ing a grant from the Secretary. 

12 (c) PROHIBITIONS.—A State shall not use funds re13 ceived under this subtitle to directly or indirectly— 

14 (1) establish, restore, or supplement a rainy-day 

15 fund; 

16 (2) supplant State funds in a manner that has 

17 the effect of establishing, restoring, or 

18 supplementing a rainy-day fund; 

19 (3) reduce or retire debt obligations incurred by 

20 the State; or 

21 (4) supplant State funds in a manner that has 

22 the effect of reducing or retiring debt obligations in23 curred by the State. 


srobinson on DSK4SPTVN1PROD with BILLS
162 

•HR 505 IH

1 SEC. 716. LOCAL EDUCATIONAL AGENCIES. 

2 Each local educational agency that receives a 

3 subgrant under this part— 

4 (1) shall use the subgrant funds only for com5 pensation and benefits and other expenses, such as 

6 support services, necessary to retain existing employ7 ees, recall or rehire former employees, or hire new 

8 employees to provide early childhood, elementary, or 

9 secondary educational and related services; 

10 (2) shall obligate those funds not later than 

11 September 30, 2014; and 

12 (3) may not use those funds for general admin13 istrative expenses or for other support services or ex14 penditures, as those terms are defined by the Na15 tional Center for Education Statistics in the Com16 mon Core of Data, as of the date of enactment of 

17 this Act. 

18 SEC. 717. EARLY LEARNING. 

19 Each State-funded early learning program that re20 ceives funds under this subtitle shall— 

21 (1) use those funds only for compensation, ben22 efits, and other expenses, such as support services, 

23 necessary to retain early childhood educators, recall 

24 or rehire former early childhood educators, or hire 

25 new early childhood educators to provide early learn26 ing services; and 


srobinson on DSK4SPTVN1PROD with BILLS
163 

•HR 505 IH

1 (2) obligate those funds not later than Sep2 tember 30, 2014. 

3 SEC. 718. MAINTENANCE OF EFFORT. 

4 (a) REQUIREMENT.—The Secretary shall not allocate 

5 funds to a State under this subtitle unless the State pro6 vides an assurance to the Secretary that— 

7 (1) for State fiscal year 2013— 

8 (A) the State will maintain State support 

9 for early childhood, elementary, and secondary 

10 education (in the aggregate or on the basis of 

11 expenditure per pupil) and for public institu12 tions of higher education (not including support 

13 for capital projects or for research and develop14 ment or tuition and fees paid by students) at 

15 not less than the level of such support for each 

16 of the two categories for State fiscal year 2012; 

17 or 

18 (B) the State will maintain State support 

19 for early childhood, elementary, and secondary 

20 education and for public institutions of higher 

21 education (not including support for capital 

22 projects or for research and development or tui23 tion and fees paid by students) at a percentage 

24 of the total revenues available to the State that 


srobinson on DSK4SPTVN1PROD with BILLS
164 

•HR 505 IH

1 is equal to or greater than the percentage pro2 vided for State fiscal year 2012; and 

3 (2) for State fiscal year 2014— 

4 (A) the State will maintain State support 

5 for early childhood, elementary, and secondary 

6 education (in the aggregate or on the basis of 

7 expenditure per pupil) and for public institu8 tions of higher education (not including support 

9 for capital projects or for research and develop10 ment or tuition and fees paid by students) at 

11 not less than the level of such support for each 

12 of the two categories for State fiscal year 2013; 

13 or 

14 (B) the State will maintain State support 

15 for early childhood, elementary, and secondary 

16 education and for public institutions of higher 

17 education (not including support for capital 

18 projects or for research and development or tui19 tion and fees paid by students) at a percentage 

20 of the total revenues available to the State that 

21 is equal to or greater than the percentage pro22 vided for State fiscal year 2013. 

23 (b) WAIVER.—The Secretary may waive the require24 ments of this section if the Secretary determines that a 

25 waiver would be equitable due to— 


srobinson on DSK4SPTVN1PROD with BILLS
165 

•HR 505 IH

1 (1) exceptional or uncontrollable circumstances, 

2 such as a natural disaster; or 

3 (2) a precipitous decline in the financial re4 sources of the State. 

5 SEC. 719. REPORTING. 

6 Each State that receives a grant under this part shall 

7 submit, on an annual basis, a report to the Secretary that 

8 contains— 

9 (1) a description of how funds received under 

10 this part were expended or obligated; and 

11 (2) an estimate of the number of jobs supported 

12 by the State using funds received under this subtitle. 

13 SEC. 720. DEFINITIONS. 

14 In this part: 

15 (1) ESEA DEFINITIONS.—Except as otherwise 

16 provided, the terms ‘‘local educational agency’’, 

17 ‘‘outlying area’’, ‘‘Secretary’’, ‘‘State’’, and ‘‘State 

18 educational agency’’ have the meanings given those 

19 terms in section 9101 of the Elementary and Sec20 ondary Education Act of 1965 (20 U.S.C. 7801). 

21 (2) STATE.—The term ‘‘State’’ does not include 

22 an outlying area. 

23 (3) EARLY CHILD EDUCATOR.—The term 

24 ‘‘early childhood educator’’ means an individual 

25 who— 


srobinson on DSK4SPTVN1PROD with BILLS
166 

•HR 505 IH

1 (A) works directly with children in a State2 funded early learning program in a low-income 

3 community; 

4 (B) is involved directly in the care, devel5 opment, and education of infants, toddlers, or 

6 young children age five and under; and 

7 (C) has completed a baccalaureate or ad8 vanced degree in early childhood development or 

9 early childhood education, or in a field related 

10 to early childhood education. 

11 (4) STATE-FUNDED EARLY LEARNING PRO12 GRAM.—The term ‘‘State-funded early learning pro13 gram’’ means a program that provides educational 

14 services to children from birth to kindergarten entry 

15 and receives funding from a State. 

16 SEC. 721. AUTHORIZATION OF APPROPRIATIONS. 

17 There are authorized to be appropriated, and there 

18 are appropriated, $30,000,000,000 to carry out this part 

19 for fiscal year 2013. 

20 PART II—ELEMENTARY AND SECONDARY 

21 SCHOOLS 

22 SEC. 731. PURPOSE. 

23 The purpose of this part is to provide assistance for 

24 the modernization, renovation, and repair of elementary 

25 and secondary school buildings in public school districts 


srobinson on DSK4SPTVN1PROD with BILLS
167 

•HR 505 IH

1 across America in order to support the achievement of im2 proved educational outcomes in those schools. 

3 SEC. 732. AUTHORIZATION OF APPROPRIATIONS. 

4 There are authorized to be appropriated, and there 

5 are appropriated, $25,000,000,000 to carry out this part, 

6 which shall be available for obligation by the Secretary 

7 until September 30, 2014. 

8 SEC. 733. ALLOCATION OF FUNDS. 

9 (a) RESERVATIONS.—Of the amount made available 

10 to carry out this part, the Secretary shall reserve— 

11 (1) one-half of one percent for the Secretary of 

12 the Interior to carry out modernization, renovation, 

13 and repair activities described in section 736 in 

14 schools operated or funded by the Bureau of Indian 

15 Education; 

16 (2) one-half of one percent to make grants to 

17 the outlying areas for modernization, renovation, 

18 and repair activities described in section 736; and 

19 (3) such funds as the Secretary determines are 

20 needed to conduct a survey, by the National Center 

21 for Education Statistics, of the school construction, 

22 modernization, renovation, and repair needs of the 

23 public schools of the United States. 

24 (b) STATE ALLOCATION.—After reserving funds 

25 under subsection (a), the Secretary shall allocate the reVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00167 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
168 

•HR 505 IH

1 maining amount among the States in proportion to their 

2 respective allocations under part A of title I of the Ele3 mentary and Secondary Education Act of 1965 (in this 

4 part referred to as the ‘‘ESEA’’) (20 U.S.C. 6311 et seq.) 

5 for fiscal year 2013, except that— 

6 (1) the Secretary shall allocate 40 percent of 

7 such remaining amount to the 100 local educational 

8 agencies with the largest numbers of children aged 

9 5–17 living in poverty, as determined using the most 

10 recent data available from the Department of Com11 merce that are satisfactory to the Secretary, in pro12 portion to those agencies’ respective allocations 

13 under part A of title I of the ESEA for fiscal year 

14 2013; and 

15 (2) the allocation to any State shall be reduced 

16 by the aggregate amount of the allocations under 

17 paragraph (1) to local educational agencies in that 

18 State. 

19 (c) REMAINING ALLOCATION.— 

20 (1) STATES.—If a State does not apply for its 

21 allocation under subsection (b) (or applies for less 

22 than the full allocation for which it is eligible) or 

23 does not use that allocation in a timely manner, the 

24 Secretary may— 


srobinson on DSK4SPTVN1PROD with BILLS
169 

•HR 505 IH

1 (A) reallocate all or a portion of that allo2 cation to the other States in accordance with 

3 subsection (b); or 

4 (B) use all or a portion of that allocation 

5 to make direct allocations to local educational 

6 agencies within the State based on their respec7 tive allocations under part A of title I of the 

8 ESEA for fiscal year 2013 or such other meth9 od as the Secretary may determine. 

10 (2) LOCAL EDUCATIONAL AGENCIES.—If a local 

11 educational agency does not apply for its allocation 

12 under subsection (b)(1), applies for less than the full 

13 allocation for which it is eligible, or does not use 

14 that allocation in a timely manner, the Secretary 

15 may reallocate all or a portion of its allocation to the 

16 State in which that agency is located. 

17 SEC. 734. STATE USE OF FUNDS. 

18 (a) RESERVATION.—Each State that receives a grant 

19 under this part may reserve not more than one percent 

20 of the State’s allocation under section 733(b) for the pur21 pose of administering the grant, except that no State may 

22 reserve more than $750,000 for this purpose. 

23 (b) FUNDS TO LOCAL EDUCATIONAL AGENCIES.— 

24 (1) FORMULA SUBGRANTS.—From the grant 

25 funds that are not reserved under subsection (a), a 


srobinson on DSK4SPTVN1PROD with BILLS
170 

•HR 505 IH

1 State shall allocate at least 50 percent to local edu2 cational agencies, including charter schools that are 

3 local educational agencies, that did not receive funds 

4 under section 733(b)(1) from the Secretary, in ac5 cordance with their respective allocations under part 

6 A of title I of the ESEA for fiscal year 2013, except 

7 that no such local educational agency shall receive 

8 less than $10,000. 

9 (2) ADDITIONAL SUBGRANTS.—The State shall 

10 use any funds remaining, after reserving funds 

11 under subsection (a) and allocating funds under 

12 paragraph (1), for subgrants to local educational 

13 agencies that did not receive funds under section 

14 733(b)(1), including charter schools that are local 

15 educational agencies, to support modernization, ren16 ovation, and repair projects that the State deter17 mines, using objective criteria, are most needed in 

18 the State, with priority given to projects in rural 

19 local educational agencies. 

20 (c) REMAINING FUNDS.—If a local educational agen21 cy does not apply for an allocation under subsection 

22 (b)(1), applies for less than its full allocation, or fails to 

23 use that allocation in a timely manner, the State may re24 allocate any unused portion to other local educational 

25 agencies in accordance with subsection (b). 


srobinson on DSK4SPTVN1PROD with BILLS
171 

•HR 505 IH

1 SEC. 735. STATE AND LOCAL APPLICATIONS. 

2 (a) STATE APPLICATION.—A State that desires to re3 ceive a grant under this part shall submit an application 

4 to the Secretary at such time, in such manner, and con5 taining such information and assurances as the Secretary 

6 may require, which shall include— 

7 (1) an identification of the State agency or enti8 ty that will administer the program under this part; 

9 and 

10 (2) the State’s process for determining how the 

11 grant funds will be distributed and administered, in12 cluding— 

13 (A) how the State will determine the cri14 teria and priorities in making subgrants under 

15 section 734(b)(2); 

16 (B) any additional criteria the State will 

17 use in determining which projects it will fund 

18 under that section; 

19 (C) a description of how the State will con20 sider— 

21 (i) the needs of local educational 

22 agencies for assistance under this part; 

23 (ii) the impact of potential projects on 

24 job creation in the State; 

25 (iii) the fiscal capacity of local edu26 cational agencies applying for assistance; 


srobinson on DSK4SPTVN1PROD with BILLS
172 

•HR 505 IH

1 (iv) the percentage of children in 

2 those local educational agencies who are 

3 from low-income families; and 

4 (v) the potential for leveraging assist5 ance provided by the program under this 

6 part through matching or other financing 

7 mechanisms; 

8 (D) a description of how the State will en9 sure that the local educational agencies receiv10 ing subgrants meet the requirements of this 

11 part; 

12 (E) a description of how the State will en13 sure that the State and its local educational 

14 agencies meet the deadlines established in sec15 tion 738; 

16 (F) a description of how the State will give 

17 priority to the use of green practices that are 

18 certified, verified, or consistent with any appli19 cable provisions of— 

20 (i) the LEED Green Building Rating 

21 System; 

22 (ii) Energy Star; 

23 (iii) the CHPS Criteria; 

24 (iv) Green Globes; or 


srobinson on DSK4SPTVN1PROD with BILLS
173 

•HR 505 IH

1 (v) an equivalent program adopted by 

2 the State or another jurisdiction with au3 thority over the local educational agency; 

4 (G) a description of the steps that the 

5 State will take to ensure that local educational 

6 agencies receiving subgrants under this part 

7 will adequately maintain any facilities that are 

8 modernized, renovated, or repaired with such 

9 subgrant funds; and 

10 (H) such additional information and assur11 ances as the Secretary may require. 

12 (b) LOCAL APPLICATION.—A local educational agen13 cy that is eligible under section 733(b)(1) that desires to 

14 receive a grant under this part shall submit an application 

15 to the Secretary at such time, in such manner, and con16 taining such information and assurances as the Secretary 

17 may require, which shall include— 

18 (1) a description of how the local educational 

19 agency will meet the deadlines and requirements of 

20 this part; 

21 (2) a description of the steps that the local edu22 cational agency will take to adequately maintain any 

23 facilities that are modernized, renovated, or repaired 

24 with funds under this part; and 


srobinson on DSK4SPTVN1PROD with BILLS
174 

•HR 505 IH

1 (3) such additional information and assurances 

2 as the Secretary may require. 

3 SEC. 736. USE OF FUNDS. 

4 (a) IN GENERAL.—Funds awarded to local edu5 cational agencies under this part shall be used only for 

6 either or both of the following modernization, renovation, 

7 or repair activities in facilities that are used for elemen8 tary or secondary education or for early learning pro9 grams: 

10 (1) Direct payments for school modernization, 

11 renovation, or repair. 

12 (2) To pay interest on bonds or payments for 

13 other financing instruments that are newly issued 

14 for the purpose of financing school modernization, 

15 renovation, or repair. 

16 (b) SUPPLEMENT, NOT SUPPLANT.—Funds made 

17 available under this part shall be used to supplement, and 

18 not supplant, other Federal, State, and local funds that 

19 would otherwise be expended to modernize, renovate, or 

20 repair eligible school facilities. 

21 (c) PROHIBITION.—Funds awarded to local edu22 cational agencies under this part may not be used for— 

23 (1) new construction; 

24 (2) payment of routine maintenance costs; or 


srobinson on DSK4SPTVN1PROD with BILLS
175 

•HR 505 IH

1 (3) modernization, renovation, or repair of sta2 diums or other facilities primarily used for athletic 

3 contests or exhibitions or other events for which ad4 mission is charged to the general public. 

5 SEC. 737. PRIVATE SCHOOLS. 

6 (a) IN GENERAL.—Section 9501 of the ESEA (20 

7 U.S.C. 7881) shall apply to this part in the same manner 

8 as it applies to activities under that Act, except that— 

9 (1) such section 9501 shall not apply with re10 spect to the title to any real property modernized, 

11 renovated, or repaired with assistance provided 

12 under this part; 

13 (2) educational services or other benefits funded 

14 under this part for private schools shall be provided 

15 only to private, nonprofit elementary or secondary 

16 schools with a rate of child poverty of at least 40 

17 percent and may include only— 

18 (A) modifications of school facilities nec19 essary to meet the standards applicable to pub20 lic schools under the Americans with Disabil21 ities Act of 1990 (42 U.S.C. 12101 et seq.); 

22 (B) modifications of school facilities nec23 essary to meet the standards applicable to pub24 lic schools under section 504 of the Rehabilita25 tion Act of 1973 (29 U.S.C. 794); and 


srobinson on DSK4SPTVN1PROD with BILLS
176 

•HR 505 IH

1 (C) asbestos or polychlorinated biphenyls 

2 abatement or removal from school facilities; and 

3 (3) expenditures for services provided using 

4 funds made available under section 736 shall be con5 sidered equal for purposes of section 9501(a)(4) of 

6 the ESEA if the per-pupil expenditures for services 

7 described in paragraph (2) for students enrolled in 

8 private, nonprofit elementary and secondary schools 

9 that have child-poverty rates of at least 40 percent 

10 are consistent with the per-pupil expenditures under 

11 this part for children enrolled in the public schools 

12 of the local educational agency receiving funds under 

13 this part. 

