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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2495 Introduced in House (IH)]

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.

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

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

    (a) Short Title.--This Act may be cited as the ``Tax Equity and 
Middle Class Fairness Act of 2011''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for 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.
         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.

          TITLE I--TERMINATION OF OIL AND GAS TAX PREFERENCES

SEC. 101. TERMINATION OF ENHANCED OIL RECOVERY CREDIT.

    (a) In General.--Section 43 is amended by adding at the end the 
following new subsection:
    ``(f) Termination.--This section shall not apply to any taxable 
year beginning after the date of the enactment of this subsection.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 102. TERMINATION OF CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL 
              WELLS.

    (a) In General.--Section 45I is amended by adding at the end the 
following new subsection:
    ``(e) Termination.--This section shall not apply to any taxable 
year beginning after the date of the enactment of this subsection.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 103. TERMINATION OF DEDUCTION FOR INTANGIBLE DRILLING AND 
              DEVELOPMENT COSTS.

    (a) In General.--Section 263(c) is amended by adding at the end the 
following new sentence: ``This subsection shall not apply to any 
taxable year beginning after the date of the enactment of this 
sentence.''.
    (b) Conforming Amendments.--Paragraphs (2) and (3) of section 
291(b) are each amended by striking ``section 263(c), 616(a),'' and 
inserting ``section 616(a)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to costs paid or incurred in taxable years beginning after the 
date of the enactment of this Act.

SEC. 104. TERMINATION OF DEDUCTION FOR TERTIARY INJECTANTS.

    (a) In General.--Section 193 is amended by adding at the end the 
following new subsection:
    ``(d) Termination.--This section shall not apply to any taxable 
year beginning after the date of the enactment of this subsection.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 105. REPEAL EXCEPTION TO PASSIVE LOSS LIMITATION FOR WORKING 
              INTERESTS IN OIL AND NATURAL GAS PROPERTIES.

    (a) In General.--Subsection (c) of section 469 is amended by 
striking paragraph (3).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 106. REPEAL PERCENTAGE DEPLETION FOR OIL AND NATURAL GAS WELLS.

    (a) In General.--Section 613A is amended by adding at the end the 
following new subsection:
    ``(f) Termination.--After December 31, 2010, this section and 
section 611 shall not apply to any oil or gas well.''.
    (b) Conforming Amendment.--Section 613A(c)(1) is amended by 
striking ``subsection (d)'' and inserting ``subsections (d) and (f)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 107. REPEAL DOMESTIC MANUFACTURING TAX DEDUCTION FOR OIL AND 
              NATURAL GAS COMPANIES.

    (a) In General.--Subparagraph (B) of section 199(c)(4) is amended 
by striking ``and'' at the end of clause (ii), by striking the period 
at the end of clause (iii) and inserting ``, and'', and by inserting 
after clause (iii) the following new clause:
                            ``(iv) production or extraction relating to 
                        any oil or gas.''.
    (b) Conforming Amendment.--Section 199(c)(4)(A)(i)(III) is amended 
by striking ``, natural gas,''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 108. INCREASE GEOLOGICAL AND GEOPHYSICAL AMORTIZATION PERIOD FOR 
              INDEPENDENT PRODUCERS TO SEVEN YEARS.

    (a) In General.--Paragraphs (1) and (4) of section 167(h) is 
amended by striking ``24-month'' both places it appears and inserting 
``7-year''.
    (b) Conforming Amendment.--Section 167(h) is amended by striking 
paragraph (5).
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred in taxable years beginning after the 
date of the enactment of this Act.

         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.

    (a) Development Expenditures.--Section 616 is amended by 
redesignating subsection (e) as subsection (f) and by inserting after 
subsection (d) the following new subsection:
    ``(e) Special Rule for Expenditures for Development of Coal Mine or 
Deposit.--No deduction shall be allowed under this section for 
expenditures paid or incurred with respect to the development of a mine 
or other natural deposit for the production of coal, lignite, or oil 
shale.''.
    (b) Exploration Expenditures.--Section 617 is amended by 
redesignating subsection (i) as subsection (j) and by inserting after 
subsection (h) the following new subsection:
    ``(i) Special Rule for Coal Exploration Expenditures.--No deduction 
shall be allowed under this section for expenditures paid or incurred 
before the development stage for the purpose of ascertaining the 
existence, location, extent, or quality of any deposit of coal, 
lignite, or oil shale.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred after the date of the enactment 
of this Act.

SEC. 202. REPEAL OF DOMESTIC PRODUCTION ACTIVITIES DEDUCTION WITH 
              RESPECT TO PRODUCTION OF COAL, LIGNITE, OR OIL SHALE.

    (a) In General.--Subparagraph (B) of section 199(c)(4), as amended 
by this Act, is amended by striking ``or'' at the end of clause (iii), 
by striking the period at the end of clause (iv) and inserting ``, 
or'', and by adding at the end the following new clause:
                            ``(v) the lease, rental, license, sale, 
                        exchange, or other disposition of coal, 
                        lignite, or oil shale).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 203. REPEAL OF PERCENTAGE DEPLETION WITH RESPECT TO COAL, LIGNITE, 
              AND OIL SHALE.

    (a) Oil Shale.--Paragraph (2) of section 613(b) is amended--
            (1) by striking subparagraph (B), and
            (2) by striking ``United States--'' and all that follows 
        through ``ore, and'' and inserting the following: ``United 
        States--gold, silver, copper, and iron ore.''.
    (b) Coal and Lignite.--Paragraph (4) of section 613(b) is amended 
by striking ``coal, lignite''.
    (c) Conforming Amendment.--Subparagraph (A) of section 613(b)(6) is 
amended by striking ``except shale described in paragraph (2)(B) or 
(5)'' and inserting ``except oil shale or shale described in paragraph 
(5)''.

SEC. 204. REPEAL OF CAPITAL GAIN TREATMENT OF COAL AND LIGNITE 
              ROYALTIES.

    (a) In General.--
            (1) Subsection (c) of section 631 is amended--
                    (A) by striking ``coal (including lignite), or'',
                    (B) by striking ``coal or'' each place it appears, 
                and
                    (C) by striking ``or coal'' each place it appears.
            (2) Paragraph (2) of section 1231(b) is amended by striking 
        ``, coal,''.
    (b) Clerical Amendments.--
            (1) The heading for section 631(c) is amended by striking 
        ``Coal or''.
            (2) The heading for section 1231(b)(2) is amended by 
        striking ``, coal,''.
    (c) Effective Date.--The amendments made by this section shall to 
taxable years beginning after the date of the enactment of this Act.

              TITLE III--MODIFICATION OF ACCOUNTING RULES

SEC. 301. REPEAL OF LAST-IN, FIRST-OUT METHOD OF INVENTORY.

