An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

To provide for reconciliation pursuant to title II of the concurrent resolution on the budget for fiscal year 2018. 1. Short title; etc (a) Short title This Act may be cited as the Tax Cuts and Jobs Act (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; etc. Title I—Tax reform for individuals Subtitle A—Simplification and reform of rates, standard deduction, and exemptions Sec. 1001. Reduction and simplification of individual income tax rates. Sec. 1002. Enhancement of standard deduction. Sec. 1003. Repeal of deduction for personal exemptions. Sec. 1004. Maximum rate on business income of individuals. Sec. 1005. Conforming amendments related to simplification of individual income tax rates. Subtitle B—Simplification and reform of family and individual tax credits Sec. 1101. Enhancement of child tax credit and new family tax credit. Sec. 1102. Repeal of nonrefundable credits. Sec. 1103. Refundable credit program integrity. Sec. 1104. Procedures to reduce improper claims of earned income credit. Sec. 1105. Certain income disallowed for purposes of the earned income tax credit. Subtitle C—Simplification and reform of education incentives Sec. 1201. American opportunity tax credit. Sec. 1202. Consolidation of education savings rules. Sec. 1203. Reforms to discharge of certain student loan indebtedness. Sec. 1204. Repeal of other provisions relating to education. Sec. 1205. Rollovers between qualified tuition programs and qualified ABLE programs. Subtitle D—Simplification and reform of deductions Sec. 1301. Repeal of overall limitation on itemized deductions. Sec. 1302. Mortgage interest. Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business. Sec. 1304. Repeal of deduction for personal casualty losses. Sec. 1305. Limitation on wagering losses. Sec. 1306. Charitable contributions. Sec. 1307. Repeal of deduction for tax preparation expenses. Sec. 1308. Repeal of medical expense deduction. Sec. 1309. Repeal of deduction for alimony payments. Sec. 1310. Repeal of deduction for moving expenses. Sec. 1311. Termination of deduction and exclusions for contributions to medical savings accounts. Sec. 1312. Denial of deduction for expenses attributable to the trade or business of being an employee. Subtitle E—Simplification and reform of exclusions and taxable compensation Sec. 1401. Limitation on exclusion for employer-provided housing. Sec. 1402. Exclusion of gain from sale of a principal residence. Sec. 1403. Repeal of exclusion, etc., for employee achievement awards. Sec. 1404. Sunset of exclusion for dependent care assistance programs. Sec. 1405. Repeal of exclusion for qualified moving expense reimbursement. Sec. 1406. Repeal of exclusion for adoption assistance programs. Subtitle F—Simplification and reform of savings, pensions, retirement Sec. 1501. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions. Sec. 1502. Reduction in minimum age for allowable in-service distributions. Sec. 1503. Modification of rules governing hardship distributions. Sec. 1504. Modification of rules relating to hardship withdrawals from cash or deferred arrangements. Sec. 1505. Extended rollover period for the rollover of plan loan offset amounts in certain cases. Sec. 1506. Modification of nondiscrimination rules to protect older, longer service participants. Subtitle G—Estate, gift, and generation-skipping transfer taxes Sec. 1601. Increase in credit against estate, gift, and generation-skipping transfer tax. Sec. 1602. Repeal of estate and generation-skipping transfer taxes. Title II—Alternative Minimum Tax Repeal Sec. 2001. Repeal of alternative minimum tax. Title III—Business tax reform Subtitle A—Tax rates Sec. 3001. Reduction in corporate tax rate. Subtitle B—Cost recovery Sec. 3101. Increased expensing. Subtitle C—Small business reforms Sec. 3201. Expansion of section 179 expensing. Sec. 3202. Small business accounting method reform and simplification. Sec. 3203. Small business exception from limitation on deduction of business interest. Sec. 3204. Modification of treatment of S corporation conversions to C corporations. Subtitle D—Reform of business-related exclusions, deductions, etc. Sec. 3301. Interest. Sec. 3302. Modification of net operating loss deduction. Sec. 3303. Like-kind exchanges of real property. Sec. 3304. Revision of treatment of contributions to capital. Sec. 3305. Repeal of deduction for local lobbying expenses. Sec. 3306. Repeal of deduction for income attributable to domestic production activities. Sec. 3307. Entertainment, etc. expenses. Sec. 3308. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed. Sec. 3309. Limitation on deduction for FDIC premiums. Sec. 3310. Repeal of rollover of publicly traded securities gain into specialized small business investment companies. Sec. 3311. Certain self-created property not treated as a capital asset. Sec. 3312. Repeal of special rule for sale or exchange of patents. Sec. 3313. Repeal of technical termination of partnerships. Sec. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services. Sec. 3315. Amortization of research and experimental expenditures. Sec. 3316. Uniform treatment of expenses in contingency fee cases. Subtitle E—Reform of business credits Sec. 3401. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions. Sec. 3402. Repeal of employer-provided child care credit. Sec. 3403. Repeal of rehabilitation credit. Sec. 3404. Repeal of work opportunity tax credit. Sec. 3405. Repeal of deduction for certain unused business credits. Sec. 3406. Termination of new markets tax credit. Sec. 3407. Repeal of credit for expenditures to provide access to disabled individuals. Sec. 3408. Modification of credit for portion of employer social security taxes paid with respect to employee tips. Subtitle F—Energy credits Sec. 3501. Modifications to credit for electricity produced from certain renewable resources. Sec. 3502. Modification of the energy investment tax credit. Sec. 3503. Extension and phaseout of residential energy efficient property. Sec. 3504. Repeal of enhanced oil recovery credit. Sec. 3505. Repeal of credit for producing oil and gas from marginal wells. Sec. 3506. Modifications of credit for production from advanced nuclear power facilities. Subtitle G—Bond reforms Sec. 3601. Termination of private activity bonds. Sec. 3602. Repeal of advance refunding bonds. Sec. 3603. Repeal of tax credit bonds. Sec. 3604. No tax exempt bonds for professional stadiums. Subtitle H—Insurance Sec. 3701. Net operating losses of life insurance companies. Sec. 3702. Repeal of small life insurance company deduction. Sec. 3703. Surtax on life insurance company taxable income. Sec. 3704. Adjustment for change in computing reserves. Sec. 3705. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account. Sec. 3706. Modification of proration rules for property and casualty insurance companies. Sec. 3707. Modification of discounting rules for property and casualty insurance companies. Sec. 3708. Repeal of special estimated tax payments. Subtitle I—Compensation Sec. 3801. Modification of limitation on excessive employee remuneration. Sec. 3802. Excise tax on excess tax-exempt organization executive compensation. Sec. 3803. Treatment of qualified equity grants. Title IV—Taxation of foreign income and foreign persons Subtitle A—Establishment of participation exemption system for taxation of foreign income Sec. 4001. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations. Sec. 4002. Application of participation exemption to investments in United States property. Sec. 4003. Limitation on losses with respect to specified 10-percent owned foreign corporations. Sec. 4004. Treatment of deferred foreign income upon transition to participation exemption system of taxation. Subtitle B—Modifications related to foreign tax credit system Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis. Sec. 4102. Source of income from sales of inventory determined solely on basis of production activities. Subtitle C—Modification of subpart F provisions Sec. 4201. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment. Sec. 4202. Repeal of treatment of foreign base company oil related income as subpart F income. Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income. Sec. 4204. Look-thru rule for related controlled foreign corporations made permanent. Sec. 4205. Modification of stock attribution rules for determining status as a controlled foreign corporation. Sec. 4206. Elimination of requirement that corporation must be controlled for 30 days before subpart F inclusions apply. Subtitle D—Prevention of base erosion Sec. 4301. Current year inclusion by United States shareholders with foreign high returns. Sec. 4302. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group. Sec. 4303. Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income. Subtitle E—Provisions related to possessions of the United States Sec. 4401. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. Sec. 4402. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands. Sec. 4403. Extension of American Samoa economic development credit. Subtitle F—Other international reforms Sec. 4501. Restriction on insurance business exception to passive foreign investment company rules. Title V—Exempt organizations Subtitle A—Unrelated Business Income Tax Sec. 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a) Sec. 5002. Exclusion of research income limited to publicly available research. Subtitle B—Excise Taxes Sec. 5101. Simplification of excise tax on private foundation investment income. Sec. 5102. Private operating foundation requirements relating to operation of art museum. Sec. 5103. Excise tax based on investment income of private colleges and universities. Sec. 5104. Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings. Subtitle C—Requirements for organizations exempt from tax Sec. 5201. 501(c)(3) Sec. 5202. Additional reporting requirements for donor advised fund sponsoring organizations. I Tax reform for individuals A Simplification and reform of rates, standard deduction, and exemptions 1001. Reduction and simplification of individual income tax rates (a) In general Section 1 1. Tax imposed (a) In general There is hereby imposed on the income of every individual a tax equal to the sum of— (1) 12 percent bracket 12 percent of so much of the taxable income as does not exceed the 25-percent bracket threshold amount, (2) 25 percent bracket 25 percent of so much of the taxable income as exceeds the 25-percent bracket threshold amount but does not exceed the 35-percent bracket threshold amount, plus (3) 35 percent bracket 35 percent of so much of taxable income as exceeds the 35-percent bracket threshold amount but does not exceed the 39.6 percent bracket threshold amount. (4) 39.6 percent bracket 39.6 percent of so much of taxable income as exceeds the 39.6-percent bracket threshold amount. (b) Bracket threshold amounts For purposes of this section— (1) 25-percent bracket threshold amount The term 25-percent bracket threshold amount (A) in the case of a joint return or surviving spouse, $90,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), $67,500, (C) in the case of any other individual (other than an estate or trust), an amount equal to ½ (D) in the case of an estate or trust, $2,550. (2) 35-percent bracket threshold amount The term 35-percent bracket threshold amount (A) in the case of a joint return or surviving spouse, $260,000, (B) in the case of a married individual filing a separate return, an amount equal to ½ (C) in the case of any other individual (other than an estate or trust), $200,000, and (D) in the case of an estate or trust, $9,150. (3) 39.6-percent bracket threshold amount The term 39.6-percent bracket threshold amount (A) in the case of a joint return or surviving spouse, $1,000,000, (B) in the case of any other individual (other than an estate or trust), an amount equal to ½ (C) in the case of an estate or trust, $12,500. (c) Inflation adjustment (1) In general In the case of any taxable year beginning after 2018, each dollar amount in subsections (b) and (e)(3) (other than any amount determined by reference to such a dollar amount) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under this subsection for the calendar year in which the taxable year begins by substituting 2017 2016 If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. (2) Cost-of-living adjustment For purposes of this subsection— (A) In general The cost-of-living adjustment for any calendar year is the percentage (if any) by which— (i) the C-CPI-U for the preceding calendar year, exceeds (ii) the normalized CPI for calendar year 2016. (B) Special rule for adjustments with a base year after 2016 For purposes of any provision which provides for the substitution of a year after 2016 for 2016 C-CPI-U normalized CPI (3) Normalized CPI For purposes of this subsection, the normalized CPI for any calendar year is the product of— (A) the CPI for such calendar year, multiplied by (B) the C-CPI-U transition multiple. (4) C-CPI-U transition multiple For purposes of this subsection, the term C-CPI-U transition multiple (A) the C-CPI-U for calendar year 2016, by (B) the CPI for calendar year 2016. (5) C-CPI-U For purposes of this subsection— (A) In general The term C-CPI-U (B) Determination for calendar year The C-CPI-U for any calendar year is the average of the C-CPI-U as of the close of the 12-month period ending on August 31 of such calendar year. (6) CPI For purposes of this subsection— (A) In general The term Consumer Price Index (B) Determination for calendar year The CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year. (d) Special rules for certain children with unearned income (1) In general In the case of any child to whom this subsection applies for any taxable year— (A) the 25-percent bracket threshold amount shall not be more than the taxable income of such child for the taxable year reduced by the net unearned income of such child, and (B) the 35-percent bracket threshold amount shall not be more than the sum of— (i) the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus (ii) the dollar amount in effect under subsection (b)(2)(D) for the taxable year. (C) the 39.6-percent bracket threshold amount shall not be more than the sum of— (i) the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus (ii) the dollar amount in effect under subsection (b)(3)(C). (2) Child to whom subsection applies This subsection shall apply to any child for any taxable year if— (A) such child— (i) has not attained age 18 before the close of the taxable year, or (ii) has attained age 18 before the close of the taxable year and is described in paragraph (3), (B) either parent of such child is alive at the close of the taxable year, and (C) such child does not file a joint return for the taxable year. (3) Certain children whose earned income does not exceed one-half of individual’s support A child is described in this paragraph if— (A) such child— (i) has not attained age 19 before the close of the taxable year, or (ii) is a student (within the meaning of section 7706(f)(2)) who has not attained age 24 before the close of the taxable year, and (B) such child’s earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual’s support (within the meaning of section 7706(c)(1)(D) after the application of section 7706(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year. (4) Net unearned income For purposes of this subsection— (A) In general The term net unearned income (i) the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over (ii) the sum of— (I) the amount in effect for the taxable year under section 63(c)(2)(A) (relating to limitation on standard deduction in the case of certain dependents), plus (II) The greater of the amount described in subclause (I) or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i). (B) Limitation based on taxable income The amount of the net unearned income for any taxable year shall not exceed the individual’s taxable income for such taxable year. (e) Phaseout of 12-percent rate (1) In general The amount of tax imposed by this section (determined without regard to this subsection) shall be increased by 6 percent of the excess (if any) of— (A) adjusted gross income, over (B) the applicable dollar amount. (2) Limitation The increase determined under paragraph (1) with respect to any taxpayer for any taxable year shall not exceed 27.6 percent of the lesser of— (A) the taxpayer’s taxable income for such taxable year, or (B) the 25-percent bracket threshold amount in effect with respect to the taxpayer for such taxable year. (3) Applicable dollar amount For purposes of this subsection, the term applicable dollar amount (A) in the case of a joint return or a surviving spouse, $1,200,000, (B) in the case of a married individual filing a separate return, an amount equal to 1/2 (C) in the case of any other individual, $1,000,000. (4) Estates and trusts Paragraph (1) shall not apply in the case of an estate or trust. . (b) Application of current income tax brackets to capital gains brackets (1) In general (A) 0 Section 1(h)(1) which would (without regard to this paragraph) be taxed at a rate below 25 percent below the 15-percent rate threshold (B) 15 Section 1(h)(1)(C)(ii)(I) which would (without regard to this paragraph) be taxed at a rate below 39.6 percent below the 20-percent rate threshold (2) Rate thresholds defined Section 1(h) (12) Rate thresholds defined For purposes of this subsection— (A) 15 The 15-percent rate threshold shall be— (i) in the case of a joint return or surviving spouse, $77,200 ( ½ (ii) in the case of an individual who is the head of a household (as defined in section 2(b)), $51,700, (iii) in the case of any other individual (other than an estate or trust), an amount equal to ½ (iv) in the case of an estate or trust, $2,600. (B) 20 The 20-percent rate threshold shall be— (i) in the case of a joint return or surviving spouse, $479,000 ( ½ (ii) in the case of an individual who is the head of a household (as defined in section 2(b)), $452,400, (iii) in the case of any other individual (other than an estate or trust), $425,800, and (iv) in the case of an estate or trust, $12,700. (C) Inflation adjustment In the case of any taxable year beginning after 2018, each of the dollar amounts in subparagraphs (A) and (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under subsection (c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 calendar year 2016 . (c) Application of section 15 (1) In general Subsection (a) of section 15 by this chapter by section 11 (or by reference to any such rates) (2) Conforming amendments (A) Section 15 (B) Section 15(d), as redesignated by subparagraph (A), is amended by striking section 1 or 11(b) section 11(b) (C) Section 6013(c) sections 15, 443, and 7851(a)(1)(A) sections 443 and 7851(a)(1)(A) (3) Application to this Act Section 15 (d) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Subsection (c) The amendments made by subsection (c) shall take effect on the date of the enactment of this Act. 1002. Enhancement of standard deduction (a) Increase in standard deduction Section 63(c) (c) Standard deduction For purposes of this subtitle— (1) In general Except as otherwise provided in this subsection, the term standard deduction (A) $24,400, in the case of a joint return (or a surviving spouse (as defined in section 2(a)), (B) three-quarters of the amount in effect under subparagraph (A) for the taxable year, in the case of the head of a household (as defined in section 2(b)), and (C) one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case. (2) Limitation on standard deduction in the case of certain dependents In the case of an individual who is a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the standard deduction applicable to such individual for such individual’s taxable year shall not exceed the greater of— (A) $500, or (B) the sum of $250 and such individual’s earned income (within the means of section 32). (3) Certain individuals, etc., not eligible for standard deduction In the case of— (A) a married individual filing a separate return where either spouse itemizes deductions, (B) a nonresident alien individual, (C) an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or (D) an estate or trust, common trust fund, or partnership, the standard deduction shall be zero. (4) Unmarried individual For purposes of this section, the term unmarried individual (A) is not married as of the close of the taxable year (as determined by applying section 7703), (B) is not a surviving spouse (as defined in section 2(a)) for the taxable year, and (C) is not a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins. (5) Inflation adjustments (A) Standard deduction amount In the case of any taxable year beginning after 2019, the dollar amount in paragraph (1)(A) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2018 calendar year 2016 (B) Limitation amount in case of certain dependents In the case of any taxable year beginning after 2017, each of the dollar amounts in paragraph (2) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) (I) in the case of the dollar amount in paragraph (2)(A), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1987 calendar year 2016 (II) in the case of the dollar amount in paragraph (2)(B), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1997 calendar year 2016 If any increase determined under this paragraph is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. . (b) Conforming amendments (1) Section 63(b) , minus— minus the standard deduction (2) Section 63 (3) Section 1398(c) (A) by striking Basic (B) by striking Basic standard Standard (C) by striking basic (4) Section 3402(m)(3) (including the additional standard deduction under section 63(c)(3) for the aged and blind) (5) Section 6014(b)(4) section 63(c)(5) section 63(c)(2) (c) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 1003. Repeal of deduction for personal exemptions (a) In general Part V of subchapter B of chapter 1 is hereby repealed. (b) Definition of dependent retained Section 152, prior to repeal by subsection (a), is hereby redesignated as section 7706 and moved to the end of chapter 79. (c) Application to estates and trusts Subsection (b) of section 642 (1) by striking paragraph (2)(C), (2) by striking paragraph (3), and (3) by striking Deduction for personal exemption Basic deduction (d) Application to nonresident aliens Section 873(b) (e) Modification of wage withholding rules (1) In general Section 3402(a) (2) Conforming amendment Section 3402(a) (A) by redesignating subparagraphs (A) and (B) of paragraph (1) as paragraphs (1) and (2) and moving such redesignated paragraphs 2 ems to the left, and (B) by striking all that precedes otherwise provided in this section (a) Requirement of withholding Except as . (3) Number of exemptions Section 3402(f)(1) (A) in subparagraph (A), by striking an individual described in section 151(d)(2) a dependent of any other taxpayer (B) in subparagraph (C), by striking with respect to whom, on the basis of facts existing at the beginning of such day, there may reasonably be expected to be allowable an exemption under section 151(c) who, on the basis of facts existing at the beginning of such day, is reasonably expected to be a dependent of the employee (f) Modification of return requirement (1) In general Paragraph (1) of section 6012(a) (1) Every individual who has gross income for the taxable year, except that a return shall not be required of— (A) an individual who is not married (determined by applying section 7703) and who has gross income for the taxable year which does not exceed the standard deduction applicable to such individual for such taxable year under section 63, or (B) an individual entitled to make a joint return if— (i) the gross income of such individual, when combined with the gross income of such individual’s spouse, for the taxable year does not exceed the standard deduction which would be applicable to the taxpayer for such taxable year under section 63 if such individual and such individual’s spouse made a joint return, (ii) such individual and such individual’s spouse have the same household as their home at the close of the taxable year, (iii) such individual’s spouse does not make a separate return, and (iv) neither such individual nor such individual’s spouse is an individual described in section 63(c)(2) who has income (other than earned income) in excess of the amount in effect under section 63(c)(2)(A). . (2) Bankruptcy estates Paragraph (8) of section 6012(a) the sum of the exemption amount plus the basic standard deduction under section 63(c)(2)(D) the standard deduction in effect under section 63(c)(1)(B) (g) Conforming amendments (1) Section 2(a)(1)(B) a dependent section 151 a dependent who (within the meaning of section 7706, determined without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer (2) Section 36B(b)(2)(A) section 152 section 7706 (3) Section 36B(b)(3)(B) unless a deduction is allowed under section 151 for the taxable year with respect to a dependent unless the taxpayer has a dependent for the taxable year (4) Section 36B(c)(1)(D) with respect to whom a deduction under section 151 is allowable to another taxpayer who is a dependent of another taxpayer (5) Section 36B(d)(1) equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the taxable year (6) Section 36B(e)(1) 1 or more individuals for whom a taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year (including the taxpayer or his spouse) 1 or more of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer (7) Section 42(i)(3)(D)(ii)(I) (A) by striking section 152 section 7706 (B) by striking the period at the end and inserting a comma. (8) Section 72(t)(2)(D)(i)(III) section 152 section 7706 (9) Section 72(t)(7)(A)(iii) section 152(f)(1) section 7706(f)(1) (10) Section 105(b) (A) by striking as defined in section 152 as defined in section 7706 (B) by striking section 152(f)(1) section 7706(f)(1) (C) by striking section 152(e) section 7706(e) (11) Section 105(c)(1) section 152 section 7706 (12) Section 125(e)(1)(D) section 152 section 7706 (13) Section 132(h)(2)(B) (A) by striking section 152(f)(1) section 7706(f)(1) (B) by striking section 152(e) section 7706(e) (14) Section 139D(c)(5) section 152 section 7706 (15) Section 162(l)(1)(D) section 152(f)(1) section 7706(f)(1) (16) Section 170(g)(1) section 152 section 7706 (17) Section 170(g)(3) section 152(d)(2) section 7706(d)(2) (18) Section 172(d) (19) Section 220(b)(6) with respect to whom a deduction under section 151 is allowable to who is a dependent of (20) Section 220(d)(2)(A) section 152 section 7706 (21) Section 223(b)(6) with respect to whom a deduction under section 151 is allowable to who is a dependent of (22) Section 223(d)(2)(A) section 152 section 7706 (23) Section 401(h) section 152(f)(1) section 7706(f)(1) (24) Section 402(l)(4)(D) section 152 section 7706 (25) Section 409A(a)(2)(B)(ii)(I) section 152(a) section 7706(a) (26) Section 501(c)(9) section 152(f)(1) section 7706(f)(1) (27) Section 529(e)(2)(B) section 152(d)(2) section 7706(d)(2) (28) Section 703(a)(2) (29) Section 874 (30) Section 891 under section 151 and (31) Section 904(b) (32) Section 931(b)(1) (other than the deduction under section 151, relating to personal exemptions) (33) Section 933 (A) by striking (other than the deduction under section 151, relating to personal exemptions) (B) by striking (other than the deduction for personal exemptions under section 151) (34) Section 1212(b)(2)(B)(ii) (ii) in the case of an estate or trust, the deduction allowed for such year under section 642(b). . (35) Section 1361(c)(1)(C) section 152(f)(1)(C) section 7706(f)(1)(C) (36) Section 1402(a) (37) Section 2032A(c)(7)(D) section 152(f)(2) section 7706(f)(2) (38) Section 3402(m)(1) other than the deductions referred to in section 151 and (39) Section 3402(r)(2) the sum of— the standard deduction in effect under section 63(c)(1)(B). (40) Section 5000A(b)(3)(A) section 152 section 7706 (41) Section 5000A(c)(4)(A) the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the taxable year (42) Section 6013(b)(3)(A) (A) by striking had less than the exemption amount of gross income had no gross income (B) by striking had gross income of the exemption amount or more had any gross income (C) by striking the flush language following clause (iii). (43) Section 6103(l)(21)(A)(iii) (iii) the number of the taxpayer’s dependents, . (44) Section 6213(g)(2) (45) Section 6334(d)(2) (2) Exempt amount (A) In general For purposes of paragraph (1), the term exempt amount (i) the standard deduction, divided by (ii) 52. (B) Verified statement Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with no dependents. . (46) Section 7702B(f)(2)(C)(iii) section 152(d)(2) section 7706(d)(2) (47) Section 7703(a) part V of subchapter B of chapter 1 and (48) Section 7703(b)(1) section 152(f)(1) section 7706(f)(1), (49) Section 7706(a), as redesignated by this section, is amended by striking this subtitle subtitle A (50) (A) Section 7706(d)(1)(B), as redesignated by this section, is amended by striking the exemption amount (as defined in section 151(d)) $4,150 (B) Section 7706(d), as redesignated by this section, is amended by adding at the end the following new paragraph: (6) Inflation adjustment In the case of any calendar year beginning after 2018, the $4,150 amount in paragraph (1)(B) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2017 calendar year 2016 If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. . (51) The table of sections for chapter 79 Sec. 7706. Dependent defined. . (h) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1004. Maximum rate on business income of individuals (a) In general Part I of subchapter A of chapter 1 4. 25 percent maximum rate on business income of individuals (a) Reduction in tax to achieve 25 percent maximum rate The tax imposed by section 1 shall be reduced by the sum of— (1) 10 percent of the lesser of— (A) qualified business income, or (B) the excess (if any) of— (i) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), over (ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, and (2) 4.6 percent of the excess (if any) of— (A) the lesser of— (i) qualified business income, or (ii) the excess (if any) determined under paragraph (1)(B), over (B) the excess of— (i) the maximum dollar amount for the 35-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, over (ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year. (b) Qualified business income For purposes of this section, the term qualified business income (1) the sum of— (A) 100 percent of any net business income derived from any passive business activity, plus (B) the capital percentage of any net business income derived from any active business activity, over (2) the sum of— (A) 100 percent of any net business loss derived from any passive business activity, (B) except as provided in subsection (e)(3)(A), 30 percent of any net business loss derived from any active business activity, plus (C) any carryover business loss determined for the preceding taxable year. (c) Determination of net business income or loss For purposes of this section— (1) In general Net business income or loss shall be determined with respect to any business activity by appropriately netting items of income, gain, deduction, and loss with respect to such business activity. (2) Wages, etc Any wages (as defined in section 3401), payments described in subsection (a) or (c) of section 707, or directors’ fees received by the taxpayer which are properly attributable to any business activity shall be taken into account under paragraph (1) as an item of income with respect to such business activity. (3) Exception for certain investment-related items There shall not be taken into account under paragraph (1)— (A) any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss, (B) any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G), (C) any interest income other than interest income which is properly allocable to a trade or business, (D) any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting business activity controlled foreign corporation (E) any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)), (F) any amount received from an annuity which is not received in connection with the trade or business of the business activity, and (G) any item of deduction or loss properly allocable to an amount described in any of the preceding subparagraphs. (4) Application of restrictions applicable to determining taxable income Net business income or loss shall be appropriately adjusted so as only to take into account any amount of income, gain, deduction, or loss to the extent such amount affects the determination of taxable income for the taxable year. (5) Carryover business loss For purposes of subsection (b)(2)(C), the carryover business loss determined for any taxable year is the excess (if any) of the sum described in subsection (b)(2) over the sum described in subsection (b)(1) for such taxable year. (d) Passive and active business activity For purposes of this section— (1) Passive business activity The term passive business activity (2) Active business activity The term active business activity (3) Business activity The term business activity (e) Capital percentage For purposes of this section— (1) In general Except as otherwise provided in this section, the term capital percentage (2) Increased percentage for capital-intensive business activities In the case of a taxpayer who elects the application of this paragraph with respect to any active business activity (other than a specified service activity), the capital percentage shall be equal to the applicable percentage (as defined in subsection (f)) for each taxable year with respect to which such election applies. Any election made under this paragraph shall apply to the taxable year for which such election is made and each of the 4 subsequent taxable years. Such election shall be made not later than the due date (including extensions) for the return of tax for the taxable year for which such election is made, and, once made, may not be revoked. (3) Treatment of specified service activities (A) In general In the case of any active business activity which is a specified service activity— (i) the capital percentage shall be 0 percent, and (ii) subsection (b)(2)(B) shall be applied by substituting 0 percent 30 percent (B) Exception for capital-intensive specified service activities If— (i) the taxpayer elects the application of this subparagraph with respect to such activity for any taxable year, and (ii) the applicable percentage (as defined in subsection (f)) with respect to such activity for such taxable year is at least 10 percent, then subparagraph (A) shall not apply and the capital percentage with respect to such activity shall be equal to such applicable percentage. (C) Specified service activity The term specified service activity (4) Reduction in capital percentage in certain cases The capital percentage (determined after the application of paragraphs (2) and (3)) with respect to any active business activity shall not exceed 1 minus the quotient (not greater than 1) of— (A) any amounts described in subsection (c)(2) which are taken into account in determining the net business income derived from such activity, divided by (B) such net business income. (f) Applicable percentage For purposes of this section— (1) In general The term applicable percentage (A) the specified return on capital with respect to such activity for such taxable year, divided by (B) the taxpayer’s net business income derived from such activity for such taxable year. (2) Specified return on capital The term specified return on capital (A) the product of— (i) the deemed rate of return for the taxable year, multiplied by (ii) the asset balance with respect to such activity for such taxable year, over (B) an amount equal to the interest which is paid or accrued, and for which a deduction is allowed under this chapter, with respect to such activity for such taxable year. (3) Deemed rate of return The term deemed rate of return (4) Asset balance (A) In general The asset balance with respect to any active business activity referred to in paragraph (1) for any taxable year equals the taxpayer’s adjusted basis of any property described in section 1221(a)(2) which is used in connection with such activity as of the end of the taxable year (determined without regard to sections 168(k) and 179). (B) Application to activities carried on through partnerships and S corporations In the case of any active business activity carried on through a partnership or S corporation, the taxpayer shall take into account such taxpayer’s distributive or pro rata share (as the case may be) of the asset balance with respect to such activity as determined with respect to such partnership or S corporation under subparagraph (A) (applied by substituting the partnership’s or S corporation’s adjusted basis the taxpayer’s adjusted basis (g) Reduced rate for small businesses with net active business income (1) In general The tax imposed by section 1 shall be reduced by 3 percent of the excess (if any) of— (A) the least of— (i) qualified active business income, (ii) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), or (iii) the 9-percent bracket threshold amount, over (B) the excess (if any) of taxable income over the applicable threshold amount. (2) Phase-in of rate reduction In the case of any taxable year beginning before January 1, 2022, paragraph (1) shall be applied by substituting for 3 percent (A) in the case of any taxable year beginning after December 31, 2017, and before January 1, 2020, 1 percent (B) in the case of any taxable year beginning after December 31, 2019, and before January 1, 2022, 2 percent (3) Qualified active business income For purposes of this subsection, the term qualified active business income (A) any net business income derived from any active business activity, over (B) any net business loss derived from any active business activity. (4) 9-percent bracket threshold amount For purposes of this subsection, the term 9-percent bracket threshold amount (A) in the case of a joint return or surviving spouse, $75,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 (C) in the case of any other individual, 1/2 (5) Applicable threshold amount For purposes of this subsection, the term applicable threshold amount (A) in the case of a joint return or surviving spouse, $150,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 (C) in the case of any other individual, 1/2 (6) Estates and trusts Paragraph (1) shall not apply to any estate or trust. (7) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (4)(A) and (5)(A) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under subsection (c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 calendar year 2016 If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. (h) Regulations The Secretary may issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance— (1) which ensures that no amount is taken into account under subsection (f)(4) with respect to more than one activity, and (2) which treats all specified service activities of the taxpayer as a single business activity for purposes of this section to the extent that such activities would be treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414. (i) References Any reference in this title to section 1 shall be treated as including a reference to this section unless the context of such reference clearly indicates otherwise. . (b) 25 percent rate for certain dividends of real estate investment trusts and cooperatives Section 1(h), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: (13) 25 percent rate for certain dividends of real estate investment trusts and cooperatives (A) In general For purposes of this subsection, net capital gain (as defined in paragraph (11)) and unrecaptured section 1250 gain (as defined in paragraph (6)) shall each be increased by specified dividend income. (B) Specified dividend income For purposes of this paragraph, the term specified dividend income (i) in the case of any dividend received from a real estate investment trust, the portion of such dividend which is neither— (I) a capital gain dividend (as defined in section 852(b)(3)), nor (II) taken into account in determining qualified dividend income (as defined in paragraph (11)), and (ii) any dividend which is includible in gross income and which is received from an organization or corporation described in section 501(c)(12) or 1381(a). . (c) Clerical amendment The table of sections for part I of subchapter A of chapter 1 Sec. 4. 25 percent maximum rate on business income of individuals. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (e) Transition rule In the case of any taxable year which includes December 31, 2017, the amendment made by subsection (a) shall apply with respect to such taxable year adjusted— (1) so as to apply with respect to the rates of tax in effect under section 1 (2) by reducing the amount of the reduction in tax (as otherwise determined under paragraph (1)) by the amount which bears the same proportion to the amount of such reduction as the number of days in the taxable year which are before January 1, 2018, bears to the number of days in the entire taxable year. 1005. Conforming amendments related to simplification of individual income tax rates (a) Amendments related to modification of inflation adjustment (1) Section 32(b)(2)(B)(ii)(II) section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting calendar year 2008 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 2008 calendar year 2016 (2) Section 32(j)(1)(B) (A) in the matter preceding clause (i), by striking section 1(f)(3) section 1(c)(2)(A) (B) in clause (i), by striking for calendar year 1992 for calendar year 2016 (C) in clause (ii), by striking for calendar year 1992 for calendar year 2016 (3) Section 36B(b)(3)(A)(ii)(II) consumer price index C-CPI-U (as defined in section 1(c)) (4) Section 41(e)(5)(C) (C) Cost-of-living adjustment defined (i) In general The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1(c)(2)(A), by substituting calendar year 1987 calendar year 2016 (ii) Special rule where base period ends in a calendar year other than 1983 or 1984 If the base period of any taxpayer does not end in 1983 or 1984, clause (i) shall be applied by substituting the calendar year in which such base period ends for 1987. . (5) Section 42(e)(3)(D)(ii) section 1(f)(3) for such calendar year by substituting calendar year 2008 calendar year 1992 section 1(c)(2)(A) for such calendar year by substituting calendar year 2008 calendar year 2016 (6) Section 42(h)(3)(H)(i)(II) section 1(f)(3) for such calendar year by substituting calendar year 2001 calendar year 1992 section 1(c)(2)(A) for such calendar year by substituting calendar year 2001 calendar year 2016 (7) Section 45R(d)(3)(B)(ii) section 1(f)(3) for the calendar year, determined by substituting calendar year 2012 calendar year 1992 section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2012 calendar year 2016 (8) Section 125(i)(2) (A) by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 2012 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins (B) by striking $50 $100 (9) Section 162(o)(3) as in effect before enactment of the Tax Cuts and Jobs Act section 1(f)(5) (10) Section 220(g)(2) section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 1997 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1997 calendar year 2016 (11) Section 223(g)(1) (B) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined— (i) by substituting for calendar year 2016 (I) except as provided in clause (ii), calendar year 1997 (II) in the case of each dollar amount in subsection (c)(2)(A), calendar year 2003 (ii) by substituting March 31 August 31 The Secretary shall publish the dollar amounts as adjusted under this subsection for taxable years beginning in any calendar year no later than June 1 of the preceding calendar year. . (12) Section 430(c)(7)(D)(vii)(II) section 1(f)(3) for the calendar year, determined by substituting calendar year 2009 calendar year 1992 section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 2009 calendar year 2016 (13) Section 512(d)(2)(B) section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1994 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1994 calendar year 2016 (14) Section 513(h)(2)(C)(ii) section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 1987 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1987 calendar year 2016 (15) Section 831(b)(2)(D)(ii) section 1(f)(3) for such calendar year by substituting calendar year 2013 calendar year 1992 section 1(c)(2)(A) for such calendar year by substituting calendar year 2013 calendar year 2016 (16) Section 877A(a)(3)(B)(i)(II) section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2007 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 calendar year 2016 (17) Section 911(b)(2)(D)(ii)(II) section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2004 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2004 calendar year 2016 (18) Section 1274A(d)(2) (2) Inflation adjustment (A) In general In the case of any debt instrument arising out of a sale or exchange during any calendar year after 2018, each adjusted dollar amount shall be increased by an amount equal to— (i) such adjusted dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2017 calendar year 2016 (B) Adjusted dollar amounts For purposes of this paragraph, the term adjusted dollar amount (C) Rounding Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100. . (19) Section 2010(c)(3)(B)(ii) section 1(f)(3) for such calendar year by substituting calendar year 2010 calendar year 1992 section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2010 calendar year 2016 (20) Section 2032A(a)(3)(B) section 1(f)(3) for such calendar year by substituting calendar year 1997 calendar year 1992 section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1997 calendar year 2016 (21) Section 2503(b)(2)(B) section 1(f)(3) for such calendar year by substituting calendar year 1997 calendar year 1992 section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 1997 calendar year 2016 (22) Section 4161(b)(2)(C)(i)(II) section 1(f)(3) for such calendar year, determined by substituting 2004 1992 section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2004 calendar year 2016 (23) Section 4261(e)(4)(A)(ii) section 1(f)(3) for such calendar year by substituting the year before the last nonindexed year for calendar year 1992 section 1(c)(2)(A) for such calendar year, determined by substituting the year before the last nonindexed year for calendar year 2016 (24) Section 4980I(b)(3)(C)(v)(II) (A) by striking section 1(f)(3) section 1(c)(2)(A) (B) by striking subparagraph (B) clause (ii) (C) by striking 1992 2016 (25) Section 5000A(c)(3)(D)(ii) (A) by striking section 1(f)(3) section 1(c)(2)(A) (B) by striking subparagraph (B) clause (ii) (C) by striking 1992 2016 (26) Section 6039F(d) section 1(f)(3), except that subparagraph (B) thereof section 1(c)(2)(A), except that clause (ii) thereof (27) Section 6323(i)(4)(B) section 1(f)(3) for the calendar year, determined by substituting calendar year 1996 calendar year 1992 section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 1996 calendar year 2016 (28) Section 6334(g)(1)(B) section 1(f)(3) for such calendar year, by substituting calendar year 1998 calendar year 1992 section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1999 calendar year 2016 (29) Section 6601(j)(3)(B) section 1(f)(3) for such calendar year by substituting calendar year 1997 calendar year 1992 section 1(c)(2)(A) for such calendar year by substituting calendar year 1997 calendar year 2016 (30) Section 6651(i)(1) section 1(f)(3) determined by substituting calendar year 2013 calendar year 1992 section 1(c)(2)(A) determined by substituting calendar year 2013 calendar year 2016 (31) Section 6721(f)(1) (A) by striking section 1(f)(3) section 1(c)(2)(A) (B) by striking subparagraph (B) clause (ii) (C) by striking 1992 2016 (32) Section 6722(f)(1) (A) by striking section 1(f)(3) section 1(c)(2)(A) (B) by striking subparagraph (B) clause (ii) (C) by striking 1992 2016 (33) Section 6652(c)(7)(A) section 1(f)(3) determined by substituting calendar year 2013 calendar year 1992 section 1(c)(2)(A) determined by substituting calendar year 2013 calendar year 2016 (34) Section 6695(h)(1) section 1(f)(3) determined by substituting calendar year 2013 calendar year 1992 section 1(c)(2)(A) determined by substituting calendar year 2013 calendar year 2016 (35) Section 6698(e)(1) section 1(f)(3) determined by substituting calendar year 2013 calendar year 1992 section 1(c)(2)(A) determined by substituting calendar year 2013 calendar year 2016 (36) Section 6699(e)(1) section 1(f)(3) determined by substituting calendar year 2013 calendar year 1992 section 1(c)(2)(A) determined by substituting calendar year 2013 calendar year 2016 (37) Section 7345(f)(2) section 1(f)(3) for the calendar year, determined by substituting calendar year 2015 calendar year 1992 section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 2015 calendar year 2016 (38) Section 7430(c)(1) section 1(f)(3) for such calendar year, by substituting calendar year 1995 calendar year 1992 section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1995 calendar year 2016 (39) Section 7872(g)(5) (5) Inflation adjustment (A) In general In the case of any loan made during any calendar year after 2018 to which paragraph (1) applies, the adjusted dollar amount shall be increased by an amount equal to— (i) such adjusted dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2017 calendar year 2016 (B) Adjusted dollar amount For purposes of this paragraph, the term adjusted dollar amount (C) Rounding Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100. . (40) Section 219(b)(5)(C)(i)(II) section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 calendar year 2016 (41) Section 219(g)(8)(B) section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 calendar year 1992 section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 calendar year 2016 (b) Other conforming amendments (1) Section 36B(b)(3)(B)(ii)(I)(aa) (aa) who is described in section 1(b)(1)(B) and who does not have any dependents for the taxable year, . (2) Section 486B(b)(1) (A) by striking maximum rate in effect highest rate specified (B) by striking section 1(e) section 1 (3) Section 511(b)(1) section 1(e) section 1 (4) Section 641(a) section 1(e) shall apply to the taxable income section 1 shall apply to the taxable income (5) Section 641(c)(2)(A) (A) Except to the extent provided in section 1(h), the rate of tax shall be treated as being the highest rate of tax set forth in section 1(a). . (6) Section 646(b) (b) Taxation of income of trust Except as provided in subsection (f)(1)(B)(ii), there is hereby imposed on the taxable income of an electing Settlement Trust a tax at the rate specified in section 1(a)(1). Such tax shall be in lieu of the income tax otherwise imposed by this chapter on such income. . (7) Section 685(c) Section 1(e) Section 1 (8) Section 904(b)(3)(E)(ii)(I) set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies) the highest rate of tax specified in section 1 (9) Section 1398(c)(2) subsection (d) of (10) Section 3402(p)(1)(B) any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c), 12 percent, 25 percent, (11) Section 3402(q)(1) the product of third lowest rate of tax applicable under section 1(c) and 25 percent of (12) Section 3402(r)(3) the amount of tax which would be imposed by section 1(c) (determined without regard to any rate of tax in excess of the fourth lowest rate of tax applicable under section 1(c)) on an amount of taxable income equal to an amount equal to the product of 25 percent multiplied by (13) Section 3406(a)(1) the product of the fourth lowest rate of tax applicable under section 1(c) and 25 percent of (14) Section 6103(e)(1)(A)(iii) (as in effect on the day before the date of the enactment of the Tax Cuts and Jobs Act section 1(g) (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. B Simplification and reform of family and individual tax credits 1101. Enhancement of child tax credit and new family tax credit (a) Increase in credit amount and addition of other dependents (1) In general Section 24(a) (a) Allowance of credit There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of— (1) with respect to each qualifying child of the taxpayer, $1,600, and (2) for taxable years beginning before January 1, 2023, with respect to the taxpayer (each spouse in the case of a joint return) and each dependent of the taxpayer to whom paragraph (1) does not apply, $300. . (2) Conforming amendments (A) Section 24(c) (i) by redesignating paragraphs (1) and (2) as paragraphs (2) and (3), respectively, (ii) by striking 152(c) 7706(c) (iii) by inserting before paragraph (2) (as so redesignated) the following new paragraph: (1) Dependent (A) In general The term dependent (B) Certain individuals not treated as dependents In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the amount applicable to such individual under subsection (a) for such individual’s taxable year shall be zero. , (iv) in paragraph (3) (as so redesignated)— (I) by striking term qualifying child terms qualifying child dependent (II) by striking 152(b)(3) 7706(b)(3) (v) in the heading by striking Qualifying Dependent; qualifying (B) The heading for section 24 and family Child (C) The table of sections for subpart A of part IV of subchapter A of chapter 1 Sec. 24. Child and family tax credit. . (b) Elimination of marriage penalty Section 24(b)(2) (1) by striking $110,000 $230,000 (2) by inserting and (3) by striking $75,000 in the case of an individual who is not married one-half of the amount in effect under subparagraph (A) for the taxable year in the case of any other individual. (c) Credit refundable up to $1,000 per child (1) In general Section 24(d)(1)(A) under this section determined— (i) without regard to this subsection and the limitation under section 26(a), (ii) without regard to subsection (a)(2), and (iii) by substituting $1,000 $1,600 . (2) Inflation adjustment Section 24(d) (3) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2017, the $1,000 amount in paragraph (1)(A)(iii) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment under section 1(c)(2)(A) for such calendar year. Any increase determined under the preceding sentence shall be rounded to the next highest multiple of $100 and shall not exceed the amount in effect under subsection (a)(2). . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1102. Repeal of nonrefundable credits (a) Repeal of section 22 (1) In general Subpart A of part IV of subchapter A of chapter 1 (2) Conforming amendment (A) Section 86(f) (B) (i) Subsections (c)(3)(B) and (d)(4)(A) of section 7706, as redesignated by this Act, are each amended by striking (as defined in section 22(e)(3) (ii) Section 7706(f), as redesignated by this Act, is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: (7) Permanent and total disability defined An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require. . (iii) Section 415(c)(3)(C)(i) 22(e)(3) 7706(f)(7) (iv) Section 422(c)(6) 22(e)(3) 7706(f)(7) (b) Termination of section 25 Section 25, as amended by section 3601, (k) Termination No credit shall be allowed under this section with respect to any mortgage credit certificate issued after December 31, 2017. . (c) Repeal of section 30D (1) In general Subpart B of part IV of subchapter A of chapter 1 (2) Conforming amendments (A) Section 38(b) (B) Section 1016(a) (C) Section 6501(m) 30D(e)(4), (d) Effective date (1) In general Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Subsection (b) The amendment made by subsection (c) shall apply to taxable years ending after December 31, 2017. (3) Subsection (c) The amendments made by subsection (d) shall apply to vehicles placed in service in taxable years beginning after December 31, 2017. 1103. Refundable credit program integrity (a) Identification requirements for child and family tax credit (1) In general Section 24(e) (e) Identification requirements (1) Requirements for qualifying child No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and social security number of such qualifying child on the return of tax for the taxable year. The preceding sentence shall not prevent a qualifying child from being treated as a dependent described in subsection (a)(2). (2) Other identification requirements No credit shall be allowed under this section with respect to any individual unless the taxpayer identification number of such individual is included on the return of tax for the taxable year and such identifying number was issued before the due date for filing the return for the taxable year. (3) Social security number For purposes of this subsection, the term social security number . (2) Omissions treated as mathematical or clerical error (A) In general Section 6213(g)(2)(I) (I) an omission of a correct social security number, or a correct TIN, required under section 24(e) (relating to child tax credit), to be included on a return, . (b) Social security number must be provided (1) In general Section 25A(f)(1)(A), as amended by section 1201 of this Act, is amended by striking taxpayer identification number social security number (2) Omission treated as mathematical or clerical error Section 6213(g)(2)(J) TIN social security number and employer identification number (c) Individuals prohibited from engaging in employment in United States not eligible for earned income tax credit Section 32(m) (1) by striking (other than: of the Social Security Act) (2) by inserting before the period at the end the following: , but only if, in the case of subsection (c)(1)(E), the social security number is issued to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1104. Procedures to reduce improper claims of earned income credit (a) Clarification regarding determination of self-employment income which is treated as earned income Section 32(c)(2)(B) and , and (vii) in determining the taxpayer’s net earnings from self-employment under subparagraph (A)(ii) there shall not fail to be taken into account any deduction which is allowable to the taxpayer under this subtitle. . (b) Required quarterly reporting of wages of employees Section 6011 (i) Employer reporting of wages Every person required to deduct and withhold from an employee a tax under section 3101 or 3402 shall include on each return or statement submitted with respect to such tax, the name and address of such employee and the amount of wages for such employee on which such tax was withheld. . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. (2) Reporting The Secretary of the Treasury, or his designee, may delay the application of the amendment made by subsection (b) for such period as such Secretary (or designee) determines to be reasonable to allow persons adequate time to modify electronic (or other) systems to permit such person to comply with the requirements of such amendment. 1105. Certain income disallowed for purposes of the earned income tax credit (a) Substantiation requirement Section 32 (n) Inconsistent income reporting If the earned income of a taxpayer claimed on a return for purposes of this section is not substantiated by statements or returns under sections 6051, 6052, 6041(a), or 6050W with respect to such taxpayer, the Secretary may require such taxpayer to provide books and records to substantiate such income, including for the purpose of preventing fraud. . (b) Exclusion of unsubstantiated amount from earned income Section 32(c)(2) (C) Exclusion In the case of a taxpayer with respect to which there is an inconsistency described in subsection (n) who fails to substantiate such inconsistency to the satisfaction of the Secretary, the term earned income . (c) Effective date The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. C Simplification and reform of education incentives 1201. American opportunity tax credit (a) In general Section 25A 25A. American opportunity tax credit (a) In general In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of— (1) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to any eligible student for whom an election is in effect under this section for such taxable year during any academic period beginning in such taxable year) as does not exceed $2,000, plus (2) 25 percent of so much of such expenses so paid as exceeds the dollar amount in effect under paragraph (1) but does not exceed twice such dollar amount. (b) Portion of credit refundable 40 percent of the credit allowable under subsection (a)(1) (determined without regard to this subsection and section 26(a) and after application of all other provisions of this section) shall be treated as a credit allowable under subpart C (and not under this part). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom section 1(d) applies for such taxable year. (c) Limitation based on modified adjusted gross income (1) In general The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this subsection and subsection (b) but after application of all other provisions of this section) as— (A) the excess of— (i) the taxpayer’s modified adjusted gross income for such taxable year, over (ii) $80,000 (twice such amount in the case of a joint return), bears to (B) $10,000 (twice such amount in the case of a joint return). (2) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income (d) Other limitations (1) Credit allowed only for 5 taxable years An election to have this section apply may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 5 prior taxable years. (2) Credit allowed only for first 5 years of postsecondary education (A) In general No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 5 years of postsecondary education at an eligible educational institution. (B) Fifth year limitations In the case of an eligible student with respect to whom an election has been in effect for 4 preceding taxable years for purposes of the fifth taxable year— (i) the amount of the credit allowed under this section for the taxable year shall not exceed an amount equal to 50 percent of the credit otherwise determined with respect to such student under this section (without regard to this subparagraph), and (ii) the amount of the credit determined under subsection (b) and allowable under subpart C shall not exceed an amount equal to 40 percent of the amount determined with respect to such student under clause (i). (e) Definitions For purposes of this section— (1) Eligible student The term eligible student (A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 ( 20 U.S.C. 1091(a)(1) (B) is carrying at least ½ (2) Qualified tuition and related expenses (A) In general The term qualified tuition and related expenses (i) the taxpayer, (ii) the taxpayer’s spouse, or (iii) any dependent of the taxpayer, at an eligible educational institution for courses of instruction of such individual at such institution. (B) Exception for education involving sports, etc Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program. (C) Exception for nonacademic fees Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction. (3) Eligible educational institution The term eligible educational institution (A) which is described in section 481 of the Higher Education Act of 1965 ( 20 U.S.C. 1088 (B) which is eligible to participate in a program under title IV of such Act. (f) Special rules (1) Identification requirements (A) Student No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year, and such taxpayer identification number was issued on or before the due date for filing such return. (B) Taxpayer No credit shall be allowed under this section if the identifying number of the taxpayer was issued after the due date for filing the return for the taxable year. (C) Institution No credit shall be allowed under this section unless the taxpayer includes the employer identification number of any institution to which qualified tuition and related expenses were paid with respect to the individual. (2) Adjustment for certain scholarships, etc The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsection (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as— (A) a qualified scholarship which is excludable from gross income under section 117, (B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 (C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual's educational expenses, or attributable to such individual's enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. (3) Treatment of expenses paid by dependent If an individual is a dependent of another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins— (A) no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and (B) qualified tuition and related expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer. (4) Treatment of certain prepayments If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year. (5) Denial of double benefit No credit shall be allowed under this section for any amount for which a deduction is allowed under any other provision of this chapter. (6) No credit for married individuals filing separate returns If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. (7) Nonresident aliens If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (8) Restrictions on taxpayers who improperly claimed credit in prior year (A) Taxpayers making prior fraudulent or reckless claims (i) In general No credit shall be allowed under this section for any taxable year in the disallowance period. (ii) Disallowance period For purposes of clause (i), the disallowance period is— (I) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and (II) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud). (B) Taxpayers making improper prior claims In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit. (g) Inflation adjustment (1) In general In the case of a taxable year beginning after 2018, the $80,000 amount in subsection (c)(1)(A)(ii) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 calendar year 2016 (2) Rounding If any amount as adjusted under paragraph (1) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (h) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit. . (b) Conforming amendments (1) Section 72(t)(7)(B) section 25A(g)(2) section 25A(f)(2) (2) Section 529(c)(3)(B)(v)(I) section 25A(g)(2) section 25A(f)(2) (3) Section 529(e)(3)(B)(i) section 25A(b)(3) section 25A(d) (4) Section 530(d)(2)(C) (A) by striking section 25A(g)(2) section 25A(f)(2) (B) by striking Hope and Lifetime Learning credits American opportunity tax credit (5) Section 530(d)(4)(B)(iii) section 25A(g)(2) section 25A(d)(4)(B) (6) Section 6050S(e) subsection (g)(2) subsection (f)(2) (7) Section 6211(b)(4)(A) subsection (i)(6) subsection (b) (8) Section 6213(g)(2)(J) TIN required under section 25A(g)(1) TIN, and employer identification number, required under section 25A(f)(1) (9) Section 6213(g)(2)(Q) (Q) an omission of information required by section 25A(f)(8)(B) or an entry on the return claiming the credit determined under section 25A(a) for a taxable year for which the credit is disallowed under section 25A(f)(8)(A). . (10) Section 1004(c) of division B of the American Recovery and Reinvestment Tax Act of 2009 is amended— (A) in paragraph (1)— (i) by striking section 25A(i)(6) section 25A(b) (ii) by striking with respect to taxable years beginning after 2008 and before 2018 with respect to each taxable year (B) in paragraph (2), by striking Section 25A(i)(6) Section 25A(b) (C) in paragraph (3)(C), by striking subsection (i)(6) subsection (b) (11) The table of sections for subpart A of part IV of subchapter A of chapter 1 Sec. 25A. American opportunity tax credit. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1202. Consolidation of education savings rules (a) No new contributions to Coverdell education savings account Section 530(b)(1)(A) (A) Except in the case of rollover contributions, no contribution will be accepted after December 31, 2017. . (b) Limited distribution allowed for elementary and secondary tuition (1) In general Section 529(c) (7) Treatment of elementary and secondary tuition Any reference in this subsection to the term qualified higher education expense . (2) Limitation Section 529(e)(3)(A) The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year, shall, in the aggregate, include not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the beneficiary as an elementary or secondary school student at a public, private, or religious school. (c) Rollovers to qualified tuition programs permitted Section 530(d)(5) , or into (by purchase or contribution) a qualified tuition program (as defined in section 529), into another Coverdell education savings account (d) Distributions from qualified tuition programs for certain expenses associated with registered apprenticeship programs Section 529(e)(3) (C) Certain expenses associated with registered apprenticeship programs The term qualified higher education expenses 29 U.S.C. 50 . (e) Unborn children allowed as account beneficiaries Section 529(e) (6) Treatment of unborn children (A) In general Nothing shall prevent an unborn child from being treated as a designated beneficiary or an individual under this section. (B) Unborn child For purposes of this paragraph— (i) In general The term unborn child (ii) Child in utero The term child in utero . (f) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions made after December 31, 2017. (2) Rollovers to qualified tuition programs The amendments made by subsection (b) shall apply to distributions after December 31, 2017. 1203. Reforms to discharge of certain student loan indebtedness (a) Treatment of student loans discharged on account of death or disability Section 108(f) (5) Discharges on account of death or disability (A) In general In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income by reasons of the discharge (in whole or in part) of any loan described in subparagraph (B) if such discharge was— (i) pursuant to subsection (a) or (d) of section 437 of the Higher Education Act of 1965 or the parallel benefit under part D of title IV of such Act (relating to the repayment of loan liability), (ii) pursuant to section 464(c)(1)(F) of such Act, or (iii) otherwise discharged on account of the death or total and permanent disability of the student. (B) Loans described A loan is described in this subparagraph if such loan is— (i) a student loan (as defined in paragraph (2)), or (ii) a private education loan (as defined in section 140(7) of the Consumer Credit Protection Act ( 15 U.S.C. 1650(7) . (b) Exclusion from gross income for payments made under indian health service loan repayment program (1) In general Section 108(f)(4) under section 108 of the Indian Health Care Improvement Act, 338I of such Act, (2) Clerical amendment The heading for section 108(f)(4) and certain , indian health service loan repayment program, and certain (c) Effective dates (1) Subsection (a) The amendment made by subsection (a)(1) shall apply to discharges of indebtedness after December 31, 2017. (2) Subsection (b) The amendments made by subsection (b) shall apply to amounts received in taxable years beginning after December 31, 2017. 1204. Repeal of other provisions relating to education (a) In general Subchapter B of chapter 1 (1) in part VII by striking sections 221 and 222 (and by striking the items relating to such sections in the table of sections for such part), (2) in part VII by striking sections 135 and 127 (and by striking the items relating to such sections in the table of sections for such part), and (3) by striking subsection (d) of section 117. (b) Conforming amendment relating to section 221 (1) Section 62(a) (2) Section 74(d) 221, (3) Section 86(b)(2)(A) 221, (4) Section 219(g)(3)(A)(ii) 221, (5) Section 163(h)(2) (6) Section 6050S(a) (A) by inserting or (B) by striking or (C) by striking paragraph (3). (7) Section 6050S(e) thereof) (c) Conforming amendments related to section 222 (1) Section 62(a) (2) Section 74(d)(2)(B) 222, (3) Section 86(b)(2)(A) 222, (4) Section 219(g)(3)(A)(ii) 222, (d) Conforming amendments relating to section 127 (1) Section 125(f)(1) 127, (2) Section 132(j)(8) which are not excludable from gross income under section 127 (3) Section 414(n)(3)(C) 127, (4) Section 414(t)(2) 127, (5) Section 3121(a)(18) 127, (6) Section 3231(e) (7) Section 3306(b)(13) 127, (8) Section 3401(a)(18) 127, (9) Section 6039D(d)(1) , 127 (e) Conforming amendments relating to section 117(d) (1) Section 117(c)(1) (A) by striking subsections (a) and (d) subsection (a) (B) by striking or qualified tuition reduction (2) Section 414(n)(3)(C) 117(d), (3) Section 414(t)(2) 117(d), (f) Conforming amendments related to section 135 (1) Section 74(d)(2)(B) 135, (2) Section 86(b)(2)(A) 135, (3) Section 219(g)(3)(A)(ii) 135, (g) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Amendments relating to section 117(d) The amendments made by subsections (a)(3) and (e) shall apply to amounts paid or incurred after December 31, 2017. 1205. Rollovers between qualified tuition programs and qualified ABLE programs (a) Rollovers from qualified tuition programs to qualified ABLE programs Section 529(c)(3)(C)(i) or , or (III) to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B). . (b) Effective date The amendments made by this section shall apply to distributions after December 31, 2017. D Simplification and reform of deductions 1301. Repeal of overall limitation on itemized deductions (a) In general Part 1 of subchapter B of chapter 1 (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1302. Mortgage interest (a) Modification of limitations (1) In general Section 163(h)(3) (3) Qualified residence interest For purposes of this subsection— (A) In general The term qualified residence interest (i) is incurred in acquiring, constructing, or substantially improving any qualified residence (determined as of the time the interest is accrued) of the taxpayer, and (ii) is secured by such residence. Such term also includes interest on any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness. (B) Limitation The aggregate amount of indebtedness taken into account under subparagraph (A) for any period shall not exceed $500,000 (half of such amount in the case of a married individual filing a separate return). (C) Treatment of indebtedness incurred on or before November 2, 2017 (i) In general In the case of any pre-November 2, 2017, indebtedness, this paragraph shall apply as in effect immediately before the enactment of the Tax Cuts and Jobs Act (ii) Pre-November 2, 2017, indebtedness For purposes of this subparagraph, the term pre-November 2, 2017, indebtedness (I) any principal residence acquisition indebtedness which was incurred on or before November 2, 2017, or (II) any principal residence acquisition indebtedness which is incurred after November 2, 2017, to refinance indebtedness described in clause (i) (or refinanced indebtedness meeting the requirements of this clause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing). (iii) Limitation on period of refinancing clause (ii)(II) shall not apply to any indebtedness after— (I) the expiration of the term of the original indebtedness, or (II) if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing). (iv) Binding contract exception In the case of a taxpayer who enters into a written binding contract before November 2, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subparagraphs (A) and (B) shall be applied by substituting April 1, 2018 November 2, 2017 . (2) Conforming amendments (A) Section 108(h)(2) is by striking for $1,000,000 ($500,000 for $500,000 ($250,000 $1,000,000 $500,000 (B) Section 163(h) (b) Taxpayers limited to 1 qualified residence Section 163(h)(4)(A)(i) (i) In general The term qualified residence . (c) Effective dates (1) In general The amendments made by this section shall apply to interest paid or accrued in taxable years beginning after December 31, 2017, with respect to indebtedness incurred before, on, or after such date. (2) Treatment of grandfathered indebtedness For application of the amendments made by this section to grandfathered indebtedness, see paragraph (3)(C) of section 163(h) 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business (a) In general Section 164(b)(5) (5) Limitation in case of individuals In the case of a taxpayer other than a corporation— (A) foreign real property taxes (other than taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212) shall not be taken into account under subsection (a)(1), (B) the aggregate amount of taxes (other than taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212) taken into account under subsection (a)(1) for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return), (C) subsection (a)(2) shall only apply to taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212, and (D) subsection (a)(3) shall not apply to State and local taxes. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1304. Repeal of deduction for personal casualty losses (a) In general Section 165(c) and ; and (b) Conforming amendments (1) Section 165(h) (h) Special rule where personal casualty gains exceed personal casualty losses (1) In general If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year— (A) all such gains shall be treated as gains from sales or exchanges of capital assets, and (B) all such losses shall be treated as losses from sales or exchanges of capital assets. (2) Definitions of personal casualty gain and personal casualty loss For purposes of this subsection— (A) Personal casualty loss The term personal casualty loss (B) Personal casualty gain The term personal casualty gain . (2) Section 165 (3) (A) Section 165(l)(1) a loss described in subsection (c)(3) an ordinary loss described in subsection (c)(2) (B) Section 165(l) (i) by striking paragraph (5), (ii) by redesignating paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), respectively, and (iii) by inserting after paragraph (1) the following new paragraph: (2) Limitations (A) Deposit may not be federally insured No election may be made under paragraph (1) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law. (B) Dollar limitation With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under paragraph (1) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution. . (4) Section 172(b)(1)(E)(ii), prior to amendment under title III, is amended by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively. (5) Section 172(d)(4)(C) paragraph (2) or (3) of section 165(c) section 165(c)(2) (6) Section 274(f) casualty losses, (7) Section 280A(b) casualty losses, (8) Section 873(b), as amended by the preceding provisions of this Act, is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (9) Section 504(b) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 is amended by adding at the end the following new paragraph: (4) Coordination with Tax Reform This subsection shall be applied without regard to the amendments made by section 1304 of the Tax Cuts and Jobs Act . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1305. Limitation on wagering losses (a) In general Section 165(d) For purposes of the preceding sentence, the term losses from wagering transactions (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1306. Charitable contributions (a) Increased limitation for cash contributions Section 170(b)(1) (G) Increased limitation for cash contributions (i) In general In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year shall not exceed 60 percent of the taxpayer’s contribution base for such year. (ii) Carryover If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time. (iii) Coordination with subparagraphs (A) (B) (I) In general Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A). (II) Limitation reduction Subparagraphs (A) and (B) shall be applied by reducing (but not below zero) the aggregate contribution limitation allowed for the taxable year under each such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year. . (b) Denial of deduction for college athletic event seating rights Section 170(l)(1) (1) In general No deduction shall be allowed under this section for any amount described in paragraph (2). . (c) Charitable mileage rate adjusted for inflation Section 170(i) shall be 14 cents per mile shall be a rate which takes into account the variable cost of operating an automobile (d) Repeal of substantiation exception in case of contributions reported by donee Section 170(f)(8) (e) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2017. 1307. Repeal of deduction for tax preparation expenses (a) In general Section 212 or ; or (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1308. Repeal of medical expense deduction (a) In general Part VII of subchapter B is amended by striking by striking section 213 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) (A) Section 105(f) (f) Medical care For purposes of this section— (1) In general The term medical care (A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, (B) for transportation primarily for and essential to medical care referred to in subparagraph (A), (C) for qualified long-term care services (as defined in section 7702B(c)), or (D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)). In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (7)) shall be taken into account under subparagraph (D). (2) Amounts paid for certain lodging away from home treated as paid for medical care Amounts paid for lodging (not lavish or extravagant under the circumstances) while away from home primarily for and essential to medical care referred to in paragraph (1)(A) shall be treated as amounts paid for medical care if— (A) the medical care referred to in paragraph (1)(A) is provided by a physician in a licensed hospital (or in a medical care facility which is related to, or the equivalent of, a licensed hospital), and (B) there is no significant element of personal pleasure, recreation, or vacation in the travel away from home. The amount taken into account under the preceding sentence shall not exceed $50 for each night for each individual. (3) Physician The term physician 42 U.S.C. 1395x(r) (4) Contracts covering other than medical care In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A), (B) and (C) of paragraph (1)— (A) no amount shall be treated as paid for insurance to which paragraph (1)(D) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement, (B) the amount taken into account as the amount paid for such insurance shall not exceed such charge, and (C) no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract. (5) Certain pre-paid contracts Subject to the limitations of paragraph (4), premiums paid during the taxable year by a taxpayer before he attains the age of 65 for insurance covering medical care (within the meaning of subparagraphs (A), (B), and (C) of paragraph (1)) for the taxpayer, his spouse, or a dependent after the taxpayer attains the age of 65 shall be treated as expenses paid during the taxable year for insurance which constitutes medical care if premiums for such insurance are payable (on a level payment basis) under the contract for a period of 10 years or more or until the year in which the taxpayer attains the age of 65 (but in no case for a period of less than 5 years). (6) Cosmetic surgery (A) In general The term medical care (B) Cosmetic surgery defined For purposes of this paragraph, the term cosmetic surgery (7) Eligible long-term care premiums (A) In general For purposes of this section, the term eligible long-term care premiums In the case of an individual with an attained age before the close of the taxable year of: The limitation is: 40 or less $200 More than 40 but not more than 50 $375 More than 50 but not more than 60 $750 More than 60 but not more than 70 $2,000 More than 70 $2,500 (B) Indexing (i) In general In the case of any taxable year beginning after 1997, each dollar amount in subparagraph (A) shall be increased by the medical care cost adjustment of such amount for such calendar year. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $10. (ii) Medical care cost adjustment For purposes of clause (i), the medical care cost adjustment for any calendar year is the adjustment prescribed by the Secretary, in consultation with the Secretary of Health and Human Services, for purposes of such clause. To the extent that CPI (as defined section 1(c)), or any component thereof, is taken into account in determining such adjustment, such adjustment shall be determined by taking into account C-CPI-U (as so defined), or the corresponding component thereof, in lieu of such CPI (or component thereof), but only with respect to the portion of such adjustment which relates to periods after December 31, 2017. (8) Certain payments to relatives treated as not paid for medical care An amount paid for a qualified long-term care service (as defined in section 7702B(c)) provided to an individual shall be treated as not paid for medical care if such service is provided— (A) by the spouse of the individual or by a relative (directly or through a partnership, corporation, or other entity) unless the service is provided by a licensed professional with respect to such service, or (B) by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual. For purposes of this paragraph, the term relative . (B) Section 72(t)(2)(D)(i)(III) section 213(d)(1)(D) section 105(f)(1)(D) (C) Section 104(a) section 213(d)(1) section 105(f)(1) (D) Section 105(b) section 213(d) section 105(f) (E) Section 139D section 213 section 223 (F) Section 162(l)(2) section 213(d)(10) section 105(f)(7) (G) Section 220(d)(2)(A) section 213(d) section 105(f) (H) Section 223(d)(2)(A) section 213(d) section 105(f) (I) Section 419A(f)(2) section 213(d) section 105(f) (J) Section 501(c)(26)(A) section 213(d) section 105(f) (K) Section 2503(e) section 213(d) section 105(f) (L) Section 4980B(c)(4)(B)(i)(I) section 213(d) section 105(f) (M) Section 6041(f) section 213(d) section 105(f) (N) Section 7702B(a)(2) section 213(d) section 105(f) (O) Section 7702B(a)(4) section 213(d)(1)(D) section 105(f)(1)(D) (P) Section 7702B(d)(5) section 213(d)(10) section 105(f)(7) (Q) Section 9832(d)(3) section 213(d) section 105(f) (2) Section 72(t)(2)(B) (B) Medical expenses Distributions made to an individual (other than distributions described in subparagraph (A), (C), or (D) to the extent such distributions do not exceed the excess of— (i) the expenses paid by the taxpayer during the taxable year, not compensated for by insurance or otherwise, for medical care (as defined in 105(f)) of the taxpayer, his spouse, or a dependent (as defined in section 7706, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), over (ii) 10 percent of the taxpayer’s adjusted gross income. . (3) Section 162(l) (4) Section 402(l) (5) Section 220(f) (6) Section 223(f) (7) Section 7702B(e) (8) Section 7706(f)(7), as redesignated by this Act, is amended by striking sections 105(b), 132(h)(2)(B), and 213(d)(5) sections 105(b) and 132(h)(2)(B) (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1309. Repeal of deduction for alimony payments (a) In general Part VII of subchapter B is amended by striking by striking section 215 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) Corresponding repeal of provisions providing for inclusion of alimony in gross income (A) Subsection (a) of section 61 (B) Part II of subchapter B of chapter 1 (C) Subpart F of part I of subchapter J of chapter 1 (2) Related to repeal of section 215 (A) Section 62(a) (B) Section 3402(m)(1) (other than paragraph (10) thereof) (3) Related to repeal of section 71 (A) Section 121(d)(3) (i) by striking (as defined in section 71(b)(2)) (ii) by adding at the end the following new subparagraph: (C) Divorce or separation instrument For purposes of this paragraph, the term divorce or separation instrument (i) a decree of divorce or separate maintenance or a written instrument incident to such a decree, (ii) a written separation agreement, or (iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse. . (B) Section 220(f)(7) subparagraph (A) of section 71(b)(2) clause (i) of section 121(d)(3)(C) (C) Section 223(f)(7) subparagraph (A) of section 71(b)(2) clause (i) of section 121(d)(3)(C) (D) Section 382(l)(3)(B)(iii) section 71(b)(2) section 121(d)(3)(C) (E) Section 408(d)(6) subparagraph (A) of section 71(b)(2) clause (i) of section 121(d)(3)(C) (c) Effective date The amendments made by this section shall apply to— (1) any divorce or separation instrument (as defined in section 71(b)(2) (2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification. 1310. Repeal of deduction for moving expenses (a) In general Part VII of subchapter B is amended by striking by striking section 217 (and by striking the item relating to such section in the table of sections for such subpart). (b) Retention of moving expenses for members of Armed Forces Section 134(b) (7) Moving expenses The term qualified military benefit . (c) Conforming amendments (1) Section 62(a) (2) Section 274(m)(3) (other than section 217) (3) Section 3121(a) (4) Section 3306(b) (5) Section 3401(a) (6) Section 7872(f) (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1311. Termination of deduction and exclusions for contributions to medical savings accounts (a) Termination of income tax deduction Section 220 (k) Termination No deduction shall be allowed under subsection (a) with respect to any taxable year beginning after December 31, 2017. . (b) Termination of exclusion for employer-Provided contributions Section 106 (c) Conforming amendments (1) Section 62(a) (2) Section 106(d) (2) No constructive receipt No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer. (3) Special rule for deduction of employer contributions Any employer contribution to a health savings account (as so defined), if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid. (4) Employer health savings account contribution required to be shown on return Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the health savings accounts (as so defined) of such individual or such individual’s spouse for such taxable year. (5) Health savings account contributions not part of COBRA coverage Paragraph (1) shall not apply for purposes of section 4980B. . (3) Section 223(b)(4) (4) Section 223(b)(5) under paragraph (3)) shall be divided equally between them under paragraph (3)) shall be divided equally between the spouses (5) Section 223(c) (6) Section 3231(e) (7) Section 3306(b) (8) Section 3401(a) (9) Chapter 43 (10) Section 4980G 4980G. Failure of employer to make comparable health savings account contributions (a) In general In the case of an employer who makes a contribution to the health savings account of any employee during a calendar year, there is hereby imposed a tax on the failure of such employer to meet the requirements of subsection (d) for such calendar year. (b) Amount of tax The amount of the tax imposed by subsection (a) on any failure for any calendar year is the amount equal to 35 percent of the aggregate amount contributed by the employer to health savings accounts of employees for taxable years of such employees ending with or within such calendar year. (c) Waiver by Secretary In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved. (d) Employer required To make comparable health savings account contributions for all participating employees (1) In general An employer meets the requirements of this subsection for any calendar year if the employer makes available comparable contributions to the health savings accounts of all comparable participating employees for each coverage period during such calendar year. (2) Comparable contributions (A) In general For purposes of paragraph (1), the term comparable contributions (i) which are the same amount, or (ii) which are the same percentage of the annual deductible limit under the high deductible health plan covering the employees. (B) Part-year employees In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the health savings account of such employee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount (determined without regard to this subparagraph) as such portion bears to the entire calendar year. (3) Comparable participating employees (A) In general For purposes of paragraph (1), the term comparable participating employees (i) who are eligible individuals covered under any high deductible health plan of the employer, and (ii) who have the same category of coverage. (B) Categories of coverage For purposes of subparagraph (B), the categories of coverage are self-only and family coverage. (4) Part-time employees (A) In general Paragraph (3) shall be applied separately with respect to part-time employees and other employees. (B) Part-time employee For purposes of subparagraph (A), the term part-time employee (5) Special rule for non-highly compensated employees For purposes of applying this section to a contribution to a health savings account of an employee who is not a highly compensated employee (as defined in section 414(q)), highly compensated employees shall not be treated as comparable participating employees. (e) Controlled groups For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer. (f) Definitions Terms used in this section which are also used in section 223 have the respective meanings given such terms in section 223. (g) Regulations The Secretary shall issue regulations to carry out the purposes of this section. . (11) Section 6051(a) (12) Section 6051(a)(14)(A) paragraphs (11) and (12) paragraph (12) (d) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 1312. Denial of deduction for expenses attributable to the trade or business of being an employee (a) In general Part IX of subchapter B of chapter 1 262A. Expenses attributable to being an employee (a) In general Except as otherwise provided in this section, no deduction shall be allowed with respect to any trade or business of the taxpayer which consists of the performance of services by the taxpayer as an employee. (b) Exception for above-the-line deductions Subsection (a) shall not apply to any deduction allowable (determined without regard to subsection (a)) in determining adjusted gross income. . (b) Repeal of certain above-the-line trade and business deductions of employees (1) In general Section 62(a)(2) (A) by striking subparagraphs (B), (C), and (D), and (B) by redesignating subparagraph (E) as subparagraph (B). (2) Conforming amendments (A) Section 62 (B) Section 62(a)(20) subsection (e) subsection (c) (c) Continued exclusion of working condition fringe benefits Section 132(d) (determined without regard to section 262A) section 162 (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. E Simplification and reform of exclusions and taxable compensation 1401. Limitation on exclusion for employer-provided housing (a) In general Section 119 (e) Limitation on exclusion of lodging (1) In general The aggregate amount excluded from gross income of the taxpayer under subsections (a) and (d) with respect to lodging for any taxable year shall not exceed $50,000 (half such amount in the case of a married individual filing a separate return). (2) Limitation to 1 home Subsections (a) and (d) (separately and in combination) shall not apply with respect to more than 1 residence of the taxpayer at any given time. In the case of a joint return, the preceding sentence shall apply separately to each spouse for any period during which each spouse resides separate from the other spouse in a residence which is provided in connection with the employment of each spouse, respectively. (3) Limitation for highly compensated employees (A) Reduced for excess compensation In the case of an individual whose compensation for the taxable year exceeds the amount in effect under section 414(q)(1)(B)(i) for the calendar in which such taxable year begins, the $50,000 amount under paragraph (1) shall be reduced (but not below zero) by an amount equal to 50 percent of such excess. For purposes of the preceding sentence, the term compensation (B) Exclusion denied for 5-percent owners In the case of an individual who is a 5-percent owner (as defined in section 416(i)(1)(B)(i)) of the employer at any time during the taxable year, the amount under paragraph (1) shall be zero. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 1402. Exclusion of gain from sale of a principal residence (a) Requirement that residence be principal residence for 5 years during 8-year period Subsection (a) of section 121 (1) by striking 5-year period 8-year period (2) by striking 2 years 5 years (b) Application to only 1 sale or exchange every 5 years Paragraph (3) of section 121(b) (3) Application to only 1 sale or exchange every 5 years Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 5-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied. . (c) Phaseout based on modified adjusted gross income Section 121 (h) Phaseout based on modified adjusted gross income (1) In general If the average modified adjusted gross income of the taxpayer for the taxable year and the 2 preceding taxable years exceeds $250,000 (twice such amount in the case of a joint return), the amount which would (but for this subsection) be excluded from gross income under subsection (a) for such taxable year shall be reduced (but not below zero) by the amount of such excess. (2) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income (3) Special rule for joint returns In the case of a joint return, the average modified adjusted gross income of the taxpayer shall be determined without regard to any taxable year with respect to which the taxpayer did not file a joint return. . (d) Conforming amendments (1) The following provisions of section 121 are each amended by striking 5-year period 8-year period (A) Subsection (b)(5)(C)(ii)(I). (B) Subsection (c)(1)(B)(i)(I). (C) Subsection (d)(7)(B). (D) Subparagraphs (A) and (B) of subsection (d)(9). (E) Subsection (d)(10). (F) Subsection (d)(12)(A). (2) Section 121(c)(1)(B)(ii) 2 years 5 years (e) Effective date The amendments made by this section shall apply to sales and exchanges after December 31, 2017. 1403. Repeal of exclusion, etc., for employee achievement awards (a) In general Section 74 (b) Repeal of limitation on deduction Section 274 (c) Conforming amendments (1) Section 102(c)(2) (2) Section 414(n)(3)(C) 274(j), (3) Section 414(t)(2) 274(j), (4) Section 3121(a)(20) 74(c) (5) Section 3231(e)(5) 74(c), (6) Section 3306(b)(16) 74(c), (7) Section 3401(a)(19) 74(c), (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1404. Sunset of exclusion for dependent care assistance programs (a) In general Section 129 (f) Termination Subsection (a) shall not apply to taxable years beginning after December 31, 2022. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 1405. Repeal of exclusion for qualified moving expense reimbursement (a) In general Section 132(a) (b) Conforming amendments (1) Section 82 Except as provided in section 132(a)(6), there There (2) Section 132 (3) Section 132(l) subsections (e) and (g) subsection (e) (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1406. Repeal of exclusion for adoption assistance programs (a) In general Part III of subchapter B of chapter 1 (b) Conforming amendments (1) Sections 414(n)(3)(C), 414(t)(2), 74(d)(2)(B), 86(b)(2)(A), 219(g)(3)(A)(ii) are each amended by striking , 137 (2) Section 1016(a), as amended by the preceding provision of this Act, is amended by striking paragraph (26). (3) Section 6039D(d)(1), as amended by the preceding provisions of this Act, is amended— (A) by striking , or 137 (B) by inserting or 125 (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. F Simplification and reform of savings, pensions, retirement 1501. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions (a) In general Section 408A(d) (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1502. Reduction in minimum age for allowable in-service distributions (a) In general Section 401(a)(36) age 62 age 59 ½ (b) Application to governmental section 457(b) Clause (i) of section 457(d)(1)(A) (in the case of a plan maintained by an employer described in subsection (e)(1)(A), age 59 ½ (c) Effective date The amendments made by this section shall apply to plan years beginning after December 31, 2017. 1503. Modification of rules governing hardship distributions (a) In general Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall modify Treasury Regulation section 1.401(k)–1(d)(3)(iv)(E) to— (1) delete the 6-month prohibition on contributions imposed by paragraph (2) thereof, and (2) make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) (b) Effective date The revised regulations under this section shall apply to plan years beginning after December 31, 2017. 1504. Modification of rules relating to hardship withdrawals from cash or deferred arrangements (a) In general Section 401(k) (14) Special rules relating to hardship withdrawals For purposes of paragraph (2)(B)(i)(IV)— (A) Amounts which may be withdrawn The following amounts may be distributed upon hardship of the employee: (i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies. (ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)). (iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I). (iv) Earnings on any contributions described in clause (i), (ii), or (iii). (B) No requirement to take available loan A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.". . (b) Conforming amendment Section 401(k)(2)(B)(i)(IV) (IV) subject to the provisions of paragraph (14), upon hardship of the employee, or". . (c) Effective date The amendments made by this section shall apply to plan years beginning after December 31, 2017. 1505. Extended rollover period for the rollover of plan loan offset amounts in certain cases (a) In general Paragraph (3) of section 402(c) (C) Rollover of certain plan loan offset amounts (i) In general In the case of a qualified plan loan offset amount, paragraph (1) shall not apply to any transfer of such amount made after the due date (including extensions) for filing the return of tax for the taxable year in which such amount is treated as distributed from a qualified employer plan. (ii) Qualified plan loan offset amount For purposes of this subparagraph, the term qualified plan loan offset amount (I) the termination of the qualified employer plan, or (II) the failure to meet the repayment terms of the loan from such plan because of the separation from service of the participant (whether due to layoff, cessation of business, termination of employment, or otherwise). (iii) Plan loan offset amount For purposes of clause (ii), the term plan loan offset amount (iv) Limitation This subparagraph shall not apply to any plan loan offset amount unless such plan loan offset amount relates to a loan to which section 72(p)(1) does not apply by reason of section 72(p)(2). (v) Qualified employer plan For purposes of this subsection, the term qualified employer plan . (b) Conforming amendment Subparagraph (A) of section 402(c)(3) subparagraph (B) subparagraphs (B) and (C) (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1506. Modification of nondiscrimination rules to protect older, longer service participants (a) In general Section 401 (1) by redesignating subsection (o) as subsection (p), and (2) by inserting after subsection (n) the following new subsection: (o) Special rules for applying nondiscrimination rules to protect older, longer service and grandfathered participants (1) Testing of defined benefit plans with closed classes of participants (A) Benefits, rights, or features provided to closed classes A defined benefit plan which provides benefits, rights, or features to a closed class of participants shall not fail to satisfy the requirements of subsection (a)(4) by reason of the composition of such closed class or the benefits, rights, or features provided to such closed class, if— (i) for the plan year as of which the class closes and the 2 succeeding plan years, such benefits, rights, and features satisfy the requirements of subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)), (ii) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and (iii) the class was closed before April 5, 2017, or the plan is described in subparagraph (C). (B) Aggregate testing with defined contribution plans permitted on a benefits basis (i) In general For purposes of determining compliance with subsection (a)(4) and section 410(b), a defined benefit plan described in clause (iii) may be aggregated and tested on a benefits basis with 1 or more defined contribution plans, including with the portion of 1 or more defined contribution plans which— (I) provides matching contributions (as defined in subsection (m)(4)(A)), (II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or (III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)). (ii) Special rules for matching contributions For purposes of clause (i), if a defined benefit plan is aggregated with a portion of a defined contribution plan providing matching contributions— (I) such defined benefit plan must also be aggregated with any portion of such defined contribution plan which provides elective deferrals described in subparagraph (A) or (C) of section 402(g)(3), and (II) such matching contributions shall be treated in the same manner as nonelective contributions, including for purposes of applying the rules of subsection (l). (iii) Plans described A defined benefit plan is described in this clause if— (I) the plan provides benefits to a closed class of participants, (II) for the plan year as of which the class closes and the 2 succeeding plan years, the plan satisfies the requirements of section 410(b) and subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)), (III) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits provided to such closed class does not discriminate significantly in favor of highly compensated employees, and (IV) the class was closed before April 5, 2017, or the plan is described in subparagraph (C). (C) Plans described A plan is described in this subparagraph if, taking into account any predecessor plan— (i) such plan has been in effect for at least 5 years as of the date the class is closed, and (ii) during the 5-year period preceding the date the class is closed, there has not been a substantial increase in the coverage or value of the benefits, rights, or features described in subparagraph (A) or in the coverage or benefits under the plan described in subparagraph (B)(iii) (whichever is applicable). (D) Determination of substantial increase for benefits, rights, and features In applying subparagraph (C)(ii) for purposes of subparagraph (A)(iii), a plan shall be treated as having had a substantial increase in coverage or value of the benefits, rights, or features described in subparagraph (A) during the applicable 5-year period only if, during such period— (i) the number of participants covered by such benefits, rights, or features on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or (ii) such benefits, rights, and features have been modified by 1 or more plan amendments in such a way that, as of the date the class is closed, the value of such benefits, rights, and features to the closed class as a whole is substantially greater than the value as of the first day of such 5-year period, solely as a result of such amendments. (E) Determination of substantial increase for aggregate testing on benefits basis In applying subparagraph (C)(ii) for purposes of subparagraph (B)(iii)(IV), a plan shall be treated as having had a substantial increase in coverage or benefits during the applicable 5-year period only if, during such period— (i) the number of participants benefitting under the plan on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or (ii) the average benefit provided to such participants on the date such period ends is more than 50 percent greater than the average benefit provided on the first day of the plan year in which such period began. (F) Certain employees disregarded For purposes of subparagraphs (D) and (E), any increase in coverage or value or in coverage or benefits, whichever is applicable, which is attributable to such coverage and value or coverage and benefits provided to employees— (i) who became participants as a result of a merger, acquisition, or similar event which occurred during the 7-year period preceding the date the class is closed, or (ii) who became participants by reason of a merger of the plan with another plan which had been in effect for at least 5 years as of the date of the merger, shall be disregarded, except that clause (ii) shall apply for purposes of subparagraph (D) only if, under the merger, the benefits, rights, or features under 1 plan are conformed to the benefits, rights, or features of the other plan prospectively. (G) Rules relating to average benefit For purposes of subparagraph (E)— (i) the average benefit provided to participants under the plan will be treated as having remained the same between the 2 dates described in subparagraph (E)(ii) if the benefit formula applicable to such participants has not changed between such dates, and (ii) if the benefit formula applicable to 1 or more participants under the plan has changed between such 2 dates, then the average benefit under the plan shall be considered to have increased by more than 50 percent only if— (I) the total amount determined under section 430(b)(1)(A)(i) for all participants benefitting under the plan for the plan year in which the 5-year period described in subparagraph (E) ends, exceeds (II) the total amount determined under section 430(b)(1)(A)(i) for all such participants for such plan year, by using the benefit formula in effect for each such participant for the first plan year in such 5-year period, by more than 50 percent. In the case of a CSEC plan (as defined in section 414(y)), the normal cost of the plan (as determined under section 433(j)(1)(B)) shall be used in lieu of the amount determined under section 430(b)(1)(A)(i). (H) Treatment as single plan For purposes of subparagraphs (E) and (G), a plan described in section 413(c) shall be treated as a single plan rather than as separate plans maintained by each participating employer. (I) Special rules For purposes of subparagraphs (A)(i) and (B)(iii)(II), the following rules shall apply: (i) In applying section 410(b)(6)(C), the closing of the class of participants shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II). (ii) 2 or more plans shall not fail to be eligible to be aggregated and treated as a single plan solely by reason of having different plan years. (iii) Changes in the employee population shall be disregarded to the extent attributable to individuals who become employees or cease to be employees, after the date the class is closed, by reason of a merger, acquisition, divestiture, or similar event. (iv) Aggregation and all other testing methodologies otherwise applicable under subsection (a)(4) and section 410(b) may be taken into account. The rule of clause (ii) shall also apply for purposes of determining whether plans to which subparagraph (B)(i) applies may be aggregated and treated as 1 plan for purposes of determining whether such plans meet the requirements of subsection (a)(4) and section 410(b). (J) Spun-off plans For purposes of this paragraph, if a portion of a defined benefit plan described in subparagraph (A) or (B)(iii) is spun off to another employer and the spun-off plan continues to satisfy the requirements of— (i) subparagraph (A)(i) or (B)(iii)(II), whichever is applicable, if the original plan was still within the 3-year period described in such subparagraph at the time of the spin off, and (ii) subparagraph (A)(ii) or (B)(iii)(III), whichever is applicable, the treatment under subparagraph (A) or (B) of the spun-off plan shall continue with respect to such other employer. (2) Testing of defined contribution plans (A) Testing on a benefits basis A defined contribution plan shall be permitted to be tested on a benefits basis if— (i) such defined contribution plan provides make-whole contributions to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated, (ii) for the plan year of the defined contribution plan as of which the class eligible to receive such make-whole contributions closes and the 2 succeeding plan years, such closed class of participants satisfies the requirements of section 410(b)(2)(A)(i) (determined by applying the rules of paragraph (1)(I)), (iii) after the date as of which the class was closed, any plan amendment to the defined contribution plan which modifies the closed class or the allocations, benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and (iv) the class was closed before April 5, 2017, or the defined benefit plan under clause (i) is described in paragraph (1)(C) (as applied for purposes of paragraph (1)(B)(iii)(IV)). (B) Aggregation with plans including matching contributions (i) In general With respect to 1 or more defined contribution plans described in subparagraph (A), for purposes of determining compliance with subsection (a)(4) and section 410(b), the portion of such plans which provides make-whole contributions or other nonelective contributions may be aggregated and tested on a benefits basis with the portion of 1 or more other defined contribution plans which— (I) provides matching contributions (as defined in subsection (m)(4)(A)), (II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or (III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)). (ii) Special rules for matching contributions Rules similar to the rules of paragraph (1)(B)(ii) shall apply for purposes of clause (i). (C) Special rules for testing defined contribution plan features providing matching contributions to certain older, longer service participants In the case of a defined contribution plan which provides benefits, rights, or features to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated, the plan shall not fail to satisfy the requirements of subsection (a)(4) solely by reason of the composition of the closed class or the benefits, rights, or features provided to such closed class if the defined contribution plan and defined benefit plan otherwise meet the requirements of subparagraph (A) but for the fact that the make-whole contributions under the defined contribution plan are made in whole or in part through matching contributions. (D) Spun-off plans For purposes of this paragraph, if a portion of a defined contribution plan described in subparagraph (A) or (C) is spun off to another employer, the treatment under subparagraph (A) or (C) of the spun-off plan shall continue with respect to the other employer if such plan continues to comply with the requirements of clauses (ii) (if the original plan was still within the 3-year period described in such clause at the time of the spin off) and (iii) of subparagraph (A), as determined for purposes of subparagraph (A) or (C), whichever is applicable. (3) Definitions For purposes of this subsection— (A) Make-whole contributions Except as otherwise provided in paragraph (2)(C), the term make-whole contributions (B) References to closed class of participants References to a closed class of participants and similar references to a closed class shall include arrangements under which 1 or more classes of participants are closed, except that 1 or more classes of participants closed on different dates shall not be aggregated for purposes of determining the date any such class was closed. (C) Highly compensated employee The term highly compensated employee . (b) Participation requirements Paragraph (26) of section 401(a) (I) Protected participants (i) In general A plan shall be deemed to satisfy the requirements of subparagraph (A) if— (I) the plan is amended— (aa) to cease all benefit accruals, or (bb) to provide future benefit accruals only to a closed class of participants, (II) the plan satisfies subparagraph (A) (without regard to this subparagraph) as of the effective date of the amendment, and (III) the amendment was adopted before April 5, 2017, or the plan is described in clause (ii). (ii) Plans described A plan is described in this clause if the plan would be described in subsection (o)(1)(C), as applied for purposes of subsection (o)(1)(B)(iii)(IV) and by treating the effective date of the amendment as the date the class was closed for purposes of subsection (o)(1)(C). (iii) Special rules For purposes of clause (i)(II), in applying section 410(b)(6)(C), the amendments described in clause (i) shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II). (iv) Spun-off plans For purposes of this subparagraph, if a portion of a plan described in clause (i) is spun off to another employer, the treatment under clause (i) of the spun-off plan shall continue with respect to the other employer. . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act, without regard to whether any plan modifications referred to in such amendments are adopted or effective before, on, or after such date of enactment. (2) Special rules (A) Election of earlier application At the election of the plan sponsor, the amendments made by this section shall apply to plan years beginning after December 31, 2013. (B) Closed classes of participants For purposes of paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv) of section 401(o) (C) Certain post-enactment plan amendments A plan shall not be treated as failing to be eligible for the application of section 401(o)(1)(A), 401(o)(1)(B)(iii), or 401(a)(26) of such Code (as added by this section) to such plan solely because in the case of— (i) such section 401(o)(1)(A), the plan was amended before the date of the enactment of this Act to eliminate 1 or more benefits, rights, or features, and is further amended after such date of enactment to provide such previously eliminated benefits, rights, or features to a closed class of participants, or (ii) such section 401(o)(1)(B)(iii) or section 401(a)(26), the plan was amended before the date of the enactment of this Act to cease all benefit accruals, and is further amended after such date of enactment to provide benefit accruals to a closed class of participants. Any such section shall only apply if the plan otherwise meets the requirements of such section and in applying such section, the date the class of participants is closed shall be the effective date of the later amendment. G Estate, gift, and generation-skipping transfer taxes 1601. Increase in credit against estate, gift, and generation-skipping transfer tax (a) In general Section 2010(c)(3) $5,000,000 $10,000,000 (b) Effective date The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2017. 1602. Repeal of estate and generation-skipping transfer taxes (a) Estate tax repeal (1) In general Subchapter C of chapter 11 2210. Termination (a) In general Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after December 31, 2024. (b) Certain Distributions From Qualified Domestic Trusts In applying section 2056A with respect to the surviving spouse of a decedent dying on or before December 31, 2024— (1) section 2056A(b)(1)(A) shall not apply to distributions made after the 10-year period beginning on such date, and (2) section 2056A(b)(1)(B) shall not apply after such date. . (2) Conforming amendments Section 1014(b) (A) in paragraph (6), by striking was includible in determining was includible (or would have been includible without regard to section 2210) in determining the value of the decedent’s gross estate under chapter 11 of subtitle B (B) in paragraph (9), by striking required to be included Code of 1939 required to be included (or would have been required to be included without regard to section 2210) in determining the value of the decedent’s gross estate under chapter 11 of subtitle B (C) in paragraph (10), by striking Property includible in the gross estate Property includible (or which would have been includible without regard to section 2210) in the gross estate (3) Clerical amendment The table of sections for subchapter C of chapter 11 Sec. 2210. Termination. . (b) Generation-skipping transfer tax repeal (1) In general Subchapter G of chapter 13 of subtitle B of such Code is amended by adding at the end the following new section: 2664. Termination This chapter shall not apply to generation-skipping transfers after December 31, 2024. . (2) Clerical amendment The table of sections for subchapter G of chapter 13 of such Code is amended by adding at the end the following new item: Sec. 2664. Termination. . (c) Conforming amendments related to gift tax (1) Computation of gift tax Section 2502 (d) Gifts made after 2024 (1) In general In the case of a gift made after December 31, 2024, subsection (a) shall be applied by substituting subsection (d)(2) section 2001(c) such subsection such section (2) Rate schedule If the amount with respect to which the tentative tax to be computed is: The tentative tax is: Not over $10,000 18% of such amount. Over $10,000 but not over $20,000 $1,800, plus 20% of the excess over $10,000. Over $20,000 but not over $40,000 $3,800, plus 22% of the excess over $20,000. Over $40,000 but not over $60,000 $8,200, plus 24% of the excess over $40,000. Over $60,000 but not over $80,000 $13,000, plus 26% of the excess over $60,000. Over $80,000 but not over $100,000 $18,200, plus 28% of the excess over $80,000. Over $100,000 but not over $150,000 $23,800, plus 30% of the excess over $100,000. Over $150,000 but not over $250,000 $38,800, plus 32% of the excess of $150,000. Over $250,000 but not over $500,000 $70,800, plus 34% of the excess over $250,000. Over $500,000 $155,800, plus 35% of the excess of $500,000. . (2) Lifetime gift exemption Section 2505 (d) Gifts made after 2024 (1) In general In the case of a gift made after December 31, 2024, subsection (a)(1) shall be applied by substituting the amount of the tentative tax which would be determined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $10,000,000 the applicable credit amount in effect under section 2010(c) which would apply if the donor died as of the end of the calendar year (2) Inflation adjustment (A) In general In the case of any calendar year after 2024, the dollar amount in subsection (a)(1) (after application of this subsection) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) of such calendar year by substituting calendar year 2011 calendar year 2016 (B) Rounding If any amount as adjusted under paragraph (1) is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000. . (3) Other conforming amendments related to gift tax Section 2801 (g) Gifts received after 2024 In the case of a gift received after December 31, 2024, subsection (a)(1) shall be applied by substituting section 2502(a)(2) section 2001(c) as in effect on the date of such receipt . (d) Effective date The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2024. II Alternative Minimum Tax Repeal 2001. Repeal of alternative minimum tax (a) In general Subchapter A of chapter 1 (b) Credit for prior year minimum tax liability (1) Limitation Subsection (c) of section 53 (c) Limitation The credit allowable under subsection (a) shall not exceed the regular tax liability of the taxpayer reduced by the sum of the credits allowed under subparts A, B, and D. . (2) Credits treated as refundable Section 53 (e) Portion of credit treated as refundable (1) In general In the case of any taxable year beginning in 2019, 2020, 2021, or 2022, the limitation under subsection (c) shall be increased by the AMT refundable credit amount for such year. (2) AMT refundable credit amount For purposes of paragraph (1), the AMT refundable credit amount is an amount equal to 50 percent (100 percent in the case of a taxable year beginning in 2022) of the excess (if any) of— (A) the minimum tax credit determined under subsection (b) for the taxable year, over (B) the minimum tax credit allowed under subsection (a) for such year (before the application of this subsection for such year). (3) Credit refundable For purposes of this title (other than this section), the credit allowed by reason of this subsection shall be treated as a credit allowed under subpart C (and not this subpart). (4) Short taxable years In the case of any taxable year of less than 365 days, the AMT refundable credit amount determined under paragraph (2) with respect to such taxable year shall be the amount which bears the same ratio to such amount determined without regard to this paragraph as the number of days in such taxable year bears to 365. . (3) Treatment of references Section 53(d) (3) AMT term references Any references in this subsection to section 55, 56, or 57 shall be treated as a reference to such section as in effect before its repeal by the Tax Cuts and Jobs Act . (c) Conforming amendments related to AMT repeal (1) Section 2(d) sections 1 and 55 section 1 (2) Section 5(a) (3) Section 11(d) the taxes imposed by subsection (a) and section 55 the tax imposed by subsection (a) (4) Section 12 (5) Section 26(a) (a) Limitation based on amount of tax The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer’s regular tax liability for the taxable year. . (6) Section 26(b)(2) (7) Section 26 (8) Section 38(c) (A) by striking paragraphs (1) through (5), (B) by redesignating paragraph (6) as paragraph (2), (C) by inserting before paragraph (2) (as so redesignated) the following new paragraph: (1) In general The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of— (A) the sum of— (i) so much of the regular tax liability as does not exceed $25,000, plus (ii) 75 percent of so much of the regular tax liability as exceeds $25,000, over (B) the sum of the credits allowable under subparts A and B of this part. , and (D) by striking subparagraph (B) of paragraph (1) clauses (i) and (ii) of paragraph (1)(A) (9) Section 39(a) (A) by striking or the eligible small business credits (B) by striking paragraph (4). (10) Section 45D(g)(4)(B) or for purposes of section 55 (11) Section 54(c)(1) (1) regular tax liability (as defined in section 26(b)), over . (12) Section 54A(c)(1)(A) (A) regular tax liability (as defined in section 26(b)), over . (13) Section 148(b)(3) (3) Tax-exempt bonds not treated as investment property The term investment property . (14) Section 168(k)(2) (15) Section 168(k) (16) Section 168(k)(5) (17) Section 168(m)(2)(B)(i) (determined without regard to paragraph (4) thereof) (18) Section 168(m)(2) (19) Section 173 (20) Section 263(c) section 59(e) or 291 section 291 (21) Section 263A(c) (22) Section 382(l) (23) Section 443 (24) Section 616 (25) Section 617 (26) Section 641(c) (A) in paragraph (2) by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, and (B) in paragraph (3), by striking paragraph (2)(C) paragraph (2)(B) (27) Subsections (b) and (c) of section 666 are each amended by striking (other than the tax imposed by section 55) (28) Section 848 (29) Section 860E(a) (30) Section 871(b)(1) or 55 (31) Section 882(a)(1) 55, (32) Section 897(a) (a) Treatment as effectively connected with united states trade or business For purposes of this title, gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account— (1) in the case of a nonresident alien individual, under section 871(b)(1), or (2) in the case of a foreign corporation, under section 882(a)(1), as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business. . (33) Section 904(k) (k) Cross reference For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b). . (34) Section 911(f) (f) Determination of tax liability (1) In general If, for any taxable year, any amount is excluded from gross income of a taxpayer under subsection (a), then, notwithstanding section 1, if such taxpayer has taxable income for such taxable year, the tax imposed by section 1 for such taxable year shall be equal to the excess (if any) of— (A) the tax which would be imposed by section 1 for such taxable year if the taxpayer’s taxable income were increased by the amount excluded under subsection (a) for such taxable year, over (B) the tax which would be imposed by section 1 for such taxable year if the taxpayer’s taxable income were equal to the amount excluded under subsection (a) for such taxable year. For purposes of this paragraph, the amount excluded under subsection (a) shall be reduced by the aggregate amount of any deductions or exclusions disallowed under subsection (d)(6) with respect to such excluded amount. (2) Treatment of capital gain excess (A) In general In applying section 1(h) for purposes of determining the tax under paragraph (1)(A) for any taxable year in which, without regard to this subsection, the taxpayer’s net capital gain exceeds taxable income (hereafter in this subparagraph referred to as the capital gain excess)— (i) the taxpayer’s net capital gain (determined without regard to section 1(h)(11)) shall be reduced (but not below zero) by such capital gain excess, (ii) the taxpayer’s qualified dividend income shall be reduced by so much of such capital gain excess as exceeds the taxpayer’s net capital gain (determined without regard to section 1(h)(11) and