I 

112TH CONGRESS 

1ST SESSION H. R. 2495 

To amend the Internal Revenue Code of 1986 to eliminate certain tax 

expenditures. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 11, 2011 

Mr. TIERNEY (for himself, Mr. ELLISON, Mr. GRIJALVA, Mr. JACKSON of Illinois, and Ms. MCCOLLUM) introduced the following bill; which was referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to eliminate 

certain tax expenditures. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS; ETC. 

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

5 ‘‘Tax Equity and Middle Class Fairness Act of 2011’’. 

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

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

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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

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

4 this Act is as follows: 

Sec. 1. Short title; table of contents; etc. 

TITLE I—TERMINATION OF OIL AND GAS TAX PREFERENCES 

Sec. 101. Termination of enhanced oil recovery credit. 

Sec. 102. Termination of credit for producing oil and gas from marginal wells. 

Sec. 103. Termination of deduction for intangible drilling and development 

costs. 

Sec. 104. Termination of deduction for tertiary injectants. 

Sec. 105. Repeal exception to passive loss limitation for working interests in oil 

and natural gas properties. 

Sec. 106. Repeal percentage depletion for oil and natural gas wells. 

Sec. 107. Repeal domestic manufacturing tax deduction for oil and natural gas 

companies. 

Sec. 108. Increase geological and geophysical amortization period for independent producers to seven years. 

TITLE II—TERMINATION OF CERTAIN COAL TAX PREFERENCES 

Sec. 201. Repeal of deduction for development and exploration expenditures 

with respect to coal, lignite, or oil shale. 

Sec. 202. Repeal of domestic production activities deduction with respect to 

production of coal, lignite, or oil shale. 

Sec. 203. Repeal of percentage depletion with respect to coal, lignite, and oil 

shale. 

Sec. 204. Repeal of capital gain treatment of coal and lignite royalties. 

TITLE III—MODIFICATION OF ACCOUNTING RULES 

Sec. 301. Repeal of last-in, first-out method of inventory. 

Sec. 302. Repeal of lower of cost or market method of inventory. 

TITLE IV—INDIVIDUAL TAX EXPENDITURES 

Sec. 401. Limitation on itemized deductions to 28-percent rate bracket. 

Sec. 402. Repeal of foreign earned income exclusion. 

Sec. 403. Phase-out of health savings accounts. 

Sec. 404. Phase-out of Archer MSAs. 

TITLE V—BUSINESS RELATED TAX EXPENDITURES 

Subtitle A—Partnership Interests Held by Partners Providing Services 

Sec. 501. Partnership interests transferred in connection with performance of 

services. 

Sec. 502. Income of partners for performing investment management services 

treated as ordinary income received for performance of services. 

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Subtitle B—Tax Expenditures Relating to Agribusiness 

Sec. 511. Elimination of expensing for fertilizer, etc., otherwise chargeable to 

a capital account. 

Sec. 512. Elimination of expensing for multi-period livestock and crop production costs. 

Sec. 513. Repeal of capital gain treatment with respect to the sale of timber. 

Sec. 514. Elimination of expensing for timber and ornamental trees. 

Sec. 515. Elimination of amortization of reforestation expenditures. 

Sec. 516. Repeal of tax expenditure for horse breeders. 

Subtitle C—Other Business Tax Expenditures 

Sec. 521. Termination of $25,000 exemption from passive loss rules for rental 

real estate activities. 

Sec. 522. Elimination of deduction for certain meal and entertainment expenses. 

Sec. 523. State and local bonds converted to direct subsidy bonds. 

Sec. 524. 28-percent rate for expanded direct subsidy build America bonds. 

TITLE VI—INTERNATIONAL TAX EXPENDITURES 

Sec. 601. Allocation of expenses and taxes on basis of repatriation of foreign 

income. 

Sec. 602. Excess income from transfers of intangibles to low-taxed affiliates 

treated as subpart F income. 

Sec. 603. Limitations on income shifting through intangible property transfers. 

Sec. 604. Modifications of foreign tax credit rules applicable to dual capacity 

taxpayers. 

TITLE VII—TAX EXPENDITURE STUDY 

Sec. 701. Study of extended tax expenditures. 

1 TITLE I—TERMINATION OF OIL 

2 AND GAS TAX PREFERENCES 

3 SEC. 101. TERMINATION OF ENHANCED OIL RECOVERY 

4 CREDIT. 

5 (a) IN GENERAL.—Section 43 is amended by adding 

6 at the end the following new subsection: 

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

8 any taxable year beginning after the date of the enactment 

9 of this subsection.’’. 

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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 102. TERMINATION OF CREDIT FOR PRODUCING OIL 

5 AND GAS FROM MARGINAL WELLS. 

6 (a) IN GENERAL.—Section 45I is amended by adding 

7 at the end the following new subsection: 

8 ‘‘(e) TERMINATION.—This section shall not apply to 

9 any taxable year beginning after the date of the enactment 

10 of this subsection.’’. 

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

12 this section shall apply to taxable years beginning after 

13 the date of the enactment of this Act. 

14 SEC. 103. TERMINATION OF DEDUCTION FOR INTANGIBLE 

15 DRILLING AND DEVELOPMENT COSTS. 

16 (a) IN GENERAL.—Section 263(c) is amended by 

17 adding at the end the following new sentence: ‘‘This sub18 section shall not apply to any taxable year beginning after 

19 the date of the enactment of this sentence.’’. 

20 (b) CONFORMING AMENDMENTS.—Paragraphs (2) 

21 and (3) of section 291(b) are each amended by striking 

22 ‘‘section 263(c), 616(a),’’ and inserting ‘‘section 616(a)’’. 

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

24 this section shall apply to costs paid or incurred in taxable 

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1 years beginning after the date of the enactment of this 

2 Act. 

3 SEC. 104. TERMINATION OF DEDUCTION FOR TERTIARY 

4 INJECTANTS. 

5 (a) IN GENERAL.—Section 193 is amended by adding 

6 at the end the following new subsection: 

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

8 any taxable year beginning after the date of the enactment 

9 of this subsection.’’. 

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

11 this section shall apply to taxable years beginning after 

12 the date of the enactment of this Act. 

13 SEC. 105. REPEAL EXCEPTION TO PASSIVE LOSS LIMITA14 TION FOR WORKING INTERESTS IN OIL AND 

15 NATURAL GAS PROPERTIES. 

16 (a) IN GENERAL.—Subsection (c) of section 469 is 

17 amended by striking paragraph (3). 

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

19 this section shall apply to taxable years beginning after 

20 the date of the enactment of this Act. 

21 SEC. 106. REPEAL PERCENTAGE DEPLETION FOR OIL AND 

22 NATURAL GAS WELLS. 

23 (a) IN GENERAL.—Section 613A is amended by add24 ing at the end the following new subsection: 

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1 ‘‘(f) TERMINATION.—After December 31, 2010, this 

2 section and section 611 shall not apply to any oil or gas 

3 well.’’. 

4 (b) CONFORMING AMENDMENT.—Section 613A(c)(1) 

5 is amended by striking ‘‘subsection (d)’’ and inserting 

6 ‘‘subsections (d) and (f)’’. 

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

8 this section shall apply to taxable years beginning after 

9 the date of the enactment of this Act. 

10 SEC. 107. REPEAL DOMESTIC MANUFACTURING TAX DE11 DUCTION FOR OIL AND NATURAL GAS COM12 PANIES. 

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

14 199(c)(4) is amended by striking ‘‘and’’ at the end of 

15 clause (ii), by striking the period at the end of clause (iii) 

16 and inserting ‘‘, and’’, and by inserting after clause (iii) 

17 the following new clause: 

18 ‘‘(iv) production or extraction relating 

19 to any oil or gas.’’. 

20 (b) CONFORMING AMENDMENT.—Section 

21 199(c)(4)(A)(i)(III) is amended by striking ‘‘, natural 

22 gas,’’. 

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

24 this section shall apply to taxable years beginning after 

25 the date of the enactment of this Act. 

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1 SEC. 108. INCREASE GEOLOGICAL AND GEOPHYSICAL AM2 ORTIZATION PERIOD FOR INDEPENDENT 

3 PRODUCERS TO SEVEN YEARS. 

4 (a) IN GENERAL.—Paragraphs (1) and (4) of section 

5 167(h) is amended by striking ‘‘24-month’’ both places it 

6 appears and inserting ‘‘7-year’’. 

7 (b) CONFORMING AMENDMENT.—Section 167(h) is 

8 amended by striking paragraph (5). 

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

10 this section shall apply to amounts paid or incurred in tax11 able years beginning after the date of the enactment of 

12 this Act. 