14 (b) REMAINING FUNDS.—If the expenditure for serv15 ices described in subsection (a)(2) is less than the amount 

16 calculated under subsection (a)(3) because of insufficient 

17 need for those services, the remainder shall be available 

18 to the local educational agency for modernization, renova19 tion, or repair of its school facilities. 

20 (c) APPLICATION.—If any provision of this section, 

21 or the application thereof, to any person or circumstance 

22 is judicially determined to be invalid, the remainder of the 

23 section and the application to other persons or cir24 cumstances shall not be affected thereby. 


srobinson on DSK4SPTVN1PROD with BILLS
177 

•HR 505 IH

1 SEC. 738. ADDITIONAL PROVISIONS. 

2 (a) 24-MONTH PERIOD OF AVAILABILITY.—Funds 

3 appropriated under section 732 shall be available for obli4 gation by local educational agencies receiving grants from 

5 the Secretary under section 733(b)(1), by States reserving 

6 funds under section 734(a), and by local educational agen7 cies receiving subgrants under section 734(b)(1) only dur8 ing the period that ends 24 months after the date of enact9 ment of this Act. 

10 (b) 36-MONTH PERIOD OF AVAILABILITY.—Funds 

11 appropriated under section 732 shall be available for obli12 gation by local educational agencies receiving subgrants 

13 under section 734(b)(2) only during the period that ends 

14 36 months after the date of enactment of this Act. 

15 (c) APPLICABILITY OF GEPA.—Section 439 of the 

16 General Education Provisions Act (20 U.S.C. 1232b) shall 

17 apply to funds available under this part. 

18 (d) LIMITATION.—For purposes of section 733(b)(1), 

19 Hawaii, the District of Columbia, and the Commonwealth 

20 of Puerto Rico are not local educational agencies. 

21 PART III—COMMUNITY COLLEGE 

22 MODERNIZATION 

23 SEC. 739. FEDERAL ASSISTANCE FOR COMMUNITY COL24 LEGE MODERNIZATION. 

25 (a) IN GENERAL.— 


srobinson on DSK4SPTVN1PROD with BILLS
178 

•HR 505 IH

1 (1) GRANT PROGRAM.—From the amounts 

2 made available under subsection (h), the Secretary 

3 shall award grants to States to modernize, renovate, 

4 or repair existing facilities at community colleges. 

5 (2) ALLOCATION.— 

6 (A) RESERVATIONS.—Of the amount made 

7 available to carry out this section, the Secretary 

8 shall reserve— 

9 (i) up to 0.25 percent for grants to in10 stitutions that are eligible under section 

11 316 of the Higher Education Act of 1965 

12 (20 U.S.C. 1059c) to provide for mod13 ernization, renovation, and repair activities 

14 described in this section; and 

15 (ii) up to 0.25 percent for grants to 

16 the outlying areas to provide for mod17 ernization, renovation, and repair activities 

18 described in this section. 

19 (B) ALLOCATION.—After reserving funds 

20 under subparagraph (A), the Secretary shall al21 locate to each State that has an application ap22 proved by the Secretary an amount that bears 

23 the same relation to any remaining funds as the 

24 total number of students in such State who are 

25 enrolled in institutions described in section 


srobinson on DSK4SPTVN1PROD with BILLS
179 

•HR 505 IH

1 740(b)(1)(A) plus the number of students who 

2 are estimated to be enrolled in and pursuing a 

3 degree or certificate that is not a bachelor’s, 

4 master’s, professional, or other advanced degree 

5 in institutions described in section 

6 740(b)(1)(B), based on the proportion of de7 grees or certificates awarded by such institu8 tions that are not bachelor’s, master’s, profes9 sional, or other advanced degrees, as reported 

10 to the Integrated Postsecondary Data System 

11 bears to the estimated total number of such 

12 students in all States, except that no State shall 

13 receive less than $2,500,000. 

14 (C) REALLOCATION.—Amounts not allo15 cated under this section to a State because the 

16 State either did not submit an application 

17 under subsection (b), the State submitted an 

18 application that the Secretary determined did 

19 not meet the requirements of such subsection, 

20 or the State cannot demonstrate to the Sec21 retary a sufficient demand for projects to war22 rant the full allocation of the funds, shall be 

23 proportionately reallocated under this para24 graph to the other States that have a demVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00179 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
180 

•HR 505 IH

1 onstrated need for, and are receiving, alloca2 tions under this section. 

3 (D) STATE ADMINISTRATION.—A State 

4 that receives a grant under this section may use 

5 not more than one percent of that grant to ad6 minister it, except that no State may use more 

7 than $750,000 of its grant for this purpose. 

8 (3) SUPPLEMENT, NOT SUPPLANT.—Funds 

9 made available under this section shall be used to 

10 supplement, and not supplant, other Federal, State, 

11 and local funds that would otherwise be expended to 

12 modernize, renovate, or repair existing community 

13 college facilities. 

14 (b) APPLICATION.—A State that desires to receive a 

15 grant under this section shall submit an application to the 

16 Secretary at such time, in such manner, and containing 

17 such information and assurances as the Secretary may re18 quire. Such application shall include a description of— 

19 (1) how the funds provided under this section 

20 will improve instruction at community colleges in the 

21 State and will improve the ability of those colleges 

22 to educate and train students to meet the workforce 

23 needs of employers in the State; 


srobinson on DSK4SPTVN1PROD with BILLS
181 

•HR 505 IH

1 (2) the projected start of each project and the 

2 estimated number of persons to be employed in the 

3 project; and 

4 (3) the cost of each project and the total 

5 amount of funds requested for each project and for 

6 all projects. 

7 (c) PROHIBITED USES OF FUNDS.— 

8 (1) IN GENERAL.—No funds awarded under 

9 this section may be used for— 

10 (A) payment of routine maintenance costs; 

11 (B) construction, modernization, renova12 tion, or repair of stadiums or other facilities 

13 primarily used for athletic contests or exhibi14 tions or other events for which admission is 

15 charged to the general public; or 

16 (C) construction, modernization, renova17 tion, or repair of facilities— 

18 (i) used for sectarian instruction, reli19 gious worship, or a school or department 

20 of divinity; or 

21 (ii) in which a substantial portion of 

22 the functions of the facilities are subsumed 

23 in a religious mission. 

24 (2) FOUR-YEAR INSTITUTIONS.—No funds 

25 awarded to a four-year public institution of higher 


srobinson on DSK4SPTVN1PROD with BILLS
182 

•HR 505 IH

1 education under this section may be used for any fa2 cility, service, or program of the institution that is 

3 not available to students who are pursuing a degree 

4 or certificate that is not a bachelor’s, master’s, pro5 fessional, or other advanced degree. 

6 (d) GREEN PROJECTS.—In providing assistance to 

7 community college projects under this section, the State 

8 shall consider the extent to which a community college’s 

9 project involves activities that are certified, verified, or 

10 consistent with the applicable provisions of— 

11 (1) the LEED Green Building Rating System; 

12 (2) Energy Star; 

13 (3) the CHPS Criteria, as applicable; 

14 (4) Green Globes; or 

15 (5) an equivalent program adopted by the State 

16 or the State higher education agency that includes 

17 a verifiable method to demonstrate compliance with 

18 such program. 

19 (e) APPLICATION OF GEPA.—Section 439 of the 

20 General Education Provisions Act (20 U.S.C. 1232b) shall 

21 apply to funds available under this section. 

22 (f) REPORTS BY THE STATES.—Each State that re23 ceives a grant under this section shall, not later than Sep24 tember 30, 2013, and annually thereafter for each fiscal 


srobinson on DSK4SPTVN1PROD with BILLS
183 

•HR 505 IH

1 year in which the State expends funds received under this 

2 section, submit to the Secretary a report that includes— 

3 (1) a description of the projects for which the 

4 grant was, or will be, used; 

5 (2) a description of the amount and nature of 

6 the assistance provided to each community college 

7 under this section; and 

8 (3) the number of jobs created by the projects 

9 funded under this section. 

10 (g) REPORT BY THE SECRETARY.—The Secretary 

11 shall submit to the authorizing committees (as defined in 

12 section 103 of the Higher Education Act of 1965; 20 

13 U.S.C. 1003) an annual report on the grants made under 

14 this section, including the information described in sub15 section (f). 

16 (h) AVAILABILITY OF FUNDS.— 

17 (1) There are authorized to be appropriated, 

18 and there are appropriated, to carry out this section 

19 (in addition to any other amounts appropriated to 

20 carry out this section and out of any money in the 

21 Treasury not otherwise appropriated), 

22 $5,000,000,000 for fiscal year 2013. 

23 (2) Funds appropriated under this subsection 

24 shall be available for obligation by community colVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00183 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
184 

•HR 505 IH

1 leges only during the period that ends 36 months 

2 after the date of enactment of this Act. 

3 PART IV—GENERAL PROVISIONS 

4 SEC. 740. DEFINITIONS. 

5 (a) ESEA TERMS.—Except as otherwise provided, in 

6 this subtitle, the terms ‘‘local educational agency’’, ‘‘Sec7 retary’’, and ‘‘State educational agency’’ have the mean8 ings given those terms in section 9101 of the Elementary 

9 and Secondary Education Act of 1965 (20 U.S.C. 7801). 

10 (b) ADDITIONAL DEFINITIONS.—The following defi11 nitions apply to this title: 

12 (1) COMMUNITY COLLEGE.—The term ‘‘commu13 nity college’’ means— 

14 (A) a junior or community college, as that 

15 term is defined in section 312(f) of the Higher 

16 Education Act of 1965 (20 U.S.C. 1058(f)); or 

17 (B) an institution of higher education (as 

18 defined in section 101 of the Higher Education 

19 Act of 1965 (20 U.S.C. 1001)) that awards a 

20 significant number of degrees and certificates, 

21 as determined by the Secretary, that are not— 

22 (i) bachelor’s degrees (or an equiva23 lent); or 

24 (ii) master’s, professional, or other 

25 advanced degrees. 


srobinson on DSK4SPTVN1PROD with BILLS
185 

•HR 505 IH

1 (2) CHPS CRITERIA.—The term ‘‘CHPS Cri2 teria’’ means the green building rating program de3 veloped by the Collaborative for High Performance 

4 Schools. 

5 (3) ENERGY STAR.—The term ‘‘Energy Star’’ 

6 means the Energy Star program of the United 

7 States Department of Energy and the United States 

8 Environmental Protection Agency. 

9 (4) GREEN GLOBES.—The term ‘‘Green 

10 Globes’’ means the Green Building Initiative envi11 ronmental design and rating system referred to as 

12 Green Globes. 

13 (5) LEED GREEN BUILDING RATING SYSTEM.— 

14 The term ‘‘LEED Green Building Rating System’’ 

15 means the United States Green Building Council 

16 Leadership in Energy and Environmental Design 

17 green building rating standard referred to as the 

18 LEED Green Building Rating System. 

19 (6) MODERNIZATION, RENOVATION, AND RE20 PAIR.—The term ‘‘modernization, renovation, and 

21 repair’’ means— 

22 (A) comprehensive assessments of facili23 ties, including indoor air-quality assessments, to 

24 identify— 


srobinson on DSK4SPTVN1PROD with BILLS
186 

•HR 505 IH

1 (i) facility conditions or deficiencies 

2 that could adversely affect student and 

3 staff health, safety, performance, or pro4 ductivity or energy, water, or materials ef5 ficiency; and 

6 (ii) needed facility improvements; 

7 (B) repairing, replacing, or installing roofs 

8 (which may be extensive, intensive, or semi-in9 tensive ‘‘green’’ roofs); electrical wiring; water 

10 supply and plumbing systems, sewage systems, 

11 storm water runoff systems, lighting systems 

12 (or components of such systems); or building 

13 envelope, windows, ceilings, flooring, or doors, 

14 including security doors; 

15 (C) repairing, replacing, or installing heat16 ing, ventilation, or air conditioning systems, or 

17 components of those systems (including insula18 tion) to improve energy efficiency; 

19 (D) compliance with fire, health, seismic, 

20 and safety codes, including professional installa21 tion of fire and life safety alarms, and mod22 ernizations, renovations, and repairs that en23 sure that facilities are prepared for such emer24 gencies as acts of terrorism, campus violence, 

25 and natural disasters, such as improving buildVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00186 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
187 

•HR 505 IH

1 ing infrastructure to accommodate security 

2 measures and installing or upgrading tech3 nology to ensure that a school or incident is 

4 able to respond to such emergencies; 

5 (E) making modifications necessary to 

6 make educational facilities accessible in compli7 ance with the Americans with Disabilities Act 

8 of 1990 (42 U.S.C. 12101 et seq.) and section 

9 504 of the Rehabilitation Act of 1973 (29 

10 U.S.C. 794), except that such modifications 

11 shall not be the primary use of a grant or 

12 subgrant; 

13 (F) abatement, removal, or interim con14 trols of asbestos, polychlorinated biphenyls, 

15 mold, mildew, or lead-based hazards, including 

16 lead-based paint hazards; 

17 (G) retrofitting necessary to increase en18 ergy efficiency; 

19 (H) measures, such as selection and sub20 stitution of products and materials, and imple21 mentation of improved maintenance and oper22 ational procedures, such as ‘‘green cleaning’’ 

23 programs, to reduce or eliminate potential stu24 dent or staff exposure to— 

25 (i) volatile organic compounds; 


srobinson on DSK4SPTVN1PROD with BILLS
188 

•HR 505 IH

1 (ii) particles such as dust and pollens; 

2 or 

3 (iii) combustion gases; 

4 (I) modernization, renovation, or repair 

5 necessary to reduce the consumption of coal, 

6 electricity, land, natural gas, oil, or water; 

7 (J) installation or upgrading of educational 

8 technology infrastructure; 

9 (K) installation or upgrading of renewable 

10 energy generation and heating systems, includ11 ing solar, photovoltaic, wind, biomass (including 

12 wood pellet and woody biomass), waste-to-en13 ergy, solar-thermal, and geothermal systems, 

14 and energy audits; 

15 (L) modernization, renovation, or repair 

16 activities related to energy efficiency and renew17 able energy, and improvements to building in18 frastructures to accommodate bicycle and pe19 destrian access; 

20 (M) ground improvements, storm water 

21 management, landscaping, and environmental 

22 clean-up when necessary; 

23 (N) other modernization, renovation, or re24 pair to— 


srobinson on DSK4SPTVN1PROD with BILLS
189 

•HR 505 IH

1 (i) improve teachers’ ability to teach 

2 and students’ ability to learn; 

3 (ii) ensure the health and safety of 

4 students and staff; or 

5 (iii) improve classroom, laboratory, 

6 and vocational facilities in order to en7 hance the quality of science, technology, 

8 engineering, and mathematics instruction; 

9 and 

10 (O) required environmental remediation re11 lated to facilities modernization, renovation, or 

12 repair activities described in subparagraphs (A) 

13 through (N). 

14 (7) OUTLYING AREA.—The term ‘‘outlying 

15 area’’ means the U.S. Virgin Islands, Guam, Amer16 ican Samoa, the Commonwealth of the Northern 

17 Mariana Islands, and the Republic of Palau. 

18 (8) STATE.—The term ‘‘State’’ means each of 

19 the 50 States of the United States, the Common20 wealth of Puerto Rico, and the District of Columbia. 

21 SEC. 741. BUY AMERICAN. 

22 Section 1605 of division A of the American Recovery 

23 and Reinvestment Act of 2009 (Public Law 111–5) applies 

24 to funds made available under this title. 


srobinson on DSK4SPTVN1PROD with BILLS
190 

•HR 505 IH

1 Subtitle C—Transportation 

2 Infrastructure Investments 

3 PART I—IMMEDIATE TRANSPORTATION 

4 INFRASTRUCTURE INVESTMENTS 

5 SEC. 751. IMMEDIATE TRANSPORTATION INFRASTRUCTURE 

6 INVESTMENTS. 

7 (a) GRANTS-IN-AID FOR AIRPORTS.— 

8 (1) IN GENERAL.—There is made available to 

9 the Secretary of Transportation $6,000,000,000 to 

10 carry out airport improvement under subchapter I of 

11 chapter 471 and subchapter I of chapter 475 of title 

12 49, United States Code. 