    (a) In General.--Subpart D of part II of subchapter E of chapter 1 
is amended by striking sections 472 (relating to last-in, first-out 
inventories), 473 (relating to qualified liquidations of LIFO 
inventories), and 474 (relating to simplified dollar-value LIFO method 
for certain small businesses).
    (b) Conforming Amendments.--
            (1)(A) Section 312(n) is amended by striking paragraph (4) 
        and by redesignating paragraphs (5) through (8) as paragraphs 
        (4) through (7), respectively.
            (B) Section 312(n)(7), as redesignated by subparagraph (A), 
        is amended--
                    (i) by striking ``paragraphs (4) and (6)'' in 
                subparagraph (A) and inserting ``paragraph (5)'', and
                    (ii) by striking ``paragraph (5)'' in subparagraph 
                (B) and inserting ``paragraph (4)''.
            (C) Section 56(g)(4)(D) is amended by striking clause (iii) 
        and by redesignating clause (iv) as clause (iii).
            (2) Section 1363 is amended by striking subsection (d).
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after the date of the 
        enactment of this Act.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by the amendments made by this section to 
        change its method of accounting for its first taxable year 
        beginning after the date of the enactment of this Act--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                    (C) if the net amount of the adjustments required 
                to be taken into account by the taxpayer under section 
                481 of the Internal Revenue Code of 1986 is positive, 
                such amount shall be taken into account over a period 
                of 8 years beginning with such first taxable year.

SEC. 302. REPEAL OF LOWER OF COST OR MARKET METHOD OF INVENTORY.

    (a) In General.--Section 471 is amended by redesignating subsection 
(c) as subsection (d) and by inserting after subsection (b) the 
following new subsection:
    ``(c) Inventories Taken Into Account at Cost.--A method of 
determining inventories shall not be treated as clearly reflecting 
income unless such method provides that inventories shall be taken into 
account at cost.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after the date of the 
        enactment of this Act.
            (2) Change in method of accounting.--In the case of any 
        taxpayer required by the amendments made by this section to 
        change its method of accounting for its first taxable year 
        beginning after the date of the enactment of this Act--
                    (A) such change shall be treated as initiated by 
                the taxpayer,
                    (B) such change shall be treated as made with the 
                consent of the Secretary of the Treasury, and
                    (C) if the net amount of the adjustments required 
                to be taken into account by the taxpayer under section 
                481 of the Internal Revenue Code of 1986 is positive, 
                such amount shall be taken into account over a period 
                of 8 years beginning with such first taxable year.

                 TITLE IV--INDIVIDUAL TAX EXPENDITURES

SEC. 401. LIMITATION ON ITEMIZED DEDUCTIONS TO 28-PERCENT RATE BRACKET.

    (a) In General.--The Internal Revenue Code of 1986 is amended by 
inserting after section 68 the following new section:

``SEC. 68A. BENEFIT OF ITEMIZED DEDUCTIONS LIMITED TO 28-PERCENT RATE 
              BRACKET.

    ``(a) In General.--In the case of an individual whose adjusted 
gross income exceeds $200,000 ($250,000 in the case of a joint return), 
the amount of the itemized deductions otherwise allowable for the 
taxable year shall be reduced by an amount necessary to increase the 
amount of regular tax liability of the taxpayer to an amount that would 
be imposed if such deductions reduced the regular tax liability by not 
more than the amount such deductions would reduce the tax imposed by 
section 1 on taxable income within the 28-percent bracket amount.
    ``(b) Regular Tax Liability.--For purposes of this section, the 
term `regular tax liability' has the meaning given such term by section 
26(b).
    ``(c) Coordination With Section 68.--This section shall apply after 
the application of section 68.''.
    (b) Alternative Minimum Tax.--
            (1) In general.--Subsection (b) of section 55 is amended by 
        adding at the end the following new paragraph:
            ``(5) Coordination with section 68A.--In the case of an 
        individual, for purposes of paragraph (2), alternative minimum 
        taxable income shall be determined by reducing the amount of 
        any itemized deductions otherwise allowed in determining 
        alternative minimum taxable income by an amount which bears the 
        same ratio to the amount by which the itemized deductions of 
        the taxpayer were reduced for the taxable year under section 
        68A as--
                    ``(A) the amount of itemized deductions otherwise 
                allowed in determining the alternative minimum taxable 
                income for the taxable year, bears to
                    ``(B) the aggregate amount of itemized deductions 
                of the taxpayer for the taxable year (determined 
                without regard to section 68A).''.
            (2) Conforming amendment.--Paragraph (1) of section 56(b) 
        is amended by adding at the end the following new subparagraph:
                    ``(G) Section 68A not applicable.--Section 68A 
                shall not apply.''.
    (c) Clerical Amendment.--The table of sections for part I of 
subchapter B of chapter 1 is amended by adding at the end the following 
new item:

``Sec. 68A. Benefit of itemized deductions limited to 28-percent rate 
                            bracket.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 402. REPEAL OF FOREIGN EARNED INCOME EXCLUSION.

    (a) In General.--Subsection (a) of section 911 is amended by 
striking ``for any taxable year--'' and all that follows through the 
end and inserting ``for any taxable year the housing cost amount of 
such individual.''.
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 86 is amended by inserting 
        ``and'' at the end of paragraph (2), by striking ``, and'' at 
        the end of paragraph (3) and inserting a period, and by 
        striking paragraph (4).
            (2) Section 1401(a) is amended by striking paragraph (11).
            (3)(A) Clause (i) of section 1411(a)(1)(B) is amended by 
        striking ``modified''.
            (B) Section 1411 is amended by striking subsection (d) and 
        by redesignating subsection (e) as subsection (d).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 403. PHASE-OUT OF HEALTH SAVINGS ACCOUNTS.

    Section 223 is amended by adding at the end the following new 
subsection:
    ``(i) Termination.--
            ``(1) Deduction.--No deduction shall be allowed under 
        subsection (a) with respect to amounts paid to health savings 
        accounts after the date of the enactment of this subsection.
            ``(2) Tax treatment accounts.--Subsection (e) shall not 
        apply with respect to income derived in taxable years beginning 
        more than 2 years after the date of the enactment of this 
        subsection.''.

SEC. 404. PHASE-OUT OF ARCHER MSAS.

    Section 220 is amended by adding at the end the following new 
subsection:
    ``(i) Termination.--
            ``(1) Deduction.--No deduction shall be allowed under 
        subsection (a) with respect to amounts paid to an Archer MSA 
        after the date of the enactment of this subsection.
            ``(2) Tax treatment of accounts.--Subsection (e) shall not 
        apply with respect to income derived in taxable years beginning 
        more than 2 years after the date of the enactment of this 
        subsection.''.

               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.

    (a) Modification to Election To Include Partnership Interest in 
Gross Income in Year of Transfer.--Subsection (c) of section 83 is 
amended by redesignating paragraph (4) as paragraph (5) and by 
inserting after paragraph (3) the following new paragraph:
            ``(4) Partnership interests.--Except as provided by the 
        Secretary, in the case of any transfer of an interest in a 
        partnership in connection with the provision of services to (or 
        for the benefit of) such partnership--
                    ``(A) the fair market value of such interest shall 
                be treated for purposes of this section as being equal 
                to the amount of the distribution which the partner 
                would receive if the partnership sold (at the time of 
                the transfer) all of its assets at fair market value 
                and distributed the proceeds of such sale (reduced by 
                the liabilities of the partnership) to its partners in 
                liquidation of the partnership, and
                    ``(B) the person receiving such interest shall be 
                treated as having made the election under subsection 
                (b)(1) unless such person makes an election under this 
                paragraph to have such subsection not apply.''.
    (b) Conforming Amendment.--Paragraph (2) of section 83(b) is 
amended by inserting ``or subsection (c)(4)(B)'' after ``paragraph 
(1)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to interests in partnerships transferred after the date of the 
enactment of this Act.