13 TITLE II—TERMINATION OF CER14 TAIN COAL TAX PREF15 ERENCES 

16 SEC. 201. REPEAL OF DEDUCTION FOR DEVELOPMENT AND 

17 EXPLORATION EXPENDITURES WITH RE18 SPECT TO COAL, LIGNITE, OR OIL SHALE. 

19 (a) DEVELOPMENT EXPENDITURES.—Section 616 is 

20 amended by redesignating subsection (e) as subsection (f) 

21 and by inserting after subsection (d) the following new 

22 subsection: 

23 ‘‘(e) SPECIAL RULE FOR EXPENDITURES FOR DE24 VELOPMENT OF COAL MINE OR DEPOSIT.—No deduction 

25 shall be allowed under this section for expenditures paid 

26 or incurred with respect to the development of a mine or 

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1 other natural deposit for the production of coal, lignite, 

2 or oil shale.’’. 

3 (b) EXPLORATION EXPENDITURES.—Section 617 is 

4 amended by redesignating subsection (i) as subsection (j) 

5 and by inserting after subsection (h) the following new 

6 subsection: 

7 ‘‘(i) SPECIAL RULE FOR COAL EXPLORATION EX8 PENDITURES.—No deduction shall be allowed under this 

9 section for expenditures paid or incurred before the devel10 opment stage for the purpose of ascertaining the existence, 

11 location, extent, or quality of any deposit of coal, lignite, 

12 or oil shale.’’. 

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

14 this section shall apply to expenditures paid or incurred 

15 after the date of the enactment of this Act. 

16 SEC. 202. REPEAL OF DOMESTIC PRODUCTION ACTIVITIES 

17 DEDUCTION WITH RESPECT TO PRODUCTION 

18 OF COAL, LIGNITE, OR OIL SHALE. 

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

20 199(c)(4), as amended by this Act, is amended by striking 

21 ‘‘or’’ at the end of clause (iii), by striking the period at 

22 the end of clause (iv) and inserting ‘‘, or’’, and by adding 

23 at the end the following new clause: 

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1 ‘‘(v) the lease, rental, license, sale, ex2 change, or other disposition of coal, lignite, 

3 or oil shale).’’. 

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

5 this section shall apply to taxable years beginning after 

6 the date of the enactment of this Act. 

7 SEC. 203. REPEAL OF PERCENTAGE DEPLETION WITH RE8 SPECT TO COAL, LIGNITE, AND OIL SHALE. 

9 (a) OIL SHALE.—Paragraph (2) of section 613(b) is 

10 amended— 

11 (1) by striking subparagraph (B), and 

12 (2) by striking ‘‘United States—’’ and all that 

13 follows through ‘‘ore, and’’ and inserting the fol14 lowing: ‘‘United States—gold, silver, copper, and 

15 iron ore.’’. 

16 (b) COAL AND LIGNITE.—Paragraph (4) of section 

17 613(b) is amended by striking ‘‘coal, lignite’’. 

18 (c) CONFORMING AMENDMENT.—Subparagraph (A) 

19 of section 613(b)(6) is amended by striking ‘‘except shale 

20 described in paragraph (2)(B) or (5)’’ and inserting ‘‘ex21 cept oil shale or shale described in paragraph (5)’’. 

22 SEC. 204. REPEAL OF CAPITAL GAIN TREATMENT OF COAL 

23 AND LIGNITE ROYALTIES. 

24 (a) IN GENERAL.— 

25 (1) Subsection (c) of section 631 is amended— 

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1 (A) by striking ‘‘coal (including lignite), 

2 or’’, 

3 (B) by striking ‘‘coal or’’ each place it ap4 pears, and 

5 (C) by striking ‘‘or coal’’ each place it ap6 pears. 

7 (2) Paragraph (2) of section 1231(b) is amend8 ed by striking ‘‘, coal,’’. 

9 (b) CLERICAL AMENDMENTS.— 

10 (1) The heading for section 631(c) is amended 

11 by striking ‘‘COAL OR’’. 

12 (2) The heading for section 1231(b)(2) is 

13 amended by striking ‘‘, COAL,’’. 

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

15 this section shall to taxable years beginning after the date 

16 of the enactment of this Act. 

17 TITLE III—MODIFICATION OF 

18 ACCOUNTING RULES 

19 SEC. 301. REPEAL OF LAST-IN, FIRST-OUT METHOD OF IN20 VENTORY. 

21 (a) IN GENERAL.—Subpart D of part II of sub22 chapter E of chapter 1 is amended by striking sections 

23 472 (relating to last-in, first-out inventories), 473 (relat24 ing to qualified liquidations of LIFO inventories), and 474 

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1 (relating to simplified dollar-value LIFO method for cer2 tain small businesses). 

3 (b) CONFORMING AMENDMENTS.— 

4 (1)(A) Section 312(n) is amended by striking 

5 paragraph (4) and by redesignating paragraphs (5) 

6 through (8) as paragraphs (4) through (7), respec7 tively. 

8 (B) Section 312(n)(7), as redesignated by sub9 paragraph (A), is amended— 

10 (i) by striking ‘‘paragraphs (4) and (6)’’ in 

11 subparagraph (A) and inserting ‘‘paragraph 

12 (5)’’, and 

13 (ii) by striking ‘‘paragraph (5)’’ in sub14 paragraph (B) and inserting ‘‘paragraph (4)’’. 

15 (C) Section 56(g)(4)(D) is amended by striking 

16 clause (iii) and by redesignating clause (iv) as clause 

17 (iii). 

18 (2) Section 1363 is amended by striking sub19 section (d). 

20 (c) EFFECTIVE DATE.— 

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

22 this section shall apply to taxable years beginning 

23 after the date of the enactment of this Act. 

24 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

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1 ments made by this section to change its method of 

2 accounting for its first taxable year beginning after 

3 the date of the enactment of this Act— 

4 (A) such change shall be treated as initi5 ated by the taxpayer, 

6 (B) such change shall be treated as made 

7 with the consent of the Secretary of the Treas8 ury, and 

9 (C) if the net amount of the adjustments 

10 required to be taken into account by the tax11 payer under section 481 of the Internal Rev12 enue Code of 1986 is positive, such amount 

13 shall be taken into account over a period of 8 

14 years beginning with such first taxable year. 

15 SEC. 302. REPEAL OF LOWER OF COST OR MARKET METH16 OD OF INVENTORY. 

17 (a) IN GENERAL.—Section 471 is amended by redes18 ignating subsection (c) as subsection (d) and by inserting 

19 after subsection (b) the following new subsection: 

20 ‘‘(c) INVENTORIES TAKEN INTO ACCOUNT AT

21 COST.—A method of determining inventories shall not be 

22 treated as clearly reflecting income unless such method 

23 provides that inventories shall be taken into account at 

24 cost.’’. 

25 (b) EFFECTIVE DATE.— 

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

2 this section shall apply to taxable years beginning 

3 after the date of the enactment of this Act. 

4 (2) CHANGE IN METHOD OF ACCOUNTING.—In 

5 the case of any taxpayer required by the amend6 ments made by this section to change its method of 

7 accounting for its first taxable year beginning after 

8 the date of the enactment of this Act— 

9 (A) such change shall be treated as initi10 ated by the taxpayer, 

11 (B) such change shall be treated as made 

12 with the consent of the Secretary of the Treas13 ury, and 

14 (C) if the net amount of the adjustments 

15 required to be taken into account by the tax16 payer under section 481 of the Internal Rev17 enue Code of 1986 is positive, such amount 

18 shall be taken into account over a period of 8 

19 years beginning with such first taxable year. 

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1 TITLE IV—INDIVIDUAL TAX 

2 EXPENDITURES 

3 SEC. 401. LIMITATION ON ITEMIZED DEDUCTIONS TO 28- 

4 PERCENT RATE BRACKET. 

5 (a) IN GENERAL.—The Internal Revenue Code of 

6 1986 is amended by inserting after section 68 the fol7 lowing new section: 

8 ‘‘SEC. 68A. BENEFIT OF ITEMIZED DEDUCTIONS LIMITED 

9 TO 28-PERCENT RATE BRACKET. 

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

11 whose adjusted gross income exceeds $200,000 ($250,000 

12 in the case of a joint return), the amount of the itemized 

13 deductions otherwise allowable for the taxable year shall 

14 be reduced by an amount necessary to increase the amount 

15 of regular tax liability of the taxpayer to an amount that 

16 would be imposed if such deductions reduced the regular 

17 tax liability by not more than the amount such deductions 

18 would reduce the tax imposed by section 1 on taxable in19 come within the 28-percent bracket amount. 

20 ‘‘(b) REGULAR TAX LIABILITY.—For purposes of 

21 this section, the term ‘regular tax liability’ has the mean22 ing given such term by section 26(b). 

23 ‘‘(c) COORDINATION WITH SECTION 68.—This sec24 tion shall apply after the application of section 68.’’. 

25 (b) ALTERNATIVE MINIMUM TAX.— 

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1 (1) IN GENERAL.—Subsection (b) of section 55 

2 is amended by adding at the end the following new 

3 paragraph: 

4 ‘‘(5) COORDINATION WITH SECTION 68A.—In 

5 the case of an individual, for purposes of paragraph 

6 (2), alternative minimum taxable income shall be de7 termined by reducing the amount of any itemized 

8 deductions otherwise allowed in determining alter9 native minimum taxable income by an amount which 

10 bears the same ratio to the amount by which the 

11 itemized deductions of the taxpayer were reduced for 

12 the taxable year under section 68A as— 

13 ‘‘(A) the amount of itemized deductions 

14 otherwise allowed in determining the alternative 

15 minimum taxable income for the taxable year, 

16 bears to 

17 ‘‘(B) the aggregate amount of itemized de18 ductions of the taxpayer for the taxable year 

19 (determined without regard to section 68A).’’. 