13 (2) FEDERAL SHARE; LIMITATION ON OBLIGA14 TIONS.—The Federal share payable of the costs for 

15 which a grant is made under this subsection, shall 

16 be 100 percent. The amount made available under 

17 this subsection shall not be subject to any limitation 

18 on obligations for the Grants-In-Aid for Airports 

19 program set forth in any Act or in title 49, United 

20 States Code. 

21 (3) DISTRIBUTION OF FUNDS.—Funds provided 

22 to the Secretary under this subsection shall not be 

23 subject to apportionment formulas, special appor24 tionment categories, or minimum percentages under 

25 chapter 471 of such title. 


srobinson on DSK4SPTVN1PROD with BILLS
191 

•HR 505 IH

1 (4) AVAILABILITY.—The amounts made avail2 able under this subsection shall be available for obli3 gation until the date that is two years after the date 

4 of the enactment of this Act. The Secretary shall ob5 ligate amounts totaling not less than 50 percent of 

6 the funds made available within one year of enact7 ment and obligate remaining amounts not later than 

8 two years after enactment. 

9 (5) ADMINISTRATIVE EXPENSES.—Of the funds 

10 made available under this subsection, 0.3 percent 

11 shall be available to the Secretary for administrative 

12 expenses, shall remain available for obligation until 

13 September 30, 2015, and may be used in conjunc14 tion with funds otherwise provided for the adminis15 tration of the Grants-In-Aid for Airports program. 

16 (b) NEXT GENERATION AIR TRAFFIC CONTROL AD17 VANCEMENTS.— 

18 (1) IN GENERAL.—There is made available to 

19 the Secretary of Transportation $3,000,000,000 for 

20 necessary Federal Aviation Administration capital, 

21 research, and operating costs to carry out Next Gen22 eration air traffic control system advancements. 

23 (2) AVAILABILITY.—The amounts made avail24 able under this subsection shall be available for obliVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00191 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
192 

•HR 505 IH

1 gation until the date that is two years after the date 

2 of the enactment of this Act. 

3 (c) HIGHWAY INFRASTRUCTURE INVESTMENT.— 

4 (1) IN GENERAL.—There is made available to 

5 the Secretary of Transportation $81,000,000,000 

6 for restoration, repair, construction and other activi7 ties eligible under section 133(b) of title 23, United 

8 States Code, and for passenger and freight rail 

9 transportation and port infrastructure projects eligi10 ble for assistance under section 601(a)(8) of title 23. 

11 (2) FEDERAL SHARE; LIMITATION ON OBLIGA12 TIONS.—The Federal share payable on account of 

13 any project or activity carried out with funds made 

14 available under this subsection shall be, at the op15 tion of the recipient, up to 100 percent of the total 

16 cost thereof. The amount made available under this 

17 subsection shall not be subject to any limitation on 

18 obligations for Federal-aid highways and highway 

19 safety construction programs set forth in any Act or 

20 in title 23, United States Code. 

21 (3) AVAILABILITY.—The amounts made avail22 able under this subsection shall be available for obli23 gation until the date that is two years after the date 

24 of the enactment of this Act. The Secretary shall ob25 ligate amounts totaling not less than 50 percent of 


srobinson on DSK4SPTVN1PROD with BILLS
193 

•HR 505 IH

1 the funds made available within one year of enact2 ment and obligate remaining amounts not later than 

3 two years after enactment. 

4 (4) DISTRIBUTION OF FUNDS.—Of the funds 

5 provided in this subsection, after making the set6 asides required by paragraphs (9), (10), (11), (12), 

7 and (15), 50 percent of the funds shall be appor8 tioned to States using the formula set forth in sec9 tion 104(b)(3) of title 23, United States Code, and 

10 the remaining funds shall be apportioned to States 

11 in the same ratio as the obligation limitation for fis12 cal year 2010 was distributed among the States in 

13 accordance with the formula specified in section 

14 120(a)(6) of division A of Public Law 111–117. 

15 (5) APPORTIONMENT.—Apportionments under 

16 paragraph (4) shall be made not later than 30 days 

17 after the date of the enactment of this Act. 

18 (6) REDISTRIBUTION.— 

19 (A) The Secretary shall, 180 days fol20 lowing the date of apportionment, withdraw 

21 from each State an amount equal to 50 percent 

22 of the funds apportioned under paragraph (4) 

23 to that State (excluding funds suballocated 

24 within the State) less the amount of funding 

25 obligated (excluding funds suballocated within 


srobinson on DSK4SPTVN1PROD with BILLS
194 

•HR 505 IH

1 the State), and the Secretary shall redistribute 

2 such amounts to other States that have had no 

3 funds withdrawn under this subparagraph in 

4 the manner described in section 120(c) of divi5 sion A of Public Law 111–117. 

6 (B) One year following the date of appor7 tionment, the Secretary shall withdraw from 

8 each recipient of funds apportioned under para9 graph (4) any unobligated funds, and the Sec10 retary shall redistribute such amounts to States 

11 that have had no funds withdrawn under this 

12 paragraph (excluding funds suballocated within 

13 the State) in the manner described in section 

14 120(c) of division A of Public Law 111–117. 

15 (C) At the request of a State, the Sec16 retary may provide an extension of the one-year 

17 period only to the extent that the Secretary de18 termines that the State has encountered ex19 treme conditions that create an unworkable bid20 ding environment or other extenuating cir21 cumstances. Before granting an extension, the 

22 Secretary shall notify in writing the Committee 

23 on Transportation and Infrastructure and the 

24 Committee on Environment and Public Works, 


srobinson on DSK4SPTVN1PROD with BILLS
195 

•HR 505 IH

1 providing a thorough justification for the exten2 sion. 

3 (7) PUERTO RICO AND TERRITORIAL HIGHWAY

4 PROGRAMS.—Of the funds provided under this sub5 section, $315,000,000 shall be set aside for the 

6 Puerto Rico highway program and $135,000,000 

7 shall be for the territorial highway program author8 ized under section 165 of title 23, United States 

9 Code. 

10 (8) FEDERAL LANDS AND INDIAN RESERVA11 TIONS.—Of the funds provided under this sub12 section, $1,650,000,000 shall be set aside for invest13 ments in transportation at Indian reservations and 

14 Federal lands in accordance with the following:. 

15 (A) Of the funds set aside by this para16 graph, $930,000,000 shall be for the Indian 

17 Reservation Roads program, $510,000,000 

18 shall be for the Park Roads and Parkways pro19 gram, $180,000,000 shall be for the Forest 

20 Highway Program, and $30,000,000 shall be 

21 for the Refuge Roads program. 

22 (B) For investments at Indian reservations 

23 and Federal lands, priority shall be given to 

24 capital investments, and to projects and activiVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00195 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
196 

•HR 505 IH

1 ties that can be completed within 2 years of en2 actment of this Act. 

3 (C) One year following the enactment of 

4 this Act, to ensure the prompt use of the fund5 ing provided for investments at Indian reserva6 tions and Federal lands, the Secretary shall 

7 have the authority to redistribute unobligated 

8 funds within the respective program for which 

9 the funds were appropriated. 

10 (D) Up to four percent of the funding pro11 vided for Indian Reservation Roads may be 

12 used by the Secretary of the Interior for pro13 gram management and oversight and project-re14 lated administrative expenses. 

15 (9) JOB TRAINING.—Of the funds provided 

16 under this subsection, $150,000,000 shall be set 

17 aside for the development and administration of 

18 transportation training programs under section 

19 140(b) title 23, United States Code. 

20 (A) Funds set aside under this subsection 

21 shall be competitively awarded and used for the 

22 purpose of providing training, apprenticeship 

23 (including Registered Apprenticeship), skill de24 velopment, and skill improvement programs, as 

25 well as summer transportation institutes and 


srobinson on DSK4SPTVN1PROD with BILLS
197 

•HR 505 IH

1 may be transferred to, or administered in part2 nership with, the Secretary of Labor and shall 

3 demonstrate to the Secretary of Transportation 

4 program outcomes, including— 

5 (i) impact on areas with transpor6 tation workforce shortages; 

7 (ii) diversity of training participants; 

8 (iii) number of participants obtaining 

9 certifications or credentials required for 

10 specific types of employment; 

11 (iv) employment outcome metrics, 

12 such as job placement and job retention 

13 rates, established in consultation with the 

14 Secretary of Labor and consistent with 

15 metrics used by programs under the Work16 force Investment Act; 

17 (v) to the extent practical, evidence 

18 that the program did not preclude workers 

19 that participate in training or apprentice20 ship activities under the program from 

21 being referred to, or hired on, projects 

22 funded under this chapter; and 

23 (vi) identification of areas of collabo24 ration with the Department of Labor pro25 grams, including co-enrollment. 


srobinson on DSK4SPTVN1PROD with BILLS
198 

•HR 505 IH

1 (B) To be eligible to receive a competitively 

2 awarded grant under this subsection, a State 

3 must certify that at least 0.1 percent of the 

4 amounts apportioned under the Surface Trans5 portation Program and Bridge Program will be 

6 obligated in the first fiscal year after enactment 

7 of this act for job training activities consistent 

8 with section 140(b) of title 23, United States 

9 Code. 

10 (10) DISADVANTAGED BUSINESS ENTER11 PRISES.—Of the funds provided under this sub12 section, $30,000,000 shall be set aside for training 

13 programs and assistance programs under section 

14 140(c) of title 23, United States Code. Funds set 

15 aside under this paragraph should be allocated to 

16 businesses that have proven success in adding staff 

17 while effectively completing projects. 

18 (11) STATE PLANNING AND OVERSIGHT EX19 PENSES.—Of amounts apportioned under paragraph 

20 (4) of this subsection, a State may use up to 0.5 

21 percent for activities related to projects funded 

22 under this subsection, including activities eligible 

23 under sections 134 and 135 of title 23, United 

24 States Code, State administration of subgrants, and 

25 State oversight of subrecipients. 


srobinson on DSK4SPTVN1PROD with BILLS
199 

•HR 505 IH

1 (12) CONDITIONS.— 

2 (A) Funds made available under this sub3 section shall be administered as if apportioned 

4 under chapter 1 of title 23, United States Code, 

5 except for funds made available for investments 

6 in transportation at Indian reservations and 

7 Federal lands, and for the territorial highway 

8 program, which shall be administered in accord9 ance with chapter 2 of title 23, United States 

10 Code, and except for funds made available for 

11 disadvantaged business enterprises bonding as12 sistance, which shall be administered in accord13 ance with chapter 3 of title 49, United States 

14 Code. 

15 (B) Funds made available under this sub16 section shall not be obligated for the purposes 

17 authorized under section 115(b) of title 23, 

18 United States Code. 

19 (C) Funding provided under this sub20 section shall be in addition to any and all funds 

21 provided for fiscal years 2011 and 2012 in any 

22 other Act for ‘‘Federal-aid Highways’’ and shall 

23 not affect the distribution of funds provided for 

24 ‘‘Federal-aid Highways’’ in any other Act. 


srobinson on DSK4SPTVN1PROD with BILLS
200 

•HR 505 IH

1 (D) Section 1101(b) of Public Law 109–59 

2 shall apply to funds apportioned under this sub3 section. 

4 (13) OVERSIGHT.—The Administrator of the 

5 Federal Highway Administration may set aside up 

6 to 0.15 percent of the funds provided under this 

7 subsection to fund the oversight by the Adminis8 trator of projects and activities carried out with 

9 funds made available to the Federal Highway Ad10 ministration in this Act, and such funds shall be 

11 available through September 30, 2015. 

12 (d) CAPITAL ASSISTANCE FOR HIGH SPEED RAIL

13 CORRIDORS AND INTERCITY PASSENGER RAIL SERV14 ICE.— 

15 (1) IN GENERAL.—There is made available to 

16 the Secretary of Transportation $12,000,000,000 

17 for grants for high-speed rail projects as authorized 

18 under sections 26104 and 26106 of title 49, United 

19 States Code, capital investment grants to support 

20 intercity passenger rail service as authorized under 

21 section 24406 of title 49, United States Code, and 

22 congestion grants as authorized under section 24105 

23 of title 49, United States Code, and to enter into co24 operative agreements for these purposes as author25 ized, except that the Administrator of the Federal 


srobinson on DSK4SPTVN1PROD with BILLS
201 

•HR 505 IH

1 Railroad Administration may retain up to one per2 cent of the funds provided under this heading to 

3 fund the award and oversight by the Administrator 

4 of grants made under this subsection, which retained 

5 amount shall remain available for obligation until 

6 September 30, 2015. 

7 (2) AVAILABILITY.—The amounts made avail8 able under this subsection shall be available for obli9 gation until the date that is two years after the date 

10 of the enactment of this Act. The Secretary shall ob11 ligate amounts totaling not less than 50 percent of 

12 the funds made available within one year of enact13 ment and obligate remaining amounts not later than 

14 two years after enactment. 

15 (3) FEDERAL SHARE.—The Federal share pay16 able of the costs for which a grant or cooperative 

17 agreements is made under this subsection shall be, 

18 at the option of the recipient, up to 100 percent. 

19 (4) INTERIM GUIDANCE.—The Secretary shall 

20 issue interim guidance to applicants covering appli21 cation procedures and administer the grants pro22 vided under this subsection pursuant to that guid23 ance until final regulations are issued. 

24 (5) INTERCITY PASSENGER RAIL CORRIDORS.— 

25 Not less than 85 percent of the funds provided 


srobinson on DSK4SPTVN1PROD with BILLS
202 

•HR 505 IH

1 under this subsection shall be for cooperative agree2 ments that lead to the development of entire seg3 ments or phases of intercity or high-speed rail cor4 ridors. 

5 (6) CONDITIONS.— 

6 (A) In addition to the provisions of title 

7 49, United States Code, that apply to each of 

8 the individual programs funded under this sub9 section, subsections 24402(a)(2), 24402(i), and 

10 24403(a) and (c) of title 49, United States 

11 Code, shall also apply to the provision of funds 

12 provided under this subsection. 

13 (B) A project need not be in a State rail 

14 plan developed under chapter 227 of title 49, 

15 United States Code, to be eligible for assistance 

16 under this subsection. 

17 (C) Recipients of grants under this para18 graph shall conduct all procurement trans19 actions using such grant funds in a manner 

20 that provides full and open competition, as de21 termined by the Secretary, in compliance with 

22 existing labor agreements. 

23 (e) CAPITAL GRANTS TO THE NATIONAL RAILROAD

24 PASSENGER CORPORATION.— 


srobinson on DSK4SPTVN1PROD with BILLS
203 

•HR 505 IH

1 (1) IN GENERAL.—There is made available 

2 $6,000,000,000 to enable the Secretary of Transpor3 tation to make capital grants to the National Rail4 road Passenger Corporation (Amtrak), as authorized 

5 by section 101(c) of the Passenger Rail Investment 

6 and Improvement Act of 2008 (Public Law 110– 

7 432). 

8 (2) AVAILABILITY.—The amounts made avail9 able under this subsection shall be available for obli10 gation until the date that is two years after the date 

11 of the enactment of this Act. The Secretary shall ob12 ligate amounts totaling not less than 50 percent of 

13 the funds made available within one year of enact14 ment and obligate remaining amounts not later than 

15 two years after enactment. 

16 (3) PROJECT PRIORITY.—The priority for the 

17 use of funds shall be given to projects for the repair, 

18 rehabilitation, or upgrade of railroad assets or infra19 structure, and for capital projects that expand pas20 senger rail capacity including the rehabilitation of 

21 rolling stock. 

22 (4) CONDITIONS.— 

23 (A) None of the funds under this sub24 section shall be used to subsidize the operating 

25 losses of Amtrak. 


srobinson on DSK4SPTVN1PROD with BILLS
204 

•HR 505 IH

1 (B) The funds provided under this sub2 section shall be awarded not later than 90 days 

3 after the date of enactment of this Act. 

4 (C) The Secretary shall take measures to 

5 ensure that projects funded under this sub6 section shall be completed within 2 years of en7 actment of this Act, and shall serve to supple8 ment and not supplant planned expenditures for 

9 such activities from other Federal, State, local 

10 and corporate sources. The Secretary shall cer11 tify to the House and Senate Committees on 

12 Appropriations in writing compliance with the 

13 preceding sentence. 

14 (5) OVERSIGHT.—The Administrator of the 

15 Federal Railroad Administration may set aside 0.5 

16 percent of the funds provided under this subsection 

17 to fund the oversight by the Administrator of 

18 projects and activities carried out with funds made 

19 available in this subsection, and such funds shall be 

20 available through September 30, 2015. 