SEC. 502. INCOME OF PARTNERS FOR PERFORMING INVESTMENT MANAGEMENT 
              SERVICES TREATED AS ORDINARY INCOME RECEIVED FOR 
              PERFORMANCE OF SERVICES.

    (a) In General.--Part I of subchapter K of chapter 1 is amended by 
adding at the end the following new section:

``SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING INVESTMENT MANAGEMENT 
              SERVICES TO PARTNERSHIP.

    ``(a) Treatment of Distributive Share of Partnership Items.--For 
purposes of this title, in the case of an investment services 
partnership interest--
            ``(1) In general.--Notwithstanding section 702(b)--
                    ``(A) any net income with respect to such interest 
                for any partnership taxable year shall be treated as 
                ordinary income, and
                    ``(B) any net loss with respect to such interest 
                for such year, to the extent not disallowed under 
                paragraph (2) for such year, shall be treated as an 
                ordinary loss.
        All items of income, gain, deduction, and loss which are taken 
        into account in computing net income or net loss shall be 
        treated as ordinary income or ordinary loss (as the case may 
        be).
            ``(2) Treatment of losses.--
                    ``(A) Limitation.--Any net loss with respect to 
                such interest shall be allowed for any partnership 
                taxable year only to the extent that such loss does not 
                exceed the excess (if any) of--
                            ``(i) the aggregate net income with respect 
                        to such interest for all prior partnership 
                        taxable years, over
                            ``(ii) the aggregate net loss with respect 
                        to such interest not disallowed under this 
                        subparagraph for all prior partnership taxable 
                        years.
                    ``(B) Carryforward.--Any net loss for any 
                partnership taxable year which is not allowed by reason 
                of subparagraph (A) shall be treated as an item of loss 
                with respect to such partnership interest for the 
                succeeding partnership taxable year.
                    ``(C) Basis adjustment.--No adjustment to the basis 
                of a partnership interest shall be made on account of 
                any net loss which is not allowed by reason of 
                subparagraph (A).
                    ``(D) Prior partnership years.--Any reference in 
                this paragraph to prior partnership taxable years shall 
                only include prior partnership taxable years to which 
                this section applies.
            ``(3) Net income and loss.--For purposes of this section--
                    ``(A) Net income.--The term `net income' means, 
                with respect to any investment services partnership 
                interest for any partnership taxable year, the excess 
                (if any) of--
                            ``(i) all items of income and gain taken 
                        into account by the holder of such interest 
                        under section 702 with respect to such interest 
                        for such year, over
                            ``(ii) all items of deduction and loss so 
                        taken into account.
                    ``(B) Net loss.--The term `net loss' means, with 
                respect to such interest for such year, the excess (if 
                any) of the amount described in subparagraph (A)(ii) 
                over the amount described in subparagraph (A)(i).
    ``(b) Dispositions of Partnership Interests.--
            ``(1) Gain.--Any gain on the disposition of an investment 
        services partnership interest shall be treated as ordinary 
        income and shall be recognized notwithstanding any other 
        provision of this subtitle.
            ``(2) Loss.--Any loss on the disposition of an investment 
        services partnership interest shall be treated as an ordinary 
        loss to the extent of the excess (if any) of--
                    ``(A) the aggregate net income with respect to such 
                interest for all partnership taxable years, over
                    ``(B) the aggregate net loss with respect to such 
                interest allowed under subsection (a)(2) for all 
                partnership taxable years.
            ``(3) Disposition of portion of interest.--In the case of 
        any disposition of an investment services partnership interest, 
        the amount of net loss which otherwise would have (but for 
        subsection (a)(2)(C)) applied to reduce the basis of such 
        interest shall be disregarded for purposes of this section for 
        all succeeding partnership taxable years.
            ``(4) Distributions of partnership property.--In the case 
        of any distribution of property by a partnership with respect 
        to any investment services partnership interest held by a 
        partner--
                    ``(A) the excess (if any) of--
                            ``(i) the fair market value of such 
                        property at the time of such distribution, over
                            ``(ii) the adjusted basis of such property 
                        in the hands of the partnership,
                shall be taken into account as an increase in such 
                partner's distributive share of the taxable income of 
                the partnership (except to the extent such excess is 
                otherwise taken into account in determining the taxable 
                income of the partnership),
                    ``(B) such property shall be treated for purposes 
                of subpart B of part II as money distributed to such 
                partner in an amount equal to such fair market value, 
                and
                    ``(C) the basis of such property in the hands of 
                such partner shall be such fair market value.
        Subsection (b) of section 734 shall be applied without regard 
        to the preceding sentence.
            ``(5) Application of section 751.--In applying section 
        751(a), an investment services partnership interest shall be 
        treated as an inventory item.
    ``(c) Investment Services Partnership Interest.--For purposes of 
this section--
            ``(1) In general.--The term `investment services 
        partnership interest' means any interest in a partnership which 
        is held (directly or indirectly) by any person if it was 
        reasonably expected (at the time that such person acquired such 
        interest) that such person (or any person related to such 
        person) would provide (directly or indirectly) a substantial 
        quantity of any of the following services with respect to 
        assets held (directly or indirectly) by the partnership:
                    ``(A) Advising as to the advisability of investing 
                in, purchasing, or selling any specified asset.
                    ``(B) Managing, acquiring, or disposing of any 
                specified asset.
                    ``(C) Arranging financing with respect to acquiring 
                specified assets.
                    ``(D) Any activity in support of any service 
                described in subparagraphs (A) through (C).
        For purposes of this paragraph, the term `specified asset' 
        means securities (as defined in section 475(c)(2) without 
        regard to the last sentence thereof), real estate held for 
        rental or investment, interests in partnerships, commodities 
        (as defined in section 475(e)(2)), or options or derivative 
        contracts with respect to any of the foregoing.
            ``(2) Exception for certain capital interests.--
                    ``(A) In general.--In the case of any portion of an 
                investment services partnership interest which is a 
                qualified capital interest, all items of income, gain, 
                loss, and deduction which are allocated to such 
                qualified capital interest shall not be taken into 
                account under subsection (a) if--
                            ``(i) allocations of items are made by the 
                        partnership to such qualified capital interest 
                        in the same manner as such allocations are made 
                        to other qualified capital interests held by 
                        partners who do not provide any services 
                        described in paragraph (1) and who are not 
                        related to the partner holding the qualified 
                        capital interest, and
                            ``(ii) the allocations made to such other 
                        interests are significant compared to the 
                        allocations made to such qualified capital 
                        interest.
                    ``(B) Special rule for no or insignificant 
                allocations to nonservice providers.--To the extent 
                provided by the Secretary in regulations or other 
                guidance, in any case in which the requirements of 
                subparagraph (A)(ii) are not satisfied, items of 
                income, gain, loss, and deduction shall not be taken 
                into account under subsection (a) to the extent that 
                such items are properly allocable under such 
                regulations or other guidance to qualified capital 
                interests.
                    ``(C) Special rule for dispositions.--In the case 
                of any investment services partnership interest any 
                portion of which is a qualified capital interest, 
                subsection (b) shall not apply to so much of any gain 
                or loss as bears the same proportion to the entire 
                amount of such gain or loss as--
                            ``(i) the distributive share of gain or 
                        loss that would have been allocable to the 
                        qualified capital interest under subparagraph 
                        (A) if the partnership sold all of its assets 
                        immediately before the disposition, bears to
                            ``(ii) the distributive share of gain or 
                        loss that would have been so allocable to the 
                        investment services partnership interest of 
                        which such qualified capital interest is a 
                        part.
                    ``(D) Qualified capital interest.--For purposes of 
                this paragraph, the term `qualified capital interest' 
                means so much of a partner's interest in the capital of 
                the partnership as is attributable to--
                            ``(i) the fair market value of any money or 
                        other property contributed to the partnership 
                        in exchange for such interest (determined 
                        without regard to section 752(a)),
                            ``(ii) any amounts which have been included 
                        in gross income under section 83 with respect 
                        to the transfer of such interest, and
                            ``(iii) the excess (if any) of--
                                    ``(I) any items of income and gain 
                                taken into account under section 702 
                                with respect to such interest for 
                                taxable years to which this section 
                                applies, over
                                    ``(II) any items of deduction and 
                                loss so taken into account.
                The qualified capital interest shall be reduced by 
                distributions from the partnership with respect to such 
                interest for taxable years to which this section 
                applies and by the excess (if any) of the amount 
                described in clause (iii)(II) over the amount described 
                in clause (iii)(I).
                    ``(E) Treatment of certain loans.--
                            ``(i) Proceeds of partnership loans not 
                        treated as qualified capital interest of 
                        service providing partners.--For purposes of 
                        this paragraph, an investment services 
                        partnership interest shall not be treated as a 
                        qualified capital interest to the extent that 
                        such interest is acquired in connection with 
                        the proceeds of any loan or other advance made 
                        or guaranteed, directly or indirectly, by any 
                        other partner or the partnership (or any person 
                        related to any such other partner or the 
                        partnership).
                            ``(ii) Reduction in allocations to 
                        qualified capital interests for loans from 
                        nonservice providing partners to the 