20 (2) CONFORMING AMENDMENT.—Paragraph (1) 

21 of section 56(b) is amended by adding at the end the 

22 following new subparagraph: 

23 ‘‘(G) SECTION 68A NOT APPLICABLE.— 

24 Section 68A shall not apply.’’. 

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

2 for part I of subchapter B of chapter 1 is amended by 

3 adding at the end the following new item: 

‘‘Sec. 68A. Benefit of itemized deductions limited to 28-percent rate bracket.’’. 

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

5 this section shall apply to taxable years beginning after 

6 the date of the enactment of this Act. 

7 SEC. 402. REPEAL OF FOREIGN EARNED INCOME EXCLU8 SION. 

9 (a) IN GENERAL.—Subsection (a) of section 911 is 

10 amended by striking ‘‘for any taxable year—’’ and all that 

11 follows through the end and inserting ‘‘for any taxable 

12 year the housing cost amount of such individual.’’. 

13 (b) CONFORMING AMENDMENTS.— 

14 (1) Subsection (f) of section 86 is amended by 

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

16 striking ‘‘, and’’ at the end of paragraph (3) and in17 serting a period, and by striking paragraph (4). 

18 (2) Section 1401(a) is amended by striking 

19 paragraph (11). 

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

21 amended by striking ‘‘modified’’. 

22 (B) Section 1411 is amended by striking sub23 section (d) and by redesignating subsection (e) as 

24 subsection (d). 

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1 (c) 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. 403. PHASE-OUT OF HEALTH SAVINGS ACCOUNTS. 

5 Section 223 is amended by adding at the end the fol6 lowing new subsection: 

7 ‘‘(i) TERMINATION.— 

8 ‘‘(1) DEDUCTION.—No deduction shall be al9 lowed under subsection (a) with respect to amounts 

10 paid to health savings accounts after the date of the 

11 enactment of this subsection. 

12 ‘‘(2) TAX TREATMENT ACCOUNTS.—Subsection 

13 (e) shall not apply with respect to income derived in 

14 taxable years beginning more than 2 years after the 

15 date of the enactment of this subsection.’’. 

16 SEC. 404. PHASE-OUT OF ARCHER MSAS. 

17 Section 220 is amended by adding at the end the fol18 lowing new subsection: 

19 ‘‘(i) TERMINATION.— 

20 ‘‘(1) DEDUCTION.—No deduction shall be al21 lowed under subsection (a) with respect to amounts 

22 paid to an Archer MSA after the date of the enact23 ment of this subsection. 

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1 rived in taxable years beginning more than 2 years 

2 after the date of the enactment of this subsection.’’. 

3 TITLE V—BUSINESS RELATED 

4 TAX EXPENDITURES 

5 Subtitle A—Partnership Interests 

6 Held by Partners Providing 

7 Services 

8 SEC. 501. PARTNERSHIP INTERESTS TRANSFERRED IN 

9 CONNECTION WITH PERFORMANCE OF SERV10 ICES. 

11 (a) MODIFICATION TO ELECTION TO INCLUDE PART12 NERSHIP INTEREST IN GROSS INCOME IN YEAR OF

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

14 redesignating paragraph (4) as paragraph (5) and by in15 serting after paragraph (3) the following new paragraph: 

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

17 provided by the Secretary, in the case of any trans18 fer of an interest in a partnership in connection with 

19 the provision of services to (or for the benefit of) 

20 such partnership— 

21 ‘‘(A) the fair market value of such interest 

22 shall be treated for purposes of this section as 

23 being equal to the amount of the distribution 

24 which the partner would receive if the partner25 ship sold (at the time of the transfer) all of its 

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1 assets at fair market value and distributed the 

2 proceeds of such sale (reduced by the liabilities 

3 of the partnership) to its partners in liquidation 

4 of the partnership, and 

5 ‘‘(B) the person receiving such interest 

6 shall be treated as having made the election 

7 under subsection (b)(1) unless such person 

8 makes an election under this paragraph to have 

9 such subsection not apply.’’. 

10 (b) CONFORMING AMENDMENT.—Paragraph (2) of 

11 section 83(b) is amended by inserting ‘‘or subsection 

12 (c)(4)(B)’’ after ‘‘paragraph (1)’’. 

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

14 this section shall apply to interests in partnerships trans15 ferred after the date of the enactment of this Act. 

16 SEC. 502. INCOME OF PARTNERS FOR PERFORMING IN17 VESTMENT MANAGEMENT SERVICES TREAT18 ED AS ORDINARY INCOME RECEIVED FOR 

19 PERFORMANCE OF SERVICES. 

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

21 1 is amended by adding at the end the following new sec22 tion: 

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

3 PARTNERSHIP. 

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) any net income with respect to such 

10 interest for any partnership taxable year shall 

11 be treated as ordinary income, and 

12 ‘‘(B) any net loss with respect to such in13 terest for such year, to the extent not dis14 allowed under paragraph (2) for such year, 

15 shall be treated as an ordinary loss. 

16 All items of income, gain, deduction, and loss which 

17 are taken into account in computing net income or 

18 net loss shall be treated as ordinary income or ordi19 nary loss (as the case may be). 

20 ‘‘(2) TREATMENT OF LOSSES.— 

21 ‘‘(A) LIMITATION.—Any net loss with re22 spect to such interest shall be allowed for any 

23 partnership taxable year only to the extent that 

24 such loss does not exceed the excess (if any) 

25 of— 

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1 ‘‘(i) the aggregate net income with re2 spect to such interest for all prior partner3 ship taxable years, over 

4 ‘‘(ii) the aggregate net loss with re5 spect to such interest not disallowed under 

6 this subparagraph for all prior partnership 

7 taxable years. 

8 ‘‘(B) CARRYFORWARD.—Any net loss for 

9 any partnership taxable year which is not al10 lowed by reason of subparagraph (A) shall be 

11 treated as an item of loss with respect to such 

12 partnership interest for the succeeding partner13 ship taxable year. 

14 ‘‘(C) BASIS ADJUSTMENT.—No adjustment 

15 to the basis of a partnership interest shall be 

16 made on account of any net loss which is not 

17 allowed by reason of subparagraph (A). 

18 ‘‘(D) PRIOR PARTNERSHIP YEARS.—Any 

19 reference in this paragraph to prior partnership 

20 taxable years shall only include prior partner21 ship taxable years to which this section applies. 

22 ‘‘(3) NET INCOME AND LOSS.—For purposes of 

23 this section— 

24 ‘‘(A) NET INCOME.—The term ‘net in25 come’ means, with respect to any investment 

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1 services partnership interest for any partner2 ship taxable year, the excess (if any) of— 

3 ‘‘(i) all items of income and gain 

4 taken into account by the holder of such 

5 interest under section 702 with respect to 

6 such interest for such year, over 

7 ‘‘(ii) all items of deduction and loss so 

8 taken into account. 

9 ‘‘(B) NET LOSS.—The term ‘net loss’ 

10 means, with respect to such interest for such 

11 year, the excess (if any) of the amount de12 scribed in subparagraph (A)(ii) over the amount 

13 described in subparagraph (A)(i). 

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

15 ‘‘(1) GAIN.—Any gain on the disposition of an 

16 investment services partnership interest shall be 

17 treated as ordinary income and shall be recognized 

18 notwithstanding any other provision of this subtitle. 

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

20 investment services partnership interest shall be 

21 treated as an ordinary loss to the extent of the ex22 cess (if any) of— 

23 ‘‘(A) the aggregate net income with respect 

24 to such interest for all partnership taxable 

25 years, over 

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1 ‘‘(B) the aggregate net loss with respect to 

2 such interest allowed under subsection (a)(2) 

3 for all partnership taxable years. 

4 ‘‘(3) DISPOSITION OF PORTION OF INTEREST.— 

5 In the case of any disposition of an investment serv6 ices partnership interest, the amount of net loss 

7 which otherwise would have (but for subsection 

8 (a)(2)(C)) applied to reduce the basis of such inter9 est shall be disregarded for purposes of this section 

10 for all succeeding partnership taxable years. 

11 ‘‘(4) DISTRIBUTIONS OF PARTNERSHIP PROP12 ERTY.—In the case of any distribution of property 

13 by a partnership with respect to any investment 

14 services partnership interest held by a partner— 

15 ‘‘(A) the 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 the partnership, 

21 shall be taken into account as an increase in 

22 such partner’s distributive share of the taxable 

23 income of the partnership (except to the extent 

24 such excess is otherwise taken into account in 

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1 determining the taxable income of the partner2 ship), 

3 ‘‘(B) such property shall be treated for 

4 purposes of subpart B of part II as money dis5 tributed to such partner in an amount equal to 

6 such fair market value, and 

7 ‘‘(C) the basis of such property in the 

8 hands of such partner shall be such fair market 

9 value. 