21 (f) TRANSIT CAPITAL ASSISTANCE.— 

22 (1) IN GENERAL.—There is made available to 

23 the Secretary of Transportation $9,000,000,000 for 

24 grants for transit capital assistance grants as de25 fined by section 5302(a)(3) of title 49, United 


srobinson on DSK4SPTVN1PROD with BILLS
205 

•HR 505 IH

1 States Code. Notwithstanding any provision of chap2 ter 53 of title 49, however, a recipient of funding 

3 under this subsection may use up to 10 percent of 

4 the amount provided for the operating costs of 

5 equipment and facilities for use in public transpor6 tation or for other eligible activities. 

7 (2) FEDERAL SHARE; LIMITATION ON OBLIGA8 TIONS.—The applicable requirements of chapter 53 

9 of title 49, United States Code, shall apply to fund10 ing provided under this subsection, except that the 

11 Federal share of the costs for which any grant is 

12 made under this subsection shall be, at the option of 

13 the recipient, up to 100 percent. The amount made 

14 available under this subsection shall not be subject 

15 to any limitation on obligations for transit programs 

16 set forth in any Act or chapter 53 of title 49. 

17 (3) AVAILABILITY.—The amounts made avail18 able under this subsection shall be available for obli19 gation until the date that is two years after the date 

20 of the enactment of this Act. The Secretary shall ob21 ligate amounts totaling not less than 50 percent of 

22 the funds made available within one year of enact23 ment and obligate remaining amounts not later than 

24 two years after enactment. 


srobinson on DSK4SPTVN1PROD with BILLS
206 

•HR 505 IH

1 (4) DISTRIBUTION OF FUNDS.—The Secretary 

2 of Transportation shall— 

3 (A) provide 80 percent of the funds appro4 priated under this subsection for grants under 

5 section 5307 of title 49, United States Code, 

6 and apportion such funds in accordance with 

7 section 5336 of such title; 

8 (B) provide 10 percent of the funds appro9 priated under this subsection in accordance 

10 with section 5340 of such title; and 

11 (C) provide 10 percent of the funds appro12 priated under this subsection for grants under 

13 section 5311 of title 49, United States Code, 

14 and apportion such funds in accordance with 

15 such section. 

16 (5) APPORTIONMENT.—The funds apportioned 

17 under this subsection shall be apportioned not later 

18 than 21 days after the date of the enactment of this 

19 Act. 

20 (6) REDISTRIBUTION.— 

21 (A) The Secretary shall, 180 days fol22 lowing the date of apportionment, withdraw 

23 from each urbanized area or State an amount 

24 equal to 50 percent of the funds apportioned to 

25 such urbanized areas or States less the amount 


srobinson on DSK4SPTVN1PROD with BILLS
207 

•HR 505 IH

1 of funding obligated, and the Secretary shall re2 distribute such amounts to other urbanized 

3 areas or States that have had no funds with4 drawn under this proviso utilizing whatever 

5 method he deems appropriate to ensure that all 

6 funds redistributed under this proviso shall be 

7 utilized promptly. 

8 (B) One year following the date of appor9 tionment, the Secretary shall withdraw from 

10 each urbanized area or State any unobligated 

11 funds, and the Secretary shall redistribute such 

12 amounts to other urbanized areas or States 

13 that have had no funds withdrawn under this 

14 proviso utilizing whatever method the Secretary 

15 deems appropriate to ensure that all funds re16 distributed under this proviso shall be utilized 

17 promptly. 

18 (C) At the request of an urbanized area or 

19 State, the Secretary of Transportation may pro20 vide an extension of such 1-year period if the 

21 Secretary determines that the urbanized area or 

22 State has encountered an unworkable bidding 

23 environment or other extenuating cir24 cumstances. Before granting an extension, the 

25 Secretary shall notify in writing the Committee 


srobinson on DSK4SPTVN1PROD with BILLS
208 

•HR 505 IH

1 on Transportation and Infrastructure and the 

2 Committee on Banking, Housing and Urban 

3 Affairs, providing a thorough justification for 

4 the extension. 

5 (7) CONDITIONS.— 

6 (A) Of the funds provided for section 5311 

7 of title 49, United States Code, 2.5 percent 

8 shall be made available for section 5311(c)(1). 

9 (B) Section 1101(b) of Public Law 109–59 

10 shall apply to funds appropriated under this 

11 subsection. 

12 (C) The funds appropriated under this 

13 subsection shall not be comingled with any prior 

14 year funds. 

15 (8) OVERSIGHT.—Notwithstanding any other 

16 provision of law, 0.3 percent of the funds provided 

17 for grants under section 5307 and section 5340, and 

18 0.3 percent of the funds provided for grants under 

19 section 5311, shall be available for administrative 

20 expenses and program management oversight, and 

21 such funds shall be available through September 30, 

22 2015. 

23 (g) STATE OF GOOD REPAIR.— 

24 (1) IN GENERAL.—There is made available to 

25 the Secretary of Transportation $18,000,000,000 


srobinson on DSK4SPTVN1PROD with BILLS
209 

•HR 505 IH

1 for capital expenditures as authorized by section 

2 5309(b)(5) of title 49, United States Code. 

3 (2) FEDERAL SHARE.—The applicable require4 ments of chapter 53 of title 49, United States Code, 

5 shall apply, except that the Federal share of the 

6 costs for which a grant is made under this sub7 section shall be, at the option of the recipient, up to 

8 100 percent. 

9 (3) AVAILABILITY.—The amounts made avail10 able under this subsection shall be available for obli11 gation until the date that is two years after the date 

12 of the enactment of this Act. The Secretary shall ob13 ligate amounts totaling not less than 50 percent of 

14 the funds made available within one year of enact15 ment and obligate remaining amounts not later than 

16 two years after enactment. 

17 (4) DISTRIBUTION OF FUNDS.— 

18 (A) The Secretary of Transportation shall 

19 apportion not less than 75 percent of the funds 

20 under this subsection for the modernization of 

21 fixed guideway systems, pursuant to the for22 mula set forth in section 5336(b) title 49, 

23 United States Code, other than subsection 

24 (b)(2)(A)(ii). 


srobinson on DSK4SPTVN1PROD with BILLS
210 

•HR 505 IH

1 (B) Of the funds appropriated under this 

2 subsection, not less than 25 percent shall be 

3 available for the restoration or replacement of 

4 existing public transportation assets related to 

5 bus systems, pursuant to the formula set forth 

6 in section 5336 other than subsection (b). 

7 (5) APPORTIONMENT.—The funds made avail8 able under this subsection shall be apportioned not 

9 later than 30 days after the date of the enactment 

10 of this Act. 

11 (6) REDISTRIBUTION.— 

12 (A) The Secretary shall, 180 days fol13 lowing the date of apportionment, withdraw 

14 from each urbanized area an amount equal to 

15 50 percent of the funds apportioned to such ur16 banized area less the amount of funding obli17 gated, and the Secretary shall redistribute such 

18 amounts to other urbanized areas that have had 

19 no funds withdrawn under this paragraph uti20 lizing whatever method the Secretary deems ap21 propriate to ensure that all funds redistributed 

22 under this paragraph shall be utilized promptly. 

23 (B) One year following the date of appor24 tionment, the Secretary shall withdraw from 

25 each urbanized area any unobligated funds, and 


srobinson on DSK4SPTVN1PROD with BILLS
211 

•HR 505 IH

1 the Secretary shall redistribute such amounts to 

2 other urbanized areas that have had no funds 

3 withdrawn under this paragraph, utilizing what4 ever method the Secretary deems appropriate to 

5 ensure that all funds redistributed under this 

6 paragraph shall be utilized promptly. 

7 (C) At the request of an urbanized area, 

8 the Secretary may provide an extension of the 

9 1-year period if the Secretary finds that the ur10 banized area has encountered an unworkable 

11 bidding environment or other extenuating cir12 cumstances. Before granting an extension, the 

13 Secretary shall notify the Committee on Trans14 portation and Infrastructure and the Com15 mittee on Banking, Housing, and Urban Af16 fairs, providing a thorough justification for the 

17 extension. 

18 (7) CONDITIONS.— 

19 (A) The provisions of section 1101(b) of 

20 Public Law 109–59 shall apply to funds made 

21 available under this subsection. 

22 (B) The funds appropriated under this 

23 subsection shall not be commingled with any 

24 prior year funds. 


srobinson on DSK4SPTVN1PROD with BILLS
212 

•HR 505 IH

1 (8) OVERSIGHT.—Notwithstanding any other 

2 provision of law, 0.3 percent of the funds under this 

3 subsection shall be available for administrative ex4 penses and program management oversight and shall 

5 remain available for obligation until September 30, 

6 2015. 

7 (h) TRANSPORTATION INFRASTRUCTURE GRANTS

8 AND FINANCING.— 

9 (1) IN GENERAL.—There is made available to 

10 the Secretary of Transportation $15,000,000,000 

11 for capital investments in surface transportation in12 frastructure. The Secretary shall distribute funds 

13 provided under this subsection as discretionary 

14 grants to be awarded to State and local governments 

15 or transit agencies on a competitive basis for 

16 projects that will have a significant impact on the 

17 Nation, a metropolitan area, or a region. 

18 (2) FEDERAL SHARE; LIMITATION ON OBLIGA19 TIONS.—The Federal share payable of the costs for 

20 which a grant is made under this subsection, shall 

21 be 100 percent. 

22 (3) AVAILABILITY.—The amounts made avail23 able under this subsection shall be available for obli24 gation until the date that is two years after the date 

25 of the enactment of this Act. The Secretary shall obVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00212 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
213 

•HR 505 IH

1 ligate amounts totaling not less than 50 percent of 

2 the funds made available within one year of enact3 ment and obligate remaining amounts not later than 

4 two years after enactment. 

5 (4) PROJECT ELIGIBILITY.—Projects eligible for 

6 funding provided under this subsection include— 

7 (A) highway or bridge projects eligible 

8 under title 23, United States Code, including 

9 interstate rehabilitation, improvements to the 

10 rural collector road system, the reconstruction 

11 of overpasses and interchanges, bridge replace12 ments, seismic retrofit projects for bridges, and 

13 road realignments; 

14 (B) public transportation projects eligible 

15 under chapter 53 of title 49, United States 

16 Code, including investments in projects partici17 pating in the New Starts or Small Starts pro18 grams that will expedite the completion of those 

19 projects and their entry into revenue service; 

20 (C) passenger and freight rail transpor21 tation projects; and 

22 (D) port infrastructure investments, in23 cluding projects that connect ports to other 

24 modes of transportation and improve the effi25 ciency of freight movement. 


srobinson on DSK4SPTVN1PROD with BILLS
214 

•HR 505 IH

1 (5) TIFIA PROGRAM.—The Secretary may 

2 transfer to the Federal Highway Administration 

3 funds made available under this subsection for the 

4 purpose of paying the subsidy and administrative 

5 costs of projects eligible for Federal credit assistance 

6 under chapter 6 of title 23, United States Code, if 

7 the Secretary finds that such use of the funds would 

8 advance the purposes of this subsection. 

9 (6) PROJECT PRIORITY.—The Secretary shall 

10 give priority to projects that are expected to be com11 pleted within 3 years of the date of the enactment 

12 of this Act. 

13 (7) DEADLINE FOR ISSUANCE OF COMPETITION

14 CRITERIA.—The Secretary shall publish criteria on 

15 which to base the competition for any grants award16 ed under this subsection not later than 90 days after 

17 enactment of this Act. The Secretary shall require 

18 applications for funding provided under this sub19 section to be submitted not later than 180 days after 

20 the publication of the criteria, and announce all 

21 projects selected to be funded from such funds not 

22 later than 1 year after the date of the enactment of 

23 the Act. 

24 (8) APPLICABILITY OF TITLE 40.—Each project 

25 conducted using funds provided under this subVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00214 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
215 

•HR 505 IH

1 section shall comply with the requirements of sub2 chapter IV of chapter 31 of title 40, United States 

3 Code. 

4 (9) ADMINISTRATIVE EXPENSES.—The Sec5 retary may retain up to one half of one percent of 

6 the funds provided under this subsection, and may 

7 transfer portions of those funds to the Administra8 tors of the Federal Highway Administration, the 

9 Federal Transit Administration, the Federal Rail10 road Administration and the Maritime Administra11 tion, to fund the award and oversight of grants 

12 made under this subsection. Funds retained shall re13 main available for obligation until September 30, 

14 2015. 

15 (i) LOCAL HIRING.— 

16 (1) IN GENERAL.—In the case of the funding 

17 made available under subsections (a) through (h) of 

18 this section, the Secretary of Transportation may es19 tablish standards under which a contract for con20 struction may be advertised that contains require21 ments for the employment of individuals residing in 

22 or adjacent to any of the areas in which the work 

23 is to be performed to perform construction work re24 quired under the contract, provided that— 


srobinson on DSK4SPTVN1PROD with BILLS
216 

•HR 505 IH

1 (A) all or part of the construction work 

2 performed under the contract occurs in an area 

3 designated by the Secretary as an area of high 

4 unemployment, using data reported by the 

5 United States Department of Labor, Bureau of 

6 Labor Statistics; 

7 (B) the estimated cost of the project of 

8 which the contract is a part is greater than 

9 $10,000,000, except that the estimated cost of 

10 the project in the case of construction funded 

11 under subsection (c) shall be greater than 

12 $50,000,000; and 

13 (C) the recipient may not require the hir14 ing of individuals who do not have the nec15 essary skills to perform work in any craft or 

16 trade; provided that the recipient may require 

17 the hiring of such individuals if the recipient es18 tablishes reasonable provisions to train such in19 dividuals to perform any such work under the 

20 contract effectively. 

21 (2) PROJECT STANDARDS.—Any standards es22 tablished by the Secretary under this section shall 

23 ensure that any requirements specified under sub24 section (c)(9)— 


srobinson on DSK4SPTVN1PROD with BILLS
217 

•HR 505 IH

1 (A) do not compromise the quality of the 

2 project; 

3 (B) are reasonable in scope and applica4 tion; 

5 (C) do not unreasonably delay the comple6 tion of the project; and 

7 (D) do not unreasonably increase the cost 

8 of the project. 

9 (3) IMPLEMENTING REGULATIONS.—The Sec10 retary shall promulgate final regulations to imple11 ment the authority of this subsection. 

12 (j) ADMINISTRATIVE PROVISIONS.— 

13 (1) APPLICABILITY OF TITLE 40.—Each project 

14 conducted using funds provided under this subtitle 

15 shall comply with the requirements of subchapter IV 

16 of chapter 31 of title 40, United States Code. 