                        partnership.--For purposes of this paragraph, 
                        any loan or other advance to the partnership 
                        made or guaranteed, directly or indirectly, by 
                        a partner not providing services described in 
                        paragraph (1) to the partnership (or any person 
                        related to such partner) shall be taken into 
                        account in determining the qualified capital 
                        interests of the partners in the partnership.
            ``(3) Related persons.--A person shall be treated as 
        related to another person if the relationship between such 
        persons would result in a disallowance of losses under section 
        267 or 707(b).
    ``(d) Other Income and Gain in Connection With Investment 
Management Services.--
            ``(1) In general.--If--
                    ``(A) a person performs (directly or indirectly) 
                investment management services for any entity,
                    ``(B) such person holds (directly or indirectly) a 
                disqualified interest with respect to such entity, and
                    ``(C) the value of such interest (or payments 
                thereunder) is substantially related to the amount of 
                income or gain (whether or not realized) from the 
                assets with respect to which the investment management 
                services are performed,
        any income or gain with respect to such interest shall be 
        treated as ordinary income. Rules similar to the rules of 
        subsection (c)(2) shall apply for purposes of this subsection.
            ``(2) Definitions.--For purposes of this subsection--
                    ``(A) Disqualified interest.--
                            ``(i) In general.--The term `disqualified 
                        interest' means, with respect to any entity--
                                    ``(I) any interest in such entity 
                                other than indebtedness,
                                    ``(II) convertible or contingent 
                                debt of such entity,
                                    ``(III) any option or other right 
                                to acquire property described in 
                                subclause (I) or (II), and
                                    ``(IV) any derivative instrument 
                                entered into (directly or indirectly) 
                                with such entity or any investor in 
                                such entity.
                            ``(ii) Exceptions.--Such term shall not 
                        include--
                                    ``(I) a partnership interest,
                                    ``(II) except as provided by the 
                                Secretary, any interest in a taxable 
                                corporation, and
                                    ``(III) except as provided by the 
                                Secretary, stock in an S corporation.
                    ``(B) Taxable corporation.--The term `taxable 
                corporation' means--
                            ``(i) a domestic C corporation, or
                            ``(ii) a foreign corporation substantially 
                        all of the income of which is--
                                    ``(I) effectively connected with 
                                the conduct of a trade or business in 
                                the United States, or
                                    ``(II) subject to a comprehensive 
                                foreign income tax (as defined in 
                                section 457A(d)(2)).
                    ``(C) Investment management services.--The term 
                `investment management services' means a substantial 
                quantity of any of the services described in subsection 
                (c)(1).
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
or other guidance as is necessary or appropriate to carry out the 
purposes of this section, including regulations or other guidance to--
            ``(1) provide modifications to the application of this 
        section (including treating related persons as not related to 
        one another) to the extent such modification is consistent with 
        the purposes of this section,
            ``(2) prevent the avoidance of the purposes of this 
        section, and
            ``(3) coordinate this section with the other provisions of 
        this title.
    ``(f) Cross Reference.--For 40 percent penalty on certain 
underpayments due to the avoidance of this section, see section 
6662.''.
    (b) Income From Investment Services Partnership Interests Not 
Treated as Qualifying Income of Publicly Traded Partnerships.--
Subsection (d) of section 7704 is amended by adding at the end the 
following new paragraph:
            ``(6) Income from investment services partnership interests 
        not qualified.--
                    ``(A) In general.--Items of income and gain shall 
                not be treated as qualifying income if such items are 
                treated as ordinary income by reason of the application 
                of section 710 (relating to special rules for partners 
                providing investment management services to 
                partnership).
                    ``(B) Special rules for certain partnerships.--
                            ``(i) Certain partnerships owned by real 
                        estate investment trusts.--Subparagraph (A) 
                        shall not apply in the case of a partnership 
                        which meets each of the following requirements:
                                    ``(I) Such partnership is treated 
                                as publicly traded under this section 
                                solely by reason of interests in such 
                                partnership being convertible into 
                                interests in a real estate investment 
                                trust which is publicly traded.
                                    ``(II) Fifty percent or more of the 
                                capital and profits interests of such 
                                partnership are owned, directly or 
                                indirectly, at all times during the 
                                taxable year by such real estate 
                                investment trust (determined with the 
                                application of section 267(c)).
                                    ``(III) Such partnership meets the 
                                requirements of paragraphs (2), (3), 
                                and (4) of section 856(c).
                            ``(ii) Certain partnerships owning other 
                        publicly traded partnerships.--Subparagraph (A) 
                        shall not apply in the case of a partnership 
                        which meets each of the following requirements:
                                    ``(I) Substantially all of the 
                                assets of such partnership consist of 
                                interests in one or more publicly 
                                traded partnerships (determined without 
                                regard to subsection (b)(2)).
                                    ``(II) Substantially all of the 
                                income of such partnership is ordinary 
                                income or section 1231 gain (as defined 
                                in section 1231(a)(3)).
                    ``(C) Transitional rule.--In the case of a 
                partnership which is a publicly traded partnership on 
                the date of the enactment of this paragraph, 
                subparagraph (A) shall not apply to any taxable year of 
                the partnership beginning before the date which is 10 
                years after the date of the enactment of this 
                paragraph.''.
    (c) Imposition of Penalty on Underpayments.--
            (1) In general.--Subsection (b) of section 6662, as amended 
        by section 512, is amended by inserting after paragraph (6) the 
        following new paragraph:
            ``(7) The application of subsection (d) of section 710 or 
        the regulations prescribed under section 710(e) to prevent the 
        avoidance of the purposes of section 710.''.
            (2) Amount of penalty.--
                    (A) In general.--Section 6662, as amended by 
                section 512, is amended by adding at the end the 
                following new subsection:
    ``(j) Increase in Penalty in Case of Property Transferred for 
Investment Management Services.--In the case of any portion of an 
underpayment to which this section applies by reason of subsection 
(b)(7), subsection (a) shall be applied with respect to such portion by 
substituting `40 percent' for `20 percent'.''.
                    (B) Conforming amendments.--Subparagraph (B) of 
                section 6662A(e)(2) is amended--
                            (i) by striking ``section 6662(h)'' and 
                        inserting ``subsection (h) or (i) of section 
                        6662'', and
                            (ii) by striking ``gross valuation 
                        misstatement penalty'' in the heading and 
                        inserting ``certain increased underpayment 
                        penalties''.
            (3) Special rules for application of reasonable cause 
        exception.--Subsection (c) of section 6664 is amended--
                    (A) by redesignating paragraphs (2) and (3) as 
                paragraphs (3) and (4), respectively,
                    (B) by striking ``paragraph (2)'' in paragraph (4), 
                as so redesignated, and inserting ``paragraph (3)'', 
                and
                    (C) by inserting after paragraph (1) the following 
                new paragraph:
            ``(2) Special rule for underpayments attributable to 
        investment management services.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any portion of an underpayment to which this section 
                applies by reason of subsection (b)(7) unless--
                            ``(i) the relevant facts affecting the tax 
                        treatment of the item are adequately disclosed,
                            ``(ii) there is or was substantial 
                        authority for such treatment, and
                            ``(iii) the taxpayer reasonably believed 
                        that such treatment was more likely than not 
                        the proper treatment.
                    ``(B) Rules relating to reasonable belief.--Rules 
                similar to the rules of subsection (d)(3) shall apply 
                for purposes of subparagraph (A)(iii).''.
    (d) Income and Loss From Investment Services Partnership Interests 
Taken Into Account in Determining Net Earnings From Self-Employment.--
            (1) Internal revenue code.--Section 1402(a) is amended by 
        striking ``and'' at the end of paragraph (16), by striking the 
        period at the end of paragraph (17) and inserting ``; and'', 
        and by inserting after paragraph (17) the following new 
        paragraph:
            ``(18) Notwithstanding the preceding provisions of this 
        subsection, in the case of any individual engaged in the trade 
        or business of providing services described in section 
        710(c)(1) with respect to any entity, any amount treated as 
        ordinary income or ordinary loss of such individual under 
        section 710 with respect to such entity shall be taken into 
        account in determining the net earnings from self-employment of 
        such individual.''.
            (2) Social security act.--Section 211(a) of the Social 
        Security Act is amended by inserting after paragraph (16) the 
        following new paragraph:
            ``(17) Notwithstanding the preceding provisions of this 
        subsection, in the case of any individual engaged in the trade 
        or business of providing services described in section 
        710(c)(1) of the Internal Revenue Code of 1986 with respect to 
        any entity, any amount treated as ordinary income or ordinary 
        loss of such individual under section 710 of such Code with 
        respect to such entity shall be taken into account in 
        determining the net earnings from self-employment of such 
        individual.''.
    (e) Conforming Amendments.--
            (1) Subsection (d) of section 731 is amended by inserting 
        ``section 710(b)(4) (relating to distributions of partnership 
        property),'' after ``to the extent otherwise provided by''.
            (2) Section 741 is amended by inserting ``or section 710 
        (relating to special rules for partners providing investment 
        management services to partnership)'' before the period at the 
        end.
            (3) The table of sections for part I of subchapter K of 
        chapter 1 is amended by adding at the end the following new 
        item:

``Sec. 710. Special rules for partners providing investment management 
                            services to partnership.''.
    (f) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending after December 31, 2009.
            (2) Partnership taxable years which include effective 
        date.--In applying section 710(a) of the Internal Revenue Code 
        of 1986 (as added by this section) in the case of any 
        partnership taxable year which includes December 31, 2009, the 
        amount of the net income referred to in such section shall be 
        treated as being the lesser of the net income for the entire 
        partnership taxable year or the net income determined by only 
        taking into account items attributable to the portion of the 
        partnership taxable year which is after such date.
            (3) Dispositions of partnership interests.--Section 710(b) 
        of the Internal Revenue Code of 1986 (as added by this section) 
        shall apply to dispositions and distributions after December 
        31, 2009.
            (4) Other income and gain in connection with investment 
        management services.--Section 710(d) of such Code (as added by 
        this section) shall take effect on January 1, 2010.
            (5) Publicly traded partnerships.--The amendment made by 
        subsection (b) shall apply to taxable years beginning after 
        December 31, 2009.

         Subtitle B--Tax Expenditures Relating to Agribusiness

SEC. 511. ELIMINATION OF EXPENSING FOR FERTILIZER, ETC., OTHERWISE 
              CHARGEABLE TO A CAPITAL ACCOUNT.

    Section 180 is amended by adding at the end the following new 
subsection:
    ``(d) Termination.--This section shall not apply to taxable years 
beginning after December 31, 2011.''.

SEC. 512. ELIMINATION OF EXPENSING FOR MULTI-PERIOD LIVESTOCK AND CROP 
              PRODUCTION COSTS.

    Subsection (d) of section 263A is amended by adding at the end the 
following new paragraph:
            ``(4) Termination.--This subsection shall not apply to 
        costs incurred after December 31, 2011, in taxable year ending 
        after such date.''.

SEC. 513. REPEAL OF CAPITAL GAIN TREATMENT WITH RESPECT TO THE SALE OF 
              TIMBER.

    (a) In General.--Paragraph (2) of section 1231(b) as amended by 
this Act, is amended--
            (1) by striking ``timber and'', and
            (2) by striking ``Timber or''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 514. ELIMINATION OF EXPENSING FOR TIMBER AND ORNAMENTAL TREES.

    (a) In General.--Paragraph (5) of section 263A(c) is amended by 
striking ``This section'' and inserting ``In the case of costs incurred 
before January 1, 2012, in taxable year ending after such date, this 
section''.
    (b) Conforming Amendment.--Subparagraph (B) of section 448(d)(1) is 
amended by inserting before the period at the end the following: ``(as 
in effect on the day before the date of the enactment of the Tax Equity 
and Middle Class Fairness Act of 2011)''.