10 Subsection (b) of section 734 shall be applied with11 out regard to the preceding sentence. 

12 ‘‘(5) APPLICATION OF SECTION 751.—In apply13 ing section 751(a), an investment services partner14 ship interest shall be treated as an inventory item. 

15 ‘‘(c) INVESTMENT SERVICES PARTNERSHIP INTER16 EST.—For purposes of this section— 

17 ‘‘(1) IN GENERAL.—The term ‘investment serv18 ices partnership interest’ means any interest in a 

19 partnership which is held (directly or indirectly) by 

20 any person if it was reasonably expected (at the time 

21 that such person acquired such interest) that such 

22 person (or any person related to such person) would 

23 provide (directly or indirectly) a substantial quantity 

24 of any of the following services with respect to assets 

25 held (directly or indirectly) by the partnership: 

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

3 asset. 

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

5 any specified asset. 

6 ‘‘(C) Arranging financing with respect to 

7 acquiring specified assets. 

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

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

10 For purposes of this paragraph, the term ‘specified 

11 asset’ means securities (as defined in section 

12 475(c)(2) without regard to the last sentence there13 of), real estate held for rental or investment, inter14 ests in partnerships, commodities (as defined in sec15 tion 475(e)(2)), or options or derivative contracts 

16 with respect to any of the foregoing. 

17 ‘‘(2) EXCEPTION FOR CERTAIN CAPITAL INTER18 ESTS.— 

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

20 portion of an investment services partnership 

21 interest which is a qualified capital interest, all 

22 items of income, gain, loss, and deduction which 

23 are allocated to such qualified capital interest 

24 shall not be taken into account under sub25 section (a) if— 

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1 ‘‘(i) allocations of items are made by 

2 the partnership to such qualified capital 

3 interest in the same manner as such allo4 cations are made to other qualified capital 

5 interests held by partners who do not pro6 vide any services described in paragraph 

7 (1) and who are not related to the partner 

8 holding the qualified capital interest, and 

9 ‘‘(ii) the allocations made to such 

10 other interests are significant compared to 

11 the allocations made to such qualified cap12 ital interest. 

13 ‘‘(B) SPECIAL RULE FOR NO OR INSIGNIFI14 CANT ALLOCATIONS TO NONSERVICE PRO15 VIDERS.—To the extent provided by the Sec16 retary in regulations or other guidance, in any 

17 case in which the requirements of subparagraph 

18 (A)(ii) are not satisfied, items of income, gain, 

19 loss, and deduction shall not be taken into ac20 count under subsection (a) to the extent that 

21 such items are properly allocable under such 

22 regulations or other guidance to qualified cap23 ital interests. 

24 ‘‘(C) SPECIAL RULE FOR DISPOSITIONS.— 

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1 ship interest any portion of which is a qualified 

2 capital interest, subsection (b) shall not apply 

3 to so much of any gain or loss as bears the 

4 same proportion to the entire amount of such 

5 gain or loss as— 

6 ‘‘(i) the distributive share of gain or 

7 loss that would have been allocable to the 

8 qualified capital interest under subpara9 graph (A) if the partnership sold all of its 

10 assets immediately before the disposition, 

11 bears to 

12 ‘‘(ii) the distributive share of gain or 

13 loss that would have been so allocable to 

14 the investment services partnership inter15 est of which such qualified capital interest 

16 is a part. 

17 ‘‘(D) QUALIFIED CAPITAL INTEREST.—For 

18 purposes of this paragraph, the term ‘qualified 

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

20 interest in the capital of the partnership as is 

21 attributable to— 

22 ‘‘(i) the fair market value of any 

23 money or other property contributed to the 

24 partnership in exchange for such interest 

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1 (determined without regard to section 

2 752(a)), 

3 ‘‘(ii) any amounts which have been in4 cluded in gross income under section 83 

5 with respect to the transfer of such inter6 est, and 

7 ‘‘(iii) the excess (if any) of— 

8 ‘‘(I) any items of income and 

9 gain taken into account under section 

10 702 with respect to such interest for 

11 taxable years to which this section ap12 plies, over 

13 ‘‘(II) any items of deduction and 

14 loss so taken into account. 

15 The qualified capital interest shall be reduced 

16 by distributions from the partnership with re17 spect to such interest for taxable years to which 

18 this section applies and by the excess (if any) 

19 of the amount described in clause (iii)(II) over 

20 the amount described in clause (iii)(I). 

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

22 ‘‘(i) PROCEEDS OF PARTNERSHIP

23 LOANS NOT TREATED AS QUALIFIED CAP24 ITAL INTEREST OF SERVICE PROVIDING

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1 graph, an investment services partnership 

2 interest shall not be treated as a qualified 

3 capital interest to the extent that such in4 terest is acquired in connection with the 

5 proceeds of any loan or other advance 

6 made or guaranteed, directly or indirectly, 

7 by any other partner or the partnership (or 

8 any person related to any such other part9 ner or the partnership). 

10 ‘‘(ii) REDUCTION IN ALLOCATIONS TO

11 QUALIFIED CAPITAL INTERESTS FOR

12 LOANS FROM NONSERVICE PROVIDING

13 PARTNERS TO THE PARTNERSHIP.—For 

14 purposes of this paragraph, any loan or 

15 other advance to the partnership made or 

16 guaranteed, directly or indirectly, by a 

17 partner not providing services described in 

18 paragraph (1) to the partnership (or any 

19 person related to such partner) shall be 

20 taken into account in determining the 

21 qualified capital interests of the partners 

22 in the partnership. 

23 ‘‘(3) RELATED PERSONS.—A person shall be 

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1 ship between such persons would result in a dis2 allowance of losses under section 267 or 707(b). 

3 ‘‘(d) OTHER INCOME AND GAIN IN CONNECTION

4 WITH INVESTMENT MANAGEMENT SERVICES.— 

5 ‘‘(1) IN GENERAL.—If— 

6 ‘‘(A) a person performs (directly or indi7 rectly) investment management services for any 

8 entity, 

9 ‘‘(B) such person holds (directly or indi10 rectly) a disqualified interest with respect to 

11 such entity, and 

12 ‘‘(C) the value of such interest (or pay13 ments thereunder) is substantially related to 

14 the amount of income or gain (whether or not 

15 realized) from the assets with respect to which 

16 the investment management services are per17 formed, 

18 any income or gain with respect to such interest 

19 shall be treated as ordinary income. Rules similar to 

20 the rules of subsection (c)(2) shall apply for pur21 poses of this subsection. 

22 ‘‘(2) DEFINITIONS.—For purposes of this sub23 section— 

24 ‘‘(A) DISQUALIFIED INTEREST.— 

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1 ‘‘(i) IN GENERAL.—The term ‘dis2 qualified interest’ means, with respect to 

3 any entity— 

4 ‘‘(I) any interest in such entity 

5 other than indebtedness, 

6 ‘‘(II) convertible or contingent 

7 debt of such entity, 

8 ‘‘(III) any option or other right 

9 to acquire property described in sub10 clause (I) or (II), and 

11 ‘‘(IV) any derivative instrument 

12 entered into (directly or indirectly) 

13 with such entity or any investor in 

14 such entity. 

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

16 not include— 

17 ‘‘(I) a partnership interest, 

18 ‘‘(II) except as provided by the 

19 Secretary, any interest in a taxable 

20 corporation, and 

21 ‘‘(III) except as provided by the 

22 Secretary, stock in an S corporation. 

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

24 ‘taxable corporation’ means— 

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

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1 ‘‘(ii) a foreign corporation substan2 tially all of the income of which is— 

3 ‘‘(I) effectively connected with 

4 the conduct of a trade or business in 

5 the United States, or 

6 ‘‘(II) subject to a comprehensive 

7 foreign income tax (as defined in sec8 tion 457A(d)(2)). 

9 ‘‘(C) INVESTMENT MANAGEMENT SERV10 ICES.—The term ‘investment management serv11 ices’ means a substantial quantity of any of the 

12 services described in subsection (c)(1). 

13 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

14 such regulations or other guidance as is necessary or ap15 propriate to carry out the purposes of this section, includ16 ing regulations or other guidance to— 

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

18 this section (including treating related persons as 

19 not related to one another) to the extent such modi20 fication is consistent with the purposes of this sec21 tion, 

22 ‘‘(2) prevent the avoidance of the purposes of 

23 this section, and 

24 ‘‘(3) coordinate this section with the other pro25 visions of this title. 

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1 ‘‘(f) CROSS REFERENCE.—For 40 percent penalty on 

2 certain underpayments due to the avoidance of this sec3 tion, see section 6662.’’. 