17 (2) BUY AMERICAN.—Section 1605 of division 

18 A of the American Recovery and Reinvestment Act 

19 of 2009 (Public Law 111–5) applies to each project 

20 conducted using funds provided under this subtitle. 


srobinson on DSK4SPTVN1PROD with BILLS
218 

•HR 505 IH

1 PART II—BUILDING AND UPGRADING INFRA2 STRUCTURE FOR LONG-TERM DEVELOP3 MENT 

4 Subpart A—Immediate Transportation 

5 Infrastructure Investments 

6 SEC. 761. SHORT TITLE. 

7 This part may be cited as the ‘‘Building and Upgrad8 ing Infrastructure for Long-Term Development Act’’. 

9 SEC. 762. FINDINGS AND PURPOSE. 

10 (a) FINDINGS.—Congress finds that— 

11 (1) infrastructure has always been a vital ele12 ment of the economic strength of the United States 

13 and a key indicator of the international leadership of 

14 the United States; 

15 (2) the Erie Canal, the Hoover Dam, the rail16 roads, and the interstate highway system are all tes17 taments to American ingenuity and have helped pro18 pel and maintain the United States as the world’s 

19 largest economy; 

20 (3) according to the World Economic Forum’s 

21 Global Competitiveness Report, the United States 

22 fell to second place in 2009, and dropped to fourth 

23 place overall in 2010, however, in the ‘‘Quality of 

24 overall infrastructure’’ category of the same report, 

25 the United States ranked twenty-third in the world; 


srobinson on DSK4SPTVN1PROD with BILLS
219 

•HR 505 IH

1 (4) according to the World Bank’s 2010 Logis2 tic Performance Index, the capacity of countries to 

3 efficiently move goods and connect manufacturers 

4 and consumers with international markets is improv5 ing around the world, and the United States now 

6 ranks seventh in the world in logistics-related infra7 structure behind countries from both Europe and 

8 Asia; 

9 (5) according to a January 2009 report from 

10 the University of Massachusetts/Alliance for Amer11 ican Manufacturing entitled ‘‘Employment, Produc12 tivity and Growth,’’ infrastructure investment is a 

13 ‘‘highly effective engine of job creation’’; 

14 (6) according to the American Society of Civil 

15 Engineers, the current condition of the infrastruc16 ture in the United States earns a grade point aver17 age of D, and an estimated $2,200,000,000,000 in18 vestment is needed over the next 5 years to bring 

19 American infrastructure up to adequate condition; 

20 (7) according to the National Surface Trans21 portation Policy and Revenue Study Commission, 

22 $225,000,000,000 is needed annually from all 

23 sources for the next 50 years to upgrade the United 

24 States surface transportation system to a state of 

25 good repair and create a more advanced system; 


srobinson on DSK4SPTVN1PROD with BILLS
220 

•HR 505 IH

1 (8) the current infrastructure financing mecha2 nisms of the United States, both on the Federal and 

3 State level, will fail to meet current and foreseeable 

4 demands and will create large funding gaps; 

5 (9) published reports state that there may not 

6 be enough demand for municipal bonds to maintain 

7 the same level of borrowing at the same rates, re8 sulting in significantly decreased infrastructure in9 vestment at the State and local level; 

10 (10) current funding mechanisms are not read11 ily scalable and do not— 

12 (A) serve large in-State or cross jurisdic13 tion infrastructure projects, projects of regional 

14 or national significance, or projects that cross 

15 sector silos; 

16 (B) sufficiently catalyze private sector in17 vestment; or 

18 (C) ensure the optimal return on public re19 sources; 

20 (11) although grant programs of the United 

21 States Government must continue to play a central 

22 role in financing the transportation, environment, 

23 and energy infrastructure needs of the United 

24 States, current and foreseeable demands on existing 

25 Federal, State, and local funding for infrastructure 


srobinson on DSK4SPTVN1PROD with BILLS
221 

•HR 505 IH

1 expansion clearly exceed the resources to support 

2 these programs by margins wide enough to prompt 

3 serious concerns about the United States ability to 

4 sustain long-term economic development, produc5 tivity, and international competitiveness; 

6 (12) the capital markets, including pension 

7 funds, private equity funds, mutual funds, sovereign 

8 wealth funds, and other investors, have a growing 

9 interest in infrastructure investment and represent 

10 hundreds of billions of dollars of potential invest11 ment; and 

12 (13) the establishment of a United States Gov13 ernment-owned, independent, professionally managed 

14 institution that could provide credit support to quali15 fied infrastructure projects of regional and national 

16 significance, making transparent merit-based invest17 ment decisions based on the commercial viability of 

18 infrastructure projects, would catalyze the participa19 tion of significant private investment capital. 

20 (b) PURPOSE.—The purpose of this part is to facili21 tate investment in, and long-term financing of, economi22 cally viable infrastructure projects of regional or national 

23 significance in a manner that both complements existing 

24 Federal, State, local, and private funding sources for these 

25 projects and introduces a merit-based system for financing 


srobinson on DSK4SPTVN1PROD with BILLS
222 

•HR 505 IH

1 such projects, in order to mobilize significant private sec2 tor investment, create jobs, and ensure United States com3 petitiveness through an institution that limits the need for 

4 ongoing Federal funding. 

5 SEC. 763. DEFINITIONS. 

6 For purposes of this part, the following definitions 

7 shall apply: 

8 (1) AIFA.—The term ‘‘AIFA’’ means the 

9 American Infrastructure Financing Authority estab10 lished under this part. 

11 (2) BLIND TRUST.—The term ‘‘blind trust’’ 

12 means a trust in which the beneficiary has no knowl13 edge of the specific holdings and no rights over how 

14 those holdings are managed by the fiduciary of the 

15 trust prior to the dissolution of the trust. 

16 (3) BOARD OF DIRECTORS.—The term ‘‘Board 

17 of Directors’’ means Board of Directors of AIFA. 

18 (4) CHAIRPERSON.—The term ‘‘Chairperson’’ 

19 means the Chairperson of the Board of Directors of 

20 AIFA. 

21 (5) CHIEF EXECUTIVE OFFICER.—The term 

22 ‘‘chief executive officer’’ means the chief executive 

23 officer of AIFA, appointed under section 767. 


srobinson on DSK4SPTVN1PROD with BILLS
223 

•HR 505 IH

1 (6) COST.—The term ‘‘cost’’ has the same 

2 meaning as in section 502 of the Federal Credit Re3 form Act of 1990 (2 U.S.C. 661a). 

4 (7) DIRECT LOAN.—The term ‘‘direct loan’’ has 

5 the same meaning as in section 502 of the Federal 

6 Credit Reform Act of 1990 (2 U.S.C. 661a). 

7 (8) ELIGIBLE ENTITY.—The term ‘‘eligible enti8 ty’’ means an individual, corporation, partnership 

9 (including a public-private partnership), joint ven10 ture, trust, State, or other non-Federal govern11 mental entity, including a political subdivision or any 

12 other instrumentality of a State, or a revolving fund. 

13 (9) INFRASTRUCTURE PROJECT.— 

14 (A) IN GENERAL.—The term ‘‘eligible in15 frastructure project’’ means any non-Federal 

16 transportation, water, or energy infrastructure 

17 project, or an aggregation of such infrastruc18 ture projects, as provided in this part. 

19 (B) TRANSPORTATION INFRASTRUCTURE

20 PROJECT.—The term ‘‘transportation infra21 structure project’’ means the construction, al22 teration, or repair, including the facilitation of 

23 intermodal transit, of the following subsectors: 

24 (i) Highway or road. 

25 (ii) Bridge. 


srobinson on DSK4SPTVN1PROD with BILLS
224 

•HR 505 IH

1 (iii) Mass transit. 

2 (iv) Inland waterways. 

3 (v) Commercial ports. 

4 (vi) Airports. 

5 (vii) Air traffic control systems. 

6 (viii) Passenger rail, including high7 speed rail. 

8 (ix) Freight rail systems. 

9 (C) WATER INFRASTRUCTURE PROJECT.— 

10 The term ‘‘water infrastructure project’’ means 

11 the construction, consolidation, alteration, or 

12 repair of the following subsectors: 

13 (i) Waterwaste treatment facility. 

14 (ii) Storm water management system. 

15 (iii) Dam. 

16 (iv) Solid waste disposal facility. 

17 (v) Drinking water treatment facility. 

18 (vi) Levee. 

19 (vii) Open space management system. 

20 (D) ENERGY INFRASTRUCTURE

21 PROJECT.—The term ‘‘energy infrastructure 

22 project’’ means the construction, alteration, or 

23 repair of the following subsectors: 

24 (i) Pollution reduced energy genera25 tion. 


srobinson on DSK4SPTVN1PROD with BILLS
225 

•HR 505 IH

1 (ii) Transmission and distribution. 

2 (iii) Storage. 

3 (iv) Energy efficiency enhancements 

4 for buildings, including public and com5 mercial buildings. 

6 (E) BOARD AUTHORITY TO MODIFY SUB7 SECTORS.—The Board of Directors may make 

8 modifications, at the discretion of the Board, to 

9 the subsectors described in this paragraph by a 

10 vote of not fewer than 5 of the voting members 

11 of the Board of Directors. 

12 (10) INVESTMENT PROSPECTUS.— 

13 (A) The term ‘‘investment prospectus’’ 

14 means the processes and publications described 

15 below that will guide the priorities and strategic 

16 focus for the Bank’s investments. The invest17 ment prospectus shall follow rulemaking proce18 dures under section 553 of title 5, United 

19 States Code. 

20 (B) The Bank shall publish a detailed de21 scription of its strategy in an Investment Pro22 spectus within one year of the enactment of this 

23 subchapter. The Investment Prospectus shall— 

24 (i) specify what the Bank shall con25 sider significant to the economic competiVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00225 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
226 

•HR 505 IH

1 tiveness of the United States or a region 

2 thereof in a manner consistent with the 

3 primary objective; 

4 (ii) specify the priorities and strategic 

5 focus of the Bank in forwarding its stra6 tegic objectives and carrying out the Bank 

7 strategy; 

8 (iii) specify the priorities and strategic 

9 focus of the Bank in promoting greater ef10 ficiency in the movement of freight; 

11 (iv) specify the priorities and strategic 

12 focus of the Bank in promoting the use of 

13 innovation and best practices in the plan14 ning, design, development and delivery of 

15 projects; 

16 (v) describe in detail the framework 

17 and methodology for calculating applica18 tion qualification scores and associated 

19 ranges as specified in this subchapter, 

20 along with the data to be requested from 

21 applicants and the mechanics of calcula22 tions to be applied to that data to deter23 mine qualification scores and ranges; 

24 (vi) describe how selection criteria will 

25 be applied by the Chief Executive Officer 


srobinson on DSK4SPTVN1PROD with BILLS
227 

•HR 505 IH

1 in determining the competitiveness of an 

2 application and its qualification score and 

3 range relative to other current applications 

4 and previously funded applications; and 

5 (vii) describe how the qualification 

6 score and range methodology and project 

7 selection framework are consistent with 

8 maximizing the Bank goals in both urban 

9 and rural areas. 

10 (C) The Investment Prospectus and any 

11 subsequent updates thereto shall be approved 

12 by a majority vote of the Board of Directors 

13 prior to publication. 

14 (D) The Bank shall update the Investment 

15 Prospectus on every biennial anniversary of its 

16 original publication. 

17 (11) INVESTMENT-GRADE RATING.—The term 

18 ‘‘investment-grade rating’’ means a rating of BBB 

19 minus, Baa3, or higher assigned to an infrastructure 

20 project by a ratings agency. 

21 (12) LOAN GUARANTEE.—The term ‘‘loan guar22 antee’’ has the same meaning as in section 502 of 

23 the Federal Credit Reform Act of 1990 (2 U.S.C. 

24 661a). 


srobinson on DSK4SPTVN1PROD with BILLS
228 

•HR 505 IH

1 (13) PUBLIC-PRIVATE PARTNERSHIP.—The 

2 term ‘‘public-private partnership’’ means any eligible 

3 entity— 

4 (A)(i) which is undertaking the develop5 ment of all or part of an infrastructure project 

6 that will have a public benefit, pursuant to re7 quirements established in one or more contracts 

8 between the entity and a State or an instru9 mentality of a State; or 

10 (ii) the activities of which, with respect to 

11 such an infrastructure project, are subject to 

12 regulation by a State or any instrumentality of 

13 a State; 

14 (B) which owns, leases, or operates or will 

15 own, lease, or operate, the project in whole or 

16 in part; and 

17 (C) the participants in which include not 

18 fewer than 1 nongovernmental entity with sig19 nificant investment and some control over the 

20 project or project vehicle. 

21 (14) RURAL INFRASTRUCTURE PROJECT.—The 

22 term ‘‘rural infrastructure project’’ means an infra23 structure project in a rural area, as that term is de24 fined in section 343(a)(13)(A) of the Consolidated 


srobinson on DSK4SPTVN1PROD with BILLS
229 

•HR 505 IH

1 Farm and Rural Development Act (7 U.S.C. 

2 1991(a)(13)(A)). 

3 (15) SECRETARY.—Unless the context other4 wise requires, the term ‘‘Secretary’’ means the Sec5 retary of the Treasury or the designee thereof. 

6 (16) SENIOR MANAGEMENT.—The term ‘‘senior 

7 management’’ means the chief financial officer, chief 

8 risk officer, chief compliance officer, general counsel, 

9 chief lending officer, and chief operations officer of 

10 AIFA established under section 769, and such other 

11 officers as the Board of Directors may, by majority 

12 vote, add to senior management. 

13 (17) STATE.—The term ‘‘State’’ includes the 

14 District of Columbia, Puerto Rico, Guam, American 

15 Samoa, the Virgin Islands, the Commonwealth of 

16 Northern Mariana Islands, and any other territory 

17 of the United States. 

18 Subpart B—American Infrastructure Financing 

19 Authority 

20 SEC. 765. ESTABLISHMENT AND GENERAL AUTHORITY OF 

21 AIFA. 

22 (a) ESTABLISHMENT OF AIFA.—The American In23 frastructure Financing Authority is established as a whol24 ly owned Government corporation. 


srobinson on DSK4SPTVN1PROD with BILLS
230 

•HR 505 IH

1 (b) GENERAL AUTHORITY OF AIFA.—AIFA shall 

2 provide direct loans and loan guarantees to facilitate infra3 structure projects that are both economically viable and 

4 of regional or national significance, and shall have such 

5 other authority, as provided in this part. 

6 (c) INCORPORATION.— 

7 (1) IN GENERAL.—The Board of Directors first 

8 appointed shall be deemed the incorporator of AIFA, 

9 and the incorporation shall be held to have been ef10 fected from the date of the first meeting of the 

11 Board of Directors. 

12 (2) CORPORATE OFFICE.—AIFA shall— 

13 (A) maintain an office in Washington, DC; 

14 and 

15 (B) for purposes of venue in civil actions, 

16 be considered to be a resident of Washington, 

17 DC. 

18 (d) RESPONSIBILITY OF THE SECRETARY.—The Sec19 retary shall take such action as may be necessary to assist 

20 in implementing AIFA, and in carrying out the purpose 

21 of this part. 

22 (e) RULE OF CONSTRUCTION.—Chapter 91 of title 

23 31, United States Code, does not apply to AIFA, unless 

24 otherwise specifically provided in this part. 


srobinson on DSK4SPTVN1PROD with BILLS
231 

•HR 505 IH

1 SEC. 766. VOTING MEMBERS OF THE BOARD OF DIREC2 TORS. 

3 (a) VOTING MEMBERSHIP OF THE BOARD OF DIREC4 TORS.— 

5 (1) IN GENERAL.—AIFA shall have a Board of 

6 Directors consisting of 7 voting members appointed 

7 by the President, by and with the advice and consent 

8 of the Senate, not more than 4 of whom shall be 

9 from the same political party. 

10 (2) CHAIRPERSON.—One of the voting members 

11 of the Board of Directors shall be designated by the 

12 President to serve as Chairperson thereof. 

13 (3) CONGRESSIONAL RECOMMENDATIONS.—Not 

14 later than 30 days after the date of enactment of 

15 this Act, the majority leader of the Senate, the mi16 nority leader of the Senate, the Speaker of the 

17 House of Representatives, and the minority leader of 

18 the House of Representatives shall each submit a 

19 recommendation to the President for appointment of 

20 a member of the Board of Directors, after consulta21 tion with the appropriate committees of Congress. 

22 (b) VOTING RIGHTS.—Each voting member of the 

23 Board of Directors shall have an equal vote in all decisions 

24 of the Board of Directors. 

25 (c) QUALIFICATIONS OF VOTING MEMBERS.—Each 

26 voting member of the Board of Directors shall— 


srobinson on DSK4SPTVN1PROD with BILLS
232 

•HR 505 IH

1 (1) be a citizen of the United States; and 

2 (2) have significant demonstrated expertise in— 

3 (A) the management and administration of 

4 a financial institution relevant to the operation 

5 of AIFA; or a public financial agency or author6 ity; 

7 (B) the financing, development, or oper8 ation of infrastructure projects; or 

9 (C) analyzing the economic benefits of in10 frastructure investment. 

11 (d) TERMS.— 

12 (1) IN GENERAL.—Except as otherwise pro13 vided in this part, each voting member of the Board 

14 of Directors shall be appointed for a term of 4 years. 

15 (2) INITIAL STAGGERED TERMS.—Of the voting 

16 members first appointed to the Board of Directors— 

17 (A) the initial Chairperson and 3 of the 

18 other voting members shall each be appointed 

19 for a term of 4 years; and 

20 (B) the remaining 3 voting members shall 

21 each be appointed for a term of 2 years. 

22 (3) DATE OF INITIAL NOMINATIONS.—The ini23 tial nominations for the appointment of all voting 

24 members of the Board of Directors shall be made 


srobinson on DSK4SPTVN1PROD with BILLS
233 

•HR 505 IH

1 not later than 60 days after the date of enactment 

2 of this Act. 

3 (4) BEGINNING OF TERM.—The term of each of 

4 the initial voting members appointed under this sec5 tion shall commence immediately upon the date of 

6 appointment, except that, for purposes of calculating 

7 the term limits specified in this subsection, the ini8 tial terms shall each be construed as beginning on 

9 January 22 of the year following the date of the ini10 tial appointment. 

11 (5) VACANCIES.—A vacancy in the position of 

12 a voting member of the Board of Directors shall be 

13 filled by the President, and a member appointed to 

14 fill a vacancy on the Board of Directors occurring 

15 before the expiration of the term for which the pred16 ecessor was appointed shall be appointed only for 

17 the remainder of that term. 