the reduction under clause (i)), and (iii) adjusted net capital gain, unrecaptured section 1250 gain, and 28-percent rate gain shall each be determined after increasing the amount described in section 1(h)(4)(B) by such capital gain excess. (B) Definitions Terms used in this paragraph which are also used in section 1(h) shall have the respective meanings given such terms by section 1(h). . (35) Section 962(a)(1) (A) by striking sections 1 and 55 section 1 (B) by striking sections 11 and 55 section 11 (36) Section 1016(a) (37) Section 1202(a)(4) and , and (38) Section 1374(b)(3)(B) (39) Section 1561(a) (A) by inserting and , and (B) by striking the last sentence. (40) Section 6015(d)(2)(B) or 55 (41) Section 6211(b)(4)(A) , 168(k)(4) (42) Section 6425(c)(1)(A) (A) the tax imposed under section 11 or subchapter L of chapter 1, whichever is applicable, over . (43) Section 6654(d)(2) (A) in clause (i) of subparagraph (B), by striking , alternative minimum taxable income, (B) in clause (i) of subparagraph (C), by striking , alternative minimum taxable income, (44) Section 6655(e)(2)(B)(i) The taxable income and alternative minimum taxable income shall Taxable income shall (45) Section 6655(g)(1)(A) plus (46) Section 6662(e)(3)(C) the regular tax (as defined in section 55(c)) the regular tax liability (as defined in section 26(b)) (d) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Prior elections with respect to certain tax preferences So much of the amendment made by subsection (a) as relates to the repeal of section 59(e) (3) Treatment of net operating loss carrybacks For purposes of section 56(d) III Business tax reform A Tax rates 3001. Reduction in corporate tax rate (a) In general Section 11(b) (b) Amount of tax (1) In general Except as otherwise provided in this subsection, the amount of the tax imposed by subsection (a) shall be 20 percent of taxable income. (2) Special rule for personal service corporations (A) In general In the case of a personal service corporation (as defined in section 448(d)(2)), the amount of the tax imposed by subsection (a) shall be 25 percent of taxable income. (B) References to corporate rate Any reference to the rate imposed under this section or to the highest rate in effect under this section (or any similar reference) shall be determined without regard to the rate imposed with respect to personal service corporations (as so defined). . (b) Conforming amendments (1) (A) Part I of subchapter P of chapter 1 (B) Section 12 (C) Section 527(b) (i) by striking paragraph (2), and (ii) by striking all that precedes is hereby imposed (b) Tax imposed A tax . (D) Section 594(a) taxes imposed by section 11 or 1201(a) tax imposed by section 11 (E) Section 691(c)(4) 1201, (F) Section 801(a) (i) by striking paragraph (2), and (ii) by striking all that precedes is hereby imposed (a) Tax imposed A tax . (G) Section 831(e) (H) Sections 832(c)(5) 834(b)(1)(D) sec. 1201 and following, (I) Section 852(b)(3)(A) section 1201(a) section 11(b)(1) (J) Section 857(b)(3) (i) by striking subparagraph (A) and redesignating subparagraphs (B) through (F) as subparagraphs (A) through (E), respectively, (ii) in subparagraph (C), as so redesignated— (I) by striking subparagraph (A)(ii) paragraph (1) (II) by striking the tax imposed by subparagraph (A)(ii) the tax imposed by paragraph (1) on undistributed capital gain (iii) in subparagraph (E), as so redesignated, by striking subparagraph (B) or (D) subparagraph (A) or (C) (iv) by adding at the end the following new subparagraph: (F) Undistributed capital gain For purposes of this paragraph, the term undistributed capital gain . (K) Section 882(a)(1) , or 1201(a) (L) Section 1374(b) (M) Section 1381(b) taxes imposed by section 11 or 1201 tax imposed by section 11 (N) Section 6655(g)(1)(A)(i) or 1201(a), (O) Section 7518(g)(6)(A) or 1201(a) (2) Section 1445(e)(1) 35 percent (or, to the extent provided in regulations, 20 percent) 20 percent (3) Section 1445(e)(2) 35 percent 20 percent (4) Section 1445(e)(6) 35 percent (or, to the extent provided in regulations, 20 percent) 20 percent (5) (A) Part I of subchapter B of chapter 5 (B) Section 12 (C) Section 535(c)(5) (5) Cross reference For limitation on credit provided in paragraph (2) or (3) in the case of certain controlled corporations, see section 1561. . (6) (A) Section 1561 1561. Limitation on accumulated earnings credit in the case of certain controlled corporations (a) In general The component members of a controlled group of corporations on a December 31 shall, for their taxable years which include such December 31, be limited for purposes of this subtitle to one $250,000 ($150,000 if any component member is a corporation described in section 535(c)(2)(B)) amount for purposes of computing the accumulated earnings credit under section 535(c)(2) and (3). Such amount shall be divided equally among the component members of such group on such December 31 unless the Secretary prescribes regulations permitting an unequal allocation of such amount. (b) Certain short taxable years If a corporation has a short taxable year which does not include a December 31 and is a component member of a controlled group of corporations with respect to such taxable year, then for purposes of this subtitle, the amount to be used in computing the accumulated earnings credit under section 535(c)(2) and (3) of such corporation for such taxable year shall be the amount specified in subsection (a) with respect to such group, divided by the number of corporations which are component members of such group on the last day of such taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were substituted for December 31. . (B) The table of sections for part II of subchapter B of chapter 5 Sec. 1561. Limitation on accumulated earnings credit in the case of certain controlled corporations. . (7) Section 7518(g)(6)(A) (A) by striking With respect to the portion In the case of a taxpayer other than a corporation, with respect to the portion (B) by striking (34 percent in the case of a corporation) (c) Reduction in dividend received deductions to reflect lower corporate income tax rates (1) Dividends received by corporations (A) In general Section 243(a)(1) 70 percent 50 percent (B) Dividends from 20-percent owned corporations Section 243(c)(1) (i) by striking 80 percent 65 percent (ii) by striking 70 percent 50 percent (C) Conforming amendment The heading for section 243(c) Retention of 80-percent dividend received deduction Increased percentage (2) Dividends received from FSC Section 245(c)(1)(B) (A) by striking 70 percent 50 percent (B) by striking 80 percent 65 percent (3) Limitation on aggregate amount of deductions Section 246(b)(3) (A) by striking 80 percent 65 percent (B) by striking 70 percent 50 percent (4) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) (A) by striking 70 percent 50 percent (B) by striking 80 percent 65 percent (5) Income from sources within the United States Section 861(a)(2) (A) by striking 100/70th 100/50th (B) in the flush sentence at the end— (i) by striking 100/80th 100/65th (ii) by striking 100/70th 100/50th (d) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Certain conforming amendments The amendments made by paragraphs (2), (3), and (4) of subsection (b) shall apply to distributions after December 31, 2017. (e) Normalization requirements (1) In general A normalization method of accounting shall not be treated as being used with respect to any public utility property for purposes of section 167 or 168 of the Internal Revenue Code of 1986 if the taxpayer, in computing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, reduces the excess tax reserve more rapidly or to a greater extent than such reserve would be reduced under the average rate assumption method. (2) Alternative Method for Certain Taxpayers If, as of the first day of the taxable year that includes the date of enactment of this Act— (A) the taxpayer was required by a regulatory agency to compute depreciation for public utility property on the basis of an average life or composite rate method, and (B) the taxpayer’s books and underlying records did not contain the vintage account data necessary to apply the average rate assumption method, the taxpayer will be treated as using a normalization method of accounting if, with respect to such jurisdiction, the taxpayer uses the alternative method for public utility property that is subject to the regulatory authority of that jurisdiction. (3) Definitions For purposes of this subsection— (A) Excess tax reserve The term excess tax reserve (i) the reserve for deferred taxes (as described in section 168(i)(9)(A)(ii) (ii) the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act were in effect for all prior periods. (B) Average rate assumption method The average rate assumption method is the method under which the excess in the reserve for deferred taxes is reduced over the remaining lives of the property as used in its regulated books of account which gave rise to the reserve for deferred taxes. Under such method, if timing differences for the property reverse, the amount of the adjustment to the reserve for the deferred taxes is calculated by multiplying— (i) the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by (ii) the amount of the timing differences which reverse during such period. (C) Alternative method The alternative method (i) computes the excess tax reserve on all public utility property included in the plant account on the basis of the weighted average life or composite rate used to compute depreciation for regulatory purposes, and (ii) reduces the excess tax reserve ratably over the remaining regulatory life of the property. (4) Tax increased for normalization violation If, for any taxable year ending after the date of the enactment of this Act, the taxpayer does not use a normalization method of accounting, the taxpayer’s tax for the taxable year shall be increased by the amount by which it reduces its excess tax reserve more rapidly than permitted under a normalization method of accounting. B Cost recovery 3101. Increased expensing (a) 100 percent expensing Section 168(k)(1)(A) 50 percent 100 percent (b) Extension through January 1, 2023 Section 168(k)(2) (1) in subparagraph (A)(iii), by striking January 1, 2020 January 1, 2023 (2) in subparagraph (B)(i)(II), by striking January 1, 2021 January 1, 2024 (3) in subparagraph (B)(i)(III), by striking January 1, 2020 January 1, 2023 (4) in subparagraph (B)(ii), by striking January 1, 2020 January 1, 2023 (5) in subparagraph (E)(i), by striking January 1, 2020 January 1, 2023 (c) Application to used property (1) In general Section 168(k)(2)(A)(ii) (ii) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and . (2) Acquisition requirements Section 168(k)(2)(E)(ii) (ii) Acquisition requirements An acquisition of property meets the requirements of this clause if— (I) such property was not used by the taxpayer at any time prior to such acquisition, and (II) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d). , (3) Anti-abuse rules Section 168(k)(2)(E) is further amended by amending clause (iii)(I) to read as follows: (I) property is used by a lessor of such property and such use is the lessor’s first use of such property, . (d) Exception for certain trades and businesses not subject to limitation on interest expense Section 168(k)(2), as amended by section 2001, (G) Exception for property of certain businesses not subject to limitation on interest expense The term qualified property (i) a trade or business described in subparagraph (B) or (C) of section 163(j)(7), or (ii) a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (e) Coordination with section 280F Section 168(k)(2)(F) (1) by striking $8,000 $16,000 (2) in clause (iii)— (A) by striking placed in service by the taxpayer after December 31, 2017 acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017 (B) by redesignating subclauses (I) and (II) as subclauses (II) and (III) respectively, and inserting before clause (II), as so redesignated, the following new subclause: (I) in the case of a passenger automobile placed in service before January 1, 2018, $8,000 . (f) Conforming amendments (1) Section 168(k)(2)(B)(i)(III), as amended, is amended by inserting binding contract (2) Section 168(k)(5) (A) by striking January 1, 2020 January 1, 2023 (B) by striking 50 percent 100 percent (C) by striking subparagraph (F). (3) Section 168(k)(6) (6) Phase Down In the case of qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (1)(A) shall be applied by substituting for 100 percent (A) 50 percent (i) property placed in service before January 1, 2018, and (ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018, (B) 40 percent (i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and (ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019, and (C) 30 percent (i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and (ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020. . (4) The heading of section 168(k) Special allowance for certain property acquired after December 31, 2007, and before January 1, 2020 Full expensing of certain property (5) Section 460(c)(6)(B)(ii) January 1, 2020 (January 1, 2021 in the case of property described in section 168(k)(2)(B)) January 1, 2023 (January 1, 2024 in the case of property described in section 168(k)(2)(B)) (g) Effective date (1) In general Except at provided by paragraph (2), the amendments made by this section shall apply to property which— (A) is acquired after September 27, 2017, and (B) is placed in service after such date. For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition. (2) Specified plants The amendments made by subsection (f)(2) shall apply to specified plants planted or grafted after September 27, 2017. (3) Transition rule In the case of any taxpayer’s first taxable year ending after September 27, 2017, the taxpayer may elect (at such time and in such form and manner as the Secretary of the Treasury, or his designee, may provide) to apply section 168 (4) Limitation on net operating loss carrybacks attributable to full expensing In the case of any taxable year which includes any portion of the period beginning on September 28, 2017, and ending on December 31, 2017, the amount of any net operating loss for such taxable year which may be treated as a net operating loss carryback (including any such carryback attributable to any specified liability loss under section 172(b)(1)(C), any corporate equity reduction interest loss under section 172(b)(1)(D), any eligible loss under section 172(b)(1)(E), and any farming loss under section 172(b)(1)(F)) shall be determined without regard to the amendments made by this section. For purposes of this paragraph, terms which are used in section 172 C Small business reforms 3201. Expansion of section 179 expensing (a) Increased dollar limitations (1) In general Section 179(b) (A) by inserting ($5,000,000, in the case of taxable years beginning before January 1, 2023) $500,000 (B) by inserting ($20,000,000, in the case of taxable years beginning before January 1, 2023) $2,000,000 (2) Inflation adjustment Section 179(b)(6) (6) Inflation adjustment (A) In general In the case of a taxable year beginning after 2015 (2018 in the case of the $5,000,000 and $20,000,000 amounts in subsection (b)), each dollar amount in subsection (b) shall be increased by an amount equal to such dollar amount multiplied by— (i) in the case of the $500,000 and $2,000,000 amounts in subsection (b), the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, determined by substituting calendar year 2014 calendar year 2016 (ii) in the case of the $5,000,000 and $20,000,000 amounts in subsection (b), the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 calendar year 2016 (B) Rounding The amount of any increase under subparagraph (A) shall be rounded to the nearest multiple of $10,000 ($100,000 in the case of the $5,000,000 and $20,000,000 amounts in subsection (b)). . (b) Application to qualified energy efficient heating and air-conditioning property (1) In general Section 179(f)(2) and , and (D) qualified energy efficient heating and air-conditioning property. . (2) Qualified energy efficient heating and air-conditioning property Section 179(f) (3) Qualified energy efficient heating and air-conditioning property For purposes of this subsection— (A) In general The term qualified energy efficient heating and air-conditioning property (i) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, (ii) which is installed as part of a building’s heating, cooling, ventilation, or hot water system, and (iii) which is within the scope of Standard 90.1–2007 or any successor standard. (B) Standard 90.1–2007 The term Standard 90.1–2007 . (c) Effective date (1) Increased dollar limitations The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2017. (2) Application to qualified energy efficient heating and air-conditioning property The amendments made by subsection (b) shall apply to property acquired and placed in service after November 2, 2017. For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition. 3202. Small business accounting method reform and simplification (a) Modification of limitation on cash method of accounting (1) Increased limitation So much of section 448(c) as precedes paragraph (2) is amended to read as follows: (c) Gross receipts test For purposes of this section— (1) In general A corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000. . (2) Application of exception on annual basis Section 448(b)(3) (3) Entities which meet gross receipts test Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year. . (3) Inflation adjustment Section 448(c) (4) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, by substituting calendar year 2017 calendar year 2016 If any amount as increased under the preceding sentence is not a multiple of $1,000,000, such amount shall be rounded to the nearest multiple of $1,000,000. . (4) Coordination with section 481 Section 448(d)(7) (7) Coordination with section 481 Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (5) Application of exception to corporations engaged in farming (A) In general Section 447(c) (i) by inserting for any taxable year not being a corporation (ii) by amending paragraph (2) to read as follows: (2) a corporation which meets the gross receipts test of section 448(c) for such taxable year. . (B) Coordination with section 481 Section 447(f) (f) Coordination with section 481 Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (C) Conforming amendments Section 447 (i) by striking subsections (d), (e), (h), and (i), and (ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively. (b) Exemption from UNICAP requirements (1) In general Section 263A (i) Exemption for certain small businesses (1) In general In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year. (2) Application of gross receipts test to individuals, etc In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (3) Coordination with section 481 Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (2) Conforming amendment Section 263A(b)(2) (2) Property acquired for resale Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale. . (c) Exemption from inventories Section 471 (c) Exemption for certain small businesses (1) In general In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year— (A) subsection (a) shall not apply with respect to such taxpayer for such taxable year, and (B) the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either— (i) treats inventory as non-incidental materials and supplies, or (ii) conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable financial statement with respect to such taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures. (2) Applicable financial statement For purposes of this subsection, the term applicable financial statement (A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles and which is— (i) a 10-K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission, (ii) an audited financial statement of the taxpayer which is used for— (I) credit purposes, (II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or (III) any other substantial nontax purpose, but only if there is no statement of the taxpayer described in clause (i), or (iii) filed by the taxpayer with any other Federal or State agency for nontax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), or (B) a financial statement of the taxpayer which— (i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or (ii) filed by the taxpayer with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary, but only if there is no statement of the taxpayer described in subparagraph (A). (3) Application of gross receipts test to individuals, etc In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (4) Coordination with section 481 Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (d) Exemption from percentage completion for long-term contracts (1) In general Section 460(e)(1)(B) (A) by inserting (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) taxpayer (B) by amending clause (ii) to read as follows: (ii) who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into. . (2) Conforming amendments Section 460(e) (2) Rules related to gross receipts test (A) Application of gross receipts test to individuals, etc For purposes of paragraph (1)(B)(ii), in the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (B) Coordination with section 481 Any change in method of accounting made pursuant to paragraph (1)(B)(ii) shall be treated as initiated by the taxpayer and made with the consent of the Secretary. Such change shall be effected on a cut-off basis for all similarly classified contracts entered into on or after the year of change. . (e) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Preservation of suspense account rules with respect to any existing suspense accounts So much of the amendments made by subsection (a)(5)(C) as relate to section 447(i) (3) Exemption from percentage completion for long-term contracts The amendments made by subsection (d) shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date. 3203. Small business exception from limitation on deduction of business interest (a) In general Section 163(j)(2), as amended by section 3301, (2) Exemption for certain small businesses In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, paragraph (1) shall not apply to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if such taxpayer were a corporation or partnership. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 3204. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from S corporation to C corporation Section 481 (d) Adjustments attributable to conversion from S corporation to C corporation (1) In general In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (b) Cash distributions following post-termination transition period from S corporation status Section 1371 (f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. . D Reform of business-related exclusions, deductions, etc. 3301. Interest (a) In general Section 163(j) (j) Limitation on business interest (1) In general In the case of any taxpayer for any taxable year, the amount allowed as a deduction under this chapter for business interest shall not exceed the sum of— (A) the business interest income of such taxpayer for such taxable year, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest of such taxpayer for such taxable year. The amount determined under subparagraph (B) (after any increases in such amount under paragraph (3)(A)(iii)) shall not be less than zero. (2) Exemption for certain small businesses For exemption for certain small businesses, see the amendment made by section 3203 of the Tax Cuts and Jobs Act (3) Application to partnerships, etc (A) In general In the case of any partnership— (i) this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership, (ii) the adjusted taxable income of each partner of such partnership shall be determined without regard to such partner’s distributive share of the non-separately stated taxable income or loss of such partnership, and (iii) the amount determined under paragraph (1)(B) with respect to each partner of such partnership shall be increased by such partner’s distributive share of such partnership’s excess amount. (B) Excess amount The term excess amount (i) 30 percent of the adjusted taxable income of the partnership, over (ii) the amount (if any) by which the business interest of the partnership, reduced by floor plan financing interest, exceeds the business interest income of the partnership. (C) Application to S corporations Rules similar to the rules of subparagraphs (A) and (B) shall apply with respect to any S corporation and its shareholders. (4) Business interest For purposes of this subsection, the term business interest (5) Business interest income For purposes of this subsection, the term business interest income (6) Adjusted taxable income For purposes of this subsection, the term adjusted taxable income (A) computed without regard to— (i) any item of income, gain, deduction, or loss which is not properly allocable to a trade or business, (ii) any business interest or business interest income, (iii) the amount of any net operating loss deduction under section 172, and (iv) any deduction allowable for depreciation, amortization, or depletion, and (B) computed with such other adjustments as the Secretary may provide. (7) Trade or business For purposes of this subsection, the term trade or business (A) the trade or business of performing services as an employee, (B) a real property trade or business (as such term is defined in section 469(c)(7)(C)), or (C) the trade or business of the furnishing or sale of— (i) electrical energy, water, or sewage disposal services, (ii) gas or steam through a local distribution system, or (iii) transportation of gas or steam by pipeline, if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof. (8) Carryforward of disallowed interest For carryforward of interest disallowed under paragraph (1), see subsection (o). (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest (B) Floor plan financing indebtedness The term floor plan financing indebtedness (i) used to finance the acquisition of motor vehicles held for sale to retail customers, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle (i) An automobile. (ii) A truck. (iii) A recreational vehicle. (iv) A motorcycle. (v) A boat. (vi) Farm machinery or equipment. (vii) Construction machinery or equipment. . (b) Carryforward of disallowed business interest Section 163 section 4302(b), (o) Carryforward of disallowed business interest The amount of any business interest not allowed as a deduction for any taxable year by reason of subsection (j) shall be treated as business interest paid or accrued in the succeeding taxable year. Business interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the 5th taxable year following such taxable year, determined by treating business interest as allowed as a deduction on a first-in, first-out basis. . (c) Treatment of carryforward of disallowed business interest in certain corporate acquisitions (1) In general Section 381(c) (20) Carryforward of disallowed interest The carryover of disallowed interest described in section 163(o) to taxable years ending after the date of distribution or transfer. . (2) Application of limitation Section 382(d) (3) Application to carryforward of disallowed interest The term pre-change loss . (3) Conforming amendment Section 382(k)(1) Such term shall include any corporation entitled to use a carryforward of disallowed interest described in section 381(c)(20). (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3302. Modification of net operating loss deduction (a) Indefinite carryforward of net operating losses Section 172(b)(1)(A)(ii) to each of the 20 taxable years to each taxable year (b) Repeal of net operating loss carrybacks other than 1-year carryback of eligible disaster losses (1) In general Section 172(b)(1)(A)(i) (i) in the case of any portion of a net operating loss for the taxable year which is an eligible disaster loss with respect to the taxpayer, shall be a net operating loss carryback to the taxable year preceding the taxable year of such loss, and . (2) Conforming amendments (A) Section 172(b)(1) (B) Eligible disaster loss (i) In general For purposes of subparagraph (A)(i), the term eligible disaster loss (I) in the case of a taxpayer which is a small business, net operating losses attributable to federally declared disasters (as defined by section 165(i)(5)), and (II) in the case of a taxpayer engaged in the trade or business of farming, net operating losses attributable to such federally declared disasters. (ii) Small business For purposes of this subparagraph, the term small business $5,000,000 $25,000,000 (iii) Trade or business of farming For purposes of this subparagraph, the trade or business of farming shall include the trade or business of— (I) operating a nursery or sod farm, or (II) the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. For purposes of subclause (II), an evergreen tree which is more than 6 years old at the time severed from the roots shall not be treated as an ornamental tree. . (B) Section 172 (c) Limitation of net operating loss to 90 percent of taxable income (1) In general Section 172(a) (a) Deduction allowed There shall be allowed as a deduction for the taxable year an amount equal to the lesser of— (1) the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or (2) 90 percent of taxable income computed without regard to the deduction allowable under this section. For purposes of this subtitle, the term net operating loss deduction . (2) Coordination of limitation with carrybacks and carryovers Section 172(b)(2) shall be computed— shall— (A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter, (B) not be considered to be less than zero, and (C) not exceed the amount determined under subsection (a)(2) for such prior taxable year. . (3) Conforming amendment Section 172(d)(6) and ; and (C) subsection (a)(2) shall be applied by substituting real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561)) taxable income . (d) Annual increase of indefinite carryover amounts Section 172(b) (3) Annual increase of indefinite carryover amounts For purposes of paragraph (2)— (A) the amount of any indefinite net operating loss which is carried to the next succeeding taxable year after the loss year (within the meaning of paragraph (2)) shall be increased by an amount equal to— (i) the amount of the loss which may be so carried over to such succeeding taxable year (determined without regard to this paragraph), multiplied by (ii) the sum of— (I) the annual Federal short-term rate (determined under section 1274(d)) for the last month ending before the beginning of such taxable year, plus (II) 4 percentage points, and (B) the amount of any indefinite net operating loss which is carried to any succeeding taxable year (after such next succeeding taxable year) shall be an amount equal to— (i) the excess of— (I) the amount of the loss carried to the prior taxable year (after any increase under this paragraph with respect to such amount), over (II) the amount by which such loss was reduced under paragraph (2) by reason of the taxable income for such prior taxable year, multiplied by (ii) a percentage equal to 100 percent plus the percentage determined under subparagraph (A)(ii) with respect to such succeeding taxable year. For purposes of the preceding sentence, the term indefinite net operating loss . (e) Effective date (1) Carryforwards and carrybacks The amendments made by subsections (a) and (b) shall apply to net operating losses arising in taxable years beginning after December 31, 2017. (2) Net operating loss limited to 90 percent of taxable income The amendments made by subsection (c) shall apply to taxable years beginning after December 31, 2017. (3) Annual increase in carryover amounts The amendments made by subsection (d) shall apply to amounts carried to taxable years beginning after December 31, 2017. (4) Special rule for net disaster losses Notwithstanding paragraph (1), the amendments made by subsection (b) shall not apply to the portion of the net operating loss for any taxable year which is a net disaster loss to which section 504(b) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 applies. 3303. Like-kind exchanges of real property (a) In general Section 1031(a)(1) property real property (b) Conforming amendments (1) Paragraph (2) of section 1031(a) (2) Exception for real property held for sale This subsection shall not apply to any exchange of real property held primarily for sale. . (2) Section 1031 (3) Section 1031 (e) Application to certain partnerships For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership. . (4) Section 1031(h) (h) Special rules for foreign real property Real property located in the United States and real property located outside the United States are not property of a like kind. . (5) The heading of section 1031 property real property (6) The table of sections for part III of subchapter O of chapter 1 Sec. 1031. Exchange of real property held for productive use or investment. . (c) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to exchanges completed after December 31, 2017. (2) Transition rule The amendments made by this section shall not apply to any exchange if— (A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31 2017, or (B) the property received by the taxpayer in the exchange is received on or before December 31, 2017. 3304. Revision of treatment of contributions to capital (a) Inclusion of contributions to capital Part II of subchapter B of chapter 1 76. Contributions to capital (a) In general Gross income includes any contribution to the capital of any entity. (b) Treatment of contributions in exchange for stock, etc (1) In general In the case of any contribution of money or other property to a corporation in exchange for stock of such corporation— (A) such contribution shall not be treated for purposes of subsection (a) as a contribution to the capital of such corporation (and shall not be includible in the gross income of such corporation), and (B) no gain or loss shall be recognized to such corporation upon the issuance of such stock. (2) Treatment limited to value of stock For purposes of this subsection, a contribution of money or other property to a corporation shall be treated as being in exchange for stock of such corporation only to the extent that the fair market value of such money and other property does not exceed the fair market value of such stock. (3) Application to entities other than corporations In the case of any entity other than a corporation, rules similar to the rules of paragraphs (1) and (2) shall apply in the case of any contribution of money or other property to such entity in exchange for any interest in such entity. (c) Treasury stock treated as stock Any reference in this section to stock shall be treated as including a reference to treasury stock. . (b) Basis of corporation in contributed property (1) Contributions to capital Subsection (c) of section 362 (c) Contributions to capital If property other than money is transferred to a corporation as a contribution to the capital of such corporation (within the meaning of section 76) then the basis of such property shall be the greater of— (1) the basis determined in the hands of the transferor, increased by the amount of gain recognized to the transferor on such transfer, or (2) the amount included in gross income by such corporation under section 76 with respect to such contribution. . (2) Contributions in exchange for stock Paragraph (2) of section 362(a) contribution to capital contribution in exchange for stock of such corporation (determined under rules similar to the rules of paragraphs (2) and (3) of section 76(b)) (c) Conforming amendments (1) Section 108(e) (2) Part III of subchapter B of chapter 1 (3) The table of sections for part II of subchapter B of chapter 1 Sec. 76. Contributions to capital. . (d) Effective date The amendments made by this section shall apply to contributions made, and transactions entered into, after the date of the enactment of this Act. 3305. Repeal of deduction for local lobbying expenses (a) In general Section 162(e) (b) Conforming amendment Section 6033(e)(1)(B)(ii) section 162(e)(5)(B)(ii) section 162(e)(4)(B)(ii) (c) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 3306. Repeal of deduction for income attributable to domestic production activities (a) In general Part VI of subchapter B of chapter 1 (b) Conforming amendments (1) Sections 74(d)(2)(B), 86(b)(2)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), and 246(b)(1) are each amended by striking 199, (2) Section 170(b)(2)(D), as amended by the preceding provisions of this Act, is amended by striking clause (iv), by redesignating clause (v) as clause (iv), and by inserting and (3) Section 172(d) (4) Section 613(a) and without the deduction under section 199 (5) Section 613A(d)(1) (6) Section 1402(a) and (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3307. Entertainment, etc. expenses (a) Denial of deduction Subsection (a) of section 274 (a) Entertainment, amusement, recreation, and other fringe benefits (1) In general No deduction otherwise allowable under this chapter shall be allowed for amounts paid or incurred for any of the following items: (A) Activity With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation. (B) Membership dues With respect to membership in any club organized for business, pleasure, recreation or other social purposes. (C) Amenity With respect to a de minimis fringe (as defined in section 132(e)(1)) that is primarily personal in nature and involving property or services that are not directly related to the taxpayer’s trade or business. (D) Facility With respect to a facility or portion thereof used in connection with an activity referred to in subparagraph (A), membership dues or similar amounts referred to in subparagraph (B), or an amenity referred to in subparagraph (C). (E) Qualified transportation fringe and parking facility Which is a qualified transportation fringe (as defined in section 132(f)) or which is a parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)). (F) On-premises athletic facility Which is an on-premises athletic facility as defined in section 132(j)(4)(B). (2) Special rules For purposes of applying paragraph (1), an activity described in section 212 shall be treated as a trade or business. (3) Regulations Under the regulations prescribed to carry out this section, the Secretary shall include regulations— (A) defining entertainment, amenities, recreation, amusement, and facilities for purposes of this subsection, (B) providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking or for on-premises athletic facilities, and (C) specifying arrangements a primary purpose of which is the avoidance of this subsection. . (b) Exception for certain expenses includible in income of recipient (1) Expenses treated as compensation Paragraph (2) of section 274(e) (2) Expenses treated as compensation Expenses for goods, services, and facilities, to the extent that the expenses do not exceed the amount of the expenses which are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recreation, as compensation to an employee on the taxpayer’s return of tax under this chapter and as wages to such employee for purposes of chapter 24 (relating to withholding of income tax at source on wages). . (2) Expenses includible in income of persons who are not employees Paragraph (9) of section 274(e) to the extent that the expenses to the extent that the expenses do not exceed the amount of the expenses that (c) Exceptions for reimbursed expenses Paragraph (3) of section 274(e) (3) Reimbursed expenses (A) In general Expenses paid or incurred by the taxpayer, in connection with the performance by him of services for another person (whether or not such other person is the taxpayer’s employer), under a reimbursement or other expense allowance arrangement with such other person, but this paragraph shall apply— (i) where the services are performed for an employer, only if the employer has not treated such expenses in the manner provided in paragraph (2), or (ii) where the services are performed for a person other than an employer, only if the taxpayer accounts (to the extent provided by subsection (d)) to such person. (B) Exception Except as provided by the Secretary, subparagraph (A) shall not apply— (i) in the case of an arrangement in which the person other than the employer is an entity described in section 168(h)(2)(A), or (ii) to any other arrangement designated by the Secretary as having the effect of avoiding the limitation under subparagraph (A). . (d) 50 percent limitation on meals and entertainment expenses Subsection (n) of section 274 (n) Limitation on certain expenses (1) In general The amount allowable as a deduction under this chapter for any expense for food or beverages (pursuant to subsection (e)(1)) or business meals (pursuant to subsection (k)(1)) shall not exceed 50 percent of the amount of such expense or item which would (but for this paragraph) be allowable as a deduction under this chapter. (2) Exceptions Paragraph (1) shall not apply to any expense if— (A) such expense is described in paragraph (2), (3), (6), (7), or (8) of subsection (e), (B) in the case of an expense for food or beverages, such expense is excludable from the gross income of the recipient under section 132 by reason of subsection (e) thereof (relating to de minimis fringes) or under section 119 (relating to meals and lodging furnished for convenience of employer), or (C) in the case of an employer who pays or reimburses moving expenses of an employee, such expenses are includible in the income of the employee under section 82. (3) Special rule for individuals subject to Federal hours of service In the case of any expenses for food or beverages consumed while away from home (within the meaning of section 162(a)(2)) by an individual during, or incident to, the period of duty subject to the hours of service limitations of the Department of Transportation, paragraph (1) shall be applied by substituting 80 percent 50 percent . (e) Conforming amendments (1) Section 274(d) (A) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and (B) in the flush material following paragraph (3) (as so redesignated)— (i) by striking , entertainment, amusement, recreation, or (ii) by striking (D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift (D) the business relationship to the taxpayer of the person receiving the benefit (2) Section 274(e) (3) Section 274(k)(2)(A) (4), (7), (8), or (9) (6), (7), or (8) (4) Section 274 (5) Section 274(m)(1)(B)(ii) (4), (7), (8), or (9) (6), (7), or (8) (f) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 3308. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed (a) In general Section 512(a) (6) Increase in unrelated business taxable income by disallowed fringe Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises athletic facility (as defined in section 132(j)(4)(B)). The preceding sentence shall not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on by the organization. The Secretary may issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking or for on-premises athletic facilities. . (b) Effective date The amendment made by this section shall apply to amounts paid or incurred after December 31, 2017. 3309. Limitation on deduction for FDIC premiums (a) In general Section 162 (q) Disallowance of FDIC premiums paid by certain large financial institutions (1) In general No deduction shall be allowed for the applicable percentage of any FDIC premium paid or incurred by the taxpayer. (2) Exception for small institutions Paragraph (1) shall not apply to any taxpayer for any taxable year if the total consolidated assets of such taxpayer (determined as of the close of such taxable year) do not exceed $10,000,000,000. (3) Applicable percentage For purposes of this subsection, the term applicable percentage (A) the excess of— (i) the total consolidated assets of such taxpayer (determined as of the close of such taxable year), over (ii) $10,000,000,000, bears to (B) $40,000,000,000. (4) FDIC premiums For purposes of this subsection, the term FDIC premium 12 U.S.C. 1817(b) (5) Total consolidated assets For purposes of this subsection, the term total consolidated assets 12 U.S.C. 5365 (6) Aggregation rule (A) In general Members of an expanded affiliated group shall be treated as a single taxpayer for purposes of applying this subsection. (B) Expanded affiliated group For purposes of this paragraph, the term expanded affiliated group (i) by substituting more than 50 percent at least 80 percent (ii) without regard to paragraphs (2) and (3) of section 1504(b). A partnership or any other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3310. Repeal of rollover of publicly traded securities gain into specialized small business investment companies (a) In general Part III of subchapter O of chapter 1 (b) Conforming amendments Section 1016(a)(23) (1) by striking 1044, (2) by striking 1044(d), (c) Effective date The amendments made by this section shall apply to sales after December 31, 2017. 3311. Certain self-created property not treated as a capital asset (a) Patents, etc Section 1221(a)(3) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright (b) Conforming amendment Section 1231(b)(1)(C) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright (c) Effective date The amendments made by this section shall apply to dispositions after December 31, 2017. 3312. Repeal of special rule for sale or exchange of patents (a) In general Part IV of subchapter P of chapter 1 (b) Conforming amendments (1) Section 483(d) (2) Section 901(l)(5) without regard to section 1235 or any similar rule without regard to any provision which treats a disposition as a sale or exchange of a capital asset held for more than 1 year or any similar provision (3) Section 1274(c)(3) (c) Effective date The amendments made by this section shall apply to dispositions after December 31, 2017. 3313. Repeal of technical termination of partnerships (a) In general Paragraph (1) of section 708(b) (1) by striking , or (2) by striking only if— no part of any business only if no part of any business (b) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years 1 year shall be treated as short-term capital gain. (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest (2) Applicable trade or business The term applicable trade or business (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset (4) Exceptions The term applicable partnership interest (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Coordination with section 83 Subsection (e) of section 83 or , or (6) a transfer of an applicable partnership interest to which section 1061 applies. . (c) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3315. Amortization of research and experimental expenditures (a) In general Section 174 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 Sec. 174. Amortization of research and experimental expenditures. . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2022. 3316. Uniform treatment of expenses in contingency fee cases (a) In general Section 162 (r) Expenses in contingency fee cases No deduction shall be allowed under subsection (a) to a taxpayer for any expense— (1) paid or incurred in the course of the trade or business of practicing law, and (2) resulting from a case for which the taxpayer is compensated primarily on a contingent basis, until such time as such contingency is resolved. . (b) Effective date The amendment made by this section shall apply to expenses and costs paid or incurred in taxable years beginning after the date of the enactment of this Act. E Reform of business credits 3401. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions (a) In general Subpart D of part IV of subchapter A of chapter 1 (b) Conforming amendments (1) Section 38(b) (2) Section 280C (3) Section 6501(m) 45C(d)(4), (c) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2017. 3402. Repeal of employer-provided child care credit (a) In general Subpart D of part IV of subchapter A of chapter 1 (b) Conforming amendments (1) Section 38(b) (2) Section 1016(a) (c) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Basis adjustments The amendment made by subsection (b)(2) shall apply to credits determined for taxable years beginning after December 31, 2017. 3403. Repeal of rehabilitation credit (a) In general Subpart E of part IV of subchapter A of chapter 1 (b) Conforming amendments (1) Section 170(f)(14)(A) (as in effect before its repeal by the Tax Cuts and Jobs Act section 47 (2) Section 170(h)(4) (A) by striking (as defined in section 47(c)(3)(B)) (B) by adding at the end the following new subparagraph: (D) Registered historic district The term registered historic district (i) any district listed in the National Register, and (ii) any district— (I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and (II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register. . (3) Section 469(i)(3) (4) Section 469(i)(6)(B) (A) by striking in the case of— in the case of any credit determined under section 42 for any taxable year. (B) by striking , rehabilitation credit, (5) Section 469(k)(1) , or any rehabilitation credit determined under section 47, (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. (2) Transition rule In the case of qualified rehabilitation expenditures (within the meaning of section 47 (A) owned or leased (as permitted by section 47 (B) with respect to which the 24-month period selected by the taxpayer under section 47(c)(1)(C) of such Code begins not later than the end of the 180-day period beginning on the date of the enactment of this Act, the amendments made by this section shall apply to such expenditures paid or incurred after the end of the taxable year in which the 24-month period referred to in subparagraph (B) ends. 3404. Repeal of work opportunity tax credit (a) In general Subpart F of part IV of subchapter A of chapter 1 (b) Clerical amendment The heading of such subpart F (and the item relating to such subpart in the table of subparts for part IV of subchapter A of chapter 1) are each amended by striking Rules for Computing Work Opportunity Credit Special Rules (c) Effective date The amendments made by this section shall apply to amounts paid or incurred to individuals who begin work for the employer after December 31, 2017. 3405. Repeal of deduction for certain unused business credits (a) In general Part VI of subchapter B of chapter 1 (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3406. Termination of new markets tax credit (a) In general Section 45D(f) (1) by striking 2019 2017 (2) by striking 2024 2022 (b) Effective date The amendments made by this section shall apply to calendar years beginning after December 31, 2017. 3407. Repeal of credit for expenditures to provide access to disabled individuals (a) In general Subpart D of part IV of subchapter A of chapter 1 (b) Conforming amendment Section 38(b) (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3408. Modification of credit for portion of employer social security taxes paid with respect to employee tips (a) Credit determined with respect to minimum wage as in effect Section 45B(b)(1)(B) as in effect on January 1, 2007, and (b) Information return requirement Section 45B (c) Information return requirement (1) In general No credit shall be determined under subsection (a) with respect to any food or beverage establishment of any taxpayer for any taxable year unless such taxpayer has, with respect to the calendar year which ends in or with such taxable year— (A) made a report to the Secretary showing the information described in section 6053(c)(1) with respect to such food or beverage establishment, and (B) furnished written statements to each employee of such food or beverage establishment showing the information described in section 6053(c)(2). (2) Allocation of 10 percent of gross receipts For purposes of determining the information referred to in subparagraphs (A) and (B), section 6053(c)(3)(A)(i) shall be applied by substituting 10 percent 8 percent (3) Food or beverage establishment For purposes of this subsection, the term food or beverage establishment . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. F Energy credits 3501. Modifications to credit for electricity produced from certain renewable resources (a) Termination of inflation adjustment Section 45(b)(2) (1) by striking The 1.5 cent amount (A) In general The 1.5 cent amount , and (2) by adding at the end the following new subparagraph: (B) Termination Subparagraph (A) shall not apply with respect to any electricity or refined coal produced at a facility the construction of which begins after the date of the enactment of this subparagraph. . (b) Special rule for determination of beginning of construction Section 45(e) (12) Special rule for determining beginning of construction For purposes of subsection (d), the construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service. . (c) Effective dates (1) Termination of inflation adjustment The amendments made by subsection (a) shall apply to taxable years ending after the date of the enactment of this Act. (2) Special rule for determination of beginning of construction The amendment made by subsection (b) shall apply to taxable years beginning before, on, or after the date of the enactment of this Act. 3502. Modification of the energy investment tax credit (a) Extension of solar energy property Section 48(a)(3)(A)(ii) periods ending before January 1, 2017 property the construction of which begins before January 1, 2022 (b) Extension of qualified fuel cell property Section 48(c)(1)(D) for any period after December 31, 2016 the construction of which does not begin before January 1, 2022 (c) Extension of qualified microturbine property Section 48(c)(2)(D) for any period after December 31, 2016 the construction of which does not begin before January 1, 2022 (d) Extension of combined heat and power system property Section 48(c)(3)(A)(iv) which is placed in service before January 1, 2017 the construction of which begins before January 1, 2022 (e) Extension of qualified small wind energy property Section 48(c)(4)(C) for any period after December 31, 2016 the construction of which does not begin before January 1, 2022 (f) Extension of thermal energy property Section 48(a)(3)(A)(vii) periods ending before January 1, 2017 property the construction of which begins before January 1, 2022 (g) Phaseout of 30 percent credit rate for fuel cell and small wind energy property Section 48(a) (7) Phaseout for qualified fuel cell property and qualified small wind energy property (A) In general In the case of qualified fuel cell property or qualified small wind energy property, the construction of which begins before January 1, 2022, the energy percentage determined under paragraph (2) shall be equal to— (i) in the case of any property the construction of which begins after December 31, 2019, and before January 1, 2021, 26 percent, and (ii) in the case of any property the construction of which begins after December 31, 2020, and before January 1, 2022, 22 percent. (B) Placed in service deadline In the case of any qualified fuel cell property or qualified small wind energy property, the construction of which begins before January 1, 2022, and which is not placed in service before January 1, 2024, the energy percentage determined under paragraph (2) shall be equal to 10 percent. . (h) Phaseout for fiber-optic solar energy property Subparagraphs (A) and (B) of section 48(a)(6) are each amended by inserting or (3)(A)(ii) paragraph (3)(A)(i) (i) Termination of solar energy property Section 48(a)(3)(A)(i) , the construction of which begins before January 1, 2028, and equipment (j) Termination of geothermal energy property Section 48(a)(3)(A)(iii) , the construction of which begins before January 1, 2028, and equipment (k) Special rule for determination of beginning of construction Section 48(c) (5) Special rule for determining beginning of construction The construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service. . (l) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to periods after December 31, 2016, under rules similar to the rules of section 48(m) (2) Extension of combined heat and power system property The amendment made by subsection (d) shall apply to property placed in service after December 31, 2016. (3) Phaseouts and terminations The amendments made by subsections (g), (h), (i), and (j) shall take effect on the date of the enactment of this Act. (4) Special rule for determination of beginning of construction The amendment made by subsection (k) shall apply to taxable years beginning before, on, or after the date of the enactment of this Act. 3503. Extension and phaseout of residential energy efficient property (a) Extension Section 25D(h) December 31, 2016 (December 31, 2021, in the case of any qualified solar electric property expenditures and qualified solar water heating property expenditures) December 31, 2021 (b) Phaseout (1) In general Paragraphs (3), (4), and (5) of section 25D(a) are amended by striking 30 percent the applicable percentage (2) Conforming amendment Section 25D(g) of such Code is amended by striking paragraphs (1) and (2) of (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2016. 3504. Repeal of enhanced oil recovery credit (a) In general Subpart D of part IV of subchapter A of chapter 1 (b) Conforming amendments (1) Section 38(b) (2) Section 6501(m) 43, (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3505. Repeal of credit for producing oil and gas from marginal wells (a) In general Subpart D of part IV of subchapter A of chapter 1 (b) Conforming amendment Section 38(b) (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3506. Modifications of credit for production from advanced nuclear power facilities (a) Treatment of unutilized limitation amounts Section 45J(b) (1) in paragraph (4), by inserting or any amendment to enactment of (2) by adding at the end the following new paragraph: (5) Allocation of unutilized limitation (A) In general Any unutilized national megawatt capacity limitation shall be allocated by the Secretary under paragraph (3) as rapidly as is practicable after December 31, 2020— (i) first to facilities placed in service on or before such date to the extent that such facilities did not receive an allocation equal to their full nameplate capacity; and (ii) then to facilities placed in service after such date in the order in which such facilities are placed in service. (B) Unutilized national megawatt capacity limitation The term unutilized national megawatt capacity limitation (i) 6,000 megawatts, over (ii) the aggregate amount of national megawatt capacity limitation allocated by the Secretary before January 1, 2021, reduced by any amount of such limitation which was allocated to a facility which was not placed in service before such date. (C) Coordination with other provisions In the case of any unutilized national megawatt capacity limitation allocated by the Secretary pursuant to this paragraph— (i) such allocation shall be treated for purposes of this section in the same manner as an allocation of national megawatt capacity limitation; and (ii) subsection (d)(1)(B) shall not apply to any facility which receives such allocation. . (b) Transfer of credit by certain public entities (1) In general Section 45J (A) by redesignating subsection (e) as subsection (f); and (B) by inserting after subsection (d) the following new subsection: (e) Transfer of credit by certain public entities (1) In general If, with respect to a credit under subsection (a) for any taxable year— (A) the taxpayer would be a qualified public entity; and (B) such entity elects the application of this paragraph for such taxable year with respect to all (or any portion specified in such election) of such credit, the eligible project partner specified in such election (and not the qualified public entity) shall be treated as the taxpayer for purposes of this title with respect to such credit (or such portion thereof). (2) Definitions For purposes of this subsection— (A) Qualified public entity The term qualified public entity (i) a Federal, State, or local government entity, or any political subdivision, agency, or instrumentality thereof; (ii) a mutual or cooperative electric company described in section 501(c)(12) or section 1381(a)(2); or (iii) a not-for-profit electric utility which has or had received a loan or loan guarantee under the Rural Electrification Act of 1936. (B) Eligible project partner The term eligible project partner (i) any person responsible for, or participating in, the design or construction of the advanced nuclear power facility to which the credit under subsection (a) relates; (ii) any person who participates in the provision of the nuclear steam supply system to the advanced nuclear power facility to which the credit under subsection (a) relates; (iii) any person who participates in the provision of nuclear fuel to the advanced nuclear power facility to which the credit under subsection (a) relates; or (iv) any person who has an ownership interest in such facility. (3) Special rules (A) Application to partnerships In the case of a credit under subsection (a) which is determined at the partnership level— (i) for purposes of paragraph (1)(A), a qualified public entity shall be treated as the taxpayer with respect to such entity’s distributive share of such credit; and (ii) the term eligible project partner (B) Taxable year in which credit taken into account In the case of any credit (or portion thereof) with respect to which an election is made under paragraph (1), such credit shall be taken into account in the first taxable year of the eligible project partner ending with, or after, the qualified public entity’s taxable year with respect to which the credit was determined. (C) Treatment of transfer under private use rules For purposes of section 141(b)(1), any benefit derived by an eligible project partner in connection with an election under this subsection shall not be taken into account as a private business use. . (2) Special rule for proceeds of transfers for mutual or cooperative electric companies Section 501(c)(12) of such Code is amended by adding at the end the following new subparagraph: (I) In the case of a mutual or cooperative electric company described in this paragraph or an organization described in section 1381(a)(2), income received or accrued in connection with an election under section 45J(e)(1) shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses. . (c) Effective dates (1) Treatment of unutilized limitation amounts The amendment made by subsection (a) shall take effect on the date of the enactment of this Act. (2) Transfer of credit by certain public entities The amendments made by subsection (b) shall apply to taxable years beginning after the date of the enactment of this Act. G Bond reforms 3601. Termination of private activity bonds (a) In general Paragraph (1) of section 103(b) (1) by striking which is not a qualified bond (within the meaning of section 141) (2) by striking which is not a qualified bond (b) Conforming amendments (1) Subpart A of part IV of subchapter B of chapter 1 (2) Section 25 (j) Coordination with repeal of private activity bonds Any reference to section 143, 144, or 146 shall be treated as a reference to such section as in effect before its repeal by the Tax Cuts and Jobs Act . (3) Section 26(b)(2) (4) Section 141(b) (5) Section 141(d) (6) Section 141 (7) Section 148(f)(4) (A) by striking (determined in accordance with section 147(b)(2)(A)) (determined by taking into account the respective issue prices of the bonds issued as part of the issue) (B) by striking the last sentence of subparagraph (D)(v). (8) Clause (iv) of section 148(f)(4)(C) (iv) Construction issue For purposes of this subparagraph— (I) In general The term construction issue (II) Construction The term construction . (9) Section 149(b)(3) (10) Section 149(e)(2) (A) by striking subparagraphs (C), (D), and (F) and by redesignating subparagraphs (E) and (G) as subparagraphs (C) and (D), respectively, and (B) by striking the second sentence. (11) Section 149(f)(6) (A) by striking subparagraph (B), and (B) by striking For purposes of this subsection The term For purposes of this subsection, the term (12) Section 150(e)(3) (3) Public approval requirement A bond shall not be treated as part of an issue which meets the requirements of paragraph (1) unless such bond satisfies the requirements of section 147(f)(2) (as in effect before its repeal by the Tax Cuts and Jobs Act . (13) Section 269A(b)(3) 144(a)(3) 414(n)(6)(A) (14) Section 414(m)(5) section 144(a)(3) subsection (n)(6)(A) (15) Section 414(n)(6)(A) (A) Related persons A person is a related person to another person if— (i) the relationship between such persons would result in a disallowance of losses under section 267 or 707(b), or (ii) such persons are members of the same controlled group of corporations (as defined in section 1563(a), except that more than 50 percent at least 80 percent . (16) Section 6045(e)(4)(B) (as in effect before its repeal by the Tax Cuts and Jobs Act section 143(m)(3) (17) Section 6654(f)(1) (as in effect before its repeal by the Tax Cuts and Jobs Act section 143(m) (18) Section 7871(c) (A) by striking paragraphs (2) and (3), and (B) by striking tax-exempt bonds.— Subsection (a) of section 103 tax-exempt bonds.— (c) Effective date The amendments made by this section shall apply to bonds issued after December 31, 2017. 3602. Repeal of advance refunding bonds (a) In general Paragraph (1) of section 149(d) as part of an issue described in paragraph (2), (3), or (4). to advance refund another bond. (b) Conforming amendments (1) Section 149(d) (2) Section 148(f)(4)(C) (c) Effective date The amendments made by this section shall apply to advance refunding bonds issued after December 31, 2017. 3603. Repeal of tax credit bonds (a) In general Part IV of subchapter A of chapter 1 (b) Payments to issuers Subchapter B of chapter 65 (c) Conforming amendments (1) Part IV of subchapter U of chapter 1 (2) Section 54(l)(3)(B) (as in effect before its repeal by the Tax Cuts and Jobs Act section 1397E(I) (3) Section 6211(b)(4)(A) , and 6431 and 36B (4) Section 6401(b)(1) G, H, I, and J and G (d) Effective date The amendments made by this section shall apply to bonds issued after December 31, 2017. 3604. No tax exempt bonds for professional stadiums (a) In general Section 103(b), as amended by this Act, is further amended by adding at the end the following new paragraph: (4) Professional stadium bond Any professional stadium bond. . (b) Professional stadium bond defined Subsection (c) of section 103 (3) Professional stadium bond The term professional stadium bond . (c) Effective date The amendments made by this section shall apply to bonds issued after November 2, 2017. H Insurance 3701. Net operating losses of life insurance companies (a) In general Section 805(b) (b) Conforming amendments (1) Part I of subchapter L of chapter 1 (2) Part III of subchapter L of chapter 1 (3) Section 381 (4) Section 805(a)(4)(B)(ii) (ii) the deduction allowed under section 172, . (5) Section 805(a) (6) Section 953(b)(1)(B) (B) So much of section 805(a)(8) as relates to the deduction allowed under section 172. . (c) Effective date The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2017. 3702. Repeal of small life insurance company deduction (a) In general Part I of subchapter L of chapter 1 (b) Conforming amendments (1) Section 453B(e) (A) by striking (as defined in section 806(b)(3)) (B) by adding at the end the following new paragraph: (3) Noninsurance business (A) In general For purposes of this subsection, the term noninsurance business (B) Certain activities treated as insurance businesses For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if— (i) it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or (ii) it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits. . (2) Section 465(c)(7)(D)(v)(II) section 806(b)(3) section 453B(e)(3) (3) Section 801(a)(2) (4) Section 804 means— means the general deductions provided in section 805. (5) Section 805(a)(4)(B), as amended by section 3701, (6) Section 805(b)(2)(A) (7) Section 842(c) (8) Section 953(b)(1), as amended by section 3701, (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3703. Surtax on life insurance company taxable income (a) In general Section 801(a)(1) (1) by striking consist of a tax consist of the sum of— (A) a tax , and (2) by striking the period at the end and inserting , and (3) by adding at the end the following new subparagraph: (B) a tax equal to 8 percent of the life insurance company taxable income. . 3704. Adjustment for change in computing reserves (a) In general Paragraph (1) of section 807(f) (1) Treatment as change in method of accounting If the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between— (A) the amount of the item at the close of the taxable year, computed on the new basis, and (B) the amount of the item at the close of the taxable year, computed on the old basis, as is attributable to contracts issued before the taxable year shall be taken into account under section 481 as adjustments attributable to a change in method of accounting initiated by the taxpayer and made with the consent of the Secretary. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3705. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account (a) In general Subpart D of part I of subchapter L is amended by striking section 815 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendment Section 801 (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (d) Phased inclusion of remaining balance of policyholders surplus accounts In the case of any stock life insurance company which has a balance (determined as of the close of such company’s last taxable year beginning before January 1, 2018) in an existing policyholders surplus account (as defined in section 815 (1) life insurance company taxable income for such year (within the meaning of such section 801 but not less than zero), plus (2) 1/8 3706. Modification of proration rules for property and casualty insurance companies (a) In general Section 832(b)(5)(B) 15 percent 26.25 percent (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 3707. Modification of discounting rules for property and casualty insurance companies (a) Modification of rate of interest used to discount unpaid losses Paragraph (2) of section 846(c) (2) Determination of annual rate The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate determined on the basis of the corporate bond yield curve (as defined in section 430(h)(2)(D)(i)). . (b) Modification of computational rules for loss payment patterns Section 846(d)(3) (B) Treatment of certain losses Losses which would have been treated as paid in the last year of the period applicable under subparagraph (A)(i) or (A)(ii) shall be treated as paid in the following manner: (i) 3-year loss payment pattern (I) In general The period taken into account under subparagraph (A)(i) shall be extended to the extent required under subclause (II). (II) Computation of extension The amount of losses which would have been treated as paid in the 3d year after the accident year shall be treated as paid in such 3d year and each subsequent year in an amount equal to the average of the losses treated as paid in the 1st and 2d years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 18th year after the accident year, they shall be treated as paid in such 18th year. (ii) 10-year loss payment pattern (I) In general The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II). (II) Computation of extension The amount of losses which would have been treated as paid in the 10th year after the accident year shall be treated as paid in such 10th year and each subsequent year in an amount equal to the amount of the average of the losses treated as paid in the 7th, 8th, and 9th years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 25th year after the accident year, they shall be treated as paid in such 25th year. . (c) Repeal of historical payment pattern election Section 846 (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (e) Transitional rule For the first taxable year beginning after December 31, 2017— (1) the unpaid losses and the expenses unpaid (as defined in paragraphs (5)(B) and (6) of section 832(b) (2) the unpaid losses as defined in sections 807(c)(2) and 805(a)(1) of such Code at the end of the preceding taxable year, shall be determined as if the amendments made by this section had applied to such unpaid losses and expenses unpaid in the preceding taxable year and by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 2018, and any adjustment shall be taken into account ratably in such first taxable year and the 7 succeeding taxable years. For subsequent taxable years, such amendments shall be applied with respect to such unpaid losses and expenses unpaid by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 2018. 3708. Repeal of special estimated tax payments (a) In general Part III of subchapter L of chapter 1 (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. I Compensation 3801. Modification of limitation on excessive employee remuneration (a) Repeal of performance-based compensation and commission exceptions for limitation on excessive employee remuneration (1) In general Section 162(m)(4) (2) Conforming amendments (A) Paragraphs (5)(E) and (6)(D) of section 162(m) are each amended by striking subparagraphs (B), (C), and (D) subparagraph (B) (B) Paragraphs (5)(G) and (6)(G) of section 162(m) are each amended by striking (F) and (G) (D) and (E) (b) Expansion of applicable employer Section 162(m)(2) (2) Publicly held corporation For purposes of this subsection, the term publicly held corporation 15 U.S.C. 78c (A) the securities of which are required to be registered under section 12 of such Act ( 15 U.S.C. 78l (B) that is required to file reports under section 15(d) of such Act ( 15 U.S.C. 78o(d) . (c) Modification of definition of covered employees Section 162(m)(3) (1) in subparagraph (A), by striking as of the close of the taxable year, such employee is the chief executive officer of the taxpayer or is such employee is the principal executive officer or principal financial officer of the taxpayer at any time during the taxable year, or was (2) in subparagraph (B)— (A) by striking 4 3 (B) by striking (other than the chief executive officer) (other than the principal executive officer or principal financial officer) (3) by striking or , or (C) was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016. Such term shall include any employee who would be described in subparagraph (B) if the reporting described in such subparagraph were required as so described. . (d) Special rule for remuneration paid to beneficiaries, etc Section 162(m)(4), as amended by subsection (a), is amended by adding at the end the following new subparagraph: (F) Special rule for remuneration paid to beneficiaries, etc Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee. . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3802. Excise tax on excess tax-exempt organization executive compensation (a) In general Subchapter D of chapter 42 4960. Tax on excess tax-exempt organization executive compensation (a) Tax imposed There is hereby imposed a tax equal to 20 percent of the sum of— (1) so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus (2) any excess parachute payment paid by such an organization to any covered employee. (b) Liability for tax The employer shall be liable for the tax imposed under subsection (a). (c) Definitions and special rules For purposes of this section— (1) Applicable tax-exempt organization The term applicable tax-exempt organization (A) is exempt from taxation under section 501(a), (B) is a farmers’ cooperative organization described in section 521(b)(1), (C) has income excluded from taxation under section 115(1), or (D) is a political organization described in section 527(e)(1). (2) Covered employee For purposes of this section, the term covered employee (A) is one of the 5 highest compensated employees of the organization for the taxable year, or (B) was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2016. (3) Remuneration For purposes of this section, the term remuneration (4) Remuneration from related organizations (A) In general Remuneration of a covered employee paid by an applicable tax-exempt organization shall include any remuneration paid with respect to employment of such employee by any related person or governmental entity. (B) Related organizations A person or governmental entity shall be treated as related to an applicable tax-exempt organization if such person or governmental entity— (i) controls, or is controlled by, the organization, (ii) is controlled by one or more persons that control the organization, (iii) is a supported organization (as defined in section 509(f)(2)) during the taxable year with respect to the organization, (iv) is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or (v) in the case of an organization that is a voluntary employees’ beneficiary association described in section 501(a)(9), establishes, maintains, or makes contributions to such voluntary employees’ beneficiary association. (C) Liability for tax In any case in which remuneration from more than one employer is taken into account under this paragraph in determining the tax imposed by subsection (a), each such employer shall be liable for such tax in an amount which bears the same ratio to the total tax determined under subsection (a) with respect to such remuneration as— (i) the amount of remuneration paid by such employer with respect to such employee, bears to (ii) the amount of remuneration paid by all such employers to such employee. (5) Excess parachute payment For purposes determining the tax imposed by subsection (a)(2)— (A) In general The term excess parachute payment (B) Parachute payment The term parachute payment (i) such payment is contingent on such employee’s separation from employment with the employer, and (ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to 3 times the base amount. Such term does not include any payment described in section 280G(b)(6) (relating to exemption for payments under qualified plans) or any payment made under or to an annuity contract described in section 403(b) or a plan described in section 457(b). (C) Base amount Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount. (D) Property transfers; present value Rules similar to the rules of paragraphs (3) and (4) of section 280G(d) shall apply. (6) Coordination with deduction limitation Remuneration the deduction for which is not allowed by reason of section 162(m) shall not be taken into account for purposes of this section. (d) Regulations The Secretary shall prescribe such regulations as may be necessary to prevent avoidance of the purposes of this section through the performance of services other than as an employee. . (b) Clerical amendment The table of sections for subchapter D of chapter 42 Sec. 4960. Tax on excess exempt organization executive compensation. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3803. Treatment of qualified equity grants (a) In general (1) Election to defer income Section 83 (i) Qualified equity grants (1) In general For purposes of this subtitle, if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection— (A) except as provided in subparagraph (B), no amount shall be included in income under subsection (a) for the first taxable year in which the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable, and (B) an amount equal to the amount which would be included in income of the employee under subsection (a) (determined without regard to this subsection) shall be included in income for the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary may provide) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was provided by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be determined in a similar manner as provided under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee (i) who was a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who has been for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of clause (iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary may require for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all corporations which are members of the same controlled group of corporations (as defined in section 1563(a)) shall be treated as one corporation. (6) Notice requirement Any corporation that transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (2) Deduction by employer Subsection (h) of section 83 or (d)(2) (d)(2), or (i) (b) Withholding (1) Time of withholding Section 3401 (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. (B) Employee stock purchase plans Section 423(a) The preceding sentence shall not apply to any share of stock with respect to which an election is made under section 83(i). . (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) and (15) the amount excludable from gross income under subparagraph (A) of section 83(i)(1), (16) the amount includible in gross income under subparagraph (B) of section 83(i)(1) with respect to an event described in such subparagraph which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer To provide notice of tax consequences Section 6652 (o) Failure to provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary’s delegate) issue regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) IV Taxation of foreign income and foreign persons A Establishment of participation exemption system for taxation of foreign income 4001. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations (a) In general Part VIII of subchapter B of chapter 1 245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations (a) In general In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend. (b) Specified 10-percent owned foreign corporation For purposes of this section, the term specified 10-percent owned foreign corporation (c) Foreign-source portion For purposes of this section— (1) In general The foreign-source portion of any dividend is an amount which bears the same ratio to such dividend as— (A) the post-1986 undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to (B) the total post-1986 undistributed earnings of such foreign corporation. (2) Post-1986 undistributed earnings The term post-1986 undistributed earnings (A) as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and (B) without diminution by reason of dividends distributed during such taxable year. (3) Post-1986 undistributed foreign earnings The term post-1986 undistributed foreign earnings (A) income described in subparagraph (A) of section 245(a)(5), nor (B) dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)). (4) Treatment of distributions from earnings before 1987 (A) In general In the case of any dividend paid out of earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning before January 1, 1987— (i) paragraphs (1), (2), and (3) shall be applied without regard to the phrase post-1986 (ii) paragraph (2) shall be applied by substituting after the date specified in section 316(a)(1) in taxable years beginning after December 31, 1986 (B) Dividends paid first out of post-1986 earnings Dividends shall be treated as paid out of post-1986 undistributed earnings to the extent thereof. (5) Treatment of certain dividends in excess of undistributed earnings In the case of any dividend from the specified 10-percent owned foreign corporation which is in excess of undistributed earnings (as determined under paragraph (2) after taking into account the modifications described in clauses (i) and (ii) of paragraph (4)(A)), the foreign-source portion of such dividend is an amount which bears the same ratio to such dividend as— (A) the portion of the earnings and profits described in subparagraph (B) which is attributable to neither income described in paragraph (3)(A) nor dividends described in paragraph (3)(B), bears to (B) the earnings and profits of such corporation for the taxable year in which such distribution is made (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year). (d) Disallowance of foreign tax credit, etc (1) In general No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section. (2) Denial of deduction No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). (e) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Application of holding period requirement Section 246(c) (1) by striking or 245 245, or 245A (2) by adding at the end the following new paragraph: (5) Special rules for foreign source portion of dividends received from specified 10-percent owned foreign corporations (A) 6-month holding period requirement For purposes of section 245A— (i) paragraph (1)(A) shall be applied— (I) by substituting 180 days 45 days (II) by substituting 361-day period 91-day period (ii) paragraph (2) shall not apply. (B) Status must be maintained during holding period For purposes of applying paragraph (1) with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph (1) for any period only if— (i) the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation for such period, and (ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation for such period. . (c) Application of rules generally applicable to deductions for dividends received (1) Treatment of dividends from certain corporations Section 246(a)(1) and 245 245, and 245A (2) Coordination with section 1059 Section 1059(b)(2)(B) or 245 245, or 245A (d) Coordination with foreign tax credit limitation Section 904(b) (5) Treatment of dividends for which deduction is allowed under section 245A For purposes of subsection (a), in the case of a United States shareholder with respect to a specified 10-percent owned foreign corporation, such shareholder’s taxable income from sources without the United States (and entire taxable income) shall be determined without regard to— (A) the foreign-source portion of any dividend received from such foreign corporation, and (B) any deductions properly allocable or apportioned to— (i) income (other than subpart F income (as defined in section 952) and foreign high return amounts (as defined in section 951A(b)) with respect to stock of such specified 10-percent owned foreign corporation, or (ii) such stock (to the extent income with respect to such stock is other than subpart F income (as so defined) or foreign high return amounts (as so defined)). Any term which is used in section 245A and in this paragraph shall have the same meaning for purposes of this paragraph as when used in such section. . (e) Conforming amendments (1) Section 245(a)(4) section 902(c)(1) section 245A(c)(2) applied by substituting qualified 10-percent owned foreign corporation specified 10-percent owned foreign corporation (2) Section 951(b) subpart title (3) Section 957(a) subpart title (4) The table of sections for part VIII of subchapter B of chapter 1 Sec. 245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations. . (f) Effective date The amendments made by this section shall apply to distributions made after (and, in the case of the amendments made by subsection (d), deductions with respect to taxable years ending after) December 31, 2017. 