4 (b) INCOME FROM INVESTMENT SERVICES PART5 NERSHIP INTERESTS NOT TREATED AS QUALIFYING IN6 COME OF PUBLICLY TRADED PARTNERSHIPS.—Sub7 section (d) of section 7704 is amended by adding at the 

8 end the following new paragraph: 

9 ‘‘(6) INCOME FROM INVESTMENT SERVICES

10 PARTNERSHIP INTERESTS NOT QUALIFIED.— 

11 ‘‘(A) IN GENERAL.—Items of income and 

12 gain shall not be treated as qualifying income 

13 if such items are treated as ordinary income by 

14 reason of the application of section 710 (relat15 ing to special rules for partners providing in16 vestment management services to partnership). 

17 ‘‘(B) SPECIAL RULES FOR CERTAIN PART18 NERSHIPS.— 

19 ‘‘(i) CERTAIN PARTNERSHIPS OWNED

20 BY REAL ESTATE INVESTMENT TRUSTS.— 

21 Subparagraph (A) shall not apply in the 

22 case of a partnership which meets each of 

23 the following requirements: 

24 ‘‘(I) Such partnership is treated 

25 as publicly traded under this section 

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1 solely by reason of interests in such 

2 partnership being convertible into in3 terests in a real estate investment 

4 trust which is publicly traded. 

5 ‘‘(II) Fifty percent or more of 

6 the capital and profits interests of 

7 such partnership are owned, directly 

8 or indirectly, at all times during the 

9 taxable year by such real estate in10 vestment trust (determined with the 

11 application of section 267(c)). 

12 ‘‘(III) Such partnership meets 

13 the requirements of paragraphs (2), 

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

15 ‘‘(ii) CERTAIN PARTNERSHIPS OWN16 ING OTHER PUBLICLY TRADED PARTNER17 SHIPS.—Subparagraph (A) shall not apply 

18 in the case of a partnership which meets 

19 each of the following requirements: 

20 ‘‘(I) Substantially all of the as21 sets of such partnership consist of in22 terests in one or more publicly traded 

23 partnerships (determined without re24 gard to subsection (b)(2)). 

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1 ‘‘(II) Substantially all of the in2 come of such partnership is ordinary 

3 income or section 1231 gain (as de4 fined in section 1231(a)(3)). 

5 ‘‘(C) TRANSITIONAL RULE.—In the case of 

6 a partnership which is a publicly traded part7 nership on the date of the enactment of this 

8 paragraph, subparagraph (A) shall not apply to 

9 any taxable year of the partnership beginning 

10 before the date which is 10 years after the date 

11 of the enactment of this paragraph.’’. 

12 (c) IMPOSITION OF PENALTY ON UNDERPAY13 MENTS.— 

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

15 6662, as amended by section 512, is amended by in16 serting after paragraph (6) the following new para17 graph: 

18 ‘‘(7) The application of subsection (d) of section 

19 710 or the regulations prescribed under section 

20 710(e) to prevent the avoidance of the purposes of 

21 section 710.’’. 

22 (2) AMOUNT OF PENALTY.— 

23 (A) IN GENERAL.—Section 6662, as 

24 amended by section 512, is amended by adding 

25 at the end the following new subsection: 

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1 ‘‘(j) INCREASE IN PENALTY IN CASE OF PROPERTY

2 TRANSFERRED FOR INVESTMENT MANAGEMENT SERV3 ICES.—In the case of any portion of an underpayment to 

4 which this section applies by reason of subsection (b)(7), 

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

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

7 (B) CONFORMING AMENDMENTS.—Sub8 paragraph (B) of section 6662A(e)(2) is 

9 amended— 

10 (i) by striking ‘‘section 6662(h)’’ and 

11 inserting ‘‘subsection (h) or (i) of section 

12 6662’’, and 

13 (ii) by striking ‘‘GROSS VALUATION

14 MISSTATEMENT PENALTY’’ in the heading 

15 and inserting ‘‘CERTAIN INCREASED UN16 DERPAYMENT PENALTIES’’. 

17 (3) SPECIAL RULES FOR APPLICATION OF REA18 SONABLE CAUSE EXCEPTION.—Subsection (c) of sec19 tion 6664 is amended— 

20 (A) by redesignating paragraphs (2) and 

21 (3) as paragraphs (3) and (4), respectively, 

22 (B) by striking ‘‘paragraph (2)’’ in para23 graph (4), as so redesignated, and inserting 

24 ‘‘paragraph (3)’’, and 

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1 (C) by inserting after paragraph (1) the 

2 following new paragraph: 

3 ‘‘(2) SPECIAL RULE FOR UNDERPAYMENTS AT4 TRIBUTABLE TO INVESTMENT MANAGEMENT SERV5 ICES.— 

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

7 not apply to any portion of an underpayment to 

8 which this section applies by reason of sub9 section (b)(7) unless— 

10 ‘‘(i) the relevant facts affecting the 

11 tax treatment of the item are adequately 

12 disclosed, 

13 ‘‘(ii) there is or was substantial au14 thority for such treatment, and 

15 ‘‘(iii) the taxpayer reasonably believed 

16 that such treatment was more likely than 

17 not the proper treatment. 

18 ‘‘(B) RULES RELATING TO REASONABLE

19 BELIEF.—Rules similar to the rules of sub20 section (d)(3) shall apply for purposes of sub21 paragraph (A)(iii).’’. 

22 (d) INCOME AND LOSS FROM INVESTMENT SERVICES

23 PARTNERSHIP INTERESTS TAKEN INTO ACCOUNT IN DE24 TERMINING NET EARNINGS FROM SELF-EMPLOYMENT.— 

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1 (1) INTERNAL REVENUE CODE.—Section 

2 1402(a) is amended by striking ‘‘and’’ at the end of 

3 paragraph (16), by striking the period at the end of 

4 paragraph (17) and inserting ‘‘; and’’, and by insert5 ing after paragraph (17) the following new para6 graph: 

7 ‘‘(18) Notwithstanding the preceding provisions 

8 of this subsection, in the case of any individual en9 gaged in the trade or business of providing services 

10 described in section 710(c)(1) with respect to any 

11 entity, any amount treated as ordinary income or or12 dinary loss of such individual under section 710 with 

13 respect to such entity shall be taken into account in 

14 determining the net earnings from self-employment 

15 of such individual.’’. 

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

17 the Social Security Act is amended by inserting after 

18 paragraph (16) the following new paragraph: 

19 ‘‘(17) Notwithstanding the preceding provisions 

20 of this subsection, in the case of any individual en21 gaged in the trade or business of providing services 

22 described in section 710(c)(1) of the Internal Rev23 enue Code of 1986 with respect to any entity, any 

24 amount treated as ordinary income or ordinary loss 

25 of such individual under section 710 of such Code 

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1 with respect to such entity shall be taken into ac2 count in determining the net earnings from self-em3 ployment of such individual.’’. 

4 (e) CONFORMING AMENDMENTS.— 

5 (1) Subsection (d) of section 731 is amended by 

6 inserting ‘‘section 710(b)(4) (relating to distribu7 tions of partnership property),’’ after ‘‘to the extent 

8 otherwise provided by’’. 

9 (2) Section 741 is amended by inserting ‘‘or 

10 section 710 (relating to special rules for partners 

11 providing investment management services to part12 nership)’’ before the period at the end. 

13 (3) The table of sections for part I of sub14 chapter K of chapter 1 is amended by adding at the 

15 end the following new item: 

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

to partnership.’’. 

16 (f) EFFECTIVE DATE.— 

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

19 this section shall apply to taxable years ending after 

20 December 31, 2009. 

21 (2) PARTNERSHIP TAXABLE YEARS WHICH IN22 CLUDE EFFECTIVE DATE.—In applying section 

23 710(a) of the Internal Revenue Code of 1986 (as 

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

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1 taxable year which includes December 31, 2009, the 

2 amount of the net income referred to in such section 

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

4 for the entire partnership taxable year or the net in5 come determined by only taking into account items 

6 attributable to the portion of the partnership taxable 

7 year which is after such date. 

8 (3) DISPOSITIONS OF PARTNERSHIP INTER9 ESTS.—Section 710(b) of the Internal Revenue Code 

10 of 1986 (as added by this section) shall apply to dis11 positions and distributions after December 31, 2009. 

12 (4) OTHER INCOME AND GAIN IN CONNECTION

13 WITH INVESTMENT MANAGEMENT SERVICES.—Sec14 tion 710(d) of such Code (as added by this section) 

15 shall take effect on January 1, 2010. 

16 (5) PUBLICLY TRADED PARTNERSHIPS.—The 

17 amendment made by subsection (b) shall apply to 

18 taxable years beginning after December 31, 2009. 

19 Subtitle B—Tax Expenditures 

20 Relating to Agribusiness 

21 SEC. 511. ELIMINATION OF EXPENSING FOR FERTILIZER, 

22 ETC., OTHERWISE CHARGEABLE TO A CAP23 ITAL ACCOUNT. 

24 Section 180 is amended by adding at the end the fol25 lowing new subsection: 

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1 ‘‘(d) TERMINATION.—This section shall not apply to 

2 taxable years beginning after December 31, 2011.’’. 