18 (e) MEETINGS.— 

19 (1) OPEN TO THE PUBLIC; NOTICE.—Except as 

20 provided in paragraph (3), all meetings of the Board 

21 of Directors shall be— 

22 (A) open to the public; and 

23 (B) preceded by reasonable public notice. 

24 (2) FREQUENCY.—The Board of Directors shall 

25 meet not later than 60 days after the date on which 


srobinson on DSK4SPTVN1PROD with BILLS
234 

•HR 505 IH

1 all members of the Board of Directors are first ap2 pointed, at least quarterly thereafter, and otherwise 

3 at the call of either the Chairperson or 5 voting 

4 members of the Board of Directors. 

5 (3) EXCEPTION FOR CLOSED MEETINGS.—The 

6 voting members of the Board of Directors may, by 

7 majority vote, close a meeting to the public if, dur8 ing the meeting to be closed, there is likely to be dis9 closed proprietary or sensitive information regarding 

10 an infrastructure project under consideration for as11 sistance under this part. The Board of Directors 

12 shall prepare minutes of any meeting that is closed 

13 to the public, and shall make such minutes available 

14 as soon as practicable, not later than 1 year after 

15 the date of the closed meeting, with any necessary 

16 redactions to protect any proprietary or sensitive in17 formation. 

18 (4) QUORUM.—For purposes of meetings of the 

19 Board of Directors, 5 voting members of the Board 

20 of Directors shall constitute a quorum. 

21 (f) COMPENSATION OF MEMBERS.—Each voting 

22 member of the Board of Directors shall be compensated 

23 at a rate equal to the daily equivalent of the annual rate 

24 of basic pay prescribed for level III of the Executive 

25 Schedule under section 5314 of title 5, United States 


srobinson on DSK4SPTVN1PROD with BILLS
235 

•HR 505 IH

1 Code, for each day (including travel time) during which 

2 the member is engaged in the performance of the duties 

3 of the Board of Directors. 

4 (g) CONFLICTS OF INTEREST.—A voting member of 

5 the Board of Directors may not participate in any review 

6 or decision affecting an infrastructure project under con7 sideration for assistance under this part, if the member 

8 has or is affiliated with an entity who has a financial inter9 est in such project. 

10 SEC. 767. CHIEF EXECUTIVE OFFICER OF AIFA. 

11 (a) IN GENERAL.—The chief executive officer of 

12 AIFA shall be a nonvoting member of the Board of Direc13 tors, who shall be responsible for all activities of AIFA, 

14 and shall support the Board of Directors as set forth in 

15 this part and as the Board of Directors deems necessary 

16 or appropriate. 

17 (b) APPOINTMENT AND TENURE OF THE CHIEF EX18 ECUTIVE OFFICER.— 

19 (1) IN GENERAL.—The President shall appoint 

20 the chief executive officer, by and with the advice 

21 and consent of the Senate. 

22 (2) TERM.—The chief executive officer shall be 

23 appointed for a term of 6 years. 

24 (3) VACANCIES.—Any vacancy in the office of 

25 the chief executive officer shall be filled by the PresiVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00235 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
236 

•HR 505 IH

1 dent, and the person appointed to fill a vacancy in 

2 that position occurring before the expiration of the 

3 term for which the predecessor was appointed shall 

4 be appointed only for the remainder of that term. 

5 (c) QUALIFICATIONS.—The chief executive officer— 

6 (1) shall have significant expertise in manage7 ment and administration of a financial institution, 

8 or significant expertise in the financing and develop9 ment of infrastructure projects, or significant exper10 tise in analyzing the economic benefits of infrastruc11 ture investment; and 

12 (2) may not— 

13 (A) hold any other public office; 

14 (B) have any financial interest in an infra15 structure project then being considered by the 

16 Board of Directors, unless that interest is 

17 placed in a blind trust; or 

18 (C) have any financial interest in an in19 vestment institution or its affiliates or any 

20 other entity seeking or likely to seek financial 

21 assistance for any infrastructure project from 

22 AIFA, unless any such interest is placed in a 

23 blind trust for the tenure of the service of the 

24 chief executive officer plus 2 additional years. 


srobinson on DSK4SPTVN1PROD with BILLS
237 

•HR 505 IH

1 (d) RESPONSIBILITIES.—The chief executive officer 

2 shall have such executive functions, powers, and duties as 

3 may be prescribed by this part, the bylaws of AIFA, or 

4 the Board of Directors, including— 

5 (1) responsibility for the development and im6 plementation of the strategy of AIFA, including— 

7 (A) the development and submission to the 

8 Board of Directors of the investment pro9 spectus, the annual business plans and budget; 

10 (B) the development and submission to the 

11 Board of Directors of a long-term strategic 

12 plan; and 

13 (C) the development, revision, and submis14 sion to the Board of Directors of internal poli15 cies; and 

16 (2) responsibility for the management and over17 sight of the daily activities, decisions, operations, 

18 and personnel of AIFA, including— 

19 (A) the appointment of senior manage20 ment, subject to approval by the voting mem21 bers of the Board of Directors, and the hiring 

22 and termination of all other AIFA personnel; 

23 (B) requesting the detail, on a reimburs24 able basis, of personnel from any Federal agen25 cy having specific expertise not available from 


srobinson on DSK4SPTVN1PROD with BILLS
238 

•HR 505 IH

1 within AIFA, following which request the head 

2 of the Federal agency may detail, on a reim3 bursable basis, any personnel of such agency 

4 reasonably requested by the chief executive offi5 cer; 

6 (C) assessing and recommending in the 

7 first instance, for ultimate approval or dis8 approval by the Board of Directors, compensa9 tion and adjustments to compensation of senior 

10 management and other personnel of AIFA as 

11 may be necessary for carrying out the functions 

12 of AIFA; 

13 (D) ensuring, in conjunction with the gen14 eral counsel of AIFA, that all activities of 

15 AIFA are carried out in compliance with appli16 cable law; 

17 (E) overseeing the involvement of AIFA in 

18 all projects, including— 

19 (i) developing eligible projects for 

20 AIFA financial assistance; 

21 (ii) determining the terms and condi22 tions of all financial assistance packages; 

23 (iii) monitoring all infrastructure 

24 projects assisted by AIFA, including re25 sponsibility for ensuring that the proceeds 


srobinson on DSK4SPTVN1PROD with BILLS
239 

•HR 505 IH

1 of any loan made, guaranteed, or partici2 pated in are used only for the purposes for 

3 which the loan or guarantee was made; 

4 (iv) preparing and submitting for ap5 proval by the Board of Directors the docu6 ments required under paragraph (1); and 

7 (v) ensuring the implementation of de8 cisions of the Board of Directors; and 

9 (F) such other activities as may be nec10 essary or appropriate in carrying out this part. 

11 (e) COMPENSATION.— 

12 (1) IN GENERAL.—Any compensation assess13 ment or recommendation by the chief executive offi14 cer under this section shall be without regard to the 

15 provisions of chapter 51 or subchapter III of chapter 

16 53 of title 5, United States Code. 

17 (2) CONSIDERATIONS.—The compensation as18 sessment or recommendation required under this 

19 subsection shall take into account merit principles, 

20 where applicable, as well as the education, experi21 ence, level of responsibility, geographic differences, 

22 and retention and recruitment needs in determining 

23 compensation of personnel. 


srobinson on DSK4SPTVN1PROD with BILLS
240 

•HR 505 IH

1 SEC. 768. POWERS AND DUTIES OF THE BOARD OF DIREC2 TORS. 

3 The Board of Directors shall— 

4 (1) as soon as is practicable after the date on 

5 which all members are appointed, approve or dis6 approve senior management appointed by the chief 

7 executive officer; 

8 (2) not later than 180 days after the date on 

9 which all members are appointed— 

10 (A) develop and approve the bylaws of 

11 AIFA, including bylaws for the regulation of 

12 the affairs and conduct of the business of 

13 AIFA, consistent with the purpose, goals, objec14 tives, and policies set forth in this part; 

15 (B) establish subcommittees, including an 

16 audit committee that is composed solely of 

17 members of the Board of Directors who are 

18 independent of the senior management of 

19 AIFA; 

20 (C) develop and approve, in consultation 

21 with senior management, a conflict-of-interest 

22 policy for the Board of Directors and for senior 

23 management; 

24 (D) approve or disapprove internal policies 

25 that the chief executive officer shall submit to 

26 the Board of Directors, including— 


srobinson on DSK4SPTVN1PROD with BILLS
241 

•HR 505 IH

1 (i) policies regarding the loan applica2 tion and approval process, including— 

3 (I) disclosure and application 

4 procedures to be followed by entities 

5 in the course of nominating infra6 structure projects for assistance under 

7 this part; 

8 (II) guidelines for the selection 

9 and approval of projects; 

10 (III) specific criteria for deter11 mining eligibility for project selection, 

12 consistent with title II; and 

13 (IV) standardized terms and con14 ditions, fee schedules, or legal require15 ments of a contract or program, so as 

16 to carry out this part; and 

17 (ii) operational guidelines; and 

18 (E) approve or disapprove a multi-year or 

19 1-year business plan and budget for AIFA; 

20 (3) ensure that AIFA is at all times operated 

21 in a manner that is consistent with this part, by— 

22 (A) monitoring and assessing the effective23 ness of AIFA in achieving its strategic goals; 

24 (B) periodically reviewing internal policies; 


srobinson on DSK4SPTVN1PROD with BILLS
242 

•HR 505 IH

1 (C) reviewing and approving annual busi2 ness plans, annual budgets, and long-term 

3 strategies submitted by the chief executive offi4 cer; 

5 (D) reviewing and approving annual re6 ports submitted by the chief executive officer; 

7 (E) engaging one or more external audi8 tors, as set forth in this part; and 

9 (F) reviewing and approving all changes to 

10 the organization of senior management; 

11 (4) appoint and fix, by a vote of 5 of the 7 vot12 ing members of the Board of Directors, and without 

13 regard to the provisions of chapter 51 or subchapter 

14 III of chapter 53 of title 5, United States Code, the 

15 compensation and adjustments to compensation of 

16 all AIFA personnel, provided that in appointing and 

17 fixing any compensation or adjustments to com18 pensation under this paragraph, the Board shall— 

19 (A) consult with, and seek to maintain 

20 comparability with, other comparable Federal 

21 personnel; 

22 (B) consult with the Office of Personnel 

23 Management; and 

24 (C) carry out such duties consistent with 

25 merit principles, where applicable, as well as the 


srobinson on DSK4SPTVN1PROD with BILLS
243 

•HR 505 IH

1 education, experience, level of responsibility, ge2 ographic differences, and retention and recruit3 ment needs in determining compensation of per4 sonnel; 

5 (5) establish such other criteria, requirements, 

6 or procedures as the Board of Directors may con7 sider to be appropriate in carrying out this part; 

8 (6) serve as the primary liaison for AIFA in 

9 interactions with Congress, the Executive Branch, 

10 and State and local governments, and to represent 

11 the interests of AIFA in such interactions and oth12 ers; 

13 (7) approve by a vote of 5 of the 7 voting mem14 bers of the Board of Directors any changes to the 

15 bylaws or internal policies of AIFA; 

16 (8) have the authority and responsibility— 

17 (A) to oversee entering into and carry out 

18 such contracts, leases, cooperative agreements, 

19 or other transactions as are necessary to carry 

20 out this part with— 

21 (i) any Federal department or agency; 

22 (ii) any State, territory, or possession 

23 (or any political subdivision thereof, includ24 ing State infrastructure banks) of the 

25 United States; and 


srobinson on DSK4SPTVN1PROD with BILLS
244 

•HR 505 IH

1 (iii) any individual, public-private 

2 partnership, firm, association, or corpora3 tion; 

4 (B) to approve of the acquisition, lease, 

5 pledge, exchange, and disposal of real and per6 sonal property by AIFA and otherwise approve 

7 the exercise by AIFA of all of the usual inci8 dents of ownership of property, to the extent 

9 that the exercise of such powers is appropriate 

10 to and consistent with the purposes of AIFA; 

11 (C) to determine the character of, and the 

12 necessity for, the obligations and expenditures 

13 of AIFA, and the manner in which the obliga14 tions and expenditures will be incurred, allowed, 

15 and paid, subject to this part and other Federal 

16 law specifically applicable to wholly owned Fed17 eral corporations; 

18 (D) to execute, in accordance with applica19 ble bylaws and regulations, appropriate instru20 ments; 

21 (E) to approve other forms of credit en22 hancement that AIFA may provide to eligible 

23 projects, as long as the forms of credit enhance24 ments are consistent with the purposes of this 

25 part and terms set forth in title II; 


srobinson on DSK4SPTVN1PROD with BILLS
245 

•HR 505 IH

1 (F) to exercise all other lawful powers 

2 which are necessary or appropriate to carry out, 

3 and are consistent with, the purposes of AIFA; 

4 (G) to sue or be sued in the corporate ca5 pacity of AIFA in any court of competent juris6 diction; 

7 (H) to indemnify the members of the 

8 Board of Directors and officers of AIFA for 

9 any liabilities arising out of the actions of the 

10 members and officers in such capacity, in ac11 cordance with, and subject to the limitations 

12 contained in this part; 

13 (I) to review all financial assistance pack14 ages to all eligible infrastructure projects, as 

15 submitted by the chief executive officer and to 

16 approve, postpone, or deny the same by major17 ity vote; 

18 (J) to review all restructuring proposals 

19 submitted by the chief executive officer, includ20 ing assignation, pledging, or disposal of the in21 terest of AIFA in a project, including payment 

22 or income from any interest owned or held by 

23 AIFA, and to approve, postpone, or deny the 

24 same by majority vote; and 


srobinson on DSK4SPTVN1PROD with BILLS
246 

•HR 505 IH

1 (K) to enter into binding commitments, as 

2 specified in approved financial assistance pack3 ages; 

4 (9) delegate to the chief executive officer those 

5 duties that the Board of Directors deems appro6 priate, to better carry out the powers and purposes 

7 of the Board of Directors under this section; and 

8 (10) to approve a maximum aggregate amount 

9 of outstanding obligations of AIFA at any given 

10 time, taking into consideration funding, and the size 

11 of AIFA’s addressable market for infrastructure 

12 projects. 

13 SEC. 769. SENIOR MANAGEMENT. 

14 (a) IN GENERAL.—Senior management shall support 

15 the chief executive officer in the discharge of the respon16 sibilities of the chief executive officer. 

17 (b) APPOINTMENT OF SENIOR MANAGEMENT.—The 

18 chief executive officer shall appoint such senior managers 

19 as are necessary to carry out the purpose of AIFA, as 

20 approved by a majority vote of the voting members of the 

21 Board of Directors. 

22 (c) TERM.—Each member of senior management 

23 shall serve at the pleasure of the chief executive officer 

24 and the Board of Directors. 


srobinson on DSK4SPTVN1PROD with BILLS
247 

•HR 505 IH

1 (d) REMOVAL OF SENIOR MANAGEMENT.—Any mem2 ber of senior management may be removed, either by a 

3 majority of the voting members of the Board of Directors 

4 upon request by the chief executive officer, or otherwise 

5 by vote of not fewer than 5 voting members of the Board 

6 of Directors. 

7 (e) SENIOR MANAGEMENT.— 

8 (1) IN GENERAL.—Each member of senior 

9 management shall report directly to the chief execu10 tive officer, other than the Chief Risk Officer, who 

11 shall report directly to the Board of Directors. 

12 (2) DUTIES AND RESPONSIBILITIES.— 

13 (A) CHIEF FINANCIAL OFFICER.—The 

14 Chief Financial Officer shall be responsible for 

15 all financial functions of AIFA, provided that, 

16 at the discretion of the Board of Directors, spe17 cific functions of the Chief Financial Officer 

18 may be delegated externally. 

19 (B) CHIEF RISK OFFICER.—The Chief 

20 Risk Officer shall be responsible for all func21 tions of AIFA relating to— 

22 (i) the creation of financial, credit, 

23 and operational risk management guide24 lines and policies; 


srobinson on DSK4SPTVN1PROD with BILLS
248 

•HR 505 IH

1 (ii) credit analysis for infrastructure 

2 projects; 

3 (iii) the creation of conforming stand4 ards for infrastructure finance agreements; 

5 (iv) the monitoring of the financial, 

6 credit, and operational exposure of AIFA; 

7 and 

8 (v) risk management and mitigation 

9 actions, including by reporting such ac10 tions, or recommendations of such actions 

11 to be taken, directly to the Board of Direc12 tors. 

13 (C) CHIEF COMPLIANCE OFFICER.—The 

14 Chief Compliance Officer shall be responsible 

15 for all functions of AIFA relating to internal 

16 audits, accounting safeguards, and the enforce17 ment of such safeguards and other applicable 

18 requirements. 