SEC. 515. ELIMINATION OF AMORTIZATION OF REFORESTATION EXPENDITURES.

    Section 194 is amended by adding at the end the following new 
subsection:
    ``(e) Termination.--This section shall not apply with respect to 
expenditures paid or incurred after December 31, 2011.''.

SEC. 516. REPEAL OF TAX EXPENDITURE FOR HORSE BREEDERS.

    (a) In General.--Clause (i) of section 168(e)(3) is amended to read 
as follows:
                            ``(i) any race horse which is more than 2 
                        years old at the time it is placed in 
                        service,''.
    (b) Effective Date.--The amendment made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act.

              Subtitle C--Other Business Tax Expenditures

SEC. 521. TERMINATION OF $25,000 EXEMPTION FROM PASSIVE LOSS RULES FOR 
              RENTAL REAL ESTATE ACTIVITIES.

    (a) In General.--Section 469 is amended by striking subsection (i).
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 522. ELIMINATION OF DEDUCTION FOR CERTAIN MEAL AND ENTERTAINMENT 
              EXPENSES.

    (a) In General.--Paragraph (1) of section 274(n) is amended--
            (1) by striking ``The amount allowable as a deduction'' and 
        inserting ``No deduction shall be allowed'', and
            (2) by striking ``activity,'' and all that follows through 
        the period at the end and inserting ``activity.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 523. STATE AND LOCAL BONDS CONVERTED TO DIRECT SUBSIDY BONDS.

    (a) Termination of Tax Exempt Status of State and Local Bonds.--
Section 103 is amended by adding at the end the following new 
subsection:
    ``(d) Termination.--This section shall not apply to any obligations 
issued after December 31, 2011.''.
    (b) State and Local Bonds Treated as Build America Bonds.--
            (1) In general.--Paragraph (1) of section 54AA(d) is 
        amended--
                    (A) by striking subparagraph (B) and by inserting 
                ``and'' at the end of subparagraph (A), and
                    (B) in subparagraph (A) by inserting ``(determined 
                without regard to subsection (d) thereof)'' after 
                ``section 103''.
            (2) Direct subsidy.--
                    (A) Subsection (g) of section 54AA is amended to 
                read as follows:
    ``(g) Direct Subsidy for Build America Bonds Issued After 2011.--
            ``(1) In general.--In the case of build America bonds 
        issued after December 31, 2011, no credit shall be allowed 
        under this section with respect to such bond.
            ``(2) Cross reference.--For the credit to the issuer of 
        build America bonds, see section 6431.''.
                    (B) Section 6431 is amended--
                            (i) by striking ``In the case of a 
                        qualified bond issued before January 1, 2011,'' 
                        in subsection (a) and inserting ``In the case 
                        of any build America bond (as defined in 
                        section 54AA(d)) issued after December 31, 
                        2011,'',
                            (ii) by striking subsections (e) and (f), 
                        and
                            (iii) by striking ``qualified bonds'' in 
                        the heading thereof and inserting ``build 
                        america bonds''.
            (3) Private activity bonds included.--Paragraph (1) of 
        section 54AA(d) of such Code is amended by striking ``(other 
        than a private activity bond)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2011.

SEC. 524. 28-PERCENT RATE FOR EXPANDED DIRECT SUBSIDY BUILD AMERICA 
              BONDS.

    Subsection (b) of section 6431 is amended by inserting ``(28 
percent in the case of obligations issued after December 31, 2011)'' 
after ``35 percent''.

                TITLE VI--INTERNATIONAL TAX EXPENDITURES

SEC. 601. ALLOCATION OF EXPENSES AND TAXES ON BASIS OF REPATRIATION OF 
              FOREIGN INCOME.

    (a) In General.--Part III of subchapter N of chapter 1 is amended 
by inserting after subpart G the following new subpart:

 ``Subpart H--Special Rules for Allocation of Foreign-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.

``SEC. 975. INTEREST DEDUCTIONS ALLOCATED TO DEFERRED FOREIGN INCOME 
              MAY NOT OFFSET UNITED STATES SOURCE INCOME.

    ``(a) Current Year Deductions.--For purposes of this chapter, 
foreign-related interest deductions for any taxable year--
            ``(1) shall be taken into account for such taxable year 
        only to the extent that such deductions are allocable to 
        currently-taxed foreign income, and
            ``(2) to the extent not so allowed, shall be taken into 
        account in subsequent taxable years as provided in subsection 
        (b).
Foreign-related interest deductions shall be allocated to currently-
taxed foreign income in the same proportion which currently-taxed 
foreign income bears to the sum of currently-taxed foreign income and 
deferred foreign income.
    ``(b) Interest Deductions Related to Repatriated Deferred Foreign 
Income.--
            ``(1) In general.--If there is repatriated foreign income 
        for a taxable year, the portion of the previously deferred 
        interest deductions allocated to the repatriated foreign income 
        shall be taken into account for the taxable year as a deduction 
        for interest expense allocated to income from sources outside 
        the United States. Any such amount shall not be included in 
        foreign-related interest deductions for purposes of applying 
        subsection (a) to such taxable year.
            ``(2) Portion of previously deferred interest deductions.--
        For purposes of paragraph (1), the portion of the previously 
        deferred interest deductions allocated to repatriated foreign 
        income is--
                    ``(A) the amount which bears the same proportion to 
                such deductions, as
                    ``(B) the repatriated income bears to the 
                previously deferred foreign income.
    ``(c) Definitions and Special Rule.--For purposes of this section--
            ``(1) Foreign-related interest deductions.--The term 
        `foreign-related interest deductions' means the total amount of 
        deductions for interest expenses which would be allocated or 
        apportioned to gross income from sources without the United 
        States for the taxable year if both the currently-taxed foreign 
        income and deferred foreign income were taken into account.
            ``(2) Currently-taxed foreign income.--The term `currently-
        taxed foreign income' means the amount of gross income from 
        sources without the United States for the taxable year 
        (determined without regard to repatriated foreign income for 
        such year).
            ``(3) Deferred foreign income.--The term `deferred foreign 
        income' means the excess of--
                    ``(A) the amount that would be includible in gross 
                income under subpart F of this part for the taxable 
                year if--
                            ``(i) all controlled foreign corporations 
                        were treated as one controlled foreign 
                        corporation, and
                            ``(ii) all earnings and profits of all 
                        controlled foreign corporations were subpart F 
                        income (as defined in section 952), over
                    ``(B) the sum of--
                            ``(i) all dividends received during the 
                        taxable year from controlled foreign 
                        corporations, plus
                            ``(ii) amounts includible in gross income 
                        under section 951(a).
            ``(4) Previously deferred foreign income.--The term 
        `previously deferred foreign income' means the aggregate amount 
        of deferred foreign income for all prior taxable years to which 
        this part applies, determined as of the beginning of the 
        taxable year, reduced by the repatriated foreign income for all 
        such prior taxable years.
            ``(5) Repatriated foreign income.--The term `repatriated 
        foreign income' means the amount included in gross income on 
        account of distributions out of previously deferred foreign 
        income.
            ``(6) Previously deferred interest deductions.--The term 
        `previously deferred interest deductions' means the aggregate 
        amount of foreign-related interest deductions not taken into 
        account under subsection (a) for all prior taxable years 
        (determined as of the beginning of the taxable year), reduced 
        by any amounts taken into account under subsection (b) for such 
        prior taxable years.
            ``(7) Treatment of certain foreign taxes.--
                    ``(A) Paid by controlled foreign corporation.--
                Section 78 shall not apply for purposes of determining 
                currently-taxed foreign income and deferred foreign 
                income.
                    ``(B) Paid by taxpayer.--For purposes of 
                determining currently-taxed foreign income, gross 
                income from sources without the United States shall be 
                reduced by the aggregate amount of taxes described in 
                the applicable paragraph of section 901(b) which are 
                paid by the taxpayer (without regard to sections 902 
                and 960) during the taxable year.
            ``(8) Coordination with section 976.--In determining 
        currently-taxed foreign income and deferred foreign income, the 
        amount of deemed foreign tax credits shall be determined with 
        regard to section 976.