3 SEC. 512. ELIMINATION OF EXPENSING FOR MULTI-PERIOD 

4 LIVESTOCK AND CROP PRODUCTION COSTS. 

5 Subsection (d) of section 263A is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(4) TERMINATION.—This subsection shall not 

8 apply to costs incurred after December 31, 2011, in 

9 taxable year ending after such date.’’. 

10 SEC. 513. REPEAL OF CAPITAL GAIN TREATMENT WITH RE11 SPECT TO THE SALE OF TIMBER. 

12 (a) IN GENERAL.—Paragraph (2) of section 1231(b) 

13 as amended by this Act, is amended— 

14 (1) by striking ‘‘timber and’’, and 

15 (2) by striking ‘‘TIMBER OR’’. 

16 (b) 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 SEC. 514. ELIMINATION OF EXPENSING FOR TIMBER AND 

20 ORNAMENTAL TREES. 

21 (a) IN GENERAL.—Paragraph (5) of section 263A(c) 

22 is amended by striking ‘‘This section’’ and inserting ‘‘In 

23 the case of costs incurred before January 1, 2012, in tax24 able year ending after such date, this section’’. 

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1 (b) CONFORMING AMENDMENT.—Subparagraph (B) 

2 of section 448(d)(1) is amended by inserting before the 

3 period at the end the following: ‘‘(as in effect on the day 

4 before the date of the enactment of the Tax Equity and 

5 Middle Class Fairness Act of 2011)’’. 

6 SEC. 515. ELIMINATION OF AMORTIZATION OF REFOREST7 ATION EXPENDITURES. 

8 Section 194 is amended by adding at the end the fol9 lowing new subsection: 

10 ‘‘(e) TERMINATION.—This section shall not apply 

11 with respect to expenditures paid or incurred after Decem12 ber 31, 2011.’’. 

13 SEC. 516. REPEAL OF TAX EXPENDITURE FOR HORSE 

14 BREEDERS. 

15 (a) IN GENERAL.—Clause (i) of section 168(e)(3) is 

16 amended to read as follows: 

17 ‘‘(i) any race horse which is more 

18 than 2 years old at the time it is placed in 

19 service,’’. 

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

21 this section shall apply to property placed in service after 

22 the date of the enactment of this Act. 

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1 Subtitle C—Other Business Tax 

2 Expenditures 

3 SEC. 521. TERMINATION OF $25,000 EXEMPTION FROM PAS4 SIVE LOSS RULES FOR RENTAL REAL ESTATE 

5 ACTIVITIES. 

6 (a) IN GENERAL.—Section 469 is amended by strik7 ing subsection (i). 

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

9 this section shall apply to taxable years beginning after 

10 the date of the enactment of this Act. 

11 SEC. 522. ELIMINATION OF DEDUCTION FOR CERTAIN 

12 MEAL AND ENTERTAINMENT EXPENSES. 

13 (a) IN GENERAL.—Paragraph (1) of section 274(n) 

14 is amended— 

15 (1) by striking ‘‘The amount allowable as a de16 duction’’ and inserting ‘‘No deduction shall be al17 lowed’’, and 

18 (2) by striking ‘‘activity,’’ and all that follows 

19 through the period at the end and inserting ‘‘activ20 ity.’’. 

21 (b) 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. 

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1 SEC. 523. STATE AND LOCAL BONDS CONVERTED TO DI2 RECT SUBSIDY BONDS. 

3 (a) TERMINATION OF TAX EXEMPT STATUS OF

4 STATE AND LOCAL BONDS.—Section 103 is amended by 

5 adding at the end the following new subsection: 

6 ‘‘(d) TERMINATION.—This section shall not apply to 

7 any obligations issued after December 31, 2011.’’. 

8 (b) STATE AND LOCAL BONDS TREATED AS BUILD

9 AMERICA BONDS.— 

10 (1) IN GENERAL.—Paragraph (1) of section 

11 54AA(d) is amended— 

12 (A) by striking subparagraph (B) and by 

13 inserting ‘‘and’’ at the end of subparagraph 

14 (A), and 

15 (B) in subparagraph (A) by inserting ‘‘(de16 termined without regard to subsection (d) 

17 thereof)’’ after ‘‘section 103’’. 

18 (2) DIRECT SUBSIDY.— 

19 (A) Subsection (g) of section 54AA is 

20 amended to read as follows: 

21 ‘‘(g) DIRECT SUBSIDY FOR BUILD AMERICA BONDS

22 ISSUED AFTER 2011.— 

23 ‘‘(1) IN GENERAL.—In the case of build Amer24 ica bonds issued after December 31, 2011, no credit 

25 shall be allowed under this section with respect to 

26 such bond. 

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1 ‘‘(2) CROSS REFERENCE.—For the credit to the 

2 issuer of build America bonds, see section 6431.’’. 

3 (B) Section 6431 is amended— 

4 (i) by striking ‘‘In the case of a quali5 fied bond issued before January 1, 2011,’’ 

6 in subsection (a) and inserting ‘‘In the 

7 case of any build America bond (as defined 

8 in section 54AA(d)) issued after December 

9 31, 2011,’’, 

10 (ii) by striking subsections (e) and (f), 

11 and 

12 (iii) by striking ‘‘QUALIFIED

13 BONDS’’ in the heading thereof and insert14 ing ‘‘BUILD AMERICA BONDS’’. 

15 (3) PRIVATE ACTIVITY BONDS INCLUDED.— 

16 Paragraph (1) of section 54AA(d) of such Code is 

17 amended by striking ‘‘(other than a private activity 

18 bond)’’. 

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

20 this section shall apply to obligations issued after Decem21 ber 31, 2011. 

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1 SEC. 524. 28-PERCENT RATE FOR EXPANDED DIRECT SUB2 SIDY BUILD AMERICA BONDS. 

3 Subsection (b) of section 6431 is amended by insert4 ing ‘‘(28 percent in the case of obligations issued after 

5 December 31, 2011)’’ after ‘‘35 percent’’. 

6 TITLE VI—INTERNATIONAL TAX 

7 EXPENDITURES 

8 SEC. 601. ALLOCATION OF EXPENSES AND TAXES ON BASIS 

9 OF REPATRIATION OF FOREIGN INCOME. 

10 (a) IN GENERAL.—Part III of subchapter N of chap11 ter 1 is amended by inserting after subpart G the following 

12 new subpart: 

13 ‘‘Subpart H—Special Rules for Allocation of Foreign14 Related Interest 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. 

15 ‘‘SEC. 975. INTEREST DEDUCTIONS ALLOCATED TO DE16 FERRED FOREIGN INCOME MAY NOT OFFSET 

17 UNITED STATES SOURCE INCOME. 

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

19 of this chapter, foreign-related interest deductions for any 

20 taxable year— 

21 ‘‘(1) shall be taken into account for such tax22 able year only to the extent that such deductions are 

23 allocable to currently-taxed foreign income, and 

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

2 into account in subsequent taxable years as provided 

3 in subsection (b). 

4 Foreign-related interest deductions shall be allocated to 

5 currently-taxed foreign income in the same proportion 

6 which currently-taxed foreign income bears to the sum of 

7 currently-taxed foreign income and deferred foreign in8 come. 

9 ‘‘(b) INTEREST DEDUCTIONS RELATED TO REPATRI10 ATED DEFERRED FOREIGN INCOME.— 

11 ‘‘(1) IN GENERAL.—If there is repatriated for12 eign income for a taxable year, the portion of the 

13 previously deferred interest deductions allocated to 

14 the repatriated foreign income shall be taken into 

15 account for the taxable year as a deduction for inter16 est expense allocated to income from sources outside 

17 the United States. Any such amount shall not be in18 cluded in foreign-related interest deductions for pur19 poses of applying subsection (a) to such taxable 

20 year. 

21 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED IN22 TEREST DEDUCTIONS.—For purposes of paragraph 

23 (1), the portion of the previously deferred interest 

24 deductions allocated to repatriated foreign income 

25 is— 

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

2 proportion to such deductions, as 

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

4 previously deferred foreign income. 

5 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur6 poses of this section— 

7 ‘‘(1) FOREIGN-RELATED INTEREST DEDUC8 TIONS.—The term ‘foreign-related interest deduc9 tions’ means the total amount of deductions for in10 terest expenses which would be allocated or appor11 tioned to gross income from sources without the 

12 United States for the taxable year if both the cur13 rently-taxed foreign income and deferred foreign in14 come were taken into account. 

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

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

17 amount of gross income from sources without the 

18 United States for the taxable year (determined with19 out regard to repatriated foreign income for such 

20 year). 

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

22 ‘deferred foreign income’ means the excess of— 

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

24 in gross income under subpart F of this part 

25 for the taxable year if— 

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1 ‘‘(i) all controlled foreign corporations 

2 were treated as one controlled foreign cor3 poration, and 

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

5 controlled foreign corporations were sub6 part F income (as defined in section 952), 

7 over 

8 ‘‘(B) the sum of— 

9 ‘‘(i) all dividends received during the 

10 taxable year from controlled foreign cor11 porations, plus 

12 ‘‘(ii) amounts includible in gross in13 come under section 951(a). 