19 (D) GENERAL COUNSEL.—The General 

20 Counsel shall be responsible for all functions of 

21 AIFA relating to legal matters and, in consulta22 tion with the chief executive officer, shall be re23 sponsible for ensuring that AIFA complies with 

24 all applicable law. 


srobinson on DSK4SPTVN1PROD with BILLS
249 

•HR 505 IH

1 (E) CHIEF OPERATIONS OFFICER.—The 

2 Chief Operations Officer shall be responsible for 

3 all operational functions of AIFA, including 

4 those relating to the continuing operations and 

5 performance of all infrastructure projects in 

6 which AIFA retains an interest and for all 

7 AIFA functions related to human resources. 

8 (F) CHIEF LENDING OFFICER.—The Chief 

9 Lending Officer shall be responsible for— 

10 (i) all functions of AIFA relating to 

11 the development of project pipeline, finan12 cial structuring of projects, selection of in13 frastructure projects to be reviewed by the 

14 Board of Directors, preparation of infra15 structure projects to be presented to the 

16 Board of Directors, and set aside for rural 

17 infrastructure projects; 

18 (ii) the creation and management of— 

19 (I) a Center for Excellence to 

20 provide technical assistance to public 

21 sector borrowers in the development 

22 and financing of infrastructure 

23 projects; and 

24 (II) an Office of Rural Assistance 

25 to provide technical assistance in the 


srobinson on DSK4SPTVN1PROD with BILLS
250 

•HR 505 IH

1 development and financing of rural in2 frastructure projects; and 

3 (iii) the establishment of guidelines to 

4 ensure diversification of lending activities 

5 by region, infrastructure project type, and 

6 project size. 

7 (f) CHANGES TO SENIOR MANAGEMENT.—The Board 

8 of Directors, in consultation with the chief executive offi9 cer, may alter the structure of the senior management of 

10 AIFA at any time to better accomplish the goals, objec11 tives, and purposes of AIFA, provided that the functions 

12 of the Chief Financial Officer set forth in subsection (e) 

13 remain separate from the functions of the Chief Risk Offi14 cer set forth in subsection (e). 

15 (g) CONFLICTS OF INTEREST.—No individual ap16 pointed to senior management may— 

17 (1) hold any other public office; 

18 (2) have any financial interest in an infrastruc19 ture project then being considered by the Board of 

20 Directors, unless that interest is placed in a blind 

21 trust; or 

22 (3) have any financial interest in an investment 

23 institution or its affiliates, AIFA or its affiliates, or 

24 other entity then seeking or likely to seek financial 

25 assistance for any infrastructure project from AIFA, 


srobinson on DSK4SPTVN1PROD with BILLS
251 

•HR 505 IH

1 unless any such interest is placed in a blind trust 

2 during the term of service of that individual in a 

3 senior management position, and for a period of 2 

4 years thereafter. 

5 SEC. 770. SPECIAL INSPECTOR GENERAL FOR AIFA. 

6 (a) IN GENERAL.—During the first 5 operating years 

7 of AIFA, the Office of the Inspector General of the De8 partment of the Treasury shall have responsibility for 

9 AIFA. 

10 (b) OFFICE OF THE SPECIAL INSPECTOR GEN11 ERAL.—Effective 5 years after the date of enactment of 

12 the commencement of the operations of AIFA, there is es13 tablished the Office of the Special Inspector General for 

14 AIFA. 

15 (c) APPOINTMENT OF INSPECTOR GENERAL; RE16 MOVAL.— 

17 (1) HEAD OF OFFICE.—The head of the Office 

18 of the Special Inspector General for AIFA shall be 

19 the Special Inspector General for AIFA (in this part 

20 referred to as the ‘‘Special Inspector General’’), who 

21 shall be appointed by the President, by and with the 

22 advice and consent of the Senate. 

23 (2) BASIS OF APPOINTMENT.—The appoint24 ment of the Special Inspector General shall be made 

25 on the basis of integrity and demonstrated ability in 


srobinson on DSK4SPTVN1PROD with BILLS
252 

•HR 505 IH

1 accounting, auditing, financial analysis, law, man2 agement analysis, public administration, or inves3 tigations. 

4 (3) TIMING OF NOMINATION.—The nomination 

5 of an individual as Special Inspector General shall 

6 be made as soon as is practicable after the effective 

7 date under subsection (b). 

8 (4) REMOVAL.—The Special Inspector General 

9 shall be removable from office in accordance with 

10 the provisions of section 3(b) of the Inspector Gen11 eral Act of 1978 (5 U.S.C. App.). 

12 (5) RULE OF CONSTRUCTION.—For purposes of 

13 section 7324 of title 5, United States Code, the Spe14 cial Inspector General shall not be considered an em15 ployee who determines policies to be pursued by the 

16 United States in the nationwide administration of 

17 Federal law. 

18 (6) RATE OF PAY.—The annual rate of basic 

19 pay of the Special Inspector General shall be the an20 nual rate of basic pay for an Inspector General 

21 under section 3(e) of the Inspector General Act of 

22 1978 (5 U.S.C. App.). 

23 (d) DUTIES.— 

24 (1) IN GENERAL.—It shall be the duty of the 

25 Special Inspector General to conduct, supervise, and 


srobinson on DSK4SPTVN1PROD with BILLS
253 

•HR 505 IH

1 coordinate audits and investigations of the business 

2 activities of AIFA. 

3 (2) OTHER SYSTEMS, PROCEDURES, AND CON4 TROLS.—The Special Inspector General shall estab5 lish, maintain, and oversee such systems, procedures, 

6 and controls as the Special Inspector General con7 siders appropriate to discharge the duty under para8 graph (1). 

9 (3) ADDITIONAL DUTIES.—In addition to the 

10 duties specified in paragraphs (1) and (2), the In11 spector General shall also have the duties and re12 sponsibilities of inspectors general under the Inspec13 tor General Act of 1978. 

14 (e) POWERS AND AUTHORITIES.— 

15 (1) IN GENERAL.—In carrying out the duties 

16 specified in subsection (c), the Special Inspector 

17 General shall have the authorities provided in section 

18 6 of the Inspector General Act of 1978. 

19 (2) ADDITIONAL AUTHORITY.—The Special In20 spector General shall carry out the duties specified 

21 in subsection (c)(1) in accordance with section 

22 4(b)(1) of the Inspector General Act of 1978. 

23 (f) PERSONNEL, FACILITIES, AND OTHER RE24 SOURCES.— 

25 (1) ADDITIONAL OFFICERS.— 


srobinson on DSK4SPTVN1PROD with BILLS
254 

•HR 505 IH

1 (A) The Special Inspector General may se2 lect, appoint, and employ such officers and em3 ployees as may be necessary for carrying out 

4 the duties of the Special Inspector General, 

5 subject to the provisions of title 5, United 

6 States Code, governing appointments in the 

7 competitive service, and the provisions of chap8 ter 51 and subchapter III of chapter 53 of such 

9 title, relating to classification and General 

10 Schedule pay rates. 

11 (B) The Special Inspector General may ex12 ercise the authorities of subsections (b) through 

13 (i) of section 3161 of title 5, United States 

14 Code (without regard to subsection (a) of that 

15 section). 

16 (2) RETENTION OF SERVICES.—The Special In17 spector General may obtain services as authorized by 

18 section 3109 of title 5, United States Code, at daily 

19 rates not to exceed the equivalent rate prescribed for 

20 grade GS–15 of the General Schedule by section 

21 5332 of such title. 

22 (3) ABILITY TO CONTRACT FOR AUDITS, STUD23 IES, AND OTHER SERVICES.—The Special Inspector 

24 General may enter into contracts and other arrange25 ments for audits, studies, analyses, and other servVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00254 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
255 

•HR 505 IH

1 ices with public agencies and with private persons, 

2 and make such payments as may be necessary to 

3 carry out the duties of the Special Inspector Gen4 eral. 

5 (4) REQUEST FOR INFORMATION.— 

6 (A) IN GENERAL.—Upon request of the 

7 Special Inspector General for information or as8 sistance from any department, agency, or other 

9 entity of the Federal Government, the head of 

10 such entity shall, insofar as is practicable and 

11 not in contravention of any existing law, furnish 

12 such information or assistance to the Special 

13 Inspector General, or an authorized designee. 

14 (B) REFUSAL TO COMPLY.—Whenever in15 formation or assistance requested by the Spe16 cial Inspector General is, in the judgment of the 

17 Special Inspector General, unreasonably refused 

18 or not provided, the Special Inspector General 

19 shall report the circumstances to the Secretary 

20 of the Treasury, without delay. 

21 (g) REPORTS.— 

22 (1) ANNUAL REPORT.—Not later than 1 year 

23 after the confirmation of the Special Inspector Gen24 eral, and every calendar year thereafter, the Special 

25 Inspector General shall submit to the President a reVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00255 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
256 

•HR 505 IH

1 port summarizing the activities of the Special In2 spector General during the previous 1-year period 

3 ending on the date of such report. 

4 (2) PUBLIC DISCLOSURES.—Nothing in this 

5 subsection shall be construed to authorize the public 

6 disclosure of information that is— 

7 (A) specifically prohibited from disclosure 

8 by any other provision of law; 

9 (B) specifically required by Executive order 

10 to be protected from disclosure in the interest 

11 of national defense or national security or in 

12 the conduct of foreign affairs; or 

13 (C) a part of an ongoing criminal inves14 tigation. 

15 SEC. 771. OTHER PERSONNEL. 

16 Except as otherwise provided in the bylaws of AIFA, 

17 the chief executive officer, in consultation with the Board 

18 of Directors, shall appoint, remove, and define the duties 

19 of such qualified personnel as are necessary to carry out 

20 the powers, duties, and purpose of AIFA, other than sen21 ior management, who shall be appointed in accordance 

22 with section 769. 

23 SEC. 772. COMPLIANCE. 

24 The provision of assistance by the Board of Directors 

25 pursuant to this part shall not be construed as superVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00256 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
257 

•HR 505 IH

1 seding any provision of State law or regulation otherwise 

2 applicable to an infrastructure project. 

3 Subpart C—Terms and Limitations on Direct Loans 

4 and Loan Guarantees 

5 SEC. 773. ELIGIBILITY CRITERIA FOR ASSISTANCE FROM 

6 AIFA AND TERMS AND LIMITATIONS OF 

7 LOANS. 

8 (a) IN GENERAL.—Any project whose use or purpose 

9 is private and for which no public benefit is created shall 

10 not be eligible for financial assistance from AIFA under 

11 this part. Financial assistance under this part shall only 

12 be made available if the applicant for such assistance has 

13 demonstrated to the satisfaction of the Board of Directors 

14 that the infrastructure project for which such assistance 

15 is being sought— 

16 (1) is not for the refinancing of an existing in17 frastructure project; and 

18 (2) meets— 

19 (A) any pertinent requirements set forth in 

20 this part; 

21 (B) any criteria established by the Board 

22 of Directors or chief executive officer in accord23 ance with this part; and 


srobinson on DSK4SPTVN1PROD with BILLS
258 

•HR 505 IH

1 (C) the definition of a transportation infra2 structure project, water infrastructure project, 

3 or energy infrastructure project. 

4 (b) CONSIDERATIONS.—The criteria established by 

5 the Board of Directors pursuant to this part shall provide 

6 adequate consideration of— 

7 (1) the economic, financial, technical, environ8 mental, and public benefits and costs of each infra9 structure project under consideration for financial 

10 assistance under this part, prioritizing infrastructure 

11 projects that— 

12 (A) contribute to regional or national eco13 nomic growth; 

14 (B) offer value for money to taxpayers; 

15 (C) demonstrate a clear and significant 

16 public benefit; 

17 (D) lead to job creation; and 

18 (E) mitigate environmental concerns; 

19 (2) the means by which development of the in20 frastructure project under consideration is being fi21 nanced, including— 

22 (A) the terms, conditions, and structure of 

23 the proposed financing; 


srobinson on DSK4SPTVN1PROD with BILLS
259 

•HR 505 IH

1 (B) the credit worthiness and standing of 

2 the project sponsors, providers of equity, and 

3 cofinanciers; 

4 (C) the financial assumptions and projec5 tions on which the infrastructure project is 

6 based; and 

7 (D) whether there is sufficient State or 

8 municipal political support for the successful 

9 completion of the infrastructure project; 

10 (3) the likelihood that the provision of assist11 ance by AIFA will cause such development to pro12 ceed more promptly and with lower costs than would 

13 be the case without such assistance; 

14 (4) the extent to which the provision of assist15 ance by AIFA maximizes the level of private invest16 ment in the infrastructure project or supports a 

17 public-private partnership, while providing a signifi18 cant public benefit; 

19 (5) the extent to which the provision of assist20 ance by AIFA can mobilize the participation of other 

21 financing partners in the infrastructure project; 

22 (6) the technical and operational viability of the 

23 infrastructure project; 

24 (7) the proportion of financial assistance from 

25 AIFA; 


srobinson on DSK4SPTVN1PROD with BILLS
260 

•HR 505 IH

1 (8) the geographic location of the project in an 

2 effort to have geographic diversity of projects funded 

3 by AIFA; 

4 (9) the size of the project and its impact on the 

5 resources of AIFA; 

6 (10) the infrastructure sector of the project, in 

7 an effort to have projects from more than one sector 

8 funded by AIFA; and 

9 (11) encourages use of innovative procurement, 

10 asset management, or financing to minimize the all11 in-life-cycle cost, and improve the cost-effectiveness 

12 of a project. 

13 (c) APPLICATION.— 

14 (1) IN GENERAL.—Any eligible entity seeking 

15 assistance from AIFA under this part for an eligible 

16 infrastructure project shall submit an application to 

17 AIFA at such time, in such manner, and containing 

18 such information as the Board of Directors or the 

19 chief executive officer may require. 

20 (2) REVIEW OF APPLICATIONS.—AIFA shall re21 view applications for assistance under this part on 

22 an ongoing basis. The chief executive officer, work23 ing with the senior management, shall prepare eligi24 ble infrastructure projects for review and approval 

25 by the Board of Directors. 


srobinson on DSK4SPTVN1PROD with BILLS
261 

•HR 505 IH

1 (3) DEDICATED REVENUE SOURCES.—The Fed2 eral credit instrument shall be repayable, in whole or 

3 in part, from tolls, user fees, or other dedicated rev4 enue sources that also secure the infrastructure 

5 project obligations. 

6 (d) ELIGIBLE INFRASTRUCTURE PROJECT COSTS.— 

7 (1) IN GENERAL.—Except as provided in para8 graph (2), to be eligible for assistance under this 

9 part, an infrastructure project shall have project 

10 costs that are reasonably anticipated to equal or ex11 ceed $100,000,000. 

12 (2) RURAL INFRASTRUCTURE PROJECTS.—To 

13 be eligible for assistance under this part a rural in14 frastructure project shall have project costs that are 

15 reasonably anticipated to equal or exceed 

16 $25,000,000. 

17 (e) LOAN ELIGIBILITY AND MAXIMUM AMOUNTS.— 

18 (1) IN GENERAL.—The amount of a direct loan 

19 or loan guarantee under this part shall not exceed 

20 the lesser of 50 percent of the reasonably anticipated 

21 eligible infrastructure project costs or, if the direct 

22 loan or loan guarantee does not receive an invest23 ment grade rating, the amount of the senior project 

24 obligations. 


srobinson on DSK4SPTVN1PROD with BILLS
262 

•HR 505 IH

1 (2) MAXIMUM ANNUAL LOAN AND LOAN GUAR2 ANTEE VOLUME.—The aggregate amount of direct 

3 loans and loan guarantees made by AIFA in any 

4 single fiscal year may not exceed— 

5 (A) during the first 2 fiscal years of the 

6 operations of AIFA, $10,000,000,000; 

7 (B) during fiscal years 3 through 9 of the 

8 operations of AIFA, $20,000,000,000; or 

9 (C) during any fiscal year thereafter, 

10 $50,000,000,000. 

11 (f) STATE AND LOCAL PERMITS REQUIRED.—The 

12 provision of assistance by the Board of Directors pursuant 

13 to this part shall not be deemed to relieve any recipient 

14 of such assistance, or the related infrastructure project, 

15 of any obligation to obtain required State and local per16 mits and approvals. 

17 SEC. 774. LOAN TERMS AND REPAYMENT. 

18 (a) IN GENERAL.—A direct loan or loan guarantee 

19 under this part with respect to an eligible infrastructure 

20 project shall be on such terms, subject to such conditions, 

21 and contain such covenants, representations, warranties, 

22 and requirements (including requirements for audits) as 

23 the chief executive officer determines appropriate. 