4002. Application of participation exemption to investments in United States property (a) In general Section 956(a) (other than a corporation) United States shareholder (b) Regulatory authority to prevent abuse Section 956(e) including regulations to prevent including regulations— (1) to address United States shareholders that are partnerships with corporate partners, and (2) to prevent . (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017. 4003. Limitation on losses with respect to specified 10-percent owned foreign corporations (a) Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss (1) In general Section 961 (d) Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable. . (2) Effective date The amendments made by this subsection shall apply to distributions made after December 31, 2017. (b) Treatment of foreign branch losses transferred to specified 10-percent owned foreign corporations (1) In general Part II of subchapter B of chapter 1 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations (a) In general If a domestic corporation transfers substantially all of the assets of a foreign branch (within the meaning of section 367(a)(3)(C)) to a specified 10-percent owned foreign corporation (as defined in section 245A) with respect to which it is a United States shareholder after such transfer, such domestic corporation shall include in gross income for the taxable year which includes such transfer an amount equal to the transferred loss amount with respect to such transfer. (b) Transferred loss amount For purposes of this section, the term transferred loss amount (1) the sum of losses— (A) which were incurred by the foreign branch after December 31, 2017, and before the transfer, and (B) with respect to which a deduction was allowed to the taxpayer, over (2) the sum of— (A) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and (B) any amount which is recognized under section 904(f)(3) on account of the transfer. (c) Reduction for recognized gains (1) In general In the case of a transfer not described in section 367(a)(3)(C), the transferred loss amount shall be reduced (but not below zero) by the amount of gain recognized by the taxpayer on account of the transfer (other than amounts taken into account under subsection (c)(2)(B)). (2) Coordination with recognition under section 367 In the case of a transfer described in section 367(a)(3)(C), the transferred loss amount shall not exceed the excess (if any) of— (A) the excess of the amount described in section 367(a)(3)(C)(i) over the amount described in section 367(a)(3)(C)(ii) with respect to such transfer, over (B) the amount of gain recognized under section 367(a)(3)(C) with respect to such transfer. (d) Source of income Amounts included in gross income under this section shall be treated as derived from sources within the United States. (e) Basis adjustments Consistent with such regulations or other guidance as the Secretary may prescribe, proper adjustments shall be made in the adjusted basis of the taxpayer’s stock in the specified 10-percent owned foreign corporation to which the transfer is made, and in the transferee’s adjusted basis in the property transferred, to reflect amounts included in gross income under this section. . (2) Amounts recognized under section 367 on transfer of foreign branch with previously deducted losses treated as United States source Section 367(a)(3)(C) outside within (3) Clerical amendment The table of sections for part II of subchapter B of chapter 1 Sec. 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations. . (4) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. 4004. Treatment of deferred foreign income upon transition to participation exemption system of taxation (a) In general Section 965 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation (a) Treatment of deferred foreign income as subpart F income In the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the greater of— (1) the accumulated post-1986 deferred foreign income of such corporation determined as of November 2, 2017, or (2) the accumulated post-1986 deferred foreign income of such corporation determined as of December 31, 2017. (b) Reduction in amounts included in gross income of United States shareholders of specified foreign corporations with deficits in earnings and profits (1) In general In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)(1) by reason of subsection (a) as such United States shareholder’s pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced (but not below zero) by the amount of such United States shareholder’s aggregate foreign E&P deficit which is allocated under paragraph (2) to such deferred foreign income corporation. (2) Allocation of aggregate foreign E&P deficit The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as— (A) such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to (B) the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder. (3) Definitions related to E&P deficits For purposes of this subsection— (A) Aggregate foreign E&P deficit The term aggregate foreign E&P deficit (B) E&P deficit foreign corporation The term E&P deficit foreign corporation (i) such specified foreign corporation has a deficit in post-1986 earnings and profits, and (ii) as of November 2, 2017— (I) such corporation was a specified foreign corporation, and (II) such taxpayer was a United States shareholder of such corporation. (C) Specified E&P deficit The term specified E&P deficit (4) Netting among United States shareholders in same affiliated group (A) In general In the case of any affiliated group which includes at least one E&P net surplus shareholder and one E&P net deficit shareholder, the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by each such E&P net surplus shareholder shall be reduced (but not below zero) by such shareholder’s applicable share of the affiliated group’s aggregate unused E&P deficit. (B) E&P net surplus shareholder For purposes of this paragraph, the term E&P net surplus shareholder (C) E&P net deficit shareholder For purposes of this paragraph, the term E&P net deficit shareholder (i) the aggregate foreign E&P deficit with respect to such shareholder (as defined in paragraph (3)(A)), exceeds (ii) the amount which would (but for this subsection) be taken into account by such shareholder under section 951(a)(1) by reason of subsection (a). (D) Aggregate unused E&P deficit For purposes of this paragraph— (i) In general The term aggregate unused E&P deficit (I) the sum of the excesses described in subparagraph (C), determined with respect to each E&P net deficit shareholder in such group, or (II) the amount determined under subparagraph (E)(ii). (ii) Reduction with respect to E&P net deficit shareholders which are not wholly owned by the affiliated group If the group ownership percentage of any E&P net deficit shareholder is less than 100 percent, the amount of the excess described in subparagraph (C) which is taken into account under clause (i)(I) with respect to such E&P net deficit shareholder shall be such group ownership percentage of such amount. (E) Applicable share For purposes of this paragraph, the term applicable share (i) the product of— (I) such shareholder’s group ownership percentage, multiplied by (II) the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by such shareholder, bears to (ii) the aggregate amount determined under clause (i) with respect to all E&P net surplus shareholders in such group. (F) Group ownership percentage For purposes of this paragraph, the term group ownership percentage (c) Application of participation exemption to included income (1) In general In the case of a United States shareholder of a deferred foreign income corporation, there shall be allowed as a deduction for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section an amount equal to the sum of— (A) the United States shareholder’s 7 percent rate equivalent percentage of the excess (if any) of— (i) the amount so included as gross income, over (ii) the amount of such United States shareholder’s aggregate foreign cash position, plus (B) the United States shareholder’s 14 percent rate equivalent percentage of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i). (2) 7 and 14 percent rate equivalent percentages For purposes of this subsection— (A) 7 percent rate equivalent percentage The term 7 percent rate equivalent percentage (B) 14 percent rate equivalent percentage The term 14 percent rate equivalent percentage 14 percent rate of tax 7 percent rate of tax (3) Aggregate foreign cash position For purposes of this subsection— (A) In general The term aggregate foreign cash position (i) the aggregate of such United States shareholder’s pro rata share of the cash position of each specified foreign corporation of such United States shareholder determined as of November 2, 2017, (ii) the aggregate described in clause (i) determined as of the close of the last taxable year of each such specified foreign corporation which ends before November 2, 2017, and (iii) the aggregate described in clause (i) determined as of the close of the taxable year of each such specified foreign corporation which precedes the taxable year referred to in clause (ii). In the case of any foreign corporation which did not exist as of the determination date described in clause (ii) or (iii), this subparagraph shall be applied separately to such foreign corporation by not taking into account such clause and by substituting one-half (100 percent in the case that both clauses (ii) and (iii) are disregarded) one-third (B) Cash position For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of— (i) cash held by such foreign corporation, (ii) the net accounts receivable of such foreign corporation, plus (iii) the fair market value of the following assets held by such corporation: (I) Actively traded personal property for which there is an established financial market. (II) Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government. (III) Any foreign currency. (IV) Any obligation with a term of less than one year. (V) Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph. (C) Net accounts receivable For purposes of this paragraph, the term net accounts receivable (i) such corporation’s accounts receivable, over (ii) such corporation’s accounts payable (determined consistent with the rules of section 461). (D) Prevention of double counting (i) In general The applicable percentage of each specified cash position of a specified foreign corporation shall not be taken into account by— (I) the United States shareholder referred to in clause (ii) with respect to such position, or (II) any United States shareholder which is an includible corporation in the same affiliated group as such United States shareholder referred to in clause (ii). (ii) Specified cash position For purposes of this subparagraph, the term specified cash position (I) amounts described in subparagraph (B)(ii) to the extent such amounts are receivable from another specified foreign corporation with respect to any United States shareholder, (II) amounts described in subparagraph (B)(iii)(I) to the extent such amounts consist of an equity interest in another specified foreign corporation with respect to any United States shareholder, and (III) amounts described in subparagraph (B)(iii)(IV) to the extent that another specified foreign corporation with respect to any United States shareholder is obligated to repay such amount. (iii) Applicable percentage For purposes of this subparagraph, the term applicable percentage (I) with respect to each specified cash position described in subclause (I) or (III) of clause (ii), the pro rata share of the United States shareholder referred to in clause (ii) with respect to the specified foreign corporation referred to in such clause, and (II) with respect to each specified cash position described in clause (ii)(II), the ratio (expressed as a percentage and not in excess of 100 percent) of the United States shareholder’s pro rata share of the cash position of the specified foreign corporation referred to in such clause divided by the amount of such specified cash position. For purposes of this subparagraph, a separate applicable percentage shall be determined under each of subclauses (I) and (II) with respect to each specified foreign corporation referred to in clause (ii) with respect to which a specified cash position is determined for the specified foreign corporation referred to in clause (i). (iv) Reduction with respect to affiliated group members not wholly owned by the affiliated group For purposes of clause (i)(II), in the case of an includible corporation the group ownership percentage of which is less than 100 percent (as determined under subsection (b)(4)(F)), the amount not take into account by reason of such clause shall be the group ownership percentage of such amount (determined without regard to this clause). (E) Certain blocked assets not taken into account A cash position of a specified foreign corporation shall not be taken into account under subparagraph (A) if such position could not (as of the date that it would otherwise have been taken into account under clause (i), (ii), or (iii) of subparagraph (A)) have been distributed by such specified foreign corporation to United States shareholders of such specified foreign corporation because of currency or other restrictions or limitations imposed under the laws of any foreign country (within the meaning of section 964(b)). (F) Cash positions of certain non-corporate entities taken into account An entity (other than a domestic corporation) shall be treated as a specified foreign corporation of a United States shareholder for purposes of determining such United States shareholder’s aggregate foreign cash position if any interest in such entity is held by a specified foreign corporation of such United States shareholder (determined after application of this subparagraph) and such entity would be a specified foreign corporation of such United States shareholder if such entity were a foreign corporation. (G) Time of certain determinations For purposes of this paragraph, the determination of whether a person is a United States shareholder, whether a person is a specified foreign corporation, and the pro rata share of a United States shareholder with respect to a specified foreign corporation, shall be determined as of the end of the taxable year described in subsection (a). (H) Anti-abuse If the Secretary determines that the principal purpose of any transaction was to reduce the aggregate foreign cash position taken into account under this subsection, such transaction shall be disregarded for purposes of this subsection. (d) Deferred foreign income corporation; accumulated post-1986 deferred foreign income For purposes of this section— (1) Deferred foreign income corporation The term deferred foreign income corporation (2) Accumulated post-1986 deferred foreign income The term accumulated post-1986 deferred foreign income (A) are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or (B) if distributed, would be excluded from the gross income of a United States shareholder under section 959. To the extent provided in regulations or other guidance prescribed by the Secretary, in the case of any controlled foreign corporation which has shareholders which are not United States shareholders, accumulated post-1986 deferred foreign income shall be appropriately reduced by amounts which would be described in subparagraph (B) if such shareholders were United States shareholders. (3) Post-1986 earnings and profits The term post-1986 earnings and profits (A) as of the date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation, (B) without diminution by reason of dividends distributed during the taxable year ending with or including such date, and (C) increased by the amount of any qualified deficit (within the meaning of section 952(c)(1)(B)(ii)) arising before January 1, 2018, which is treated as a qualified deficit (within the meaning of such section as amended by the Tax Cuts and Jobs Act (e) Specified foreign corporation (1) In general For purposes of this section, the term specified foreign corporation (A) any controlled foreign corporation, and (B) any foreign corporation with respect to which one or more domestic corporations is a United States shareholder (determined without regard to section 958(b)(4)). (2) Application to certain foreign corporations For purposes of sections 951 and 961, a foreign corporation described in paragraph (1)(B) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)). (3) Exception for passive foreign investment companies The term specified foreign corporation (f) Determinations of pro rata share For purposes of this section, the determination of any United States shareholder’s pro rata share of any amount with respect to any specified foreign corporation shall be determined under rules similar to the rules of section 951(a)(2) by treating such amount in the same manner as subpart F income (and by treating such specified foreign corporation as a controlled foreign corporation). (g) Disallowance of foreign tax credit, etc (1) In general No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section. (2) Applicable percentage For purposes of this subsection, the term applicable percentage (A) 80 percent of the ratio of— (i) the excess to which subsection (c)(1)(A) applies, divided by (ii) the sum of such excess plus the amount to which subsection (c)(1)(B) applies, plus (B) 60 percent of the ratio of— (i) the amount to which subsection (c)(1)(B) applies, divided by (ii) the sum described in subparagraph (A)(ii). (3) Denial of deduction No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). (4) Coordination with section 78 With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as— (A) the excess of— (i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over (ii) the deduction allowable under subsection (c) with respect to such amounts, bears to (B) such amounts. (5) Extension of foreign tax credit carryover period With respect to any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section, section 904(c) shall be applied by substituting first 20 succeeding taxable years first 10 succeeding taxable years (h) Election to pay liability in installments (1) In general In the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder may elect to pay the net tax liability under this section in 8 equal installments. (2) Date for payment of installments If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection (a) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made. (3) Acceleration of payment If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer. (4) Proration of deficiency to installments If an election is made under paragraph (1) to pay the net tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. (5) Election Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a) and shall be made in such manner as the Secretary may provide. (6) Net tax liability under this section For purposes of this subsection— (A) In general The net tax liability under this section with respect to any United States shareholder is the excess (if any) of— (i) such taxpayer’s net income tax for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section, over (ii) such taxpayer’s net income tax for such taxable year determined— (I) without regard to this section, and (II) without regard to any income, deduction, or credit, properly attributable to a dividend received by such United States shareholder from any deferred foreign income corporation. (B) Net income tax The term net income tax (i) Special rules for S corporation shareholders (1) In general In the case of any S corporation which is a United States shareholder of a deferred foreign income corporation, each shareholder of such S corporation may elect to defer payment of such shareholder’s net tax liability under this section with respect to such S corporation until the shareholder’s taxable year which includes the triggering event with respect to such liability. Any net tax liability payment of which is deferred under the preceding sentence shall be assessed on the return as an addition to tax in the shareholder’s taxable year which includes such triggering event. (2) Triggering event (A) In general In the case of any shareholder’s net tax liability under this section with respect to any S corporation, the triggering event with respect to such liability is whichever of the following occurs first: (i) Such corporation ceases to be an S corporation (determined as of the first day of the first taxable year that such corporation is not an S corporation). (ii) A liquidation or sale of substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance. (iii) A transfer of any share of stock in such S corporation by the taxpayer (including by reason of death, or otherwise). (B) Partial transfers of stock In the case of a transfer of less than all of the taxpayer’s shares of stock in the S corporation, such transfer shall only be a triggering event with respect to so much of the taxpayer’s net tax liability under this section with respect to such S corporation as is properly allocable to such stock. (C) Transfer of liability A transfer described in clause (iii) shall not be treated as a triggering event if the transferee enters into an agreement with the Secretary under which such transferee is liable for net tax liability with respect to such stock in the same manner as if such transferee were the taxpayer. (3) Net tax liability A shareholder’s net tax liability under this section with respect to any S corporation is the net tax liability under this section which would be determined under subsection (h)(6) if the only subpart F income taken into account by such shareholder by reason of this section were allocations from such S corporation. (4) Election to pay deferred liability in installments In the case of a taxpayer which elects to defer payment under paragraph (1)— (A) subsection (h) shall be applied separately with respect to the liability to which such election applies, (B) an election under subsection (h) with respect to such liability shall be treated as timely made if made not later than the due date for the return of tax for the taxable year in which the triggering event with respect to such liability occurs, (C) the first installment under subsection (h) with respect to such liability shall be paid not later than such due date (but determined without regard to any extension of time for filing the return), and (D) if the triggering event with respect to any net tax liability is described in paragraph (2)(A)(ii), an election under subsection (h) with respect to such liability may be made only with the consent of the Secretary. (5) Joint and several liability of S corporation If any shareholder of an S corporation elects to defer payment under paragraph (1), such S corporation shall be jointly and severally liable for such payment and any penalty, addition to tax, or additional amount attributable thereto. (6) Extension of limitation on collection Notwithstanding any other provision of law, any limitation on the time period for the collection of a liability deferred under this subsection shall not be treated as beginning before the date of the triggering event with respect to such liability. (7) Annual reporting of net tax liability (A) In general Any shareholder of an S corporation which makes an election under paragraph (1) shall report the amount of such shareholder’s deferred net tax liability on such shareholder’s return of tax for the taxable year for which such election is made and on the return of tax for each taxable year thereafter until such amount has been fully assessed on such returns. (B) Deferred net tax liability For purposes of this paragraph, the term deferred net tax liability (C) Failure to report In the case of any failure to report any amount required to be reported under subparagraph (A) with respect to any taxable year before the due date for the return of tax for such taxable year, there shall be assessed on such return as an addition to tax 5 percent of such amount. (8) Election Any election under paragraph (1)— (A) shall be made by the shareholder of the S corporation not later than the due date for such shareholder’s return of tax for the taxable year which includes the close of the taxable year of such S corporation in which the amount described in subsection (a) is taken into account, and (B) shall be made in such manner as the Secretary may provide. (j) Reporting by S corporation Each S corporation which is a United States shareholder of a deferred foreign income corporation shall report in its return of tax under section 6037(a) the amount includible in its gross income for such taxable year by reason of this section and the amount of the deduction allowable by subsection (c). Any copy provided to a shareholder under section 6037(b) shall include a statement of such shareholder’s pro rata share of such amounts. (k) Inclusion of deferred foreign income under this section not to trigger recapture of overall foreign loss, etc For purposes of sections 904(f)(1) and 907(c)(4), in the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder’s taxable income from sources without the United States and combined foreign oil and gas income shall be determined without regard to this section. (l) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Clerical amendment The table of sections for subpart F of part III of subchapter N of chapter 1 Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation. . B Modifications related to foreign tax credit system 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis (a) Repeal of section 902 indirect foreign tax credits Subpart A of part III of subchapter N of chapter 1 (b) Determination of section 960 credit on current year basis Section 960 (1) by striking subsection (c), by redesignating subsection (b) as subsection (c), by striking all that precedes subsection (c) (as so redesignated) and inserting the following: 960. Deemed paid credit for subpart F inclusions (a) In general For purposes of this subpart, if there is included in the gross income of a domestic corporation any item of income under section 951(a)(1) with respect to any controlled foreign corporation with respect to which such domestic corporation is a United States shareholder, such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as are properly attributable to such item of income. (b) Special rules for distributions from previously taxed earnings and profits For purposes of this subpart— (1) In general If any portion of a distribution from a controlled foreign corporation to a domestic corporation which is a United States shareholder with respect to such controlled foreign corporation is excluded from gross income under section 959(a), such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as— (A) are properly attributable to such portion, and (B) have not been deemed to have to been paid by such domestic corporation under this section for the taxable year or any prior taxable year. (2) Tiered controlled foreign corporations If section 959(b) applies to any portion of a distribution from a controlled foreign corporation to another controlled foreign corporation, such controlled foreign corporation shall be deemed to have paid so much of such other controlled foreign corporation’s foreign income taxes as— (A) are properly attributable to such portion, and (B) have not been deemed to have been paid by a domestic corporation under this section for the taxable year or any prior taxable year. , (2) and by adding after subsection (c) (as so redesignated) the following new subsections: (d) Foreign income taxes The term foreign income taxes (e) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (c) Conforming amendments (1) Section 78 78. Gross up for deemed paid foreign tax credit If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under subsections (a) and (b) of section 960 for such taxable year shall be treated for purposes of this title (other than sections 959, 960, and 961) as an item of income required to be included in the gross income of such domestic corporation under section 951(a) for such taxable year. . (2) Section 245(a)(10)(C) sections 902, 907, and 960 sections 907 and 960 (3) Sections 535(b)(1) 545(b)(1) section 902(a) or 960(a)(1) section 960 (4) Section 814(f)(1) (A) by striking subparagraph (B), and (B) by striking all that precedes No income (1) Treatment of foreign taxes . (5) Section 865(h)(1)(B) sections 902, 907, and 960 sections 907 and 960 (6) Section 901(a) sections 902 and 960 section 960 (7) Section 901(e)(2) but is not limited to— that portion but is not limited to, that portion (8) Section 901(f) sections 902 and 960 section 960 (9) Section 901(j)(1)(A) 902 or (10) Section 901(j)(1)(B) sections 902 and 960 section 960 (11) Section 901(k)(2) section 853, 902, or 960 section 853 or 960 (12) Section 901(k)(6) 902 or (13) Section 901(m)(1) relevant foreign assets— relevant foreign assets shall not be taken into account in determining the credit allowed under subsection (a). (14) Section 904(d)(1) sections 902, 907, and 960 sections 907 and 960 (15) Section 904(d)(6)(A) sections 902, 907, and 960 sections 907 and 960 (16) Section 904(h)(10)(A) sections 902, 907, and 960 sections 907 and 960 (17) Section 904 (18) Section 905(c)(1) (19) Section 905(c)(2)(B)(i) (i) shall be taken into account for the taxable year to which such taxes relate, and . (20) Section 906(a) (or deemed, under section 902, paid or accrued during the taxable year) (21) Section 906(b) (22) Section 907(b)(2)(B) 902 or (23) Section 907(c)(3) (A) by striking subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and (B) by striking section 960(a) section 960 (24) Section 907(c)(5) 902 or (25) Section 907(f)(2)(B)(i) 902 or (26) Section 908(a) 902 or (27) Section 909(b) (A) by striking section 902 corporation 10/50 corporation (B) by striking 902 or (C) by striking by such section 902 corporation by such 10/50 corporation or a domestic corporation which is a United States shareholder with respect to such 10/50 corporation. (D) by striking section 902 corporations 10/50 corporations (28) Section 909(d)(5) (5) 10/50 corporation The term 10/50 corporation . (29) Section 958(a)(1) 960(a)(1) 960 (30) Section 959(d) Except as provided in section 960(a)(3), any Any (31) Section 959(e) section 960(b) section 960(c) (32) Section 1291(g)(2)(A) any distribution— but only if any distribution, any withholding tax imposed with respect to such distribution, but only if (33) Section 6038(c)(1)(B) sections 902 (relating to foreign tax credit for corporate stockholder in foreign corporation) and 960 (relating to special rules for foreign tax credit) section 960 (34) Section 6038(c)(4) (35) The table of sections for subpart A of part III of subchapter N of chapter 1 (36) The table of sections for subpart F of part III of subchapter N of chapter 1 Sec. 960. Deemed paid credit for subpart F inclusions. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 4102. Source of income from sales of inventory determined solely on basis of production activities (a) In general Section 863(b) Gains, profits, and income from the sale or exchange of inventory property described in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property. (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. C Modification of subpart F provisions 4201. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment (a) In general Subpart F of part III of subchapter N of chapter 1 (b) Conforming amendments (1) (A) Section 951(a)(1)(A) (A) his pro rata share (determined under paragraph (2)) of the corporation’s subpart F income for such year, and . (B) Section 851(b)(3) section 951(a)(1)(A)(i) section 951(a)(1)(A) (C) Section 952(c)(1)(B)(i) section 951(a)(1)(A)(i) section 951(a)(1)(A) (D) Section 953(c)(1)(C) section 951(a)(1)(A)(i) section 951(a)(1)(A) (2) Section 951(a) (3) Section 953(d)(4)(B)(iv)(II) or amounts referred to in clause (ii) or (iii) of section 951(a)(1)(A) (4) Section 964(b) , 955, (5) Section 970 (6) The table of sections for subpart F of part III of subchapter N of chapter 1 (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4202. Repeal of treatment of foreign base company oil related income as subpart F income (a) In general Section 954(a) and (b) Conforming amendments (1) Section 952(c)(1)(B)(iii) (2) Section 954(b)(4) (3) Section 954(b)(5) the foreign base company services income, and the foreign base company oil related income and the foreign base company services income (4) Section 954(b) (5) Section 954 (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4203. Inflation adjustment of de minimis exception for foreign base company income (a) In general Section 954(b)(3) (D) Inflation adjustment In the case of any taxable year beginning after 2017, the dollar amount in subparagraph (A)(ii) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50,000. . (b) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4204. Look-thru rule for related controlled foreign corporations made permanent (a) In general Paragraph (6) of section 954(c) (b) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2019, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4205. Modification of stock attribution rules for determining status as a controlled foreign corporation (a) In general Section 958(b) (1) by striking paragraph (4), and (2) by striking Paragraphs (1) and (4) Paragraph (1) (b) Application of certain reporting requirements Section 6038(e)(2) except that— in applying subparagraph (C) except that in applying subparagraph (C) (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4206. Elimination of requirement that corporation must be controlled for 30 days before subpart F inclusions apply (a) In general Section 951(a)(1) for an uninterrupted period of 30 days or more at any time (b) Effective date The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end. D Prevention of base erosion 4301. Current year inclusion by United States shareholders with foreign high returns (a) In general Subpart F of part III of subchapter N of chapter 1 951A. Foreign high return amount included in gross income of United States shareholders (a) In general Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income for such taxable year 50 percent of such shareholder’s foreign high return amount for such taxable year. (b) Foreign high return amount For purposes of this section— (1) In general The term foreign high return amount (A) such shareholder’s net CFC tested income for such taxable year, over (B) the excess (if any) of— (i) the applicable percentage of the aggregate of such shareholder’s pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over (ii) the amount of interest expense taken into account under subsection (c)(2)(A)(ii) in determining the shareholder’s net CFC tested income for the taxable year. (2) Applicable percentage The term applicable percentage (c) Net CFC tested income For purposes of this section— (1) In general The term net CFC tested income (A) the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over (B) the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder). (2) Tested income; tested loss For purposes of this section— (A) Tested income The term tested income (i) the gross income of such corporation determined without regard to— (I) any item of income which is effectively connected with the conduct by such corporation of a trade or business within the United States if subject to tax under this chapter, (II) any gross income taken into account in determining the subpart F income of such corporation, (III) except as otherwise provided by the Secretary, any amount excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of section 954(c)(6) but only to the extent that any deduction allowable for the payment or accrual of such amount does not result in a reduction in the foreign high return amount of any United States shareholder (determined without regard to this subclause), (IV) any gross income excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of subsection (c)(2)(C), (h), or (i) of section 954, (V) any gross income excluded from the insurance income (as defined in section 953) of such corporation by reason of section 953(a)(2), (VI) any gross income excluded from foreign base company income (as defined in section 954) or insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4), (VII) any dividend received from a related person (as defined in section 954(d)(3)), and (VIII) any commodities gross income of such corporation, over (ii) the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5) (or which would be so properly allocable if such corporation had such gross income). (B) Tested loss The term tested loss (d) Qualified business asset investment For purposes of this section— (1) In general The term qualified business asset investment (A) used in a trade or business of the corporation, and (B) of a type with respect to which a deduction is allowable under section 168. (2) Specified tangible property The term specified tangible property (3) Partnership property For purposes of this subsection, if a controlled foreign corporation holds an interest in a partnership at the close of such taxable year of the controlled foreign corporation, such controlled foreign corporation shall take into account under paragraph (1) the controlled foreign corporation’s distributive share of the aggregate of the partnership’s adjusted bases (determined as of such date in the hands of the partnership) in tangible property held by such partnership to the extent such property— (A) is used in the trade or business of the partnership, (B) is of a type with respect to which a deduction is allowable under section 168, and (C) is used in the production of tested income or tested loss (determined with respect to such controlled foreign corporation’s distributive share of income or loss with respect to such property). For purposes of this paragraph, the controlled foreign corporation’s distributive share of the adjusted basis of any property shall be the controlled foreign corporation’s distributive share of income and loss with respect to such property. (4) Determination of adjusted basis For purposes of this subsection, the adjusted basis in any property shall be determined without regard to any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section. (5) Regulations The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection, including regulations or other guidance which provide for the treatment of property if— (A) such property is transferred, or held, temporarily, or (B) the avoidance of the purposes of this paragraph is a factor in the transfer or holding of such property. (e) Commodities gross income For purposes of this section— (1) Commodities gross income The term commodities gross income (A) gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation (or a partnership in which such corporation is a partner), and (B) gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A). (2) Commodity The term commodity a commodity described in subparagraph (A) such a commodity (f) Taxable years for which persons are treated as United States shareholders of controlled foreign corporations For purposes of this section— (1) In general A United States shareholder of a controlled foreign corporation shall be treated as a United States shareholder of such controlled foreign corporation for any taxable year of such United States shareholder if— (A) a taxable year of such controlled foreign corporation ends in or with such taxable year of such person, and (B) such person owns (within the meaning of section 958(a)) stock in such controlled foreign corporation on the last day, in such taxable year of such foreign corporation, on which the foreign corporation is a controlled foreign corporation. (2) Treatment as a controlled foreign corporation Except for purposes of paragraph (1)(B) and the application of section 951(a)(2) to this section pursuant to subsection (g), a foreign corporation shall be treated as a controlled foreign corporation for any taxable year of such foreign corporation if such foreign corporation is a controlled foreign corporation at any time during such taxable year. (g) Determination of pro rata share For purposes of this section, pro rata shares shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income. (h) Coordination with subpart F (1) Treatment as subpart F income for certain purposes Except as otherwise provided by the Secretary any foreign high return amount included in gross income under subsection (a) shall be treated in the same manner as an amount included under section 951(a)(1)(A) for purposes of applying sections 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962, 993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 6655(e)(4). (2) Entire foreign high return amount taken into account for purposes of certain sections For purposes of applying paragraph (1) with respect to sections 168(h)(2)(B), 851(b), 959, 961, 962, 1248(b)(1), and 1248(d)(1), the foreign high return amount included in gross income under subsection (a) shall be determined by substituting 100 percent 50 percent (3) Allocation of foreign high return amount to controlled foreign corporations For purposes of the sections referred to in paragraph (1), with respect to any controlled foreign corporation any pro rata amount from which is taken into account in determining the foreign high return amount included in gross income of a United States shareholder under subsection (a), the portion of such foreign high return amount which is treated as being with respect to such controlled foreign corporation is— (A) in the case of a controlled foreign corporation with tested loss, zero, and (B) in the case of a controlled foreign corporation with tested income, the portion of such foreign high return amount which bears the same ratio to such foreign high return amount as— (i) such United States shareholder’s pro rata amount of the tested income of such controlled foreign corporation, bears to (ii) the aggregate amount determined under subsection (c)(1)(A) with respect to such United States shareholder. (4) Coordination with subpart F to deny double benefit of losses In the case of any United States shareholder of any controlled foreign corporation, the amount included in gross income under section 951(a)(1)(A) shall be determined by increasing the earnings and profits of such controlled foreign corporation (solely for purposes of determining such amount) by an amount that bears the same ratio (not greater than 1) to such shareholder’s pro rata share of the tested loss of such controlled foreign corporation as— (A) the aggregate amount determined under subsection (c)(1)(A) with respect to such shareholder, bears to (B) the aggregate amount determined under subsection (c)(1)(B) with respect to such shareholder. . (b) Foreign tax credit (1) Application of deemed paid foreign tax credit Section 960, as amended by the preceding provisions of this Act, is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection: (d) Deemed paid credit for taxes properly attributable to tested income (1) In general For purposes of this subpart, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 80 percent of— (A) such domestic corporation’s foreign high return percentage, multiplied by (B) the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations with respect to which such domestic corporation is a United States shareholder. (2) Foreign high return percentage For purposes of paragraph (1), the term foreign high return percentage (A) such corporation’s foreign high return amount (as defined in section 951A(b)), divided by (B) the aggregate amount determined under section 951A(c)(1)(A) with respect to such corporation. (3) Tested foreign income taxes For purposes of paragraph (1), the term tested foreign income taxes . (2) Application of foreign tax credit limitation (A) Separate basket for foreign high return amount Section 904(d)(1) (A) any amount includible in gross income under section 951A, . (B) No carryover of excess taxes Section 904(c) This subsection shall not apply to taxes paid or accrued with respect to amounts described in subsection (d)(1)(A). (3) Gross up for deemed paid foreign tax credit Section 78, as amended by the preceding provisions of this Act, is amended— (A) by striking any taxable year, an amount any taxable year— (1) an amount , and (B) by striking the period at the end and inserting , and (2) an amount equal to the taxes deemed to be paid by such corporation under section 960(d) for such taxable year (determined by substituting 100 percent 80 percent . (c) Conforming amendments (1) Section 170(b)(2)(D) computed without regard to computed— (i) without regard to— (I) this section, (II) part VIII (except section 248), (III) any net operating loss carryback to the taxable year under section 172, (IV) any capital loss carryback to the taxable year under section 1212(a)(1), and (ii) by substituting 100 percent 50 percent . (2) Section 246(b)(1) (A) striking and without regard to without regard to (B) by striking the period at the end and inserting , and by substituting 100 percent 50 percent (3) Section 469(i)(3)(F) determined without regard to determined— (i) without regard to— (I) any amount includible in gross income under section 86, (II) the amounts allowable as a deduction under section 219, and (III) any passive activity loss or any loss allowable by reason of subsection (c)(7), and (ii) by substituting 100 percent 50 percent . (4) Section 856(c)(2) and and (J) amounts includible in gross income under section 951A(a); . (5) Section 856(c)(3)(D) dividends or other distributions on, and gain dividends, other distributions on, amounts includible in gross income under section 951A(a) with respect to, and gain (6) The table of sections for subpart F of part III of subchapter N of chapter 1 Sec. 951A. Foreign high return amount included in gross income of United States shareholders. . (d) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4302. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group (a) In general Section 163 (n) Limitation on deduction of interest by domestic corporations in international financial reporting groups (1) In general In the case of any domestic corporation which is a member of any international financial reporting group, the deduction under this chapter for interest paid or accrued during the taxable year shall not exceed the sum of— (A) the allowable percentage of 110 percent of the excess (if any) of — (i) the amount of such interest so paid or accrued, over (ii) the amount described in subparagraph (B), plus (B) the amount of interest includible in gross income of such corporation for such taxable year. (2) International financial reporting group (A) For purposes of this subsection, the term international financial reporting group (i) includes— (I) at least one foreign corporation engaged in a trade or business within the United States, or (II) at least one domestic corporation and one foreign corporation, (ii) prepares consolidated financial statements with respect to such year, and (iii) reports in such statements average annual gross receipts (determined in the aggregate with respect to all entities which are part of such group) for the 3-reporting-year period ending with such reporting year in excess of $100,000,000. (B) Rules relating to determination of average gross receipts For purposes of subparagraph (A)(iii), rules similar to the rules of section 448(c)(3) shall apply. (3) Allowable percentage For purposes of this subsection— (A) In general The term allowable percentage (i) such corporation’s allocable share of the international financial reporting group’s reported net interest expense for the reporting year of such group which ends in or with such taxable year of such corporation, over (ii) such corporation’s reported net interest expense for such reporting year of such group. (B) Reported net interest expense The term reported net interest expense (i) with respect to any international financial reporting group for any reporting year, the excess of— (I) the aggregate amount of interest expense reported in such group’s consolidated financial statements for such taxable year, over (II) the aggregate amount of interest income reported in such group’s consolidated financial statements for such taxable year, and (ii) with respect to any domestic corporation for any reporting year, the excess of— (I) the amount of interest expense of such corporation reported in the books and records of the international financial reporting group which are used in preparing such group’s consolidated financial statements for such taxable year, over (II) the amount of interest income of such corporation reported in such books and records. (C) Allocable share of reported net interest expense With respect to any domestic corporation which is a member of any international financial reporting group, such corporation’s allocable share of such group’s reported net interest expense for any reporting year is the portion of such expense which bears the same ratio to such expense as— (i) the EBITDA of such corporation for such reporting year, bears to (ii) the EBITDA of such group for such reporting year. (D) EBITDA (i) In general The term EBITDA (I) as determined in the international financial reporting group’s consolidated financial statements for such year, or (II) for purposes of subparagraph (A)(i), as determined in the books and records of the international financial reporting group which are used in preparing such statements if not determined in such statements. (ii) Treatment of disregarded entities The EBITDA of any domestic corporation shall not fail to include the EBITDA of any entity which is disregarded for purposes of this chapter. (iii) Treatment of intra-group distributions The EBITDA of any domestic corporation shall be determined without regard to any distribution received by such corporation from any other member of the international financial reporting group. (E) Special rules for non-positive EBITDA (i) Non-positive group EBITDA In the case of any international financial reporting group the EBITDA of which is zero or less, paragraph (1) shall not apply to any member of such group the EBITDA of which is above zero. (ii) Non-positive entity EBITDA In the case of any group member the EBITDA of which is zero or less, paragraph (1) shall be applied without regard to subparagraph (A) thereof. (4) Consolidated financial statement For purposes of this subsection, the term consolidated financial statement (A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles, international financial reporting standards, or any other comparable method of accounting identified by the Secretary, and which is— (i) a 10-K (or successor form), or annual statement to shareholders, required to be filed with the United States Securities and Exchange Commission, (ii) an audited financial statement which is used for— (I) credit purposes, (II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or (III) any other substantial nontax purpose, but only if there is no statement described in clause (i), or (iii) filed with any other Federal or State agency for nontax purposes, but only if there is no statement described in clause (i) or (ii), or (B) a financial statement which— (i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or (ii) filed with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary, but only if there is no statement described in subparagraph (A). (5) Reporting year For purposes of this subsection, the term reporting year (6) Application to certain entities (A) Partnerships Except as otherwise provided by the Secretary in paragraph (7), this subsection shall apply to any partnership which is a member of any international financial reporting group under rules similar to the rules of section 163(j)(3). (B) Foreign corporations engaged in trade or business within the United States Except as otherwise provided by the Secretary in paragraph (8), any deduction for interest paid or accrued by a foreign corporation engaged in a trade or business within the United States shall be limited in a manner consistent with the principles of this subsection. (C) Consolidated groups For purposes of this subsection, the members of any group that file (or are required to file) a consolidated return with respect to the tax imposed by chapter 1 for a taxable year shall be treated as a single corporation. (7) Regulations The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection. . (b) Carryforward of disallowed interest (1) In general Section 163(o) (o) Carryforward of certain disallowed interest The amount of any interest not allowed as a deduction for any taxable year by reason of subsection (j)(1) or (n)(1) (whichever imposes the lower limitation with respect to such taxable year) shall be treated as interest (and as business interest for purposes of subsection (j)(1)) paid or accrued in the succeeding taxable year. Interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the 5th taxable year following such taxable year, determined by treating interest as allowed as a deduction on a first-in, first-out basis. . (2) Treatment of carryforward of disallowed interest in certain corporate acquisitions For rules related to the carryforward of disallowed interest in certain corporate acquisitions, see the amendments made by section 3301(c). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 4303. Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income (a) Excise tax on certain amounts from domestic corporations to foreign affiliates (1) In general Chapter 36 E Tax on certain amounts to foreign affiliates Sec. 4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates. 4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates (a) In general There is hereby imposed on each specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation a tax equal to the highest rate of tax in effect under section 11 multiplied by such amount. (b) By whom paid The tax imposed by subsection (a) shall be paid by the domestic corporation described in such subsection. (c) Exception for effectively connected income Subsection (a) shall not apply to so much of any specified amount as is effectively connected with the conduct of a trade or business within the United States if such amount is subject to tax under chapter 1. In the case of any amount which is treated as effectively connected with the conduct of a trade or business within the United States by reason of section 882(g), the preceding sentence shall apply to such amount only if the domestic corporation provides to the Secretary (at such time and in such form and manner as the Secretary may provide) a copy of the election made under section 882(g) by the foreign corporation referred to in subsection (a). (d) Definitions and special rules Terms used in this section that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this section. . (2) Denial of deduction for tax imposed Section 275(a) (7) Taxes imposed by section 4491. . (3) Clerical amendment The table of subchapters for chapter 36 Subchapter E. Tax on certain amounts to foreign affiliates. . (b) Election to treat certain payments from domestic corporations to related foreign corporations as effectively connected income Section 882 (g) Election to treat certain payments from domestic corporations to related foreign corporations as effectively connected income (1) In general In the case of any specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation and which has elected to be subject to the provisions of this subsection— (A) such amount shall be taken into account (other than for purposes of sections 245, 245A, and 881) in the taxable year of such foreign corporation during which such amount is paid or incurred as if— (i) such foreign corporation were engaged in a trade or business within the United States, (ii) such foreign corporation had a permanent establishment in the United States during the taxable year, and (iii) such payment were effectively connected with the conduct of a trade or business within the United States and were attributable to such permanent establishment, (B) for purposes of subsection (c)(1)(A), no deduction shall be allowed with respect to such amount and such subsection shall be applied without regard to such amount, and (C) the foreign corporation shall be allowed a deduction (for the taxable year referred to in subparagraph (A)) equal to the deemed expenses with respect to such amount. (2) Specified amount For purposes of this subsection— (A) In general The term specified amount (B) Exceptions The term specified amount (i) interest, (ii) any amount paid or incurred for the acquisition of any security described in section 475(c)(2) (determined without regard to the last sentence thereof) or any commodity described in section 475(e)(2), (iii) except as provided in subparagraph (C), any amount with respect to which tax is imposed under section 881(a), and (iv) in the case of a payor which has elected to use a services cost method for purposes of section 482, any amount paid or incurred for services if such amount is the total services cost with no markup. (C) Amounts not treated as effectively connected to extent of gross-basis tax Subparagraph (B)(iii) shall only apply to so much of any specified amount as bears the proportion to such amount as— (i) the rate of tax imposed under section 881(a) with respect to such amount, bears to (ii) 30 percent. (3) Deemed expenses (A) In general The deemed expenses with respect to any specified amount received by a foreign corporation during any reporting year is the amount of expenses such that the net income ratio of such foreign corporation with respect to such amount (taking into account only such specified amount and such deemed expenses) is equal to the net income ratio of the international financial reporting group determined for such reporting year with respect to the product line to which the specified amount relates. (B) Net income ratio For purposes of this paragraph, the term net income ratio (i) net income determined without regard to interest income, interest expense, and income taxes, divided by (ii) revenues. (C) Method of determination Amounts described in subparagraph (B) shall be determined with respect to the international financial reporting group on the basis of the consolidated financial statements referred to in paragraph (4)(A)(i) and the books and records of the members of the international financial reporting group which are used in preparing such statements, taking into account only revenues and expenses of the members of such group (other than the members of such group which are (or are treated as) a domestic corporation for purposes of this subsection) derived from, or incurred with respect to— (i) persons who are not members of such group, and (ii) members of such group which are (or are treated as) a domestic corporation for purposes of this subsection. (4) International financial reporting group For purposes of this subsection— (A) In general The term international financial reporting group (i) such group prepares consolidated financial statements (within the meaning of section 163(n)(4)) with respect to such year, and (ii) the average annual aggregate payment amount of such group for the 3-reporting-year period ending with such reporting year exceeds $100,000,000. (B) Annual aggregate payment amount The term annual aggregate payment amount (C) Application of certain rules Rules similar to the rules of subparagraphs (A), (B), and (D) of section 448(c)(3) shall apply for purposes of this paragraph. (5) Treatment of partnerships Any specified amount paid, incurred, or received by a partnership which is a member of any international financial reporting group (and any amount treated as paid, incurred, or received by a partnership under this paragraph) shall be treated for purposes of this subsection as amounts paid, incurred, or received, respectively, by each partner of such partnership in an amount equal to such partner’s distributive share of the items of income, gain, deduction, or loss to which such amounts relate. (6) Treatment of amounts in connection with United States trade or business Any specified amount paid, incurred, or received by a foreign corporation in connection with the conduct of a trade or business within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) shall be treated for purposes of this subsection as an amount paid, incurred, or received, respectively, by a domestic corporation. For purposes of the preceding sentence, a foreign corporation shall be deemed to pay, incur, and receive amounts with respect to a trade or business it conducts within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) to the extent such foreign corporation would be treated as paying, incurring, or receiving such amounts from such trade or business if such trade or business were a domestic corporation. (7) Joint and several liability of members of internal financial reporting group In the case of any underpayment with respect to any taxable year of a foreign corporation which is a member of an international financial accounting group, each domestic corporation which is a member of such group at any time during such taxable year shall be jointly and severally liable for— (A) so much of such underpayment as does not exceed the excess (if any) of such underpayment over the amount of such underpayment determined without regard to this subsection, and (B) any penalty, addition to tax, or additional amount attributable to the amount described in subparagraph (A). (8) Foreign tax credit allowed The credit allowed under section 906(a) with respect to amounts taken into account in income under paragraph (1)(A) shall be limited to 80 percent of the amount of taxes paid or accrued and determined without regard to section 906(b)(1). (9) Election Any election under paragraph (1)— (A) shall be made at such time and in such form and manner as the Secretary may provide, and (B) shall apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary. (10) Regulations The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance— (A) to provide for the proper determination of product lines, and (B) to prevent the avoidance of the purposes of this subsection through the use of conduit transactions or by other means. . (c) Reporting requirements (1) Reporting by foreign corporation Section 6038C(b) (b) Required information (1) In general The information described in this subsection is— (A) the information described in section 6038A(b), and (B) such other information as the Secretary may prescribe by regulations relating to any item not directly connected with a transaction for which information is required under subparagraph (A). (2) Certain payments from related domestic corporations (A) In general In the case of any reporting corporation that receives during the taxable year any amount to which section 882(g)(1) applies, the information described in this subsection shall include, with respect to each member of the international financial reporting group from which any such amount is received— (i) the name and taxpayer identification number of such member, (ii) the aggregate amounts received from such member, (iii) the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and (iv) a summary of any changes in financial accounting methods that affect the computation of any net income ratio described in clause (iii). (B) Definitions and special rules Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this paragraph. . (2) Reporting by domestic group members (A) In general Subpart A of part III of subchapter A of chapter 61 6038E. Information with respect to certain payments from domestic corporations to related foreign corporations (a) In general In the case of any domestic corporation which pays or incurs any amount to which section 882(g)(1) applies, such person shall— (1) make a return according to the forms and regulations prescribed the Secretary, setting forth the information described in subsection (b), and (2) maintain (at the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine liability for tax pursuant to paragraphs (1) and (7) of section 882(g). (b) Required information The information described in this subsection is— (1) the name and taxpayer identification number of the common parent of the international financial reporting group in which such domestic corporation is a member, and (2) with respect to any person who receives an amount described in subsection (a) from such domestic corporation— (A) the name and taxpayer identification number of such person, (B) the aggregate amounts received by such person, (C) the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and (D) a summary of any changes in financial accounting methods that affect the computation of any net income ratios described in subparagraph (C). (c) Definitions and special rules Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this paragraph. . (B) Clerical amendment The table of sections for subpart A of part III of subchapter A of chapter 61 Sec. 6038E. Information with respect to certain payments from domestic corporations to related foreign corporations. . (d) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2018. E Provisions related to possessions of the United States 4401. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (a) In general Section 199(d)(8)(C), prior to its repeal by this Act, is amended— (1) by striking first 11 taxable years first 12 taxable years (2) by striking January 1, 2017 January 1, 2018 (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016. 4402. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands (a) In general Section 7652(f)(1) January 1, 2017 January 1, 2023 (b) Effective date The amendment made by this section shall apply to distilled spirits brought into the United States after December 31, 2016. 4403. Extension of American Samoa economic development credit (a) In general Section 119(d) of division A of the Tax Relief and Health Care Act of 2006 is amended— (1) by striking January 1, 2017 January 1, 2023 (2) by striking first 11 taxable years first 17 taxable years (3) by striking first 5 taxable years first 11 taxable years (b) Treatment of certain references Section 119(e) of division A of the Tax Relief and Health Care Act of 2006 is amended by adding at the end the following: References in this subsection to section 199 Tax Cuts and Jobs Act (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016. F Other international reforms 4501. Restriction on insurance business exception to passive foreign investment company rules (a) In general Section 1297(b)(2)(B) (B) derived in the active conduct of an insurance business by a qualifying insurance corporation (as defined in subsection (f)), . (b) Qualifying insurance corporation defined Section 1297 (f) Qualifying insurance corporation For purposes of subsection (b)(2)(B)— (1) In general The term qualifying insurance corporation (A) which would be subject to tax under subchapter L if such corporation were a domestic corporation, and (B) the applicable insurance liabilities of which constitute more than 25 percent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s applicable financial statement for the last year ending with or within the taxable year. (2) Alternative facts and circumstances test for certain corporations If a corporation fails to qualify as a qualified insurance corporation under paragraph (1) solely because the percentage determined under paragraph (1)(B) is 25 percent or less, a United States person that owns stock in such corporation may elect to treat such stock as stock of a qualifying insurance corporation if— (A) the percentage so determined for the corporation is at least 10 percent, and (B) under regulations provided by the Secretary, based on the applicable facts and circumstances— (i) the corporation is predominantly engaged in an insurance business, and (ii) such failure is due solely to runoff-related or rating-related circumstances involving such insurance business. (3) Applicable insurance liabilities For purposes of this subsection— (A) In general The term applicable insurance liabilities (i) loss and loss adjustment expenses, and (ii) reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks. (B) Limitations on amount of liabilities Any amount determined under clause (i) or (ii) of subparagraph (A) shall not exceed the lesser of such amount— (i) as reported to the applicable insurance regulatory body in the applicable financial statement described in paragraph (4)(A) (or, if less, the amount required by applicable law or regulation), or (ii) as determined under regulations prescribed by the Secretary. (4) Other definitions and rules For purposes of this subsection— (A) Applicable financial statement The term applicable financial statement (i) is made on the basis of generally accepted accounting principles, (ii) is made on the basis of international financial reporting standards, but only if there is no statement that meets the requirement of clause (i), or (iii) except as otherwise provided by the Secretary in regulations, is the annual statement which is required to be filed with the applicable insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii). (B) Applicable insurance regulatory body The term applicable insurance regulatory body . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. V Exempt organizations A Unrelated Business Income Tax 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a) (a) In general Section 511 (d) Organizations and trusts exempt from taxation not solely by reason of section 501(a) For purposes of subsections (a)(2) and (b)(2), an organization or trust shall not fail to be treated as exempt from taxation under this subtitle by reason of section 501(a) solely because such organization is also so exempt, or excludes amounts from gross income, by reason of any other provision of this title. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5002. Exclusion of research income limited to publicly available research (a) In general Section 512(b)(9) from research from such research (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. B Excise Taxes 5101. Simplification of excise tax on private foundation investment income (a) Rate reduction Section 4940(a) 2 percent 1.4 percent (b) Repeal of special rules for certain private foundations Section 4940 (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5102. Private operating foundation requirements relating to operation of art museum (a) In general Section 4942(j) (6) Organization operating art museum For purposes of this section, the term operating foundation . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5103. Excise tax based on investment income of private colleges and universities (a) In general Chapter 42 H Excise tax based on investment income of private colleges and universities Sec. 4969. Excise tax based on investment income of private colleges and universities. 4969. Excise tax based on investment income of private colleges and universities (a) Tax imposed There is hereby imposed on each applicable educational institution for the taxable year a tax equal to 1.4 percent of the net investment income of such institution for the taxable year. (b) Applicable educational institution For purposes of this subchapter— (1) In general The term applicable educational institution (A) which has at least 500 students during the preceding taxable year, (B) which is not described in the first sentence of section 511(a)(2)(B), and (C) the aggregate fair market value of the assets of which at the end of the preceding taxable year (other than those assets which are used directly in carrying out the institution’s exempt purpose) is at least $250,000 per student of the institution. (2) Students For purposes of paragraph (1), the number of students of an institution shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis). (c) Net investment income For purposes of this section, net investment income shall be determined under rules similar to the rules of section 4940(c). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), the assets and net investment income of any related organization shall be treated as the assets and net investment income of the eligible educational institution. (2) Related organization For purposes of this subsection, the term related organization (A) controls, or is controlled by, such institution, (B) is controlled by one or more persons that control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (b) Clerical amendment The table of subchapters for chapter 42 Subchapter H—Excise tax based on investment income of private colleges and universities . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5104. Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings (a) In general Section 4943 (g) Exception for certain holdings limited to independently-operated philanthropic business (1) In general Subsection (a) shall not apply with respect to the holdings of a private foundation in any business enterprise which for the taxable year meets— (A) the ownership requirements of paragraph (2), (B) the all profits to charity distribution requirement of paragraph (3), and (C) the independent operation requirements of paragraph (4). (2) Ownership The ownership requirements of this paragraph are met if— (A) 100 percent of the voting stock in the business enterprise is held by the private foundation at all times during the taxable year, and (B) all the private foundation’s ownership interests in the business enterprise were acquired not by purchase. (3) All profits to charity (A) In general The all profits to charity distribution requirement of this paragraph is met if the business enterprise, not later than 120 days after the close of the taxable year, distributes an amount equal to its net operating income for such taxable year to the private foundation. (B) Net operating income For purposes of this paragraph, the net operating income of any business enterprise for any taxable year is an amount equal to the gross income of the business enterprise for the taxable year, reduced by the sum of— (i) the deductions allowed by chapter 1 for the taxable year which are directly connected with the production of such income, (ii) the tax imposed by chapter 1 on the business enterprise for the taxable year, and (iii) an amount for a reasonable reserve for working capital and other business needs of the business enterprise. (4) Independent operation The independent operation requirements of this paragraph are met if, at all times during the taxable year— (A) no substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation, or family member of such a contributor (determined under section 4958(f)(4)) is a director, officer, trustee, manager, employee, or contractor of the business enterprise (or an individual having powers or responsibilities similar to any of the foregoing), (B) at least a majority of the board of directors of the private foundation are not— (i) also directors or officers of the business enterprise, or (ii) members of the family (determined under section 4958(f)(4)) of a substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation, and (C) there is no loan outstanding from the business enterprise to a substantial contributor (as so defined) to the private foundation or a family member of such contributor (as so determined). (5) Certain deemed private foundations excluded This subsection shall not apply to— (A) any fund or organization treated as a private foundation for purposes of this section by reason of subsection (e) or (f), (B) any trust described in section 4947(a)(1) (relating to charitable trusts), and (C) any trust described in section 4947(a)(2) (relating to split-interest trusts). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. C Requirements for organizations exempt from tax 5201. 501(c)(3) (a) In general Section 501 (s) Special rule relating to political campaign statements of organizations described in subsection (c)(3) (1) In general For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization shall not fail to be treated as organized and operated exclusively for a purpose described in subsection (c)(3), nor shall it be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any statement which— (A) is made in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and (B) results in the organization incurring not more than de minimis incremental expenses. (2) Termination Paragraph (1) shall not apply to taxable years beginning after December 31, 2023. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. 5202. Additional reporting requirements for donor advised fund sponsoring organizations (a) In general Section 6033(k) and (4) indicate the average amount of grants made from such funds during such taxable year (expressed as a percentage of the value of assets held in such funds at the beginning of such taxable year), and (5) indicate whether the organization has a policy with respect to donor advised funds (as so defined) for frequency and minimum level of distributions. Such organization shall include with such return a copy of any policy described in paragraph (5). . (b) Effective date The amendment made by this section shall apply for returns filed for taxable years beginning after December 31, 2017. Amend the title so as to read: A bill to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018. November 13, 2017 Reported with amendments, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

Summary: (This measure has not been amended since the House agreed to the Senate amendment without amendment on December 20, 2017. The summary of that version is repeated here.) This bill amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. It also establishes an oil and gas leasing program for the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. (Unless otherwise specified, provisions referred to in this summary as temporary or as a suspension of an existing provision apply for taxable years beginning after December 31, 2017, and before January 1, 2026.) TITLE I Subtitle A-- Individual Tax Reform Part I--Tax Rate Reform (Sec. 11001) This section temporarily replaces the existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with new brackets (10%, 12%, 22%, 24%, 32%, 35% , 37%) and specifies the income levels that apply for each bracket. The bill also: (1) modifies the taxation of the unearned income of children, and (2) requires the Department of the Treasury to promulgate due diligence requirements for paid preparers in determining eligibility for a taxpayer to file as a head of household. (Sec. 11002) This section requires the chained Consumer Price Index to be used to index the brackets for inflation. Part II--Deduction For Qualified Business Income Of Pass-Thru Entities (Sec. 11011) This section temporarily allows an individual taxpayer to deduct 20% of qualified business income (i.e., business income of an individual from a partnership, S corporation, or sole proprietorship which is currently taxed using individual income tax rates), including aggregate qualified Real Estate Investment Trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. The bill specifies formulas for determining the taxpayer's deduction for qualified business income and for determining the deduction for certain agricultural or horticultural cooperatives. The deduction applies to taxable income, is not used to calculate adjusted gross income (AGI), and is available to taxpayers who do not itemize deductions. Trusts and estates are eligible for the deduction. The bill phases in a limitation for the deduction when wages exceed $157,500 ($315,000 in the case of a joint return). The bill also phases in a disallowance of the deduction when taxable income with respect to specified service trades or businesses exceeds the limits. The limits are fully phased in when taxable income exceeds the threshold amounts by $50,000 ($100,000 for joint returns). A &quot;specified service trade or business&quot; is any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. The term excludes engineering and architecture services. (Sec. 11012) This section temporarily prohibits taxpayers other than corporations from claiming excess business losses. An excess business loss for the taxable year is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus $250,000 (200% of the amount in the case of a joint return). The threshold amount is indexed for inflation after 2018. In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner's distributive share and each S corporation shareholder's pro rata share of items of income, gain, deduction, or loss of the partnership or S corporation are taken into account in applying the limitation under the provision for the taxable year of the partner or S corporation shareholder. Losses prohibited under this section are carried forward and treated as part of the taxpayer's net operating loss carryforward in subsequent taxable years. Part III--Tax Benefits For Families And Individuals (Sec. 11021) This section temporarily increases the standard deduction to $24,000 for married individuals filing a joint return, to $18,000 for head-of-household filers, and to $12,000 for all other taxpayers. The amount of the standard deduction is indexed for inflation after 2018 using the chained CPI. (Under current law, the standard deduction for 2017 is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses.) (Sec. 11022) This section modifies the child tax credit to temporarily: (1) increase the credit to $2,000 ($1,000 under current law) per qualifying child under the age of 17, and (2) allow a $500 nonrefundable credit for each dependent of the taxpayer who is not a qualifying child under age 17. The credit is phased out at AGI levels of $400,000 for married taxpayers filing joint returns and $200,000 for individuals. The refundable portion of the credit is limited to $1,400 per qualifying child. In order to receive the credit, a taxpayer must include a Social Security number for each qualifying child for whom the credit is claimed on the tax return. The requirement does not apply to a non-child dependent for whom the $500 non-refundable credit is claimed. (Sec. 11023) This section modifies the deduction for charitable contributions to temporarily increase from 50% to 60% the income-based percentage limitation for contributions of cash to public charities. (Sec. 11024) This section temporarily increases contribution limitations for ABLE accounts with respect to contributions made by the designated beneficiary of the account. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.) After the limit is reached, the designated beneficiary may contribute an additional amount up to the lesser of: (1) the federal poverty line for a one-person household, or (2) the individual's compensation for the taxable year. The bill also allows the designated beneficiary of an ABLE account to claim the saver's credit for contributions made to his or her account. (Sec. 11025) This section allows funds from qualified tuition programs (known as 529 plans) to be rolled over to an ABLE account without penalty if the ABLE account is owned by the designated beneficiary of the 529 account or a member of the designated beneficiary's family. (Sec. 11026) This section temporarily allows certain members of the Armed Forces in the Sinai Peninsula of Egypt to receive combat zone tax benefits for performing services that qualify for special pay for duty subject to hostile fire or imminent danger. (Sec. 11027) For 2017 and 2018, this section reduces from 10% to 7.5% the AGI threshold that must be exceeded before a taxpayer is allowed to claim an itemized deduction for medical expenses. (Sec. 11028) This section provides tax incentives for areas in which a major disaster was declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. For individuals residing in the 2016 disaster areas, the bill allows: (1) exceptions to the 10% penalty for up to $100,000 in early withdrawals from retirement plans, and (2) personal casualty losses exceeding $500 per casualty to be deducted without regard to whether aggregate net losses exceed 10% of a taxpayer's AGI. Part IV--Education (Sec. 11031) This section temporarily modifies the exclusion of student loan discharges from gross income to exclude from gross income certain discharges on account of the death or total and permanent disability of the student. (Sec. 11032) This section allows funds from 529 accounts to be used for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. Part V--Deductions And Exclusions (Sec. 11041) This section: (1) suspends the deduction for personal exemptions, (2) modifies the wage withholding rules, (3) and modifies the requirements that determine who is required to file a tax return. (Sec. 11042) This section temporarily limits individual deductions for certain state and local taxes to $10,000 per year ($5,000 for a married taxpayer filing a separate return). The limit does not apply to taxes paid or accrued in carrying on a trade or business or for expenses for the production of income. (Sec. 11043) This section modifies the deduction for home mortgage interest to: (1) limit the deduction to mortgages for a principal residence, (2) temporarily limit the deduction for debt incurred on or before December 15, 2017, to mortgages of up to $750,000 (currently $1 million), and (3) suspend the deduction for interest paid on home equity loans. For taxable years beginning after 2025, the deduction applies to mortgages of up to $1 million regardless of when the indebtedness was incurred. (Sec. 11044) This section temporarily modifies the deduction for personal casualty and theft losses. A taxpayer may only claim the deduction for a personal casualty loss if the loss is attributable to a federally declared disaster. The bill includes an exception for certain personal casualty losses that do not exceed personal casualty gains. (Sec. 11045) This section suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law. (Sec. 11046) This section suspends the overall limitation on itemized deductions, which currently applies when AGI exceeds a specified amount. (Sec. 11047) This section suspends the exclusion for qualified bicycle commuting reimbursements. (Sec. 11048) This section suspends the exclusion for qualified moving expense reimbursements, with an exception for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station. (Sec. 11049) This section suspends the deduction for moving expenses. (Sec. 11050) This section temporarily modifies a provision that limits the deduction for wagering losses to the extent of the gains from such transactions. The bill specifies that &quot;losses from wagering transactions&quot; include otherwise deductible expenses incurred in carrying out a wagering transaction (e.g., expenses for traveling to or from a casino). (Sec. 11051) This section repeals the deduction for alimony or separate maintenance payments from the payor spouse and the corresponding inclusion of the payments in the gross income of the recipient spouse. Part VI--Increase In Estate And Gift Tax Exemption (Sec. 11061) This section doubles the estate and gift tax exemption amount for decedents dying or gifts made after December 31, 2017, and before January 1, 2026, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.) Part VII--Extension Of Time Limit For Contesting IRS Levy (Sec. 11071) This section extends from nine months to two years the time limit for contesting an Internal Revenue Service (IRS) levy, including the time periods for: (1) returning the monetary proceeds from the sale of property that has been wrongfully levied upon, and (2) bringing a civil action for a wrongful levy. Part VIII--Individual Mandate (Sec. 11081) This section repeals the penalty for individuals who fail to maintain minimum essential health coverage as required by the Patient Protection and Affordable Care Act (commonly referred to as the individual mandate). Subtitle B--Alternative Minimum Tax (Sec. 12001) This section repeals the corporate alternative minimum tax (AMT). (Sec. 12002) This section modifies the AMT credit for corporations to: (1) allow the AMT credit to offset regular tax liability for any taxable year, and (2) make the credit refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. (Under current law a corporation subject to the AMT in any year is allowed an AMT credit in any subsequent taxable year to the extent that the taxpayer's regular tax liability exceeds its tentative minimum tax in the subsequent year.) (Sec. 12003) This section temporarily increases both the exemption amount and the exemption amount phaseout thresholds for the individual AMT. The exemption amount is increased to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return), and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return, and $500,000 for all other taxpayers (other than estates and trusts). The amounts are indexed for inflation after 2018. Subtitle C--Business-related Provisions Part I--Corporate Provisions (Sec. 13001) This section reduces the corporate tax rate from a maximum of 35% under the existing graduated rate structure to a flat 21% rate for tax years beginning after 2017. The bill specifies requirements for taxpayers subject to the normalization method of accounting. (Sec. 13002) With respect to the deduction for corporations that receive dividends from other taxable corporations, the bill reduces the 70% dividends received deduction to 50% and the 80% dividends received deduction to 65% to account for the lower corporate tax rate. Part II--Small Business Reforms (Sec. 13101) This section expands the expensing of certain depreciable business assets that is currently permitted under section 179 of the IRC. The bill modifies section 179 to: increase the maximum amount a taxpayer may expense per year to $1 million (currently $500,000); increase the phaseout threshold for the cost of section 179 property placed in service during the year to $2.5 million (currently $2 million); index the amounts above and the existing $25,000 limit for sport utility vehicles for inflation; revise the definition of qualified real property eligible for section 179 expensing to include any qualified improvement property and certain improvements to nonresidential real property placed in service after the date such property was first placed in service (roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems); and expand the definition of section 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. (Sec. 13102) This section modifies the accounting rules for small businesses to: expand the group of taxpayers who qualify for the cash accounting method by increasing the limit for the gross receipts test from $5 million to $25 million (adjusted for inflation after 2018), allow any farming C corporation (or farming partnership with a C corporation partner) that meets the gross receipts test to use the cash method of accounting, exempt taxpayers that meet the gross receipts test from certain requirements to account for inventories, expand the exceptions for small businesses from the uniform capitalization rules to include any producer or reseller that meets the gross receipts test, and expand the exception for small construction contracts from the requirement to use the percentage-of-completion method. Part III--Cost Recovery And Accounting Methods Subpart A--Cost Recovery (Sec. 13201) This section temporarily allows increased expensing of the costs of certain business property. The bill allows 100% expensing for: (1) certain business property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024 for longer production period property and certain aircraft); and (2) specified plants that bear fruits or nuts and are planted or grafted after September 27, 2017, and before January 1, 2023. The 100% allowance is phased down by 20% per year calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022 (after 2023 for longer production period property and certain aircraft). The bill also: expands the definition of &quot;qualified property&quot; eligible for expensing to include certain film, television, and live theatrical productions; removes the requirement that the original use of qualified property must commence with the taxpayer, subject to certain acquisition requirements and anti-abuse rules; and excludes from the definition of &quot;qualified property&quot; the property of certain businesses that are not subject to the limitation on interest expenses. (Sec. 13202) This section increases the depreciation limits that apply to luxury automobiles. It also removes computer or peripheral equipment from the definition of listed property that is subject to additional restrictions and substantiation requirements regarding the expense and business usage of the property. (Sec. 13203) This section modifies the depreciation rules for certain farm property to: (1) shorten the recovery period from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer and is placed in service after December 31, 2017; and (2) repeal the requirement to use the 150% declining balance method for property used in a farming business. (Sec. 13204) This section modifies the applicable recovery periods for depreciating certain real property. The bill eliminates the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property and applies the straight line method to qualified improvement property. It also modifies the alternative depreciation system (ADS) recovery period for such property. (Under current law, &quot;qualified improvement property&quot; is any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. It does not include any improvement for which the expenditure is attributable to: the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.) A real property trade or business electing out of the limitation on the deduction for interest must use the ADS to depreciate nonresidential real property, residential rental property, and qualified improvement property. (Sec. 13205) This section requires a farming business electing out of the limitation on the deduction for interest to use the ADS to depreciate any property with a recovery period of 10 years or more. (Sec. 13206) This section adjusts the amortization rules and schedules for certain research and experimentation expenditures. (Sec. 13207) This section allows expensing of certain costs of replanting lost or damaged citrus plants lost by reason of casualty. Subpart B--Accounting Methods (Sec. 13221) This section revises the rules associated with the timing of the recognition of income. Part IV--Business-Related Exclusions And Deductions (Sec. 13301) This section limits the deduction for business interest to the sum of: (1) business interest income for the year, (2) 30% of the adjusted taxable income of the taxpayer for the taxable year, and (3) the floor plan financing interest of the taxpayer for the taxable year. The amount of any business interest not allowed as a deduction for any year may be carried forward indefinitely, with the exception of partnerships which are subject to additional carryforward rules specified in the bill. &quot;Business interest income&quot; is the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. It does not include investment income. &quot;Floor plan financing interest&quot; is interest paid on debt used to finance the acquisition of motor vehicles held for sale or lease and secured by the inventory so acquired. The bill includes exceptions for: small businesses that meet the gross receipts test, the trade or business of performing services as an employee, any electing farming business, any electing real property trade or business, and certain regulated public utilities. (Sec. 13302) This section modifies the net operating loss deduction to: (1) limit the deduction to 80% of taxable income with an exception for property and casualty insurance companies, (2) repeal the two-year and other specified carryback provisions, (3) allow an indefinite carryforward of net operating losses, and (4) allow a two-year carryback for certain losses incurred in the trade or business of farming. (Sec. 13303) This section modifies the rule providing for the nonrecognition of gain in the case of like-kind exchanges to limit the application of the rule to real property that is not held primarily for sale. (Sec. 13304) This section modifies the tax treatment of certain expenses for entertainment and fringe benefits. The bill denies deductions for amounts paid or incurred for: an activity generally considered to be entertainment, amusement or recreation; membership dues for any club organized for business, pleasure, recreation, or other social purposes; a facility or portion thereof used in connection with any of the above items; providing any qualified transportation fringe to employees of the taxpayer; or providing transportation for commuting between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. Under current law, taxpayers may deduct 50% of the food and beverage expenses associated with operating their trade or business, subject to certain exceptions. The bill temporarily expands the 50% limitation to include expenses of an employer associated with providing food and beverages through an eating facility that meets the requirements for a de minimis fringe. (Sec. 13305) This section repeals the deduction for income attributable to domestic production activities. (Sec. 13306) This section prohibits deductions for trade or business expenses for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. The bill includes exceptions for amounts constituting restitution or paid to come into compliance with law, amounts paid or incurred as a result of certain court orders, and taxes due. The bill also establishes reporting requirements for government entities with respect to certain fines, penalties, and other amounts. (Sec. 13307) This section prohibits a tax deduction for trade or business expenses paid or incurred for: (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. (Sec. 13308) This section eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government. (Sec. 13309) This section requires a three-year holding period (one year under current law) for certain net long-term capital gains with respect to partnership interests held in connection with the performance of investment services. If the holder of an applicable partnership interest is allocated gain from the sale of property held for less than three years, that gain is treated as short-term capital gain and is taxed as ordinary income. (Sec. 13310) This section prohibits cash, gift cards, and other non-tangible personal property from being considered tax deductible employee achievement awards. (Under current law, tangible personal property may be considered a deductible employee achievement award if other specified requirements are met.) The bill specifies that &quot;tangible personal property&quot; does not include: (1) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer); or (2) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. (Sec. 13311) This section eliminates the deduction for living expenses incurred by Members of Congress. (Under current law, the deduction is limited to $3,000 per year.) (Sec. 13312) This section modifies the exclusion from gross income for contributions to the capital of a corporation to specify that a contribution to capital does not include a contribution: (1) in aid of construction or any other contribution as a customer or potential customer, or (2) by any governmental entity or civic group (other than a contribution made by a shareholder as such). The bill includes an exception for certain contributions made by a governmental entity pursuant to a master development plan. (Sec. 13313) This section repeals a provision that permits the tax-free rollover of certain gains from the sale of publicly traded securities into common stock or a partnership interest in a specialized small business investment company. (Sec. 13314) This section excludes certain patents, inventions, models, designs, secret formulas, or processes created by the taxpayer from the definition of a ''capital asset.'' Part V--Business Credits (Sec. 13401) This section modifies the tax credit for clinical testing expenses incurred in testing certain drugs for rare diseases or conditions (commonly referred to as orphan drugs) to reduce the credit rate to 25% (currently 50%) of qualified clinical testing expenses. (Sec. 13402) This section modifies the tax credit for rehabilitation expenditures to repeal the 10% credit for rehabilitated buildings other than a certified historic structure. The bill retains and modifies the 20% credit for rehabilitation expenditures for certified historic structures. For the five-year period beginning in the year in which a qualified rehabilitated building is placed in service, the credit is equal to the ratable share for each year, which is 20% of the qualified rehabilitation expenditures with respect to the building, as allocated ratably to each year during the period. (Sec. 13403) This section allows employers to claim a general business credit equal to 12.5% of wages paid to employees during any period in which such employees are on family and medical leave if the rate of payment under the program is 50% of the wages normally paid to an employee. The credit is increased by 0.25% (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any employee for any taxable year is 12 weeks. (Sec. 13404) This section repeals the authority to issue tax-credit bonds and direct-pay bonds. Part VI--Provisions Related To Specific Entities And Industries Subpart A--Partnership Provisions (Sec. 13501) This section sets forth requirements for the tax treatment of gains or losses of foreign persons from the sale or exchange of interests in partnerships engaged in trade or business within the United States. Under the bill, gain or loss from the sale or exchange of a partnership interest is effectively connected with a U.S. trade or business to the extent that the transferor would have had effectively connected gain or loss had the partnership sold all of its assets at fair market value as of the date of the sale or exchange. A partner's distributive share of gain or loss on the deemed sale must be determined in the same manner as the partner's distributive share of the non-separately stated taxable income or loss of the partnership. The bill also sets forth withholding requirements with respect to amounts realized from the sale or exchange of a partnership interest. (Sec. 13502) This section modifies the definition of &quot;substantial built-in loss&quot; with respect to the transfer of an interest in partnership. The bill specifies that &quot;a substantial built-in loss&quot; also exists if the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. (Sec. 13503) This section modifies the basis limitation on a partner's distributive share of a partnership loss to require a partner's distributive share of partnership charitable contribution and taxes paid or accrued to foreign countries and U.S. possessions to be taken into account in determining the limitation. (Sec. 13504) This section repeals the rule that provides for a technical termination of partnerships if, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. Subpart B--Insurance Reforms (Sec. 13511) This section repeals the operations loss deduction for life insurance companies and allows the net operating loss deduction under section 172 of the IRC. (Sec. 13512) This section repeals the small life insurance company deduction. (Sec. 13513) This section revises the tax treatment of income or loss resulting from a change in the method of computing life insurance company reserves. The bill eliminates the 10-year period for taking into account the changes and requires the changes to be taken into account as adjustments attributable to a change in the method of accounting. (Sec. 13514) This section repeals the special rule for distributions to shareholders of a stock life insurance company from a pre-1984 policyholders surplus account, which provides that amounts in the account are not taxed unless the amounts are treated as distributed to shareholders or subtracted from the account. The bill requires a life insurance company with such an account to pay taxes on the balance of the account ratably over the first eight taxable years beginning after December 31, 2017. (Sec. 13515) This section modifies the proration rules for property and casualty insurance companies to replace the 15% reduction with a reduction equal to 5.25% divided by the highest corporate tax rate in effect. (Under the top corporate rate of 21% that takes effect in 2018, the proration percentage is 25%.) (Under the proration rules, in calculating the deductible amount of its reserve for losses incurred, a property or casualty insurance company must reduce the amount of the losses incurred by a specified percentage of: (1) the insurer's tax-exempt interest, (2) the deductible portion of dividends received, and (3) the increase for the taxable year in the cash value of life insurance, endowment, or annuity contracts the company owns.) (Sec. 13516) This section repeals the special estimated tax payment rules for insurance companies. (Sec. 13517) This section modifies the rules for computing life insurance tax reserves that are used in determining the taxable income of a life insurance company. (Sec. 13518) This section modifies the life insurance company proration rule for reducing dividends received deductions and reserve deductions with respect to untaxed income. For purposes of the life insurance proration rule, the company's share is 70% and the policyholder's share is 30%. (Sec. 13519) This section modifies the requirements for the capitalization of policy acquisition expenses of insurance companies to extend the amortization period from 120 months to 180 months. Under current law, policy acquisition expenses are determined as that portion of the insurance company's general deductions for the taxable year that does not exceed a specified percentage of the net premiums for the year on each of three categories of insurance contracts. The bill increases these percentages from 1.75% to 2.09% for annuity contracts, from 2.05% to 2.45% for group life insurance contracts, and from 7.7% to 9.2% for all other specified insurance contracts. (Sec. 13520) This section establishes reporting requirements for acquisitions of life insurance contracts in a reportable policy sale. It also imposes reporting requirements on the payor in the case of the payment of reportable death benefits. A &quot;reportable policy sale&quot; is the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. (Sec. 13521) This section sets forth requirements for the determining the basis of a life insurance or annuity contract. The bill specifies that no basis adjustment shall be made for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract. (Sec. 13522) This section exempts the transfer of a life insurance contract, or any interest therein, in a reportable policy sale from the transfer for valuable consideration rule. (Under current law, the transfer for valuable consideration rule provides that, if a life insurance contract or an interest in a contract is transferred for a valuable consideration, the tax exclusion for amounts received under a life insurance contract due to the death of the insured is limited to the sum of the actual value of the consideration and the premiums and other amounts subsequently paid by the transferee.) (Sec. 13523) This section modifies the reserve discounting rules applicable to property and casualty insurance companies to: (1) modify the interest rate used to discount unpaid losses, (2) modify the computational rules for loss payment pattern, and (3) repeal the election to use a taxpayer's historical loss payment pattern. Subpart C--Banks and Financial Instruments (Sec. 13531) This section limits the deduction for Federal Deposit Insurance Corporation premiums for certain financial institutions with consolidated assets that exceed $10 billion. (Sec. 13532) This section repeals the exclusion from gross income for interest on a bond issued to advance refund another bond. Subpart D--S Corporations (Sec. 13541) This section allows a nonresident alien individual to be a qualifying beneficiary of an electing small business trust (ESBT), which is a type of trust that is permitted to hold shares in an S corporation. (Sec. 13542) This section specifies that the charitable contribution deduction of an ESBT is determined by the rules applicable to individuals rather than the rules applicable to trusts, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. (Sec. 13543) This section modifies the tax treatment of S corporation conversions to C corporations. Part VII--Employment Subpart A--Compensation (Sec. 13601) This section modifies a provision that limits the deduction for compensation of covered employees of a publicly held corporation to salaries of no more than $1 million per year. The bill: (1) repeals the performance-based compensation and commission exceptions, (2) modifies the definition of &quot;covered employee,&quot; and (3) expands the definition of &quot;publicly held corporation.&quot; The bill includes an exception for compensation that is provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. (Sec. 13602) This section imposes an excise tax on excess tax-exempt organization executive compensation. The tax is equal to the product of the corporate tax rate (21% under this bill) and the sum of: (1) any remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and (2) any excess parachute payment (separation pay), as specified in the bill. (Sec. 13603) This section allows qualified employees to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer. Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) is one of the four highest compensated officers of the corporation or has been during any of the 10 preceding taxable years. (Sec. 13604) This section increases from 15% to 20% the excise tax imposed on the value of stock compensation held by insiders of an expatriated corporation. Subpart B--Retirement Plans (Sec. 13611) This section repeals the rule that allows Individual Retirement Arrangement (IRA) contributions to one type of IRA (traditional or Roth) to be recharacterized as a contribution to the other type of IRA. (Sec. 13612) This section increases the limit on accruals that is required for length of service award plans (LOSAPs) for bona fide volunteers to be exempt from treatment as a deferred compensation plan. (Under current law, plans paying solely length of service awards to bona fide volunteers or their beneficiaries on the account of firefighting and prevention services, emergency medical services, and ambulance services performed by the volunteers are not treated as deferred compensation plans if they meet certain requirements. One of the requirements is a limit on the aggregate amount of length of service awards that may accrue with respect to any year of service for any bona fide volunteer.) The bill modifies the limit on accruals to: (1) increase the limit from $3,000 to $6,000; and(2) provide for a cost-of-living adjustment to the limit after 2017. In the case of LOSAPs that are defined benefit plans, the limit applies to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Actuarial present value is to be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant's age at the time of the calculation. (Sec. 13613) This section extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution. A &quot;qualified plan loan offset amount&quot; is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the severance from employment of the participant. Part VIII--Exempt Organizations (Sec. 13701) This section imposes a 1.4% excise tax on the net investment income of certain private colleges and universities. (Sec. 13702) This section requires tax-exempt organizations with more than one unrelated trade or business to calculate unrelated business taxable income separately with respect to each trade or business and without regard to a specified deduction that applies for certain unrelated business taxable income. (Sec. 13703) This section includes in unrelated business taxable income of a tax-exempt organization any expenses paid or incurred by the organization for certain fringe benefits for which a deduction is not allowed under section 274 of the IRC, including qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility. (Sec. 13704) This section modifies the deduction for charitable contributions to prohibit a charitable deduction for college athletic event seating rights. (Sec. 13705) This section modifies the deduction for charitable contributions to repeal the exception to substantiation requirements for certain contributions reported by the donee organization. Part IX--Other Provisions Subpart A--Craft Beverage Modernization and Tax Reform (Sec. 13801) This section excludes the aging periods for beer, wine, and distilled spirits from the production period for purposes of the uniform interest capitalization rules, which allows the producers to deduct interest expenses attributable to a shorter production period. This section does not apply to interest costs paid or accrued after December 31, 2019. (Sec. 13802) This section lowers the excise tax rate on beer to $16 per barrel on the first six million barrels brewed by the brewer or imported by the importer. For barrels of beer that have been brewed or produced outside of the United States and imported into the United States, the reduced tax rate may be assigned by the brewer to the importer, subject to specified requirements. (Sec. 13803) This section allows the transfer of beer between bonded facilities without payment of tax if specified requirements are met. (Sec. 13804) This section modifies the credit against the excise tax on wine for small domestic for 2018 and 2019 to: make the credit available to all wine producers and importers by removing the 250,000 wine gallon domestic production limitation; establish credit rates of: (1) $1.00 per wine gallon for the first 30,000 wine gallons of wine, plus; (2) 90 cents per wine gallon on the next 100,000 wine gallons of wine, plus; (3) 53.5 cents per wine gallon on the next 620,000 wine gallons of wine; establish adjusted credit rates for hard cider; and make sparkling wine producers and importers eligible for the credit. The bill also allows importers of wine produced outside of the United States to assign the credit to the foreign producer, subject to specified requirements. (Sec. 13805) The section modifies the alcohol-by-volume levels of the first two tiers of the excise tax on wine, by changing 14% to 16%. Under the provision, a wine producer or importer may produce or import still wine that has an alcohol-by-volume level of up to 16% and remain subject to the lowest rate of $1.07 per wine gallon. (Sec. 13806) This section specifies definitions for &quot;mead&quot; and &quot;low alcohol by volume wine&quot; that are eligible to be taxed at the lowest applicable rate for still wine. (Sec. 13807) This section reduces the excise tax rate for certain distilled spirits in 2018 and 2019 to: $2.70 per proof gallon on the first 100,000 proof gallons, $13.34 for all proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 for amounts thereafter. Members of the same controlled group may not receive the lower rate on more than 100,000 proof gallons of distilled spirits. Importers of distilled spirits are eligible for the lower rates. (Sec. 13808) This section allows distillers to transfer spirits in approved containers other than bulk containers in bond without payment of tax. This provision applies to distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020. Subpart B--Miscellaneous Provisions (Sec. 13821) This section modifies the tax treatment of Alaska Native Settlement Trusts, to: (1) allow an Alaska Native Corporation to assign certain payments referenced in the Alaska Native Claims Settlement Act to a trust without including the payments in the gross income of the corporation, (2) allow the corporation to elect annually to deduct contributions made to a trust, (3) allow a trust to elect to defer the recognition of gains related to contributions of property other than cash until the sale or exchange of the property, and (4) establish information reporting requirements for deductible contributions to a trust. (Sec. 13822) This section exempts certain payments related to the management of private aircraft from the excise taxes imposed on taxable transportation by air. (Sec. 13823) This section authorizes the designation of opportunity zones in low-income communities and provides various tax incentives for investments in the zones. Taxpayers may temporarily defer the recognition of capital gains that are invested in opportunity zones. Investments in opportunity zones or opportunity funds that are held for at least five years are eligible for capital gains tax reductions or exemptions, depending on how long the investment is held. Subtitle D--International Tax Provisions Under current law, the earnings of foreign subsidiaries of U.S. multinational corporations are not taxed until the income is repatriated (paid as dividends) into the United States. The corporations are allowed a tax credit against U.S. taxes for taxes paid to foreign jurisdictions. This subtitle establishes a territorial system in which foreign source income is not subject to regular U.S. taxes. Part I--Outbound Transactions Subpart A--Establishment of Participation Exemption System for Taxation of Foreign Income (Sec. 14101) This section establishes a participation exemption system for foreign income. Under the system, the bill allows a 100% deduction for the foreign-source portion of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations. A &quot;specified 10% owned foreign corporation&quot; is any foreign corporation with respect to which any domestic corporation is a U.S. shareholder. It does not include a passive foreign investment company that is not a controlled foreign corporation (CFC). No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to any dividend for which a deduction is allowed under this section. The bill establishes a one-year holding period requirement for dividends of a domestic corporation to be eligible for a participation dividends received deduction. (Sec. 14102) This section sets forth requirements for the tax treatment of sales or transfers involving specified 10% owned foreign corporations, including (1) sales by U.S. persons of stock, (2) required reductions in the basis of certain foreign stock, and (3) sales by a CFC of a lower-tier CFC, (4) foreign branch loess transferred to specified 10% owned foreign corporations, and (5) the repeal of the active trade or business exception. (Sec. 14103) This section specifies rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. For the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, U.S. shareholders of deferred foreign income corporations must include as subpart F income a pro rata share of the accumulated post-1986 deferred foreign income of the corporation. The bill allows a deduction for a portion of the pro rata share of foreign earnings. The bill also disallows a corresponding portion of the credit for foreign taxes. The total amount of deductions permitted is the amount necessary to result in tax rates of 15.5% for accumulated post-1986 foreign earnings held in the form of cash or cash equivalents and 8% rate for all other earnings. The tax may be paid in installments over eight years. The bill specifies rules for applying this provision to S corporations and real estate investment trusts. Subpart B--Rules Related to Passive and Mobile Income Chapter 1--Taxation Of Foreign-Derived Intangible Income And Global Intangible Low-Taxed Income (Sec. 14201) This section requires a U.S. shareholder of any CFC for any taxable year to include in gross income the shareholder's global intangible low-taxed income for the year. The bill specifies a formula and requirements for calculating global intangible low-taxed income. (Sec. 14202) This section allows deductions for domestic corporations for specified portions of the corporation's foreign-derived intangible income and global intangible low-taxed income, using specified formulas and definitions included in the bill. Chapter 2--Other Modifications Of Subpart F Provisions (Sec. 14211) This section repeals provisions that treat foreign base company oil related income as category of subpart F income. (Sec. 14212) This section repeals the requirement for a U.S. shareholder in a CFC that invested previously excluded subpart F income in foreign base company shipping operations to include in income a pro rata share of the previously excluded subpart F income when the CFC decreases the investments (Sec. 14213) This section modifies the stock attribution rules for determining status as a CFC. Certain stock of a foreign corporation owned by a foreign person must be attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation. (Sec. 14214) This section expands the definition of U.S. shareholder under subpart F to include any U.S. person who owns 10% or more of the total value of shares of all classes of stock of a foreign corporation. (Sec. 14215) This section eliminates the requirement for a corporation to be controlled for an uninterrupted period of 30 days before subpart F inclusions apply. Chapter 3--Prevention Of Base Erosion (Sec. 14221) This section modifies terms and valuation methods that apply to transfers of intangible property. The bill modifies the definition of &quot;intangible property&quot; to include: (1) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions [contractual or otherwise] of its employment); or (2) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. The bill removes a requirement that the item have substantial value independent of the services of an individual to be considered intangible property. The bill specifies authorities and requirements for Treasury to specify the method to be used to determine the valuation of transfers of intangible property. (Sec. 14222) This section denies a deduction for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. A &quot;disqualified related party amount&quot; is any interest or royalty paid or accrued to a related party to the extent that: (1) the amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (2) the related party is allowed a deduction with respect to such amount under the tax law of such country. The term does include any payment to the extent such payment is included in the gross income of a U.S. shareholder under this bill. A &quot;hybrid transaction&quot; is any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties under this bill and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. A &quot;hybrid entity&quot; is any entity which is either: (1) treated as fiscally transparent under this bill but not for the purposes of the tax law of the foreign country of which the entity is a resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this bill (Sec. 14223) Shareholders who receive dividends from a foreign corporation that first becomes a surrogate corporation after enactment of this bill are ineligible for the reduced rates for qualified dividends. Subpart C--Modifications Related to Foreign Tax Credit System (Sec. 14301) This section repeals the deemed-paid credit with respect to dividends received by a domestic corporation that owns 10% or more of the voting stock of a foreign corporation. The bill allows a deemed-paid credit with respect to any income inclusion under subpart F. The credit is limited to the amount of foreign income taxes properly attributable to the subpart F inclusion. (Sec. 14302) This section requires foreign branch income to be allocated to a specific foreign tax credit basket. Foreign branch income is the business profits of a U.S. person which are attributable to one or more qualified business units in one or more foreign countries. (Sec. 14303) This section requires gains, profits, and income from the sale or exchange of inventory property produced partly in, and partly outside, the United States to be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property. (Sec. 14304) This section allows an election to increase the percentage (but not greater than 100%) of domestic taxable income offset by any pre-2018 unused overall domestic loss and recharacterized as foreign source. A &quot;Pre-2018 unused overall domestic loss'' is any overall domestic loss which: (1) arises in a qualified taxable year beginning before January 1, 2018, and (2) has not been used under the general rule for the recharacterization of overall domestic loss. Part II--Inbound Transactions (Sec. 14401) This section imposes on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year and specifies a formula for calculating the tax. An &quot;applicable taxpayer&quot; is a taxpayer who: (1) is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation; (2) has average annual gross receipts of at least $500 million for the three-year period ending with the preceding year; and (3) has a base erosion percentage, as determined using a specified formula, of at least 3% (2% for certain banks and securities dealers). Part III--Other Provisions (Sec. 14501) This section modifies the exception from the passive foreign investment company rules for insurance businesses. The bill replaces the test based on whether a corporation is predominantly engaged in an insurance business with a test based on the corporation's insurance liabilities. (Sec. 14502) This section specifies that all allocations and apportionments of interest expense must be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. TITLE II (Sec. 20001) The Department of the Interior must establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. The bill specifies that the provision in the Alaska National Interest Lands Conservation Act that prohibits the production of oil and gas from ANWR does not apply to the Coastal Plain. Interior must conduct at least two lease sales within 10 years. Each lease sale must contain: (1) at least 400,000 acres, and (2) areas that have the highest potential for the discovery of hydrocarbons. Interior must also: (1) issue any necessary rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation associated with the oil and gas program; and (2) authorize up to 2,000 surface acres of federal land on the Coastal Plain to be covered by production and support facilities during the term of the leases under the oil and gas program. (Sec. 20002) This section amends the Gulf of Mexico Energy Security Act of 2006 to temporarily increase the annual limitation on offshore revenue sharing for the states of Alabama, Louisiana, Mississippi, and Texas from $500 million annually for FY2020 and FY2021, to $650 million annually for those two years. (Sec. 20003) The Department of Energy (DOE) must: (1) draw down and sell seven million barrels of crude oil from the Strategic Petroleum Reserve during FY2026-FY2027, (2) deposit the amounts received from the sale in the Treasury, and (3) stop the drawdown or sale of crude oil after $600 million has been deposited in the Treasury. DOE may not drawdown or sell oil under this section in quantity that would limit the authority to direct a drawdown and sale of petroleum products to address a domestic or international energy supply shortage.