``SEC. 976. AMOUNT OF FOREIGN TAXES COMPUTED ON OVERALL BASIS.

    ``(a) Current Year Allowance.--For purposes of this chapter, the 
amount taken into account as foreign income taxes for any taxable year 
shall be an amount which bears the same ratio to the total foreign 
income taxes for that taxable year as--
            ``(1) the currently-taxed foreign income for such taxable 
        year, bears to
            ``(2) the sum of the currently-taxed foreign income and 
        deferred foreign income for such year.
The portion of the total foreign income taxes for any taxable year not 
taken into account under the preceding sentence for a taxable year 
shall only be taken into account as provided in subsection (b) (and 
shall not be taken into account for purposes of applying sections 902 
and 960).
    ``(b) Allowance Related to Repatriated Deferred Foreign Income.--
            ``(1) In general.--If there is repatriated foreign income 
        for any taxable year, the portion of the previously deferred 
        foreign income taxes paid or accrued during such taxable year 
        shall be taken into account for the taxable year as foreign 
        taxes paid or accrued. Any such taxes so taken into account 
        shall not be included in foreign income taxes for purposes of 
        applying subsection (a) to such taxable year.
            ``(2) Portion of previously deferred foreign income 
        taxes.--For purposes of paragraph (1), the portion of the 
        previously deferred foreign income taxes allocated to 
        repatriated deferred foreign income is--
                    ``(A) the amount which bears the same proportion to 
                such taxes, as
                    ``(B) the repatriated deferred income bears to the 
                previously deferred foreign income.
    ``(c) Definitions and Special Rule.--For purposes of this section--
            ``(1) Previously deferred foreign income taxes.--The term 
        `previously deferred foreign income taxes' means the aggregate 
        amount of total foreign income taxes not taken into account 
        under subsection (a) for all prior taxable years (determined as 
        of the beginning of the taxable year), reduced by any amounts 
        taken into account under subsection (b) for such prior taxable 
        years.
            ``(2) Total foreign income taxes.--The term `total foreign 
        income taxes' means the sum of foreign income taxes paid or 
        accrued during the taxable year (determined without regard to 
        section 904(c)) plus the increase in foreign income taxes that 
        would be paid or accrued during the taxable year under sections 
        902 and 960 if--
                    ``(A) all controlled foreign corporations were 
                treated as one controlled foreign corporation, and
                    ``(B) all earnings and profits of all controlled 
                foreign corporations were subpart F income (as defined 
                in section 952).
            ``(3) Foreign income taxes.--The term `foreign income 
        taxes' means any income, war profits, or excess profits taxes 
        paid by the taxpayer to any foreign country or possession of 
        the United States.
            ``(4) Currently-taxed foreign income and deferred foreign 
        income.--The terms `currently-taxed foreign income' and 
        `deferred foreign income' have the meanings given such terms by 
        section 975(c)).

``SEC. 977. APPLICATION OF SUBPART.

    ``This subpart--
            ``(1) shall be applied before subpart A, and
            ``(2) shall be applied separately with respect to the 
        categories of income specified in section 904(d)(1).''.
    (b) Clerical Amendment.--The table of subparts for part III of 
subpart N of chapter 1 is amended by inserting after the item relating 
to subpart G the following new item:

 ``subpart h. special rules for allocation of foreign-related interest 
                 deductions and foreign tax credits.''.

    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2011.

SEC. 602. EXCESS INCOME FROM TRANSFERS OF INTANGIBLES TO LOW-TAXED 
              AFFILIATES TREATED AS SUBPART F INCOME.