24 (b) TERMS.—A direct loan or loan guarantee under 

25 this part— 


srobinson on DSK4SPTVN1PROD with BILLS
263 

•HR 505 IH

1 (1) shall— 

2 (A) be payable, in whole or in part, from 

3 tolls, user fees, or other dedicated revenue 

4 sources that also secure the senior project obli5 gations (such as availability payments and dedi6 cated State or local revenues); and 

7 (B) include a rate covenant, coverage re8 quirement, or similar security feature sup9 porting the project obligations; and 

10 (2) may have a lien on revenues described in 

11 paragraph (1), subject to any lien securing project 

12 obligations. 

13 (c) BASE INTEREST RATE.—The base interest rate 

14 on a direct loan under this part shall be not less than 

15 the yield on United States Treasury obligations of a simi16 lar maturity to the maturity of the direct loan. 

17 (d) RISK ASSESSMENT.—Before entering into an 

18 agreement for assistance under this part, the chief execu19 tive officer, in consultation with the Director of the Office 

20 of Management and Budget and considering rating agency 

21 preliminary or final rating opinion letters of the project 

22 under this section, shall estimate an appropriate Federal 

23 credit subsidy amount for each direct loan and loan guar24 antee, taking into account such letter, as well as any com25 parable market rates available for such a loan or loan 


srobinson on DSK4SPTVN1PROD with BILLS
264 

•HR 505 IH

1 guarantee, should any exist. The final credit subsidy cost 

2 for each loan and loan guarantee shall be determined con3 sistent with the Federal Credit Reform Act, 2 U.S.C. 661a 

4 et seq. 

5 (e) CREDIT FEE.—With respect to each agreement 

6 for assistance under this part, the chief executive officer 

7 may charge a credit fee to the recipient of such assistance 

8 to pay for, over time, all or a portion of the Federal credit 

9 subsidy determined under subsection (d), with the remain10 der paid by the account established for AIFA; provided, 

11 that the source of fees paid under this section shall not 

12 be a loan or debt obligation guaranteed by the Federal 

13 Government. In the case of a direct loan, such credit fee 

14 shall be in addition to the base interest rate established 

15 under subsection (c). 

16 (f) MATURITY DATE.—The final maturity date of a 

17 direct loan or loan guaranteed by AIFA under this part 

18 shall be not later than 35 years after the date of substan19 tial completion of the infrastructure project, as determined 

20 by the chief executive officer. 

21 (g) RATING OPINION LETTER.— 

22 (1) IN GENERAL.—The chief executive officer 

23 shall require each applicant for assistance under this 

24 part to provide a rating opinion letter from at least 

25 1 ratings agency, indicating that the senior obligaVerDate Mar 15 2010 20:46 Feb 20, 2013 Jkt 029200 PO 00000 Frm 00264 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
265 

•HR 505 IH

1 tions of the infrastructure project, which may be the 

2 Federal credit instrument, have the potential to 

3 achieve an investment-grade rating. 

4 (2) RURAL INFRASTRUCTURE PROJECTS.—With 

5 respect to a rural infrastructure project, a rating 

6 agency opinion letter described in paragraph (1) 

7 shall not be required, except that the loan or loan 

8 guarantee shall receive an internal rating score, 

9 using methods similar to the ratings agencies gen10 erated by AIFA, measuring the proposed direct loan 

11 or loan guarantee against comparable direct loans or 

12 loan guarantees of similar credit quality in a similar 

13 sector. 

14 (h) INVESTMENT-GRADE RATING REQUIREMENT.— 

15 (1) LOANS AND LOAN GUARANTEES.—The exe16 cution of a direct loan or loan guarantee under this 

17 part shall be contingent on the senior obligations of 

18 the infrastructure project receiving an investment19 grade rating. 

20 (2) RATING OF AIFA OVERALL PORTFOLIO.— 

21 The average rating of the overall portfolio of AIFA 

22 shall be not less than investment grade after 5 years 

23 of operation. 

24 (i) TERMS AND REPAYMENT OF DIRECT LOANS.— 


srobinson on DSK4SPTVN1PROD with BILLS
266 

•HR 505 IH

1 (1) SCHEDULE.—The chief executive officer 

2 shall establish a repayment schedule for each direct 

3 loan under this part, based on the projected cash 

4 flow from infrastructure project revenues and other 

5 repayment sources. 

6 (2) COMMENCEMENT.—Scheduled loan repay7 ments of principal or interest on a direct loan under 

8 this part shall commence not later than 5 years after 

9 the date of substantial completion of the infrastruc10 ture project, as determined by the chief executive of11 ficer of AIFA. 

12 (3) DEFERRED PAYMENTS OF DIRECT

13 LOANS.— 

14 (A) AUTHORIZATION.—If, at any time 

15 after the date of substantial completion of an 

16 infrastructure project assisted under this part, 

17 the infrastructure project is unable to generate 

18 sufficient revenues to pay the scheduled loan re19 payments of principal and interest on the direct 

20 loan under this part, the chief executive officer 

21 may allow the obligor to add unpaid principal 

22 and interest to the outstanding balance of the 

23 direct loan, if the result would benefit the tax24 payer. 


srobinson on DSK4SPTVN1PROD with BILLS
267 

•HR 505 IH

1 (B) INTEREST.—Any payment deferred 

2 under subparagraph (A) shall— 

3 (i) continue to accrue interest, in ac4 cordance with the terms of the obligation, 

5 until fully repaid; and 

6 (ii) be scheduled to be amortized over 

7 the remaining term of the loan. 

8 (C) CRITERIA.— 

9 (i) IN GENERAL.—Any payment defer10 ral under subparagraph (A) shall be con11 tingent on the infrastructure project meet12 ing criteria established by the Board of Di13 rectors. 

14 (ii) REPAYMENT STANDARDS.—The 

15 criteria established under clause (i) shall 

16 include standards for reasonable assurance 

17 of repayment. 

18 (4) PREPAYMENT OF DIRECT LOANS.— 

19 (A) USE OF EXCESS REVENUES.—Any ex20 cess revenues that remain after satisfying 

21 scheduled debt service requirements on the in22 frastructure project obligations and direct loan 

23 and all deposit requirements under the terms of 

24 any trust agreement, bond resolution, or similar 

25 agreement securing project obligations under 


srobinson on DSK4SPTVN1PROD with BILLS
268 

•HR 505 IH

1 this part may be applied annually to prepay the 

2 direct loan, without penalty. 

3 (B) USE OF PROCEEDS OF REFI4 NANCING.—A direct loan under this part may 

5 be prepaid at any time, without penalty, from 

6 the proceeds of refinancing from non-Federal 

7 funding sources. 

8 (5) SALE OF DIRECT LOANS.— 

9 (A) IN GENERAL.—As soon as is prac10 ticable after substantial completion of an infra11 structure project assisted under this part, and 

12 after notifying the obligor, the chief executive 

13 officer may sell to another entity, or reoffer into 

14 the capital markets, a direct loan for the infra15 structure project, if the chief executive officer 

16 determines that the sale or reoffering can be 

17 made on favorable terms for the taxpayer. 

18 (B) CONSENT OF OBLIGOR.—In making a 

19 sale or reoffering under subparagraph (A), the 

20 chief executive officer may not change the origi21 nal terms and conditions of the direct loan, 

22 without the written consent of the obligor. 

23 (j) LOAN GUARANTEES.— 

24 (1) TERMS.—The terms of a loan guaranteed 

25 by AIFA under this part shall be consistent with the 


srobinson on DSK4SPTVN1PROD with BILLS
269 

•HR 505 IH

1 terms set forth in this section for a direct loan, ex2 cept that the rate on the guaranteed loan and any 

3 payment, pre-payment, or refinancing features shall 

4 be negotiated between the obligor and the lender, 

5 with the consent of the chief executive officer. 

6 (2) GUARANTEED LENDER.—A guaranteed 

7 lender shall be limited to those lenders meeting the 

8 definition of that term in section 601(a) of title 23, 

9 United States Code. 

10 (k) COMPLIANCE WITH FCRA; IN GENERAL.—Di11 rect loans and loan guarantees authorized by this part 

12 shall be subject to the provisions of the Federal Credit 

13 Reform Act of 1990 (2 U.S.C. 661 et seq.), as amended. 

14 SEC. 775. COMPLIANCE AND ENFORCEMENT. 

15 (a) CREDIT AGREEMENT.—Notwithstanding any 

16 other provision of law, each eligible entity that receives 

17 assistance under this part from AIFA shall enter into a 

18 credit agreement that requires such entity to comply with 

19 all applicable policies and procedures of AIFA, in addition 

20 to all other provisions of the loan agreement. 

21 (b) AIFA AUTHORITY ON NONCOMPLIANCE.—In any 

22 case in which a recipient of assistance under this part is 

23 materially out of compliance with the loan agreement, or 

24 any applicable policy or procedure of AIFA, the Board of 

25 Directors may take action to cancel unutilized loan 


srobinson on DSK4SPTVN1PROD with BILLS
270 

•HR 505 IH

1 amounts, or to accelerate the repayment terms of any out2 standing obligation. 

3 (c) Nothing in this part is intended to affect existing 

4 provisions of law applicable to the planning, development, 

5 construction, or operation of projects funded under the 

6 Act. 

7 SEC. 776. AUDITS; REPORTS TO THE PRESIDENT AND CON8 GRESS. 

9 (a) ACCOUNTING.—The books of account of AIFA 

10 shall be maintained in accordance with generally accepted 

11 accounting principles, and shall be subject to an annual 

12 audit by independent public accountants of nationally rec13 ognized standing appointed by the Board of Directors. 

14 (b) REPORTS.— 

15 (1) BOARD OF DIRECTORS.—Not later than 90 

16 days after the last day of each fiscal year, the Board 

17 of Directors shall submit to the President and Con18 gress a complete and detailed report with respect to 

19 the preceding fiscal year, setting forth— 

20 (A) a summary of the operations of AIFA, 

21 for such fiscal year; 

22 (B) a schedule of the obligations of AIFA 

23 and capital securities outstanding at the end of 

24 such fiscal year, with a statement of the 


srobinson on DSK4SPTVN1PROD with BILLS
271 

•HR 505 IH

1 amounts issued and redeemed or paid during 

2 such fiscal year; 

3 (C) the status of infrastructure projects re4 ceiving funding or other assistance pursuant to 

5 this part during such fiscal year, including all 

6 nonperforming loans, and including disclosure 

7 of all entities with a development, ownership, or 

8 operational interest in such infrastructure 

9 projects; 

10 (D) a description of the successes and 

11 challenges encountered in lending to rural com12 munities, including the role of the Center for 

13 Excellence and the Office of Rural Assistance 

14 established under this part; and 

15 (E) an assessment of the risks of the port16 folio of AIFA, prepared by an independent 

17 source. 

18 (2) GAO.—Not later than 5 years after the 

19 date of enactment of this part, the Comptroller Gen20 eral of the United States shall conduct an evaluation 

21 of, and shall submit to Congress a report on, activi22 ties of AIFA for the fiscal years covered by the re23 port that includes an assessment of the impact and 

24 benefits of each funded infrastructure project, in25 cluding a review of how effectively each such infraVerDate Mar 15 2010 23:07 Feb 14, 2013 Jkt 029200 PO 00000 Frm 00271 Fmt 6652 Sfmt 6201 E:\BILLS\H505.IH H505

srobinson on DSK4SPTVN1PROD with BILLS
272 

•HR 505 IH

1 structure project accomplished the goals prioritized 

2 by the infrastructure project criteria of AIFA. 

3 (c) BOOKS AND RECORDS.— 

4 (1) IN GENERAL.—AIFA shall maintain ade5 quate books and records to support the financial 

6 transactions of AIFA, with a description of financial 

7 transactions and infrastructure projects receiving 

8 funding, and the amount of funding for each such 

9 project maintained on a publically accessible data10 base. 

11 (2) AUDITS BY THE SECRETARY AND GAO.— 

12 The books and records of AIFA shall at all times be 

13 open to inspection by the Secretary of the Treasury, 

14 the Special Inspector General, and the Comptroller 

15 General of the United States. 

16 Subpart D—Funding of AIFA 

17 SEC. 777. ADMINISTRATIVE FEES. 

18 (a) IN GENERAL.—In addition to fees that may be 

19 collected under section 774(e), the chief executive officer 

20 shall establish and collect fees from eligible funding recipi21 ents with respect to loans and loan guarantees under this 

22 part that— 

23 (1) are sufficient to cover all or a portion of the 

24 administrative costs to the Federal Government for 

25 the operations of AIFA, including the costs of expert 


srobinson on DSK4SPTVN1PROD with BILLS
273 

•HR 505 IH

1 firms, including counsel in the field of municipal and 

2 project finance, and financial advisors to assist with 

3 underwriting, credit analysis, or other independent 

4 reviews, as appropriate; 

5 (2) may be in the form of an application or 

6 transaction fee, or other form established by the 

7 CEO; and 

8 (3) may be based on the risk premium associ9 ated with the loan or loan guarantee, taking into 

10 consideration— 

11 (A) the price of United States Treasury 

12 obligations of a similar maturity; 

13 (B) prevailing market conditions; 

14 (C) the ability of the infrastructure project 

15 to support the loan or loan guarantee; and 

16 (D) the total amount of the loan or loan 

17 guarantee. 

18 (b) AVAILABILITY OF AMOUNTS.—Amounts collected 

19 under subsections (a)(1), (a)(2), and (a)(3) shall be avail20 able without further action; provided further, that the 

21 source of fees paid under this section shall not be a loan 

22 or debt obligation guaranteed by the Federal Government. 

23 SEC. 778. EFFICIENCY OF AIFA. 

24 The chief executive officer shall, to the extent pos25 sible, take actions consistent with this part to minimize 


srobinson on DSK4SPTVN1PROD with BILLS
274 

•HR 505 IH

1 the risk and cost to the taxpayer of AIFA activities. Fees 

2 and premiums for loan guarantee or insurance coverage 

3 will be set at levels that minimize administrative and Fed4 eral credit subsidy costs to the Government, as defined 

5 in Section 502 of the Federal Credit Reform Act of 1990, 

6 as amended, of such coverage, while supporting achieve7 ment of the program’s objectives, consistent with policies 

8 as set forth in the Business Plan. 

9 SEC. 779. FUNDING. 

10 There is hereby appropriated to AIFA to carry out 

11 this part, for the cost of direct loans and loan guarantees 

12 subject to the limitations under section 773, and for ad13 ministrative costs, $10,000,000,000, to remain available 

14 until expended; provided, that such costs, including the 

15 costs of modifying such loans, shall be as defined in sec16 tion 502 of the Federal Credit Reform Act of 1990, as 

17 amended; provided further, that of this amount, not more 

18 than $25,000,000 for each of fiscal years 2013 through 

19 2014, and not more than $50,000,000 for fiscal year 2015 

20 may be used for administrative costs of AIFA; provided 

21 further, that not more than 5 percent of such amount shall 

22 be used to offset subsidy costs associated with rural 

23 projects. Amounts authorized shall be available without 

24 further action. 


srobinson on DSK4SPTVN1PROD with BILLS
275 

•HR 505 IH

1 Subpart E—Extension of Exemption From Alter2 native Minimum Tax Treatment for Certain Tax3 Exempt Bonds 

4 SEC. 780. EXTENSION OF EXEMPTION FROM ALTERNATIVE 

5 MINIMUM TAX TREATMENT FOR CERTAIN 

6 TAX-EXEMPT BONDS. 

7 (a) IN GENERAL.—Clause (vi) of section 57(a)(5)(C) 

8 of the Internal Revenue Code of 1986 is amended— 

9 (1) by striking ‘‘January 1, 2011’’ in subclause 

10 (I) and inserting ‘‘January 1, 2014’’; and 

11 (2) by striking ‘‘AND 2010’’ in the heading and 

12 inserting ‘‘, 2010, 2011, 2012 AND 2013’’. 

13 (b) ADJUSTED CURRENT EARNINGS.—Clause (iv) of 

14 section 56(g)(4)(B) of the Internal Revenue Code of 1986 

15 is amended— 

16 (1) by striking ‘‘January 1, 2011’’ in subclause 

17 (I) and inserting ‘‘January 1, 2014’’; and 

18 (2) by striking ‘‘AND 2010’’ in the heading and 

19 inserting ‘‘, 2010, 2011, 2012 AND 2013’’. 

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

21 this section shall apply to obligations issued after Decem22 ber 31, 2010. 

Æ 


srobinson on DSK4SPTVN1PROD with BILLS