14 ‘‘(4) PREVIOUSLY DEFERRED FOREIGN IN15 COME.—The term ‘previously deferred foreign in16 come’ means the aggregate amount of deferred for17 eign income for all prior taxable years to which this 

18 part applies, determined as of the beginning of the 

19 taxable year, reduced by the repatriated foreign in20 come for all such prior taxable years. 

21 ‘‘(5) REPATRIATED FOREIGN INCOME.—The 

22 term ‘repatriated foreign income’ means the amount 

23 included in gross income on account of distributions 

24 out of previously deferred foreign income. 

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1 ‘‘(6) PREVIOUSLY DEFERRED INTEREST DE2 DUCTIONS.—The term ‘previously deferred interest 

3 deductions’ means the aggregate amount of foreign4 related interest deductions not taken into account 

5 under subsection (a) for all prior taxable years (de6 termined as of the beginning of the taxable year), 

7 reduced by any amounts taken into account under 

8 subsection (b) for such prior taxable years. 

9 ‘‘(7) TREATMENT OF CERTAIN FOREIGN

10 TAXES.— 

11 ‘‘(A) PAID BY CONTROLLED FOREIGN COR12 PORATION.—Section 78 shall not apply for pur13 poses of determining currently-taxed foreign in14 come and deferred foreign income. 

15 ‘‘(B) PAID BY TAXPAYER.—For purposes 

16 of determining currently-taxed foreign income, 

17 gross income from sources without the United 

18 States shall be reduced by the aggregate 

19 amount of taxes described in the applicable 

20 paragraph of section 901(b) which are paid by 

21 the taxpayer (without regard to sections 902 

22 and 960) during the taxable year. 

23 ‘‘(8) COORDINATION WITH SECTION 976.—In 

24 determining currently-taxed foreign income and de25 ferred foreign income, the amount of deemed foreign 

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1 tax credits shall be determined with regard to sec2 tion 976. 

3 ‘‘SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON 

4 OVERALL BASIS. 

5 ‘‘(a) CURRENT YEAR ALLOWANCE.—For purposes of 

6 this chapter, the amount taken into account as foreign in7 come taxes for any taxable year shall be an amount which 

8 bears the same ratio to the total foreign income taxes for 

9 that taxable year as— 

10 ‘‘(1) the currently-taxed foreign income for such 

11 taxable year, bears to 

12 ‘‘(2) the sum of the currently-taxed foreign in13 come and deferred foreign income for such year. 

14 The portion of the total foreign income taxes for any tax15 able year not taken into account under the preceding sen16 tence for a taxable year shall only be taken into account 

17 as provided in subsection (b) (and shall not be taken into 

18 account for purposes of applying sections 902 and 960). 

19 ‘‘(b) ALLOWANCE RELATED TO REPATRIATED DE20 FERRED FOREIGN INCOME.— 

21 ‘‘(1) IN GENERAL.—If there is repatriated for22 eign income for any taxable year, the portion of the 

23 previously deferred foreign income taxes paid or ac24 crued during such taxable year shall be taken into 

25 account for the taxable year as foreign taxes paid or 

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1 accrued. Any such taxes so taken into account shall 

2 not be included in foreign income taxes for purposes 

3 of applying subsection (a) to such taxable year. 

4 ‘‘(2) PORTION OF PREVIOUSLY DEFERRED FOR5 EIGN INCOME TAXES.—For purposes of paragraph 

6 (1), the portion of the previously deferred foreign in7 come taxes allocated to repatriated deferred foreign 

8 income is— 

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

10 proportion to such taxes, as 

11 ‘‘(B) the repatriated deferred income bears 

12 to the previously deferred foreign income. 

13 ‘‘(c) DEFINITIONS AND SPECIAL RULE.—For pur14 poses of this section— 

15 ‘‘(1) PREVIOUSLY DEFERRED FOREIGN INCOME

16 TAXES.—The term ‘previously deferred foreign in17 come taxes’ means the aggregate amount of total 

18 foreign income taxes not taken into account under 

19 subsection (a) for all prior taxable years (determined 

20 as of the beginning of the taxable year), reduced by 

21 any amounts taken into account under subsection 

22 (b) for such prior taxable years. 

23 ‘‘(2) TOTAL FOREIGN INCOME TAXES.—The 

24 term ‘total foreign income taxes’ means the sum of 

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1 able year (determined without regard to section 

2 904(c)) plus the increase in foreign income taxes 

3 that would be paid or accrued during the taxable 

4 year under sections 902 and 960 if— 

5 ‘‘(A) all controlled foreign corporations 

6 were treated as one controlled foreign corpora7 tion, and 

8 ‘‘(B) all earnings and profits of all con9 trolled foreign corporations were subpart F in10 come (as defined in section 952). 

11 ‘‘(3) FOREIGN INCOME TAXES.—The term ‘for12 eign income taxes’ means any income, war profits, or 

13 excess profits taxes paid by the taxpayer to any for14 eign country or possession of the United States. 

15 ‘‘(4) CURRENTLY-TAXED FOREIGN INCOME AND

16 DEFERRED FOREIGN INCOME.—The terms ‘cur17 rently-taxed foreign income’ and ‘deferred foreign in18 come’ have the meanings given such terms by sec19 tion 975(c)). 

20 ‘‘SEC. 977. APPLICATION OF SUBPART. 

21 ‘‘This subpart— 

22 ‘‘(1) shall be applied before subpart A, and 

23 ‘‘(2) shall be applied separately with respect to 

24 the categories of income specified in section 

25 904(d)(1).’’. 

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

2 for part III of subpart N of chapter 1 is amended by in3 serting after the item relating to subpart G the following 

4 new item: 

‘‘SUBPART H. SPECIAL RULES FOR ALLOCATION OF FOREIGN-RELATED

INTEREST DEDUCTIONS AND FOREIGN TAX CREDITS.’’. 

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

6 this section shall apply to taxable years beginning after 

7 December 31, 2011. 

8 SEC. 602. EXCESS INCOME FROM TRANSFERS OF INTANGI9 BLES TO LOW-TAXED AFFILIATES TREATED 

10 AS SUBPART F INCOME. 

11 (a) IN GENERAL.—Subsection (a) of section 954 is 

12 amended by inserting after paragraph (3) the following 

13 new paragraph: 

14 ‘‘(4) the foreign base company excess intangible 

15 income for the taxable year (determined under sub16 section (f) and reduced as provided in subsection 

17 (b)(5)), and’’. 

18 (b) FOREIGN BASE COMPANY EXCESS INTANGIBLE

19 INCOME.—Section 954 is amended by inserting after sub20 section (e) the following new subsection: 

21 ‘‘(f) FOREIGN BASE COMPANY EXCESS INTANGIBLE

22 INCOME.—For purposes of subsection (a)(4) and this sub23 section— 

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1 ‘‘(1) FOREIGN BASE COMPANY EXCESS INTAN2 GIBLE INCOME DEFINED.— 

3 ‘‘(A) IN GENERAL.—The term ‘foreign 

4 base company excess intangible income’ means, 

5 with respect to any covered intangible, the ex6 cess of— 

7 ‘‘(i) the sum of— 

8 ‘‘(I) gross income from the sale, 

9 lease, license, or other disposition of 

10 property in which such covered intan11 gible is used directly or indirectly, and 

12 ‘‘(II) gross income from the pro13 vision of services related to such cov14 ered intangible or in connection with 

15 property in which such covered intan16 gible is used directly or indirectly, 

17 over 

18 ‘‘(ii) 115 percent of the costs properly 

19 allocated and apportioned to the gross in20 come taken into account under clause (i) 

21 other than expenses for interest and taxes 

22 and any expenses which are not directly al23 locable to such gross income. 

24 ‘‘(B) SAME COUNTRY INCOME NOT TAKEN

25 INTO ACCOUNT.—If— 

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1 ‘‘(i) the sale, lease, license, or other 

2 disposition of the property referred to in 

3 subparagraph (A)(i)(I) is for use, con4 sumption, or disposition in the country 

5 under the laws of which the controlled for6 eign corporation is created or organized, or 

7 ‘‘(ii) the services referred to in sub8 paragraph (A)(i)(II) are performed in such 

9 country, 

10 the gross income from such sale, lease, license, 

11 or other disposition, or provision of services, 

12 shall not be taken into account under subpara13 graph (A)(i). 

14 ‘‘(2) EXCEPTION BASED ON EFFECTIVE FOR15 EIGN INCOME TAX RATE.— 

16 ‘‘(A) IN GENERAL.—Foreign base company 

17 excess intangible income shall not include the 

18 applicable percentage of any item of income re19 ceived by a controlled foreign corporation if the 

20 taxpayer establishes to the satisfaction of the 

21 Secretary that such income was subject to an 

22 effective rate of income tax imposed by a for23 eign country in excess of 10 percent. 