    (a) In General.--Subsection (a) of section 954 is amended by 
inserting after paragraph (3) the following new paragraph:
            ``(4) the foreign base company excess intangible income for 
        the taxable year (determined under subsection (f) and reduced 
        as provided in subsection (b)(5)), and''.
    (b) Foreign Base Company Excess Intangible Income.--Section 954 is 
amended by inserting after subsection (e) the following new subsection:
    ``(f) Foreign Base Company Excess Intangible Income.--For purposes 
of subsection (a)(4) and this subsection--
            ``(1) Foreign base company excess intangible income 
        defined.--
                    ``(A) In general.--The term `foreign base company 
                excess intangible income' means, with respect to any 
                covered intangible, the excess of--
                            ``(i) the sum of--
                                    ``(I) gross income from the sale, 
                                lease, license, or other disposition of 
                                property in which such covered 
                                intangible is used directly or 
                                indirectly, and
                                    ``(II) gross income from the 
                                provision of services related to such 
                                covered intangible or in connection 
                                with property in which such covered 
                                intangible is used directly or 
                                indirectly, over
                            ``(ii) 115 percent of the costs properly 
                        allocated and apportioned to the gross income 
                        taken into account under clause (i) other than 
                        expenses for interest and taxes and any 
                        expenses which are not directly allocable to 
                        such gross income.
                    ``(B) Same country income not taken into account.--
                If--
                            ``(i) the sale, lease, license, or other 
                        disposition of the property referred to in 
                        subparagraph (A)(i)(I) is for use, consumption, 
                        or disposition in the country under the laws of 
                        which the controlled foreign corporation is 
                        created or organized, or
                            ``(ii) the services referred to in 
                        subparagraph (A)(i)(II) are performed in such 
                        country,
                the gross income from such sale, lease, license, or 
                other disposition, or provision of services, shall not 
                be taken into account under subparagraph (A)(i).
            ``(2) Exception based on effective foreign income tax 
        rate.--
                    ``(A) In general.--Foreign base company excess 
                intangible income shall not include the applicable 
                percentage of any item of income received by a 
                controlled foreign corporation if the taxpayer 
                establishes to the satisfaction of the Secretary that 
                such income was subject to an effective rate of income 
                tax imposed by a foreign country in excess of 10 
                percent.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the term `applicable percentage' 
                means the ratio (expressed as a percentage), not 
                greater than 100 percent, of--
                            ``(i) the number of percentage points by 
                        which the effective rate of income tax referred 
                        to in subparagraph (A) exceeds 10 percentage 
                        points, over
                            ``(ii) 25 percentage points.
                    ``(C) Treatment of losses in determining effective 
                rate of foreign income tax.--For purposes of 
                determining the effective rate of income tax imposed by 
                any foreign country--
                            ``(i) such effective rate shall be 
                        determined without regard to any losses carried 
                        to the relevant taxable year, and
                            ``(ii) to the extent the income with 
                        respect to such intangible reduces losses in 
                        the relevant taxable year, such effective rate 
                        shall be treated as being the effective rate 
                        which would have been imposed on such income 
                        without regard to such losses.
            ``(3) Covered intangible.--The term `covered intangible' 
        means, with respect to any controlled foreign corporation, any 
        intangible property (as defined in section 936(h)(3)(B))--
                    ``(A) which is sold, leased, licensed, or otherwise 
                transferred (directly or indirectly) to such controlled 
                foreign corporation from a related person, or
                    ``(B) with respect to which such controlled foreign 
                corporation and one or more related persons has 
                (directly or indirectly) entered into any shared risk 
                or development agreement (including any cost sharing 
                agreement).
            ``(4) Related person.--The term `related person' has the 
        meaning given such term in subsection (d)(3).''.
    (c) Separate Basket for Foreign Tax Credit.--Subsection (d) of 
section 904 is amended by redesignating paragraph (7) as paragraph (8) 
and by inserting after paragraph (6) the following new paragraph:
            ``(6) Separate application to foreign base company excess 
        intangible income.--
                    ``(A) In general.--Subsections (a), (b), and (c) of 
                this section and sections 902, 907, and 960 shall be 
                applied separately with respect to each item of income 
                which is taken into account under section 954(a)(4) as 
                foreign base company excess intangible income.
                    ``(B) Regulations.--The Secretary may issue such 
                regulations or other guidance as is necessary or 
                appropriate to carry out the purposes of this 
                subsection, including regulations or other guidance 
                which provides that related items of income may be 
                aggregated for purposes of this paragraph.''.
    (d) Conforming Amendments.--
            (1) Paragraph (4) of section 954(b) is amended by inserting 
        ``foreign base company excess intangible income described in 
        subsection (a)(4) or'' before ``foreign base company oil-
        related income'' in the last sentence thereof.
            (2) Subsection (b) of section 954 is amended by adding at 
        the end the following new paragraph:
            ``(7) Foreign base company excess intangible income not 
        treated as another kind of base company income.--Income of a 
        corporation which is foreign base company excess intangible 
        income shall not be considered foreign base company income of 
        such corporation under paragraph (2), (3), or (5) of subsection 
        (a).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 603. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY 
              TRANSFERS.

    (a) Clarification of Definition of Intangible Asset.--Clause (vi) 
of section 936(h)(3)(B) is amended by inserting ``(including any 
section 197 intangible described in subparagraph (A), (B), or (C)(i) of 
subsection (d)(1) of such section)'' after ``item''.
    (b) Clarification of Allowable Valuation Methods.--
            (1) Foreign corporations.--Paragraph (2) of section 367(d) 
        is amended by adding at the end the following new subparagraph:
                    ``(D) Regulatory authority.--For purposes of the 
                last sentence of subparagraph (A), the Secretary may 
                require--
                            ``(i) the valuation of transfers of 
                        intangible property on an aggregate basis, or
                            ``(ii) the valuation of such a transfer on 
                        the basis of the realistic alternatives to such 
                        a transfer,
                in any case in which the Secretary determines that such 
                basis is the most reliable means of valuation of such 
                transfers.''.
            (2) Allocation among taxpayers.--Section 482 is amended by 
        adding at the end the following: ``For purposes of the 
        preceding sentence, the Secretary may require the valuation of 
        transfers of intangible property on an aggregate basis or the 
        valuation of such a transfer on the basis of the realistic 
        alternatives to such a transfer, in any case in which the 
        Secretary determines that such basis is the most reliable means 
        of valuation of such transfers.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to transfers in taxable years beginning after December 
        31, 2011.
            (2) No inference.--Nothing in the amendment made by 
        subsection (a) shall be construed to create any inference with 
        respect to the application of section 936(h)(3) of the Internal 
        Revenue Code of 1986, or the authority of the Secretary of the 
        Treasury to provide regulations for such application, on or 
        before the date of the enactment of such amendment.

SEC. 604. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO DUAL 
              CAPACITY TAXPAYERS.

    (a) In General.--Section 901 is amended by redesignating subsection 
(n) as subsection (o) and by inserting after subsection (m) the 
following new subsection:
    ``(n) Special Rules Relating to Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer to a foreign country or possession of the United 
        States for any period with respect to combined foreign oil and 
        gas income (as defined in section 907(b)(1)) shall not be 
        considered a tax to the extent such amount exceeds the amount 
        (determined in accordance with regulations) which would have 
        been required to be paid if the taxpayer were not a dual 
        capacity taxpayer.
            ``(2) Dual capacity taxpayer.--For purposes of this 
        subsection, the term `dual capacity taxpayer' means, with 
        respect to any foreign country or possession of the United 
        States, a person who--
                    ``(A) is subject to a levy of such country or 
                possession, and
                    ``(B) receives (or will receive) directly or 
                indirectly a specific economic benefit (as determined 
                in accordance with regulations) from such country or 
                possession.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes paid or accrued in taxable years beginning after 
        December 31, 2011.
            (2) Contrary treaty obligations upheld.--The amendments 
        made by this section shall not apply to the extent contrary to 
        any treaty obligation of the United States.

                    TITLE VII--TAX EXPENDITURE STUDY

SEC. 701. STUDY OF EXTENDED TAX EXPENDITURES.

    (a) In General.--Not later than 180 days after the date of the 
enactment of this Act, the Comptroller General of the United States, in 
consultation with the Secretary of the Treasury, shall submit to 
Congress a report on each tax expenditure (as defined in section 3(3) 
of the Congressional Budget Impoundment Control Act of 1974 (2 U.S.C. 
622(3)) not terminated or modified by this Act.
    (b) Contents of Report.--Such reports shall contain the following:
            (1) An explanation of the tax expenditure and any relevant 
        economic, social, or other context under which it was first 
        enacted.
            (2) A description of the intended purpose of the tax 
        expenditure.
            (3) An analysis of the overall success of the tax 
        expenditure in achieving such purpose, and evidence supporting 
        such analysis.
            (4) An analysis of the extent to which further extending 
        the tax expenditure, or making it permanent, would contribute 
        to achieving such purpose.
            (5) A description of the direct and indirect beneficiaries 
        of the tax expenditure, including identifying any unintended 
        beneficiaries.
            (6) An analysis of whether the tax expenditure is the most 
        cost-effective method for achieving the purpose for which it 
        was intended, and a description of any more cost-effective 
        methods through which such purpose could be accomplished.
            (7) A description of any unintended effects of the tax 
        expenditure that are useful in understanding the tax 
        expenditure's overall value.
            (8) An analysis of how the tax expenditure could be 
        modified to better achieve its original purpose or if such tax 
        expenditure should be eliminated.
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