24 ‘‘(B) APPLICABLE PERCENTAGE.—For 

25 purposes of subparagraph (A), the term ‘applimstockstill on DSK4VPTVN1PROD with BILLS

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1 cable percentage’ means the ratio (expressed as 

2 a percentage), not greater than 100 percent, 

3 of— 

4 ‘‘(i) the number of percentage points 

5 by which the effective rate of income tax 

6 referred to in subparagraph (A) exceeds 10 

7 percentage points, over 

8 ‘‘(ii) 25 percentage points. 

9 ‘‘(C) TREATMENT OF LOSSES IN DETER10 MINING EFFECTIVE RATE OF FOREIGN INCOME

11 TAX.—For purposes of determining the effective 

12 rate of income tax imposed by any foreign 

13 country— 

14 ‘‘(i) such effective rate shall be deter15 mined without regard to any losses carried 

16 to the relevant taxable year, and 

17 ‘‘(ii) to the extent the income with re18 spect to such intangible reduces losses in 

19 the relevant taxable year, such effective 

20 rate shall be treated as being the effective 

21 rate which would have been imposed on 

22 such income without regard to such losses. 

23 ‘‘(3) COVERED INTANGIBLE.—The term ‘cov24 ered intangible’ means, with respect to any conmstockstill on DSK4VPTVN1PROD with BILLS

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1 trolled foreign corporation, any intangible property 

2 (as defined in section 936(h)(3)(B))— 

3 ‘‘(A) which is sold, leased, licensed, or oth4 erwise transferred (directly or indirectly) to 

5 such controlled foreign corporation from a re6 lated person, or 

7 ‘‘(B) with respect to which such controlled 

8 foreign corporation and one or more related 

9 persons has (directly or indirectly) entered into 

10 any shared risk or development agreement (in11 cluding any cost sharing agreement). 

12 ‘‘(4) RELATED PERSON.—The term ‘related 

13 person’ has the meaning given such term in sub14 section (d)(3).’’. 

15 (c) SEPARATE BASKET FOR FOREIGN TAX CRED16 IT.—Subsection (d) of section 904 is amended by redesig17 nating paragraph (7) as paragraph (8) and by inserting 

18 after paragraph (6) the following new paragraph: 

19 ‘‘(6) SEPARATE APPLICATION TO FOREIGN

20 BASE COMPANY EXCESS INTANGIBLE INCOME.— 

21 ‘‘(A) IN GENERAL.—Subsections (a), (b), 

22 and (c) of this section and sections 902, 907, 

23 and 960 shall be applied separately with respect 

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1 count under section 954(a)(4) as foreign base 

2 company excess intangible income. 

3 ‘‘(B) REGULATIONS.—The Secretary may 

4 issue such regulations or other guidance as is 

5 necessary or appropriate to carry out the pur6 poses of this subsection, including regulations 

7 or other guidance which provides that related 

8 items of income may be aggregated for pur9 poses of this paragraph.’’. 

10 (d) CONFORMING AMENDMENTS.— 

11 (1) Paragraph (4) of section 954(b) is amended 

12 by inserting ‘‘foreign base company excess intangible 

13 income described in subsection (a)(4) or’’ before 

14 ‘‘foreign base company oil-related income’’ in the 

15 last sentence thereof. 

16 (2) Subsection (b) of section 954 is amended by 

17 adding at the end the following new paragraph: 

18 ‘‘(7) FOREIGN BASE COMPANY EXCESS INTAN19 GIBLE INCOME NOT TREATED AS ANOTHER KIND OF

20 BASE COMPANY INCOME.—Income of a corporation 

21 which is foreign base company excess intangible in22 come shall not be considered foreign base company 

23 income of such corporation under paragraph (2), 

24 (3), or (5) of subsection (a).’’. 

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1 (e) 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. 603. LIMITATIONS ON INCOME SHIFTING THROUGH IN5 TANGIBLE PROPERTY TRANSFERS. 

6 (a) CLARIFICATION OF DEFINITION OF INTANGIBLE

7 ASSET.—Clause (vi) of section 936(h)(3)(B) is amended 

8 by inserting ‘‘(including any section 197 intangible de9 scribed in subparagraph (A), (B), or (C)(i) of subsection 

10 (d)(1) of such section)’’ after ‘‘item’’. 

11 (b) CLARIFICATION OF ALLOWABLE VALUATION

12 METHODS.— 

13 (1) FOREIGN CORPORATIONS.—Paragraph (2) 

14 of section 367(d) is amended by adding at the end 

15 the following new subparagraph: 

16 ‘‘(D) REGULATORY AUTHORITY.—For pur17 poses of the last sentence of subparagraph (A), 

18 the Secretary may require— 

19 ‘‘(i) the valuation of transfers of in20 tangible property on an aggregate basis, or 

21 ‘‘(ii) the valuation of such a transfer 

22 on the basis of the realistic alternatives to 

23 such a transfer, 

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1 in any case in which the Secretary determines 

2 that such basis is the most reliable means of 

3 valuation of such transfers.’’. 

4 (2) ALLOCATION AMONG TAXPAYERS.—Section 

5 482 is amended by adding at the end the following: 

6 ‘‘For purposes of the preceding sentence, the Sec7 retary may require the valuation of transfers of in8 tangible property on an aggregate basis or the valu9 ation of such a transfer on the basis of the realistic 

10 alternatives to such a transfer, in any case in which 

11 the Secretary determines that such basis is the most 

12 reliable means of valuation of such transfers.’’. 

13 (c) EFFECTIVE DATE.— 

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

15 this section shall apply to transfers in taxable years 

16 beginning after December 31, 2011. 

17 (2) NO INFERENCE.—Nothing in the amend18 ment made by subsection (a) shall be construed to 

19 create any inference with respect to the application 

20 of section 936(h)(3) of the Internal Revenue Code of 

21 1986, or the authority of the Secretary of the Treas22 ury to provide regulations for such application, on or 

23 before the date of the enactment of such amend24 ment. 

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1 SEC. 604. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

2 APPLICABLE TO DUAL CAPACITY TAXPAYERS. 

3 (a) IN GENERAL.—Section 901 is amended by redes4 ignating subsection (n) as subsection (o) and by inserting 

5 after subsection (m) the following new subsection: 

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

7 TAXPAYERS.— 

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

9 other provision of this chapter, any amount paid or 

10 accrued by a dual capacity taxpayer to a foreign 

11 country or possession of the United States for any 

12 period with respect to combined foreign oil and gas 

13 income (as defined in section 907(b)(1)) shall not be 

14 considered a tax to the extent such amount exceeds 

15 the amount (determined in accordance with regula16 tions) which would have been required to be paid if 

17 the taxpayer were not a dual capacity taxpayer. 

18 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur19 poses of this subsection, the term ‘dual capacity tax20 payer’ means, with respect to any foreign country or 

21 possession of the United States, a person who— 

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

23 possession, and 

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

25 indirectly a specific economic benefit (as determstockstill on DSK4VPTVN1PROD with BILLS

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1 mined in accordance with regulations) from 

2 such country or possession.’’. 

3 (b) EFFECTIVE DATE.— 

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

5 this section shall apply to taxes paid or accrued in 

6 taxable years beginning after December 31, 2011. 

7 (2) CONTRARY TREATY OBLIGATIONS

8 UPHELD.—The amendments made by this section 

9 shall not apply to the extent contrary to any treaty 

10 obligation of the United States. 

11 TITLE VII—TAX EXPENDITURE 

12 STUDY 

13 SEC. 701. STUDY OF EXTENDED TAX EXPENDITURES. 

14 (a) IN GENERAL.—Not later than 180 days after the 

15 date of the enactment of this Act, the Comptroller General 

16 of the United States, in consultation with the Secretary 

17 of the Treasury, shall submit to Congress a report on each 

18 tax expenditure (as defined in section 3(3) of the Congres19 sional Budget Impoundment Control Act of 1974 (2 

20 U.S.C. 622(3)) not terminated or modified by this Act. 

21 (b) CONTENTS OF REPORT.—Such reports shall con22 tain the following: 

23 (1) An explanation of the tax expenditure and 

24 any relevant economic, social, or other context under 

25 which it was first enacted. 

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1 (2) A description of the intended purpose of the 

2 tax expenditure. 

3 (3) An analysis of the overall success of the tax 

4 expenditure in achieving such purpose, and evidence 

5 supporting such analysis. 

6 (4) An analysis of the extent to which further 

7 extending the tax expenditure, or making it perma8 nent, would contribute to achieving such purpose. 

9 (5) A description of the direct and indirect 

10 beneficiaries of the tax expenditure, including identi11 fying any unintended beneficiaries. 

12 (6) An analysis of whether the tax expenditure 

13 is the most cost-effective method for achieving the 

14 purpose for which it was intended, and a description 

15 of any more cost-effective methods through which 

16 such purpose could be accomplished. 

17 (7) A description of any unintended effects of 

18 the tax expenditure that are useful in understanding 

19 the tax expenditure’s overall value. 

20 (8) An analysis of how the tax expenditure 

21 could be modified to better achieve its original pur22 pose or if such tax expenditure should be eliminated. 

Æ 

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